<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1996
REGISTRATION NO. 333-01693
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
THE ROUSE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
MARYLAND
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
52-0735512
(I.R.S. EMPLOYER IDENTIFICATION NO.)
10275 LITTLE PATUXENT PARKWAY
COLUMBIA, MARYLAND 21044-3456
(410) 992-6000
(ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
BRUCE I. ROTHSCHILD
VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
10275 LITTLE PATUXENT PARKWAY
COLUMBIA, MARYLAND 21044-3456
(410) 992-6400
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
ARTHUR FLEISCHER, JR., P.C. DAVID G. ELKINS
FRIED, FRANK, HARRIS, SHRIVER & ANDREWS & KURTH L.L.P.
JACOBSON 4200 TEXAS COMMERCE TOWER
ONE NEW YORK PLAZA HOUSTON, TEXAS 77002
NEW YORK, NEW YORK 10004 (713) 220-4200
(212) 859-8000 ---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective and all other
conditions to the merger (the "THC Merger") of The Hughes Corporation ("THC")
with and into a wholly owned subsidiary of the registrant pursuant to the
Agreement and Plan of Merger described in the enclosed Proxy
Statement/Prospectus have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value................. 60,000,000 N/A $127,965,000 $44,125.86
- --------------------------------------------------------------------------------------------------
Increasing Rate
Cumulative Preferred
Stock, $0.01 par
value(3).............. 10,000,000 N/A N/A N/A
- --------------------------------------------------------------------------------------------------
Contractual Rights(4).. -- N/A N/A N/A
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes certain shares of the registrant's Common Stock and Increasing
Rate Cumulative Preferred Stock which may be issued based upon formulas
set forth in the Contingent Stock Agreement entered into in connection
with the THC Merger.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended,
based upon the book value of the THC common stock to be exchanged in the
THC Merger.
(3) Under certain circumstances, the registrant's Increasing Rate Cumulative
Preferred Stock may be issued instead of the registrant's Common Stock
pursuant to the Contingent Stock Agreement. No additional consideration
will be received for the registrant's Increasing Rate Cumulative Preferred
Stock.
(4) In connection with the THC Merger, contractual rights to receive the
registrant's Common Stock or, under certain circumstances, the
registrant's Increasing Rate Cumulative Preferred Stock will be issued. No
additional consideration will be received for these contractual rights.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
THE ROUSE COMPANY
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM OF FORM S-4 LOCATION IN PROSPECTUS
---------------- ----------------------
A.INFORMATION ABOUT THE TRANSACTION
<S> <C>
1.Forepart of Registration
Statement and Outside Front
Cover Page of Proxy Outside Front Cover Page of Proxy
Statement/Prospectus....... Statement/Prospectus
2. Inside Front and Outside
Back Cover Pages of Proxy Inside Front Cover Page of Proxy
Statement/Prospectus........ Statement/Prospectus; Available
Information; Table of Contents
3.Risk Factors and Other Outside Front Cover Page of Proxy
Information................ Statement/Prospectus; Summary; The Rouse
Company; The Hughes Corporation; Risk
Factors; The Mergers; The THC Merger
Agreement; The Partnership Merger
Agreement; The Contingent Stock Agreement;
The Contractual Rights; Certain Federal
Income Tax Consequences
4.Terms of the Transaction..... Outside Front Cover Page of Proxy
Statement/Prospectus; Summary; The Special
Meeting; Background and Reasons for the
Mergers; The Mergers; The THC Merger
Agreement; The Partnership Merger
Agreement; The Contingent Stock Agreement;
The Contractual Rights; Description of
Rouse Common Stock; Description of Rouse
Preferred Stock; Comparative Rights of
Rouse Stockholders and THC Stockholders
5.Pro Forma Financial Summary; Unaudited Pro Forma Condensed
Information................ Combined Financial Statements
6.Material Contracts with the
Company Being Acquired..... Summary; The Mergers; The THC Merger
Agreement; The Partnership Merger
Agreement; The Contingent Stock Agreement;
The Contractual Rights; Description of
Rouse Common Stock; Description of Rouse
Preferred Stock
7.Additional Information
Required for Reoffering by
Persons and Parties Deemed
to be Underwriters......... *
8.Interests of Named Experts
and Counsel................ Legal Matters
9.Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................ *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM S-4 LOCATION IN PROSPECTUS
---------------- ----------------------
B. INFORMATION ABOUT THE REGISTRANT
<S> <C>
10. Information with Respect to
S-3 Registrants............. *
11. Incorporation of Certain
Information by Reference.... *
12. Incorporation with Respect
to S-2 or S-3 Registrants... *
13. Incorporation of Certain
Information by Reference.... *
14. Information with Respect to
Registrants other than S-3
or S-2 Registrants.......... Outside Front Cover Page of Proxy
Statement/Prospectus; Summary; The Rouse
Company; Selected Financial Data of Rouse;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of Rouse; Management of Rouse
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to
S-3 Companies............... *
16. Information with Respect to
S-2 or S-3 Companies........ *
17. Information with Respect to
Companies other than S-3 or
S-2 Companies............... Outside Front Cover Page of Proxy
Statement/Prospectus; Summary; The Hughes
Corporation; Selected Historical
Consolidated Financial Data of THC;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of THC; Principal Stockholders
and Unitholders of THC and HHPLP
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies,
Consents or Authorizations
are to be Solicited......... Outside Front Cover Page of Proxy
Statement/Prospectus; Summary; The Special
Meeting; The Mergers; The THC Merger
Agreement; The Partnership Merger
Agreement; The Contingent Stock Agreement;
The Contractual Rights; Management of
Rouse; Principal Stockholders and
Unitholders of THC and HHPLP
19. Information if Proxies,
Consents or Authorizations
are not to be Solicited in
an Exchange Offer........... *
</TABLE>
- --------
* Not applicable or answer is negative.
<PAGE>
THE HUGHES CORPORATION
HOWARD HUGHES PROPERTIES, LIMITED PARTNERSHIP
3800 HOWARD HUGHES PARKWAY
LAS VEGAS, NEVADA 89109
May 14, 1996
Dear Stockholders and Unitholders:
A joint special meeting (the "Special Meeting") of the stockholders (the
"Stockholders") of The Hughes Corporation ("THC") and of the unitholders (the
"Unitholders") of Howard Hughes Properties, Limited Partnership ("HHPLP"),
will be held on Wednesday, June 12, 1996, at 9:00 a.m., local time, at McDade
Auditorium, Texas Commerce Center, 601 Travis, Houston, Texas:
At the Special Meeting, Stockholders will be asked to vote upon a proposal
to approve a merger agreement pursuant to which THC would be merged (the "THC
Merger") with and into TRC Acquisition Company I, a wholly owned subsidiary of
The Rouse Company ("Rouse"). In the THC Merger, the outstanding shares of
common stock, par value $1.00 per share, of THC ("THC Common Stock") would be
converted into:
(i) an initial number of shares of the Common Stock, par value $0.01 per
share, of Rouse ("Rouse Common Stock") to be issued upon consummation of
the THC Merger with an aggregate value of approximately $176.4 million,
subject to certain adjustments (plus an additional number of shares to
reflect the amount of dividends and distributions made after January 1,
1996 with respect to such shares); and
(ii) contractual rights to receive additional shares of Rouse Common Stock
or, under certain circumstances, shares of a new series of preferred
stock, par value $0.01 per share, of Rouse, to be issued during a 14-
year period following the consummation of the THC Merger based upon (a)
the cash flow generated from certain assets of THC and its subsidiaries
until certain specified appraisal dates, and (b) the appraised value of
such assets on the applicable appraisal date, as described beginning on
page 32 of the Proxy Statement/Prospectus;
provided that a portion of the aggregate consideration in the THC Merger will
be paid in cash if and only to the extent that the initial number of shares of
Rouse Common Stock issuable upon consummation of the THC Merger would exceed
19.9% of the number of shares of Rouse Common Stock issued and outstanding
immediately prior to the THC Merger. THC does not anticipate that the number
of shares will exceed 19.9% of the issued and outstanding Rouse Common Stock.
At the Special Meeting, Unitholders will be asked to consider and vote upon
a proposal to approve a merger agreement pursuant to which TRC Acquisition
Company II, a wholly owned subsidiary of Rouse, would be merged (the
"Partnership Merger" and, together with the THC Merger, the "Mergers") with
and into HHPLP. In the Partnership Merger, the outstanding Class 1 Limited
Partnership Units of HHPLP (the "Class 1 Units") would be converted into the
right to receive an aggregate amount in cash, subject to certain adjustments,
which together with a Special Distribution (as described in the Proxy
Statement/Prospectus) to be paid in cash to Unitholders immediately prior to
the consummation of the Partnership Merger, is estimated to be approximately
$130 million.
The Mergers will result in the termination of the existing Stockholder
Agreement among the principal Stockholders and Unitholders.
<PAGE>
After careful consideration, the Boards of Directors of THC and The Howard
Hughes Corporation, the general partner of HHPLP (the "Joint Boards"), have
unanimously approved the Mergers described in the attached Proxy
Statement/Prospectus and the transactions contemplated thereby and have
concluded that they are fair to and in the best interests of the Stockholders
and Unitholders, respectively. Accordingly, the Joint Boards unanimously
recommend a vote in favor of the Mergers.
In the material accompanying this letter, you will find a Notice of Joint
Special Meeting of Stockholders and Unitholders, a Proxy Statement/Prospectus
relating to the actions to be taken by Stockholders and Unitholders at the
Special Meeting and a proxy card. The Proxy Statement/ Prospectus more fully
describes the proposed Mergers and includes information about THC, HHPLP and
Rouse and the reasons for the Mergers.
All Stockholders and Unitholders are cordially invited to attend the Special
Meeting in person. However, whether or not you plan to attend the Special
Meeting, please complete, sign, date and return your proxy in the enclosed
envelope. If you attend the Special Meeting, you may vote in person if you
wish, even if you have previously returned your proxy. It is important that
your shares of THC Common Stock and your Class 1 Units be represented and
voted at the Special Meeting.
Sincerely,
/s/ John L. Goolsby
John L. Goolsby
President and Chief Executive
Officer
<PAGE>
THE HUGHES CORPORATION
HOWARD HUGHES PROPERTIES, LIMITED PARTNERSHIP
3800 HOWARD HUGHES PARKWAY
LAS VEGAS, NEVADA 89109
NOTICE OF JOINT SPECIAL MEETING OF STOCKHOLDERS OF
THE HUGHES CORPORATION AND OF UNITHOLDERS OF
HOWARD HUGHES PROPERTIES, LIMITED PARTNERSHIP
To the Stockholders and Unitholders:
A joint special meeting (the "Special Meeting") of the stockholders of The
Hughes Corporation, a Delaware corporation ("THC"), and of the unitholders of
Howard Hughes Properties, Limited Partnership, a Delaware limited partnership
("HHPLP"), will be held on Wednesday, June 12, 1996, at 9:00 a.m., local time,
at McDade Auditorium, Texas Commerce Center, 601 Travis, Houston, Texas, to
consider and vote upon the following proposals:
STOCKHOLDERS OF THC
1. A proposal to approve a merger agreement pursuant to which THC would be
merged (the "THC Merger") with and into TRC Acquisition Company I, a Delaware
corporation and a wholly owned subsidiary of The Rouse Company, a Maryland
corporation ("Rouse"). In the THC Merger, the outstanding shares of common
stock, par value $1.00, of THC ("THC Common Stock"), other than shares held by
The Howard Hughes Corporation ("THHC"), would be converted into (i) an initial
number of shares of the Common Stock, par value $0.01 per share, of Rouse
("Rouse Common Stock") to be issued upon consummation of the THC Merger with
an aggregate value (based upon the average closing prices of Rouse Common
Stock for the 30 consecutive trading days ending five days prior to closing)
of $176,400,000, subject to certain adjustments (plus an additional number of
shares to reflect the amount of dividends and distributions made after January
1, 1996 with respect to such shares), and (ii) contractual rights to receive
additional shares of Rouse Common Stock or, under certain circumstances,
shares of a new series of preferred stock, par value $0.01 per share, of Rouse
to be issued during a 14-year period following the consummation of the THC
Merger based upon the cash flow generated from, and the appraised value of,
certain assets of THC and its subsidiaries; provided that a portion of the
aggregate consideration in the THC Merger will be paid in cash if and to the
extent that the initial number of shares of Rouse Common Stock issuable upon
consummation of the THC Merger would exceed 19.9% of the number of shares of
Rouse Common Stock issued and outstanding prior to the THC Merger. The vote at
the Special Meeting, in person or by proxy, to approve the THC Merger shall be
deemed also to constitute a vote to approve the Contingent Stock Agreement to
be entered into by Rouse in connection therewith.
2. Such other business as may lawfully come before the Special Meeting.
UNITHOLDERS OF HHPLP
1. A proposal to approve a merger agreement pursuant to which TRC
Acquisition Company II, a Delaware corporation and an indirect wholly owned
subsidiary of Rouse, would be merged (the "Partnership Merger" and, together
with the THC Merger, the "Mergers") with and into HHPLP. In the Partnership
Merger, the outstanding Class 1 Limited Partnership Units of HHPLP
(collectively, the "Class 1 Units") would be converted into the right to
receive an aggregate amount in cash, subject to certain adjustments, equal to
(i) the sum of (a) the aggregate amount of cash, bank deposits, marketable
securities and other cash equivalents on hand (collectively, "cash") of HHPLP
and its affiliates as of December 31, 1995 plus (b) HHPLP's pro rata portion
of the aggregate amount of cash held by each entity in which HHPLP owned a
minority interest as of December 31, 1995 plus (c) $1,702,931 for that certain
promissory note received by HHPLP in connection with the sale of its Park 2000
property plus (d) $764,500, such amount representing one-half of the value of
the parcel located in the Hughes Center in Las Vegas, Nevada which was ground
leased by HHPLP to a third party plus (e) $40,000,000 (which sum of the
amounts in clauses (a)-(e) is estimated to be approximately
<PAGE>
$185,000,000), together with interest on such amounts from January 1, 1996
until the effective time of the Partnership Merger (the "Interim Period")
minus (ii) the sum of (x) the aggregate amount of all dividends and other
distributions with respect to the Class 1 Units and the THC Common Stock
declared and paid or payable after December 31, 1995 (excluding the Special
Distribution (as defined below)) plus (y) the amount of cash attributable to
minority interests in majority owned subsidiaries of THC plus (z) certain
expenses incurred by THC and its subsidiaries in connection with the Mergers,
together with interest on some such amounts minus (iii) an amount equal to a
special distribution in cash (the "Special Distribution") to be made by HHPLP
in respect of the Class 1 Units immediately prior to the effective time of the
Partnership Merger plus (iv) an amount equal to 25% of the taxable income of
HHPLP allocated to the Class 1 Units with respect to the Interim Period. The
Special Distribution will be in an amount equal to the lesser of (i) the
aggregate amount of cash held immediately prior to the effective time of the
Partnership Merger by HHPLP, THC and their respective subsidiaries and
available for distribution to the holders of the Class 1 Units and (ii) the
Adjusted Cash Value (as defined in the accompanying Proxy
Statement/Prospectus) minus $5 million. The aggregate amount of consideration
to be received by Unitholders in the Partnership Merger, if approved, is
estimated to be $130 million. The vote at the Special Meeting, in person or by
proxy, to approve the Partnership Merger shall be deemed also to constitute a
vote to approve the Special Distribution.
2. Such other business as may lawfully come before the Special Meeting.
Holders of record of THC Common Stock ("Stockholders") and holders of record
of Class 1 Units ("Unitholders") at the close of business on May 2, 1996 are
entitled to notice of, and to vote at, the Special Meeting and any and all
adjournments or postponements thereof. Under applicable Delaware law,
Stockholders who vote against the THC Merger and who properly perfect their
rights will be entitled to dissenters' appraisal rights in connection with the
THC Merger. Under applicable Delaware law and the relevant organizational
documents of HHPLP, Unitholders will not be entitled to dissenters' appraisal
rights in connection with the Partnership Merger.
The accompanying Proxy Statement/Prospectus is being sent to each record
owner of THC Common Stock or Class 1 Units and each beneficial owner of THC
Common Stock or Class 1 Units known to THC or HHPLP. Reference is made to the
Proxy Statement/Prospectus for a more complete description of the Mergers. As
a record owner of THC Common Stock or Class 1 Units you are requested to
complete, date and sign the enclosed proxy card and return it promptly in the
enclosed prepaid envelope whether or not you intend to attend the Special
Meeting. Your proxy may be revoked in the manner described in the accompanying
Proxy Statement/Prospectus at any time before it has been voted at the Special
Meeting.
By Order of the Boards of Directors
of
The Hughes Corporation and
The Howard Hughes Corporation,
as General Partner of HHPLP
/s/ Michael C. Niarchos
By:__________________________________
Michael C. Niarchos, Secretary
Las Vegas, Nevada
May 14, 1996
PLEASE PROMPTLY EXECUTE AND RETURN THE ENCLOSED PROXY IF YOU ARE A RECORD
OWNER OF THC COMMON STOCK OR CLASS 1 UNITS, WHETHER OR NOT YOU INTEND TO BE
PRESENT AT THE SPECIAL MEETING.
2
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROXY STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN +
+OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY +
+SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR +
+SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE +
+SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 14, 1996
THE ROUSE COMPANY THE HUGHES CORPORATION
PROXY STATEMENT/PROSPECTUS
This Proxy Statement/Prospectus relates to (i) the proposed merger (the "THC
Merger") of The Hughes Corporation, a Delaware corporation ("THC"), with and
into TRC Acquisition Company I, a Delaware corporation ("Merger Sub") and a
wholly owned subsidiary of The Rouse Company, a Maryland corporation ("Rouse"),
pursuant to the Agreement and Plan of Merger, dated as of February 22, 1996, as
amended May 1, 1996 and May 13, 1996, by and among THC, Rouse and Merger Sub
(as amended, the "THC Merger Agreement") and (ii) the proposed merger (the
"Partnership Merger" and, together with the THC Merger, the "Mergers") of TRC
Acquisition Company II, a Delaware corporation ("Partnership Merger Sub") and
an indirect wholly owned subsidiary of Rouse, with and into Howard Hughes
Properties, Limited Partnership, a Delaware limited partnership ("HHPLP") whose
sole general partner is The Howard Hughes Corporation, a Delaware corporation
("THHC") and a wholly owned subsidiary of THC, pursuant to the Agreement and
Plan of Merger, dated as of February 22, 1996, as amended May 1, 1996 and May
13, 1996, by and among HHPLP, Rouse and Partnership Merger Sub (as amended, the
"Partnership Merger Agreement").
As a result of the THC Merger, if approved, each share of Common Stock, par
value $1.00 per share, of THC ("THC Common Stock") outstanding at the Effective
Time (as defined below), other than shares held by THHC, will be converted into
the right to receive, subject to certain adjustments:
(a) the number of shares of Common Stock, par value $0.01 per share, of
Rouse ("Rouse Common Stock") (rounded to the nearest thousandth of a share)
determined by dividing (i) the sum of (x) the quotient obtained by dividing
(1) $176,400,000 by (2) the total number of shares of THC Common Stock
outstanding at the Effective Time, excluding shares held by THHC, plus (y)
the product of (1) the sum of all dividends and distributions on a share of
Rouse Common Stock having a record date during the period from January 1,
1996 to the later of (A) the closing date of the Mergers (the "Closing
Date"), and (B) the date shares of Rouse Common Stock are registered in the
names of the former holders of THC Common Stock (or their designees) on the
stock transfer records of Rouse (the "Aggregate Rouse Dividends") times (2)
the number of shares of Rouse Common Stock per share of THC Common Stock
determined by dividing the quotient obtained pursuant to subclause (i)(x)
above by the Average Closing Price (as defined below) by (ii) the average of
the closing prices (the "Average Closing Price") of Rouse Common Stock on
the New York Stock Exchange Composite Tape for the 30 consecutive trading
days ending five days prior to the Closing Date (the "Exchange Ratio"); and
(b) contractual rights (the "Contractual Rights") to receive additional
shares of Rouse Common Stock or, under certain circumstances, shares of a
new series of Preferred stock, par value $0.01 per share, of Rouse
("Increasing Rate Preferred Stock") to be issued during a 14-year period
following the consummation of the THC Merger based upon the cash flow
generated from, and the appraised value of, certain assets of THC and its
subsidiaries;
provided, however, that if the Exchange Ratio as computed above would result in
the issuance in the THC Merger of a number of shares of Rouse Common Stock
exceeding 19.9% of the total number of shares of Rouse Common Stock issued and
outstanding as of 4:00 p.m., New York City time, on the business day next
preceding the Closing Date (the "Total Rouse Common Stock"), then, in lieu of
the consideration specified in clause (a) above, each share of THC Common Stock
will be converted into the right to receive (i) the number of shares of Rouse
Common Stock determined by using an Exchange Ratio (the "Maximum Exchange
Ratio") which results in the issuance of an aggregate number of shares of Rouse
Common Stock equal to 19.9% of the Total Rouse Common Stock (the "Maximum
Shares of Rouse Common Stock") and (ii) cash, without interest, in an amount
determined by dividing (x) the sum of (1) $176,400,000 less an amount equal to
the product of (A) the Maximum Shares of Rouse Common Stock times (B) the
Average Closing Price plus (2) an amount equal to the product of (A) the
Aggregate Rouse Dividends times (B) the Maximum Shares of Rouse Common Stock by
(y) the total number of shares of THC Common Stock outstanding at the Effective
Time, excluding shares held by THHC. Notwithstanding the foregoing, (i) THC has
the right to terminate the THC Merger Agreement if the Average Closing Price as
computed above is greater than $23.00 (the "Ceiling Amount") unless, within two
business days after receipt of notice of THC's election to terminate, Rouse
notifies THC of Rouse's agreement to fix the Average Closing Price at the
Ceiling Amount and (ii) Rouse has the right to terminate the THC Merger
Agreement if the Average Closing Price as computed above is less than $18.00
(the "Floor Amount") unless, within two business days after receipt of notice
of Rouse's election to terminate, THC notifies Rouse of THC's agreement to fix
the Average Closing Price at the Floor Amount. Rouse and THC currently
anticipate that the closing of the THC Merger will occur on the day immediately
following the date of the Special Meeting. Accordingly, if the closing occurs
as anticipated, the Exchange Ratio will be fixed on the fourth day immediately
preceding the date of the Special Meeting. See "SUMMARY--The THC Merger and the
THC Merger Agreement--Terms of the THC Merger," "THE THC MERGER AGREEMENT"--
Manner and Basis of Converting Shares," "SUMMARY--Contingent Stock Agreement;
The Contractual Rights" and "THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL
RIGHTS."
Based on the number of shares of Rouse Common Stock and THC Common Stock
(excluding the shares held by THHC) outstanding as of the Record Date (as
defined below), and assuming, solely for the purpose of illustration, (i) an
Average Closing Price of $22.171 (which is equal to the average of the closing
prices of Rouse Common Stock on the NYSE for the 30 consecutive trading days
ending prior to the date of this Proxy Statement/Prospectus), and (ii)
(continued on next page)
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 32 FOR A DISCUSSION OF CERTAIN FACTORS
TO BE CONSIDERED IN EVALUATING THE MERGERS.
----------
THE SECURITIES TO BE ISSUED IN THE THC MERGER 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 PROXY
STATEMENT/ 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 THE OFFERING TO WHICH THIS PROXY STATEMENT/PROSPECTUS
RELATES. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
----------
The date of this Proxy Statement/Prospectus is May 14, 1996.
<PAGE>
(continued from previous page)
Aggregate Rouse Dividends of $.22 per share of Rouse Common Stock, the
Exchange Ratio would be 120.893 and, therefore, approximately 8,035,274 shares
of Rouse Common Stock would be issuable in the THC Merger pursuant to clause
(a) above, representing approximately 14.277% of the Total Rouse Common Stock
to be outstanding after such issuance. Based on the assumptions set forth in
the preceding sentence (and valuing the shares of Rouse Common Stock at such
assumed Average Closing Price), the holders of THC Common Stock (the
"Stockholders") would receive $2,680.319 worth of Rouse Common Stock for each
share of THC Common Stock. The foregoing example is provided solely for
purposes of illustration and is not intended as a prediction of the actual
Average Closing Price, which will be determined based on the 30 consecutive
trading days ending five days prior to the Closing Date. Moreover, the value
of shares of Rouse Common Stock on the date such shares are actually received
by the Stockholders may be more or less than the Average Closing Price. The
closing price of Rouse Common Stock on the NYSE on May 13, 1996, the last
trading day prior to the date of this Proxy Statement/Prospectus, was $23.75.
Stockholders may call Rouse toll-free at (800) 871-3259 at any time prior to
the Special Meeting to obtain the Exchange Ratio computed on the basis of the
average of relevant closing prices reported as of a recent date.
THHC currently holds 37,362 shares of THC Common Stock. In the THC Merger,
each share of THC Common Stock held by THHC at the Effective Time will be
converted into the right to receive one share of Junior Preferred Stock, 1996
Series, par value $0.01 per share, of Rouse ("Rouse Junior Preferred Stock").
In the Partnership Merger, the outstanding Class 1 limited partnership units
of HHPLP ("Class 1 Units") will be converted into the right to receive an
aggregate amount in cash, subject to certain adjustments, equal to:
(i) the sum of (v) the aggregate amount of cash, bank deposits,
marketable securities and other cash equivalents on hand (collectively,
"cash") of HHPLP and its affiliates as of December 31, 1995 plus (w)
HHPLP's pro rata portion of the aggregate amount of cash held by each
entity in which HHPLP owned a minority interest as of December 31, 1995
plus (x) $1,702,931 for that certain promissory note received by HHPLP in
connection with the sale of its Park 2000 property plus (y) $764,500, such
amount representing one-half of the value of the parcel located in the
Hughes Center in Las Vegas, Nevada which was ground leased by HHPLP to a
third party plus (z) $40,000,000, which sum of the amounts in subclauses
(v)-(z) above is estimated to be approximately $185,000,000, together with
interest on such sum (less the amount described in subclause (ii)(y) below)
at a rate of 5% per annum (the "Applicable Rate") from January 1, 1996
until the effective time of the Partnership Merger (the "Partnership
Effective Time") (the "Interim Period") minus
(ii) the sum of (x) the aggregate amount of all dividends and other
distributions with respect to the Class 1 Units and the THC Common Stock
declared and paid or payable after December 31, 1995 (subject to certain
limitations and excluding the Special Distribution described below) plus
(y) the amount of cash attributable to minority interests in majority-owned
subsidiaries of THC plus (z) certain expenses incurred by THC and its
subsidiaries in connection with the Mergers, together with, in the case of
subclauses (ii)(x) and (ii)(z) above, interest thereon at the Applicable
Rate from the date of payment to the Partnership Effective Time minus
(iii) an amount equal to a special distribution in cash (the "Special
Distribution") to be made by HHPLP in respect of the Class 1 Units
immediately prior to the Partnership Effective Time plus
(iv) an amount equal to 25% of the taxable income of HHPLP allocated to
the Class 1 Units with respect to the Interim Period (the "Value
Adjustment").
The Special Distribution will be in an amount equal to the lesser of (i) the
aggregate amount of cash held immediately prior to the Partnership Effective
Time by HHPLP, THC and their respective subsidiaries and available for
distribution to the holders of the Class 1 Units (the "Unitholders") and (ii)
the Adjusted Cash Value (as defined below) minus $5,000,000. The aggregate
amount of consideration to be received by Unitholders in the Partnership
Merger, if approved, is estimated to be $130,000,000.
It is a condition to the consummation of the THC Merger that the Partnership
Merger be consummated simultaneously with the consummation of the THC Merger.
Accordingly, if the Partnership Merger is not consummated, the THC Merger will
not be consummated. See "SUMMARY--The Partnership Merger" and "SUMMARY--The
THC Merger and the THC Merger Agreement--Certain Conditions to the
Consummation of the THC Merger," "THE PARTNERSHIP MERGER AGREEMENT--Conditions
to the Partnership Merger" and "THE THC MERGER AGREEMENT--Conditions to the
THC Merger."
This Proxy Statement/Prospectus is being furnished to Stockholders (other
than THHC) and Unitholders in connection with the solicitation of proxies by
the Board of Directors of THC and by THHC, as sole general partner of HHPLP,
for use at a joint special meeting of Stockholders and Unitholders to be held
on June 12, 1996 (the "Special Meeting"). At the Special Meeting, Stockholders
will be asked to approve and adopt the THC Merger Agreement and Unitholders
will be asked to approve and adopt the Partnership Merger Agreement.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to Stockholders and Unitholders on or about May 15, 1996.
This Proxy Statement/Prospectus also constitutes a prospectus of Rouse with
respect to (i) up to approximately 9,600,000 shares of Rouse Common Stock to
be issued pursuant to the THC Merger Agreement in exchange for currently
outstanding shares of THC Common Stock and any additional shares of THC Common
Stock that may become outstanding prior to the THC Merger, (ii) Contractual
Rights to be received in the THC Merger by the Holders (as defined below) in
accordance with their respective ownership interests in THC immediately prior
to the Effective Time which entitle the Holders to receive certain future
distributions of Rouse Common Stock and/or Increasing Rate Preferred Stock as
provided in the Contingent Stock Agreement to be entered into by Rouse for the
benefit of the Holders and the Representatives (as defined below) (the
"Contingent Stock Agreement") and (iii) up to 50,400,000 additional shares of
Rouse Common Stock and/or 10,000,000 shares of Increasing Rate Preferred Stock
which may be issued in connection with the Contractual Rights in the future.
The 50,400,000 shares of Rouse Common Stock and the 10,000,000 shares of
Increasing Rate Preferred Stock registered do not reflect an estimate of the
number of shares that probably will be issued under the Contingent Stock
Agreement. Rather, a sufficiently large number of shares has been registered
to cover future distributions under the Contingent Stock Agreement even if (i)
the cash flow generated from, and the appraised value of, the assets with
respect to which shares are deliverable were to substantially exceed expected
amounts and (ii) the price of Rouse Common Stock were to decline
substantially. See "DESCRIPTION OF ROUSE COMMON STOCK" and "DESCRIPTION OF
ROUSE PREFERRED STOCK--Increasing Rate Preferred Stock." The shares of Rouse
Common Stock issued pursuant to the THC Merger (including any issued under the
Contingent Stock Agreement) will be listed on the New York Stock Exchange (the
"NYSE").
On May 13, 1996, the closing price of Rouse Common Stock, as reported on the
NYSE Composite Tape, was $23.75. There are presently no shares of Increasing
Rate Preferred Stock issued and outstanding, and accordingly, no trading
market for such shares exists.
The date of this Proxy Statement/Prospectus is May 14, 1996.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES
MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ROUSE, MERGER SUB, PARTNERSHIP
MERGER SUB, THC, THHC OR HHPLP. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED HEREBY
SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS NOT BEEN
ANY CHANGE IN THE AFFAIRS OF ROUSE, THC, THHC OR HHPLP SINCE THE DATE HEREOF
OR THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION OF AN OFFER OR PROXY SOLICITATION.
----------------
THIS PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN SUCH FORWARD-LOOKING
STATEMENTS DUE TO A VARIETY OF FACTORS. SEE "RISK FACTORS," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
ROUSE" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THC."
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 and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by Rouse can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, reports, proxy statements and other information concerning
Rouse may be inspected at the offices of the NYSE, 20 Broad Street, New York,
New York 10005.
Rouse has filed with the Commission a Registration Statement on Form S-4
(together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Rouse Common Stock and the Increasing
Rate Preferred Stock to be issued pursuant to the THC Merger Agreement and the
Contingent Stock Agreement, of which this Proxy Statement/Prospectus
constitutes a part. The information contained herein with respect to Rouse and
its affiliates, including Merger Sub and Partnership Merger Sub, has been
provided by Rouse, and the information contained herein with respect to THC
and its affiliates, including THHC and HHPLP, has been provided by THC. This
Proxy Statement/Prospectus does not contain all of the information set forth
in the Registration Statement, certain parts of which were omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement. Any
statements contained herein concerning the provisions of any document filed as
an exhibit to the Registration Statement or otherwise filed with the
Commission are not necessarily complete, and in each instance reference is
made to the copy of such document so filed. Each such statement is qualified
in its entirety by such reference.
3
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TABLE OF CONTENTS
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AVAILABLE INFORMATION..................................................... 3
SUMMARY................................................................... 9
The Companies........................................................... 9
The Special Meeting..................................................... 10
Background and Reasons for the Mergers ................................. 12
The THC Merger and the THC Merger Agreement............................. 14
The Partnership Merger and the Partnership Merger Agreement............. 20
The Contingent Stock Agreement; The Contractual Rights.................. 22
Certain Federal Income Tax Consequences................................. 25
Accounting Treatment.................................................... 25
Appraisal Rights........................................................ 25
Exchange of THC Common Stock Certificates and Class 1 Units............. 26
Comparative Rights of Rouse Stockholders and THC Stockholders........... 26
Risk Factors............................................................ 27
Market Price and Dividend Data of Rouse Common Stock.................... 27
Summary Financial Data of Rouse......................................... 28
Summary Historical Consolidated Financial Data of THC................... 29
Summary Pro Forma Condensed Combined Financial Information of Rouse..... 30
Comparative Per Share Data.............................................. 31
RISK FACTORS.............................................................. 32
Risks Relating to the Contingent Stock Agreement, the Contingent Shares
and the Contingent Preferred Shares.................................... 32
Dilution Resulting from the Mergers..................................... 33
Real Estate Development and Investment Risks............................ 33
Recent Operating Results and Other Data and Capital Structure of Rouse.. 37
Additional Risks Relating to the Business of Hughes .................... 37
Forward-Looking Statements and Associated Risks......................... 39
THE ROUSE COMPANY......................................................... 40
Operating Properties.................................................... 40
Land Sales.............................................................. 41
Development and Acquisition Activities.................................. 41
Projects of Rouse....................................................... 42
Leased Properties....................................................... 48
Competition............................................................. 48
Seasonality............................................................. 49
Regulation.............................................................. 49
Customers............................................................... 49
Employees............................................................... 49
Legal Proceedings....................................................... 49
Merger Sub and Partnership Merger Sub................................... 50
THE HUGHES CORPORATION.................................................... 51
Overview................................................................ 51
Las Vegas Properties.................................................... 55
Los Angeles Properties.................................................. 60
Investment Properties................................................... 65
Business Strategy and Investment Policies............................... 66
Notes and Mortgages..................................................... 68
The Las Vegas and Los Angeles Markets................................... 69
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Environmental Matters and Government Regulation......................... 70
Competition............................................................. 72
Legal Proceedings....................................................... 74
Employees............................................................... 74
THE SPECIAL MEETING....................................................... 75
Date, Time and Place.................................................... 75
Purposes of the Special Meeting......................................... 75
Record Date and Outstanding Shares...................................... 75
Voting and Revocation of Proxies........................................ 75
Quorum; Vote Required................................................... 76
Mechanics of the Vote................................................... 76
Matters Deemed Adopted, Approved or Ratified by Stockholders and
Unitholders............................................................ 77
Solicitation of Proxies................................................. 77
Other Matters........................................................... 77
BACKGROUND AND REASONS FOR THE MERGERS.................................... 78
Background.............................................................. 78
Allocation of Consideration Between the Mergers......................... 81
Opinion of Hughes' Financial Advisor.................................... 82
Recommendations of the Boards of Directors of THC and of THHC, as
General Partner........................................................ 87
Interests of Certain Persons in the Mergers............................. 89
THE MERGERS............................................................... 91
Description of the Mergers.............................................. 91
Board Arrangements...................................................... 91
Accounting Treatment.................................................... 91
Governmental and Regulatory Approvals and Matters....................... 91
Restrictions on Resales................................................. 92
Dissenters' Rights...................................................... 93
Other Related Transactions.............................................. 95
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................... 96
Introduction............................................................ 96
The THC Merger.......................................................... 96
The Partnership Merger.................................................. 103
THE THC MERGER AGREEMENT.................................................. 105
Effective Time of the THC Merger........................................ 105
Manner and Basis of Converting Shares................................... 105
Conditions to the THC Merger............................................ 107
Representations and Warranties.......................................... 108
Certain Covenants; Conduct of Business Prior to the THC Merger.......... 110
No Solicitation......................................................... 111
Termination............................................................. 111
Termination Fees........................................................ 112
Amendment............................................................... 112
Indemnification and Insurance........................................... 112
THC Employee Benefit Plans.............................................. 113
Hughes Name............................................................. 114
Stockholder Agreement................................................... 114
THE PARTNERSHIP MERGER AGREEMENT.......................................... 115
Generally; Effect of the Partnership Merger............................. 115
Effective Time of the Partnership Merger................................ 115
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Approval of the Partnership Merger..................................... 115
Conversion of Class 1 Units............................................ 115
Payment Procedures..................................................... 118
Representations and Warranties......................................... 119
Conditions to the Partnership Merger................................... 119
Termination............................................................ 120
Amendment.............................................................. 120
Goolsby HHPLP Payment.................................................. 120
THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS................... 121
Generally.............................................................. 121
The Business Units..................................................... 121
Distributions of Contingent Shares Based Upon Cash Flow................ 123
Distributions of Contingent Shares Based Upon Appraised Value.......... 127
Failure to Deliver Contingent Shares................................... 129
Rouse Stockholder Approval............................................. 129
Contingent Preferred Shares............................................ 129
Review Committee....................................................... 130
Representatives........................................................ 130
Events of Default...................................................... 131
Covenants of Rouse and the Business Unit Entities...................... 133
Limitation on Covenants and Agreements................................. 135
Capitalization of Business Units....................................... 135
Loans and Advances..................................................... 136
Abandonment of Assets.................................................. 137
Board Representation................................................... 137
Representations and Warranties......................................... 138
Financial and Other Information to be Provided by Rouse................ 138
Consolidation and Mergers; Successors.................................. 139
Dispute Resolution..................................................... 140
Amendments and Waiver.................................................. 141
SELECTED FINANCIAL DATA OF ROUSE......................................... 142
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF ROUSE.................................................. 143
General................................................................ 143
Operating Results...................................................... 143
Financial Condition, Liquidity and Capital Resources................... 147
Possible Acquisition of The Hughes Corporation......................... 149
New Accounting Standards............................................... 149
Impact of Inflation.................................................... 149
Factors Affecting Future Operating Results............................. 149
MANAGEMENT OF ROUSE...................................................... 150
Directors and Executive Officers....................................... 150
Addition of Director and Executive Officer as a Result of the Mergers.. 153
Compensation of Executive Officers..................................... 153
Options and Stock Appreciation Rights.................................. 155
Employment Arrangements................................................ 156
Indebtedness of Executive Officers..................................... 156
Directors' Fees and Other Transactions................................. 158
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Compensation Committee Interlocks and Insider Participation............ 158
Hughes Executive Compensation.......................................... 159
Hughes--Certain Transactions........................................... 160
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF THC................... 161
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF THC.................................................... 162
Introduction........................................................... 162
Stockholder Agreement.................................................. 163
Liquidity and Capital Resources........................................ 163
Results of Operations.................................................. 166
Factors Affecting Future Operating Results............................. 170
PRINCIPAL STOCKHOLDERS AND UNIT HOLDERS OF THC AND HHPLP................. 171
THCP................................................................... 172
RD&C................................................................... 173
The 9.5 Trust.......................................................... 173
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS ............. 175
DESCRIPTION OF ROUSE COMMON STOCK........................................ 182
General................................................................ 182
Dividend Rights........................................................ 182
Voting Rights.......................................................... 182
Liquidation Rights..................................................... 182
Preemptive Rights...................................................... 182
Special Statutory Requirements for Certain Transactions................ 182
Transfer Agent and Registrar........................................... 183
DESCRIPTION OF ROUSE PREFERRED STOCK..................................... 184
General................................................................ 184
Increasing Rate Preferred Stock........................................ 184
Series A Preferred Stock............................................... 188
Rouse Junior Preferred Stock........................................... 190
COMPARATIVE RIGHTS OF ROUSE STOCKHOLDERS AND THC STOCKHOLDERS............ 192
Authorized Capital..................................................... 192
Dividends.............................................................. 192
Preemptive Rights...................................................... 193
Quorum................................................................. 193
Voting Rights.......................................................... 193
Action Without a Meeting............................................... 193
Proxies................................................................ 194
No Cumulative Voting................................................... 194
Power to Call Special Meeting.......................................... 194
Number of Directors; Classification.................................... 194
Election and Tenure of Directors....................................... 195
Removal of Directors................................................... 195
Vacancy on the Board and Newly Created Directorships................... 196
Limitation on Liability................................................ 196
Indemnification of Directors and Officers.............................. 196
Amendment of By-Laws................................................... 198
Amendment of Charter................................................... 198
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Business Combinations................................................... 198
Business Combinations With Certain Stockholders......................... 199
Control Share Acquisitions.............................................. 199
Appraisal Rights........................................................ 199
EXPERTS................................................................... 200
LEGAL MATTERS............................................................. 200
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF ROUSE....................... F-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF THC......................... F-32
APPENDICES:
A -- Composite Agreement and Plan of Merger, dated as of February 22, 1996,
as amended May 1, 1996 and May 13, 1996, by and among The Hughes
Corporation, The Rouse Company and TRC Acquisition Company I
B -- Composite Agreement and Plan of Merger, dated as of February 22, 1996,
as amended May 1, 1996 and May 13, 1996, by and among Howard Hughes
Properties, Limited Partnership, The Rouse Company and TRC Acquisition
Company II
C -- Fairness Opinion of Morgan Stanley Realty Incorporated, dated May 14,
1996
D -- Form of Contingent Stock Agreement, effective as of January 1, 1996, to
be entered into by The Rouse Company in favor of and for the benefit of
the Holders and the Representatives
E -- Form of Registration Rights Agreement, by and among The Rouse Company
and THC Partners
F -- Delaware General Corporation Law Section 262
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8
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROXY STATEMENT/PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS
PROXY STATEMENT/PROSPECTUS AND IN THE APPENDICES HERETO. STOCKHOLDERS OF THC
AND UNITHOLDERS OF HHPLP ARE URGED TO READ CAREFULLY THIS PROXY
STATEMENT/PROSPECTUS AND THE APPENDICES HERETO IN THEIR ENTIRETY. AS USED IN
THIS PROXY STATEMENT/PROSPECTUS, UNLESS OTHERWISE REQUIRED BY THE CONTEXT, THE
TERM "ROUSE" MEANS THE ROUSE COMPANY AND ITS CONSOLIDATED SUBSIDIARIES, AND THE
TERM "HUGHES" MEANS THE HUGHES CORPORATION ("THC"), THE HOWARD HUGHES
CORPORATION ("THHC"), HOWARD HUGHES PROPERTIES, LIMITED PARTNERSHIP ("HHPLP")
AND THEIR RESPECTIVE SUBSIDIARIES. INFORMATION IN THIS PROXY
STATEMENT/PROSPECTUS REGARDING ROUSE HAS BEEN FURNISHED BY ROUSE AND HAS NOT
BEEN INDEPENDENTLY VERIFIED BY THC. INFORMATION IN THIS PROXY
STATEMENT/PROSPECTUS REGARDING HUGHES HAS BEEN FURNISHED BY THC AND HAS NOT
BEEN INDEPENDENTLY VERIFIED BY ROUSE.
THE COMPANIES
ROUSE, MERGER SUB AND PARTNERSHIP MERGER SUB
Rouse is one of the largest publicly traded real estate companies in the
United States. Rouse develops, acquires, owns and manages rental properties
across the United States. At March 1, 1996, 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. See "THE ROUSE COMPANY."
Each of TRC Acquisition Company I ("Merger Sub") and TRC Acquisition Company
II ("Partnership Merger Sub") is a Delaware corporation and a direct or
indirect wholly owned subsidiary of Rouse. Neither has engaged in any business
other than in connection with the THC Merger Agreement or the Partnership
Merger Agreement, as the case may be.
The principal executive office of Rouse is located at 10275 Little Patuxent
Parkway, Columbia, Maryland 21044-3456 and its telephone number is (410) 992-
6000. The principal executive offices of Merger Sub and Partnership Merger Sub
are located at 913 North Market Street, Suite 411, Wilmington, Delaware 19801
and their telephone number is (302) 421-7364.
THC, THHC AND HHPLP
Hughes is a vertically integrated real estate investment, management and
development company whose assets are located principally in the Las Vegas,
Nevada metropolitan area and, to a lesser extent, in the Los Angeles,
California metropolitan area. Hughes' real estate assets consist of (i) office
buildings, mixed-use industrial properties, and retail centers which produce
rental revenues ("rental properties"), (ii) land under development
("development properties") and (iii) land planned for, but not currently under,
development and surplus land that Hughes intends to sell as market conditions
permit ("investment properties"). As of December 31, 1995, Hughes (including
its consolidated joint ventures) owned approximately 4.0 million rentable
square feet (including ground leases) 3,155 acres of development properties and
approximately 16,263 acres of investment properties. See "THE HUGHES
CORPORATION."
9
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THC owns all of the outstanding capital stock of THHC, which is the general
partner (the "General Partner") and holder of approximately 52% of the
outstanding partnership interests in HHPLP.
The principal executive offices of THC, THHC and HHPLP are located at 3800
Howard Hughes Parkway, Las Vegas, Nevada 89109 and their telephone number is
(702) 791-4000.
THE SPECIAL MEETING
DATE, TIME AND PLACE
The joint special meeting (the "Special Meeting") of the holders (other than
THHC) (the "Stockholders") of Common Stock, par value $1.00 per share, of THC
("THC Common Stock") and the holders (the "Unitholders") of Class 1 limited
partnership units of HHPLP ("Class 1 Units") will be held on Wednesday, June
12, 1996, at McDade Auditorium, Texas Commerce Center, 601 Travis, Houston,
Texas, commencing at 9:00 a.m. local time. See "THE SPECIAL MEETING--Date, Time
and Place."
PURPOSES OF THE SPECIAL MEETING
The purposes of the Special Meeting are to consider and vote upon (i) (x) in
the case of the Stockholders, a proposal to approve and adopt the THC Merger
Agreement (as defined below) and (y) in the case of the Unitholders, a proposal
to approve and adopt the Partnership Merger Agreement (as defined below), and
(ii) such other matters as may properly be brought before the Stockholders or
Unitholders, as the case may be, at the Special Meeting. The vote of a
Stockholder to approve the THC Merger Agreement shall be deemed also to
constitute a vote to approve the Contingent Stock Agreement (as defined below).
The vote of a Unitholder to approve the Partnership Merger Agreement shall be
deemed also to constitute a vote to approve the Special Distribution (as
defined below). See "THE SPECIAL MEETING--Purposes of the Special Meeting."
RECORD DATE; SHARES ENTITLED TO VOTE
Only Stockholders of record at the close of business on May 2, 1996 (the
"Record Date") are entitled to notice of and to vote at the Special Meeting
with respect to matters relating to THC. On such date, there were 66,466 shares
of THC Common Stock outstanding (excluding shares held by THHC), each of which
will be entitled to one vote on each matter to be acted upon at the Special
Meeting by the Stockholders.
Only Unitholders of record at the close of business on the Record Date are
entitled to notice of and to vote at the Special Meeting with respect to
matters relating to HHPLP. On such date, there were 10,000,000 Class 1 Units
outstanding, each of which will be entitled to one vote on each matter to be
acted upon at the Special Meeting by the Unitholders.
See "THE SPECIAL MEETING--Record Date and Outstanding Shares."
QUORUM; VOTE REQUIRED
The presence, in person or by proxy, at the Special Meeting of the holders of
a majority of the shares of THC Common Stock outstanding and entitled to vote
at the Special Meeting is necessary to constitute a quorum at the meeting with
respect to matters relating to THC. The affirmative vote of the holders of a
majority of the shares of THC Common Stock outstanding and entitled to vote
thereon at the Special Meeting is required under the Delaware General
Corporation Law (the "DGCL") to approve and adopt the THC Merger Agreement.
The presence, in person or by proxy, at the Special Meeting of the holders of
a majority of the Class 1 Units outstanding and entitled to vote at the Special
Meeting is necessary to constitute a quorum at the meeting with respect to
matters relating to HHPLP. Although under the terms of the Sixth Amended and
Restated Agreement of Limited Partnership of HHPLP only the vote of THHC, as
10
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General Partner of HHPLP, is required to approve the Partnership Merger
Agreement and no vote of holders of Class 1 Units is required, the consummation
of the Partnership Merger (as defined below) is conditioned upon the approval
of the Partnership Merger Agreement by the holders of a majority of the
outstanding Class 1 Units.
THC Partners, a Texas general partnership ("THCP"), is the record owner of
approximately 70.9% of the outstanding shares of THC Common Stock and
approximately 70.9% of the outstanding Class 1 Units. Accordingly, THCP has the
ability to control both the vote of the Stockholders to approve the THC Merger
Agreement and the vote of the General Partner and the Unitholders to approve
the Partnership Merger Agreement. The managing partners of THCP have advised
THC that THCP will vote the shares of THC Common Stock and Class 1 Units held
by THCP with respect to the proposals to approve the Merger Agreements (as
defined below) in accordance with the expressed desire of the majority in
interest of its partners.
See "THE SPECIAL MEETING--Voting and Revocation of Proxies," "THE SPECIAL
MEETING--Quorum; Voting" and "THE SPECIAL MEETING--Solicitation of Proxies."
MECHANICS OF THE VOTE
Certain Stockholders and Unitholders may vote the shares of THC Common Stock
or the Class 1 Units that they hold of record only pursuant to the instructions
of the beneficial holders of such interests as and to the extent set forth in
the governing instruments of such Stockholders and Unitholders. Accordingly, in
connection with the vote of such Stockholders and Unitholders, the underlying
vote of such beneficial holders will be solicited. Such beneficial holders will
be provided with a copy of this Proxy Statement/Prospectus, all other materials
provided to the Stockholders and the Unitholders and certain other materials.
See "THE SPECIAL MEETING--Mechanics of the Vote" and "PRINCIPAL STOCKHOLDERS
AND UNITHOLDERS OF THC AND HHPLP."
MATTERS DEEMED ADOPTED, APPROVED OR RATIFIED BY STOCKHOLDERS AND UNITHOLDERS
Approval of the THC Merger Agreement and the Partnership Merger Agreement as
described above will constitute the adoption, approval and ratification by the
Stockholders and the Unitholders of:
(a) the execution, delivery and performance of the THC Merger Agreement,
the Partnership Merger Agreement and the Contingent Stock Agreement and the
transactions contemplated thereby;
(b) all actions taken by or on behalf of THC, HHPLP and/or THHC in
connection with the THC Merger Agreement, the Partnership Merger Agreement,
the Contingent Stock Agreement and the transactions contemplated thereby;
and
(c) with respect to the Contingent Stock Agreement, (i) the appointment
of the Representatives (as defined below), (ii) all actions taken or
omitted, or to be taken or omitted, by or on behalf of the Representatives,
pursuant to the terms of the Contingent Stock Agreement, (iii) the
establishment of the Escrow Account (as defined in the Contingent Stock
Agreement) and the withdrawal and disbursement of funds on deposit therein
and (iv) the exercise by the Representatives of all of the powers, rights,
privileges and remedies conferred, or purported to be conferred, upon them
under the Contingent Stock Agreement.
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SECURITY OWNERSHIP OF MANAGEMENT
As of the Record Date, the directors and executive officers of THC and THHC
beneficially owned approximately 5.6% of the outstanding shares of THC Common
Stock and Class 1 Units entitled to vote at the Special Meeting. Each of the
directors and executive officers of THC and THHC has advised THC and THHC that
he or she plans to vote or to direct the vote of all shares of THC Common Stock
or Class 1 Units beneficially owned by him or her and entitled to vote thereon
in favor of the THC Merger Agreement or the Partnership Merger Agreement, as
the case may be. See "THE SPECIAL MEETING--Quorum; Vote Required."
BACKGROUND AND REASONS FOR THE MERGERS
BACKGROUND OF THE MERGERS
The Board of Directors of THC (the "THC Board") and the Board of Directors of
THHC (the "THHC Board" and, together with the THC Board, the "Joint Boards"),
whose members are identical, determined that the Mergers (as defined below)
would be in the best interests of the Stockholders and the Unitholders and, in
addition, would provide the Stockholders and the Unitholders an opportunity to
realize the fair value of their investment as contemplated by the Stockholder
Agreement, dated as of June 1, 1989, among the principal owners of THC's
capital stock (the "Stockholder Agreement"). See "BACKGROUND AND REASONS FOR
THE MERGERS--Background."
OPINION OF HUGHES' FINANCIAL ADVISOR
On March 13, 1995, THHC, individually and on behalf of its subsidiaries and
affiliates, retained Morgan Stanley Realty Incorporated ("Morgan Stanley") to
provide investment banking and financial advisory services relating to the
objectives set forth in the Stockholder Agreement, including the potential for
providing liquidity for the Stockholders and the Unitholders. In connection
with its engagement by THHC, Morgan Stanley agreed to render an opinion as to
whether the Mergers would be fair from a financial point of view to the
Stockholders and Unitholders.
On February 21, 1996, Morgan Stanley delivered to the Joint Boards its oral
opinion that (i) the consideration to be paid in the THC Merger (as defined
below) is fair, from a financial point of view, to the Stockholders and (ii)
the consideration to be paid in the Partnership Merger is fair, from a
financial point of view, to the Unitholders. Morgan Stanley subsequently
confirmed its oral opinion by delivery of a written opinion dated May 14, 1996,
which is set forth in full as Appendix C to this Proxy Statement/Prospectus and
should be read in its entirety. This opinion is subject to certain limitations
and assumptions stated therein. See "BACKGROUND AND REASONS FOR THE MERGERS--
Opinion of Hughes' Financial Advisor."
RECOMMENDATIONS OF THC'S AND THHC'S BOARDS OF DIRECTORS
The THC Board believes that the terms of the THC Merger are fair to and in
the best interests of THC and the Stockholders, has unanimously approved the
THC Merger Agreement and recommends that the Stockholders vote in favor of the
proposal to approve the THC Merger Agreement. THHC, as General Partner of
HHPLP, based upon the unanimous approval of the THHC Board, believes that the
terms of the Partnership Merger are fair to and in the best interests of HHPLP
and the Unitholders, has approved the Partnership Merger Agreement and
recommends that the Unitholders vote in favor of the proposal to approve the
Partnership Merger Agreement. In making the determinations described above, the
Joint Boards had access to, among other things, the analysis and advice
referred to in "BACKGROUND AND REASONS FOR THE MERGERS" and relied upon the
opinion of Morgan
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Stanley regarding the fairness of the Mergers from a financial point of view to
the Stockholders and the Unitholders. See "BACKGROUND AND REASONS FOR THE
MERGERS--Opinion of Hughes' Financial Advisor."
In considering the recommendation of the Joint Boards with respect to the
Mergers, Stockholders and Unitholders should be aware that certain officers and
directors of THC and THHC have certain interests respecting the Mergers, apart
from their interests as Stockholders and Unitholders. See "BACKGROUND AND
REASONS FOR THE MERGERS--Interests of Certain Persons in the Mergers."
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
Certain officers or directors of THC or THHC may be deemed to have certain
interests in connection with the Mergers, apart from their interests as
Stockholders or Unitholders.
Mr. Goolsby, the President and Chief Executive Officer of THC and a director
of each of THC and THHC, will be employed by Rouse after the Mergers. In
addition, William R. Lummis, a director of THC and THHC, will be a director of
Rouse after the Mergers. Platt W. Davis, III and Kenneth E. Studdard, directors
of THC and THHC, will be Representatives (as defined below) designated under
the Contingent Stock Agreement.
The THC Board approved incentive bonuses aggregating approximately $3,000,000
for THC's eight executive officers, other than John L. Goolsby ("Goolsby"),
subject to the consummation of the Mergers. Because such executive officers of
THC will not be entitled to such incentive bonuses unless the Mergers are
consummated, such executive officers have an interest in the approval of the
Merger Agreements. In addition, in connection with the Mergers, the qualified
defined benefit plan of THC, the Summa Corporation Benefit Restoration Plan and
the Summa Corporation Supplemental Savings Plan will be terminated. The
terminations of such plans will result in the lump-sum payment of benefits
estimated to aggregate approximately $1,140,000 to these eight executive
officers. The estimated amounts payable pursuant to such plans are based on
certain assumptions (including assumed interest rates), and the actual amounts
paid may differ significantly from the estimates. Also, in connection with the
Mergers, HHPLP's Long-term Incentive Plan and Annual Incentive Compensation
Plan will be terminated. All benefits relating to these plans, including a pro
rata amount for 1996, will be paid at closing. The estimated amount to be paid
to the eight executive officers under such plans is $1,490,000. Since such
executive officers would not be entitled to payment of such amounts, if at all,
until a later date absent the consummation of the Mergers, such executive
officers have an interest in the approval of the Merger Agreements.
Mr. Goolsby holds phantom interests in THC Common Stock and Class 1 Units
under the Goolsby Incentive Agreement (as defined below) which entitle him to
0.8% of the Rouse Common Stock and cash payments (including with respect to the
Special Distribution) to be distributed to the Stockholders and Unitholders in
connection with the Mergers. In addition, Mr. Goolsby will receive payment of
certain deferred non-vested amounts (approximately $526,000) credited under the
Goolsby Incentive Agreement for "phantom distributions" made by the Hughes
entities through January 1996 with respect to his phantom interests. Mr.
Goolsby may receive approximately $136,000 in connection with the termination
of the Annual Incentive Compensation Plan. At the request of Rouse, Mr. Goolsby
entered into an agreement, dated February 27, 1996, with Rouse, THC and HHPLP
pursuant to which Rouse will make a $2,000,000 cash payment to Mr. Goolsby and
Rouse will receive an assignment of Mr. Goolsby's remaining rights under the
Goolsby Incentive Agreement, including any rights to future distributions that
Mr. Goolsby would otherwise be entitled to under the Contingent Stock
Agreement. As a result of the termination of the qualified defined benefit plan
of THC, the Summa Corporation
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Benefit Restoration Plan and the Summa Corporation Supplemental Savings Plan,
Mr. Goolsby will receive lump-sum distributions from these plans estimated to
be approximately $730,000. The estimated amounts, payable pursuant to such
plans, are based on certain assumptions (including assumed interest rates), and
the actual amounts paid may differ significantly from the estimates. Since the
current payment of the amounts noted above is dependent on the consummation of
the Mergers, Mr. Goolsby has an interest in the approval of the Merger
Agreements. Accordingly, Mr. Goolsby has an interest in the approval of the
Merger Agreements.
In connection with the Mergers, William R. Lummis, Elmer Vacchina and Vernon
C. Olson, directors of each of THC and THHC, and Robert E. Morrison, an
executive officer of each of THC and THHC, will be entitled to cash payments of
$235,000, $360,000, $359,000 and $235,000, respectively. Messrs. Lummis and
Olson will also be entitled to receive approximately $144,000 and $730,000,
respectively, as a result of the termination of the Summa Corporation Benefit
Restoration Plan. Since the current payment of these amounts is dependent on
the consummation of the Mergers, each of these individuals has an interest in
the approval of the Merger Agreements. See "BACKGROUND AND REASONS FOR THE
MERGERS--Interests of Certain Persons in the Mergers."
THE THC MERGER AND THE THC MERGER AGREEMENT
TERMS OF THE THC MERGER
Pursuant to an Agreement and Plan of Merger, dated as of February 22, 1996,
as amended May 1, 1996 and May 13, 1996, among THC, Rouse and Merger Sub (the
"THC Merger Agreement"), at the Effective Time (as defined below), THC will
merge with and into Merger Sub (the "THC Merger"), with Merger Sub being the
surviving corporation (the "Surviving Corporation"). In the THC Merger, each
share of THC Common Stock outstanding at the Effective Time, other than shares
held by THHC, will be converted into the right to receive, subject to certain
adjustments:
(a) the number of shares of Common Stock, par value $0.01 per share of
Rouse ("Rouse Common Stock"), (rounded to the nearest thousandth of a
share), determined by dividing (i) the sum of (x) the quotient obtained by
dividing (1) $176,400,000 by (2) the total number of shares of THC Common
Stock outstanding at the Effective Time, excluding shares held by THHC,
plus (y) the product of (1) the sum of all dividends and distributions on a
share of Rouse Common Stock having a record date during the period from
January 1, 1996 to the later of (A) the closing date of the Mergers (the
"Closing Date") and (B) the date shares of Rouse Common Stock are
registered in the names of the former holders of THC Common Stock (or their
designees) on the stock transfer records of Rouse (the "Aggregate Rouse
Dividends") times (2) the number of shares of Rouse Common Stock per share
of THC Common Stock determined by dividing the quotient obtained pursuant
to subclause (i)(x) above by the Average Closing Price (as defined below)
by (ii) the average of the closing prices (the "Average Closing Price") of
Rouse Common Stock on the New York Stock Exchange (the "NYSE") Composite
Tape for the 30 consecutive trading days ending five days prior to the
Closing Date (the "Exchange Ratio"); and
(b) contractual rights (the "Contractual Rights") to receive additional
shares of Rouse Common Stock or, under certain circumstances, shares of a
new series of Preferred stock, par value $0.01 per share, of Rouse
("Increasing Rate Preferred Stock") to be issued during a 14-year period
following the consummation of the THC Merger based upon the cash flow
generated from, and the appraised value of, certain assets of THC and its
subsidiaries;
provided, however, that if the Exchange Ratio as computed above would result in
the issuance in the THC Merger of a number of shares of Rouse Common Stock
exceeding 19.9% of the total number of
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shares of Rouse Common Stock issued and outstanding as of 4:00 p.m., New York
City time, on the business day next preceding the Closing Date (the "Total
Rouse Common Stock"), then, in lieu of the consideration specified in clause
(a) above, each share of THC Common Stock will be converted into the right to
receive (i) the number of shares of Rouse Common Stock determined by using an
Exchange Ratio (the "Maximum Exchange Ratio") which results in the issuance of
an aggregate number of shares of Rouse Common Stock equal to 19.9% of the Total
Rouse Common Stock (the "Maximum Shares of Rouse Common Stock") and (ii) cash,
without interest, in an amount determined by dividing (x) the sum of (1)
$176,400,000 less an amount equal to the product of (A) the Maximum Shares of
Rouse Common Stock times (B) the Average Closing Price plus (2) an amount equal
to the product of (A) the Aggregate Rouse Dividends times (B) the Maximum
Shares of Rouse Common Stock by (y) the total number of shares of THC Common
Stock outstanding at the Effective Time, excluding the shares held by THHC (the
"Alternative Consideration"). Notwithstanding the foregoing, (i) THC has the
right to terminate the THC Merger Agreement if the Average Closing Price as
computed above is greater than $23.00 (the "Ceiling Amount") unless, within two
business days after receipt of notice of THC's election to terminate, Rouse
notifies THC of Rouse's agreement to fix the Average Closing Price at the
Ceiling Amount and (ii) Rouse has the right to terminate the THC Merger
Agreement if the Average Closing Price as computed above is less than $18.00
(the "Floor Amount") unless, within two business days after receipt of notice
of Rouse's election to terminate, THC notifies Rouse of THC's agreement to fix
the Average Closing Price at the Floor Amount. Rouse and THC currently
anticipate that the closing of the THC Merger will occur on the day immediately
following the date of the Special Meeting. Accordingly, if the closing occurs
as anticipated, the Exchange Ratio will be fixed on the fourth day immediately
preceding the date of the Special Meeting. See "THE THC MERGER AGREEMENT--
Manner and Basis of Converting Shares" and "THE CONTINGENT STOCK AGREEMENT; THE
CONTRACTUAL RIGHTS--Generally."
THHC currently holds 37,362 shares of THC Common Stock. In the THC Merger,
each share of THC Common Stock held by THHC at the Effective Time will be
converted into the right to receive one share of Junior Preferred Stock, 1996
Series, par value $0.01 per share, of Rouse ("Rouse Junior Preferred Stock").
Based on the number of shares of Rouse Common Stock and THC Common Stock
(excluding the shares held by THHC) outstanding as of the Record Date, and
assuming, solely for the purpose of illustration, (i) an Average Closing Price
of $22.171 (which is equal to the average of the closing prices of Rouse Common
Stock on the NYSE for the 30 consecutive trading days ending prior to the date
of this Proxy Statement/Prospectus), and (ii) Aggregate Rouse Dividends of $.22
per share of Rouse Common Stock, the Exchange Ratio would be 120.893 and,
therefore, approximately 8,035,274 shares of Rouse Common Stock would be
issuable in the THC Merger pursuant to clause (a) above, representing
approximately 14.277% of the Total Rouse Common Stock to be outstanding after
such issuance. Based on the assumptions set forth in the preceding sentence
(and valuing the shares of Rouse Common Stock at such assumed Average Closing
Price), the Stockholders would receive $2,680.319 worth of Rouse Common Stock
for each share of THC Common Stock. The foregoing example is provided solely
for purposes of illustration and is not intended as a prediction of the actual
Average Closing Price, which will be determined based on the 30 consecutive
trading days ending five days prior to the Closing Date. Moreover, the value of
shares of Rouse Common Stock on the date such shares are actually received by
the Stockholders may be more or less than the Average Closing Price. The
closing price of Rouse Common Stock on the NYSE on May 13, 1996, the last
trading day prior to the date of this Proxy Statement/Prospectus, was $23.75.
On behalf of and as an accommodation to THC, Merger Sub (as successor by
merger to THC) and HHPLP and in partial performance of their obligations to
Goolsby under that certain Amended and
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Restated Long-Term Incentive Compensation Agreement, dated January 1, 1994,
between Goolsby, THC and HHPLP (the "Goolsby Incentive Agreement"), Rouse will
(a) issue to Goolsby certificates representing 8/10ths of 1% of the aggregate
number of shares of Rouse Common Stock issuable in the THC Merger (together
with a payment in cash for any fractional share) and (b) pay to Goolsby 8/10ths
of 1% of the aggregate cash consideration, if any, payable to the Stockholders
(exclusive of any cash payments for fractional shares). The THC Merger
Agreement provides that the consideration payable to the Stockholders in the
THC Merger will be reduced to reflect such issuance and payment. See "THE THC
MERGER AGREEMENT--Manner and Basis of Converting Shares."
EFFECTIVE TIME OF THE THC MERGER
The THC Merger will become effective upon the filing of a certificate of
merger with the Secretary of State of the State of Delaware (the "Effective
Time"), unless the certificate of merger specifies a later Effective Time.
Assuming all conditions to the THC Merger contained in the THC Merger Agreement
are satisfied or, to the extent permissible, waived prior thereto, it is
anticipated that the Effective Time will occur as soon as practicable following
the Special Meeting.
CERTAIN CONDITIONS TO THE CONSUMMATION OF THE THC MERGER
The obligations of Rouse and THC to consummate the THC Merger are subject to
the satisfaction of certain conditions, including the following: (i) approval
and adoption of the THC Merger Agreement by a majority of the outstanding
shares of THC Common Stock entitled to vote at the Special Meeting and approval
and adoption of the Partnership Merger Agreement by the holders of a majority
of the outstanding Class 1 Units (the "Hughes Owners' Approvals"); (ii) the
waiting period applicable to the consummation of the THC Merger under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and
regulations thereunder (the "HSR Act"), having expired or been terminated;
(iii) the Registration Statement (of which this Proxy Statement/Prospectus
forms a part) having become effective pursuant to the Securities Act of 1933,
as amended (the "Securities Act"), and no stop order suspending such
effectiveness having been issued and remaining in effect (and with no
proceeding for such purpose having been instituted by the Securities and
Exchange Commission (the "Commission") or any state regulatory authority); (iv)
the authorization for listing on the NYSE, upon official notice of issuance, of
the shares of Rouse Common Stock issuable in the THC Merger; (v) no injunction
or other order or decree by any federal or state court preventing the
consummation of the THC Merger having been issued and remaining in effect; (vi)
no action having been taken, and no statute, rule or regulation having been
enacted, by any federal or state government or governmental agency in the
United States preventing the consummation of the THC Merger or making the THC
Merger illegal; (vii) the Partnership Merger being consummated concurrently
with the THC Merger; and (viii) the receipt of all governmental consents,
orders and approvals required to consummate the THC Merger. In addition, the
obligations of each of Rouse and THC are subject to (A) the accuracy of the
representations and warranties of the other party and to compliance in all
material respects with all agreements and covenants on the part of the other
party contained in the THC Merger Agreement, (B) each party having received a
legal opinion with respect to the tax consequences of the THC Merger under
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and (C) certain other conditions. Either Rouse or THC may extend the time for
performance of any of the obligations of the other party or, to the extent
permissible, waive compliance with those obligations at its discretion. The THC
Merger is not conditioned upon any approval by the stockholders of Rouse.
IT IS A CONDITION TO THE CONSUMMATION OF THE THC MERGER THAT THE PARTNERSHIP
MERGER BE CONSUMMATED SIMULTANEOUSLY WITH THE CONSUMMATION OF THE THC MERGER.
ACCORDINGLY, IF THE PARTNERSHIP MERGER IS NOT CONSUMMATED, THE THC MERGER WILL
NOT BE CONSUMMATED. See "THE THC MERGER AGREEMENT--Conditions to the THC
Merger."
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GOVERNMENTAL APPROVALS
Each of Rouse and THC intends to file a notification and report form,
together with requests for early termination of the waiting period, under the
HSR Act, with the Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice (the "DOJ") in respect of the Mergers.
The applicable waiting period will expire 30 days after the filing of the later
to be filed of such notification and report forms, unless early termination is
granted, provided that if a request for additional information or documents is
received, the applicable waiting period will expire ten days after substantial
compliance with such request for additional information or documents.
Neither Rouse nor THC is aware of any other governmental or regulatory
approval required for consummation of the Mergers, other than compliance with
applicable securities laws. See "THE MERGERS--Governmental and Regulatory
Approvals and Matters."
NO SOLICITATION
The THC Merger Agreement provides that THC will not initiate, solicit,
negotiate, encourage or provide confidential information to facilitate any
proposal or offer to acquire all or any substantial part of the business and
properties of, or any capital stock or equity interests in, THC, THHC or HHPLP
or any of their respective subsidiaries, whether by merger, purchase of assets
or securities, tender offer or otherwise (any such transaction, an "Acquisition
Transaction"); provided, however, that in response to an unsolicited proposal
with respect to an Acquisition Transaction (a "Takeover Proposal") THC may
furnish information to or negotiate with any financially capable corporation,
partnership, person or other entity or group (a "Potential Acquirer"), if the
THC Board determines (i) after consultation with one or more of THC's
independent financial advisors, that providing confidential information to the
Potential Acquirer could lead to an Acquisition Transaction more favorable to
the Stockholders and Unitholders from a financial point of view than the
Mergers and (ii) after consultation with THC's outside legal counsel, that the
failure to provide such information to such Potential Acquirer would likely
constitute a breach of the THC Board's fiduciary duties to the Stockholders and
Unitholders. THC is required to notify Rouse promptly in writing of THC's plan
to provide confidential information to and/or negotiate with a Potential
Acquirer and the receipt by THC of a Takeover Proposal, and to furnish to Rouse
the identity of the Potential Acquirer and, if a Takeover Proposal has been
received, the identity of the person making the proposal and either a copy of
the Takeover Proposal or a description of the material terms thereof. THC may
accept any Takeover Proposal received by it only if: (A) the THC Board
determines, after consultation with its financial advisor, that such Takeover
Proposal is more favorable to the Stockholders and the Unitholders from a
financial point of view than the Mergers and, after consultation with its
counsel, that acceptance of such Takeover Proposal is in the best interests of
the Stockholders and the Unitholders; (B) at least ten business days prior to
the acceptance of the Takeover Proposal THC furnishes Rouse a copy of the
Takeover Proposal or a description of the material terms thereof; (C) Rouse
fails within such ten-day period to offer to amend the terms of the THC Merger
Agreement and the Partnership Merger Agreement so that the Mergers would be at
least as favorable to the Stockholders and the Unitholders as the Takeover
Proposal; and (D) simultaneously with the acceptance of such Takeover Proposal,
THC pays Rouse a break-up fee in the amount of $5,000,000. See "THE THC MERGER
AGREEMENT--No Solicitation."
TERMINATION OF THE THC MERGER AGREEMENT
Rouse may terminate the THC Merger Agreement if: (i) the THC Merger is not
consummated by July 15, 1996 otherwise than on account of the delay or default
by Rouse or Merger Sub; (ii) the THC Merger is enjoined by a final,
unappealable court order not entered at the request or with the support of
Rouse or Merger Sub (with Rouse and Merger Sub having used commercially
reasonable efforts to resist the entry of such order); (iii) THC accepts a
Takeover Proposal in accordance with the terms of
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the THC Merger Agreement; (iv) THC fails to perform in any material respect any
of its covenants under the THC Merger Agreement and does not cure such default
in all material respects within 15 days after Rouse has provided THC with
notice of such default; (v) the Hughes Owners' Approvals are not obtained at
the Special Meeting or at any adjournment thereof; (vi) THC breaches any of its
representations and warranties in the THC Merger Agreement and fails to cure
such breach prior to the Effective Time and Rouse does not waive such breach;
or (vii) the Average Closing Price as computed pursuant to the THC Merger
Agreement is less than the Floor Amount unless, within two business days after
receipt of written notice of Rouse's election to terminate the THC Merger
Agreement in connection therewith, THC notifies Rouse of THC's agreement to fix
the Average Closing Price at the Floor Amount.
THC may terminate the THC Merger Agreement if: (i) the THC Merger is not
consummated by July 15, 1996 otherwise than on account of the delay or default
by THC; (ii) the THC Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of THC (with THC having used
commercially reasonable efforts to resist the entry of such order); (iii) THC
accepts a Takeover Proposal in accordance with the terms of the THC Merger
Agreement; (iv) Rouse fails to perform in any material respect any of its
covenants under the THC Merger Agreement and does not cure such default in all
material respects within 15 days after THC has provided Rouse with notice of
such default; (v) the Hughes Owners' Approvals are not obtained at the Special
Meeting or at any adjournment thereof; (vi) Rouse or Merger Sub breaches any of
its representations and warranties in the THC Merger Agreement and fails to
cure such breach prior to the Effective Time and THC does not waive such
breach; or (vii) the Average Closing Price as computed pursuant to the THC
Merger Agreement is greater than the Ceiling Amount unless, within two business
days after receipt of written notice of THC's election to terminate the THC
Merger Agreement in connection therewith, Rouse notifies THC of Rouse's
agreement to fix the Average Closing Price at the Ceiling Amount.
See "THE THC MERGER AGREEMENT--Termination of the THC Merger Agreement."
TERMINATION FEES
If the THC Merger Agreement is terminated by either THC or Rouse because THC
has accepted a Takeover Proposal, THC is obligated to pay Rouse a break-up fee
in the amount of $5,000,000 (the "Break-up Fee"). If Rouse terminates the THC
Merger Agreement because THC has breached a covenant in the THC Merger
Agreement and has failed to cure such breach within the grace period allotted,
Rouse may elect either (i) to receive the Break-up Fee as its sole and
exclusive remedy or (ii) to pursue legal or equitable remedies, provided that
in such event, THC's aggregate liability under the THC Merger Agreement shall
not exceed $15,000,000 (inclusive of the Break-up Fee). If THC terminates the
THC Merger Agreement because Rouse has breached a covenant in the THC Merger
Agreement and has failed to cure such breach within the grace period allotted,
THC shall be entitled to all amounts held in an escrow account established by
Rouse on the date of the THC Merger Agreement in the amount of $15,000,000 (the
"Escrow Amount"). Receipt by Rouse of the Break-up Fee (other than as part of
any legal remedies pursued) and receipt by THC of the Escrow Amount shall be
the sole and exclusive remedy of Rouse and THC, respectively, in connection
with the termination of the THC Merger Agreement in the circumstances described
above. See "THE THC MERGER AGREEMENT--Termination Fees."
INDEMNIFICATION AND INSURANCE
Rouse has agreed to, and has agreed to cause the Surviving Corporation to,
indemnify and hold harmless each present and former director, officer, agent
and employee of THC and any of its subsidiaries against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement incurred in connection with any
claim, action, suit,
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proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or relating to actions or omissions occurring
prior to the Effective Time or in connection with the Mergers. Rouse has also
agreed to cause the Surviving Corporation to maintain in effect for a period of
six years after the Effective Time certain (i) insurance policies for
directors' and officers' liability and (ii) by-law or charter provisions and
contractual agreements and undertakings relating to directors' and officers'
indemnification with respect to acts and omissions occurring prior to the
Effective Time. See "THE THC MERGER AGREEMENT--Indemnification."
THC EMPLOYEE BENEFIT PLANS
Through December 31, 1996, with certain exceptions, Rouse will, or will cause
its subsidiaries to, continue without amendment or change all material employee
benefit plans, programs, arrangements and practices of THC and its subsidiaries
(the "THC Plans") and the participation therein of those who are employees of
THC and its subsidiaries on the Closing Date ("THC Employees"). The THC
Employees will be eligible to participate in Rouse's Pension Plan and 401(k)
Savings Plan beginning on the Closing Date, subject to the terms of such plans.
With respect to all material employee benefit plans, programs, arrangements
and practices of Rouse (the "Rouse Plans"), on and after the Closing Date,
Rouse will, and will cause its subsidiaries to, grant all THC Employees credit
for all service with THC and its subsidiaries (and their respective
predecessors) prior to the Closing Date for all purposes for which such service
was recognized by THC and its subsidiaries under any corresponding THC Plan;
provided, however, that THC Employees will be credited with service for
eligibility and vesting purposes only, and not for benefit accrual purposes,
under Rouse's Pension Plan. On and after January 1, 1997, Rouse will, or will
cause its subsidiaries to, cover the THC Employees in Rouse Plans in which
similarly situated employees of Rouse or its subsidiaries participate, except
with respect to a THC Employee's entitlement to certain vacation and severance
benefits. In addition, on and after January 1, 1997, retirees of THC and its
subsidiaries will be eligible for retiree life insurance coverage on a basis
that is no less favorable than the retiree life insurance coverage made
available to retirees of Rouse and its subsidiaries.
With respect to THC's retiree health, dental and vision plans, Rouse will, or
will cause its subsidiaries to, continue such plans for those persons who, as
of the Closing Date, are participants or beneficiaries in such plans, and to
"grandfather" certain persons to enable them to retire under such plans (or any
successor plans) upon their subsequent termination of employment with Rouse and
its subsidiaries, with certain limitations. Further, (i) Rouse will not
eliminate or change the retiree health coverage benefits for any retiree (or
beneficiary) of THC and its subsidiaries, except to the extent (a)
substantially comparable health coverage benefits are provided under a
replacement plan or (b) such elimination or change is consistent with that made
for similarly situated retirees (and beneficiaries thereof) of Rouse and its
subsidiaries and (ii) until the fifth anniversary of the Effective Time, Rouse
will not eliminate or change the retiree dental or vision coverage benefits for
any retiree (or beneficiary) of THC and its subsidiaries, except to the extent
substantially comparable benefits are provided under a replacement plan or
plans. See "THE THC MERGER AGREEMENT--THC Employee Benefit Plans."
HUGHES NAME
So long as such action would not adversely affect the tax consequences of the
THC Merger under Section 368(a) of the Code, at or prior to the closing of the
THC Merger (the "Closing"), THC and its subsidiaries will be entitled to
transfer and assign to a nominee (for other than the Stockholders and the
Unitholders) selected by THC all or any portion of their rights, titles and
interests in and to the name "Howard R. Hughes" and all derivations thereof
(the "Hughes Name") and certain Howard R.
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<PAGE>
Hughes, Jr. archives and memorabilia; provided, however, that : (i) at the
option of THC, HHPLP and its subsidiaries will either retain the right, or will
receive at the Closing a perpetual, royalty-free license agreement, as of the
Effective Time, to use the Hughes Name, likeness and other memorabilia in
connection with, among other things, the ownership and development of land and
(ii) any agreement effectuating transfer and assignment of rights with respect
to the Hughes Name to THC's nominee will entitle Rouse to limit the use of the
Hughes Name in certain circumstances.
THE PARTNERSHIP MERGER AND THE PARTNERSHIP MERGER AGREEMENT
TERMS OF THE PARTNERSHIP MERGER
In conjunction with the transactions contemplated by the THC Merger
Agreement, Rouse, Partnership Merger Sub and HHPLP have entered into an
Agreement and Plan of Merger, dated as of February 22, 1996, as amended May 1,
1996 and May 13, 1996 (the "Partnership Merger Agreement" and, together with
the THC Merger Agreement, the "Merger Agreements"), pursuant to which
Partnership Merger Sub will be merged with and into HHPLP (the "Partnership
Merger" and, together with the THC Merger, the "Mergers"), with HHPLP being the
surviving entity. At the Partnership Effective Time (as defined below), all
outstanding Class 1 Units will be converted into the right to receive an
aggregate amount in cash, subject to certain adjustments, equal to:
(i) the sum of (v) the aggregate amount of cash, bank deposits, marketable
securities and other cash equivalents on hand (collectively, "cash") of
HHPLP and its affiliates as of December 31, 1995 plus (w) HHPLP's pro rata
portion of the aggregate amount of cash held by each entity in which HHPLP
owned a minority interest as of December 31, 1995 plus (x) $1,702,931 for
that certain promissory note received by HHPLP in connection with the sale
of its Park 2000 property plus (y) $764,500, such amount representing one-
half of the value of the parcel located in the Hughes Center in Las Vegas,
Nevada which was ground leased by HHPLP to a third party plus (z)
$40,000,000, which sum of the amounts in subclauses (v)-(z) above is
estimated to be approximately $185,000,000, together with interest on such
sum (less the amount described in subclause (ii)(y) below) at a rate of 5%
per annum (the "Applicable Rate") from January 1, 1996 until the Partnership
Effective Time (the "Interim Period") minus
(ii) the sum of (x) the aggregate amount of all dividends and other
distributions with respect to the Class 1 Units and the THC Common Stock
declared and paid or payable after December 31, 1995 (excluding the Special
Distribution described below) plus (y) the amount of cash attributable to
minority interests in majority-owned subsidiaries of THC plus (z) certain
expenses incurred by THC and its subsidiaries in connection with the
Mergers, together with, in the case of subclauses (ii)(x) and (ii)(z) above,
interest thereon at the Applicable Rate from the date of payment to the
Partnership Effective Time minus
(iii) an amount equal to a special distribution in cash (the "Special
Distribution") to be made in respect of the Class 1 Units immediately prior
to the Partnership Effective Time plus
(iv) an amount equal to 25% of the taxable income of HHPLP allocated to the
Class 1 Units with respect to the Interim Period (the "Value Adjustment").
The Special Distribution will be in an amount equal to the lesser of (i) the
aggregate amount of cash held immediately prior to the Partnership Effective
Time by HHPLP, THC and their respective subsidiaries and available for
distribution to the holders of the Class 1 Units and (ii) the Adjusted Cash
Value (as defined below) minus $5,000,000. The aggregate amount of
consideration to be received by Unitholders in the Partnership Merger, if
approved, is estimated to be $130 million. See "THE PARTNERSHIP MERGER
AGREEMENT--Conversion of Class 1 Units."
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<PAGE>
On behalf of and as an accommodation to THC, Merger Sub (as successor by
merger to THC) and HHPLP and in partial performance of their obligations to
Goolsby under the Goolsby Incentive Agreement, Rouse will pay to Goolsby an
amount representing 8/10ths of 1% of the aggregate consideration payable in
respect of all Class 1 Units issued and outstanding at the Partnership
Effective Time, and the Partnership Merger Agreement provides that the
consideration payable by Rouse to the Unitholders will be reduced to reflect
such amount. In addition, HHPLP will pay to Goolsby an amount equal to 8/10ths
of 1% of the aggregate amount of the Special Distribution, and the Partnership
Merger Agreement provides that the amount payable to the Unitholders in the
Special Distribution will be reduced to reflect such amount. See "THE
PARTNERSHIP MERGER AGREEMENT--Goolsby HHPLP Payment."
PARTNERSHIP INTERESTS
The partnership interests in HHPLP, other than the Class 1 Units, consisting
of a general partnership interest (the "General Partner's Interest"), limited
partnership interests represented by Class 2 limited partnership units ("Class
2 Units") and a preferred limited partnership interest represented by a Class 3
limited partnership unit (the "Class 3 Unit"), will remain outstanding at and
following the Partnership Effective Time. THHC holds the General Partner's
Interest and the Class 3 Unit, and THC, THHC and HHC LP Corp., a Delaware
corporation ("LP Corp.") and a wholly owned subsidiary of THHC, collectively
hold the Class 2 Units. See "PRINCIPAL STOCKHOLDERS AND UNITHOLDERS OF THC AND
HHPLP."
EFFECTIVE TIME OF THE PARTNERSHIP MERGER
The Partnership Merger will become effective upon the filing of a certificate
of merger with the Secretary of State of the State of Delaware (the
"Partnership Effective Time"), unless the certificate of merger specifies a
later Partnership Effective Time. Assuming all conditions to the Partnership
Merger contained in the Partnership Merger Agreement are satisfied or, to the
extent possible waived prior thereto, it is anticipated that the Partnership
Effective Time will occur as soon as practicable following the Special Meeting.
CERTAIN CONDITIONS TO THE CONSUMMATION OF THE PARTNERSHIP MERGER
The obligations of Rouse and HHPLP to consummate the Partnership Merger are
subject to the satisfaction of certain conditions, including the following
conditions: (i) the waiting period applicable to the consummation of the
Partnership Merger under the HSR Act having expired or been terminated; (ii) no
injunction or other order or decree by any federal or state court preventing
the consummation of the Partnership Merger having been issued and remaining in
effect; (iii) no action having been taken, and no statute, rule or regulation
having been enacted, by any federal or state government or governmental agency
preventing the consummation of the Partnership Merger or making the Partnership
Merger illegal; (iv) the THC Merger being consummated concurrently with the
Partnership Merger; (v) Rouse having received a legal opinion to the effect
that HHPLP has been a partnership for tax purposes from its formation through
the Partnership Effective Time; (vi) no governmental authority having
promulgated any statute, rule or regulation that when taken together with all
such promulgations would materially impair the value of the Partnership Merger
to Rouse or to HHPLP; (vii) the receipt of all governmental waivers, consents,
orders and approvals legally required to consummate the Partnership Merger; and
(viii) the Hughes Owners' Approvals having been obtained. In addition, the
obligations of each of Rouse and HHPLP are subject to the accuracy of the
representations and warranties of the other party and to compliance in all
material respects with all agreements and covenants on the part of the other
party contained in the Partnership Merger Agreement and certain other closing
conditions. Either Rouse or HHPLP may extend the time for performance of any of
the
21
<PAGE>
obligations of the other party or, to the extent permissible, waive compliance
with those obligations at its discretion. The Partnership Merger is not
conditioned upon any approval by the stockholders of Rouse.
IT IS A CONDITION TO THE CONSUMMATION OF THE PARTNERSHIP MERGER THAT THE THC
MERGER BE CONSUMMATED SIMULTANEOUSLY WITH THE CONSUMMATION OF THE PARTNERSHIP
MERGER. ACCORDINGLY, IF THE THC MERGER IS NOT CONSUMMATED, THE PARTNERSHIP
MERGER WILL NOT BE CONSUMMATED. See "THE PARTNERSHIP MERGER AGREEMENT--
Conditions to the Partnership Merger."
TERMINATION
The Partnership Merger Agreement will terminate automatically if the THC
Merger Agreement is terminated. See "THE PARTNERSHIP MERGER AGREEMENT--
Termination."
THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS
Pursuant to the terms of a Contingent Stock Agreement (the "Contingent Stock
Agreement") to be entered into by Rouse for the benefit of the Stockholders
(together with their successors and permitted assigns, the "Holders") and the
Representatives (as defined below), the Holders will receive as part of the
consideration in the THC Merger Contractual Rights to certain future
distributions of shares of Rouse Common Stock (the "Contingent Shares") or, if
Rouse is unable to deliver shares of Rouse Common Stock for any reason, or upon
certain other events at the election of the Representatives, shares of
Increasing Rate Preferred Stock (the "Contingent Preferred Shares"). The number
of Contingent Shares to be issued in respect of the Contractual Rights will be
determined on the basis of (i) the "Excess Cash Flow" of each of four pools of
real property and other assets owned directly or indirectly by THC and its
subsidiaries (each, a "Business Unit") over specified time periods (each, an
"Earnout Period") ranging from five to 14 years after the Effective Time,
depending on the Business Unit and (ii) the appraised value of the assets of
each such Business Unit at the end of the applicable Earnout Period.
The Contractual Rights (i) will not be represented by any form of certificate
or instrument; (ii) do not give the Stockholders dividend rights, voting
rights, liquidation rights, preemptive rights or other rights common to holders
of Rouse Common Stock or Rouse Preferred Stock; (iii) are not redeemable; (iv)
may not be transferred or assigned by any Holder, with certain limited
exceptions, and (v) do not entitle the Holders to participate in the growth or
earnings of Rouse, except to the extent of the rights of such Holders to be
paid Rouse Common Stock or Increasing Rate Preferred Stock the amounts of which
will be determined by Excess Cash Flow and the appraised value of the assets of
any Business Unit at the end of the applicable Earnout Period. The terms of the
Contractual Rights may be amended by written agreement between Rouse and the
Representatives (as defined below), except that amendments of certain
provisions require the consent of the holders of a majority in interest of the
Contractual Rights or of all of the Holders. Under certain circumstances, the
Holders are entitled to have an individual designated for election to the Board
of Directors of Rouse on their behalf. See "THE CONTINGENT STOCK AGREEMENT; THE
CONTRACTUAL RIGHTS--Generally," "THE CONTINGENT STOCK AGREEMENT; THE
CONTRACTUAL RIGHTS--Board Representation" and "THE CONTINGENT STOCK AGREEMENT;
THE CONTRACTUAL RIGHTS--Amendments and Waiver."
BUSINESS UNITS
The assets of the Business Units represent substantially all undeveloped land
(or interests therein) and certain rental properties (or interests therein)
held at January 1, 1996 by THC and its subsidiaries.
22
<PAGE>
The rental properties included in the Business Units contributed approximately
$17,495,000 (or approximately 27%) of the operating revenues of THC and its
subsidiaries for the year ended December 31, 1995 attributable to rental
properties. Historically, sales of development properties and sales of
investment properties have contributed a majority of the operating revenues of
THC and its subsidiaries. Accordingly, it is expected that the majority of
future operating revenues (and cash flows) of THC and its subsidiaries will be
derived from sales of development properties and investment properties included
in the assets comprising the Business Units. See "THE CONTINGENT STOCK
AGREEMENT; THE CONTRACTUAL RIGHTS--Business Units," "THE HUGHES CORPORATION,"
"SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF THC," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
THC" and the Consolidated Financial Statements of THC and Notes thereto
included elsewhere in this Proxy Statement/Prospectus.
DISTRIBUTIONS OF CONTINGENT SHARES BASED UPON CASH FLOW
The Earnout Period for each Business Unit is deemed to have commenced on
January 1, 1996 and will continue until the valuation date for such Business
Unit at the expiration of the applicable Earnout Period (the "Valuation Date").
Contingent Shares will be issued to the Holders pursuant to a formula for each
Business Unit based upon the Excess Cash Flow of such Business Unit for the
six-month period beginning January 1 and July 1 of each year, commencing
January 1, 1996 and ending on the Valuation Date for the applicable Business
Unit. See "THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--
Distributions of Contingent Shares Based Upon Cash Flow."
DISTRIBUTIONS OF CONTINGENT SHARES BASED UPON APPRAISED VALUE
The "Fair Market Value" of each of the assets of each Business Unit or
portion thereof will be determined by appraisal by a panel of three independent
appraisers as of the Valuation Date with respect to such Business Unit or
portion thereof.
Upon determining the Fair Market Value of the assets comprising any Business
Unit or portion thereof, a portion of such Fair Market Value will be credited
to the Holders, in the same manner that credits to the Business Unit Account
(as defined below) for such Business Unit are calculated, provided that certain
development or management fees will not be taken into account. Rouse is
obligated to deliver to each Holder (or his or her designee) as soon as
practicable and in any event within 12 months of the applicable Valuation Date,
a number of Contingent Shares based upon such Holder's percentage interest in
the portion of the Fair Market Value of each asset credited to the Holders. See
"THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--Distributions of
Contingent Shares Based Upon Appraised Value."
REVIEW COMMITTEE
The Contingent Stock Agreement contemplates the establishment of a committee
(the "Review Committee") which will meet periodically to review and discuss the
management, operation and development of the Business Units and their assets.
The Review Committee will have five members, two of whom will be designated by
Rouse, two by the Representatives (as defined below) and the fifth by the four
members previously designated. Certain transactions with respect to the
Business Units require the consent of all or a majority of the members of the
Review Committee. See "THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--
Review Committee" and "THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--
Covenants of Rouse and the Business Unit Entities."
23
<PAGE>
REPRESENTATIVES
Certain representatives of the Holders (the "Representatives") will be
appointed as attorneys- in-fact of the Holders to represent them and act on
their behalf with respect to substantially all matters arising under the
Contingent Stock Agreement. Subject to certain limitations, the Representatives
will have the power and authority to interpret and amend the terms of the
Contingent Stock Agreement and to compromise and settle disputes between Rouse
and the Holders arising under the Contingent Stock Agreement. All actions taken
by the Representatives (which shall be taken upon the written direction of a
majority of the Representatives) will be binding upon the Holders, as if
expressly confirmed and ratified by them. See "THE CONTINGENT STOCK AGREEMENT;
THE CONTRACTUAL RIGHTS--Representatives."
EVENTS OF DEFAULT
If certain "Events of Default" under the Contingent Stock Agreement have
occurred and are continuing, the Representatives may accelerate Rouse's
obligation to deliver Contingent Shares (or require Rouse to deliver Contingent
Preferred Shares) with respect to the assets of each Business Unit or, in
certain cases, accelerate Rouse's obligation to deliver Contingent Shares (or
require Rouse to deliver Contingent Preferred Shares) with respect to the
assets of the Business Unit to which such default relates. See "THE CONTINGENT
STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--Events of Default."
CONTINGENT PREFERRED SHARES
If Rouse is required to deliver Contingent Shares pursuant to the Contingent
Stock Agreement on any date and is unable for any reason to deliver such
Contingent Shares on such date, Rouse is required to immediately deliver
Contingent Preferred Shares in lieu thereof, in an amount determined by
dividing (x) 125% of the number of Contingent Shares required to be delivered
by (y) the quotient of (i) $100 divided by (ii) the trading value of Rouse
Common Stock used in calculating such number of Contingent Shares. See "THE
CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--Contingent Preferred
Shares." See also "SUMMARY--The Contingent Stock Agreement; The Contractual
Rights--Events of Default" above.
COVENANTS
The Contingent Stock Agreement contains certain covenants with respect to,
among other things, the management and operation of the Business Units and
financial and other information to be furnished to the Review Committee and the
Representatives by Rouse. See "THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL
RIGHTS--Covenants of Rouse and the Business Unit Entities" and "THE CONTINGENT
STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--Financial and Other Information to be
Provided by Rouse."
RISK FACTORS
FOR A DISCUSSION OF CERTAIN RISKS RELATING TO THE CONTINGENT STOCK AGREEMENT,
SEE "RISK FACTORS--RISKS RELATING TO THE CONTINGENT STOCK AGREEMENT, THE
CONTINGENT SHARES AND THE CONTINGENT PREFERRED SHARES" AND "RISK FACTORS--
ADDITIONAL RISKS RELATING TO THE BUSINESS OF THC AND ITS SUBSIDIARIES."
24
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is expected that (i) the THC Merger will be treated for federal income tax
purposes as a reorganization described in Section 368(a) of the Code, (ii) THC,
Rouse and Merger Sub will each be a "party to a reorganization" as such phrase
is described in Section 368(b) of the Code, and (iii) subject to the discussion
below of the receipt of cash and the risk that the Contractual Rights (as
defined below) will be treated as boot (see "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--The THC Merger--Stockholders" and "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--The THC Merger--Treatment of Contractual Rights"), the
Stockholders will recognize no gain or loss for federal income tax purposes by
reason of conversion of the shares of THC Common Stock into the shares of Rouse
Common Stock and rights under the Contingent Stock Agreement (the "Contractual
Rights") to be received at the Effective Time. Any Contingent Shares (and any
Contingent Preferred Shares) received pursuant to the Contingent Stock
Agreement will represent taxable income, in part, with the balance being
received without recognition of gain or loss (see "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--The THC Merger--Treatment of Contractual Rights"). The receipt of
the Special Distribution and the Rouse payment pursuant to the Partnership
Merger Agreement will be taxable events as described in "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES--The Partnership Merger."
The foregoing is only a brief summary of certain of the federal income tax
consequences of the Mergers and is based in part upon the opinion of Andrews &
Kurth L.L.P., counsel to THC and HHPLP, described in "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES." This summary is qualified in its entirety by the discussion
in "CERTAIN FEDERAL INCOME TAX CONSEQUENCES." STOCKHOLDERS AND UNITHOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE TAX CONSEQUENCES OF THE
MERGERS AND THE ACQUISITION, HOLDING AND DISPOSITION OF ROUSE COMMON STOCK AND
INCREASING RATE PREFERRED STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF
FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS WITH RESPECT TO
THEIR OWN PARTICULAR CIRCUMSTANCES.
ACCOUNTING TREATMENT
The Mergers are expected to be accounted for as a "purchase" for financial
accounting purposes. See "THE MERGERS--Accounting Treatment."
APPRAISAL RIGHTS
If the THC Merger is consummated, holders of THC Common Stock who do not vote
in favor of the THC Merger will be entitled to certain appraisal rights under
Delaware law with respect to their shares of THC Common Stock for which they
properly perfect such rights (collectively "Dissenting Shares"). Such appraisal
rights are described under "THE MERGERS--Dissenters' Rights." Under the THC
Merger Agreement, Rouse is not obligated to consummate the THC Merger if
holders of five percent or more of the outstanding shares of THC Common Stock
have exercised such appraisal rights. Holders of Class 1 Units are not entitled
to appraisal rights under Delaware law and the organizational documents of
HHPLP with respect to the Partnership Merger.
25
<PAGE>
EXCHANGE OF THC COMMON STOCK CERTIFICATES AND CLASS 1 UNITS
Promptly after the Effective Time, a bank or trust company designated by
Rouse and reasonably acceptable to THC will, in its capacity as exchange agent
(the "Paying Agent"), mail a letter of transmittal with instructions to each
holder of record of THC Common Stock outstanding immediately prior to the
Effective Time (other than THHC) for use in exchanging certificates formerly
representing shares of THC Common Stock for certificates representing shares of
Rouse Common Stock and cash, if any, to which such holder may be entitled in
connection with the receipt of the Alternative Consideration or in lieu of any
fractional shares of Rouse Common Stock. Certificates should not be surrendered
by the holders of THC Common Stock until they have received the letter of
transmittal from the Paying Agent. See "THE THC MERGER AGREEMENT--Manner and
Basis of Converting Shares."
Promptly after the Partnership Effective Time, the Paying Agent will: (i)
transmit to each Unitholder of record by wire transfer of immediately available
funds, pursuant to wire transfer instructions given by such Unitholder of
record to the Paying Agent in writing at least two days prior to the Closing
Date, the consideration payable to such Unitholder in the Partnership Merger;
(ii) in the case of each beneficial holder of Class I Units to whom a
Unitholder of record directed Rouse, at least three days prior to the Closing
Date, to pay its proportionate share of the consideration payable in the
Partnership Merger, transmit to such holder the consideration payable to such
holder in the Partnership Merger, by wire transfer of immediately available
funds, pursuant to wire transfer instructions given by such holder to the
Paying Agent in writing at least two days prior to the Closing Date or, in the
absence of such instructions, by bank check mailed to such holder; and (iii) as
to all other Unitholders of record or beneficial holders, mail a letter of
transmittal with instructions to each holder of Class 1 Units outstanding
immediately prior to the Partnership Effective Time to apply for payment of the
consideration payable to such holder in the Partnership Merger. See "THE
PARTNERSHIP MERGER AGREEMENT--Payment Procedures."
COMPARATIVE RIGHTS OF ROUSE STOCKHOLDERS AND THC STOCKHOLDERS
The rights of the Stockholders are currently governed by the DGCL, the
Certificate of Incorporation, as amended, of THC (the "THC Charter"), the By-
Laws, as amended, of THC (the "THC By-Laws") and the Stockholder Agreement.
Upon consummation of the THC Merger, the Stockholders will become stockholders
of Rouse and their rights as stockholders of Rouse will be governed by the
Maryland General Corporation Law (the "MGCL"), the Amended and Restated
Articles of Incorporation, as amended, including all Articles Supplementary
thereto, of Rouse (the "Rouse Charter") and the By-Laws, as amended, of Rouse
(the "Rouse By-Laws"). Upon consummation of the Mergers, the Stockholder
Agreement will terminate in accordance with its terms. The rights of the
Stockholders under the DGCL, the THC Charter and the THC By-Laws are generally
substantially similar to the rights of holders of Rouse Common Stock under the
MGCL, the Rouse Charter and the Rouse By-Laws, except that: (i) holders of THC
Common Stock may act by written consent of the holders of the number of shares
of THC Common Stock required to act at a meeting, whereas holders of Rouse
Common Stock and Rouse Preferred Stock may not take action without a meeting
other than by unanimous written consent; (ii) special meetings of stockholders
may be called by holders of Rouse Common Stock or Rouse Preferred Stock
entitled to cast at least 25% of all votes at such meetings, whereas action by
the holders of 51% of the capital stock of THC is necessary for stockholders to
call a special meeting; and (iii) certain of the Stockholders have rights to
nominate and remove directors of THC under the Stockholder Agreement (as
defined below), which will expire at the Effective Time, and after the
Effective Time, such Stockholders will have rights to elect directors of Rouse
only as provided under the Contingent Stock Agreement or as generally granted
to stockholders of Rouse. See "COMPARATIVE RIGHTS OF
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<PAGE>
ROUSE STOCKHOLDERS AND THC STOCKHOLDERS," "DESCRIPTION OF ROUSE COMMON STOCK"
and "DESCRIPTION OF ROUSE PREFERRED STOCK."
RISK FACTORS
STOCKHOLDERS SHOULD CONSIDER THE FACTORS DISCUSSED UNDER "RISK FACTORS" IN
EVALUATING THE THC MERGER.
MARKET PRICE AND DIVIDEND DATA OF ROUSE COMMON STOCK
Rouse Common Stock began trading on the NYSE under the symbol "RSE" in
November 1995. Prior to that time it was traded on the NASDAQ. The following
table sets forth, for the periods indicated, the range of high and low per
share sales (or bid) prices for Rouse Common Stock as reported on the NYSE
Composite Tape or NASDAQ, as the case may be, and dividends paid per share of
Rouse Common Stock.
<TABLE>
<CAPTION>
ROUSE COMMON STOCK
---------------------------
DIVIDENDS
HIGH LOW PER SHARE
---- ---- ---------
<S> <C> <C> <C>
1994
First Quarter................................. $19 $16 1/4 $.17
Second Quarter................................ 20 18 .17
Third Quarter................................. 20 18 3/4 .17
Fourth Quarter................................ 19 1/2 17 1/4 .17
1995
First Quarter................................. 19 7/8 18 .20
Second Quarter................................ 20 11/16 17 .20
Third Quarter................................. 22 5/8 19 1/2 .20
Fourth Quarter................................ 22 18 5/8 .20
1996
First Quarter................................. 22 1/8 18 1/4 .22
Second Quarter (through May 13, 1996)......... 23 3/4 20 3/8 .22
</TABLE>
On February 21, 1996, the last trading day prior to the date of the joint
announcement by Rouse and THC with respect to the Mergers, the closing per
share sales price of Rouse Common Stock, as reported on the NYSE Composite
Tape, was $19.875. See the cover page of this Proxy Statement/Prospectus for a
recent closing price of Rouse Common Stock.
There are presently no shares of Increasing Rate Preferred Stock issued and
outstanding, and accordingly, no trading market for such shares exists.
27
<PAGE>
SUMMARY FINANCIAL DATA OF ROUSE
The following table sets forth certain summary financial information of Rouse
as of and for each of the years in the five year period ended December 31,
1995. Such selected financial information has been derived from the audited
consolidated financial statements of Rouse which, for each year in such five
year period, have been audited by KPMG Peat Marwick LLP, independent
accountants. The following financial information should be read in conjunction
with Rouse's Consolidated Financial Statements and Notes thereto and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ROUSE" included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS DATA:
Revenues from
continuing
operations............ $ 672,821 $ 671,171 $ 646,805 $ 597,105 $ 573,498
Earnings (loss) from
continuing
operations............ 5,850 6,606 (1,291) (15,849) 2,424
Earnings (loss) from
continuing operations
applicable to common
shareholders per share
of common stock....... (.18) (.14) (.27) (.33) .05
BALANCE SHEET DATA:
Total assets-cost
basis................. 2,985,609 2,915,860 2,874,982 2,726,281 2,637,452
Total assets-current
value basis........... 4,852,403 4,736,961 4,588,636 4,217,819 4,174,093
Debt and capital leases
...................... 2,538,315 2,532,920 2,473,596 2,498,983 2,374,527
Shareholders' equity
(deficit):
Historical cost basis.. 42,584 95,026 113,151 (34,848) 17,328
Current value basis.... 1,539,155 1,614,245 1,525,606 1,188,896 1,274,070
Shareholders' equity
(deficit) per share of
common stock:
Historical cost basis
(1)................... .73 1.63 1.98 (.74) .36
Current value basis
(1)................... 26.30 27.75 26.75 25.50 26.60
OTHER SELECTED DATA:
Earnings before
depreciation and
deferred taxes from
operations (EBDT)(2).. 108,360 94,710 78,281 52,282 46,820
Net cash provided by
(used in):
Operating activities... 107,001 113,775 101,149 66,630 67,226
Investing activities... (64,995) (178,551) (154,446) (144,836) (96,210)
Financing activities... 3,518 40,618 47,068 98,914 17,271
Ratio of earnings to
combined fixed charges
and Preferred stock
dividend requirements
(3)(4)................ -- -- -- -- --
Cash dividends per
share of common stock
for the period........ .80 .68 .62 .60 .60
Cash dividends per
share of convertible
Preferred stock for
the period............ 3.25 3.25 2.83 -- --
Market price per share
of common stock at end
of period (5)......... 20.13 19.25 17.75 18.00 18.25
Market price per share
of convertible
Preferred stock at end
of period............. 51.63 48.50 53.75 -- --
Weighted average common
shares outstanding.... 47,814 47,565 47,411 47,994 48,157
Number of common shares
outstanding at end of
period................ 47,923 47,571 47,562 47,292 48,193
Number of convertible
Preferred shares
outstanding at end of
period................ 4,505 4,505 4,025 -- --
</TABLE>
- -------
(1) Historical cost basis shareholders' equity (deficit) per share of Rouse
Common Stock and current value basis shareholders' equity per share of
Rouse Common Stock assume the conversion of Rouse's Series A Convertible
Preferred Stock.
(2) Rouse 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 and should not
be considered as an alternative to cash flows as a measure of liquidity.
However, Rouse believes that EBDT provides relevant information about its
operations and is necessary, along with net earnings (loss), for an
understanding of its operating results.
(3) 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 other than capitalized interest. Fixed
charges include interest costs, the estimated interest component of rent
expense and certain other items.
(4) Total fixed charges and Preferred stock dividend requirements exceeded
Rouse's earnings available for fixed charges and Preferred stock dividend
requirements by $14,086,000, $8,934,000, $17,722,000, $29,449,000 and
$10,347,000 for the years ended December 31, 1995, 1994, 1993, 1992 and
1991, respectively.
(5) The market price of Rouse Common Stock as of the close of business on May
13, 1996 was $23.75 per share.
28
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF THC
The following table sets forth certain summary financial information of THC
and its consolidated subsidiaries as of and for each of the years in the five
year period ended December 31, 1995. Such selected financial information has
been derived from the audited consolidated financial statements of THC which,
for each year in such five year period, have been audited by Deloitte & Touche
LLP, independent accountants. The following financial information should be
read in conjunction with THC's Consolidated Financial Statements and Notes
thereto and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THC" included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
OPERATING RESULTS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Operating revenues............. $293,384 $169,926 $135,397 $ 87,743 $ 84,021
Gross profit from operations... 148,639 70,357 67,634 40,894 46,264
Income (loss) before cumulative
effect of accounting change... 45,139 8,403 (22,713) 4,826 10,372
Net income (loss).............. 45,139 8,403 (27,044) 4,826 10,372
Per share:
Income (loss) before
cumulative effect of
accounting change........... 679.13 126.43 (341.72) 72.61 156.05
Net income (loss)............ 679.13 126.43 (406.88) 72.61 156.05
BALANCE SHEET DATA:
Total assets................... 677,478 662,642 628,365 632,686 566,854
Notes and mortgages payable.... 332,276 332,520 328,214 277,403 223,328
Cash dividends declared per
common share.................. 138.79 147.50 91.84 36.86 126.20
</TABLE>
29
<PAGE>
SUMMARY PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF ROUSE
The summary pro forma condensed combined financial information of Rouse has
been derived from, or prepared on a basis consistent with, the pro forma
condensed combined financial statements included elsewhere in this Proxy
Statement/Prospectus. This financial information reflects how the balance sheet
data of Rouse might have appeared at December 31, 1995 if the Mergers had been
consummated at that date and how the statement of operations data of Rouse for
the year ended December 31, 1995 might have appeared if the Mergers had been
consummated on January 1, 1995. The following financial information is
presented for illustrative purposes only and is not necessarily indicative of
the combined results of operations or financial position that would have
occurred if the Mergers had occurred at the beginning of the period presented
or on the date indicated, nor is it necessarily indicative of the future
operating results or financial position of Rouse. The following financial
information should be read in conjunction with the information provided in
"UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
YEAR ENDED
OR AS OF
DECEMBER 31,
1995(1)
----------------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C>
INCOME STATEMENT DATA:
Revenues.............................................. $ 956,094
Earnings from continuing operations before income
taxes................................................ 76,154
Earnings from continuing operations................... 29,504
Earnings from continuing operations applicable to
common shareholders per share of common stock(2)..... .26
Cash dividends per share of common stock(4)........... .80
BALANCE SHEET DATA:
Total assets--historical cost basis................... $3,618,648
Total debt--historical cost basis..................... 2,809,072
Shareholders' equity--historical cost basis........... 218,984
Historical cost basis shareholders' equity per share
of common stock(3)(5)................................ 3.25
</TABLE>
--------
(1) The pro forma condensed combined statement of income for the year ended
December 31, 1995 was prepared based upon the consolidated statements of
income of Rouse and of THC for the year ended December 31, 1995. The pro
forma condensed combined balance sheet was prepared based upon the
consolidated balance sheets of Rouse and of THC as of December 31, 1995.
(2)Assumes weighted average 47,814,000 outstanding shares of Rouse Common
Stock, plus the issuance of an additional 8,820,000 shares of Rouse Common
Stock in the THC Merger, based upon an aggregate stock consideration of
$176,400,000 and an Average Closing Price of $20.00. See "THE THC MERGER
AGREEMENT--Manner and Basis of Converting Shares."
(3) Assumes 47,922,749 outstanding shares of Rouse Common Stock, plus the
issuance of an additional 8,820,000 shares of Rouse Common Stock in the THC
Merger, based upon an aggregate stock consideration of $176,400,000 and an
Average Closing Price of $20.00. See "THE THC MERGER AGREEMENT--Manner and
Basis of Converting Shares."
(4) Pro forma cash dividends per share are assumed to be the same as
historically declared by Rouse. However, any decision to continue, increase
or decrease the cash dividend per share is at the discretion of the Board
of Directors of Rouse, subject to restrictions that may be imposed by law
or contract.
(5) Assumes conversion of Rouse's Series A Convertible Preferred Stock.
30
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are historical earnings per share, cash dividends per share
and book value per share data of Rouse and of THC, pro forma combined per share
data of Rouse and pro forma equivalent per share data of THC. The data set
forth below should be read in conjunction with the Consolidated Financial
Statements and Notes thereto of each of Rouse and THC which are included
elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
ROUSE THC
------------ ------------
YEAR ENDED YEAR ENDED
OR AS OF OR AS OF
DECEMBER 31, DECEMBER 31,
1995 1995
------------ ------------
<S> <C> <C>
HISTORICAL:
Earnings (loss) per share of common stock.......... $ (.36) $ 679.13
Cash dividends per share of common stock........... .80 138.79
Historical cost basis of shareholders' equity per
share of common stock(1).......................... .73 1,914.92
<CAPTION>
YEAR ENDED
OR AS OF
DECEMBER 31,
1995
------------
<S> <C>
PRO FORMA COMBINED(4):
Earnings from continuing operations applicable to
common shareholders per share of common stock(2).. $ .26
Cash dividends per share of common stock(5)........ .80
Historical cost basis of shareholders' equity per
share of common stock(1)(3)....................... 3.25
THC PRO FORMA EQUIVALENTS(6):
Earnings per share................................. $ 34.58
Cash dividends per share of common stock........... 106.40
Historical cost basis of shareholders' equity per
share of common stock............................. 432.25
</TABLE>
- --------
(1) Assumes conversion of Rouse's Series A Convertible Preferred Stock.
(2) Assumes weighted average 47,814,000 outstanding shares of Rouse Common
Stock, plus the issuance of an additional 8,820,000 shares of Rouse Common
Stock in the THC Merger, based upon an aggregate stock consideration of
$176,400,000 and an Average Closing Price of $20.00. See "THC MERGER
AGREEMENT--Manner and Basis of Converting Shares."
(3) Assumes 47,922,749 outstanding shares of Rouse Common Stock, plus the
issuance of an additional 8,820,000 shares of Rouse Common Stock in the THC
Merger, based upon an aggregate stock consideration of $176,400,000 and an
Average Closing Price of $20.00. See "THE THC MERGER AGREEMENT--Manner and
Basis of Converting Shares."
(4) The pro forma condensed combined statement of income for the year ended
December 31, 1995 was prepared based upon the consolidated statements of
income of Rouse and of THC for the year ended December 31, 1995. The pro
forma condensed combined balance sheet was prepared based upon the
consolidated balance sheets of Rouse and of THC as of December 31, 1995.
(5) Pro forma cash dividends per share are assumed to be the same as
historically declared by Rouse. However, any decision to continue, increase
or decrease the cash dividend per share is at the discretion of the Board
of Directors of Rouse, subject to restrictions that may be imposed by law
or contract.
(6) THC pro forma equivalents are calculated on the basis of an Exchange Ratio
of 133 shares of Rouse Common Stock for each share of THC Common Stock.
31
<PAGE>
RISK FACTORS
The following factors, in conjunction with the other information included in
this Proxy Statement/Prospectus, should be considered by the Stockholders in
evaluating the THC Merger.
RISKS RELATING TO THE CONTINGENT STOCK AGREEMENT, THE CONTINGENT SHARES AND
THE CONTINGENT PREFERRED SHARES
UNCERTAINTY REGARDING NUMBER AND TIMING OF CONTINGENT SHARES TO BE
ISSUED. The number of Contingent Shares and/or Contingent Preferred Shares (if
required to be issued) issuable under the Contingent Stock Agreement, and the
timing of issuance of such shares, cannot presently be determined. As
discussed in "SUMMARY--The Contingent Stock Agreement; The Contractual Rights"
and "THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS," the number of
Contingent Shares (and/or Contingent Preferred Shares) to be issued will be
based upon (i) the cash flow of each of the Business Units over the applicable
Earnout Period and (ii) the appraised value of the assets of each such
Business Unit as of the Valuation Date. Although the Contingent Stock
Agreement contains certain covenants relating to the conduct by Rouse of the
operations of the Business Units, Rouse has substantial discretion with regard
to the management and operation of the Business Units, subject to the approval
of the Review Committee in certain circumstances. Future cash flows of the
Business Units may be significantly affected by changes in the operation of
the Business Units, including the rate of future land sales and development of
additional infrastructure or properties. There can be no assurance that the
Business Units will have positive cash flow or that the Holders will be
entitled to receive distributions of Contingent Shares (and/or Contingent
Preferred Shares).
UNCERTAINTY REGARDING APPRAISALS. The number of Contingent Shares (and/or
Contingent Preferred Shares) issuable in respect of the assets of each
Business Unit upon expiration of the applicable Earnout Period will depend
upon the appraised value of such assets as determined by independent
appraisers and will be subject to numerous variables, including economic,
financial, industry and regional conditions at the time of appraisal, none of
which can presently be predicted. The Earnout Periods for the Business Units
expire over a period from December 31, 2000 to December 31, 2009, and there
may be substantial changes or variations in economic, financial, industry and
regional conditions over such time period. There can be no assurance regarding
the appraised value of the assets of the Business Units at the time of such
appraisals or the number of Contingent Shares (and/or Contingent Preferred
Shares), if any, issuable to the Holders under the Contingent Stock Agreement
based upon the appraised value of any Business Unit.
NO RIGHTS TO CASH FLOW OR ASSETS. The rights of the Holders under the
Contingent Stock Agreement represent solely contractual rights to certain
distributions of Rouse equity securities and do not represent any ownership
interest in, or rights to, cash flow or assets of any Business Unit or of
Rouse. The rights of the Holders under the Contingent Stock Agreement could be
substantially impaired in the event of a bankruptcy or insolvency involving
Rouse.
LIMITED OBLIGATION TO INVEST ADDITIONAL CAPITAL. Under the Contingent Stock
Agreement, Rouse has only a limited obligation to provide additional funding
to any Business Unit if such Business Unit is unable to fund its operations
through internal funds or third-party financing. Under certain circumstances,
if a Business Unit has insufficient funds for working capital purposes, Rouse,
with the unanimous consent of the Review Committee, may cause other Business
Units to advance funds to such Business Unit. Such advances will reduce cash
flow of the Business Units making such advances for the applicable period and
accordingly will reduce distributions of Contingent Shares for such period.
See "THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--Loans and
Advances" and "THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--
Limitation on Covenants and Agreements."
32
<PAGE>
ABANDONMENT OF ASSETS. Rouse has the right, under certain circumstances, to
cease to operate a Business Unit which is unable to fund its operations and to
sell the assets of such Business Unit, in which event the Holders will be
entitled solely to receive Contingent Shares (and/or Contingent Preferred
Shares) based upon their allocable share of the proceeds of sale. Because the
Holders are entitled to certain preferential distributions in the form of
Contingent Shares (and/or Contingent Preferred Shares) with respect to the
Business Units, if the value of a Business Unit is impaired, Rouse may have
limited economic incentives to continue to operate such Business Unit. See
"THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--Abandonment of
Assets."
VALUE OF CONTINGENT SHARES DISTRIBUTED. The number of Contingent Shares
(and/or Contingent Preferred Shares) issuable based on the cash flow or
appraised value of a Business Unit will depend on the average trading value of
Rouse Common Stock during certain trading periods prior to the date the
Contingent Shares (or Contingent Preferred Shares) are distributed. See "THE
CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--Generally," "THE
CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--Distributions of
Contingent Shares Based Upon Cash Flow," "THE CONTINGENT STOCK AGREEMENT; THE
CONTRACTUAL RIGHTS--Distributions of Contingent Shares Based Upon Appraised
Value" and "THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--Events of
Default." Accordingly, the trading value of the Contingent Shares (or
Contingent Preferred Shares) on the date of distribution of the Contingent
Shares (or Contingent Preferred Shares) to the Holders may be greater than,
equal to or less than the trading value of the Rouse Common Stock used to
compute the number of such shares issued.
TRANSFER RESTRICTIONS; LIMITATIONS ON LIQUIDITY. Subject to certain limited
exceptions, the rights of the Holders under the Contingent Stock Agreement are
not transferable. Accordingly, until Contingent Shares or Contingent Preferred
Shares are actually issued, the Holders will have limited ability to monetize
their interests under the Contingent Stock Agreement. In addition, although
the Contingent Shares or Contingent Preferred Shares will be freely tradeable
when issued, there may be limited liquidity in the trading market for Rouse
Common Stock or, to a greater extent, for the Increasing Rate Preferred Stock,
if required to be issued, since there is no existing trading market for the
Increasing Rate Preferred Stock and none may develop, and no other shares of
such preferred stock have been issued. In addition, depending upon the number
of shares that the Holders wish to sell at any time, sales of such shares
could have an adverse effect on the market price of Rouse Common Stock or of
Increasing Rate Preferred Stock, as the case may be, at the time of such
sales.
DILUTION RESULTING FROM THE MERGERS
As a result of the Mergers, the shares of THC Common Stock and Class 1 Units
held by the Stockholders and Unitholders, respectively, will be converted into
the right to receive shares of Rouse Common Stock and Contractual Rights, or
cash, as the case may be, specified in the THC Merger Agreement and the
Partnership Merger Agreement, respectively. On a pro forma equivalent basis
for the year ended December 31, 1995, the Stockholders will experience
immediate and substantial dilution of their interests in the book value,
earnings per share and dividends of THC, from $1,914.92, $679.13 and $138.79
on a historical basis as of or for the year ended December 31, 1995, to
$432.25, $33.25 and $106.40 on a pro forma combined basis as of or for the
year ended December 31, 1995 (using an assumed Exchange Ratio of 133 shares of
Rouse Common Stock for each share of THC Common Stock). See "SUMMARY--
Comparative Per Share Data."
REAL ESTATE DEVELOPMENT AND INVESTMENT RISKS
GENERAL. Real property investments are subject to varying degrees of risk.
Revenues and property values may be adversely affected by the general economic
climate, the local economic climate and local real estate conditions,
including (i) the perceptions of prospective tenants of the attractiveness of
the property; (ii) the ability to provide adequate management, maintenance and
insurance; (iii) the inability to collect rent due to bankruptcy or insolvency
of tenants or otherwise; and
33
<PAGE>
(iv) 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.
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 "THE ROUSE COMPANY--Projects of Rouse" and "THE HUGHES CORPORATION--
Overview," "THE HUGHES CORPORATION--Las Vegas Properties," "THE HUGHES
CORPORATION--Summerlin" and "THE HUGHES CORPORATION--Los Angeles Properties."
ILLIQUIDITY OF REAL ESTATE INVESTMENTS. Real estate investments are
relatively illiquid and therefore may tend to limit the ability of Rouse and
Hughes to react promptly in response to changes in economic or other
conditions.
DEPENDENCE ON RENTAL INCOME FROM REAL PROPERTY. The cash flow and results of
operations of Rouse and of Hughes would be adversely affected if a significant
number of tenants were unable to meet their obligations or if Rouse or Hughes
were unable to lease a significant amount of space in its rental properties on
economically favorable lease terms. In the event of a default by a tenant,
Rouse or THC 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 a rental property.
EFFECT OF UNINSURED LOSS. Both Rouse and Hughes carry comprehensive
liability, fire, flood, extended coverage and rental loss insurance with
respect to their properties with insured limits and policy specifications that
they believe are 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, in the judgment of Rouse or
Hughes, not economically insurable. Should an uninsured loss occur, Rouse or
Hughes could lose both its invested capital in and anticipated profits from
the affected property.
LACK OF GEOGRAPHICAL DIVERSIFICATION. A significant portion of each of
Rouse's and Hughes' properties is geographically concentrated. Rouse's land
sales, for instance, 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 Rouse manages are
located in the Baltimore-Washington corridor, including Columbia, Maryland.
See "THE ROUSE COMPANY--Office, Mixed-Use and Other Properties" and "THE ROUSE
COMPANY--Projects of the Company." Due to the geographic concentration of this
portfolio, Rouse'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.
Substantially all of Hughes' properties are located in the greater Las
Vegas, Nevada and, to a lesser extent, the greater Los Angeles, California
metropolitan areas. Hughes' performance is therefore linked to the economies
of these areas. Performance of Hughes' Nevada properties is also affected by,
among other things, water availability in the Las Vegas metropolitan area,
availability of infrastructure and the expansion of legalized gaming in other
states. For a more detailed discussion of these risks, see "RISK FACTORS--
Additional Risks Relating to the Business of Hughes." See also "THE HUGHES
CORPORATION--The Las Vegas and Los Angeles Markets."
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
34
<PAGE>
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 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 remodeling,
impose certain worker protection and notification requirements and govern
emissions of and exposure to asbestos fibers in the air.
Certain of Rouse'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
their ownership, operation and management of such properties, Rouse and THC
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,
neither Rouse nor Hughes has 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 Rouse or Hughes aware
of any environmental condition with respect to any of its properties that it
believes will involve any material expenditure.
In December 1993 and January 1994, Hughes commissioned two third-party
environmental consultants to perform Phase I environmental audits ("Phase I
Audits") on substantially all of the properties in which Hughes has an
ownership interest. A Phase I Audit is intended to evaluate the environmental
condition of, and potential environmental liabilities associated with, the
surveyed property. The Phase I Audits consisted of non-invasive investigations
of environmental conditions at the properties, generally including a
preliminary investigation of the sites and identification of publicly known
conditions concerning properties in the vicinity of the sites, site
inspections, review of aerial photographs, interviews with knowledgeable
parties, investigation of the presence of above ground and underground storage
tanks presently or formerly at the sites, a visual inspection for potential
wetlands and suspect friable asbestos-containing materials, and the
preparation and issuance of written reports.
The Phase I Audits did not reveal any environmental liability related to the
properties in which Hughes has an ownership interest that Hughes believes
would have a material adverse effect on THC's consolidated financial condition
or results of operations, nor is Hughes aware of any such material liability.
Other than as described in "THE HUGHES CORPORATION--Legal Proceedings" and in
"THE HUGHES CORPORATION--Environmental Matters and Government Regulation,"
Hughes has not been notified by any governmental authority, nor is it
otherwise aware of any material noncompliance, liability, or claim related to
hazardous or toxic substances in connection with any of its properties.
However, no assurance can be given that (i) the Phase I Audits or any other
existing environmental studies with respect to any of Hughes' properties
revealed all environmental liabilities, (ii) any prior owner or tenant of a
property did not create any material environmental condition not known to THC,
(iii) future laws, ordinances or regulations will not impose any material
environmental liability or (iv) a material environmental condition does not
otherwise exist as to any one or more of Hughes' properties.
Further, the Playa Vista project site, which is owned by Maguire Thomas
Partners-Playa Vista, a California limited partnership ("MTP-PV"), and Maguire
Thomas Partners-Playa Vista Area C, a
35
<PAGE>
California limited partnership ("MTP-AC" and, together with MTP-PV, the "PV
Partnerships"), in which HHPLP owns 40% of the outstanding unconsolidated
limited partner interests, has been the subject of extensive environmental
investigations which have detected, among other things, volatile organic
chemicals, heavy metals and fuel hydrocarbons in the soil and groundwater
located on the site. Substantial remediation of the site occurred prior to the
formation of the PV Partnerships. The California Regional Water Quality
Control Board and other local, state and federal agencies have authorized the
installation of a groundwater extraction and treatment system to address
unremediated contamination. MTP-PV has installed the system and commenced
operations. The annual cost of operating the groundwater extraction and
treatment system is estimated to be approximately $150,000. Although MTP-PV is
responsible for any other contamination that is detected, THC and HHPLP could
potentially be liable, under various legal theories, for remediation of the
site if the PV Partnerships fail to remediate the property. HHPLP is party to
a contract with Hughes Aircraft Company and McDonnell Douglas Corporation
regarding the sharing of such costs and other possible costs relating to
environmental clean-up in connection with the site.
In addition, HHPLP has been named in a suit by the Nevada Department of
Environmental Protection, with respect to environmental matters at a site in
which it formerly had an ownership interest. See "THE HUGHES CORPORATION--
Legal Proceedings."
AMERICANS WITH DISABILITIES ACT COMPLIANCE. Under the Americans with
Disabilities Act (the "ADA"), all public accommodations and commercial
facilities are required to meet certain federal requirements related to access
and use by disabled persons. These requirements became effective in 1992. Each
of Rouse and THC 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.
In addition, Rouse 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. Rouse believes that implementation of its ADA Compliance
Plan will not have a material adverse effect on its financial condition.
COMPETITION. There are numerous other developers, managers and owners of
real estate that compete with Rouse and Hughes in seeking management and
leasing revenues, land for development, properties for acquisition and
disposition and tenants for properties. See "THE ROUSE COMPANY--Competition"
and "THE HUGHES CORPORATION--Competition."
CHANGES IN ECONOMIC CONDITIONS. Rouse's business and operating results and
Hughes' business and operating results can be adversely affected by changes in
the economic environment. For example, an increase in interest rates will
affect the interest payable on any outstanding floating rate debt of either
Rouse or Hughes and may result in increased interest expense if debt is
refinanced at higher interest rates. Moreover, in a recessionary economy,
credit conditions may be inflexible and consumer spending conservative, which
could adversely affect Rouse's or Hughes' revenue from its retail centers.
Rouse makes limited use of interest rate exchange agreements, including
interest rate caps and swaps, primarily to manage interest rate risk
associated with variable rate debt. Under interest rate cap agreements, Rouse
makes initial premium payments to the counterparties in exchange for the right
to receive payments from them if interest rates on the related variable rate
debt exceed specified levels during the agreement period. Premiums paid are
amortized to interest expense over the terms of the agreements using the
interest method, and payments receivable from the counterparties are accrued
as reductions of interest expense. Under interest rate swap agreements, Rouse
and the counterparties agree to exchange the difference between fixed rate and
variable rate interest amounts calculated by reference to specified notional
principal amounts during the agreement period. Notional principal amounts are
used to express the volume of these transactions, but the cash requirements
and amounts subject to credit risk are substantially less. Amounts receivable
or payable under swap agreements are accounted for as adjustments to interest
expense on the related debt.
36
<PAGE>
Parties to interest rate exchange agreements are subject to market risk for
changes in interest rates and risk of credit loss in the event of
nonperformance by the counterparties. Rouse deals only with highly rated
financial institution counterparties (which, in certain cases, are also the
lenders on the related debt) and does not expect that any counterparties will
fail to meet their obligations.
At December 31, 1995, Rouse had outstanding approximately $284,000,000
aggregate principal amount of variable rate debt (11.5% of total debt) with a
weighted average interest rate of 7.72%. At December 31, 1995, Rouse had
entered into interest rate cap agreements which expire in December 1996 and
April 1997. These agreements limit the average interest rate on $58,250,000
aggregate principal amount of mortgages to 9.86% through April 1997 and limit
the interest rate on advances of up to $55,000,000 under a line of credit to
11.55% through December 1996. Rouse's interest rate swap agreements were not
material at December 31, 1995, and interest rate exchange agreements did not
have a material effect on the weighted average interest rate at December 31,
1995 or Rouse's interest expense for the years ended December 31, 1995, 1994
and 1993.
At December 31, 1995, approximately 65% of outstanding Hughes' debt, or
approximately $214,000,000, is at fixed interest rates. Interest rate cap and
swap agreements have been used by Hughes to mitigate floating interest rate
exposure in some instances. These hedging instruments are generally obtained
from the financial institutions which were the creditors of the underlying
debt and therefore Hughes does not believe that the counterparties would fail
to meet their obligations. Hughes' variable rate debt at December 31, 1995
consisted of the outstanding balance of its unsecured revolving credit and
term loan of $62,000,000, a $40,000,000 mortgage on a building in Hughes
Center and other notes and mortgages totaling approximately $16,000,000. See
"THE HUGHES CORPORATION--Notes and Mortgages" and the Consolidated Financial
Statements of THC and Notes thereto included elsewhere in this Proxy
Statement/Prospectus.
RECENT OPERATING RESULTS AND OTHER DATA AND CAPITAL STRUCTURE OF ROUSE
Rouse incurred net losses per share of Rouse Common Stock in 1995 and in
each of the preceding three years, and its combined fixed charges and Rouse
Preferred Stock dividend requirements exceeded its earnings in 1995 and in
each of the preceding four years. While net cash provided by Rouse's operating
activities has generally been increasing during these periods, its net
earnings (loss) is affected significantly by noncash charges (primarily
depreciation of property, amortization or deferred costs of projects and net
provisions for losses on dispositions of properties) which reduce reported
earnings under generally accepted accounting principles. In addition, Rouse
has a relatively high level of debt, including capital leases, to total
capital (approximately 93.4% on a historical cost basis at December 31, 1995),
and a substantial portion (approximately 70% at December 31, 1995) of the debt
consists of fixed rate nonrecourse loans collateralized by operating
properties.
ADDITIONAL RISKS RELATING TO THE BUSINESS OF HUGHES
The following factors relate specifically to the businesses and properties
of Hughes. Because these factors may affect the future cash flow and appraised
value of the Business Units upon which the number of Contingent Shares or
Contingent Preferred Shares issuable to the Stockholders will be based, these
factors should be examined with the factors described in "RISK FACTORS--Risks
Relating to the Contingent Stock Agreement, the Contingent Shares and the
Contingent Preferred Shares" in assessing the value of the consideration to be
received by the Stockholders in the THC Merger.
NEVADA RISKS
Hughes owns approximately 2.9 million rentable square feet, the Tournament
Players Club golf club at Summerlin ("TPC"), 3,123 acres of development
property and 15,832 acres of investment property located in Nevada. These
properties represent 83%, 100%, 99% and 97% of Hughes' rentable square
footage, other income producing acres, development acres and investment acres,
respectively. All but an insignificant portion of these properties could be
adversely affected by the following risks.
37
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WATER AVAILABILITY IN THE LAS VEGAS METROPOLITAN AREA. The Las Vegas
metropolitan area is a desert environment where the ability to develop real
estate is largely dependent on the continued availability of water. The Las
Vegas metropolitan area has a limited supply of water to service future
development and it is uncertain whether the metropolitan area will be
successful in obtaining new sources of water. If the Las Vegas metropolitan
area does not obtain new sources of water, development activities could be
materially hindered. See "THE HUGHES CORPORATION--Environmental Matters and
Government Regulation--Water Availability in the Las Vegas Valley."
AVAILABILITY OF INFRASTRUCTURE. As with most growing communities, the rate
of growth in the Las Vegas metropolitan area is straining the capacity of the
community's infrastructure, particularly with respect to schools, water
delivery systems, transportation, flood control and sewage treatment. Certain
responsible federal, state and local government agencies finance the
construction of infrastructure improvements through a variety of means,
including general obligation bond issues, some of which are subject to voter
approval. The failure of these agencies to obtain financing for or to complete
such infrastructure improvements may materially delay development in the area
or materially increase development costs through the imposition of impact fees
and other fees and taxes, or require the construction or funding of portions
of such infrastructure. The availability of infrastructure or water has not
had a negative impact on Hughes' development or investment activities to date.
NON-NEVADA GAMING. Until this decade, the gaming industry was principally
limited to the traditional markets of Nevada and New Jersey. Several states,
however, have legalized casino gaming and other forms of gambling in recent
years. As of December 31, 1995, ten states had legalized some form of casino
gaming and 37 states operated lotteries. In addition, as of December 31, 1995,
24 states had negotiated compacts with Indian tribes pursuant to the Indian
Gaming Regulatory Act of 1988 for some form of gaming on Indian lands. These
additional gaming venues create alternative destinations for gamblers and
tourists who might otherwise have visited Las Vegas. Hughes is not able to
determine at this time if current or future legalized gaming venues will have
an adverse impact on the Las Vegas economy and thereby adversely impact
Hughes' properties in the Las Vegas area. See "THE HUGHES CORPORATION--The Las
Vegas and Los Angeles Markets."
CALIFORNIA RISKS. Howard Hughes Center and certain of Hughes' other rental
and investment properties are located in the Los Angeles metropolitan area and
in San Bernardino County and are, therefore, subject to the risks of property
ownership in these areas. Hughes owns 596,809 rentable square feet, 32 acres
of development property and 431 acres of investment property in the Los
Angeles area and in San Bernardino County. These properties represent 17%, 1%
and 3% of Hughes' rentable square footage, development acres and investment
acres, respectively. The rentable square footage in Los Angeles consist of
417,682 square feet of commercial property and 179,127 square feet of retail
property. Southern California real estate is currently adversely impacted by
both a weak economy and an oversupply of commercial space, resulting in
reduced demand for real estate and lower selling and leasing prices. See "THE
HUGHES CORPORATION--Los Angeles Properties," "THE HUGHES CORPORATION--
Investment Properties" and "THE HUGHES CORPORATION--Competition--Los Angeles
Office Market."
On January 17, 1994, the Los Angeles metropolitan area experienced a major
earthquake. Although none of Hughes' properties suffered any material damage,
many properties in the Los Angeles area were destroyed or severely damaged.
Hughes' properties in the Los Angeles area are subject to the risk of future
earthquakes. Additional risks to property ownership in the Los Angeles area
include fires, drought, floods, restrictive regulatory policies, high taxes
and urban problems.
JOINT VENTURE RISKS
LIMITED CONTROL WITH RESPECT TO CERTAIN PROPERTIES. HHPLP owns 40% of the
outstanding unconsolidated limited partner interests in the PV Partnerships.
In addition, HHPLP owns interests in three consolidated and three
unconsolidated joint ventures (each a "Joint Venture") with joint venture
38
<PAGE>
partners (each, a "Joint Venture Partner") which are unaffiliated third
parties. Of these Joint Ventures, HHPLP is the sole general partner of one
limited partnership, the managing general partner of one general partnership,
the non-managing general partner of one general partnership and a limited
partner in three limited partnerships. The Joint Venture Partners' ownership
interests in the Joint Ventures range from 25.0% to 66.7%. With respect to
Joint Ventures in which HHPLP serves as general partner, HHPLP may have
certain fiduciary responsibilities to other partners in those Joint Ventures
which must be considered when making decisions that affect properties owned by
such Joint Ventures. Such fiduciary duties may conflict with the interests of
HHPLP and its Unitholders in certain instances. HHPLP does not have sole
control of certain major decisions relating to certain of such properties
(including decisions relating to sale, financing, refinancing, calling for
capital contributions and the selection of a successor property manager),
although HHPLP generally will have a right of approval with respect to such
matters. In addition, HHPLP may not have unfettered control over the timing
and amount of distributions from such Joint Ventures. With respect to the PV
Partnerships and Joint Ventures in which HHPLP is not the managing general
partner, HHPLP does not have day-to-day operational control. These limitations
may result in decisions by third parties with respect to properties owned by
the PV Partnerships or such Joint Ventures that do not fully reflect the
interests of HHPLP at such time. HHPLP is contractually restricted from
selling certain of its Joint Venture properties without the consent of the
relevant Joint Venture Partners. In addition, the sale or transfer of
interests in certain of the Joint Ventures is subject to rights of first
refusal and certain partnership agreements provide for buy-sell rights or
similar arrangements. Such rights may be triggered if HHPLP attempts to sell
its interest and thus may affect HHPLP's ability to sell such interest. In
addition, such rights may be triggered at a time when HHPLP may not desire to
sell but may be forced to do so because it does not have the resources to
purchase the Joint Venture Partner's interest. Hughes believes that its
operations have not been materially adversely affected by the risks associated
with Joint Ventures to date. See "THE HUGHES CORPORATION--Los Angeles
Properties--Playa Vista."
BANKRUPTCY OF JOINT VENTURE PARTNERS. The bankruptcy of a Joint Venture
Partner could adversely affect properties owned by the relevant Joint Venture,
principally because of the problems created by dealing with a bankruptcy court
regarding material partnership decisions. Under the bankruptcy laws, HHPLP
would be delayed and/or precluded by the automatic stay from taking certain
actions which affect the estate of the Joint Venture Partner. If a Joint
Venture has incurred recourse obligations, the discharge in bankruptcy of a
Joint Venture Partner might result in the ultimate liability of HHPLP for a
greater portion of such obligations that it would otherwise bear. In addition,
even in situations where the Joint Venture Partner (or its estate) was not
completely relieved of liability for such obligations, HHPLP, if it is a
general partner of the Joint Venture, might be required to satisfy such
obligations and then rely upon a claim against the Joint Venture Partner's
estate for reimbursement.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Proxy Statement/Prospectus contains forward-looking statements. These
forward-looking statements reflect Rouse's and/or Hughes' current views with
respect to future events and financial performance. Actual results could
differ materially from those projected in the forward-looking statements as a
result of the risk factors set forth above. The words "believe," "expect" and
"anticipate" and similar expressions identify forward-looking statements. See
also "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF ROUSE--General," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ROUSE--Operating Results,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION OF ROUSE--Financial Condition, Liquidity and Capital Resources,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THC--Liquidity and Capital Resources" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
THC--Operating Results."
39
<PAGE>
THE ROUSE COMPANY
The Rouse Company is one of the largest publicly traded real estate
companies in the United States. Through its subsidiaries and affiliates
(collectively, with The Rouse Company, referred to as "Rouse"), Rouse is
engaged in (i) the ownership, management, acquisition and development of
rental and other real estate in the United States, including retail centers,
office buildings, mixed-use projects, community retail centers and hotels, and
the management of a retail center in Canada, and (ii) the development and sale
of land to builders and other developers, primarily around Columbia, Maryland,
for residential, commercial and industrial uses.
OPERATING PROPERTIES
Rouse 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 Rouse 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. Rouse manages 73 retail centers totaling
over 45 million square feet of space and including 146 department stores and
almost 20 million square feet of small store gross leasable area. Included in
the 73 retail centers are eight Columbia village centers (.8 million square
feet) and five centers (.6 million square feet of small shops) that are parts
of large, mixed-use projects. The remaining 60 centers include 57 regional
malls (approximately 17.7 million square feet of mall space) that are
primarily located in the suburbs of major metropolitan areas and typically
have three or more department stores attached, and also include nine specialty
retail centers (1.7 million square feet) that are in the downtowns of major
cities and do not have department stores attached.
The majority of Rouse's revenues, Earnings Before Depreciation and Deferred
Taxes ("EBDT") and Current Value Shareholders' Equity is derived from its
retail centers, particularly those where Rouse 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 Rouse
has ownership interests ranging from 30% to 100%. In the remaining 18 centers,
Rouse's ownership interest is generally 10% or less, and Rouse normally
receives fees for management, leasing and development activities and an
incentive participation in the growth of the centers' cash flows and values.
The principal activities in which Rouse engages in connection with its
operation and management of retail centers include: negotiating lease terms
with present and prospective tenants, identifying and attracting desirable new
tenants, conducting local market and consumer research, developing and
implementing short- and long-term merchandising and leasing programs,
assisting tenants in the presentation of their merchandise and the layout of
their stores and storefronts and maintaining the buildings and common areas.
OFFICE, MIXED-USE AND OTHER PROPERTIES. Rouse manages more than 100
office/industrial buildings totaling approximately 11.2 million square feet of
gross leasable area. Of this total, 1.8 million square feet is located in
seven buildings which are part of major mixed-use projects in Phoenix,
Baltimore, Seattle and Portland; 3.1 million square feet is located in
Columbia in projects that are wholly-owned; .7 million square feet is located
in Owings Mills, Maryland in four buildings that are jointly-owned; .5 million
square feet is located at or near retail centers; and the remaining 5.1
million square feet is primarily located in the Baltimore-Washington corridor
and is part of a joint venture owned by Rouse (5%) and Teachers Insurance and
Annuity Association of America (95%).
40
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Rouse owns and manages two hotels, one each in Baltimore and Columbia, and
has an ownership interest in an additional hotel in Baltimore.
LAND SALES
Rouse develops and sells land primarily in and around Columbia, Maryland,
which is a new town launched by Rouse in 1962. Today, Columbia has a
population of approximately 81,000 and is home to 2,500 businesses which
employ 57,000 people. There are presently approximately 1,800 acres of net
saleable land available for residential, commercial and industrial uses. Rouse
may develop and own certain projects in Columbia, primarily retail centers and
office buildings.
DEVELOPMENT AND ACQUISITION ACTIVITIES
Rouse renovates and expands existing retail centers and develops suburban
and downtown retail centers and mixed-use projects, primarily for ownership.
In addition, it is capable of serving as the master developer for certain
mixed-use projects, with Rouse generally owning at least the retail component
of such projects. The activities involved in the development, renovation and
expansion of retail centers and mixed-use projects include: initial market and
consumer research, evaluating and acquiring land sites, obtaining necessary
public approvals, engaging architectural and engineering firms to design the
project, estimating development costs, developing and testing pro forma
operating statements, selecting a general contractor, arranging construction
and permanent financing, identifying and obtaining department stores and other
tenants, negotiating lease terms, negotiating partnership and joint venture
agreements and promoting new, renovated or expanded retail centers and mixed-
use projects. Rouse also develops retail centers for others, with Rouse
earning incentive fees and, in some instances, equity interests in the
centers.
In 1995, Rouse 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 acquired interests in Collin
Creek Mall in Plano, Texas and Brandywine Square in Exton, Pennsylvania; has
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.
41
<PAGE>
PROJECTS OF ROUSE
Set forth below is a table that provides information with respect to Rouse'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
- --------------------------- ----------- --------------------- ---------- ----------
<S> <C> <C> <C> <C>
Almeda Mall, Houston, 10/68 Foley's; JCPenney 802,000 294,000
TX (a)
The Shops at Arizona 11/90 -- 151,000 151,000
Center, Phoenix, AZ (a)
Augusta Mall, Augusta, 8/78 Rich's; R.H. Macy; 902,000 313,000
GA (b) JCPenney; Sears
Bayside Marketplace, 4/87 -- 223,000 223,000
Miami, FL (b)
Beachwood Place, 8/78 Saks Fifth Avenue; 453,000 228,000
Beachwood, OH (b) Dillard's
Burlington Center, 8/82 Strawbridge & 567,000 246,000
Burlington, NJ (d) Clothier; Sears
Cherry Hill Mall, Cherry 10/61 Strawbridge & 1,285,000 544,000
Hill, NJ (a) Clothier; R.H. Macy;
JCPenney
The Citadel, Colorado 8/80 Mervyn's; JCPenney; 1,128,000 460,000
Springs, CO (d) Foley's; Dillard's
College Square, Cedar 8/80 Von Maur; Younkers; 560,000 313,000
Falls, IA (d) Wal-Mart
Collin Creek, Plano, TX 9/95 Dillard's; Foley's; 1,123,000 333,000
(b) Sears; JCPenney;
Mervyn's
The Mall in Columbia, 8/71 JCPenney; Hecht's; 876,000 421,000
Columbia, MD (a) Sears
Eastfield Mall, 4/68 Sears; Filene's; 674,000 217,000
Springfield, MA (a) JCPenney
Echelon Mall, Voorhees, 9/70 Strawbridge & 1,065,000 481,000
NJ (a) Clothier; JCPenney;
Boscov's
Entertainment Center at 11/95 Edwards Theatre 218,000 108,000
Irvine Spectrum,
Irvine, CA (c)
Exton Square, Exton, 3/73 Strawbridge & 443,000 253,000
PA (a) Clothier
Faneuil Hall 8/76 -- 215,000 215,000
Marketplace, Boston,
MA (a)
Fashion Island, Newport 8/90 The Broadway; 1,205,000 593,000
Beach, CA (c) Bullock's;
Robinson's--May;
Neiman Marcus
Franklin Park, Toledo, 7/71 Hudson's; JCPenney; 1,082,000 313,000
OH (b) Jacobson's; Lion
The Gallery at 9/87 -- 139,000 139,000
Harborplace, Baltimore,
MD (a)
</TABLE>
42
<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>
The Gallery at Market 8/77 Strawbridge & 1,320,000 360,000
East, Philadelphia, Clothier; Clover
PA (a)(c)
Governor's Square, 8/79 Burdine's; Sears; 1,031,000 340,000
Tallahassee, FL (b) JCPenney; Dillard's
The Grand Avenue, 8/82 Marshall Field; The 842,000 242,000
Milwaukee, WI (a) Boston Store
Greengate Mall, 8/65 Lazarus; Montgomery 612,000 233,000
Greensburg, PA (a) Ward
Harborplace, Baltimore, 7/80 -- 136,000 136,000
MD (a)
Harundale Mall, Glen 10/58 Value City 309,000 232,000
Burnie, MD (b)
Highland Mall, Austin, 8/71 Dillard's; JCPenney; 1,099,000 367,000
TX (b) Foley's
Hulen Mall, Ft. Worth, 8/77 Foley's; Montgomery 924,000 327,000
TX (a) Ward; Dillard's
The Jacksonville 6/87 -- 128,000 128,000
Landing, Jacksonville,
FL (a)
Mall St. Matthews, 3/62 JCPenney; Bacon's; 1,092,000 353,000
Louisville, KY (a) Dillard's
Marshall Town Center, 8/80 JCPenney; Younkers; 340,000 141,000
Marshalltown, IA (d) Menard's, Stage
Midtown Square, 10/59 Burlington Coat 235,000 190,000
Charlotte, NC (a) Factory
Mondawmin (a)/Metro 1/78; -- 496,000 496,000
Plaza (b), 12/82
Baltimore, MD
Muscatine Mall, 8/80 JCPenney; Wal-Mart 347,000 178,000
Muscatine, IA (d)
The Shops at National 5/84 -- 125,000 125,000
Place, Washington,
D.C. (a)(c)
North Grand, Ames, IA 8/80 JCPenney; Sears; 350,000 157,000
(d) Younkers
North Star, San Antonio, 9/60 Dillard's; Foley's; 1,288,000 487,000
TX (b) 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, 10/68 Foley's; JCPenney 800,000 292,000
TX (a)
Oakwood Center, Gretna, 10/82 Sears; Dillard's; 960,000 362,000
LA (a) Mervyn's; Maison
Blanche
Owings Mills, Baltimore, 7/86 R.H. Macy; Hecht's 809,000 325,000
MD (a)
Paramus Park, Paramus, 3/74 R.H. Macy; Sears 755,000 279,000
NJ (a)
Perimeter Mall, Atlanta, 8/71 Rich's; JCPenney; 1,224,000 444,000
GA (b) R.H. Macy
Pioneer Place, Portland, 3/90 Saks Fifth Avenue 220,000 160,000
OR (a)
</TABLE>
43
<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>
Plymouth Meeting, 2/66 Strawbridge & 784,000 415,000
Plymouth Meeting, Clothier
PA (a)
Randhurst, Mt. Prospect, 7/81 Carson, Pirie, Scott; 1,324,000 591,000
IL (d) JCPenney; Montgomery
Ward; Kohls
Ridgedale Center, 1/89 Dayton's; JCPenney; 1,039,000 334,000
Minnetonka, MN (d) Sears
Riverwalk, New Orleans, 8/86 -- 179,000 179,000
LA (a)
St. Louis Union Station, 8/85 -- 172,000 172,000
St. Louis, MO (a)
Salem Centre, Salem, 6/90 Meier & Frank; 649,000 211,000
OR (d) JCPenney; Mervyn's;
Nordstrom
Salem Mall, Dayton, 10/66 Lazarus; Sears; 817,000 312,000
OH (a) JCPenney
Santa Monica Place, 10/80 The Broadway; 570,000 287,000
Santa Monica, CA (a) Robinson's--May
Sherway Gardens, 12/78 Eaton's; The Bay 968,000 524,000
Toronto, ONT (c)
South DeKalb, Decatur, 7/78 Rich's; JCPenney 691,000 329,000
GA (a)
Southland, Taylor, MI 1/89 Hudson's; Mervyn's; 903,000 320,000
(d) JCPenney
South Street Seaport, 7/83 -- 257,000 257,000
New York, NY (a)
Staten Island Mall, 11/80 Sears; R.H. Macy; 1,224,000 618,000
Staten Island, NY (d) JCPenney
Tampa Bay Center, Tampa, 8/76 Burdine's; Sears; 883,000 325,000
FL (b) Montgomery Ward
Town and Country Center, 2/88 Sears; Marshalls; 645,000 467,000
Miami, FL (c) Mervyn's
Underground Atlanta, 6/89 -- 219,000 219,000
Atlanta, GA (c)
Village of Cross Keys, 9/65 -- 68,000 68,000
Baltimore, MD (a)
Westlake Center, 10/88 Nordstrom; Bon Marche 723,000 118,000
Seattle, WA (b)
Westland Mall, West 8/80 JCPenney; Younkers 344,000 175,000
Burlington, IA (d)
White Marsh, Baltimore, 8/81 R.H. Macy; JCPenney; 1,178,000 359,000
MD (a) Hecht's; Sears
Willowbrook, Wayne, NJ 9/69 R.H. Macy; 1,499,000 485,000
(b) Steinbach's; Stern's;
Sears
Woodbridge Center, 3/71 Sears; JCPenney; 1,544,000 560,000
Woodbridge, NJ (a) ---------- ----------
Stern's; Steinbach's;
Fortunoff
Total Retail Centers
in Operation 45,787,000 19,766,000
========== ==========
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
RETAIL SQUARE FOOTAGE
----------------------
RETAIL CENTERS UNDER
CONSTRUCTION OR IN DEVELOPMENT DEPARTMENT STORES TOTAL CENTER MALL ONLY
- ------------------------------ -------------------- ------------ ---------
<S> <C> <C> <C>
The Marketplace at Oviedo Crossing,
Orlando, FL Dillard's; Gayfer's 700,000 400,000
Beachwood Place Expansion,
Beachwood, OH Nordstrom 462,000 120,000
Northwest Arkansas Mall Expansion,
Fayetteville, AR JCPenney; Dillard's 302,000 42,000
Oakwood Center Expansion, Gretna,
LA JCPenney 125,000 --
Burlington Center Expansion,
Burlington, NJ JCPenney 102,000 --
Perimeter Mall Expansion, Atlanta,
GA Nordstrom 225,000 --
--------- -------
Total Retail Centers
Under Construction
or in Development 1,916,000 562,000
========= =======
</TABLE>
<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 110,000
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 I (b) Baltimore, MD 143,000
Alexander & Alexander Building II (b) Baltimore, MD 198,000
Blue Cross & Blue Shield Building I (b) Baltimore, MD 270,000
Blue Cross & Blue Shield Building II (b) Baltimore, MD 117,000
One Arizona Center (a) Phoenix, AZ 330,000
Two Arizona Center (a) Phoenix, AZ 449,000
First National Bank Plaza (a) Mt. Prospect, IL 66,000
Faneuil Hall Marketplace (a) Boston, MA 147,000
Pioneer Place (a) Portland, OR 283,000
Westlake Center (b) Seattle, WA 342,000
---------
Total Office Projects
in Operation 3,087,000
=========
</TABLE>
<TABLE>
<CAPTION>
HOTEL PROJECTS IN OPERATION LOCATION ROOMS
- --------------------------- ------------- -----
<S> <C> <C>
Cross Keys Inn (a) Baltimore, MD 146
Stouffer Harborplace Hotel Baltimore, MD 622
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
COLUMBIA PROPERTIES IN OPERATION TYPE OF PROJECT SQUARE FEET
- -------------------------------- ------------------------- -----------
<S> <C> <C>
The Mall in Columbia* (a) Retail 876,000
Gateway Plaza (a) Retail 24,000
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
30 Corporate Center (a) Office 134,000
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
Parkside (a) Office 113,000
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 4,781,000
=========
</TABLE>
- --------
* Also listed in previous table of Retail Centers in Operation
(a) Projects are wholly owned by subsidiaries of Rouse.
(b) Projects are owned by joint ventures or partnerships and are managed by
subsidiaries of Rouse for a fee (except for Collin Creek which Rouse will
begin managing in 1997). Rouse's ownership interest, through its
subsidiaries, is at least 50% (except for North Star and Willowbrook in
which Rouse has 37 1/2% interests and Collin Creek in which Rouse has a
30% interest).
(c) Projects are managed by subsidiaries of Rouse 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 Rouse and are managed
by subsidiaries of Rouse for a fee plus a share of cash flow and a share
of proceeds from sales or refinancings. Rouse's ownership interest in the
partnerships is determined based upon the results of operations.
46
<PAGE>
<TABLE>
<CAPTION>
OFFICE PROJECTS OWNED BY ROUSE-
TEACHERS PROPERTIES, INC. LOCATION SQUARE FEET
- ------------------------------- -------------------------- -----------
<S> <C> <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 99,000
Schilling Plaza South Hunt Valley, MD 108,000
One Hunt Valley Hunt Valley, MD 215,000
Inglewood Office Centres 1, 2 Prince George's County, MD 222,000
Inglewood Tech Centers I, II, III, IV &
V Prince George's County, MD 316,000
Silver Spring Metro Plaza Silver Spring, MD 690,000
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
Senate Plaza Camp Hill, PA 231,000
---------
Total Office Projects
Owned by Rouse-Teachers
Properties, Inc. 2,929,000
=========
<CAPTION>
INDUSTRIAL PROJECTS OWNED BY ROUSE-
TEACHERS PROPERTIES, INC. LOCATION SQUARE FEET
- ----------------------------------- -------------------------- -----------
<S> <C> <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>
47
<PAGE>
LEASED PROPERTIES
Rouse leases its headquarters building (approximately 127,000 square feet)
in Columbia, Maryland for an initial term of 30 years which expires in 2003
with options for two 15-year renewal periods. The lease on the headquarters
building is accounted for as a capital lease.
In addition to the lease on Rouse's headquarters, the properties set forth
below are subject, in whole or in part, to leases which provide an option to
purchase (or repurchase) the property and/or to renew the leases for one or
more renewal periods. The years of expiration indicated below assume all
options to extend the terms of the leases are exercised.
<TABLE>
<CAPTION>
YEAR OF
PROPERTY NATURE OF INTEREST EXPIRATION OF LEASE
- ------------------------ ---------------------------------- -------------------
<S> <C> <C>
Arizona Center Leasehold Various dates from
2017 to 2050
Augusta Mall Leasehold by joint venture 2068
Bayside Marketplace Leasehold by joint venture 2062
Columbia Mall, Inc.-- Leasehold and fee 2000
American City Building
Columbia Mall, Inc.-- Leasehold and fee 2003
Columbia Cinema
Columbia Mall, Inc.-- Leasehold and fee 2012
Exhibit Building
Columbia Mall, Inc.-- Leasehold 2062
Oakland Building
Echelon Mall Leasehold 2008
Faneuil Hall Marketplace Leasehold 2074
First National Bank Leasehold 2013
Plaza
Franklin Park Leasehold and fee by joint venture 2024
The Gallery at Market Leasehold 2082
East
Governor's Square Leasehold by joint venture 2054
Greengate Mall Leasehold 2070
Harborplace Leasehold 2054
Harundale Mall Leasehold and fee owned 2059
jointly with others
Highland Mall Leasehold and fee by joint venture 2070
The Jacksonville Landing Leasehold 2057
Mall St. Matthews Leasehold 2053
Midtown Square Leasehold 2055
Pioneer Place Leasehold 2076
Plymouth Meeting Leasehold and fee 2063
Riverwalk Leasehold by joint venture 2076
St. Louis Union Station Leasehold 2060
South Street Seaport Leasehold 2031
Tampa Bay Center Leasehold and fee 2047
Westlake Center Leasehold by joint venture 2043
</TABLE>
COMPETITION
In all aspects of Rouse's business pertaining to the ownership, management,
acquisition or development of rental and other real estate, Rouse operates in
highly competitive markets. With respect to the leasing and operation or
management of developed properties, each project faces market competition from
existing and future developments in its geographical market area. Rouse
competes with developers and other buyers with respect to the acquisition of
development sites or centers and for financing opportunities in the money
markets. Rouse also faces competition in and around Columbia, Maryland with
respect to the development and sale of land for residential, commercial and
industrial uses.
48
<PAGE>
SEASONALITY
Neither Rouse's business, taken as a whole, nor any of its industry
segments, is seasonal in nature.
REGULATION
Federal, state and local statutes and regulations relating to the protection
of the environment have previously had no material effect on Rouse's business.
Future development opportunities of Rouse may involve additional capital and
other expenditures in order to comply with such statutes and regulations. It
is impossible at this time to predict with any certainty the magnitude of any
such expenditures or the long-range effect, if any, on Rouse's operations.
Compliance with such laws has had no material adverse effect on the operating
results or competitive position of Rouse in the past; Rouse anticipates that
they will have no material adverse effect on its future operating results or
its competitive position in the industry.
CUSTOMERS
None of Rouse's industry segments depends upon a single customer or a few
customers, the loss of which would have a materially adverse effect on such
segment. No customer accounts for ten percent or more of the consolidated
revenues of Rouse.
EMPLOYEES
Rouse and its subsidiaries had 4,283 full- and part-time employees at
December 31, 1995.
LEGAL PROCEEDINGS
On November 6, 1990, Robert P. Guastella Equities, Inc. ("Plaintiff"), a
former tenant at the Riverwalk Shopping Center in New Orleans, Louisiana
("Riverwalk"), which is owned and operated by New Orleans Riverwalk
Associates, an affiliate of Rouse ("NORA"), filed suit in the Civil District
Court of Orleans Parish, Louisiana against NORA, Rouse, two Rouse affiliates -
Rouse-New Orleans, Inc. and New Orleans Riverwalk Limited Partnership - and
Connecticut General Life Insurance Company, which is a general partner of NORA
(collectively, "Defendants"). Plaintiff alleged that Defendants breached
Plaintiff's lease agreement with NORA for the operation of a restaurant at
Riverwalk by (i) failing to prevent the leased premises from flooding, (ii)
refusing to permit entertainment on the leased premises, (iii) interfering
with the operation of air conditioning equipment on the leased premises and
(iv) failing to provide adequate security. Plaintiff claimed that as a result
of these breaches it suffered losses and could not pay the rentals due under
the lease agreement, as a result of which the lease and its tenancy were
terminated by NORA. Plaintiff sought damages of approximately $600,000 for
these alleged breaches. In addition, on September 3, 1992, Plaintiff claimed
$33,000,000 for alleged lost future profits which it claimed it would have
earned had its lease not been terminated. All Defendants filed answers denying
the claims of Plaintiff and asserted other defenses. NORA also asserted a
counterclaim against Plaintiff and its guarantors, Robert Guastella and
Charles Kovacs, for past due rentals and other charges in the approximate
amount of $300,000 plus interest and attorneys' fees as provided for in the
lease agreement. The case was tried before a jury and, on October 28, 1993,
the jury returned a verdict against Defendants upon which judgment was entered
by the trial court on January 7, 1994, in the total net amount of
approximately $9,128,000 (which included a net award for lost future profits
of approximately $8,640,000) plus interest from the date the suit was filed
and attorneys' fees in an amount to be determined. On May 6, 1994, the trial
court denied all post-trial motions of both Plaintiff and Defendants. The
trial court also entered an amended judgment in which it awarded Plaintiff
$450,000 in attorneys' fees and awarded Defendants $25,000 in attorneys' fees.
49
<PAGE>
On May 23, 1994, Defendants appealed this judgment to the Louisiana Court of
Appeal, Fourth District. On November 16, 1995, the Louisiana Court of Appeal
in a 2 to 1 decision reduced the judgment by $240,000, but otherwise affirmed
the damage award to Plaintiff. Defendants subsequently filed a motion for
reconsideration with the Louisiana Court of Appeal, which was denied on
December 19, 1995, again in a 2 to 1 decision. On January 18, 1996, Defendants
filed a petition requesting the Louisiana Supreme Court to consider a further
appeal of this judgment. Plaintiff filed an opposition to this petition on
February 2, 1996 and Defendants submitted a reply brief on February 21, 1996.
On April 8, 1996, the Louisiana Supreme Court granted Defendants' petition to
consider a further appeal of the judgment.
Rouse recorded in the fourth quarter of 1995 a pre-tax provision in the
amount of $12,321,000, representing the full amount of the modified award
(including attorneys' fees) plus interest, less pre-tax provisions previously
recorded totaling $1,150,000. Rouse believes that the ultimate disposition of
this matter will not have a material adverse effect on Rouse's consolidated
financial position.
MERGER SUB AND PARTNERSHIP MERGER SUB
Each of TRC Acquisition Company I and TRC Acquisition Company II is a
Delaware corporation and a direct or indirect wholly owned subsidiary of
Rouse. Neither has engaged in any business other than in connection with the
Merger Agreement or the Partnership Merger Agreement, as the case may be.
50
<PAGE>
THE HUGHES CORPORATION
OVERVIEW
Hughes is a vertically-integrated real estate investment, management and
development company whose assets are located principally in the Las Vegas,
Nevada metropolitan area and, to a lesser extent, in the Los Angeles,
California metropolitan area. Hughes's real estate assets consist of: (i)
office buildings, mixed-use industrial properties and retail centers which
produce rental revenues ("rental properties"); (ii) land under development
("development properties"); and (iii) land planned for, but not currently
under, development and surplus land that Hughes intends to sell as market
conditions permit ("investment properties").
As of December 31, 1995, Hughes (including its consolidated Joint Ventures)
owned approximately 4.0 million rentable square feet (including ground
leases), 3,155 acres of development properties and approximately 16,263 acres
of investment properties. Substantially all of Hughes's rental properties were
constructed by Hughes or its Joint Venture Partners, as opposed to having been
acquired through purchase from third-party owners. Approximately 85% of
Hughes's rentable square feet of rental properties is in the Las Vegas
metropolitan area, with the remainder in the Los Angeles metropolitan area. At
December 31, 1995, the net book value of Hughes's real estate holdings was
$442.9 million.
The following table sets forth information concerning the size of Hughes'
holdings (including the interests of Joint Venture Partners in consolidated
Joint Ventures) and, for each site, the amount of rental property, development
property and investment property at December 31, 1995:
<TABLE>
<CAPTION>
TPC
RENTABLE GOLF
SQUARE COURSE DEVELOPMENT INVESTMENT
PROJECT FEET(1) ACRES ACRES ACRES
------- --------- ------ ----------- ----------
<S> <C> <C> <C> <C>
Las Vegas:
Hughes Center...................... 748,927 -- 39 --
Hughes Airport Center.............. 1,364,653 -- 156 --
Hughes Cheyenne Center............. 155,384 -- 197 --
Fashion Show Mall.................. 840,575(1) -- -- --
Summerlin.......................... 314,875 -- 2,731 14,585
North Las Vegas Land............... -- -- -- 692
TPC Golf Course.................... -- 234 -- --
Other.............................. 16,512 -- -- 95
Los Angeles:
Howard Hughes Center............... 454,641 -- 32 --
Bluffs and Beach Lots.............. -- -- -- 53
Other.............................. 142,168 -- -- 138
Other Areas.......................... -- -- -- 700
--------- --- ----- ------
Total................................ 4,037,735 234 3,155 16,263
========= === ===== ======
</TABLE>
- --------
(1) Includes approximately 532,000 square feet of retail space constructed and
owned by major tenants at the Fashion Show Mall pursuant to ground leases
between such tenants and the Joint Venture which owns the Fashion Show
Mall.
51
<PAGE>
The following table sets forth a summary of the location and type of Hughes'
rental properties (including ground leases and properties owned by its
consolidated Joint Ventures) by rentable square footage as of December 31,
1995:
RENTABLE SQUARE FOOTAGE OF PROPERTIES
BY LOCATION AND TYPE OF PROPERTY
<TABLE>
<CAPTION>
PERCENT NUMBER OF
AREA OFFICE INDUSTRIAL RETAIL TOTAL OF TOTAL BUILDINGS
---- --------- ---------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Las Vegas, NV........... 1,263,551 1,320,300 857,075 3,440,926 85.2% 46
Los Angeles, CA......... 417,682 -- 179,127 596,809 14.8% 6
--------- --------- --------- --------- -----
Total................. 1,681,233 1,320,300 1,036,202 4,037,735 100.0%
========= ========= ========= ========= =====
Percent of Total...... 41.6% 32.7% 25.7% 100.0%
Number of Buildings... 25 20 7 52
</TABLE>
The following table presents information regarding Hughes' rental properties
(including ground leases and rental properties owned by Hughes' consolidated
Joint Ventures) including location, square footage and significant tenants as
of December 31, 1995.
<TABLE>
<CAPTION>
YEAR TOTAL
HUGHES' BUILT/ RENTABLE
PROJECT/BUILDING OWNERSHIP PURCHASED SQ. FT. MAJOR TENANTS
---------------- --------- --------- --------- -------------
<S> <C> <C> <C> <C>
LAS VEGAS PROPERTIES:
HUGHES CENTER
First Interstate Tow- 100% 1986 259,080 First Interstate Bank, Hughes,
er.................... Kummer Kaempfer Bonner Renshaw,
Deloitte & Touche LLP, Gordon &
Silver, Ltd.
3720 Howard Hughes 100% 1989 38,168 Showboat Operations, Reynolds &
Parkway............... Reynolds Healthcare, The Nevada
Clinic
3753/63 Howard Hughes
Parkway............... 100% 1991 120,824 AT&T Wireless Services, Business
Center of Las Vegas, Kelly G.
Hawkins & Associates
3770 Howard Hughes 67% 1990 63,758 American Pacific Corporation,
Parkway............... Dain Bosworth, Inc., G.M.A.C.
3773 Howard Hughes 100% 1995 164,673 Jones, Jones, Close & Brown,
Parkway............... Quirk & Tratos, John Garner/NW
Mutual
3930 Howard Hughes 50% 1994 85,924 Hilton Hotels Corporation,
Parkway............... Parsons Brinckerhoff Quade &
Douglas, A.G. Edwards & Sons,
Broening, Oberg & Woods
Nicky Blair's.......... 100% 1989 10,000 Nicky Blair's Restaurant
Fog City Diner(1)...... 100% 1995 6,500 Fog City Diner
---------
Total................. 748,927
---------
</TABLE>
- -------
(1) Ground lease.
52
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
HUGHES' BUILT/ RENTABLE
PROJECT/BUILDING OWNERSHIP PURCHASED SQ. FT. MAJOR TENANTS
---------------- --------- --------- --------- -------------
<S> <C> <C> <C> <C>
HUGHES AIRPORT CENTER
955 Grier, Bldg 1...... 100% 1986 45,998 Nassiri, Inc., Eagle Sentry, CER
Corporation
901 Grier, Bldg 2...... 100% 1986 30,755 Hughes Aircraft Company,
International Technical Systems
871 Grier, Bldg 3...... 100% 1986 52,676 John H. Harland, EG&G Special
Projects, Named Corp.
821 Grier, EG&G........ 100% 1986 44,631 EG&G Special Projects
6700 Paradise, Bldg 5.. 100% 1991 53,115 Mikohn, Hughes, TeamUp
International
1111 Grier, Bldg 6A.... 100% 1989 28,692 C.D.F. Fred Shuman
1181 Grier, Bldg 6B.... 100% 1989 65,188 Creative Light Source, Inc.,
Wilson Antenna, Inc., FiberChem
Incorporated
1151 Grier, Bldg 7..... 100% 1988 102,116 Uniflex Corporation, Matol
American Corporation, SigmaTron
International, Apple Foam and
Plastics, Damage Recovery, E.Z.
Foods
900 Grier, Bldg 8B..... 100% 1989 10,700 GES Exposition Services, Chanen
Construction Company
950 Grier, Bldg. 8A.... 100% 1989 26,760 Greyhound Exposition Services
955 Kelly Johnson, Bldg 100% 1991 11,280 Lockheed Engineering & Sciences
9.....................
975 Kelly Johnson, 100% 1990 32,528 Lockheed Engineering & Sciences
Lab...................
950 Pilot, Bldg 10..... 100% 1990 84,026 HHPGS, UPS--GMF Warehouse, Get
Fresh Sales, Inc, AWC A Lockheed
Company
890 Pilot, Bldg 11..... 100% 1991 87,674 Security Archives of Las Vegas,
Nassiri, Inc., Hughes
6590 Bermuda, Bldg 14.. 100% 1990 133,160 Nevada International Trade Corp.
6600 Bermuda, Bldg 15.. 100% 1990 32,700 Marin Credit Card Services
980 Kelly Johnson, Bldg 100% 1992 53,760 Lockheed Engineering & Sciences
16....................
839 Pilot, Bldg 19..... 100% 1994 47,210 Franklin Machine Products,
Premier Image Corporation
815 Pilot, Bldg 20..... 100% 1994 55,005 Anchor Coin, Paul Oxman
Publishing, LECO Corporation
831 Pilot, Bldg 21..... 100% 1994 35,073 Lassen Art Publications
823 Pilot, Bldg 22..... 100% 1994 62,860 Lassen Art Publications, WICO
Corporation, Anchor Coin
731 Pilot, Bldg 23..... 100% 1995 64,537 Converse Consultants, Builders
Showcase Materials, Cerberus
Technologies
751 Pilot Bldg 24...... 100% 1995 47,235 McCord Corporation
711 Pilot Bldg 25...... 100% 1995 75,974 Vacant
Montgomery Ward 100% 1995 81,000 Montgomery Ward Credit
Credit................
---------
Total................. 1,364,653
---------
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
HUGHES' BUILT/ RENTABLE
PROJECT/BUILDING OWNERSHIP PURCHASED SQ. FT. MAJOR TENANTS
---------------- --------- --------- --------- -------------
<S> <C> <C> <C> <C>
HUGHES CHEYENNE CENTER
Lechters............... 100% 1993 155,384 Lechters
---------
FASHION SHOW MALL
Anchor Tenants......... 75% 1981 532,438 Macy's, Dillards, Neiman-Marcus,
Robinson's . May, Saks Fifth
Avenue
Mall Tenants........... 75% 1981 308,137
---------
Total................. 840,575
---------
SUMMERLIN
Pueblo Medical Center.. 100% 1992 29,694 Universal Health Services of
Nevada, Taylor, Knudson & Lum,
Gordon Murray, D.D.S.
Raytheon Office........ 100% 1992 69,500 Raytheon Services Nevada
Plaza East............. 100% 1993 49,468 Hughes, Dean Witter Reynolds,
Inc., G.C. Wallace, Inc.
Plaza West............. 100% 1995 38,539 Pulte Home Corporation, Coleman
Homes, Universal Health Services
1201-41 Town Center.... 100% 1994 73,688 Hughes, Equinox International
Corporation, TRW, Realty
Executives of Nevada
1251-81 Town Center.... 100% 1995 53,986 TRW Environmental Safety Systems
---------
Total.................. 314,875
---------
OTHER
North Las Vegas DMV
Building.............. 100% 1982 16,512 State of Nevada
---------
LOS ANGELES PROPERTIES:
HOWARD HUGHES CENTER
6701 Tower............. 100% 1986 313,447 Blue Shield, Univision Station
Group, Inc., Keane, Inc.
Northpoint............. 100% 1991 104,235 Eastman-Kodak Company, MCI
Telecommunications
The Spectrum Club...... 100% 1993 36,959 The Spectrum Club
---------
Total.................. 454,641
---------
OTHER
Lucky's Center......... 100% 1978 142,168 Lucky's, Denny's, PruCare Plan of
California, Inc.
---------
Total.................. 4,037,735
=========
</TABLE>
54
<PAGE>
LAS VEGAS PROPERTIES
HUGHES CENTER. Hughes Center is an 83-acre master-planned, mixed-use
business center located in central Las Vegas approximately one-half mile from
the Las Vegas Strip. Highly visible and easily accessible, Hughes Center is
near Interstate 15, McCarran International Airport and the Las Vegas
Convention Center.
The rental properties at Hughes Center consist of nine buildings which
collectively contain approximately 749,000 rentable square feet. The focal
point of Hughes Center is the First Interstate Tower, a 17-story office
building which contains approximately 259,000 square feet of Class A office
space and is home to Hughes' executive offices, the corporate headquarters for
First Interstate Bank of Nevada, National Association ("First Interstate") and
other professional tenants such as brokerage firms, law firms, accounting
firms and consulting firms. Hughes Center also includes a five-story 165,000
square foot office building completed in November 1995, a five-story 86,000
square foot office building completed in 1994, one two-story and three three-
story office buildings and two buildings which house restaurants. The
buildings are connected by landscaped pedestrian walkways and are complemented
by nearby hotels, restaurants, retail shopping and apartment complexes.
Hughes manages all of the rental properties at Hughes Center. The 86,000
square foot office building completed in 1994 is owned by a joint venture in
which Hughes and Hilton Hotels Corporation each has a 50% interest. The 3770
Howard Hughes Parkway building is owned by a Joint Venture in which Hughes and
Gibson Business Park Associates, an affiliate of American Pacific Corporation,
the building's largest tenant, own two-thirds and one-third interests,
respectively. The balance of the property at Hughes Center, including the
First Interstate Tower (in which Hughes purchased the 50% interest of First
Interstate in 1995), is owned by Hughes.
Hughes Center also includes 39 acres of development property. When fully
developed, Hughes expects Hughes Center to include approximately 1.5 to 2
million square feet of Class A office space and related uses. Hughes has
obtained a major portion of the entitlements and completed substantially all
of the infrastructure required to fully develop Hughes Center. Hughes plans to
construct an 85,000 square-foot office building if market conditions permit,
and to complete construction of two additional restaurants at Hughes Center in
1996. Future development at Hughes Center will depend upon market conditions.
HUGHES AIRPORT CENTER. Hughes Airport Center ("Airport Center") is a 383-
acre master-planned business and industrial park located in Las Vegas, Nevada
immediately south of McCarran International Airport and near Interstate 15.
Airport Center is serviced by a rail line and is home to a U.S. Postal Service
distribution center. Airport Center is part of a designated Foreign Trade
Zone, which enables importers to store, manufacture, repackage, assemble,
quality-check and label foreign goods without paying duties until the goods
enter U.S. commerce, thus lowering importation costs. Hughes owns and manages
all of the developed and developable property at Airport Center except for
parcels aggregating 85 acres that Hughes sold to 13 other owner/users,
including Bally Gaming, Inc. and the U.S. Postal Service.
The rental property owned by Hughes at Airport Center includes 25 buildings
which contain approximately 1,365,000 rentable square feet for research and
development, light manufacturing, warehouse distribution and low-rise offices.
Tenants include Hughes, subsidiaries of Lockheed Engineering & Sciences,
Hughes Aircraft Company, Montgomery Ward Credit, Lassen Art Publications,
Marin Credit Card Services and Greyhound Exposition Services.
55
<PAGE>
Airport Center also includes 156 acres of development property. When fully
developed, Hughes expects Airport Center to include approximately 4.5 million
rentable square feet. Hughes intends to continue its strategy of developing
Airport Center by constructing speculative buildings, on a limited basis, when
it determines that market demand factors will support such buildings, by
constructing pre-leased buildings and by selling or leasing parcels to third-
party users for development in accordance with the master plan. Hughes has
started construction on two buildings totaling 85,000 rentable square feet,
and plans to begin construction of three more buildings in 1996 totaling
163,000 rentable square feet.
Hughes has obtained substantially all of the entitlements and completed
substantially all of the major infrastructure required to fully develop
Airport Center. In addition, an improved road system constructed by the Nevada
Department of Transportation, Clark County and McCarran International Airport
was completed in 1995, providing Airport Center with improved access to the
airport and Interstate 15.
HUGHES CHEYENNE CENTER. In 1992, Hughes began the development of Hughes
Cheyenne Center ("Cheyenne Center"), which is a master-planned industrial park
in North Las Vegas under development on a 205-acre site and is designed to
appeal to more cost-sensitive tenants. Located near Interstate 15, Highway 95
and the North Las Vegas Air Terminal, Cheyenne Center is easily accessible.
In the first phase, encompassing 62 acres, Hughes completed in 1993 a
warehouse distribution center, on a pre-leased basis, for Lechters Inc.
("Lechters"). Lechters has leased the entire 155,000 square foot building
until 2008. Hughes also sold land to a third party which developed a facility
for Federal Express which opened in 1995. When fully developed, Hughes expects
that Cheyenne Center will offer approximately 3.5 million rentable square feet
of mixed-use industrial space. Hughes intends to develop Cheyenne Center by
constructing speculative buildings, on a limited basis, when it determines
that market demand factors will support such buildings, by constructing pre-
leased buildings and by selling or leasing parcels to third-party users for
development in accordance with the master plan. Hughes is currently
constructing a 111,000 rentable square foot warehouse facility, and plans to
begin construction of another 100,000 rentable square foot facility in 1996.
Cheyenne Center is fully zoned for use as an industrial park, but Hughes has
not obtained the other required entitlements nor has it completed the
necessary infrastructure to fully develop Cheyenne Center.
FASHION SHOW MALL. The Fashion Show Mall (the "Mall") is a multi-level,
enclosed regional shopping center owned by H-S Las Vegas Associates ("HSLV"),
a joint venture in which Hughes is a 75% partner and Ernest W. Hahn, Inc. is a
25% Joint Venture Partner. HSLV constructed the Mall in 1981 and, in 1994,
completed a major renovation which replaced the flooring, lighting, planters
and seating, and added a two-story waterfall and skylights in the Center Court
area of the Mall. Additionally, two restaurants, Sfuzzi's and the Dive!,
opened in 1995. The Mall is managed by Hughes's joint venture partner.
Located on a 35-acre site next to the Treasure Island casino/resort and with
approximately 853 feet of frontage on the Las Vegas Strip, the Mall is highly
visible and easily accessible to tourists. Hughes estimates that approximately
one-half of the Mall's customers are tourists and one-half are Las Vegas area
residents. The Mall contains approximately 841,000 square feet of retail
space. The Mall has five anchor tenants--Macy's, Dillards, Neiman-Marcus,
Robinson's . May and Saks Fifth Avenue--and 132 specialty shops. HSLV has
entered into ground leases with each of the five anchor tenants pursuant to
which each has constructed its store at the Mall. The anchor tenants' stores
contain an aggregate of approximately 533,000 rentable square feet. The
balance of the Mall contains approximately 309,000 rentable square feet.
56
<PAGE>
SUMMERLIN. Named after Howard R. Hughes Jr.'s grandmother, Summerlin is a
master-planned community under development on a 22,500-acre site which extends
from the northwest portion of Las Vegas to the foot of the Red Rock Mountains.
Hughes's master-plan for Summerlin calls for a fully-integrated community
containing residential neighborhoods, business parks, retail centers, schools,
parks, golf courses, art and cultural facilities, fire and police stations,
health care centers and worship sites. Summerlin received the Pacific Coast
Builders Conference 1993 Gold Nugget Award for the best new town plan, and was
ranked as the best selling master-planned community in the United States by
leading real estate research firms in each of 1992, 1993 and 1994. Hughes
anticipates that Summerlin will be ranked as the best selling master-planned
community in the United States for 1995, as well.
Hughes designed Summerlin to attract a broad range of home buyers, from
first-time purchasers to luxury home buyers. Housing ranges from $80,000
multi-family and condominium units to multi-million dollar custom-built,
luxury golf course homes. A four-lane parkway connects Summerlin to
metropolitan Las Vegas and a rush-hour commute from Summerlin to downtown
takes approximately 15 minutes. Summerlin contains a number of parks and
recreational amenities including TPC, a private country club with an 18-hole
championship golf course and clubhouse which is managed by an affiliate of the
PGA Tour. Hughes believes that, when fully developed, Summerlin will be home
to approximately 160,000 residents. Currently approximately 22,500 people
reside in 10,000 homes at Summerlin.
Hughes's development activities at Summerlin include obtaining the necessary
entitlements, completing the broad infrastructure requirements of the
community and selling improved land parcels to homebuilders and custom lots to
individuals. In addition to the development of improved land parcels for sale
to merchant home builders and custom lot sales, Hughes develops, owns and
manages office, mixed-use industrial and retail properties at Summerlin which
are contributing to the development of an employment base within the
community.
THE VILLAGE CONCEPT. To provide structure and identity within such a large
development, Hughes' master-plan for Summerlin organizes the property into a
series of villages. A typical village is approximately 600 to 800 acres in
size, is defined by natural features and community arterial or collector
roads, contains a village center or focal point and maintains a certain design
identity or character among its buildings. Hughes' current plan for Summerlin
calls for 27 residential or mixed-use villages, in three major development
areas--Summerlin North, West and South.
Summerlin North, which consists of approximately 7,900 acres and is the
first area of Summerlin that Hughes is developing, contains 10 villages. The
sites for two of these villages have been sold to and developed by Del Webb
Communities, Inc. ("Del Webb"). Hughes' current land use plan for Summerlin
North is set forth below:
<TABLE>
<CAPTION>
ACRES
-----------------------------
SOLD OR CONTRIBUTED
USES TOTAL AS OF DECEMBER 31, 1995
---- ----- -----------------------
<S> <C> <C>
Residential................................. 5,310 3,629
Commercial.................................. 606 266(1)
Schools/Worship Sites....................... 280 154
Roads....................................... 421 263
Common Areas................................ 1,283 857
----- -----
Total....................................... 7,900 5,169
===== =====
</TABLE>
--------
(1)Includes 168 acres transferred to the commercial and industrial
division.
57
<PAGE>
All of Summerlin North has been annexed to the City of Las Vegas. In
connection with such annexation, the master plan for Summerlin North has been
approved by the Las Vegas City Council and, therefore, the zoning and density
for Summerlin North are now in place. As part of the annexation, Hughes
entered into a Development Agreement with the City of Las Vegas. All villages
with the exception of one have approved Development Plans and tentative maps.
Final maps are being processed for The Arbors and the balance of The Canyons
villages. Del Webb is responsible for its own zoning and density approvals.
Hughes' plans for Summerlin South include an area of approximately 6,145
acres which is anticipated to include, upon full build-out, 3,300 acres of
residential development and is currently classified as investment property.
Other land uses will include commercial, retail, office, institutional and
recreational.
Hughes has entered into a development agreement for Summerlin South with
Clark County. The agreement establishes (i) relevant provisions of the County
Code regarding planning, zoning, subdivision of land, growth management and
gaming enterprise districts, (ii) the timing and phasing of development, (iii)
permitted uses of the property and (iv) the density, design, and improvement
standards applicable to Summerlin South. The development agreement permits
Summerlin South to be developed with up to 18,000 residential dwelling units
and 740 acres of non-residential private uses, golf courses containing up to
90 holes of golf and up to three hotel/casinos with unrestricted gaming.
Hughes does not expect to develop the maximum amounts allowed under the
development agreement. The development agreement also defines responsibility
for certain off-site transportation improvements. The balance of the
entitlements for Summerlin South will be secured as development proceeds.
Summerlin West is the planning name currently used for approximately 8,440
acres in the western portion of Summerlin and is classified as investment
property. Hughes currently intends Summerlin West to be primarily residential
in nature with decreasing densities toward the foothills on the western
boundary. Hughes has not begun to construct the infrastructure or to obtain
entitlements for Summerlin West.
RESIDENTIAL DEVELOPMENT. Within Summerlin North, Hughes has sold
substantially all of the property designated for residential development in
five villages--The Hills, The Pueblo, The Crossing, The Hills South and The
Trails. Hughes is developing the property in the two remaining villages, The
Canyons and The Arbors.
The Hills was the first village Hughes developed in Summerlin and includes a
wide variety of single-family homes, a six-acre community park, two public
schools that opened in 1993 and the Hebrew Academy, a private school that
opened in 1990.
The Pueblo, the second village, contains residential development that ranges
from condominiums to executive homes, a 68-acre linear park, The Meadows
School, a private school for kindergarten through high school, two worship
sites, sites for a public and a private school, approximately 64,000 square
feet of retail space, and medical facilities, including the 30,000 square-foot
Pueblo Medical Center.
The Hills South, a village comprised of luxury homes and a variety of
recreational amenities, includes the TPC, the Summerlin Library and Performing
Arts Center, office buildings totaling 179,000 square feet, two worship sites
and a day care center. Residential development consists of parcels for mid-
range, single-family homes that Hughes is in the process of selling to
homebuilders, and three custom-lot communities--Tournament Hills, Eagle Hills
and The Enclave. Tournament Hills consists of 134 one-half to one-acre lots
primarily adjacent to the golf course. Eagle Hills contains 158 lots ranging
in size from one-third to one-half acre and a six-acre private park. The
Enclave contains nine lots ranging in size from one and one-half acres to
three acres.
58
<PAGE>
The Trails, a 600-acre primary home village, contains residential
development ranging from condominiums to executive homes, a post office, two
worship sites, a school site, retail and commercial development sites,
recreational amenities including baseball diamonds, a swimming pool, a 14-acre
linear park and community center and two custom lot communities--Mountain
Trails and Desert Trails. Mountain Trails consists of 103 half-acre lots, and
Desert Trails consists of 56 quarter-acre custom lots.
The Crossing, a 565-acre primary home village, contains residential
development ranging from apartments to condominiums to upgrade homes, a fire
station, two school sites, a 13-acre soccer park, a hospital and medical
office complex and The Crossing Business Center.
The Canyons is a 754-acre luxury home village being developed with various
residential components, including 152 custom lots. In addition, it will
contain the second TPC golf course and clubhouse (under construction and
expected to open in the fall of 1996), which will be a daily fee/resort
course, a resort site and retail and commercial development.
The Village of The Arbors is a 1,389-acre primary home village being
developed with various residential components ranging from apartments to
condominiums to executive homes, including custom lots. In addition, it will
contain four school sites, two worship sites, retail and commercial
development, the second business park and recreational amenities, including a
sports park, a swimming pool, tot lots and a 68-acre linear park.
The following is a summary of residential parcel sales activities in
Summerlin North for each of the five most recent years ended December 31, 1995
(excluding bulk land sales):
<TABLE>
<CAPTION>
ACRES SOLD
-----------------------------
VILLAGES 1991 1992 1993 1994 1995
-------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
The Hills...................................... 82.7 37.7 -- -- --
The Hills South................................ 31.9 13.4 80.1 36.2 8.8
Tournament Hills............................. 13.6 21.4 18.6 11.4 10.7
Eagle Hills.................................. 2.4 19.4 20.6 34.6 11.8
The Enclave.................................. -- -- -- 8.8 11.0
The Pueblo..................................... 41.1 86.1 176.2 87.7 --
The Trails..................................... -- -- -- 216.5 157.8
Desert Trails................................ -- -- -- -- 11.2
Mountain Trails.............................. -- -- -- -- 13.1
The Crossing................................... -- -- -- 103.3 170.8
The Canyons.................................... -- -- -- -- 102.4
----- ----- ----- ----- -----
Total...................................... 171.7 178.0 295.5 498.5 497.6
===== ===== ===== ===== =====
</TABLE>
Hughes expects to begin development of the first village in Summerlin South,
The Willows, in 1996. The Willows is expected to be a 754-acre village
containing residential development ranging from apartments to condominiums to
executive homes, two worship sites, an elementary school site, retail
development and recreational amenities.
BULK LAND SALES. As noted above, Hughes also sells large parcels of
undeveloped land to Del Webb. Del Webb is a developer of master-planned active
adult communities. From 1988 to December 31, 1995, Del Webb purchased 2,493
acres of undeveloped land in Summerlin North for the creation and expansion of
its Sun City Las Vegas at Summerlin community.
OFFICE, MIXED-USE INDUSTRIAL AND RETAIL DEVELOPMENT. In addition to selling
land for home construction, Hughes's Summerlin Division develops land on which
the Commercial/Industrial Division then constructs and leases buildings
designed for office, mixed-use industrial and retail uses in
59
<PAGE>
Summerlin. Hughes believes that strategically locating these types of
properties will provide Summerlin with an employment base and provide needed
services which will increase the desirability of purchasing a home in the
Summerlin community. As of December 31, 1995, office, mixed-use industrial and
retail development in The Plaza at Summerlin included a pre-leased office
building built by Hughes for Raytheon Services Nevada, which contains
approximately 69,500 rentable square feet, and two multi-tenant office
buildings, which contain a total of approximately 88,000 rentable square feet.
The Pueblo Medical Center is a medical facility which currently consists of
approximately 30,000 rentable square feet. Hughes plans to construct office
buildings in The Canyons in 1996. Hughes also owns a joint venture interest in
a 36,000 rentable square-foot retail shopping center in The Pueblo.
The Crossing Business Center is a 126-acre business park located in
Summerlin which includes 128,000 rentable square feet of office space owned by
Hughes and 289,000 rentable square feet of office space owned by third
parties, including Bank of America and Household Credit Services, Inc. Hughes
has developed 10 acres of The Crossing Business Center for its own account,
has sold 47 acres to business users and retains ownership of the remainder of
the project, subject to options granted to Bank of America with respect to
certain parcels (26 acres) within the park. Hughes plans to construct a
facility for Williams Sonoma and plans to construct additional office
buildings in The Crossing Business Center in 1996.
LOS ANGELES PROPERTIES
HOWARD HUGHES CENTER. Howard Hughes Center ("HHC") is a 69-acre master-
planned mixed-use development in West Los Angeles. Adjacent to the San Diego
Freeway two miles north of Los Angeles International Airport, HHC offers high
visibility and is easily accessible, with direct freeway ramp access to and
from the San Diego Freeway. Hughes designed HHC's master plan to provide a
quality working environment while facilitating pedestrian and vehicular
traffic in and around HHC. Hughes owns and manages all of the developed and
developable property at HHC.
The rental property at HHC includes approximately 455,000 rentable square
feet, which consists of a 16-story office tower (the "6701 Tower"), which
contains approximately 313,000 rentable square feet, a six-story office
building ("Northpoint"), which contains approximately 104,000 rentable square
feet, and a health and fitness club ("Spectrum Club") which contains
approximately 37,000 rentable square feet.
Hughes's master plan for HHC contemplates approximately 2.7 million square
feet of institutional quality mid- and high-rise office space (including up to
100,000 square feet for retail and 100,000 square feet for health and fitness
centers). In addition, the master plan includes 600 hotel rooms with the
ability to increase hotel rooms by 900 to a maximum of 1,500 rooms by reducing
commercial office space. Hughes has obtained a tentative subdivision map and
other entitlements necessary to carry out the master plan. The tentative
subdivision map will expire in January 1998 unless extended by the City of Los
Angeles until January 2001 or unless final tract maps are recorded for each of
the 63 lots prior to that date. Three final maps have been recorded and a
balance of 2.4 acres of land remains to be mapped. Hughes has also obtained a
development agreement, which expires in November 2006, and which, pursuant to
state law, should allow Hughes to complete the development contemplated by the
tentative subdivision map under the local laws and regulations in effect at
the time of the approval. The entitlements provide for the project to be
constructed in phases and permit additional construction upon the completion
of various transportation infrastructure improvements and realization of
traffic reduction goals. Hughes is presently negotiating to develop a pre-
leased 120,000 rentable square foot medical office building at HHC. Due to the
downturn in the California real estate market, it is uncertain when, if ever,
HHC will be fully developed.
60
<PAGE>
All of the real property of HHC is owned in fee by Hughes except for the
common areas owned by the Howard Hughes Center Property Owners Association.
The table below sets forth the nature and amount of all material mortgages,
liens or other encumbrances against the HHC properties.
<TABLE>
<CAPTION>
PROJECT 6701 CDW NORTHPOINT NORTHBOUND RAMPS
------- ----------- ------------------- ------------------
<S> <C> <C> <C>
Lender.................... Prudential Credit Lyonnais Allstate Insurance
Insurance
Type of Financing......... Mortgage Mortgage fixed by Private Placement
LIBOR swap Taxable Notes
Principal Balance......... $54,430,860 $15,000,000 $14,000,000
Interest Rate............. 6.00%(1) 7.62% 10.00%
Amortization.............. 20 years None--Interest Only 14 years
Pre-payment............... $0(2) $119,000 $3,400,000
Maturity Date............. 03/01/2001 07/27/1997 01/01/2007
Balloon @ Maturity........ $44,511,753 $15,000,000 $0
</TABLE>
- --------
(1) 3/1/93 to 2/29/96 = 6%; 3/1/96 to 2/28/99 = 6% (participation in cash flow
up to 9% yield on accrual basis); 3/1/99 to 2/28/01 = 9.5%.
(2) No prepayment penalty through 3/1/96. After 3/1/96 prepayments shall be
limited to the last $20,000,000 in principal.
HHC consists of two Class A office buildings and one health and fitness
club. The occupancy rate at HHC for each of the past five years has been
86.98%, 84.65%, 80.41%, 82.82% and 91.33% in 1995, 1994, 1993, 1992 and 1991,
respectively. Three tenants lease 10% or more of the rentable square feet
("RSF") of HHC. These tenants are KMEX, a Hispanic television broadcasting
company, Blue Shield of California, a national insurance company, and Eastman
Kodak Co., a diversified company primarily involved in film and media.
The principal provisions of the leases of the tenants referred to above are
set out below.
<TABLE>
<CAPTION>
RENTABLE
SQUARE ANNUAL EXPIRATION
TENANT FEET BASE RENT DATE RENEWAL OPTIONS
------ -------- --------- ---------- ---------------------
<S> <C> <C> <C> <C>
KMEX.................... 49,233 1,509,422 9/2002 1-5 year @ 95% of mkt
Blue Shield of
California............. 66,862 1,357,596 1/2000 1-5 year @ 95% of mkt
Eastman Kodak Co........ 69,536 2,344,426 11/2001 2-5 year @ mkt
</TABLE>
The average effective annual rental per square foot for each of the last
five years has been $27.19, $29.02, $27.01, $28.64, and $29.17 in 1995, 1994,
1993, 1992 and 1991, respectively.
61
<PAGE>
The table below sets out the scheduled lease expirations at HHC for each of
the ten years starting with 1996.
<TABLE>
<CAPTION>
NUMBER OF ANNUAL BASE % OF TOTAL
LEASES RSF SUBJECT TO RENTAL UNDER ANNUAL BASE
YEAR OF LEASE EXPIRATION EXPIRING EXPIRING LEASE EXPIRING LEASE RENT
------------------------ --------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
1996....................... 5 20,468 $ 464,480 4.36%
1997....................... 6 48,430 1,720,100 16.12%
1998....................... 7 64,389 1,424,618 13.35%
1999....................... 2 15,524 397,993 3.73%
2000....................... 3 89,085 1,869,578 17.52%
2001....................... 1 69,536 2,344,426 21.97%
2002....................... 1 53,174 1,509,422 14.15%
2003....................... 0 0 0 0.00%
2004....................... 0 0 0 0.00%
2005 & Thereafter.......... 1 36,959 939,231 8.80%
--- ------- ----------- ------
26 397,566 $10,669,848 100.00%
=== ======= =========== ======
</TABLE>
The table below sets out each of the components of HHC upon which
depreciation is taken. The federal tax basis is calculated at December 31,
1995.
<TABLE>
<CAPTION>
ACCUM. NET TAX DEPRECIATION
COST DEPR. VALUE METHOD RATES LIVES
------- -------- ------- -------------- ----------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Undeveloped Land........ 48,060 -- 48,060 N/A
------- -------
Common Areas:
Land................... 908 908 N/A
Land Improvements...... 1,716 (1,044) 672 ACRS and MACRS ACRS% Table and 150% DB 15 & 19 years
------- -------- -------
2,624 (1,044) 1,580
------- -------- -------
Developed Property
Land................... 19,010 -- 19,010 N/A
Land Improvements...... 1,742 (515) 1,227 ACRS and MACRS ACRS% Table and 150% DB 15 & 18 years
Buildings.............. 74,147 (29,995) 44,152 ACRS and MACRS ACRS% Table and SL 18, 19, 31 1/2 & 39 years
Assoc. Personal
Property.............. 902 (551) 351 ACRS and MACRS ACRS% Table and 200% DB 5 & 7 years
------- -------- -------
95,801 (31,061) 64,740
------- -------- -------
Total Howard Hughes
Center................. 146,485 (32,105 ) 114,380
======= ======== =======
</TABLE>
With regard to the annual real estate taxes to which HHC is subject, the tax
rate is 0.01053047.
ANNUAL REALTY TAXES
<TABLE>
<S> <C>
Undeveloped land............................................. $104,767.00
Developed Properties......................................... $681,669.00
Common Areas................................................. $ 32,952.00
-----------
Total...................................................... $819,388.00*
===========
</TABLE>
--------
*Tax year 7/1/95 through 6/30/96. Estimated taxes on proposed
improvements not applicable.
In the opinion of management, HHC is adequately covered by insurance.
PLAYA VISTA. Playa Vista is a 1,040-acre parcel of land in Los Angeles
extending west from the San Diego Freeway to the Pacific Ocean, and south from
Marina Del Rey to the Weschester Bluffs.
62
<PAGE>
Playa Vista is intended to be developed into a new master-planned, mixed-use
community which will include a diverse range of commercial, residential,
recreational, public and open space uses, including approximately 13,000
dwelling units, 5.9 million square feet of office space, 600,000 square feet
of retail space, 750 hotel rooms and a variety of other civic and community
serving uses. HHPLP owns a 40% unconsolidated limited partner interest in MTP-
PV, which owns 974 acres of the Playa Vista Project (as defined below), and a
40% unconsolidated limited partner interest in MTP-AC, which was formed to
purchase 66 acres of the Playa Vista Project ("Area C") which are not owned by
MTP-PV and other land adjacent to Area C. MTP-AC has an option to purchase
Area C from the beneficial owner, the State of California, at a price that
varies depending on the date of exercise. Separate partnerships comprised of
affiliates of Maguire Thomas Partners and JMB Realty are the general partners
(the "PV General Partners") of and MTP-PV and MTP-AC, respectively. Hughes'
interest in MTP-PV and MTP-AC is not consolidated and is accounted for using
the equity method in THC's Consolidated Financial Statements included
elsewhere in this Proxy Statement/Prospectus. The proposed development by the
PV Partnerships is referred to as the "Playa Vista Project."
THE PLAYA VISTA PROJECT. The Playa Vista Project site consists principally
of raw land and industrial buildings which include over 1.6 million net
rentable square feet. The PV Partnerships intend to develop the Playa Vista
Project into a new mixed-use community which includes the principal features
described above. The master plan also calls for (i) the restoration,
preservation and enhancement of approximately 345 acres of degraded estuarine,
coastal, terrestrial and bluff wildlife habitat areas, (ii) the retention of
about 82 acres of water surface as open space within the adjacent segment of
Ballona Channel and (iii) the creation of approximately 84 acres of
neighborhood and community parks.
PLAYA VISTA ENTITLEMENTS. The process of obtaining the necessary
entitlements for the Playa Vista Project is extremely complex. The federal,
state and local entitlement approval process requires the active involvement
of numerous government agencies and necessarily also involves community and
environmental groups. Moreover, of the total 974 acres owned by MTP-PV, 935
acres are located in the City of Los Angeles (which consequently has primary
land use jurisdiction) and 39 acres are located in the unincorporated area of
Los Angeles County (which consequently has primary land use jurisdiction).
Accordingly, the PV Partnerships will seek to obtain the required entitlements
in several phases.
Entitlements have been obtained for the first phase which includes
approximately 3,246 residential units, 1.25 million square feet of office
space, 35,000 square feet of retail space, 300 hotel rooms, 120,000 square
feet of community serving facilities and a variety of other recreational,
public and open space uses. The first phase consists of approximately 433
acres, of which approximately 246 acres are proposed for development. It is
located entirely within the City of Los Angeles and is consistent with the
General Plan and existing zoning. Of the approximately 3,246 residential
units, at least 15% must be developed for low, very low and moderate income
housing. An additional 10% must be marketed at a sales price of less than
$195,000 (in 1993 dollars).
In December 1995, after the City of Los Angeles granted significant
infrastructure concessions for Playa Vista, DreamWorks SKG announced that it
would locate its studio and offices at Playa Vista, subject to the negotiation
and execution of satisfactory definitive documentation with MTP-PV. To allow
for the development of this studio and office complex, certain modifications
to the existing entitlements were necessary. In 1995 the City of Los Angeles
approved the necessary modifications for development of the 3.2 million square
foot Playa Vista Entertainment, Media and Technology District (the "EMT
District"). These approvals, however, have been challenged in court by project
opponents. The litigation challenges the EMT District approvals on procedural
grounds, claiming various violations of the California Environmental Quality
Act. A Superior Court trial date has been set for June 1996. MTP-PV has
indicated to Hughes that it expects to prevail in the litigation; however, no
assurance can be given that a favorable outcome will be obtained. The
residential and a portion of the office/retail
63
<PAGE>
entitlements of the first phase are not subject to such litigation and the
final subdivision map with respect to such entitlements can be recorded as
soon as financing is obtained.
The development of the balance of Playa Vista is subject to additional
requirements. Pursuant to the settlement of litigation instituted by the
Friends of Ballona Wetlands, et al., in 1984, MTP-PV has agreed not to proceed
with any development beyond the first phase and the EMT District until MTP-PV
has provided funding for the restoration of the Ballona Wetlands Salt Marsh
which is part of Playa Vista. An Environmental Impact Report ("EIR") is in the
process of being completed for the balance of Playa Vista and is currently
scheduled to be completed by March 1997. It is anticipated that the balance of
the project would be approved one year after the EIR is completed; however,
there can be no assurance that such approval will be obtained.
The entitlements and approvals required for the second phase of the Playa
Vista Project (located in the City of Los Angeles) and the third phase
(located in the unincorporated areas of Los Angeles County) are numerous and
complex. They include changes to General and Specific Plans, amendments to
zoning and the local coastal plan and numerous local, state and federal
permits and approvals.
COMMITMENTS AND CONTINGENCIES RELATIVE TO PLAYA VISTA. The partners of MTP-
PV, including HHPLP, have no obligation, with limited exceptions, to make
capital contributions to MTP-PV. HHPLP has no obligation with respect to the
indebtedness of MTP-PV. The partners of MTP-AC each have an obligation to
contribute a specified amount of capital to MTP-AC. As of December 31, 1995,
HHPLP had contributed $9.0 million to MTP-AC. If MTP-AC decides to exercise
its option to purchase Area C, HHPLP would be required to contribute an
additional $7.8 million to MTP-AC. Either partner in MTP-AC acting alone is
entitled to cause MTP-AC to exercise its option to purchase Area C. HHPLP has
no obligation with respect to any indebtedness of MTP-AC.
With respect to both MTP-PV and MTP-AC, HHPLP is a limited partner and, as
such, Hughes believes that HHPLP is liable as a partner with respect to
partnership obligations only to the extent of its original (and any
additional) capital contributions and its share of partnership assets and any
undistributed profits (and potentially for the amounts described above). HHPLP
may, however, have certain contingent liabilities relating to environmental
matters. See "THE HUGHES CORPORATION--Environmental Matters and Government
Regulation."
MTP-PV and MTP-AC have a number of obligations which are substantial, and
both of the PV Partnerships operated at a deficit in 1994 and 1995 and are
expected to do so in 1996. The PV Partnerships have limited rights to require
further capital from partners, limited available further debt financing
capacity and limited partnership income from leases of commercial and
industrial buildings on the site. Hughes and Maguire Thomas Partners have made
advances to MTP-PV of approximately $6,000,000 each within the past year.
Additional working capital will be required in the short term for MTP-PV to
continue to operate. The partners of MTP-PV are not obligated to make advances
to MTP-PV, and none of them have committed to do so. If a source of working
capital is not identified, MTP-PV may be required to cease operations.
MTP-PV is currently seeking to raise capital to develop finished lots for
the first phase, fund carrying and entitlement costs through the entitlement
period for the remainder of Playa Vista and build the initial studio complex
and offices for the EMT District. Should the PV Partnerships otherwise fail to
obtain additional funding, HHPLP could be required either (i) to participate
in a reorganization of the PV Partnerships, potentially involving the
investment of further capital and changes in rights and obligations under the
partnership agreements of the PV Partnerships, (ii) to seek means effectively
to terminate the PV Partnerships through negotiation or otherwise and pursue
the development of Playa Vista alone or with new partners or, failing these
options, (iii) to abandon the development, probably resulting in a write-off
of any investment in Playa Vista, payment of any potential related income tax
liability and performance of possible residual environmental obligations
referred to above. There is no
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assurance that either of the first or second alternatives could be
accomplished, and the exact terms upon which such alternatives could be
accomplished cannot presently be determined. Accordingly, Hughes management
cannot now determine the ultimate impact on THC's consolidated financial
position and results of operations of either a restructuring of the PV
Partnerships or a termination of the partnerships and assumption of
development responsibilities.
Hughes believes that the most likely outcome is that the PV Partnerships
will be restructured. This restructuring will require concessions from all of
the existing partners, including concessions by HHPLP with respect to its
preferred return. HHPLP and the PV General Partner of MTP-PV have entered into
a letter of intent which provides that, subject to certain conditions, the
ownership of the PV Partnerships would be restructured so that Maguire Thomas
Partners (or an affiliate thereof) would become the sole general partner of
the PV Partnerships with a 47% interest, JMB Realty (or an affiliate thereof)
would become a limited partner with a 6% interest and HHPLP's limited
partnership interest would increase to 47%. Maguire Thomas Partners (or its
affiliates), as the sole general partner of the PV Partnerships, would receive
the right to receive cash distributions on a concurrent but generally lesser
basis than HHPLP. See Note 3 to THC's Consolidated Financial Statements
included elsewhere in this Proxy Statement/Prospectus. In all likelihood, the
restructuring would be effected, if at all, as an integral part of a further
investment by existing partners, new investors or lenders.
Although no binding agreement has been executed, DreamWorks SKG and MTP-PV
are currently engaged in negotiations regarding a transaction under which MTP-
PV or affiliated entities would construct the EMT District, a portion of which
would be leased by DreamWorks SKG. If such a transaction is consummated, it is
expected that DreamWorks SKG would be admitted as an additional limited
partner of the PV Partnerships, and in connection with such admission that the
limited partner interest of HHPLP (as modified as described above) would be
reduced by approximately one-third. No assurance can be made, however, that
such transaction will be entered into between DreamWorks SKG and MTP-PV.
INVESTMENT PROPERTIES
Hughes currently owns approximately 16,263 acres it classifies as investment
property. Approximately 14,585 acres of this property is located in Summerlin.
Although the investment property in Summerlin is part of the Summerlin master-
plan, it is classified as such because it is not currently under development.
Hughes also owns a number of surplus properties it plans to sell as market
conditions permit, including, among other properties:
BLUFFS AND BEACH LOTS. The West Bluffs consist of a proposed subdivision of
101 single family detached residential lots in the Playa del Rey area of Los
Angeles which Hughes classifies as investment property. Many of these lots
offer sweeping views of the Pacific Ocean and all are within one mile of the
beach. A tentative subdivision map for the West Bluffs development has been
submitted for approval to the City of Los Angeles. In addition, Hughes owns a
five-unit single family detached residential lot subdivision in the Marina del
Rey beach area of Los Angeles (the "Beach Lots") for which substantially all
entitlements have been obtained. Although the residential real estate market
in Los Angeles is currently weak, Hughes currently believes that the West
Bluffs and the Beach Lots could have substantial future value.
LAS VEGAS STRIP PROPERTY. Hughes owns a 58 acre site at the south end of the
Las Vegas Strip, which has frontage on I-15, the major north/south arterial. A
portion of the property is zoned for hotel/gaming use.
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NORTH LAS VEGAS PROPERTIES. Hughes owns approximately 692 acres located
primarily in the City of North Las Vegas. Much of the property is in the
vicinity of the North Las Vegas Airport, which is operated by Clark County.
Portions of the property are zoned for a variety of uses including
residential, industrial and hotel/gaming development.
OTHER PROPERTIES. In addition to the properties described above, Hughes owns
approximately 460 acres in northern Nevada, approximately 240 acres in San
Bernardino County, California, approximately 138 acres in the Hollywood Hills
in Los Angeles, and approximately 2.5 acres in Clear Creek County, Colorado.
BUSINESS STRATEGY AND INVESTMENT POLICIES
Hughes' business strategy is to maximize long-term Stockholder and
Unitholder value through the ownership, active management and selective
development of its real estate holdings. The principal components of Hughes'
business strategy are as follows:
Geographic Focus. Hughes' activities are focused in the Las Vegas and, to a
lesser extent, Los Angeles metropolitan areas. Hughes believes that this
geographic focus creates operating efficiencies, contributes to good working
relationships with local governmental entities, and enables Hughes to
understand more thoroughly the dynamics of these markets and, as a result, to
respond relatively quickly to market opportunities.
Master-Planned Development. Substantially all of Hughes' properties are
located within master-planned developments. The master-planned nature of these
developments enables Hughes to control the quality and integrity of the
architecture, landscaping, tenant mix, infrastructure, maintenance and other
amenities of its projects. Hughes focuses its development efforts within its
existing master-planned projects because it already owns developable land and
because many of its development properties have sufficient entitlements and
much of the required infrastructure to accommodate substantial additional
development.
Capital Structure. Hughes has financed its growth through a combination of
internally generated capital and conventional lending sources.
Maximization of Cash Flow from Rental Properties. Through continued active
leasing and property management, Hughes seeks to increase the occupancy of all
properties that are not fully leased, maintain high average occupancy rates,
increase effective rental rates and closely monitor operating expenses and
capital expenditures.
Development of Rental Properties. Hughes develops quality rental properties
within its existing master-planned projects in response to market demand.
Sale of Land to Merchant Home Builders. Hughes capitalizes on the strength
of the Las Vegas market and on Summerlin's leading position within the master-
planned residential community market by selling parcels of partially developed
land to merchant home builders.
Sale of Surplus Properties. As of December 31, 1995, Hughes owned
approximately 1,680 acres of surplus land that it intends to sell as market
conditions permit. Approximately 790 acres of this property is located in Las
Vegas.
The Stockholder Agreement requires the THC Board to adopt a business policy
(the "Business Policy"), which the THC Board adopted, pursuant to which THC
must endeavor to provide liquidity for the THC Stock and Units owned by the
Stockholders and the Unitholders, respectively, and, prior to achieving such
liquidity, to pay dividends as provided in the Stockholder Agreement. The THC
Board is not, however, required by the Business Policy to take any action
which it, in its good faith judgment,
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deems inconsistent with sound business practices or not in the best interests
of the Stockholders and Unitholders. In addition, the Business Policy is
subject to the requirements that each of THC, HHPLP and THHC (i) carry out and
complete the "1989 Business Plan," which contemplates continued development
activities for Summerlin, Airport Center, Hughes Center and HHC over a period
of several years; (ii) meet its existing and reasonably anticipated
contractual and other obligations; and (iii) retain assets and reserves
sufficient to ensure its ability to timely pay its debts and obligations and
meet its capital needs. The THC Board may, in its sole discretion, waive each
of the foregoing requirements. Further, the actions of THC, THHC and HHPLP and
the THC Board with respect to the Business Policy are subject to applicable
fiduciary duties and laws, the rights of Hughes' creditors, and applicable
contractual and other obligations of Hughes.
So long as the Stockholder Agreement remains in effect, the THC Board is
required to cause THC to accomplish certain quarterly dividend objectives. The
targeted dividend amount for any quarter may be adjusted by the THC Board if
the payment of such dividends would likely conflict with applicable fiduciary
duties and laws, the rights of Hughes' creditors or applicable contractual and
other obligations of Hughes. Moreover, THC, THHC and HHPLP are not required to
sell, transfer or dispose of any assets or incur any indebtedness in order to
pay dividends pursuant to the Stockholder Agreement but THC is required to use
reasonable efforts to borrow funds or cause HHPLP to borrow funds if necessary
to pay dividends. However, neither THC nor HHPLP may be required under the
Stockholder Agreement to: (i) incur indebtedness aggregating in excess of
$50.0 million at any time outstanding to pay dividends or distributions: (ii)
incur indebtedness on other than commercially reasonable terms; or (iii) incur
indebtedness which will cause THC's or HHPLP's ability to timely pay all of
their respective indebtedness and other obligations to be not reasonably
assured.
In addition to the targeted quarterly dividends, THC is required, so long as
the Stockholder Agreement remains in effect, to endeavor to pay additional
dividends, and/or to cause HHPLP to make distributions, in an amount equal to
the aggregate cash or cash equivalents held by THC, THHC and HHPLP at the end
of any calendar year which are not required to: (i) meet existing and
reasonably anticipated obligations, needs and contingencies; (ii) carry out
and complete any business plans adopted by the THC Board; or (iii) implement
the liquidity objectives of the Stockholder Agreement. However, so long as THC
is not in arrears with respect to paying the cumulative quarterly dividends
contemplated by the Stockholder Agreement, HHPLP and THHC, in lieu of making
the required distribution or dividends, may use the cash distributions which
they respectively received to prepay any indebtedness which they previously
incurred to make distributions or dividends to their respective partners and
stockholders.
The Business Policy prohibits THC, and affirmatively obligates THC to
prohibit HHPLP and THHC, from engaging in business activities other than
business activities of a nature engaged in by THC, HHPLP or THHC at the time
the Stockholder Agreement was executed or business activities contemplated by
the 1989 Business Plan, the partnership agreement governing MTP-PV (or any
other Subsidiary Partnership Agreement, as such term is defined in such
partnership agreement) or any other contract, lease, agreement or other
instrument of THC, HHPLP or THHC in effect as of June 1, 1989, or business
activities related to any of the same. The Business Policy also prohibits
HHPLP from making capital expenditures with internally generated cash unless
THC's management, in the opinion of the THC Board, demonstrates that the use
of such cash in lieu of borrowed funds is in the best interests of the
Unitholders. Such restriction does not apply, however, to expenditures
required to implement the 1989 Business Plan or any capital expenditures of
less than $1.0 million.
The Stockholder Agreement will terminate upon the closing of the Mergers. As
a result, the Business Policy described above will not govern the business and
investment policies of Hughes following the closing of the Mergers.
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NOTES AND MORTGAGES
The following table sets forth certain information concerning notes and
mortgages payable of Hughes, including the consolidated Joint Ventures, as of
December 31, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
PROJECTED
PRINCIPAL ANNUAL DEBT
PROJECT BALANCE INTEREST RATE MATURITY DATE SERVICE(/1/)
------- --------- ------------- -------------------- ------------
FIXED RATE
<S> <C> <C> <C> <C>
LAS VEGAS--
Hughes Center:
3770 Howard Hughes
Parkway $ 5,846 8.00% 12/2003 $ 568
3753-63 Howard Hughes
Parkway 11,630 7.48% 10/2003 1,062
Hughes Airport Center:
Portfolio of 16 Bldgs 26,686 10.00% 10/2003 3,356
980 Kelly Johnson
Drive 3,571 9.75% 09/2002 433
Hughes Cheyenne
Center:
Lechters 3,561 9.25% 07/2008 482
Fashion Show Mall: 70,464 8.76% 02/2005 6,803
Fashion Show Mall
Improvements 999 9.22% 07/2001 228
Summerlin:
Plaza East 4,527 8.65% 08/2004 450
LOS ANGELES--
Howard Hughes Center:
6701 Tower 54,431 6.00%(/2/) 03/2001 5,072
Northpoint 15,000 7.62% 07/1997 1,159
Infrastructure 14,000 10.00% 01/2007 2,350(/3/)
Luckys Center 3,701 8.75%-9.38% 05/1998-11/2007(/4/) 544
-------- -------
Total Fixed Rate
Loans $214,416 $22,507
-------- -------
VARIABLE RATE(/5/)
CREDIT FACILITY $ 62,000 7.66% 10/2000 $ 4,749(/6/)
LAS VEGAS--
Hughes Center:
3720 Howard Hughes
Parkway 2,947 8.00% 07/2002 287
3930 Howard Hughes
Parkway 8,550 6.64% 03/2010 1,180
First Interstate
Tower 39,544 7.84% 07/1996 3,099
Summerlin:
Raytheon Office 1,571 7.41% 04/1996 160
Pueblo Medical Office 2,763 10.25%(/7/) 10/1998 302(/7/)
SID 485 5.37% 11/2009 43
-------- -------
Total Variable Rate
Loans $117,860(/8/) $ 9,820
-------- -------
Total Loans $332,276 $32,327
-------- -------
</TABLE>
- --------
(1) Projected Annual Debt Service includes scheduled principal payments and
interest payments and excludes principal payments at maturities.
(2) The rate is 6.0% through February 29, 1996, 9.0% from March 1, 1996
through February 28, 1999 and 9.5% from March 1, 1999 to maturity.
(3) Includes $1,000,000 principal payment on January 2, 1996 leaving a balance
of $13,000,000.
(4) Consists of two loans with ranges for interest rates and maturity dates as
indicated.
(5) Rates are as of December 31, 1995. Debt is adjusted periodically as
certain indices change. Principal indices include LIBOR, Prime, or 11th
District Cost of Funds.
(6) Debt service is based on level of year-end borrowing and interest rates at
December 31, 1995. Utilization of line is dependent on development
activity.
(7) Current rate is 8.50%.
(8) Excludes $6,321,000 of infrastructure financing assessments payable
(offset against Development Properties on the Consolidated Balance Sheet).
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THE LAS VEGAS AND LOS ANGELES MARKETS
Hughes' activities are principally focused in the Las Vegas, Nevada and, to
a lesser extent, the Los Angeles, California metropolitan areas.
LAS VEGAS, NEVADA
During the last 20 years, the Las Vegas metropolitan area has experienced
higher rates of employment and economic growth than the average growth
experienced by other major metropolitan areas. Given the large size and
diversity of its real estate assets in the Las Vegas area, Hughes believes
that its historical performance has reflected and that its future growth will
reflect the economics of this market.
GENERAL STRENGTH OF THE LAS VEGAS ECONOMY. The population of the Las
Vegas/Clark County area increased from approximately 800,000 in 1990 to over
one million in 1995. According to the Bureau of Business and Economics at the
University of Nevada-Reno, the population of the Las Vegas metropolitan area
grew 6.6% from July 1994 to July 1995. According to the Research and Analysis
Bureau of the State of Nevada Department of Employment Training and
Rehabilitation, the number of jobs in Clark County increased by 11.7% in 1994
and 7.8% in 1995.
A major factor attracting new companies and residents to Nevada is the
state's comparatively low tax burden. Nevada has no corporate income tax, gift
tax, personal income tax or a host of other taxes, such as the franchise or
inventory tax, that other states levy. In lieu of the types of taxes described
above, the State of Nevada relies on gaming taxes and sales taxes for more
than 70% of the state's general fund revenues.
The gaming and tourism industries have played significant roles in the
growth of the Las Vegas market. According to the Las Vegas Convention and
Visitors Authority ("LVCVA"), the volume of visitors to Las Vegas has
increased on average by 8.3% per year since 1985 to an estimated 29 million
visitors in 1995 and the total dollar revenue associated with such visitors in
1995 was approximately $20.7 billion, with taxable gaming revenues accounting
for approximately $5.7 billion of this amount.
Hughes believes Las Vegas has successfully positioned itself as a premier
convention destination. The number of convention attendees in Las Vegas
increased from 800,000 in 1982 to 2.9 million in 1995. Hughes believes that
because Las Vegas currently has more hotel rooms than any other city in the
United States (approximately 90,000 according to the LVCVA), the city is able
to accommodate some of the nation's largest conventions.
THE LAS VEGAS OFFICE MARKET. As of the fourth quarter of 1995, the
metropolitan area office market in Las Vegas had a vacancy rate of 10%, a
slight increase over the previous year due to increased construction of new
office space. Average annual net absorption from 1993 to 1995 was
approximately 410,000 square feet. Rental rates increased by an estimated 2.0%
during 1995, and by a total of approximately 20% since 1990.
THE LAS VEGAS INDUSTRIAL MARKET. According to Lee & Associates Commercial
Real Estate Services ("Lee"), the Las Vegas industrial market, which consists
of approximately 39 million square feet of space, had a December 31, 1995
vacancy rate of approximately 3%. Hughes believes that Las Vegas, which is an
overnight truck route for most major western markets, benefits from a strong
location within transcontinental and regional transportation networks. These
factors are particularly attractive to warehousing and distribution companies,
which are an important segment of the industrial market. Lee estimates that
construction of industrial space in the Las Vegas area will remain strong
during 1996, estimating 2.8 million square feet of new projects. This
projection is slightly below the 1995 figure of 3.6 million square feet, when
3.5 million square feet of space was absorbed.
THE LAS VEGAS COMMUNITY AND REGIONAL RETAIL CENTER MARKET. The Las Vegas
community and regional center market is comprised of 95 properties. According
to Lee, the Las Vegas community
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and regional center market, with an inventory of approximately 12.5 million
square feet, is the healthiest segment of the 22.2 million square foot retail
market, with a vacancy rate of 3.7% as of year-end 1995, compared to an 5.5%
vacancy rate for the entire retail market. There are four regional malls
totaling approximately 4 million square feet, including the Mall.
THE LAS VEGAS SINGLE FAMILY RESIDENTIAL MARKET. The single family
residential market in Las Vegas has significantly expanded in the last decade
reflecting the increase in population in the area. Annual sales of new single
family homes more than quadrupled from approximately 4,000 units in the early
1980's to approximately 17,800 units in 1995. Hughes believes that
affordability is an integral component of the demand for new single family
homes. The median price of a new home was approximately $125,000 in 1995.
LOS ANGELES
The overall economy in the Los Angeles area has been affected more
negatively than many areas of the United States by the recent recession.
Hughes' principal rental properties in Los Angeles are office-related.
Although the overall vacancy rate for the Los Angeles metropolitan area office
market was approximately 16% at year-end 1995, according to the Grubb & Ellis
Commercial Real Estate Services, the sub-market in which Hughes competes
(defined by Grubb & Ellis to include the Marina del Rey and Culver City areas)
exhibited somewhat higher vacancy rates of 20.6%.
ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION
ENVIRONMENTAL MATTERS. In December 1993 and January 1994, Hughes
commissioned two independent third-party environmental consultants to perform
Phase I Audits on substantially all of the properties in which Hughes has an
ownership interest. A Phase I Audit is intended to evaluate the environmental
condition of, and potential environmental liabilities associated with, the
surveyed property. The Phase I Audits consisted of non-invasive investigations
of environmental conditions at the properties, generally including a
preliminary investigation of the sites and identification of publicly known
conditions concerning properties in the vicinity of the sites, site
inspections, review of aerial photographs, interviews with knowledgeable
parties, investigation for the presence of above ground and underground
storage tanks presently or formerly at the sites, a visual inspection for
potential wetlands and suspect friable asbestos-containing materials and the
preparation and issuance of written reports.
The Phase I Audits did not reveal any environmental liability related to
properties in which Hughes has an ownership interest that Hughes believes
would have a material adverse effect on THC's consolidated financial condition
or results of operations, nor is Hughes currently aware of any such material
liability. However, no assurance can be given that the Phase I Audits or any
other existing environmental studies with respect to any of Hughes's
properties reveal all environmental liabilities, that any prior owner or
tenant of a property did not create any material environmental condition not
known to Hughes, that future laws, ordinances or regulations will not impose
any material environmental liability, or that a material environmental
condition does not otherwise exist as to any one or more of Hughes'
properties.
Further, the Playa Vista Project site has been the subject of extensive
environmental investigations which have detected, among other things, volatile
organic chemicals, heavy metals and fuel hydrocarbons in the soil and
groundwater. Substantial remediation of the site occurred prior to the
formation of the PV Partnerships. The California Regional Water Quality
Control Board and other local, state and federal agencies have authorized
installation of a groundwater extraction and treatment system to address
unremediated contamination. MTP-PV has installed the system and commenced
operations. The annual cost of operating the groundwater extraction and
treatment system is currently estimated to be approximately $150,000. Although
MTP-PV is responsible for any other contamination
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that is detected, Hughes could potentially be liable, under various legal
theories, for remediation of the site if the PV Partnerships fails to
remediate the property. HHPLP is party to a contract with Hughes Aircraft
Company and McDonnell Douglas Corporation regarding the sharing of such costs
and other possible costs relating to environmental clean-up in connection with
the site.
In addition, HHPLP has been named in a suit by the Nevada Department of
Environmental Protection, as described in "THE HUGHES CORPORATION--Legal
Proceedings," with respect to environmental matters at a site in which it
formerly had an ownership interest.
WATER AVAILABILITY IN THE LAS VEGAS VALLEY. The principal supplier of water
in the Las Vegas Valley is the Las Vegas Valley Water District (the
"District"). The District serves the City and the unincorporated area of the
County. Most of the Las Vegas land planned to be developed in the foreseeable
future by Hughes, including all of its Summerlin, Hughes Center and Hughes
Airport Center developments, is within the District's service area. The
District is part of the Southern Nevada Water Authority (the "SNWA"), a larger
umbrella organization formed in 1991 to coordinate regional water issues for
the participating local governmental authorities.
The primary supply of water to the Las Vegas Valley is the Colorado River.
The apportionment, use, and management of the Colorado River are governed by a
complex array of federal and state statutes, interstate compacts, court
decisions and decrees, contracts between the states and the United States, an
international treaty, operating criteria and administrative decisions, all of
which collectively are known as the "Law of the River."
Under the Law of the River, the Las Vegas Valley's present Colorado River
annual entitlement is approximately 480,000 acre feet, including return flow
credits. It also has groundwater rights totaling approximately 50,000 acre
feet. The amount of this supply available to support new development is
projected to last until approximately 2010 based on current growth patterns.
However, the SNWA adopted in 1995 a new resource management policy that
extends the available water supply until approximately 2030. By making annual
applications to the Bureau of Reclamation to appropriate (i) unused water
allocations from other basin States such as Colorado and Arizona and (ii)
surplus available from time to time on the Colorado River, local governments
will approve developments that cannot be supported solely by the Nevada's
respective firm allocation of Colorado River water. The local water purveyors
have estimated that there will be excess unused allocations to sustain this
new course of action until 2030, by which time the State of Nevada will have
to identify and procure replacement water resources.
The significant project approvals obtained and infrastructure improvements
made at Hughes Center and Airport Center have resulted in HHPLP obtaining
water commitments from the District to fully develop these two properties,
except for the unimproved portion of the final development phase of Airport
Center. Cheyenne Center is served by the City of North Las Vegas (which is not
a part of the District) and does not yet have water commitments for full
build-out. The District's commitment policy is expected to assure HHPLP of
sufficient water to service all of Summerlin annexed to the City. For those
portions of Summerlin in the County, HHPLP currently plans to seek water
commitments from the District as THC proceeds with that portion of
development.
Development in the Las Vegas Valley continues at a rapid pace and thus far
has not been significantly impeded by a lack of water. In recognition of the
problems that could occur if a sufficient supply of water is not available to
accommodate growth, the Las Vegas community and the State of Nevada are
seriously pursuing various strategies to extend and increase the community's
available water supply, including the adoption of stricter conservation
measures and the purchase or long term lease of alternative sources of water.
At this time, it is uncertain whether the community will be successful in
obtaining new sources of water.
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THE DESERT TORTOISE. Portions of the Summerlin project are inhabited by the
desert tortoise, a reptile listed as a "threatened species" pursuant to the
federal Endangered Species Act of 1973. As such, federal law prohibits harming
or moving the reptile or significantly modifying or degrading its habitat. The
United States Fish and Wildlife Service issued a 30-year permit in 1995 to
Clark County, Nevada, with respect to removal of desert tortoises from land
prior to development. Although the permit has resulted in a $550 per acre land
development fee in Clark County and places certain ongoing compliance
requirements on Clark County, there are no other requirements currently
applicable to Hughes in connection with the desert tortoise for the
development of land in the Las Vegas Valley.
ENTITLEMENTS. Once Hughes has prepared a master-plan for one of its
properties, Hughes may be required to prepare and process environmental impact
reports, subdivision maps and other applicable reports, and obtain numerous
governmental approvals, licenses, permits and agreements, referred to as
"entitlements," before it can commence development and construction pursuant
to such master-plan. The negotiation of the necessary entitlements to develop
a project may take from several months to several years, depending upon the
scope of the project and the development issues which arise. Hughes has
considerable experience in negotiating and obtaining the entitlements
necessary for its development projects. Hughes' staff works closely with local
governmental authorities and governmental agencies to obtain the necessary
entitlements for Hughes' projects and to define the terms, conditions and
restrictions under which Hughes will be allowed to proceed with its
developments. Hughes will often attempt to secure its right to proceed with
development of a master-plan for a property through the negotiation with and
adoption by local governments of community development plans, commercial
subdivision maps, other subdivision maps and development agreements.
COMPETITION
The following is a description of the competitive conditions in each of
Hughes' businesses and in its geographic markets.
LAS VEGAS OFFICE MARKET. Hughes Center represents approximately 62% of what
it considers to be the Class "A" office building market in Las Vegas. Hughes
believes Class "A" buildings are defined as those constructed with high
calibre, fire-resistant materials and which are characterized by high
visibility locations, excellent access, quality tenants and professional
management teams. These Class "A" properties represent approximately 17% of
the Las Vegas office market. Currently the projects considered included in the
Class "A" segment of the market not owned by Hughes are Bank of America Plaza,
Bank of America West Tower and the Nevada Financial Center. These projects
have historically offered competitive rental rates and, as of December 31,
1995, have successfully been leased at over 95% occupancy. Additionally,
Hughes competes to a lesser degree with projects not considered Class "A," but
which may have some of the same characteristics as the Class "A" facilities
and lower rental rates.
The vacancy rate of the Class "A" segment of the Las Vegas office market at
December 31, 1995 was approximately 3.5% (excluding buildings in lease-up). As
a result of the favorable market conditions, it is anticipated that additional
competition will enter the market in the future.
LAS VEGAS MIXED-USE INDUSTRIAL MARKET. The Las Vegas industrial market,
which includes approximately 39 million square feet of space, is currently one
of the healthiest in the country, with a vacancy rate of approximately 3% at
December 31, 1995. Although Hughes believes it is currently one of the largest
developers of mixed-use industrial space in Las Vegas, it competes with
developers including Security Capital, Dermody, Majestic Realty, Lewis
Properties, Ribeiro Corporation and Thomas & Mack Corporation. These
developers have the experience and financial capacity to compete with Hughes
in build-to-suit and speculative multi-tenant space. Additionally, with the
current favorable
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economic climate in Las Vegas, it would be possible for large, experienced,
financially sound industrial developers to enter the market with large master-
planned parks that would compete directly with Hughes.
SUMMERLIN. Summerlin competes with other master-planned community developers
in Las Vegas as it relates to parcel sales. There are approximately 23 master-
planned communities of varying sizes in the Las Vegas metropolitan area. In
1995, approximately 31% of the new home sales in Las Vegas occurred in these
master-planned communities. Of this amount, approximately 37% of the sales
occurred within Summerlin (including Sun City Las Vegas). Summerlin competes
directly in the northwestern area of Las Vegas. The northwest is the largest
market area in Las Vegas, with approximately 37% of the new home sales in 1995
occurring there. In order for Hughes to continue its success within this
market area, it must competitively price its parcels as well as continue to
make substantial investments for improvements within the community and must
maintain the image of the community. Summerlin also competes with individual
properties outside of master-planned communities.
Summerlin is indirectly impacted by the competition between residential
developments outside of Summerlin and those within Summerlin. The demand for
Summerlin parcels is dependent on the success of homebuilders' projects in
Summerlin. Seven of the top ten builders in terms of unit sales in Las Vegas
during 1995 were building in Summerlin. These builders report generally higher
average weekly traffic and average monthly sales per project for their
Summerlin projects versus their non-Summerlin projects. This experience must
continue for Summerlin to enjoy robust sales. To the extent that these
builders experience more success at their non-Summerlin projects, the level of
parcel sales at Summerlin may decrease.
In addition, the federal government is currently the largest owner of land
in the greater Las Vegas metropolitan area and, from time to time, it engages
in transactions which result in the release of federal land into private
ownership. Currently, certain developers are proposing transactions with the
federal government which, if consummated, could result in further large scale
land development projects in the Las Vegas metropolitan area in competition
with Hughes' business.
LAS VEGAS RETAIL MARKET. Hughes's most significant investment in the Las
Vegas retail market is the Mall. As noted earlier, this well-appointed Mall on
the Las Vegas Strip has five anchor tenants and contains 132 specialty stores.
Hughes competes with other malls, as well as other retail complexes, for
tenants. The Mall's main competitor for tourist customers is the recently-
constructed Forum Shops, a high-end specialty center adjacent to Caesar's
Palace Hotel and Casino. Hughes believes, however, that the Mall competes
favorably because, unlike the Forum Shops, the Mall offers nationally-known
chain department stores. The Mall's primary competitors for local customers
are the Boulevard Mall, Meadows Mall and the recently-opened Galleria Mall.
Hughes believes the Mall competes favorably with these local malls because of
its unique tenant mix, including two major tenants with no other locations in
Las Vegas, and its central location. In addition, as a result of the location
of the Mall and the recent extensive renovations, Hughes believes it will
continue to maintain a high level of occupancy and significant retail sales
for the forseeable future. The five anchor tenants within the Mall own their
own buildings and have entered into ground leases, and as a result, Hughes
believes these tenants will continue to occupy their facilities at least
through the term of their leases which expire between 2006 and 2016.
LOS ANGELES OFFICE MARKET. Due to the weak economic condition in Los
Angeles, the market for office space has been very competitive. At December
31, 1995, the overall vacancy rate in West Los Angeles was approximately 16%.
In the Marina Del Rey/Culver City sub-market, in which HHC is located, the
vacancy rate was approximately 20.6%. Within its sub-market, Hughes must
directly compete with two projects, Corporate Pointe and Marina Towers. In
addition, as a result of the weakened Los Angeles market, tenants may find
competitive rental rates in other areas on the west
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side of Los Angeles which may be considered more prestigious areas,
particularly Century City, Brentwood and Santa Monica. In particular
circumstances, other property owners may offer below market rental rates as a
result of high vacancy rates or other economic pressure.
LEGAL PROCEEDINGS
On February 24, 1994, the Nevada Department of Environmental Protection
("NDEP") filed suit against HHPLP and several other parties alleging statutory
and common law violations arising from an underground plume of fuels and
chemicals at and around the McCarran International Airport in Las Vegas. The
contamination allegedly emanates from a fuel tank farm formerly operated by
HHPLP and affects property formerly leased by HHPLP. NDEP seeks civil
penalties, damages and remediation. Hughes believes that this suit will not
have a material adverse effect on THC's consolidated financial condition or
its results of operations because of the likely cost of remediation and
because another defendant in the suit, Triton Energy Corporation, which
purchased HHPLP's interest in the affected property in 1988, has an agreement
to indemnify HHPLP for all costs associated with the clean-up of the fuel tank
farm. HHPLP has received an open extension of time to respond to the suit. The
suit is currently not proceeding as NDEP attempts to resolve the suit with
Triton Energy Corporation.
Except as described in the preceding paragraph, neither Hughes nor its
properties are presently subject to any material litigation nor, to Hughes'
knowledge, is any material litigation threatened against Hughes or its
properties. Hughes is involved in certain non-material, routine litigation
arising in the ordinary course of business.
EMPLOYEES
As of December 31, 1995, Hughes had approximately 171 full-time employees,
including employees engaged in land and property development, marketing,
property management, administrative activities and financial and legal
services. Hughes believes that its employee relations are good. No employee of
Hughes is represented by a labor union or is subject to a collective
bargaining agreement.
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THE SPECIAL MEETING
DATE, TIME AND PLACE
The Special Meeting will be held on Wednesday, June 12, 1996, at McDade
Auditorium, Texas Commerce Center, 601 Travis, Houston, Texas commencing at
9:00 a.m. local time.
PURPOSES OF THE SPECIAL MEETING
The purposes of the Special Meeting are to consider and vote upon (i) (x) in
the case of the Stockholders, a proposal to approve and adopt the THC Merger
Agreement (including the Contingent Stock Agreement and other documents to be
executed and delivered pursuant thereto) and approve the transactions
contemplated thereby and (y) in the case of the Unitholders, a proposal to
approve and adopt the Partnership Merger Agreement and approve the
transactions contemplated thereby and (ii) such other matters as may properly
be brought before the Stockholders or Unitholders, as the case may be, at the
Special Meeting. The vote of a Stockholder to approve the THC Merger Agreement
shall be deemed also to constitute a vote to approve the Contingent Stock
Agreement. The vote of a Unitholder to approve the Partnership Agreement shall
be deemed also to constitute a vote to approve the Special Distribution.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of THC Common Stock at the close of business on the
Record Date (May 2, 1996) are entitled to notice of, and to vote at, the
Special Meeting with respect to matters relating to THC. On such date, there
were six holders of record of the 66,466 shares of THC Common Stock issued and
outstanding (excluding shares held by THHC). Each share of THC Common Stock
entitles the holder thereof to one vote on each matter to be acted upon at the
Special Meeting by the Stockholders.
Only Unitholders of record at the close of business on the Record Date are
entitled to notice of and to vote at the Special Meeting with respect to
matters relating to HHPLP. On such date, there were 10,000,000 Class 1 Units
outstanding, each of which will be entitled to one vote on each matter to be
acted upon at the Special Meeting by the Unitholders.
See "PRINCIPAL STOCKHOLDERS AND UNITHOLDERS OF THC AND HHPLP" for
information regarding persons known to the management of THC or HHPLP to be
the beneficial owners of more than 5% of the outstanding THC Common Stock or
Class 1 Units.
A complete list of the Stockholders and the Unitholders entitled to notice
of, and to vote at, the Special Meeting will be available for examination at
4200 Texas Commerce Tower, 600 Travis, Houston, Texas during normal business
hours by any Stockholder or Unitholder, for any purpose germane to the Special
Meeting, for a period of ten days prior to the Special Meeting.
VOTING AND REVOCATION OF PROXIES
All properly executed proxies that are not revoked will be voted at the
Special Meeting in accordance with the instructions contained therein. If a
Stockholder or Unitholder executes and returns a proxy and does not specify
otherwise, the shares represented by such proxy will be voted "for" approval
and adoption of the THC Merger Agreement or the Partnership Merger Agreement,
as the case may be, in accordance with the recommendation of the THC Board or
the THHC Board, as the case may be. A Stockholder or Unitholder who has
executed and returned a proxy may revoke it at any time before it is voted at
the Special Meeting by either (i)(a) executing and returning a proxy bearing a
later date or (b) filing written notice of such revocation with THC or HHPLP,
as the case may be, at 3800 Howard Hughes Parkway, Las Vegas, Nevada 89109,
fax number (702) 791-4385, Attention: Michael C. Niarchos or (ii) attending
the Special Meeting and voting in person.
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QUORUM; VOTE REQUIRED
The presence, in person or by proxy, at the Special Meeting of the holders
of a majority of the outstanding shares of THC Common Stock entitled to vote
thereat will constitute a quorum for the transaction of business, and approval
and adoption of the THC Merger Agreement requires the affirmative vote of a
majority of the issued and outstanding shares of THC Common Stock (excluding
the shares held by THHC) entitled to vote at the Special Meeting. In
determining whether the THC Merger Agreement has received the requisite number
of affirmative votes, abstentions will have the same effect as a vote against
the THC Merger Agreement.
The presence, in person or by proxy, at the Special Meeting of the holders
of a majority of the Class 1 Units outstanding and entitled to vote at the
Special Meeting is necessary to constitute a quorum at the meeting with
respect to matters relating to HHPLP. Although under the terms of the Sixth
Amended and Restated Agreement of Limited Partnership of HHPLP only the vote
of the General Partner is required to approve the Partnership Merger Agreement
and no vote of holders of Class 1 Units is required, the Partnership Merger is
conditioned upon the approval of the Partnership Merger Agreement by the
holders of a majority of the outstanding Class 1 Units. In determining whether
the Partnership Merger Agreement has received the requisite number of
affirmative votes, abstentions will have the same effect as a vote against the
Partnership Merger Agreement.
Each of the directors and executive officers of THC and THHC has advised THC
and THHC that he or she plans to vote or to direct the vote of all shares of
THC Common Stock or Class 1 Units beneficially owned by him or her and
entitled to vote thereon in favor of the THC Merger Agreement or the
Partnership Merger Agreement, as the case may be. Directors and executive
officers of THC and THHC beneficially own 5.6% of the shares of THC Common
Stock and Class 1 Units.
THCP is record owner of approximately 70.9% of the outstanding shares of THC
Common Stock and approximately 70.9% of the outstanding Class 1 Units.
Accordingly, THCP has the ability to control both the vote of the Stockholders
to approve the THC Merger Agreement and the vote of the General Partner and
the Unitholders to approve the Partnership Merger Agreement. The managing
partners of THCP have advised THC that THCP will vote the shares of THC Common
Stock and Class 1 Units held by THCP with respect to the proposals to approve
the Merger Agreements in accordance with the expressed desire of a majority in
interest of its partners.
MECHANICS OF THE VOTE
Certain Stockholders and Unitholders, such as THCP, the R. D. & C. Voting
Trust ("RD&C") and the 9.5 Trust (as defined below), may vote the shares of
THC Common Stock or the Class 1 Units that they hold of record only pursuant
to the instructions of the beneficial holders of such interests (the
"Beneficial Holders") as and to the extent set forth in the governing
instruments of such Stockholders and Unitholders. Accordingly, in connection
with the vote of such Stockholders and Unitholders, the underlying vote of the
Beneficial Holders will be solicited. For more information regarding the
required consent of the Beneficial Holders of THCP, RD&C and the 9.5 Trust,
see "PRINCIPAL STOCKHOLDERS AND UNITHOLDERS OF THC AND HHPLP." In soliciting
the vote of the Beneficial Holders, each such Beneficial Holder will be
provided with a copy of this Proxy Statement/Prospectus and all other
materials provided to the Stockholders and the Unitholders. Any Beneficial
Holder that elects to vote in favor of either of the Mergers will be asked to
execute a consent and agreement pursuant to which such Beneficial Holder may
approve the terms of the Contingent Stock Agreement and the transactions
contemplated thereby as well as the Mergers and other related matters. In
addition, such Beneficial Holder will also be asked to deliver executed copies
of a voting agreement, a lock-up agreement and a tax representation letter
(collectively, the "Additional Agreements"). By executing the voting
agreement, a Beneficial Holder agrees to vote the shares of Rouse Common Stock
that such Beneficial Holder will obtain in connection with the THC Merger in
favor of any proposal to approve the transactions contemplated by the
Contingent Stock Agreement at any meeting
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of the stockholders of Rouse convened on or before June 15, 1997. See "THE
CONTINGENT STOCK AGREEMENT--Rouse Stockholder Approval." By executing the
lock-up agreement, a Beneficial Holder agrees not to sell a portion of the
shares of Rouse Common Stock that such Beneficial Holder will obtain in the
THC Merger, subject to certain exceptions, prior to the first anniversary of
the closing of the Mergers. Finally, by executing the tax representation
letter, a Beneficial Holder makes certain representations to Hughes as to such
Beneficial Holder's intentions to sell or otherwise dispose of any shares of
Rouse Common Stock that such Beneficial Holder will receive directly or
indirectly in the THC Merger, including any such shares to be received
pursuant to the Contingent Stock Agreement. The vote of the Beneficial Holders
will not depend upon the delivery of executed copies of the Additional
Agreements.
MATTERS DEEMED ADOPTED, APPROVED OR RATIFIED BY STOCKHOLDERS AND UNITHOLDERS
Approval of the Merger Agreements as described above will constitute the
adoption, approval and ratification by the Stockholders and the Unitholders
of:
(a) the execution, delivery and performance of the THC Merger
Agreement, the Partnership Merger Agreement and the Contingent Stock
Agreement and the transactions contemplated thereby;
(b) all actions taken by or on behalf of THC, HHPLP and/or THHC in
connection with the THC Merger Agreement, the Partnership Merger Agreement,
the Contingent Stock Agreement and the transactions contemplated thereby;
and
(c) with respect to the Contingent Stock Agreement, (i) the appointment
of the Representatives, (ii) all actions taken or omitted, or to be taken
or omitted, by or on behalf of the Representatives, pursuant to the terms
of the Contingent Stock Agreement, (iii) the establishment of the Escrow
Account (as defined in the Contingent Stock Agreement) and the withdrawal
and disbursement of funds on deposit therein and (iv) the exercise by the
Representatives of all of the powers, rights, privileges and remedies
conferred, or purported to be conferred, upon them under the Contingent
Stock Agreement.
SOLICITATION OF PROXIES
In addition to solicitation by mail, the directors, officers, employees and
agents of THC may solicit proxies from the Stockholders and the Unitholders by
personal interview, telephone, telegram or otherwise. Hughes will bear the
costs of the solicitation of proxies.
OTHER MATTERS
If any other matters should properly come before the Special Meeting, it is
intended that the shares of THC Common Stock or Class 1 Units, as the case may
be, represented by proxies will be voted with respect to such matters in
accordance with the judgment of the persons voting such proxies.
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BACKGROUND AND REASONS FOR THE MERGERS
BACKGROUND
Following Howard R. Hughes, Jr.'s death in 1976, the Hughes companies
reorganized to simplify their business structures. This reorganization
included the creation of HHPLP in 1983 to meet certain business objectives. By
1989, the owners of THC and HHPLP had evolved into three primary groups: (i)
THCP, which was formed in 1977 and is record owner of approximately 70.9% of
the outstanding THC Common Stock and Class 1 Units; (ii) RD&C, a Delaware
voting trust formed in 1989 which is record owner of approximately 19% of the
outstanding THC Common Stock and the holder of an irrevocable proxy for
approximately 19% of the outstanding Class 1 Units; and (iii) a Delaware
voting trust formed in 1989 (the "9.5 Trust") which is record owner of
approximately 9.5% of the outstanding THC Common Stock and Class 1 Units.
These three entities (the "Principal Owners") entered into the Stockholder
Agreement, which sets forth the mutual agreements of the Principal Owners with
respect to the governance and operation of Hughes.
Pursuant to the Stockholder Agreement, the THC Board adopted the Business
Policy, which commits THC to endeavor to provide liquidity for the THC Common
Stock and Class 1 Units owned by the Stockholders and the Unitholders,
respectively, and, prior to achieving such liquidity, to pay dividends as
provided in the Stockholder Agreement. The THC Board is not, however, required
by the Business Policy to take any action which it, in its good faith
judgment, deems inconsistent with sound business practices or not in the best
interests of the Stockholders and the Unitholders. In addition, the Business
Policy is subject to the requirements that each of THC, HHPLP and THHC (i)
carry out and complete the "1989 Business Plan," which contemplates continued
development activities for Summerlin, Airport Center, Hughes Center and HHC
over a period of several years, (ii) meet its existing and reasonably
anticipated contractual and other obligations and (iii) retain assets and
reserves sufficient to ensure its ability to timely pay its debts and
obligations and meet its capital needs. The THC Board may, in its sole
discretion, waive each of the foregoing requirements. Further, the actions of
THC, THHC and HHPLP and the THC Board with respect to the Business Policy are
subject to applicable fiduciary duties and laws, the rights of creditors of
THC, THHC and HHPLP and applicable contractual and other obligations of THC,
THHC and HHPLP in effect at the time the Principal Owners entered into the
Stockholder Agreement.
One of the objectives of the Business Policy is to provide all Stockholders
and Unitholders an "equal and reasonable opportunity" to realize the fair
value of their investments in the THC Common Stock and Class 1 Units "as soon
as practicable" (the "Liquidity Objective"). The Business Policy divides the
Liquidity Objective into two time periods with different limitations,
restrictions and conditions imposed during each time period. The initial time
period commenced on the date of the execution of the Stockholder Agreement and
continued until December 31, 1995. The objectives, limitations, restrictions
and conditions applicable to the initial time period were incorporated in
"Plan A." The second time period commenced on January 1, 1996, and continues
thereafter until the Stockholder Agreement is terminated. The objectives,
limitations, restrictions and conditions applicable to the second time period
are incorporated in "Plan B." Plan A was to be developed and implemented, if
at all, prior to January 1, 1996, with Plan B to be developed and implemented
only if THC failed to conceive, develop and implement Plan A prior to such
time. THC is precluded, however, from adopting or implementing any plan which
the THC Board does not deem prudent and reasonable and in the best interests
of the Stockholders and the Unitholders.
Plan A was intended to accomplish the Liquidity Objective in a manner that
did not require the liquidation of the assets of THC or HHPLP. Accordingly,
the Business Policy provided that Plan A would not, unless the THC Board
determined otherwise, require that any of THC, HHPLP or THHC (i) cease to be a
going concern, (ii) sell, transfer or otherwise dispose of any of their
respective assets or (iii) effect any merger, consolidation or other business
combination with any third party. In essence, under Plan A, THC was expected
to explore the feasibility of the creation of a trading market for the THC
Common Stock and the Class 1 Units and, if such market proved feasible, to
cooperate in its
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development. THC, HHPLP and THHC were not, however, required to take any
extraordinary actions, such as marketing themselves or any of their respective
assets and properties, to achieve the Liquidity Objective.
Plan B was the alternative method to achieve the Liquidity Objective to be
pursued if Plan A was not achieved. Plan B has the same fundamental objective
as Plan A except that the going concern and non-disposal limitations provided
in Plan A are specifically not applicable to the development and
implementation of Plan B, with the exception that the THC Board may limit the
authority of THC, HHPLP or THHC to sell, transfer or otherwise dispose of any
projects of THC, HHPLP or THHC which are not "mature" (as defined in the
Stockholder Agreement). Under Plan B, THC, HHPLP and THHC are expected to take
whatever actions, including extraordinary actions such as marketing themselves
or their respective assets and properties, that are reasonably required to
achieve the Liquidity Objective.
In order to accomplish the objectives of the Stockholder Agreement, in 1994
the Joint Boards proposed a restructuring of Hughes whereby, in preparation
for a proposed initial public offering of THHC common stock (the "Proposed
Initial Public Offering"), THC would merge into THHC and HHPLP would merge
with a subsidiary of THHC, with the result that Stockholders and Unitholders
would have received common stock of THHC in exchange for their respective THC
stock and Class 1 Units. The proposed restructuring, which was contingent upon
the completion of the Proposed Initial Public Offering, was approved by the
Stockholders and Unitholders. However, after extensive investigation of the
Proposed Initial Public Offering, including extensive discussions with Alex.
Brown & Sons Incorporated, the financial advisors engaged by THC and THHC in
connection therewith, the Joint Boards determined not to proceed with the
Proposed Initial Public Offering. The Joint Boards made the determination not
to proceed with the Proposed Initial Public Offering based upon their
independent business judgment that the range of equity valuations attributed
to Hughes by its financial advisor, the expected net proceeds and the degree
of initial stockholder liquidity that would be provided were not sufficient to
justify proceeding with the Proposed Initial Public Offering without further
investigation of other possible transactions to achieve the objectives of the
Stockholder Agreement. Hughes' financial advisor indicated a range of equity
valuations after giving effect to the Proposed Initial Public Offering of
between $374.5 million and $425.0 million. Such equity valuations included the
estimated $50 million net proceeds of the Proposed Initial Public Offering and
the approximately $83.9 million of cash and marketable securities then held by
Hughes. In addition, such equity valuations included properties with an
implied value of approximately $79.7 million that were subsequently sold by
Hughes. These properties were sold for $101.8 million during 1995. Each of the
acquisition proposals described below exceeded the range of equity valuations
attributed to Hughes at the time of the Proposed Initial Public Offering
(after taking into account the adjustments described above) and provided
greater stockholder liquidity, although the changes in Hughes' properties and
the separation in time between the Proposed Initial Public Offering and the
acquisition proposals described below limit the relevance of the comparison.
After the determination was made not to proceed with the Proposed Initial
Public Offering, the Joint Boards began to investigate other possible
transactions to achieve the objectives of the Stockholder Agreement. To assist
the Joint Boards in evaluating alternatives for achieving the objectives of
the Stockholder Agreement, THHC, individually and on behalf of its
subsidiaries and affiliates, engaged Morgan Stanley on March 13, 1995 after
conducting interviews with several other prominent investment banking firms.
The Joint Boards determined, with the advice of Morgan Stanley, that the
objectives of the Stockholder Agreement would best be served by soliciting
bids from third parties for the acquisition of Hughes. This determination was
based primarily on the view that receiving competing bids from various
investors with the flexibility to capitalize and structure their proposals in
a variety of ways would more likely maximize value to the Stockholders and
Unitholders. With the assistance of Morgan Stanley and other financial and
legal advisors retained by THC and THHC,
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commencing in June 1995, the Joint Boards solicited bids from approximately 30
prospective acquirors identified by Morgan Stanley, and received numerous
indications of interest. The list of prospective acquirors was assembled based
upon a number of considerations, including anticipated interest (i.e.,
likelihood that the prospective acquiror would commit the time and resources
required for the consideration of a major acquisition), strategic fit (i.e.,
likelihood that the real estate portfolios of the prospective acquiror and of
Hughes would complement each other) and financial capacity (i.e., likelihood
that the prospective acquiror would be able to raise the debt and equity
capital necessary to acquire or make a substantial investment in Hughes).
Morgan Stanley distributed marketing documents to qualified investors who
had indicated a high level of interest in Hughes; one of these documents
included an illustrative valuation model, which showed Hughes' equity value
ranging from $566 million to $652 million. This valuation model did not
include valuation of Playa Vista (estimated at the time to be approximately
$10 million to $14 million) or HHC (for which no equity value was attributed
at the time) nor did it take into account (i) transactions involving certain
Hughes properties (including sale of an interest in a Las Vegas
office/industrial park, purchase of a third-party interest in a Hughes Center
office building and miscellaneous Nevada and California land sales,
representing in aggregate a net negative adjustment to equity value of
approximately $76 million to $79 million) which occurred subsequent to the
distribution of such marketing documents and prior to the Mergers, (ii)
general and administrative expenses of Hughes or (iii) prepayment penalties
and defeasance costs related to the indebtedness of Hughes. The illustrative
value range, after inclusion of Playa Vista and HHC and adjustments for the
foregoing, would be approximately $414 million to $501 million. The
illustrative valuation model was prepared prior to receiving indications of
value from prospective investors, was used for marketing purposes and,
accordingly, used higher unit values for undeveloped land and lower discount
rates and terminal value capitalization rates than were used to arrive at the
estimated value range set forth below in "BACKGROUND AND REASONS FOR THE
MERGERS--Opinion of Hughes' Financial Advisor."
The Joint Boards and their advisors engaged in discussions with a number of
the prospective acquirors during the third and fourth quarter of 1995,
including extensive discussions with three such parties commencing in October
1995. As a result of such discussions, the Joint Boards received three formal
acquisition proposals, including a proposal from Rouse, in December 1995.
The first such acquisition proposal was a joint proposal of two bidders. The
terms of such proposal involved (i) the purchase of all of Hughes' rental
properties other than the Mall for cash and the assumption of a portion of
Hughes' existing indebtedness, (ii) the purchase of the Mall for limited
partnership interests convertible after one year into the publicly traded
shares of one of the bidders, a real estate investment trust (the "REIT"),
(iii) the purchase of HHPLP's interest in Summerlin North and certain Nevada
investment properties for cash, (iv) the purchase of 51% of Hughes' interest
in the PV Partnerships and (v) the purchase of a portion of HHPLP's interest
in Summerlin South and Summerlin West for cash. In connection with this
proposal, Hughes was required to repay certain indebtedness and any cash of
Hughes was to be distributed to the Stockholders and Unitholders.
The second such acquisition proposal was a joint proposal of three bidders.
The terms of the second acquisition proposal involved (i) the acquisition of
all of the stock of THC in a tax-free transaction for a combination of cash
and publicly traded stock of one of the bidders and (ii) the purchase of all
of the Class 1 Units (provided that Unitholders would retain limited partner
interests in partnerships that would hold certain residential development
properties in Summerlin North and other portions of Summerlin and HHPLP's
interest in the Playa Vista Partnerships) for cash.
The terms of the initial Rouse acquisition proposal involved (i) the
redemption by HHPLP of certain Class 1 Units for cash, (ii) the purchase by
Rouse of the remaining Class 1 Units for cash, (iii) the acquisition of the
stock of THC in a tax-free transaction for a combination of cash and Rouse
Common Stock and (iv) contingent rights to receive additional shares of Rouse
Common Stock based upon the
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results associated with HHC and Hughes' development and investment properties.
As a result of the transactions contemplated by the initial Rouse proposal,
Unitholders and Stockholders would have been entitled to receive at the
Closing an aggregate of (i) $40 million in cash paid by Rouse and cash and
cash equivalents of Hughes to be distributed in connection with the
transaction, before transaction and other costs, (ii) Rouse Common Stock with
a market price at the Closing of approximately $147.7 million and (iii)
contingent rights to receive additional shares of Rouse Common Stock.
The Joint Boards and their advisors engaged in further extensive discussions
with each of the prospective acquirors in December 1995 and January 1996, and
each of the parties submitted revised acquisition proposals increasing the
amount of the consideration offered in their respective initial proposals. The
revised terms of the first acquisition proposal involved a change in the form
of the acquisition from a purchase of assets to an acquisition of all of the
THC Common Stock and Class 1 Units, and the elimination of the partnership
interests retained by Unitholders in certain properties that were contemplated
by the initial proposal. The revised terms of the second acquisition proposal
involved an increase in the amount of cash and stock to be received by
Stockholders and Unitholders. The revised terms of the Rouse acquisition
proposal involved an increase in the amount of Rouse Common Stock to be
received by Stockholders to a number of shares of Rouse Common Stock with an
aggregate market price of approximately $175.9 million at the Closing.
After extensive consideration of the revised acquisition proposals and an
evaluation of the prospects of Hughes continuing on an independent basis, the
Joint Boards determined, with the advice of Morgan Stanley, that the
combination of cash, securities and continuing interests in certain of Hughes'
assets comprising the consideration offered in the Rouse proposal provided
greater value to the Stockholders and Unitholders than did the other two
proposals or continued independence and was, consequently, in the best
interests of the Stockholders and Unitholders. Accordingly, the Joint Boards
authorized the management of THC and THHC to negotiate a letter of intent and
definitive agreements with Rouse.
On January 12, 1996, THC and Rouse entered into a letter of intent setting
forth the principal terms of the Mergers. During the remainder of January and
February 1996, THC, THHC and Rouse conducted due diligence investigations and
negotiated the terms of the Merger Agreements, the Contingent Stock Agreement
and the other definitive agreements to be entered into by the parties to
effect the Mergers or otherwise to be entered into in connection with the
Mergers.
On February 21, 1996, the Joint Boards met to consider and approve the
Merger Agreements. Based upon the information presented at the meeting,
including the opinion of Morgan Stanley discussed in more detail below, the
Joint Boards approved the Mergers, the Merger Agreements, the Contingent Stock
Agreement and all related transactions by the unanimous vote of all directors.
The Merger Agreements were executed and delivered by THC and HHPLP,
respectively, and Rouse, Merger Sub and Partnership Merger Sub, respectively,
effective as of February 22, 1996.
ALLOCATION OF CONSIDERATION BETWEEN THE MERGERS
In substantially all cases and to the best of THC's knowledge, the THC
Common Stock and Class 1 Units are owned beneficially in substantially the
same proportions. (Record ownership is not substantially in identical
proportions because, while THCP is the record and beneficial owner of THC
Common Stock and Class 1 Units and the 9.5 Trust is the record owner of its
beneficiaries' THC Common Stock and Class 1 Units, RD&C is a record owner only
of its beneficiaries' THC Common Stock and it has an irrevocable proxy for
their Class 1 Units). As a result, in conducting the business of HHPLP and THC
the Joint Boards have not, generally, had to take into account, as a material
matter, the fairness of the allocation of consideration between THC and HHPLP,
arising from transactions in which they mutually benefited. Morgan Stanley
reviewed the amount and nature of the
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consideration allocable to each of the THC Merger and the Partnership Merger
in determining that (i) the consideration to be paid in the THC Merger is
fair, from a financial point of view, to the Stockholders and (ii) the
consideration to be paid in the Partnership Merger is fair, from a financial
point of view, to the Unitholders.
OPINION OF HUGHES' FINANCIAL ADVISOR
THHC retained Morgan Stanley to act as the financial advisor to THC and THHC
in connection with the Mergers and related matters based upon Morgan Stanley's
experience and expertise. At the February 21, 1996 meeting of the Joint
Boards, Morgan Stanley rendered an oral opinion to the Joint Boards that, as
of such date and subject to the considerations set forth in such opinion, (i)
the consideration to be received by the Stockholders pursuant to the THC
Merger Agreement and Contingent Stock Agreement is fair, from a financial
point of view, to the Stockholders and (ii) the consideration to be received
by the Unitholders pursuant to the Partnership Merger Agreement is fair, from
a financial point of view, to Unitholders. Morgan Stanley subsequently
confirmed its oral opinion by delivery of a written opinion dated May 14,
1996.
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION DATED MAY 14, 1996, WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX C TO THIS PROXY
STATEMENT/PROSPECTUS (THE "MORGAN STANLEY OPINION") AND IS INCORPORATED HEREIN
BY REFERENCE. STOCKHOLDERS AND UNITHOLDERS ARE URGED TO, AND SHOULD, READ THE
MORGAN STANLEY OPINION CAREFULLY AND IN ITS ENTIRETY. THE MORGAN STANLEY
OPINION IS DIRECTED TO THE JOINT BOARDS AND THE FAIRNESS OF THE CONSIDERATION
FROM A FINANCIAL POINT OF VIEW TO BE RECEIVED BY THE STOCKHOLDERS AND
UNITHOLDERS PURSUANT TO THE THC MERGER AGREEMENT, THE PARTNERSHIP MERGER
AGREEMENT AND THE CONTINGENT STOCK AGREEMENT, AND IT DOES NOT ADDRESS ANY
OTHER ASPECT OF THE MERGERS NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER OR UNITHOLDER AS TO HOW TO VOTE AT THE SPECIAL MEETING. THE
SUMMARY OF THE MORGAN STANLEY OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
In arriving at its opinion, Morgan Stanley (i) analyzed certain internal
financial statements and other financial and operating data concerning Hughes
prepared by the management of Hughes; (ii) analyzed certain financial
forecasts prepared by the management of Hughes and certain of its consultants
and investment partners; (iii) discussed the past and current operations and
financial condition and the prospects of Hughes with senior executives of
Hughes; (iv) conducted due diligence, including site tours, with respect to
certain of Hughes' real estate assets; (v) reviewed certain market information
prepared by management of Hughes and its consultants; (vi) analyzed the
potential for future distributions of Rouse capital stock to the Stockholders
in accordance with the terms set forth in the Contingent Stock Agreement based
upon certain forecasts prepared by Hughes, and discussed with senior
executives of Hughes certain issues relating to such forecasts and future
distributions; (vii) analyzed certain publicly available financial statements
and certain other information of Rouse; (viii) reviewed the reported prices
and trading activity for Rouse Common Stock; (ix) compared the prices and
trading activity of Rouse Common Stock with that of certain other comparable
publicly-traded companies and their securities; (x) discussed the financial
condition of Rouse with senior executives of Rouse; (xi) participated in
discussions and negotiations among representatives of Hughes, Rouse and their
financial and legal advisors; (xii) reviewed the THC Merger Agreement, the
Partnership Merger Agreement and the Contingent Stock Agreement, and (xiii)
performed such other analyses as Morgan Stanley has deemed appropriate.
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In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of such opinion. With respect to
the financial forecasts provided to it, Morgan Stanley assumed that such
forecasts had been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of
Hughes. In connection with the analyses performed by Morgan Stanley regarding
the estimated value of the contingent consideration to be paid pursuant to the
Contingent Stock Agreement, with THC's consent, Morgan Stanley relied upon the
forecasts prepared by Hughes' management of the estimated future cash flows
relating to certain assets of Hughes. Morgan Stanley did not make any
independent valuation or appraisal of the assets or liabilities of Hughes or
Rouse. The Morgan Stanley Opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made available to Morgan
Stanley as of, the date of its opinion.
In addition, Morgan Stanley was informed by Hughes that the outstanding
Class 1 Units and shares of THC Common Stock are beneficially held by a
substantially identical group of holders and that such holders' relative
interest is substantially the same in both securities, which facts Morgan
Stanley took into consideration in connection with its opinion. Morgan Stanley
also noted that, in its evaluation of the contingent consideration provided
for by the Contingent Stock Agreement, and for purposes of its opinion, it did
not express a view as to whether and to what extent any contingent payments
would actually be paid in the future.
Morgan Stanley estimated the equity value of Hughes, excluding its cash,
generally using the methodologies described below under "--Discounted Cash
Flow Analysis" for the income-producing properties of Hughes and "--
Undeveloped Land Valuation Analysis" for the remaining real estate of Hughes.
Morgan Stanley estimated the value of the various consideration to be received
by Stockholders and Unitholders, excluding cash of Hughes, generally using the
methodologies described below under "--Stock Trading History" for the Rouse
Common Stock, "--Contingent Consideration Analysis" for the contingent
consideration and "--Cash Consideration Analysis" for cash consideration.
These analyses are relevant to the overall fairness determination because they
permit a comparison of the total equity value of Hughes with the aggregate
consideration to be received by Stockholders and Unitholders. The following is
a brief summary of certain analyses, including the analyses referred to above,
performed by Morgan Stanley in connection with the preparation of the Morgan
Stanley Opinion and with its oral presentation by Morgan Stanley to the Joint
Boards on February 21, 1996. In arriving at its opinion of fairness, Morgan
Stanley did not assign specific weights to individual analyses but considered
all analyses in aggregate.
DISCOUNTED CASH FLOW ANALYSIS. The Discounted Cash Flow Analysis assumes
that the value of a portfolio of income-producing real estate can be
determined by discounting the cash flows ("Net Cash Flows") estimated to be
produced by these properties, including an estimated terminal valuation. Net
Cash Flow is an estimated figure and is computed as revenues less property
operating expenses, including management expenses, less capital expenditures,
including tenant improvements and leasing commissions, but without subtracting
interest expense or depreciation. For Playa Vista, Net Cash Flow is estimated
equity cash flow after distributions to joint venture partners. Properties of
Hughes valued by this discounting methodology included existing buildings (and
associated tenant leases) owned by Hughes, other existing leases owned by
Hughes, forecasted cash flow from Hughes' interest in Playa Vista, and land in
Summerlin and THC's investment property portfolio forecasted by Hughes to be
developed and/or sold in the ordinary course of business over the period
beginning in 1995 and ending in 2004. In general, Morgan Stanley applied
discount rates to the Net Cash Flow for the years 1995 through 2004 and to the
estimated terminal values. Terminal values were computed for the Discounted
Cash Flow Analysis by dividing the estimated Net Cash Flow for 2005, computed
as referred to above, by the capitalization rates discussed below. Undeveloped
land of Hughes was valued as discussed below under "--Undeveloped Land
Valuation Analysis." Morgan Stanley applied
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a range of discount rates of 10.75% to 22.0% (except that, for Playa Vista,
discount rates ranged from 33.0% to 37.0%) and a range of terminal value
capitalization rates of 8.5% to 12.0% to the Net Cash Flow projected. For each
type of asset evaluated, discount and capitalization rates were selected based
on certain comparable transactions and properties. A higher discount rate was
used for Playa Vista because of the specific nature of the asset, the
regulatory and approval environment, its capitalization structure and the
nature of Hughes' interest. The resulting equity value, excluding the
valuation of the undeveloped land portfolio (but including land in Summerlin
and Hughes' investment property portfolio projected to be sold prior to 2005),
of Hughes was between $302 million and $372 million, after adjustment for debt
and third-party ownership interests but without taking into consideration
certain general and administrative ("G&A") expenses of Hughes. For purposes of
adjustments for debt, the book value as of December 31, 1995 of the
indebtedness was subtracted from the discounted cash flow valuations. For
purposes of adjustment for third-party ownership interests, equity values
which were assigned to these interests pro rata based on percentage ownership
were subtracted from the discounted cash flow valuations, except that in the
case of Playa Vista, no adjustments were made, as the cash flows valued were
those attributable to the interests in the Playa Vista partnership of Hughes.
To realize the values estimated here and in "--Undeveloped Land Valuation
Analysis" below through asset sales would likely require that defeasance costs
and prepayment penalties be incurred. These amounts, which would reduce the
equity value of Hughes if incurred but which are not reflected in the
estimated equity value range of $302 million to $372 million set forth above,
were estimated in December 1995 to be approximately $27 million. This estimate
was based on prepayment penalties and defeasance provisions as set forth in
the applicable loan documents and on the then current level of interest rates
for government obligations.
UNDEVELOPED LAND VALUATION ANALYSIS. The Undeveloped Land Valuation
Analysis assumes that the value of a portfolio of undeveloped commercial land
can be determined by assigning unit (by square footage and/or acreage) values
to the land based on benchmark land sales comparables. Benchmark land sales
were recent arm's length sales (or expected sales) of land in the Las Vegas
area. These included sales for which information was contained in market
studies prepared by independent consultants for Hughes and provided by Hughes
to Morgan Stanley. Prices and valuations provided by the benchmark sales were
adjusted for many factors, including the level of entitlements obtained, the
proximity of the land parcel analyzed to amenities and infrastructure, the
amount and cost of improvements on the parcel itself, and the expected cost of
future improvements. Properties of Hughes which Morgan Stanley valued by this
methodology include undeveloped commercial land located in Hughes' office and
industrial projects in Las Vegas, Nevada as well as unentitled acreage within
Summerlin not forecasted to be sold prior to 2004. Morgan Stanley valued this
land, using valuation parameters which ranged from $6,500 per acre to $565,000
per acre, as appropriate given the characteristics of the land considered. The
resulting equity value of Hughes' undeveloped land portfolio was between $76
million and $131 million but without taking into consideration certain G&A
expenses of Hughes. G&A expenses of Hughes not taken into account in the
estimates of value set forth here and in "--Discounted Cash Flow Analysis"
above (although generally required to be spent to realize these values) are
projected by Hughes to total approximately $95 million for the ten-year period
ending December 31, 2004. The present value reduction of the equity value of
Hughes of these expenses is estimated at $59 million. Morgan Stanley assumed
that the G&A expenses could be reduced by 20% in each year through operational
synergies with an acquiror through the elimination or reduction of certain
duplicative expenses, such as various expenses relating to management, audit,
accounting and legal functions. Then, Morgan Stanley applied a discount rate
and a terminal capitalization rate of 12% to these adjusted amounts in
computing their estimate of the present value impact. This rate was chosen
after considering the low historical variability of the G&A expenses of Hughes
and the high likelihood of such G&A expenses being incurred in the future.
STOCK TRADING HISTORY. Morgan Stanley's analysis of Rouse Common Stock
performance consisted of a historical analysis of the closing prices and
trading volumes and Rouse's indexed price
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performance related to the Standard & Poor's industrial average of 500 stocks
(the "S&P 500") and an index of comparable retail real estate companies (the
"Comparable Companies," including DeBartolo Realty Corporation, General Growth
Properties, The Macerich Company, Simon Property Group, Inc., and Urban
Shopping Centers). The Comparable Companies index was determined by selecting
certain publicly-traded companies which, like Rouse, are predominantly in the
business of owning and operating regional malls and indexing the share price
performance, assigning weights to the share prices based on relative market
valuation. The period of the analysis began April 8, 1993 (the day on which a
comparable retail real estate company began trading) and ended February 16,
1996 (three trading days prior to the announcement of the transaction). This
analysis indicated that the price of Rouse Common Stock appreciated 15.7%
during this period compared to an increase of 46.6% for S&P 500 and a decrease
of 19.4% for the Comparable Companies. In addition, Morgan Stanley computed
the ratio of the price of Rouse Common Stock to estimates of funds from
operations ("FFO," as defined by the National Association of Real Estate
Investment Trusts) per share for Rouse for 1996 and the average ratio computed
in the same manner for the Comparable Companies, and found the ratios to be
comparable. These analyses suggest that Rouse Common Stock, including the
Rouse Common Stock to be issued upon consummation of the THC Merger with an
aggregate value of $176.4 million, is neither significantly higher valued on
the basis of FFO multiple nor a worse performer in terms of stock price
appreciation than its peers.
CONTINGENT CONSIDERATION ANALYSIS. Morgan Stanley performed an analysis
estimating the value of the contingent consideration to be paid pursuant to
the Contingent Stock Agreement. Morgan Stanley estimated Excess Cash Flow for
each Business Unit by adjusting cash flow estimates made for the assets of
each Business Unit according to the terms of the Contingent Stock Agreement.
Morgan Stanley also estimated the Fair Market Value of the assets of each
Business Unit or portion thereof as of the Valuation Date of each Business
Unit or portion thereof by applying 25% discount rates to estimates of cash
flow for periods subsequent to each such Valuation Date (except that in the
case of the Howard Hughes Center Business Unit, its Fair Market Value as of
its Valuation Date was estimated by applying capitalization rates ranging from
10.5% to 11.5% to estimated net operating income). For each type of asset
evaluated, discount and capitalization rates were selected based on parameters
used by investors in specific comparable transactions or based on published
relevant averages for the Las Vegas market. With respect to the contingent
consideration, discount rates were selected based on an evaluation of the
specific factors relating to asset type discussed above, the rights associated
with the Stockholders' interests in the cash flow and terminal value
distribution structures, the type of development activity engaged in by each
Business Unit and an assessment of the general business and financial
prospects of each Business Unit. Based on these estimated Excess Cash Flows
and Fair Market Values and pursuant to the terms of the Contingent Stock
Agreement, Morgan Stanley estimated the future distributions of Rouse Common
Stock which would be made by Rouse, assuming that such distributions of Rouse
Common Stock would be made by Rouse in accordance with the terms of the
Contingent Stock Agreement. Morgan Stanley applied a range of discount rates
of 20.0% to 25.0% to these distributions in order to estimate the present
value of the contingent consideration to be paid pursuant to the Contingent
Stock Agreement. This contingent consideration value estimate was
approximately $160 million and was considered by Morgan Stanley in conjunction
with their evaluation of (i) the structure of the Excess Cash Flow
distributions, (ii) the mechanisms by which Fair Market Values are computed
and allocated, and (iii) the governance provisions of the Business Units.
CASH CONSIDERATION ANALYSIS. Morgan Stanley took into account that
consideration to be paid by Rouse to Unitholders will also include a cash
payment. Morgan Stanley also noted that the Adjusted Cash Value to be paid to
Unitholders, through the Special Distribution and payment by Rouse of the
balance, is generally equivalent to the sum of the cash of Hughes as of
December 31, 1995, subject to certain adjustments, plus $40 million. See "THE
PARTNERSHIP MERGER AGREEMENT--Conversion of Class 1 Units."
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PRO FORMA MERGER ANALYSIS. Morgan Stanley performed an analysis of the
effect of the Mergers on Rouse's FFO per share for the projected year ended
December 31, 1996, which assumed that the Mergers had been consummated on
January 1, 1996. Morgan Stanley combined the forecasted operating results of
Hughes, based on Hughes' internal estimates but excluding any land sales, with
the corresponding forecasted operating results of Rouse, based on public
estimates prepared by research analysts, to arrive at the combined company
forecasted FFO. Morgan Stanley compared the combined company FFO per share to
Hughes' stand-alone FFO per share to determine the forecasted pro forma impact
of the Mergers on Rouse's FFO per share. This analysis indicated that the pro
forma impact of the Mergers was approximately 10% accretive to Rouse's FFO per
share in 1996. In estimating the pro forma impact, Morgan Stanley made no
adjustments to the projections for 1996 provided by Hughes.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. Morgan
Stanley believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion. In addition,
Morgan Stanley may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting for a particular
analysis described above should not be taken to be Morgan Stanley's view of
the actual value of Hughes and Rouse.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Hughes and Rouse. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
value, which may be significantly more or less favorable than suggested by
such analyses. Such analyses were prepared solely as part of Morgan Stanley's
analysis of whether the consideration to be received by the Stockholders and
the Unitholders pursuant to the THC Merger Agreement, the Partnership Merger
Agreement and the Contingent Stock Agreement is fair from a financial point of
view to such holders, and were conducted in a connection with the delivery of
the Morgan Stanley Opinion. The analyses do not purport to be appraisals or to
reflect the prices at which Hughes might actually be sold. Because such
estimates are inherently subject to uncertainty, none of Hughes, Morgan
Stanley or any other person assumes responsibility for their accuracy. In
addition, as described above, the Morgan Stanley Opinion and the information
provided by Morgan Stanley to Hughes were among the many factors taken into
consideration by the Joint Boards in making their determinations to approve
the THC Merger Agreement, the Partnership Merger Agreement and the Contingent
Stock Agreement and the transactions contemplated thereby. Consequently, the
Morgan Stanley analyses described above should not be viewed as determinative
of the opinion of either of the Joint Boards or the view of Hughes management
with respect to the value of Hughes or of whether the Joint Boards or the
management of Hughes would have been willing to agree to different
considerations.
The consideration to be received by the Stockholders and Unitholders
pursuant to the THC Merger Agreement, the Partnership Merger Agreement and the
Contingent Stock Agreement was determined through negotiations between Hughes
and Rouse and was approved by the Joint Boards. During the course of such
negotiations, Morgan Stanley did not make a recommendation with respect to the
amount of the consideration.
Hughes retained Morgan Stanley based upon its experience and expertise.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. As part of its investment banking business, Morgan Stanley is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuation for estate, corporate and other purposes. In the ordinary course
of its business, Morgan Stanley and its affiliates may actively
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trade the debt and equity securities of any company for their own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
Pursuant to a letter agreement dated March 13, 1995 between THHC,
individually and on behalf of its shareholders and affiliates, and Morgan
Stanley and to a subsequent letter agreement dated December 15, 1995 between
the same parties, Morgan Stanley is entitled to (i) an advisory fee estimated
at $1.25 million which is paid or currently payable and (ii) a transaction fee
estimated at $12.0 million which is payable upon consummation of the Mergers.
A portion of the advisory fee paid to Morgan Stanley will be credited against
the transaction fee. In addition, Hughes has agreed to reimburse Morgan
Stanley for its expenses, including the reasonable fees and expenses of its
counsel, and to indemnify Morgan Stanley and its affiliates against certain
liabilities and expenses, including liabilities under federal securities laws.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF THC AND OF THHC, AS GENERAL
PARTNER
The THC Board believes that the terms of the THC Merger are fair to, and in
the best interests of, THC and the Stockholders and has unanimously approved
the THC Merger Agreement, the Contingent Stock Agreement and the other
documents to be executed and delivered pursuant to the THC Merger Agreement.
THHC, as General Partner of HHPLP, based upon the unanimous approval of the
THHC Board, believes that the terms of the Partnership Merger are fair to and
in the best interests of HHPLP and the Unitholders and has approved the
Partnership Merger Agreement.
The Joint Boards recommend that Stockholders and Unitholders approve the
Mergers for the following principal reasons:
(i) the Mergers will accomplish the Liquidity Objective contemplated by
the Stockholder Agreement by providing Stockholders with publicly-traded
Rouse Common Stock and Unitholders with a substantial cash distribution;
(ii) the THC Merger and the Contingent Stock Agreement will enable
Stockholders to participate in potential increases in the value of the
undeveloped land and other assets included in the Business Units;
(iii) the THC Merger will enable Stockholders to participate in a larger
real estate company with a more diversified geographic coverage than THC on
an independent basis; and
(iv) the Joint Boards believe that the terms of the Mergers, which were
arrived through a competitive bidding process, provide greater value to
Stockholders and Unitholders than an initial public offering by Hughes,
other proposals to acquire Hughes or continued independence.
In making the determinations and recommendations described above, the Joint
Boards considered the following material factors:
(i) information with respect to the financial condition, assets,
liabilities, businesses, results of operations and prospects of THC, HHPLP
and Rouse, which was deemed relevant to the respective values of the THC
Common Stock, Class 1 Units and Rouse Common Stock;
(ii) the terms and conditions of the Merger Agreements and the Contingent
Stock Agreement, which were deemed relevant to the value of the
consideration received in the Mergers;
(iii) the opinion of Morgan Stanley, as financial advisor to THC and
THHC, that (A) the consideration to be paid in the THC Merger is fair, from
a financial point of view, to the Stockholders and (B) the consideration to
be paid in the Partnership Merger is fair, from a financial point of view,
to the Unitholders, and the analysis and advice referred to under
"BACKGROUND AND REASONS FOR THE MERGERS--Background" and "BACKGROUND AND
REASONS FOR THE MERGERS--Opinion of Hughes' Financial Advisor";
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(iv) the terms of the Stockholder Agreement, the Liquidity Objective
contemplated thereby, and the fiduciary responsibilities of the Joint
Boards, which were deemed relevant to the determination that the Mergers
are in the best interests of Stockholders and Unitholders;
(v) an analysis of the indications of interest by and the terms of the
acquisition proposals of potential acquirors other than Rouse, and of the
prospects of THC and HHPLP continuing on an independent basis, referred to
under "BACKGROUND AND REASONS FOR THE MERGERS--Background," which was
deemed relevant to the determination of the fair value of the THC Common
Stock and Class 1 Units and of the best interests of Stockholders and
Unitholders;
(vi) the ability of Stockholders to participate in a larger real estate
company with a more diversified geographic coverage than THC on an
independent basis, which was deemed relevant to the value of the THC Common
Stock, the Class 1 Units and the Rouse Common Stock;
(vii) the ability of the Stockholders to participate in potential
increases in the value of the undeveloped land and other assets included in
the Business Units through the Contingent Stock Agreement, which was deemed
relevant to the value of the consideration to be received by Stockholders
in the THC Merger;
(viii) the fact that the Merger Agreements permitted THC and HHPLP to
terminate the Merger Agreements to enter into a business combination with a
third party, subject to the payment of certain fees and expenses as set
forth in the Merger Agreements, which was deemed relevant to the
determination that the Mergers were fair and in the best interests of
Stockholders and Unitholders as a result of the ability to accept
acquisition proposals with greater value after public disclosure of the
terms of the Mergers; and
(ix) the material risks with respect to the Mergers and the respective
businesses and properties of Rouse and Hughes, consisting of the risks
relating to the Contingent Stock Agreement, the Contingent Shares and the
Contingent Preferred Shares, the dilution to Stockholders resulting from
the Mergers, the real estate development risks associated with the
respective businesses and properties of Rouse and Hughes, and additional
risks relating to the business of Hughes, which were deemed relevant to the
value of the THC Common Stock, the Class 1 Units and the Rouse Common
Stock. See "RISK FACTORS." In considering such risk factors, the Joint
Boards determined that the material risks with respect to the Mergers and
the business and properties of Rouse were outweighed by the reasons for the
Mergers discussed above.
The Joint Boards did not attach specific weights to any of the foregoing
factors; each was deemed to support the conclusion that the terms of the
Mergers are fair to, and in the best interests of, THC, HHPLP, the
Stockholders and the Unitholders.
In the course of formulating the Mergers, there were no negotiations between
THC and THHC, nor between THHC and HHPLP, nor were these entities represented
by special board committees or other spokespersons or by separate legal
counsel, financial advisors or investment bankers. The Joint Boards
respectively concluded that the Mergers did not create a conflict of interest
and necessitate such representation after considering, among other things (i)
that each of the Principal Owners, through their representatives on the Joint
Boards designated pursuant to the Stockholder Agreement, participated in the
formulation of the Mergers, and (ii) that there is no disparate treatment
among Stockholders or among Unitholders under the Mergers.
Based on all of the factors described above, the Joint Boards believe that
the Mergers are in the best interests of, and are fair to, the Stockholders
and the Unitholders. Accordingly, (i) the THC Board has unanimously approved
the THC Merger Agreement and unanimously recommends that Stockholders vote
"FOR" the proposal to approve such agreement and (ii) the THHC Board has
unanimously approved the Partnership Merger Agreement and unanimously
recommends that Unitholders vote "FOR" the proposal to approve such agreement.
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INTERESTS OF CERTAIN PERSONS IN THE MERGERS
Mr. Goolsby, the President and Chief Executive Officer of THC and a director
of each of THC and THHC, will be employed by Rouse after the Mergers. In
addition, William R. Lummis, a director of THC and THHC, will be a director of
Rouse after the Mergers. Platt W. Davis, III and Kenneth E. Studdard,
directors of THC and THHC, will be Representatives designated under the
Contingent Stock Agreement.
The THC Board approved incentive bonuses aggregating approximately
$3,000,000 for THC's eight executive officers, other than John L. Goolsby,
subject to the consummation of the Mergers. Because such executive officers of
THC will not be entitled to such incentive bonuses unless the Mergers are
consummated, such executive officers have an interest in the approval of the
Merger Agreements. In addition, in connection with the Mergers, the qualified
defined benefit plan of THC, the Summa Corporation Benefit Restoration Plan
and the Summa Corporation Supplemental Savings Plan will be terminated. The
terminations of such plans will result in the lump-sum payment of benefits
estimated to aggregate approximately $1,140,000 to these eight executive
officers. The estimated amounts payable pursuant to such plans are based on
certain assumptions (including assumed interest rates), and the actual amounts
paid may differ significantly from the estimates. Also, in connection with the
Mergers, HHPLP's Long-term Incentive Plan and Annual Incentive Compensation
Plan will be terminated. All benefits relating to these plans, including a pro
rata amount for 1996, will be paid at closing. The estimated amount to be paid
to the eight executive officers under such plans is $1,490,000. Since such
executive officers would not be entitled to payment of such amounts, if at
all, until a later date absent the consummation of the Mergers, such executive
officers have an interest in the approval of the Merger Agreements.
Mr. Goolsby holds phantom interests in THC Common Stock and Class 1 Units
under that certain Amended and Restated Long-Term Incentive Compensation
Agreement, dated January 1, 1994, among Mr. Goolsby, THC and HHPLP (the
"Goolsby Incentive Agreement"), which was entered into by THC and HHPLP in
connection with Mr. Goolsby's employment as President and Chief Executive
Officer of THC to provide incentives to Mr. Goolsby and align his interests
with those of the Stockholders and Unitholders. The original version of the
Goolsby Incentive Agreement was entered into in 1989. Mr. Goolsby's phantom
interests, which are contractual rights intended to represent the economic
equivalent of 0.8% of the outstanding THC Common Stock and Class 1 Units,
respectively, entitle him to 0.8% of the Rouse Common Stock and cash payments
(including with respect to the Special Distribution) to be distributed to the
Stockholders and Unitholders in connection with the Mergers. In addition, Mr.
Goolsby will receive payment of certain deferred non-vested amounts
(approximately $526,000) credited under the Goolsby Incentive Agreement for
"phantom distributions" made by the Hughes entities through January 1996 with
respect to his phantom interests. Mr. Goolsby may receive approximately
$136,000 in connection with the termination of the Annual Incentive
Compensation Plan. At the request of Rouse, Mr. Goolsby entered into an
agreement, dated February 27, 1996, with Rouse, THC and HHPLP pursuant to
which Rouse will make a $2,000,000 cash payment to Mr. Goolsby and Rouse will
receive an assignment of Mr. Goolsby's remaining rights under the Goolsby
Incentive Agreement, including any rights to future distributions that Mr.
Goolsby would otherwise be entitled to receive under the Contingent Stock
Agreement. Accordingly, Mr. Goolsby has an interest in the approval of the
Merger Agreements. The closing price of Rouse Common Stock on the NYSE was
$20.25 on February 27, 1996 and was $23.75 on May 13, 1996, the last trading
day prior to the date of this Proxy Statement/Prospectus. As a result of the
termination of the qualified defined benefit plan of THC, the Summa
Corporation Benefit Restoration Plan and the Summa Corporation Supplemental
Savings Plan, Mr. Goolsby will receive lump-sum distributions from these plans
estimated to be approximately $730,000. The estimated amounts, payable
pursuant to such plans, are based on certain assumptions (including assumed
interest rates), and the actual amounts paid may differ significantly from the
estimates. Since the current payment of the amounts noted above
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is dependent on the consummation of the Mergers, Mr. Goolsby has an interest
in the approval of the Merger Agreements.
In connection with the Mergers, William R. Lummis, Elmer Vacchina and Vernon
C. Olson, directors of each of THC and THHC, and Robert E. Morrison, an
executive officer of each of THC and THHC, will be entitled to cash payments
of $235,000, $360,000, $359,000 and $235,000, respectively. Messrs. Lummis and
Olson will also be entitled to receive approximately $144,000 and $730,000,
respectively, as a result of the termination of the Summa Corporation Benefit
Restoration Plan. Since the current payment of these amounts is dependent on
the consummation of the Mergers, each of these individuals has an interest in
the approval of the Merger Agreements.
Certain directors of each of THC and THHC (as well as members of their
respective families or trusts created for the benefit of themselves or members
of their respective families) are beneficial owners of THC Common Stock and
Class 1 Units and, accordingly, such directors have an interest in the
approval of the Mergers. See "PRINCIPAL STOCKHOLDERS AND UNITHOLDERS OF THC
AND HHPLP."
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THE MERGERS
DESCRIPTION OF THE MERGERS
The THC Merger Agreement provides that, at the Effective Time, THC will
merge with and into Merger Sub with Merger Sub being the Surviving
Corporation, and each outstanding share of THC Common Stock will be converted
into the right to receive (i) a number of shares of Rouse Common Stock or,
under certain circumstances, a number of shares of shares of Rouse Common
Stock and cash, in each case, determined as described under "THE THC MERGER
AGREEMENT--Manner and Basis of Converting Shares" and (ii) additional shares
of Rouse Common Stock or, under certain circumstances, shares of Increasing
Rate Preferred Stock to be issued during a 14-year period following the
Effective Time based upon the cash flow generated from, and the appraised
value of, certain assets of THC and its subsidiaries as described under "THE
CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS."
The Partnership Merger Agreement provides that, at the Partnership Effective
Time, Partnership Merger Sub will merge with and into HHPLP with HHPLP being
the surviving entity in the Partnership Merger, and each outstanding Class 1
Unit will be converted into the right to receive the cash payment described
under "THE PARTNERSHIP MERGER AGREEMENT--Conversion of Class 1 Units."
Immediately prior to the consummation of the Partnership Merger, HHPLP will
make the Special Distribution.
BOARD ARRANGEMENTS
Pursuant to the THC Merger Agreement, Rouse will prior to the Effective Time
increase the size of the Rouse Board by one in accordance with the Rouse By-
Laws and cause the vacancy created thereby to be filled as of the Effective
Time by a designee of THC reasonably acceptable to it (the "Hughes Designee").
See "THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--Board
Representation."
ACCOUNTING TREATMENT
The Mergers are expected to be accounted for using the "purchase" method of
accounting. See "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS"
and Notes thereto included elsewhere in this Proxy Statement/Prospectus.
GOVERNMENTAL AND REGULATORY APPROVALS AND MATTERS
Transactions such as the Mergers are reviewed by the FTC and the DOJ to
determine whether they comply with applicable antitrust laws. Under the
provisions of the HSR Act, the Mergers may not be consummated until such time
as the specified waiting period requirements of the HSR Act have been
satisfied. Each of Rouse and THC intends to file a notification and report
form, together with a request for early termination of the waiting period,
with the FTC and the DOJ under the HSR Act in respect of the Mergers. The
applicable waiting period will expire 30 days after the filing of the later to
be filed of such notification and report forms, unless early termination is
granted, provided that if a request for additional information or documents is
received, the applicable waiting period will expire ten days after substantial
compliance with such request for additional information or documents.
At any time before or after the Effective Time, the FTC, the DOJ or a
private person or entity could seek under the antitrust laws, among other
things, to enjoin the Mergers or to cause Rouse to divest itself, in whole or
in part, of THC or of other businesses conducted by Rouse. There can be no
assurance that a challenge to the Mergers will not be made or that, if such a
challenge is made, Rouse and THC will prevail.
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RESTRICTIONS ON RESALES
The shares of Rouse Common Stock to be received by Stockholders in
connection with the THC Merger have been registered under the Securities Act
and, except as set forth in this paragraph, may be traded without restriction.
The shares of Rouse Common Stock to be issued in connection with the THC
Merger and received by persons who are deemed to be "affiliates" (as that term
is defined in Rule 144 under the Securities Act) of THC prior to the THC
Merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 under the Securities Act (or, in the case of such
persons who become affiliates of Rouse, Rule 144 under the Securities Act) or
as otherwise permitted under the Securities Act. The THC Merger Agreement
provides that THC will use its reasonable efforts to cause its affiliates to
execute a written agreement to the effect that such persons will not sell,
transfer or otherwise dispose of Rouse Common Stock at any time in violation
of the Securities Act or the rules and regulations promulgated thereunder,
including Rule 145. In connection with the THC Merger, Rouse has agreed to
enter into a Registration Rights Agreement (the "Registration Rights
Agreement") which will require Rouse to maintain an effective shelf
registration statement with respect to shares of Rouse Common Stock and which
will grant certain "piggyback" registration rights to THCP, which is
restricted from selling shares of Rouse Common Stock under Rule 144 or Rule
145 under the Securities Act.
Under the THC Merger Agreement, THC is required to use its reasonable best
efforts to cause each holder of record and beneficial stockholder of THC at
the Effective Time to execute and deliver to Rouse, at or prior to the
Effective Time: (i) a Lock-up Agreement pursuant to which each such person
will agree, subject to certain exceptions, not to sell, transfer or otherwise
dispose of more than 33 1/3% of the shares of Rouse Common Stock received by
such person in the THC Merger within the first 180 days after the Effective
Time or more than 66 2/3% of the shares of Rouse Common Stock received by such
person in the THC Merger within the first 360 days after the Effective Time
(collectively, the "Lock-Up Agreements"); (ii) a tax representation letter
pursuant to which each such person will represent that it has no present plan
or intention to sell, exchange or otherwise dispose of (including by gift) any
of the shares of Rouse Common Stock received by such person in the THC Merger
(including pursuant to the Contingent Stock Agreement) (collectively, the "Tax
Representation Letters"); and (iii) a Voting Agreement pursuant to which such
person will agree to vote all shares of Rouse Common Stock over which such
person has voting power at any meeting of stockholders of Rouse in favor of
the issuance of shares of Rouse Common Stock pursuant to the Contingent Stock
Agreement (collectively, the "Voting Agreements").
Under the THC Merger Agreement, THC is required to use its reasonable best
efforts to cause THCP to execute and deliver to Rouse, at or prior to the
Effective Time, a letter (the "THCP Agreement") indicating its agreement that,
notwithstanding anything in the THC Merger Agreement to the contrary, during
the period ending on the first anniversary of the Effective Time and without
the consent of Rouse, which consent will not be unreasonably withheld, THCP
will not sell, exchange or otherwise dispose of more than 50% of the shares of
Rouse Common Stock received by it and registered in its name on the stock
transfer books of Rouse as of the Effective Time by reason of the THC Merger.
Excepted from the foregoing restriction on transfer is any disposition of
shares of Rouse Common Stock by THCP (i) to any beneficial stockholder of THCP
or the successors or assigns of such beneficial stockholder, (ii) by operation
of law or pursuant to a bankruptcy or insolvency proceeding, (iii) pursuant to
judicial order, legal process, execution or attachment, (iv) pursuant to or in
connection with a tender or exchange offer for all of the Rouse Common Stock,
(v) to Rouse or any of its subsidiaries or (vi) pursuant to an underwritten
public offering and distribution registered under the Securities Act or any
exemption from registration thereunder. The restrictions imposed by the THCP
Agreement will not be applicable to any shares of Rouse Common Stock owned by
any of the beneficial stockholders of THCP or the successors or assigns of
such beneficial stockholder, whether received from THCP as a distribution or
otherwise.
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DISSENTERS' RIGHTS
THE THC MERGER. If the THC Merger is consummated, dissenting Stockholders
may be entitled to have the "fair value" (exclusive of any element of value
arising from the accomplishment or expectation of the THC Merger) of any
Dissenting Shares at the Effective Time judicially determined and paid to them
in cash by complying with the provisions of Section 262 of the DGCL ("Section
262"). ANY HOLDER OF THC COMMON STOCK THAT VOTES IN FAVOR OF THE THC MERGER
WILL THEREBY WAIVE ALL RIGHTS TO APPRAISAL UNDER DELAWARE LAW.
The following is a brief summary of Section 262, which sets forth the
procedures for dissenting from the THC Merger and demanding statutory
appraisal rights. This summary does not purport to be a complete statement of
provisions of the DGCL relating to the rights of Stockholders to an appraisal
of the value of their shares, and Stockholders are urged to read Section 262,
the full text of which is attached as Appendix F to this Proxy
Statement/Prospectus. Failure to follow these procedures exactly could result
in the loss of appraisal rights. This Proxy Statement/Prospectus constitutes
notice to Stockholders concerning the availability of appraisal rights under
Section 262. Under Section 262, a Stockholder of record wishing to assert
appraisal rights must hold the shares of THC Common Stock on the date of
making a demand for appraisal rights with respect to such shares and must
continuously hold such shares through the Effective Time.
Stockholders who desire to exercise their appraisal rights must satisfy all
of the conditions of Section 262. A written demand for appraisal of shares
must be delivered to THC before the taking of the vote on the THC Merger. This
written demand for appraisal of shares must be in addition to and separate
from any proxy vote abstaining from or voting against the THC Merger. Any such
abstention or vote against the THC Merger will not constitute a demand for
appraisal within the meaning of Section 262.
Stockholders electing to exercise their appraisal rights under Section 262
must not vote for approval of the THC Merger. If a Stockholder returns a
signed proxy but does not specify a vote against approval of the THC Merger or
a direction to abstain, the proxy will be voted for approval of the THC
Merger, which will have the effect of waiving that Stockholder's appraisal
rights.
A demand for appraisal must be executed by or for the stockholder of record,
fully and correctly, as such stockholder's name appears on the share
certificate. If the shares are owned of record in a fiduciary capacity, such
as by a trustee, guardian or custodian, this demand must be executed by or for
the fiduciary. If the shares are owned by or for more than one person, as in a
joint tenancy or tenancy in common, such demand must be executed by or for all
joint owners. An authorized agent, including an agent for two or more joint
owners, may execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner and expressly disclose the
fact that, in exercising the demand, he or she is acting as agent for the
record owner. A person having a beneficial interest in THC Common Stock held
of record in the name of another person, such as a nominee, must act promptly
to cause the record holder to follow the steps summarized below and in a
timely manner to perfect whatever appraisal rights the beneficial owner may
have.
A record owner who holds THC Common Stock as a nominee for others may
exercise his or her right of appraisal with respect to the shares for all or
less than all of the beneficial owners of shares as to which such nominee is
the record owner. In such case, the written demand must set forth the number
of shares covered by such demand. Where the number of shares is not expressly
stated, the demand will be presumed to cover all shares outstanding in the
name of such record owner.
A Stockholder that elects to exercise appraisal rights should mail or
deliver his or her written demand to THC at its address at 3800 Howard Hughes
Parkway, Las Vegas, Nevada 89109, Attention: General Counsel. The written
demand for appraisal should specify the Stockholder's name and mailing
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address, and that the Stockholder is thereby demanding appraisal of his or her
THC Common Stock. If the THC Merger is approved, within ten days after the
Effective Time, THC must provide notice of the Effective Time and that
appraisal rights are available for any or all of the shares of THC Common
Stock to all of its Stockholders who have complied with Section 262 and have
not voted for approval of the THC Merger. Any Stockholder entitled to
appraisal rights may, within 20 days after the date of mailing such notice,
demand in writing from Rouse the appraisal of his or her shares.
Within 120 days after the Effective Time, any Stockholder who has satisfied
the requirements of Section 262 may deliver to Rouse a written demand for a
statement listing the aggregate number of shares not voted in favor of the THC
Merger and with respect to which demands for appraisal have been received and
the aggregate number of holders of such shares. Rouse will respond to such
demand in accordance with Section 262.
Within 120 days after the Effective Time (but not thereafter), either Rouse
or any Stockholder who has complied with the required conditions of Section
262 may file a petition in the Delaware Court of Chancery (the "Court")
demanding a determination of the fair value of the dissenting shares. Rouse
has no present intention to file such a petition if demand for appraisal is
made.
Upon the filing of any petition by a Stockholder in accordance with Section
262, service of a copy of such petition will be made upon Rouse, which will,
within 20 days after service, file in the office of the Register in Chancery
in which the petition was filed, a duly verified list containing the names and
addresses of all Stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
Rouse. If the petition is filed by Rouse, the petition will be accompanied by
the verified list. The Register in Chancery, if so ordered by the Court, will
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to Rouse and to the Stockholders shown on the
list at the addresses therein stated, and notice will also be given by
publishing a notice at least one week before the day of the hearing in a
newspaper of general circulation published in the City of Wilmington, Delaware
or such publication as the Court deems advisable. The forms of the notices by
mail and by publication must be approved by the Court, and the costs thereof
shall be borne by Rouse.
If a petition for an appraisal is filed in a timely fashion, after a hearing
on the petition, the Court will determine which Stockholders are entitled to
appraisal rights and will appraise the shares owned by these Stockholders,
determining the fair value of such shares, exclusive of any element of value
arising from the accomplishment or expectation of the THC Merger, together
with a fair rate of interest to be paid, if any, upon the amount determined to
be the fair value. In determining fair value, the Court is to take into
account all relevant factors. In Weinberger v. UOP, Inc. et al., the Delaware
Supreme Court stated that "proof of value by any techniques or methods which
are generally considered acceptable in the financial community and otherwise
admissible in court" should be considered, and that "fair price obviously
requires consideration of all relevant factors involving the value of a
company . . ." The Delaware Supreme Court stated that, in making a
determination of fair value, the agency fixing the value must consider market
value, asset value, dividends, earnings prospects, the nature of the
enterprise and any other facts which could be ascertained as of the date of
the merger and which throw any light on future prospects of the merged
corporation. In Weinberger, the Delaware Supreme Court held that the "elements
of future value, including the nature of the enterprise, which are known or
susceptible of proof as of the date of the merger and not the product of
speculation, may be considered." In addition, the Delaware Supreme Court had
determined that the statutory appraisal remedy depending upon the factual
circumstances, may or may not be a stockholder's exclusive remedy in
connection with a merger.
Stockholders considering seeking appraisal of their shares should note that
the fair value of their shares determined under Section 262 could be more, the
same or less than the consideration they would receive pursuant to the THC
Merger Agreement if they did not seek appraisal of their shares.
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The costs of the appraisal proceeding may be determined by the Court and taxed
against the parties as the Court deems equitable in the circumstances. Upon
application of a dissenting stockholder, the Court may order that all or a
portion of the expenses incurred by any dissenting stockholder in
connection with the appraisal proceeding, including reasonable attorneys' fees
and the fees and expenses of experts, be charged pro rata against the value of
all shares entitled to appraisal. In the absence of a determination or
assessment, each party bears its own expense.
Any Stockholder who has duly demanded appraisal in compliance with Section
262 will not, after the Effective Time, be entitled to vote for any purpose
the shares subject to demand or to receive payment of dividends or other
distributions on such shares, except for dividends or other distributions
payable to stockholders of record at a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any Stockholder will
have the right to withdraw its demand for appraisal and to accept the terms
offered in the THC Merger Agreement. After this period, a Stockholder may
withdraw its demand for appraisal and receive payment for its shares as
provided in the THC Merger Agreement only with the consent of Rouse. If no
petition for appraisal is filed with the Court within 120 days after the
Effective Time, all Stockholders' rights to appraisal will cease and
Stockholders will be entitled to receive shares of Rouse Common Stock as
provided in the THC Merger Agreement and the Contractual Rights. Inasmuch as
Rouse has no obligation to file such a petition, any Stockholder who desires a
petition to be filed is advised to file it on a timely basis. No petition
timely filed in the Court demanding appraisal may be dismissed as to any
Stockholder without the approval of the Court, which approval may be
conditional upon such terms as the Court deems just.
Pursuant to the THC Merger Agreement, THC will give Rouse prompt notice of
any demands received by THC, and Rouse will have the right to participate in
all negotiations and proceedings with respect to the demands. THC will not,
except with the prior written consent of Rouse, make any payment with respect
to, or settle or offer to settle, any such demands.
Under the THC Merger Agreement, Rouse is not obligated to consummate the THC
Merger if holders of more than 5% of the outstanding THC Common Stock have
exercised such appraisal rights.
THE PARTNERSHIP MERGER. Under Delaware law, holders of Class 1 Units are not
entitled to appraisal rights in connection with the Partnership Merger.
OTHER RELATED TRANSACTIONS
THHC has granted Rouse a five-year option to purchase approximately 100
acres in Summerlin to be used for the development of a regional mall having
approximately five department stores, which option shall become effective only
upon the closing of the Mergers. The purchase price is $3.00 per square foot,
as increased to reflect increases in the consumer price index until the
commencement of development. If the Mergers do not close, the option will not
become effective.
If Rouse sells or ground leases any portion of the site to parties other
than major department stores, the Hughes Owners will participate in any value
received in excess of the purchase price stated in the preceding paragraph to
the same extent they would have participated had the land been sold or leased
by the Summerlin Business Unit to a third party. If there are build-to-suits
on the site, excepting major department stores, the Hughes Owners will
participate to the same extent. Similarly, if any portion of the site is
developed for gaming purposes, the value of the land will be adjusted to
reflect the land value for the use as if that value had been realized by the
Summerlin Business Unit.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
INTRODUCTION
This section is a summary of the principal federal income tax consequences
that are expected to result from the THC Merger and the Partnership Merger and
which in counsel's view would be considered material by a Stockholder or a
Unitholder. Unless noted otherwise, statements of legal conclusions set forth
in this section constitute the opinion of Andrews & Kurth L.L.P., counsel to
THC and HHPLP ("Tax Counsel"). It is impractical to comment on all aspects of
federal, state, local and foreign laws that may affect the tax consequences of
the Mergers as they relate to the particular circumstances of each Stockholder
or Unitholder. Accordingly, this discussion does not address any aspect of
foreign, state or local law or federal estate or gift tax considerations. The
federal income tax consequences to any particular Stockholder or Unitholder
may be affected by matters not discussed below. For example, certain types of
holders (e.g., taxpayers who may be subject to the alternative minimum tax)
may be subject to special rules not addressed herein. Furthermore, this
discussion is not applicable with respect to shares or other property received
pursuant to stock grants, the exercise of employee stock options or otherwise
as compensation. In addition, as discussed below, the law is not entirely
clear as to certain aspects of the THC Merger.
This summary is based on the current provisions of the Code, existing
regulations thereunder and administrative rulings and court decisions, all of
which are subject to changes that can be retroactively applied. Many of the
provisions of the Code that have been recently enacted or amended have not
been interpreted by the courts or the Internal Revenue Service (the
"Service").
No assurance can be provided that the opinions and statements set forth
herein (which do not bind the Service or the courts) will not be challenged by
the Service or would be sustained by a court if challenged.
THE DISCUSSION SET FORTH BELOW ADDRESSES THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF GENERAL APPLICATION THAT ARE EXPECTED TO RESULT FROM THE
MERGERS. STOCKHOLDERS AND UNITHOLDERS SHOULD CONSULT THEIR TAX ADVISORS TO
DETERMINE THE TAX CONSEQUENCES OF THE MERGERS AND THE ACQUISITION, HOLDING AND
DISPOSITION OF ROUSE COMMON STOCK AND INCREASING RATE PREFERRED STOCK TO BE
RECEIVED IN CONNECTION THEREWITH, INCLUDING THE APPLICABILITY AND EFFECT OF
FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS WITH RESPECT TO
THEIR OWN PARTICULAR CIRCUMSTANCES.
THE THC MERGER
Tax Counsel will deliver an opinion to THC and Fried, Frank, Harris, Shriver
& Jacobson, counsel to Rouse, will deliver an opinion to Rouse to the effect
that (i) the THC Merger will be treated for federal income tax purposes as a
reorganization described in Section 368(a) of the Code ("reorganization") and
(ii) THC, Rouse and Merger Sub will each be a "party to a reorganization" as
such phrase is described in Section 368(b) of the Code. Tax Counsel will
deliver an opinion to THC that, subject to the discussion of the receipt of
cash or other "boot" described below (see "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--The THC Merger--Stockholders" and "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--The THC Merger--Treatment of Contractual Rights" below), the
Stockholders will recognize no gain or loss for federal income tax purposes by
reason of conversion of the shares of THC Common Stock into the shares of
Rouse Common Stock and the Contractual Rights under the Contingent Stock
Agreement to be received at the Effective Time. To the extent their shares of
THC Common Stock are converted into cash as described in "THE THC MERGER
AGREEMENT--Manner and Basis of Converting Shares," Stockholders may recognize
a gain but in an amount not in excess of such cash (see "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES--The THC Merger--Stockholders"). These opinions will
be based upon, among
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other things, representation letters provided by THC and Rouse to counsel
containing customary statements relating to planned dispositions of shares of
Rouse Common Stock by the Stockholders, plans on the part of Rouse to
undertake or cause Merger Sub to undertake transactions outside the ordinary
course of business, the value of the Contractual Rights and certain other
technical requirements under the Code.
The above conclusions assume the veracity of certain representations that
the Stockholders will have a continuing proprietary interest through stock
ownership in Rouse of a sufficient magnitude to satisfy the "continuity of
interest" requirement of a reorganization. This requirement must be met in two
respects. First, a significant part of the consideration received by the
Stockholders pursuant to the THC Merger must represent such a continuing
proprietary interest. Even if, contrary to the conclusion below, the
Contractual Rights were treated as "boot," the Rouse Common Stock to be
received by the Stockholders in the THC Merger will be sufficient to satisfy
the continuity of interest requirement of a reorganization, based on THC's
belief (which is based on advice Morgan Stanley rendered to the Joint Boards)
that the fair market value of the Contractual Rights will not significantly
exceed the fair market value of the Rouse Common Stock to be issued to the
Stockholders at the Effective Time. If it were determined that the Contractual
Rights are "boot" or "other property" (see "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--The THC Merger--Treatment of Contractual Rights") and that, in
contrast to Morgan Stanley's advice, the fair market value of the Contractual
Rights at the Effective Time significantly exceeded the fair market value of
the Rouse Common Stock to be issued to the Stockholders at the Effective Time,
the THC Merger might not constitute a tax-free reorganization.
The second aspect of the continuity of interest requirement depends on the
Stockholders' plans or intentions at the time of the THC Merger to sell,
exchange or otherwise dispose of the Rouse Common Stock received by them in
the THC Merger. The above discussion and the opinions of Tax Counsel and
counsel to Rouse assume, and will assume, the veracity of the representation
of THC to the effect that the Stockholders, as a group, will have no plans or
intentions at the time of consummation of the THC Merger to reduce their
holdings in the Rouse Common Stock received at the Effective Time to a number
of shares having a value, as of the Effective Time, of less than 50 percent of
all of the formerly outstanding shares of THC Common Stock as of such date
(excluding any shares of THC Common Stock held by THHC before the Effective
Time).
Should the continuity of interest requirement not be satisfied, (i) the THC
Merger would not qualify as a reorganization within the meaning of Section
368(a) of the Code, (ii) neither THC, Rouse nor Merger Sub would be a "party
to a reorganization" as such term is described in Section 368(b) of the Code
and Rouse (as the successor in interest to THC) would incur a significant tax
liability (see "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--The THC Merger--THC,
Rouse and Merger Sub"), and (iii) a Stockholder would recognize gain or loss
on the exchange of his shares of THC Stock for shares of Rouse Common Stock,
Contractual Rights and, potentially, cash (as discussed in "THE THC MERGER
AGREEMENT--Manner and Basis of Converting Shares") as if he or she had sold
his or her shares of THC Common Stock for an amount equal to the fair market
value of such consideration. THC and Rouse are requesting that each record
owner (i.e., each person or entity in whose name THC Common Stock is
maintained on the records of THC), each beneficiary of RD&C and of the 9.5
Trust and each partner of THCP represent as to any plans or intentions to
dispose of Rouse Common Stock to be received in the THC Merger. The
Stockholders will rely on such representations in approving consummation of
the THC Merger and Tax Counsel and counsel to Rouse will rely on such
representations in rendering their tax opinions concerning the tax
consequences of the THC Merger.
As further assurance that the post-merger continuity of interest requirement
will be met, Rouse will require that THCP indicate its agreement that, during
the period ending on the first anniversary of the Effective Time, it will not
sell, exchange or otherwise dispose of more than 50 percent of the shares of
Rouse Common Stock received by it at the Effective Time of the THC Merger.
There are various exceptions from the foregoing restriction, including the
ability of THCP to distribute any such Rouse
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Common Stock received by it in the THC Merger to its partners free of any such
restrictions. This restriction is in addition to the restrictions imposed on
the Stockholders generally by the Lock-up Agreements.
STOCKHOLDERS. Subject to the discussion below of the treatment of the
Contractual Rights as "boot" (see "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--
The THC Merger--Treatment of Contractual Rights"), the Stockholders will not
recognize gain or loss for federal income tax purposes to the extent they
exchange THC Common Stock for Rouse Common Stock and the Contractual Rights in
the THC Merger. A Stockholder will recognize gain on the exchange equal to the
lesser of (i) the amount of cash, if any, and the fair market value of the
Contractual Rights if, contrary to the conclusion below, the Contractual
Rights are determined to be boot (see "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--The THC Merger--Treatment of Contractual Rights") received in
the exchange and (ii) the excess, if any, of (a) the sum of (1) the fair
market value of the Rouse Common Stock and the Contractual Rights and (2) the
cash, if any, received in the exchange over (b) such Stockholder's tax basis
in his or her shares of THC Common Stock exchanged therefor. Provided the THC
Common Stock was held as a capital asset, such gain recognized on the exchange
of a share held for more than one year will be taxable as long-term capital
gain. As the treatment of boot in circumstances such as those presented by the
THC Merger depends in part on the facts and circumstances of each case, the
Service could, contrary to the conclusion above, take the position that the
amount of such gain should be treated as a dividend, taxable as ordinary
income to the extent of the cash and the fair market value of the boot, if
any, received by the Stockholders.
A Stockholder receiving cash in lieu of a fractional share of Rouse Common
Stock will be treated as though he received such fractional share and
subsequently such fractional share was redeemed for cash. Unless this
redemption is found to be essentially equivalent to a dividend, such
Stockholder will recognize gain or loss measured by the difference between
such Stockholder's basis in such fractional share deemed surrendered and the
amount of cash received. Provided the THC Common Stock was held as a capital
asset, such gain or loss would be capital gain or loss, and would be short-
term or long-term capital gain or loss depending on such Stockholder's holding
period.
After the THC Merger, a Stockholder will be taxed on distributions received
from Rouse, if any, with respect to the Rouse Common Stock. Nonliquidating
distributions with respect to such Rouse Common Stock will constitute
dividends taxable as ordinary income to the extent of any current or
accumulated earnings and profits (as calculated for federal income tax
purposes) of Rouse. Any nonliquidating distributions with respect to such
Rouse Common Stock in excess of such current or accumulated earning and
profits of Rouse, or any liquidating distributions received with respect to
such Rouse Common Stock will be treated as a tax-free return of capital to the
extent of the Stockholder's basis in such shares and as capital gain to the
extent of the balance, assuming that such shares are held as capital assets. A
Stockholder who receives Rouse Common Stock in the THC Merger, including any
shares of such common stock received pursuant to the Contingent Stock
Agreement, and thereafter sells those shares will recognize gain or loss
measured by the difference between the amount realized on the sale and his or
her tax basis in the shares sold. Such gain or loss will be capital gain or
loss, short or long-term depending on such Stockholder's holding period (see
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES--The THC Merger--Holding Period"
below).
TREATMENT OF CONTRACTUAL RIGHTS. Although the issue is not entirely free
from doubt, the Stockholders should not recognize gain or loss for federal
income tax purposes upon the receipt of the Contractual Rights at the
Effective Time. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--The THC Merger--
Receipt of Contingent Shares" below for a discussion of the treatment to a
Stockholder of the receipt of the Rouse Common Stock pursuant to the
Contingent Stock Agreement. Although there is no direct authority on whether
rights with terms such as the Contractual Rights will be entitled to
nonrecognition treatment for this purpose (i.e., are not "boot"), two cases
have held that the nonrecognition provisions of the Code will apply to rights
to receive stock contingent on certain
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events, where the holders of such rights could receive nothing other than
stock pursuant to such rights. The Stockholders are entitled to receive
essentially only Rouse Common Stock and/or Increasing Rate Preferred Stock
pursuant to the Contingent Stock Agreement.
The Service has established guidelines each of which must be met before it
will issue a ruling that the receipt of contingent stock rights in a
reorganization and the subsequent receipt of stock pursuant thereto are
subject to the nonrecognition provisions of the Code. These guidelines apply
for ruling purposes only and do not necessarily purport to be the Service's
interpretation of the law nor criteria which would be deemed controlling by a
court. Notably, neither of the court decisions referred to above, which held
that contingent stock rights were not treated as boot for this purpose,
involved contingent stock rights which satisfied all of the Service
guidelines. As the Contractual Rights satisfy only certain of the guidelines,
the Service could take the position that the Contractual Rights do not qualify
for nonrecognition treatment but are "other property" for this purpose. If the
Contractual Rights were held to be "other property" they would be treated as
boot subject to the treatment described above (see "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--The THC Merger--Stockholders").
HOLDING PERIOD. Assuming a Stockholder holds his or her THC Common Stock as
a capital asset immediately prior to the exchange, such Stockholder will have
a holding period for the Rouse Common Stock received at the Effective Time
that will include his or her holding period for his or her shares of THC
Common Stock exchanged therefor. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--The THC Merger--Receipt of Contingent Shares" for a discussion
of the holding period of Rouse Common Stock to be received pursuant to the
Contingent Stock Agreement.
TAX BASIS. Because of the Rouse Common Stock and Increasing Rate Preferred
Stock which may be received pursuant to the Contingent Stock Agreement, there
appears to be no authority, other precedent or guidance as to how a
Stockholder's tax basis in the Rouse Common Stock received at the Effective
Time should be determined. Thus, considerable uncertainty exists as to the
determination of the amount of gain or loss a Stockholder might realize on the
subsequent taxable disposition of the Rouse Common Stock received at the
Effective Time, among other matters. A Stockholder's tax basis in the Rouse
Common Stock may need to be redetermined as additional Contingent Shares or
shares of Increasing Rate Preferred Stock are received. Each Stockholder
should consult and rely on his or her own tax advisor for purposes of
determining the tax basis of the Rouse Common Stock received at the Effective
Time and the Contingent Shares and/or Contingent Preferred Shares to be
received pursuant to the Contingent Stock Agreement.
RECEIPT OF CONTINGENT SHARES. A portion of each of the Contingent Shares to
be received by the Stockholders more than six months from the Effective Time
pursuant to the Contingent Stock Agreement will be treated as interest for
federal income tax purposes. Pursuant to proposed Treasury regulations and
consistent with the most recent ruling policy of the Service, the portion of
each such share that will be treated as interest (the "Interest Component") is
equal to the excess of the value of such Contingent Share on the date of
receipt over the present value of such share as of the Effective Time. This
present value will be determined by discounting the fair market value of each
such share from the date of receipt to the Effective Time using a rate
prescribed by the Code that will be determined as of the Effective Time.
Different rules, which would result in the Interest Component being larger,
will apply with respect to any Contingent Shares that are issued more than six
months after the date the number of such Contingent Shares to be issued is
determined. Under the current proposed regulations, any amount so treated as
interest will be taken into account by a Stockholder under his or her regular
method of accounting. It should be noted that the Service has previously
promulgated proposed regulations that would require all Stockholders to
include currently in income the Interest Component of the Contingent Shares
expected to be received, prior to the receipt of such shares, computed under a
constant yield to maturity method. There is no assurance that the Service will
not promulgate regulations in the future that would require the Interest
Component of a Contingent Share to be included in income prior to the receipt
of such share.
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The portion of the fair market value of each Contingent Share not treated as
interest as described above and not constituting Default Shares should be
treated as stock received pursuant to the THC Merger and therefore a
Stockholder should not recognize gain or loss on the receipt of such portion
of the fair market value.
Rouse will report to each Stockholder that receives a Contingent Share the
portion of the fair market value of each share that constitutes interest.
For purposes of determining a Stockholder's holding period in the Contingent
Share, each such Contingent Share will be deemed to be separated into two
undivided fractional parts. One part will be the fractional value of the share
that is allocable to the Interest Component of the share as discussed above.
The holding period for such undivided fractional part of a Contingent Share
will begin on the day following the receipt of such share. Any gain
attributable to such undivided portion that is realized before the expiration
of the required one-year period beginning on the day after the receipt of such
share, will not qualify for long-term capital gains treatment. The remaining
undivided fractional part will have a holding period that will include the
holding period of the THC Common Stock exchanged therefor, assuming the THC
Common Stock is held as a capital asset. The undivided fractional parts of a
Contingent Share cannot be separately disposed of.
A Stockholder's tax basis in a Contingent Share will be equal to the sum of
the Interest Component of such share, plus the basis of such share. As
discussed above under "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--The THC
Merger--Tax Basis", there appears to be no authority, other precedent or
authority as to how such basis should be determined.
INCREASING RATE PREFERRED STOCK. The federal income tax consequences
attendant to the holding, redemption, sale or exchange of the Increasing Rate
Preferred Stock, if issued in lieu of Rouse Common Stock under the Contingent
Stock Agreement, are complex, as more fully explained below. Such consequences
may, however, be summarized as follows, which summary is qualified in its
entirety by the more comprehensive explanation of such consequences below.
1. DISTRIBUTIONS. Dividends with respect to the Increasing Rate Preferred
Stock will, in general, be taxed as ordinary income while other distributions
with respect to such stock will, in general, be treated as either returns of
capital or long-term or short-term capital gain.
2. REDEMPTION PREMIUM. If there is a redemption premium on issuance of the
Increasing Rate Preferred Stock, such premium must be included in the
Stockholder's income on an economic accrual basis without regard to
distributions with respect to such stock.
3. SALE OF STOCK. A Stockholder who sells shares of the Increasing Rate
Preferred Stock will recognize gain or loss measured by the difference between
the amount realized on the sale and the Stockholder's basis in the shares
sold. The Service could take the position, however, that the amount realized
on the sale should be treated as ordinary income to the extent of the current
or accumulated earnings and profits of THC at the Effective Time.
4. REDEMPTION OF STOCK. Redemption of the Increasing Rate Preferred Stock
will be a taxable event, which will more than likely be treated as a sale or
exchange of the stock so redeemed.
5. EXCHANGE OF THE INCREASING RATE PREFERRED STOCK FOR SHARES OF ROUSE
COMMON STOCK. The exchange of Increasing Rate Preferred Stock for Rouse Common
Stock will, in general, be a non-taxable event.
BECAUSE OF THE COMPLEXITY OF THE LAW APPLICABLE TO THE INCREASING RATE
PREFERRED STOCK, EACH STOCKHOLDER IS URGED TO READ THE FOLLOWING EXPLANATION
AND TO CONSULT WITH HIS OR HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES
OF THE RECEIPT, HOLDING AND DISPOSITION OF THE INCREASING RATE PREFERRED
STOCK.
If, as described under "THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL
RIGHTS," Rouse issues Increasing Rate Preferred Stock pursuant to the
Contingent Stock Agreement, the tax consequences to a Stockholder from
receiving, holding and disposing of such stock will, except
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as described below, generally be the same as those resulting from receiving,
holding and disposing of Rouse Common Stock.
REDEMPTION PREMIUM. As described under "DESCRIPTION OF ROUSE PREFERRED
STOCK--Increasing Rate Preferred Stock," the holder of any share of Increasing
Rate Preferred Stock may, at his or her option, on any Dividend Payment Date
(as defined in the Articles Supplementary to the Rouse Charter establishing
the terms of the Increasing Rate Preferred Stock) after the first anniversary
of the issuance of the Increasing Rate Preferred Stock elect to have Rouse
redeem all or any whole number of shares of Increasing Rate Preferred Stock
held by such holder for 110% of the Liquidation Value (as defined in the
Articles Supplementary to the Rouse Charter establishing the terms of the
Increasing Rate Preferred Stock) of each such share as of such date plus all
accumulated and unpaid dividends to the date fixed for the redemption.
Similarly, Rouse may on any Dividend Payment Date exchange shares of Rouse
Common Stock having a value equal to the Liquidation Value of the shares of
Increasing Rate Preferred Stock.
Section 305 of the Code imposes certain tax consequences on holders of
preferred stock that has a redemption price in excess of the issue price of
the stock (such excess is referred to as "redemption premium"). If there is a
redemption premium with respect to stock, such as the Increasing Rate
Preferred Stock, that is subject to mandatory redemption, and such redemption
premium is more than a "de minimis" amount, as defined under Treasury
Regulations recently promulgated under Code Section 305 (the "regulations"),
the entire amount of such redemption premium must be included in the
stockholder's income on an economic accrual basis during the period the
stockholder is unable to require redemption. The regulations provide that a
redemption premium will be treated as "de minimis" and not subject to the
regulations where the redemption price as determined below is less than the
sum of (i) the issue price of the preferred stock and (ii) the product of (x)
0.25% of the redemption price and (y) the number of years to maturity.
As a general rule, the redemption price of preferred stock will be the price
at which the issuer is required to redeem the preferred stock at a specified
time or at which the holder has the option to require the issuer to redeem the
preferred stock. The regulations, however, provide that where the holder's
ability to require the issuer to redeem his or her preferred stock is subject
to a contingency that is beyond the legal or practical control of either the
holder or the holders as a group and that contingency, based on all the facts
and circumstances as of the issue date, renders the likelihood of redemption
remote, the redemption premium accrual rules will not apply. In the case of
the Increasing Rate Preferred Stock, the redemption premium accrual rules will
not apply if, at the time the Increasing Rate Preferred Stock is issued,
Rouse's right to exchange shares of Rouse Common Stock for Increasing Rate
Preferred Stock renders a Stockholder's right to elect to have such Increasing
Rate Preferred Stock redeemed for cash remote.
The issue price of the Increasing Rate Preferred Stock will be the fair
market value, at the time of issuance, of the property in exchange for which
it is received. This amount may be less than the redemption price of such
stock. In such a case, the Increasing Rate Preferred Stock would have a
redemption premium. Dividends may accrue but be unpaid with respect to the
Increasing Rate Preferred Stock. Although the treatment of such accrual of
dividends is not clear, such accrual of dividends may be treated as additional
redemption premium for purposes of Section 305 of the Code. If such amounts
are treated as additional redemption premium, they must be taken into account
in determining whether the redemption premium on the Increasing Rate Preferred
Stock is more than a de minimis amount. In certain circumstances, holders of
the Increasing Rate Preferred Stock could be required to accrue the entire
redemption premium into income in the year following the year of receipt of
the Increasing Rate Preferred Stock.
Because the issue price of the Increasing Rate Preferred Stock and the
likelihood of redemption of such stock by Rouse can only be determined upon
the issuance of the Increasing Rate Preferred Stock, it is impossible to
determine the existence or amount of any redemption premium on any shares of
the Increasing Rate Preferred Stock until such shares have been issued. The
regulations require Rouse to provide relevant information with respect to
redemption premium to holders of the Increasing Rate Preferred Stock, and
Rouse's determination as to the existence and accrual of any redemption
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premium on the Increasing Rate Preferred Stock will be binding on all
Stockholders, other than a Stockholder who explicitly discloses a contrary
position on a statement attached to such Stockholder's timely filed federal
income tax return for the taxable year that includes the date the holder
acquired the Increasing Rate Preferred Stock.
REDEMPTION OF INCREASING RATE PREFERRED STOCK. As described below, a holder
of Increasing Rate Preferred Stock may elect to have Rouse redeem such stock.
A redemption of shares of Increasing Rate Preferred Stock for cash will be a
taxable event.
A redemption of shares of Increasing Rate Preferred Stock for cash will be
treated as a distribution that is taxable as a dividend to the extent of
Rouse's current or accumulated earnings and profits at the time of the
redemption under Section 302 of the Code unless the redemption (i) results in
a "complete termination" of the stockholder's interest in Rouse under Section
302(b)(3) of the Code, (ii) is "substantially disproportionate" with respect
to the stockholder under Section 302(b)(2) of the Code or (iii) is "not
essentially equivalent to a dividend" with respect to the stockholder under
Section 302(b)(1) of the Code. Under Code Section 302(b)(2), a redemption is
considered "substantially disproportionate" if the percentage of the voting
stock of the corporation owned by a stockholder immediately after the
redemption is less than eighty percent of the percentage of the voting stock
of the corporation owned by such stockholder immediately before the
redemption. In determining whether the redemption is not treated as a
dividend, shares considered to be owned by a stockholder by reason of certain
constructive ownership rules set forth in Section 318 of the Code, as well as
shares actually owned, must generally be taken into account. A distribution to
a stockholder will be "not essentially equivalent to a dividend" if it results
in a "meaningful reduction" in the stockholder's stock interest in Rouse. The
Service has published a ruling indicating that a redemption which results in a
reduction in the proportionate interest in Rouse (taking into account the
Section 318 constructive ownership rules) of a stockholder whose relative
stock interest is minimal (an interest of less than 1% should satisfy this
requirement) and who exercises no control over Rouse affairs should be treated
as being "not essentially equivalent to a dividend." Moreover, a number of
cases and rulings have held that the non-proportional redemption of preferred
stock owned by minority common stockholders is not essentially equivalent to a
dividend. The Service could take the position, however, that even if one of
the above tests is met, the redemption of shares of Increasing Rate Preferred
Stock for cash will be treated as a dividend taxable as ordinary income to the
extent of Rouse's current or accumulated earnings and profits at the time of
redemption.
If the redemption is not treated as a dividend, the redemption of the
Increasing Rate Preferred Stock for cash would result in taxable gain or loss
equal to the difference between the amount of cash received and the
stockholder's tax basis in the Increasing Rate Preferred Stock redeemed. Such
gain or loss would be capital gain or loss if the Increasing Rate Preferred
Stock was held as a capital asset and would be long-term capital gain or loss
if the holding period for the Increasing Rate Preferred Stock were to exceed
one year.
EXCHANGE OF INCREASING RATE PREFERRED STOCK. The Increasing Rate Preferred
Stock can be called by Rouse for exchange for Rouse Common Stock as described
below. Generally, under Section 368(a)(1)(E) of the Code, the exchange of
common stock of a corporation for preferred stock of the same corporation does
not result in the recognition of income or loss. However, Section 1.368-
2(e)(5) of the Treasury Regulations provides that, if pursuant to an exchange
governed by Section 368(a)(1)(E) of the Code (a "recapitalization"), stock of
a corporation is exchanged for preferred stock with dividends in arrears, and
there is a proportionate increase in the exchanging preferred stockholder's
interest in the assets or earnings and profits of the corporation, gain shall
be recognized. The amount of gain recognized will be equal to the lesser of
(i) the amount by which the fair market value or liquidation preference,
whichever is greater, of the stock received in the exchange (determined
immediately following the recapitalization) exceeds the issue price of the
stock surrendered or (ii) the amount of the dividends in arrears. Any such
gain will be treated as a dividend distribution to the extent of the
corporation's earnings and profits. Section 1.305-7(c)(2)(ii) of the Treasury
Regulations governs
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the determination of whether there is an increase in the proportionate
interest of the preferred shareholders in assets or earnings and profits.
Under this regulation, such proportionate increase occurs where either the
fair market value or liquidation preference of the stock received exceeds the
issue price of the preferred stock surrendered.
At the time of the exchange of Rouse Common Stock for shares of Increasing
Rate Preferred Stock, the fair market value of the Rouse Common Stock received
may exceed the issue price of such shares. In such case, as described above,
such exchange may cause the recognition of taxable income to the exchanging
Stockholders assuming Rouse had current or accumulated earnings and profits.
Additionally, to the extent cash is distributed for dividend arrearages at the
time of the exchange, the recipient holder of Increasing Rate Preferred Stock
would recognize ordinary income equal to that cash to the extent of Rouse's
current or accumulated earnings and profits.
THC, ROUSE AND MERGER SUB. Assuming the THC Merger is a reorganization under
Section 368(a) of the Code, no gain or loss will be recognized by THC, Rouse
or Merger Sub as a result of the THC Merger. Merger Sub's tax basis in the
assets of THC acquired pursuant to the THC Merger will be equal to the tax
basis of such assets in the hands of THC immediately prior to the THC Merger.
If the THC Merger were not to qualify as a reorganization, THC would
recognize, in a taxable transaction, gain equal to the excess of the sum of
(i) the fair market value of the Rouse Common Stock, (ii) the Contractual
Rights and (iii) cash, if any, received by the Stockholders in the THC Merger
over THC's aggregate tax basis in its assets transferred to Rouse in the THC
Merger.
REPORTING REQUIREMENTS. Each Stockholder who receives shares of Rouse Common
Stock pursuant to the THC Merger is required by Section 1.368-3(b) of the
Treasury Regulations to file with his or her federal income tax return for
1996 a statement that provides details relating to the cost or basis of the
stock or securities transferred in the exchange and the amount of stock or
securities and other property or money received from the exchange, including
any liabilities assumed upon the exchange and any liabilities to which
property received is subject. Rouse is unable to predict whether the filing of
such a statement by any person will enhance the likelihood of an audit of his
or her federal income tax return. If the Service were to audit the federal
income tax return of a person who receives Rouse Common Stock pursuant to the
THC Merger, the Service might propose adjustments which relate to the THC
Merger or which pertain to unrelated matters. Accordingly, each Stockholder is
urged to consult his or her tax advisor concerning the tax consequences to him
or her of the THC Merger.
PROPOSED LEGISLATION. Legislation has been proposed by President Clinton
that includes a provision that could treat the Increasing Rate Preferred Stock
as "boot" which would be taxable on receipt; however, the application of such
proposal to the Increasing Rate Preferred Stock is unclear. The effective date
for this provision is for transactions after December 7, 1995; however, the
two chairmen of the Congressional tax-writing committees have announced that
it is their intent that the effective date of any such legislative proposals
that may be adopted by either of the tax-writing committees will be no earlier
than the date of appropriate Congressional action. As of the date of this
Proxy Statement/Prospectus, it is not possible to predict whether such
provision or any other changes in the federal income tax laws that could
impact the receipt of the Increasing Rate Preferred Stock will ultimately be
enacted or, if enacted, what form they will take, what the effective dates
will be, and what, if any, transition rules will be provided.
THE PARTNERSHIP MERGER
UNITHOLDERS. The tax consequences to a Unitholder who receives his or her
share of the Special Distribution and the cash payment from Rouse (the "Rouse
Payment") as a result of the Partnership Merger are described below.
As a technical matter for federal income tax purposes the Special
Distribution and the Rouse Payment should be treated as two separate
realization events as described below.
SPECIAL DISTRIBUTION. The sum of the Special Distribution from HHPLP to a
Unitholder and any reduction in a Unitholder's share of the nonrecourse
liabilities of HHPLP as a result of the Special
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Distribution (together, the "Partnership Merger Distribution") will reduce the
tax basis of such Unitholder's Class 1 Units, and to the extent the
Partnership Merger Distribution exceeds the adjusted basis of the Unitholder's
Class 1 Units, result in treatment as gain from the sale or exchange of the
Class 1 Units. To the extent, however, the Partnership Merger Distribution is
treated as received by a Unitholder in exchange for his or her share of the
assets giving rise to depreciation recapture or other "unrealized receivables"
or to "substantially appreciated inventory" owned by HHPLP ("Section 751
Assets") of HHPLP, the Unitholder will recognize ordinary income to the extent
that such portion of the Partnership Merger Distribution exceeds the
Unitholder's share of the basis of such Section 751 Assets. Inventory for this
purpose includes property held primarily for sale in the ordinary course of
business, such as some of the properties held by HHPLP and will be considered
to be "substantially appreciated" if its value exceeds 120% of its adjusted
basis to HHPLP. This ordinary income will be recognized even if a Unitholder's
tax basis for his or her Class 1 Units exceeds the Partnership Merger
Distribution. HHPLP believes that the ordinary income to be recognized by a
Unitholder with respect to the Special Distribution, the amount of which is
based on matters not determinable until the Effective Time, could be
significant. HHPLP will report to each Unitholder his or her share of such
ordinary income and each Unitholder is required to submit with his or her tax
return for the year in which the Special Distribution occurs a statement
showing the computation of such ordinary income. A loss will not be recognized
by a Unitholder as a result of the Special Distribution.
ROUSE PAYMENT. Gain or loss will be recognized by a Unitholder on the
receipt of the Rouse Payment equal to the difference between the sum of his or
her share of the Rouse Payment and his or her share of the nonrecourse
liabilities of HHPLP and the Unitholder's adjusted tax basis for his Class 1
Units, in each case as determined after the Special Distribution. A
Unitholder's adjusted tax basis will be reduced by his or her share of the
Partnership Merger Distribution not treated as received in exchange for
Section 751 Assets and by his share of the basis of Section 751 Assets taken
into account in determining the ordinary income resulting from the Special
Distribution. A portion of this gain or loss, however, will be separately
computed and taxed as ordinary income or loss to the extent attributable to
such Unitholder's share of Section 751 Assets remaining after the Special
Distribution. Ordinary income attributable to Section 751 Assets may exceed
net taxable gain realized on the disposition of a Class 1 Unit pursuant to the
Partnership Merger and may be recognized even if there is a net taxable loss
realized on such disposition. HHPLP believes that the ordinary income to be
recognized by a Unitholder with respect to the Rouse Payment, the amount of
which is based on matters not determinable until the Effective Time, could be
significant. HHPLP will report to each Unitholder the ordinary income
resulting from the Rouse Payment and each Unitholder is required to submit
with his or her tax return for the taxable year in which the sale or exchange
occurs, a statement setting forth certain information concerning his or her
share of HHPLP's Section 751 Assets. Provided the Class 1 Unit is held as a
capital asset, any gain or loss not attributable to Section 751 Assets will be
capital gain or loss, and will be short-term or long-term capital gain or loss
depending on such Unitholder's holding period.
PRE-PARTNERSHIP MERGER OPERATIONS OF HHPLP. The income and deductions of
HHPLP incurred during 1996 prior to the Effective Time will be allocated among
the partners of HHPLP, including the Unitholders, in the same manner as such
items would have been allocated in the absence of the Partnership Merger. Each
Unitholder will receive a Schedule K-1 for 1996 reflecting the HHPLP income
and deductions allocated to him or her during the period in 1996 in which he
or she owned such Class 1 Units directly. Further, the Unitholders' basis in
the Class 1 Units will be adjusted for partnership operations and reduced by
distributions from HHPLP made prior to the Partnership Merger.
TAX BASIS. Because a Unitholder's basis in his or her Class 1 Units is
affected by matters other than partnership operations, such as the manner of
its acquisition by such Unitholder, HHPLP does not know the bases of the
Unitholders in their Class 1 Units. Because each Unitholder's basis in his or
her Class 1 Units may be unique to him or her, each Unitholder should consult
with his or her tax advisor with regard to his or her basis in his or her
Class 1 Units.
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THE THC MERGER AGREEMENT
The following is a summary of the material terms of the THC Merger
Agreement. This summary does not purport to be a complete description of the
THC Merger Agreement and is qualified in its entirety by reference to the THC
Merger Agreement, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus and is incorporated herein by reference.
EFFECTIVE TIME OF THE THC MERGER
The THC Merger Agreement provides that, as promptly as practicable after the
satisfaction or waiver of the conditions to effecting the THC Merger, the
parties thereto will cause the THC Merger to be consummated by filing a
Certificate of Merger with the Secretary of State of the State of Delaware, in
such form as required by, and executed in accordance with, the relevant
provisions of the DGCL. It is anticipated that, if the THC Merger Agreement is
approved and adopted at the Special Meeting and all other conditions to the
THC Merger have been satisfied or waived, the Effective Time will occur as
soon as practicable following the Special Meeting.
MANNER AND BASIS OF CONVERTING SHARES
At the Effective Time each outstanding share of THC Common Stock, other than
shares held by THHC, will be converted into the right to receive:
(a) the number of shares of Rouse Common Stock (rounded to the nearest
thousandth of a share) determined by dividing (i) sum of (x) the quotient
obtained by dividing (1) $176,400,000 by (2) the total number of shares of
THC Common Stock outstanding at the Effective Time, excluding shares held
by THHC, plus (y) the product of (1) the sum of all dividends and
distributions on a share of Rouse Common Stock having a record date during
the period from January 1, 1996 to the later of (A) the Closing Date and
(B) the date shares of Rouse Common Stock are registered in the names of
the former holders of THC Common Stock (or their designees) on the stock
transfer records of Rouse (the "Aggregate Rouse Dividends") times (2) the
number of shares of Rouse Common Stock per share of THC Common Stock
determined by dividing the quotient obtained pursuant to subclause (i)(x)
above by the Average Closing Price (as defined below) by (ii) the average
of the closing prices (the "Average Closing Price") of Rouse Common Stock
on the NYSE Composite Tape for the 30 consecutive trading days ending five
days prior to the Closing Date (the "Exchange Ratio"); and
(b) contractual rights (the "Contractual Rights") to receive additional
shares of Rouse Common Stock or, under certain circumstances, shares of
Rouse Increasing Rate Preferred Stock to be issued during a 14-year period
following the Effective Time based upon the cash flow generated from, and
the appraised value of, certain assets of THC and its subsidiaries, as
discussed in "THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS";
provided, however, that if the Exchange Ratio as computed above would result
in the issuance in the THC Merger of a number of shares of Rouse Common Stock
exceeding 19.9% of the total number of shares of Rouse Common Stock issued and
outstanding as of 4:00 p.m., New York City time, on the business day next
preceding the Effective Time (the "Total Rouse Common Stock"), then, in lieu
of the consideration specified in clause (a) above, each share of THC Common
Stock will be converted into the right to receive (i) the number of shares of
Rouse Common Stock determined by using an Exchange Ratio which results in the
issuance of an aggregate number of shares of Rouse Common Stock equal to 19.9%
of the Total Rouse Common Stock (the "Maximum Shares of Rouse Common Stock")
and (ii) cash, without interest, in an amount determined by dividing (x) the
sum of (1) $176,400,000 less an amount equal to the product of (A) the Maximum
Shares of Rouse Common Stock times (B) the Average Closing Price plus (2) an
amount equal to the product of (A) the Aggregate Rouse Dividends times (B) the
Maximum Shares of Rouse Common Stock by (y) the total number of shares of THC
Common Stock outstanding at the Effective Time, excluding shares held by THHC
(the "Alternative Consideration"); and provided further that the number of
shares of Rouse
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Common Stock and the amount of other consideration received in the THC Merger
shall be reduced in connection with the Goolsby THC Payment, as discussed
below. Notwithstanding the foregoing, (i) THC has the right to terminate the
THC Merger Agreement if the Average Closing Price as computed above is greater
than $23.00 (the "Ceiling Amount") unless, within two business days after
receipt of notice of THC's election to terminate the THC Merger Agreement,
Rouse notifies THC of Rouse's agreement to fix the Average Closing Price at
the Ceiling Amount and (ii) Rouse has the right to terminate the THC Merger
Agreement if the Average Closing Price as computed above is less than $18.00
(the "Floor Amount") unless, within two business days after receipt of notice
of Rouse's election to terminate the THC Merger Agreement, THC notifies Rouse
of THC's agreement to fix the Average Closing Price at the Floor Amount. To
the extent that either Rouse or THC would be in the position to exercise its
right to terminate the THC Merger Agreement as described above, each of Rouse
and THC anticipates that it would exercise such right prior to the Special
Meeting. Any decision with respect to such termination would be based on a
review of relevant considerations which, in the case of Rouse, would include
the amount by which the Average Closing Price is less than $18.00, the
likelihood that THC would agree to fix the Average Closing Price at $18.00 and
the impact on Rouse's earnings per share of completing the transaction at a
price less than $18.00, and, in the case of THC, would include the amount by
which the Average Closing Price is greater than $23.00 and the likelihood that
Rouse would agree to fix the Average Closing Price at $23.00.
Although there can be no assurance that all the conditions to the THC Merger
(other than obtaining the Hughes Owners' Approvals) will be satisfied or
waived by the date of the Special Meeting, Rouse and THC currently anticipate
that the Closing will occur on the day immediately following the date of the
Special Meeting. Accordingly, if the Closing occurs as anticipated, the
Exchange Ratio will be fixed on the fourth day immediately preceding the date
of the Special Meeting.
THHC currently holds 37,362 shares of THC Common Stock. In the THC Merger,
each share of THC Common Stock held by THHC at the Effective Time will be
converted into the right to receive one share of Rouse Junior Preferred Stock.
Based on the number of shares of Rouse Common Stock and THC Common Stock
(excluding the shares held by THHC) outstanding as of the Record Date, and
assuming, solely for the purpose of illustration, (i) an Average Closing Price
of $22.171 (which is equal to the average of the closing prices of Rouse
Common Stock on the NYSE for the 30 consecutive trading days ending prior to
the date of this Proxy Statement/Prospectus), and (ii) Aggregate Rouse
Dividends of $.22 per share of Rouse Common Stock, the Exchange Ratio would be
120.893 and, therefore, approximately 8,035,274 shares of Rouse Common Stock
would be issuable in the THC Merger pursuant to clause (a) above, representing
approximately 14.277% of the Total Rouse Common Stock to be outstanding after
such issuance. Based on the assumptions set forth in the preceding sentence
(and valuing the shares of Rouse Common Stock at such assumed Average Closing
Price), the Stockholders would receive $2,680.319 worth of Rouse Common Stock
for each share of THC Common Stock. The foregoing example is provided solely
for purposes of illustration and is not intended as a prediction of the actual
Average Closing Price, which will be determined based on the 30 consecutive
trading days ending five days prior to the Closing Date. Moreover, the value
of shares of Rouse Common Stock on the date such shares are actually received
by the Stockholders may be more or less than the Average Closing Price. The
closing price of Rouse Common Stock on the NYSE on May 13, 1996, the last
trading day prior to the date of this Proxy Statement/Prospectus, was $23.75.
Stockholders may call Rouse toll-free at (800) 871-3259 at any time prior to
the Special Meeting to obtain the Exchange Ratio computed on the basis of the
average of relevant closing prices reported as of a recent date.
Promptly after the Effective Time, the Paying Agent will mail a letter of
transmittal with instructions to each holder of record of THC Common Stock
outstanding immediately before the Effective Time for use in exchanging
certificates formerly representing shares of THC Common Stock for certificates
representing shares of Rouse Common Stock and cash, if any, to which any
holder may be entitled in
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connection with the receipt of the Alternative Consideration or in lieu of any
fractional shares of Rouse Common Stock. After the Effective Time, there will
be no further registration of transfers on the stock transfer books of THC of
shares of THC Common Stock that were outstanding immediately prior to the
Effective Time. Stock certificates should not be surrendered for exchange by
the holders of THC Common Stock prior to the Effective Time and the receipt of
a letter of transmittal.
No fractional shares of Rouse Common Stock will be issued in the THC Merger.
Each holder of THC Common Stock entitled to a fractional share will receive an
amount in cash equal to the value of such fractional share based upon the
Average Closing Price. No interest will be paid on such amount.
Until surrendered and exchanged, each certificate previously evidencing THC
Common Stock will represent solely the right to receive Rouse Common Stock and
the right to receive cash in lieu of fractional shares. Unless and until any
such certificates are surrendered and exchanged, no dividends or other
distributions payable to holders of record of Rouse Common Stock as of any
time after the Effective Time will be paid to the holders of such certificates
previously evidencing THC Common Stock; provided, however, that upon any such
surrender and exchange of such certificates, there will be paid to the record
holders of the certificates issued and exchanged therefor the amount, without
interest thereon, of dividends and other distributions, if any, with a record
date after the Effective Time payable with respect to such whole shares of
Rouse Common Stock.
Concurrently with the delivery of certificates representing shares of Rouse
Common Stock and cash, if any, as provided above (before reduction by the
Goolsby Shares and the Goolsby THC Payment, as such terms are hereinafter
defined), Rouse will (a) issue and deliver to John L. Goolsby ("Goolsby")
certificates representing 8/10ths of 1% of the aggregate number of shares of
Rouse Common Stock issuable in the THC Merger (the "Goolsby Shares") (together
with a payment in cash for any fractional share) and (b) pay or cause to be
paid to Goolsby 8/10ths of 1% of the aggregate cash consideration, if any,
payable to holders of THC Common Stock (exclusive of any cash payments for
fractional shares) ("Goolsby THC Payment"). The issuance and delivery of the
Goolsby Shares and the Goolsby THC Payment, if any, is being made on behalf of
and as an accommodation to THC, Merger Sub (as successor by merger to THC) and
HHPLP and in partial performance of their obligations to Goolsby under the
Goolsby Incentive Agreement. Pursuant to an agreement between Goolsby and
Rouse entered at the request of Rouse on February 27, 1996, Rouse will make a
$2,000,000 cash payment to Goolsby and will receive an assignment of Goolsby's
remaining rights under the Goolsby Incentive Agreement, including any rights
to future distributions that Goolsby would otherwise be entitled to receive
under the Contingent Stock Agreement. The foregoing will reduce the
consideration payable to the Stockholders in the THC Merger.
CONDITIONS TO THE THC MERGER
The respective obligations of Rouse and THC to consummate the THC Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived in writing by Rouse and THC, in
whole or in part, to the extent permitted by applicable law: (i) the Hughes
Owners' Approvals shall have been obtained; (ii) the waiting period applicable
to the consummation of the THC Merger under the HSR Act shall have expired or
been terminated; (iii) the Registration Statement (of which this Proxy
Statement/Prospectus forms a part) shall have become effective in accordance
with the provisions of the Securities Act, and no stop order suspending such
effectiveness shall have been issued and remain in effect (and no proceeding
for that purpose shall have been instituted by the Commission or any state
regulatory authority); (iv) the shares of Rouse Common Stock issuable in the
THC Merger shall have been authorized for listing on the NYSE, subject to
official notice of issuance; (v) no preliminary or permanent injunction or
other order or decree by any federal or state court preventing the
consummation of the THC Merger shall have been issued and remain in effect;
(vi) no action shall have been taken, and no statute, rule or regulation shall
have been enacted by any state or federal government or governmental agency in
the United States preventing the consummation of the THC Merger or making the
consummation of the THC Merger illegal; (vii) all
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governmental waivers, consents, orders and approvals required to consummate
the THC Merger shall have been obtained and be in effect; and (viii) the
Partnership Merger shall be consummated concurrently with the THC Merger.
The obligation of Rouse to effect the THC Merger is also subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(i) each of THC and HHPLP shall have performed and complied in all material
respects with the agreements and obligations contained in the THC Merger
Agreement and the Partnership Merger Agreement required to be performed and
complied with by it at or prior to the Closing Date; (ii) the representations
and warranties of each of THC and HHPLP shall be true and correct in all
material respects on and as of the date of the THC Merger Agreement and the
Partnership Merger Agreement, as the case may be, and as of the Closing Date
(except to the extent that any representation or warranty is made as of a
specified date, in which case such representation or warranty shall be true
and correct in all material respects as of such date); (iii) Rouse shall have
received legal opinions with respect to the tax consequences of the THC Merger
under Section 368(a) of the Code and certain other matters; (iv) Rouse shall
have received "comfort" letters from Deloitte & Touche LLP, THC's independent
public accountants, with respect to certain financial statements of, and other
financial information relating to, THC and its subsidiaries contained in the
Registration Statement and delivered in connection with the THC Merger
Agreement; (v) the Affiliate Agreements, the Lock-up Agreements and the THCP
Agreement shall have been furnished to Rouse as required by the THC Merger
Agreement; (vi) the License Agreement (as defined below) shall have been
executed and delivered if required under the THC Merger Agreement; (vii) no
governmental authority shall have promulgated any statute, rule or regulation,
or taken any action, which, when taken together with all such promulgations
and/or actions would materially impair the value of the THC Merger to Rouse;
and (viii) the holders of less than 5% of the issued and outstanding shares of
THC Common Stock on the date of the Special Meeting shall have properly
exercised appraisal rights pursuant to the DGCL.
The obligation of THC to effect the THC Merger is also subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(i) each of Rouse and Merger Sub shall have performed and complied in all
material respects with the agreements and obligations contained in the THC
Merger Agreement and the Partnership Merger Agreement required to be performed
and complied with by it at or prior to the Closing Date; (ii) the
representations and warranties of each of Rouse and Merger Sub shall be true
and correct in all material respects on and as of the date of the THC Merger
Agreement and the Partnership Merger Agreement, as the case may be, and as of
the Closing Date (except to the extent that any representation or warranty is
made as of a specified date, in which case such representation or warranty
shall be true and correct in all material respects as of such date); (iii) THC
shall have received legal opinions with respect to the tax consequences of the
THC Merger under Section 368(a) of the Code and certain other matters; (iv)
THC shall have received "comfort" letters from KPMG Peat Marwick LLP, Rouse's
independent public accountants, with respect to certain financial statements
of, and other financial information relating to, Rouse and its subsidiaries
contained in the Registration Statement; (v) no governmental authority shall
have promulgated any statute, rule or regulation, or taken any action, which,
when taken together with all such promulgations and/or actions would
materially impair the value of the THC Merger to the holders of THC Common
Stock; (vi) the Morgan Stanley Opinion shall not have been withdrawn; (vii)
the Contingent Stock Agreement and the Registration Rights Agreement shall
have been executed and delivered; (viii) the Hughes Designee shall have been
elected to the Rouse Board; (ix) the Increasing Rate Preferred Stock shall
have been authorized; and (x) in the absence of any transfer of rights to the
Hughes Name (as defined below), Rouse shall have executed and delivered the
License Agreement.
There can be no assurance that all of the conditions to the THC Merger will
be satisfied.
REPRESENTATIONS AND WARRANTIES
In the THC Merger Agreement, THC makes representations and warranties as to,
among other things, (i) the due organization, valid existence and good
standing of THC and its subsidiaries, (ii) the
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authorized and outstanding capital stock of THC, (iii) the authority of THC to
enter into the THC Merger Agreement, (iv) the absence of any breach, default,
termination, acceleration or obligation arising from the execution, delivery
and performance of the THC Merger Agreement, (v) filings, consents and
approvals required in connection with the transactions contemplated by the THC
Merger Agreement, (vi) the preparation of THC's financial statements in
accordance with generally accepted accounting principles and fair presentation
of the financial position, results of operations and cash flows of THC and its
subsidiaries, (vii) the absence of any material undisclosed liabilities,
(viii) the absence of any pending or threatened material claims, suits,
actions or proceedings against THC or its subsidiaries, (ix) the material
accuracy of information furnished by THC for inclusion in this Proxy
Statement/Prospectus, (x) the absence of any material violation or notice of
material violation of laws, (xi) the material compliance by THC and its
subsidiaries with their respective organizational documents and contracts to
which they are parties, (xii) the filing of tax returns and payment of taxes,
(xiii) obligations under employee benefit plans and agreements, (xiv) the
absence of material labor controversies and compliance with labor laws, (xv)
the absence of material violations of environmental laws or actions,
investigations or reports regarding material violations of environmental laws,
(xvi) agreements containing non-competition provisions, (xvii) THC's and its
subsidiaries' ownership of good title to their respective properties and
assets, (xviii) contracts and transactions between THC or its subsidiaries and
related persons, (xix) material terms of leases, (xx) the receipt by THC and
its subsidiaries of all material governmental permits and licenses and
compliance with the terms thereof, (xxi) physical condition of THC's real
properties, (xxii) material contracts and commitments of THC and its
subsidiaries and (xxiii) insurance policies and self-insurance arrangements of
THC and its subsidiaries.
Rouse makes representations and warranties as to, among other things, (i)
the due organization, valid existence and good standing of Rouse and its
subsidiaries, (ii) the authorized and outstanding capital stock of Rouse,
(iii) the authority of Rouse and Merger Sub to enter into the THC Merger
Agreement, (iv) the absence of any breach, default, termination, acceleration
or obligation arising from the execution, delivery and performance of the THC
Merger Agreement, (v) filings, consents and approvals required in connection
with the transactions contemplated by the THC Merger Agreement, (vi) the
material accuracy of Rouse's filings with the Commission and the preparation
of Rouse's financial statements in accordance with generally accepted
accounting principles and fair presentation of the financial position, results
of operations and cash flows of Rouse and its subsidiaries, (vii) the absence
of any material undisclosed liabilities, (viii) the absence of any pending or
threatened material claims, suits, actions or proceedings against Rouse or its
subsidiaries, (ix) the material accuracy of information furnished by Rouse for
inclusion in this Proxy Statement/Prospectus, (x) the absence of any material
violation or notice of material violation of laws, (xi) the material
compliance by Rouse and its subsidiaries with their respective organizational
documents and contracts to which they are parties, (xii) the filing of tax
returns and payment of taxes, (xiii) obligations under employee benefit plans
and agreements, (xiv) the absence of material labor controversies and
compliance with labor laws, (xv) the absence of material violations of
environmental laws or actions, investigations or reports regarding material
violations of environmental laws, (xvi) agreements containing non-competition
provisions, (xvii) Rouse's and its subsidiaries' ownership of good title to
their respective properties and assets, (xviii) contracts and transactions
between Rouse or its subsidiaries and related persons, (xix) the receipt by
Rouse and its subsidiaries of all material governmental permits and licenses
and compliance with the terms thereof, (xx) physical condition of Rouse's real
properties, (xxi) material contracts and commitments of Rouse and its
subsidiaries and (xxii) insurance policies and self-insurance arrangements of
Rouse and its subsidiaries.
The accuracy in all material respects of the representations and warranties
of the other party is a condition to the obligation of each party to effect
the THC Merger. The representations and warranties set forth in the THC Merger
Agreement will expire at the Effective Time. See "THE THC MERGER AGREEMENT--
Conditions to the THC Merger."
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CERTAIN COVENANTS; CONDUCT OF BUSINESS PRIOR TO THE THC MERGER
THC has agreed that, prior to the Effective Time, unless otherwise
contemplated in the THC Merger Agreement or otherwise consented to in writing
by Rouse, it will and will cause each of its subsidiaries to: (i) conduct its
business in the ordinary and usual course, consistent with past practice; (ii)
not amend its charter, bylaws, partnership agreement or other organizational
documents; (iii) not split, combine or reclassify its outstanding capital
stock or other equity interests or declare, set aside or pay any dividend or
other distribution on equity or property (with certain exceptions); (iv) not
issue, sell, pledge or dispose of any capital stock or other equity interests
or securities (equity or debt) exercisable or exchangeable for or convertible
into such stock or other equity interests (with certain exceptions); (v) not
incur or become contingently liable with respect to any indebtedness for
borrowed money, other than borrowings and refinancings in the ordinary course
of business; (vi) take or fail to take any action which would cause THC or the
Stockholders (except to the extent that any Stockholders receive cash,
including cash in lieu of fractional shares) to recognize gain or loss for
federal income tax purposes as a result of the consummation of the THC Merger;
(vii) not acquire any assets or businesses or make any other capital
expenditures other than expenditures for fixed or capital assets in the
ordinary course of business, consistent with THC's most recent three-year
business plan (which plan has been made available to Rouse for review); (viii)
not sell, pledge, dispose of or encumber any assets, properties or businesses,
other than in the ordinary course of business and consistent with THC's 1996
business plan (which plan has been made available to Rouse for review); (ix)
not loan, advance funds or make any investment in or capital contribution to
any person or entity other than HHPLP or any subsidiary of THC or otherwise in
the ordinary course of business; (x) use all reasonable efforts to preserve
intact its business organization and goodwill, keep available its current
officers and key employees and preserve the goodwill and business
relationships with others having business relationships with them; (xi) not
engage in any actions, directly or indirectly, with the intent to adversely
impact the transactions contemplated by the THC Merger Agreement; (xii)
subject to restrictions imposed by applicable law, confer on a regular and
frequent basis with representatives of Rouse to report the status of ongoing
operations and material operational matters; (xiii) not enter into or amend
any employment, consulting, severance or special pay arrangement relating to
termination of employment or other similar arrangements with any directors,
officers, consultants or employees; (xiv) not adopt, enter into or amend any
bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation, health care, employment or other employee benefit plan,
agreement, trust, fund or arrangement for the benefit or welfare or any
employee or retiree, except as required to comply with changes in applicable
law; (xv) use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets and its
business in such amounts and against such risks as are consistent with past
practice; and (xvi) not make, change or revoke any tax election or make any
material agreement or settlement regarding taxes with any taxing authority.
Rouse has agreed that, prior to the Effective Time, unless otherwise
contemplated in the THC Merger Agreement or otherwise consented to in writing
by THC, it will and will cause each of its subsidiaries to: (i) conduct its
business in the ordinary and usual course, consistent with past practice; (ii)
not amend its charter, bylaws or other organizational documents; (iii) not
split, combine or reclassify its outstanding capital stock or declare, set
aside or pay any dividend or other distribution on equity (with certain
exceptions); (iv) not take or fail to take any action which would cause Rouse
or its stockholders to recognize gain or loss for federal income tax purposes
as a result of the consummation of the THC Merger; (v) use all reasonable
efforts to preserve intact its business organization and goodwill, keep
available its current officers and key employees and preserve the goodwill and
business relationships with others having business relationships with them;
(vi) not engage in any actions, directly or indirectly, with the intent to
adversely impact the transactions contemplated by the THC Merger Agreement;
(vii) subject to restrictions imposed by applicable law and upon request,
confer on a regular and frequent basis with representatives of THC to report
the status of ongoing operations and material operational matters; and (viii)
use commercially reasonable efforts to maintain with
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financially responsible insurance companies insurance on its tangible assets
and its business in such amounts and against such risks as are consistent with
past practice.
NO SOLICITATION
THC has agreed that it will not, and will not permit any of its subsidiaries
to, initiate, solicit, negotiate, encourage or provide confidential
information to facilitate any Acquisition Transaction; provided, however, that
in response to a Takeover Proposal THC may furnish information to and/or
negotiate with a Potential Acquirer if the THC Board determines (i) after
consultation with one or more of THC's independent financial advisors, that
providing confidential information to the Potential Acquirer could lead to an
Acquisition Transaction more favorable to the Stockholders and the Unitholders
from a financial point of view than the Mergers and (ii) after consultation
with THC's outside legal counsel, that the failure to provide such information
to such Potential Acquirer would likely constitute a breach of the THC Board's
fiduciary duties to the Stockholders and the Unitholders. THC is required to
notify Rouse promptly in writing of THC's plan to provide confidential
information to and/or negotiate with a Potential Acquirer or the receipt by
THC of a Takeover Proposal, and to furnish to Rouse the identity of the
Potential Acquirer and if a Takeover Proposal has been received, the identity
of the person making the proposal and either a copy of the Takeover Proposal
or a description of the material terms thereof.
THC may formally and legally accept any Takeover Proposal received by it
only if: (i) the THC Board determines, after consultation with its financial
advisor, that such Takeover Proposal is more favorable to the Stockholders and
the Unitholders from a financial point of view than the Mergers and, after
consultation with its counsel, that acceptance of such Takeover Proposal is in
the best interests of the Stockholders and the Unitholders; (ii) at least ten
business days prior to the acceptance of the Takeover Proposal THC furnishes
Rouse a copy of the Takeover Proposal or a description of the material terms
thereof; (iii) Rouse fails within such ten-day period to offer to amend the
terms of the THC Merger Agreement and the Partnership Merger Agreement so that
the Mergers would be at least as favorable to the Stockholders and the
Unitholders as the Takeover Proposal; and (iv) simultaneously with the
acceptance of such Takeover Proposal, THC pays Rouse a break-up fee in the
amount of $5,000,000. (See "THE THC MERGER AGREEMENT--Termination Fees.") In
evaluating a Takeover Proposal, the THC Board may consider such relevant
factors as the form and value of the consideration, the economic benefits of
the Takeover Proposal compared to that of the Mergers, the ability of the
Potential Acquirer to obtain the necessary financing for the Acquisition
Transaction, the proposed closing date for and likelihood of consummation of
the Acquisition Transaction, antitrust issues, tax consequences, resale
restrictions on securities issued and closing conditions.
TERMINATION
Rouse may terminate the THC Merger Agreement if (i) the THC Merger is not
consummated by July 15, 1996 otherwise than on account of the delay or default
by Rouse or Merger Sub; (ii) the THC Merger is enjoined by a final,
unappealable court order not entered at the request or with the support of
Rouse or Merger Sub (with Rouse and Merger Sub having used commercially
reasonable efforts to resist the entry of such order); (iii) THC accepts a
Takeover Proposal in accordance with the terms of the THC Merger Agreement;
(iv) THC fails to perform in any material respect any of its covenants under
the THC Merger Agreement and does not cure such default in all material
respects within 15 days after Rouse has provided THC with notice of such
default; (v) the Hughes Owners' Approvals are not obtained at the Special
Meeting or at any adjournment thereof; (vi) THC breaches any of its
representations and warranties in the THC Merger Agreement and fails to cure
such breach prior to the Effective Time and Rouse does not waive such breach;
or (vii) the Average Closing Price as computed pursuant to the THC Merger
Agreement is less than the Floor Amount unless, within two business days after
receipt of written notice of Rouse's election to terminate the THC Merger
Agreement in connection therewith, THC notifies Rouse of THC's agreement to
fix the Average Closing Price at the Floor Amount.
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THC may terminate the THC Merger Agreement if (i) the THC Merger is not
consummated by July 15, 1996 otherwise than on account of the delay or default
by THC; (ii) the THC Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of THC (with THC having used
commercially reasonable efforts to resist the entry of such order); (iii) THC
accepts a Takeover Proposal in accordance with the terms of the THC Merger
Agreement; (iv) Rouse fails to perform in any material respect any of its
covenants under the THC Merger Agreement and does not cure such default in all
material respects within 15 days after THC has provided Rouse with notice of
such default; (v) the Hughes Owners' Approvals are not obtained at the Special
Meeting or at any adjournment thereof; (vi) Rouse or Merger Sub breaches any
of its representations and warranties in the THC Merger Agreement and fails to
cure such breach prior to the Effective Time and THC does not waive such
breach; or (vii) the Average Closing Price as computed pursuant to the THC
Merger Agreement is greater than the Ceiling Amount unless, within two
business days after receipt of written notice of THC's election to terminate
the THC Merger Agreement in connection therewith, Rouse notifies THC of
Rouse's agreement to fix the Average Closing Price at the Ceiling Amount.
TERMINATION FEES
If the THC Merger Agreement is terminated by either THC or Rouse because THC
has accepted a Takeover Proposal, THC is obligated to pay Rouse a break-up fee
in the amount of $5,000,000 (the "Break-up Fee"). If Rouse terminates the THC
Merger Agreement because THC has breached a covenant in the THC Merger
Agreement and has failed to cure such breach within the grace period allotted,
Rouse may elect either (i) to receive the Break-up Fee as its sole and
exclusive remedy or (ii) to pursue legal or equitable remedies, provided that
in such event THC's aggregate liability under the THC Merger Agreement shall
not exceed $15,000,000 (inclusive of the Break-up Fee). If THC terminates the
THC Merger Agreement because Rouse has breached a covenant in the THC Merger
Agreement and has failed to cure such breach within the grace period allotted,
THC shall be entitled to the Escrow Amount. Receipt by Rouse of the Break-up
Fee (other than as part of any legal remedies pursued) and receipt by THC of
the Escrow Amount shall be the sole and exclusive remedy of Rouse and THC,
respectively, in connection with the termination of the THC Merger Agreement
in the circumstances described above.
AMENDMENT
The THC Merger Agreement may be amended only in accordance with applicable
law and pursuant to a written instrument executed by each of THC, Rouse and
Merger Sub.
INDEMNIFICATION AND INSURANCE
Rouse has agreed to, and has agreed to cause the Surviving Corporation to,
indemnify and hold harmless each present and former director, officer, agent
and employee of THC and any of its subsidiaries against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or relating to actions or
omissions occurring prior to the Effective Time or in connection with the
Mergers. Rouse has also agreed to cause the Surviving Corporation to (i)
maintain in effect (subject to availability) for a period of six years after
the Effective Time, either THC's current insurance policies for directors' and
officers' liability or equivalent policies having terms no less advantageous
for all present and former officers and directors of THC as THC's policies in
effect as of the date of the THC Merger Agreement and (ii) maintain in effect
for six years any by-law or charter provision and contractual agreements and
undertakings relating to directors' and officers' indemnification with respect
to acts and omissions occurring prior to the Effective Time that are no less
favorable than indemnification provisions currently contained in THC's charter
and by-laws and indemnification agreements with THC's directors and officers.
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THC EMPLOYEE BENEFIT PLANS
Through December 31, 1996, Rouse will, or will cause its subsidiaries, as
the case may be, to continue without amendment or change, except changes which
increase compensation or benefits paid or payable thereunder or as may be
required by law, all material employee benefit plans, programs, arrangements
and practices of THC and its subsidiaries (the "THC Plans") and the
participation therein of those who are employees of THC and its subsidiaries
on the Closing Date ("THC Employees"); provided, however, THC's incentive
bonus plans will be terminated on the Closing Date and replaced with a bonus
plan for the remainder of 1996 which provides substantially equivalent levels
of bonus compensation opportunities or compensation opportunities as otherwise
mutually agreed by the parties. Notwithstanding the foregoing, THC will (i)
cease benefit accruals under its pension plan on or before the Closing Date
and initiate steps to terminate such plan, which shall include any amendments
necessary to increase benefits by any overfunding amount and (ii) cease
contributions to its 401(k) Savings Plan on the Closing Date. As provided
below, the THC Employees shall be eligible to participate in Rouse's Pension
Plan and 401(k) Savings Plan beginning on the Closing Date, subject to the
terms of Rouse's Pension Plan and 401(k) Savings Plan.
With respect to all material employee benefit plans, programs, arrangements
and practices of Rouse (the "Rouse Plans"), on and after the Closing Date,
Rouse will, and will cause its subsidiaries to, grant all THC Employees credit
for all service with THC and its subsidiaries (and their respective
predecessors) prior to the Closing Date for all purposes for which such
service was recognized by THC and its subsidiaries under any corresponding THC
Plan; provided, however, that THC Employees will be credited with service for
eligibility and vesting purposes only, and not for benefit accrual purposes,
under Rouse's Pension Plan. On and after January 1, 1997, Rouse will, or will
cause its subsidiaries to, cover the THC Employees in Rouse Plans in which
similarly situated employees of Rouse or its subsidiaries participate;
provided, however, in no event will a THC Employee's entitlement to (i)
vacation benefits be at any time reduced from that to which he or she is
entitled under the THC vacation plan or policy as of December 31, 1996, and
(ii) severance benefits be, at any time during the one year period after the
Closing Date, reduced from that to which he or she is entitled under The
Howard Hughes Corporation Severance Program as in effect on the Closing Date.
In addition, on and after January 1, 1997, retirees of THC and its
subsidiaries will be eligible for retiree life insurance coverage on a basis
that is no less favorable than the retiree life insurance coverage made
available to retirees of Rouse and its subsidiaries.
With respect to THC's retiree health, dental and vision plans, Rouse will,
or will cause its subsidiaries, to (i) continue such plans for those persons
who, as of the Closing Date, are participants or beneficiaries in such plans,
(ii) "grandfather" Paul Carter, Ann Merrill, Robert Morrison, Gary Ray and
David Sommer to enable them to retire under such plans (or any successor
plans) upon their subsequent termination of employment with Rouse and its
subsidiaries and (iii) "grandfather" those THC Employees who are age 50 or
older but have not met the eligibility requirements for retirement as of the
Closing Date under THC's retiree health, dental and vision plans, to enable
them to receive retiree coverage upon their subsequent termination of
employment with Rouse and its subsidiaries if, at such time, (A) they would
satisfy the eligibility requirements of the THC retiree health, dental and
vision plans as in effect on the Closing Date, and (B) either they would not
satisfy the eligibility requirements for retiree coverage under Rouse's
retiree plans or Rouse does not have any such plans. Rouse's obligation under
the preceding sentence shall be limited to the contribution by Rouse or its
subsidiaries annually of an amount not to exceed the lesser of (a) $1,750 per
person toward the cost or (b) the full cost of retiree health, dental and
vision plan coverage; provided, however, that notwithstanding the foregoing,
during the five-year period after the Closing Date, Rouse will, or will cause
its subsidiaries to, pay the full cost of retiree health, dental and vision
plan coverage for those persons who were either retired or "grandfathered"
under THC's retiree health, dental and/or vision plans, as applicable, on
April 1, 1995. Further, Rouse will not eliminate or change the retiree health
coverage benefits for any retiree (or beneficiary) of THC and its
subsidiaries, except to the extent
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(1) substantially comparable health coverage benefits are provided under a
replacement plan or (2) such elimination or change is consistent with that
made for similarly situated retirees (and beneficiaries thereof) of Rouse and
its subsidiaries. Until the fifth anniversary of the Effective Time, Rouse
will not eliminate or change the retiree dental or vision coverage benefits
for any retiree (or beneficiary) of THC and its subsidiaries, except to the
extent substantially comparable dental and vision coverage benefits are
provided under a replacement plan or plans.
HUGHES NAME
So long as such action would not adversely affect the tax consequences of
the THC Merger under Section 368(a) of the Code, at or prior to the closing of
the THC Merger (the "Closing"), THC and its subsidiaries will be entitled to
transfer and assign to a nominee (for other than the Stockholders and the
Unitholders) selected by THC all or any portion of their rights, titles and
interests in and to the name "Howard R. Hughes" and all derivations thereof
(the "Hughes Name") and all Howard R. Hughes, Jr. ("Howard Hughes") archives
and memorabilia currently located and maintained in the corporate offices of
THC in Las Vegas, Nevada and other storage locations; provided, however, that
such transfer and assignment will be subject to the requirement that: (i) at
the option of THC, HHPLP and its subsidiaries will either retain the right, or
will receive at the Closing a License Agreement in form reasonably acceptable
to THC and Rouse (the "License Agreement") effectively granting to HHPLP, as
of the Effective Time, a perpetual, royalty free license, to use the Hughes
Name, the image and likeness of Howard Hughes and copies of photos of Howard
Hughes which are part of the archives and memorabilia referenced above in
connection with the ownership and development of land, the construction of
buildings and other improvements thereon and business activities directly
related thereto and (ii) any agreement effectuating transfer and assignment of
rights with respect to the Hughes Name to THC's nominee will entitle Rouse to
limit the use of the Hughes Name in such manner that the name will not be used
in any manner which would materially interfere with HHPLP's permitted use of
the Hughes Name or expose the Hughes Name to ridicule; and, provided further,
that if such transfer and assignment of rights to the Hughes Name is not made
by THC and its subsidiaries, Rouse will execute and deliver to the
Representatives at the Closing an agreement, in form and substance reasonably
acceptable to Rouse and THC, to the effect that neither Rouse nor any of its
subsidiaries will use the Hughes Name in a manner other than was contemplated
by the License Agreement or which would expose the Hughes Name to ridicule.
STOCKHOLDER AGREEMENT
Upon the consummation of the Mergers, the Stockholder Agreement will
terminate in accordance with its terms. For a discussion of the material terms
of the Stockholder Agreement, see "BACKGROUND AND REASONS FOR THE MERGERS--
Background," "COMPARATIVE RIGHTS OF ROUSE STOCKHOLDERS AND THE STOCKHOLDERS"
and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF THC--Stockholder Agreement."
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THE PARTNERSHIP MERGER AGREEMENT
The following is a summary of the material terms of the Partnership Merger
Agreement. This summary does not purport to be a complete description of the
Partnership Merger Agreement and is qualified in its entirety by reference to
the Partnership Merger Agreement, a copy of which is attached as Appendix B to
this Proxy Statement/Prospectus and is incorporated herein by reference.
GENERALLY; EFFECT OF THE PARTNERSHIP MERGER
Pursuant to the Partnership Merger Agreement, Partnership Merger Sub will be
merged with and into HHPLP, with HHPLP being the surviving entity (the
"Surviving Partnership"). As a result of the Partnership Merger, HHPLP will
become an indirect wholly owned subsidiary of Rouse. All of the partnership
interests outstanding immediately prior to the Partnership Effective Time,
other than the interests represented by the Class 1 Units, will remain
outstanding at and following the Partnership Effective Time and will represent
partnership interests in the Surviving Partnership. The Class 1 Units will be
converted into the right to receive the consideration described in "THE
PARTNERSHIP MERGER AGREEMENT--Conversion of Class 1 Units" below. All shares
of common stock, par value $.01 per share, of Partnership Merger Sub
outstanding immediately prior to the Partnership Effective Time will be
cancelled and retired as of the Partnership Effective Time and no
consideration will be delivered in exchange therefor.
As of the date of this Proxy Statement/Prospectus, there were (i) 10,000,000
Class 1 Units outstanding, all of which are beneficially held by the
beneficial holders of THC Common Stock, (ii) 10,245,199 Class 2 Units
outstanding, held collectively by THC, THHC and LP Corp. and (iii) one Class 3
Unit outstanding, held by THHC. In addition, THHC holds the General Partner's
Interest.
EFFECTIVE TIME OF THE PARTNERSHIP MERGER
The Partnership Merger Agreement provides that, as promptly as practicable
after the satisfaction or waiver of the conditions to effecting the
Partnership Merger, the parties thereto will cause the Partnership Merger to
be consummated by filing a Certificate of Merger with the Secretary of State
of the State of Delaware, in such form as required by, and executed in
accordance with, the relevant provisions of the Revised Delaware Uniform
Limited Partnership Act and the DGCL. It is anticipated that such Certificate
of Merger will be filed simultaneously with the Certificate of Merger to be
filed in connection with the THC Merger and that the Partnership Effective
Time will occur at substantially the same time as the Effective Time.
APPROVAL OF THE PARTNERSHIP MERGER
The Sixth Amended and Restated Agreement of Limited Partnership of HHPLP
provides that only the approval of THHC, as the General Partner of HHPLP, is
required to approve the Partnership Merger Agreement and the transactions
contemplated thereby. THHC has approved the Partnership Merger Agreement.
Although no vote of the holders of Class 1 Units is required to approve the
Partnership Merger Agreement, the Partnership Merger is conditioned upon the
approval of the Partnership Merger Agreement by the holders of a majority of
the outstanding Class 1 Units.
CONVERSION OF CLASS 1 UNITS
Pursuant to the Partnership Merger Agreement, subject to the provisions
described under "THE PARTNERSHIP MERGER AGREEMENT--Goolsby HHPLP Payment,"
each Class 1 Unit outstanding immediately prior to the Partnership Effective
Time will be converted into the right to receive from Rouse, (i) cash equal to
the quotient of (A) the Adjusted Cash Value minus an amount equal to the
Special Distribution (as such terms are defined below) divided by (B) the
aggregate number of Class 1 Units outstanding immediately prior to the
Partnership Effective Time; and (ii) cash equal to the quotient of (A) the
Value Adjustment (as defined below) divided by (B) the aggregate number of
Class 1 Units outstanding immediately prior to the Partnership Effective Time.
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Immediately prior to the Partnership Effective Time, subject to the Delaware
Revised Uniform Limited Partnership Act and to provisions described under "THE
PARTNERSHIP MERGER AGREEMENT--Goolsby HHPLP Payment," HHPLP shall pay a
special cash distribution (the "Special Distribution") to the holders of Class
1 Units, proportionately in accordance with their respective ownership of
Class 1 Units, in an amount equal to the lesser of (i) the amount of cash,
bank deposits, marketable securities and other cash equivalents (collectively,
"cash") then held by HHPLP, THC and their subsidiaries which is available for
distribution to the holders of Class 1 Units and (ii) an amount equal to the
Adjusted Cash Value minus $5,000,000. "Adjusted Cash Value" means an amount
(not less than zero) equal to:
(a) the sum of (i) the aggregate amount of cash reflected on the audited
consolidated balance sheet of HHPLP and its affiliates at and as of
December 31, 1995 plus (ii) HHPLP's pro rata portion of the aggregate
amount of cash held by each entity in which HHPLP owns a minority interest
at and as of December 31, 1995 plus (iii) $1,702,931 for that certain
promissory note received by HHPLP in connection with the sale of its Park
2000 property plus (iv) $764,500, such amount representing one-half of the
value of the parcel located in the Hughes Center in Las Vegas, Nevada which
was ground leased by HHPLP to a third party plus (v) $40,000,000, which sum
of the amounts provided in clauses (i) through (v) above is believed to be
approximately $185,000,000;
minus
(b) the sum of:
(i) the aggregate amount of all dividends and distributions (other than
the Special Distribution) declared and payable to holders of record
after December 31, 1995 and on or prior to the Partnership
Effective Time by (A) HHPLP to the holders of Class 1 Units on or
with respect to the Class 1 Units or (B) THC to its stockholders
(other than from funds attributable to a distribution made to THC
by HHPLP pursuant to the preceding subclause (A)), provided,
however, that in no event shall the aggregate amount of such
dividends and distributions exceed the amount specified in
paragraph (a) above minus the sum of the amounts described in
clauses (ii) through (xiii) of this paragraph (b), plus
(ii) an amount, calculated with respect to each subsidiary of HHPLP or
THC, equal to the product of (A) the amount of cash reflected on
the audited consolidated balance sheet of THC and its subsidiaries
(including HHPLP) at and as of December 31, 1995, which is
attributable to such subsidiary times (B) the combined percentage
of interests in the total equity of such subsidiary which are not
owned by THC and its subsidiaries, plus
(iii) the aggregate fees and expenses of Morgan Stanley, Ernst & Young
Kenneth Leventhal and any other financial advisor or consultant
engaged by HHPLP or THC in connection with the Mergers, but
excluding any such fees and expenses paid prior to January 1,
1996, plus
(iv) the aggregate fees and expenses of Andrews & Kurth L.L.P. and any
other law firm engaged by HHPLP or THC in connection with the
Mergers (including a proportionate share of fees and expenses of
any counsel as to which costs are shared by mutual agreement
between Rouse and HHPLP), but excluding any such fees and expenses
paid prior to January 1, 1996, plus
(v) the amount actually paid for special transaction incentive bonuses
to certain employees of HHPLP and THC as a result of the
consummation of the Mergers, plus
(vi) $1,100,000, being mutually agreed to be the amount required
(irrespective of whether the mutually agreed amount is in fact
sufficient for such purpose) to fund all amounts payable by HHPLP
or THC on or after the Partnership Effective Time under certain
consultancy/termination agreements entered into by THC or HHPLP
with James A. Cox, Jr., John W. Alderfer, the Estate of Arthur M.
Taylor, Richard G. Danner and Mark L. Fine, which agreements shall
remain the responsibility of HHPLP after the Partnership Effective
Time, plus
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(vii) the amount actually paid for defeasing/funding remaining amounts
payable by HHPLP on or after the Partnership Effective Time under
Section 3 of the Goolsby Incentive Agreement representing amounts
credited to Goolsby's incentive payment account which will become
vested and payable by reason of the Mergers, but excluding (A)
amounts paid to Goolsby as described under "THE THC MERGER
AGREEMENT--Manner and Basis of Converting Shares" and "THE
PARTNERSHIP MERGER AGREEMENT--Goolsby HHPLP Payment" and (B) any
amounts which may be payable to Goolsby under the Letter
Agreement, dated February 27, 1996, among Rouse, HHPLP, THC and
Goolsby or in settlement of his rights under the Goolsby
Incentive Agreement with respect to the Contingent Stock
Agreement, plus
(viii) the amount actually paid for defeasing/funding the amounts
payable by HHPLP on or after the Partnership Effective Time
under the consultancy/termination agreements entered into by
HHPLP with William R. Lummis, Vernon C. Olson, Elmer Vacchina
and Robert E. Morrison, plus
(ix) the aggregate costs and expenses relating to the termination of
HHPLP's Long-Term Incentive Plan, plus
(x) any costs incurred in defeasing/funding the obligations of THC or
HHPLP under the Summa Corporation Benefit Restoration Plan and the
Summa Corporation Supplemental Savings Plan, plus
(xi) an amount to be mutually agreed upon by Rouse and HHPLP in good
faith at least three days prior to the Closing Date as being the
sum of all principal, accrued interest and prepayment penalties
(if any) which would be payable by HHPLP if HHPLP prepaid, as of
the Partnership Effective Time, that portion of the loan which is
recourse to and guaranteed by THC made pursuant to that certain
loan agreement, dated July 22, 1992, between HHPLP and Credit
Lyonnais Cayman Islands Branch in connection with the NorthPoint
Building in HHC, plus
(xii) an amount to be mutually agreed upon by Rouse and HHPLP in good
faith at least three days prior to the Closing Date as being the
cost (in excess of principal and interest) which would be payable
by HHPLP if HHPLP defeased, as of the Partnership Effective Time,
amounts due or to become due under that certain Note Purchase
Agreement, dated March 1, 1993, between HHPLP and Allstate
Insurance Company in connection with the freeway ramps at HHC in
Los Angeles, California, plus
(xiii) $1,500,000, which sum shall be paid by HHPLP on the Closing Date
to an escrow agent for deposit in an escrow account established
by the Representatives pursuant to the Contingent Stock
Agreement, plus
(xiv) $788,000, such amount being one-half of the proceeds received by
HHPLP from the sale of a parcel of real estate owned by HHPLP in
north Las Vegas, Nevada in December 1995, plus
(xv) $160,000, such amount being one-half of the premiums estimated to
be incurred by THC and HHPLP for the five-year period commencing
with the Partnership Effective Time for retiree dental and vision
insurance coverage,
plus
(c) an amount, computed with reference to the period from and including
January 1, 1996 to and including the Partnership Effective Time, equal to
the product of (A) the amount described in paragraph (a) above minus the
amount described in paragraph (b)(ii) above times (B) the Applicable Rate,
minus
(d) an amount equal to the sum of the products of each amount paid under
clause (i) and clauses (iii) through (xiii) of paragraph (b) above on or
after January 1, 1996 and prior to the Partnership Effective Time (the
"Interim Period") times the Applicable Rate, computed from the date of
payment of each such amount to the Partnership Effective Time.
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As soon as practicable (but in any event within 90 days) following the
Partnership Effective Time, Rouse will (i) close HHPLP's books, (ii) compute,
in accordance with Section 706(c)(2)(A) of the Code and Section 1.706-1(c)(2)
of the Tax Regulations, the Taxable Income (as defined below) of HHPLP for the
Interim Period and (iii) calculate the Value Adjustment. "Taxable Income"
means the Class 1 Units' share, as determined pursuant to the Sixth Amended
and Restated Agreement of Limited Partnership of HHPLP, of the excess, if any,
of HHPLP's items of income and gain for the Interim Period over HHPLP's items
of loss, deduction and credit for the Interim Period (taking into account for
this purpose the excess of the amount determined under clause (c) of the
definition of Adjusted Cash Value over the amount determined under clause (d)
of the definition of Adjusted Cash Value as a deduction to the extent not
otherwise taken into account). "Value Adjustment" means 25% of the Taxable
Income of HHPLP for the Interim Period.
PAYMENT PROCEDURES
From and after the Partnership Effective Time, the holder of record on the
books of HHPLP as of the Partnership Effective Time of each outstanding Class
1 Unit (each, a "Registered Holder" and, collectively, the "Registered
Holders") or, at the request of such Registered Holder as hereinafter
provided, any person or entity that is entitled to receive the consideration
into which such Class 1 Unit shall have been converted at the Partnership
Effective Time upon termination or dissolution of such Registered Holder
(individually, a "Beneficial Holder" and, collectively, the "Beneficial
Holders"), shall be entitled to receive from the Paying Agent, a wire transfer
or bank check payable to the order of such Registered Holder or Beneficial
Holder, as the case may be, in an amount equal to the cash consideration
payable by Rouse as described above (other than the Value Adjustment). Any
Registered Holder that desires, in respect of any of the Class 1 Units held by
it, to have such cash consideration paid directly to any of its Beneficial
Holders shall, not later than three days prior to the Closing Date, provide
notice thereof to Rouse and the Paying Agent (a "Direct Payment Notice"),
which Direct Payment Notice shall set forth (i) the number of such Class 1
Units, (ii) the names and addresses of the persons or entities who are to
receive such consideration, (iii) instructions to make payment of such
consideration to such persons or entities, (iv) the proportionate interest in
such Class 1 Units beneficially owned by each such Beneficial Holder and (v)
such other information as may be reasonably requested by Rouse.
If payment of the cash consideration payable by Rouse described above (other
than the Value Adjustment) is to be made to a person or entity other than the
Registered Holder or a Beneficial Holder of such Class 1 Unit, it shall be a
condition to the payment of such consideration that (i) the Registered Holder
or Beneficial Holder to whom such consideration would have otherwise been paid
shall have provided the Paying Agent with documentation, in form and substance
reasonably satisfactory to the Paying Agent, evidencing the transfer of such
Class 1 Unit or the right to receive such consideration to such person or
entity (the "Transferee") and (ii) such Registered Holder or Beneficial
Holder, or the Transferee, shall have either (A) paid the Paying Agent an
amount equal to any transfer or other taxes required to be paid by reason of
the payment of such consideration to such Transferee or (B) established to the
satisfaction of the Paying Agent that all such taxes have been paid or that no
such tax is payable.
Promptly after the Partnership Effective Time, the Paying Agent shall: (i)
as to each Registered Holder, transmit to such Registered Holder by wire
transfer of immediately available funds, pursuant to wire transfer
instructions given by such Registered Holder to the Paying Agent in writing at
least two days prior to the Closing Date, an amount equal to (A) the
consideration payable by Rouse to which such Registered Holder is entitled in
the Partnership Merger (other than the Value Adjustment) minus (B) any of such
consideration which is payable by the Paying Agent to any Beneficial Holder of
such Registered Holder pursuant to a Direct Payment Notice given by such
Registered Holder as provided above; (ii) as to each Beneficial Holder named
in a Direct Payment Notice given by a Registered Holder as provided above, pay
such Beneficial Holder the consideration payable by Rouse
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to which such Beneficial Holder is entitled in the Partnership Merger (other
than the Value Adjustment) in immediately available funds (A) by transmission
by wire transfer, pursuant to wire transfer instructions given by such
Beneficial Holder to the Paying Agent in writing at least two days prior to
the Closing Date or, in the absence of any such wire transfer instructions,
(B) by delivery of a bank check payable to the order of such Beneficial
Holder, mailed to such Beneficial Holder at his, her or its address as
provided in the Direct Payment Notice; and (iii) as to all other Beneficial
Holders and Transferees, mail to each such person or entity for which the
Paying Agent has received the applicable notice described above, (A) a letter
of transmittal and (B) instructions for applying for the payment of the
consideration payable to such person or entity as described above.
REPRESENTATIONS AND WARRANTIES
In the Partnership Merger Agreement, Rouse and Partnership Merger Sub make
the same representations and warranties as those made by Rouse in the THC
Merger Agreement, and HHPLP makes the same representations and warranties as
those made by THC in the THC Merger Agreement. See "THE THC MERGER AGREEMENT--
Representations and Warranties." In addition, HHPLP makes additional
representations and warranties in the Partnership Merger Agreement, including,
but not limited to, those relating to (i) capitalization, (ii) the
authorization, execution, delivery, performance and enforceability of the
Partnership Merger Agreement, (iii) the status of HHPLP as a partnership for
tax purposes and (iv) the receipt by HHPLP of the opinion of Morgan Stanley to
the effect that the consideration to be received by the holders of Class 1
Units is fair, from a financial point of view, to the holders of the Class 1
Units (the "Partnership Fairness Opinion"). The representations and warranties
expire at the Partnership Effective Time.
CONDITIONS TO THE PARTNERSHIP MERGER
The respective obligations of Rouse and HHPLP to consummate the Partnership
Merger are subject to the satisfaction on or prior to the Closing Date of the
following conditions, any or all of which may be waived in writing by Rouse
and HHPLP, in whole or in part, to the extent permitted by applicable law: (i)
the waiting period applicable to the consummation of the Partnership Merger
under the HSR Act shall have expired or been terminated; (ii) no preliminary
or permanent injunction or other order or decree by any federal or state court
preventing the consummation of the Partnership Merger shall have been issued
and remain in effect; (iii) no action shall have been taken, and no statute,
rule or regulation shall have been enacted by any state or federal government
or governmental agency in the United States preventing the consummation of the
Partnership Merger or making the consummation of the Partnership Merger
illegal; (iv) all governmental waivers, consents, orders and approvals legally
required to consummate the Partnership Merger shall have been obtained and be
in effect; and (v) the THC Merger shall be consummated simultaneously with the
Partnership Merger.
The obligation of Rouse to effect the Partnership Merger is also subject to
the satisfaction on or prior to the Closing Date of the following conditions:
(i) each of HHPLP and THC shall have performed and complied in all material
respects with the agreements and obligations contained in the Partnership
Merger Agreement and the THC Merger Agreement required to be performed and
complied with by it at or prior to the Closing Date; (ii) the representations
and warranties of each of HHPLP and THC shall be true and correct in all
material respects on and as of the date of the Partnership Merger Agreement
and the THC Merger Agreement, as the case may be, and as of the Closing Date
(except to the extent that any representation or warranty is made as of a
specified date, in which case such representation or warranty shall be true
and correct in all material respects as of such date); (iii) Rouse shall have
received a legal opinion to the effect that HHPLP has been a partnership for
tax purposes from its formation to the Partnership Effective Time; and (iv) no
governmental authority shall have promulgated any statute, rule or regulation
that when taken together with all such promulgations would materially impair
the value of the Mergers to Rouse.
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The obligation of HHPLP to effect the Partnership Merger is also subject to
the satisfaction on or prior to the Closing Date of the following conditions:
(i) each of Rouse and Partnership Merger Sub shall have performed and complied
in all material respects with the agreements and obligations contained in the
Partnership Merger Agreement and the THC Merger Agreement required to be
performed and complied with by it at or prior to the Closing Date; (ii) the
representations and warranties of each of Rouse and Partnership Merger Sub
shall be true and correct in all material respects on and as of the date of
the Partnership Merger Agreement and the THC Merger Agreement, as the case may
be, and as of the Closing Date (except to the extent that any representation
or warranty is made as of a specified date, in which case such representation
or warranty shall be true and correct in all material respects as of such
date); (iii) the Partnership Fairness Opinion shall not have been withdrawn;
(iv) the Hughes Owners' Approvals shall have been obtained at the Special
Meeting or any adjournment thereof; (v) HPPLP shall have paid into an escrow
account established pursuant to the Contingent Stock Agreement $1,500,000;
(vi) HHPLP shall have entered into a consulting agreement with Robert E.
Morrison (if required); and (vii) no governmental authority shall have
promulgated any statute, rule or regulation that when taken together with all
such promulgations would materially impair the value of the Mergers to HHPLP.
There can be no assurance that all of the conditions to the Partnership
Merger will be satisfied.
TERMINATION
The Partnership Merger Agreement will automatically terminate if the THC
Merger Agreement is terminated. Otherwise, the Partnership Merger Agreement
may be terminated only with the prior written consent of both Rouse and HHPLP.
AMENDMENT
The Partnership Merger Agreement may be amended only in accordance with
applicable law and pursuant to a written instrument executed by each of HHPLP,
Rouse and Partnership Merger Sub.
GOOLSBY HHPLP PAYMENT
Concurrently with the payments by Rouse to Registered Holders of Class 1
Units (or to the Beneficial Holders or Transferees) of amounts payable by
Rouse (other than the Value Adjustment), Rouse will pay to Goolsby an amount
(the "Goolsby HHPLP Payment") representing 8/10ths of 1% of the aggregate
consideration payable in respect of all Class 1 Units issued and outstanding
at the Partnership Effective Time pursuant to the Partnership Merger Agreement
(before reduction by the Goolsby HHPLP Payment). The consideration payable by
Rouse to the holders of Class 1 Units will be reduced by the Goolsby HHPLP
Payment. The Goolsby HHPLP Payment is being made on behalf of and as an
accommodation to THC, Merger Sub (as successor by merger to THC) and HHPLP and
in partial performance of their obligations to Goolsby under the Goolsby
Incentive Agreement.
Contemporaneously with payment by HHPLP of the Special Distribution, HHPLP
will pay to Goolsby an amount (the "Goolsby Special Distribution") equal to
8/10ths of 1% of the aggregate amount of the Special Distribution (before
reduction by the Goolsby Special Distribution). The amount payable to the
Unitholders in the Special Distribution will be reduced by the amount of the
Goolsby Special Distribution.
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THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS
The following is a summary of the material terms of the Contingent Stock
Agreement and the Contractual Rights. This summary does not purport to be a
complete description of the Contingent Stock Agreement and the Contractual
Rights and is qualified in its entirety by reference to the Contingent Stock
Agreement, a copy of which is attached as Appendix D to this Proxy
Statement/Prospectus and is incorporated herein by reference.
GENERALLY
Pursuant to the terms of the Contingent Stock Agreement to be entered into
by Rouse on the Closing Date, but to be deemed effective as of January 1,
1996, for the benefit of the Holders and the Representatives, the Holders will
receive as part of the consideration in the THC Merger, pro rata based on the
number of shares of THC Common Stock held by them immediately prior to the
Effective Time, the Contractual Rights, which entitle the Holders to certain
future distributions of Contingent Shares or, if Rouse is unable to deliver
Contingent Shares for any reason or upon certain other events at the election
of the Representatives, Contingent Preferred Shares. The number of Contingent
Shares to be issued in respect of the Contractual Rights will be determined on
the basis of (i) the Excess Cash Flow (as defined below) of each of four
Business Units over Earnout Periods ranging from five to 14 years after the
Effective Time, depending on the Business Unit and (ii) the appraised value of
the assets of each such Business Unit at the end of the applicable Earnout
Period.
The Contractual Rights (i) will not be represented by any form of
certificate or instrument; (ii) do not give the Stockholders dividend rights,
voting rights, liquidation rights, preemptive rights or other rights common to
holders of Rouse Common Stock or Rouse Preferred Stock; (iii) are not
redeemable; (iv) may not be transferred or assigned by any Holder, except (a)
to a beneficial owner of equity interests of a Holder as of the date of the
Contingent Stock Agreement, (b) pursuant to the laws of descent and
distribution, (c) to an inter vivos trust for the benefit of a Holder or a
beneficial owner or a member of such person's immediate family, (d) by
operation of law or (e) to Rouse or its subsidiaries and (v) do not entitle
the Holders to participate in the growth or earnings of Rouse, except to the
extent of the rights of such Holders to be paid Rouse Common Stock or
Increasing Rate Preferred Stock the amounts of which will be determined by the
Excess Cash Flow and the appraised value of the assets of any Business Unit at
the end of the applicable Earnout Period. The terms of the Contractual Rights
may be amended by written agreement between Rouse and the Representatives,
except that amendments of certain provisions require the consent of the
Holders of a majority in interest of the Contractual Rights or of all of the
Holders. Under certain circumstances, the Holders are entitled to have an
individual designated for election to the Board of Directors of Rouse on their
behalf. See "THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--
Amendments and Waiver" and "THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL
RIGHTS--Board Representation." For a discussion of the provisions of the Rouse
By-Laws relating to certain business combinations see "DESCRIPTION OF ROUSE
COMMON STOCK--Special Statutory Requirements for Certain Transactions--
Business Combination Statute."
FOR A DISCUSSION OF CERTAIN RISKS RELATING TO THE CONTINGENT STOCK
AGREEMENT, SEE "RISK FACTORS--RISKS RELATING TO THE CONTINGENT STOCK
AGREEMENT, THE CONTINGENT SHARES AND THE CONTINGENT PREFERRED SHARES" AND
"RISK FACTORS--ADDITIONAL RISKS RELATING TO THE BUSINESS OF THC AND ITS
SUBSIDIARIES."
THE BUSINESS UNITS
The assets comprising the Business Units consist of all rights, title and
interests (subject to any related liabilities) of THC and its subsidiaries in
and to:
(a)(i) certain undeveloped land located in Nevada and California
currently owned by THC and HHPLP, directly or indirectly (comprised of all
of the investment acreage, with the exception of
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Summerlin investment acreage, described under "THE HUGHES CORPORATION--
Overview"), all undeveloped land at Airport Center, Hughes Center and
Cheyenne Center in Las Vegas, Nevada and (ii) any equity interests of THC
and its subsidiaries in any person holding any of the foregoing assets, and
any securities or other property distributed in exchange for or with
respect to such equity interests (collectively, the "General Business
Unit");
(b)(i) HHC, an approximately 69-acre tract of land (and all improvements
thereon) in Los Angeles, California and (ii) any equity interests of THC
and its subsidiaries in any person holding any of the foregoing assets, and
any securities or other property distributed in exchange for or with
respect to such equity interests (collectively, the "Howard Hughes Center
Business Unit");
(c) the limited partnership interests held by HHPLP in the PV
Partnerships and any securities or other property distributed in exchange
for or with respect to such partnership interests (collectively, the "Playa
Vista Business Unit"); and
(d)(i) all undeveloped land owned by HHPLP in Summerlin South, Summerlin
West and Summerlin North, all of which are part of Summerlin, a master-
planned community in Las Vegas, Nevada, (ii) the TPC, and (iii) any equity
interests of THC and its subsidiaries in any person holding any of the
foregoing assets, and any securities or other property distributed in
exchange for or with respect to such equity interests (collectively, the
"Summerlin Business Unit").
The assets of the Business Units represent undeveloped land (or interests
therein) and certain rental properties (or interests therein) held at
January 1, 1996 by THC and its subsidiaries. The rental properties included in
the Business Units contributed approximately $17,495,000 of the operating
revenues of THC and its subsidiaries for the year ended December 31, 1995, or
27% of the operating revenues of THC and its subsidiaries attributable to
rental properties. Approximately $122,080,000 (or approximately 42%),
approximately $105,960,000 (or approximately 36%) and approximately
$65,344,000 (or approximately 22%) of the operating revenues of THC and its
subsidiaries for the year ended December 31, 1995 were attributable to
revenues from sales of development properties, revenues from sales of
investment properties and revenues from rental properties, respectively. For
the years ended December 31, 1994 and December 31, 1993, respectively,
approximately $98,050,000 (or 58%) and $63,030,000 (or 47%) of operating
revenues of THC and its subsidiaries were attributable to revenues from sales
of development properties, approximately $11,950,000 (or 7%) and $19,353,000
(or 14%) of operating revenues of THC and its subsidiaries were attributable
to revenues from sales of investment properties, and approximately $59,926,000
(or 35%) and $53,014,000 (or 39%) of operating revenues of THC and its
subsidiaries were attributable to revenues from rental properties.
Accordingly, it is expected that the majority of the future operating revenues
(and cash flows) of the Business Units will be derived from sales of
development properties and investment properties included in the assets
comprising the Business Units. There can be no assurance as to future
operating revenues or cash flows of the Business Units from sales of
development properties and investment properties or as to future revenues of
the Business Units from rental properties, and future revenues or cash flows
may be materially greater or less than such historical revenues or cash flows.
The approximate book value of the assets of each Business Unit as of
December 31, 1995, and the approximate amount of the operating revenues of THC
and its subsidiaries for the year ended December 31, 1995 attributable to
rental properties included in each Business Unit, are estimated to be as set
forth in the following table:
<TABLE>
<CAPTION>
BOOK VALUE OF OPERATING REVENUES FROM
ASSETS AS RENTAL PROPERTIES
OF DECEMBER 31, YEAR ENDED
BUSINESS UNIT 1995 DECEMBER 31, 1995
------------- --------------- -----------------------
<S> <C> <C>
General Business Unit... $ 33,577,000 --
Howard Hughes Center
Business Unit.......... 73,660,000 $10,787,000
Playa Vista Business
Unit................... -- --
Summerlin Business
Unit................... 120,367,000 6,708,000
------------ -----------
Total................... $227,604,000 $17,495,000
============ ===========
</TABLE>
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For additional information regarding the assets included in the Business
Units see "THE HUGHES CORPORATION," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THC" and the Consolidated
Financial Statements of THC and Notes thereto included elsewhere in this Proxy
Statement/Prospectus.
DISTRIBUTIONS OF CONTINGENT SHARES BASED UPON CASH FLOW
CERTAIN DEFINITIONS. In this Proxy Statement/Prospectus, the following terms
have the meanings set forth below:
"Calculation Date" means the last day of each Computation Period.
"Computation Period" means, for each Business Unit, the six-month period
beginning on January 1 and July 1 of each year, commencing January 1, 1996 and
ending on the Valuation Date for the applicable Business Unit.
"Computation Period Tax Adjustment" means, with respect to any Business Unit
for any Computation Period, the sum of (i) the product of (A) the pro forma
taxable income or loss for such Business Unit, utilizing the method of tax
accounting and, to the extent applicable, the elections used in preparing
Rouse's consolidated federal income tax return, but treating each Business
Unit as though it were a separate corporation filing a separate tax return
times (B) 33.33% of the marginal tax rate applicable to corporations subject
to Subchapter C of Chapter 1 of Subtitle A of the Code for each item of
taxable income or loss for such Business Unit for the period in which such
income or loss was realized or sustained plus (ii) 33.33% of the aggregate
income taxes that would be imposed on the income of such Business Unit by each
state or local tax authority ("jurisdiction") as a result of the location of
assets or the operations of such Business Unit within such jurisdiction,
computed as if the assets and operations of such Business Unit in such
jurisdiction were owned and conducted by a separate corporation with no
contacts or nexus with any other jurisdiction, as estimated by the Rouse (and
subject to adjustment based on calendar year results), provided that the
Computation Period Tax Adjustment shall not be a negative number. If any
calculation of the Computation Period Tax Adjustment results in a loss, such
loss will be carried forward to future periods.
"Excess Cash Flow" means, with respect to any Business Unit for any
Computation Period, an amount equal to (i) all cash, cash equivalents and
marketable securities actually received by Rouse and its subsidiaries with
respect to such Business Unit during such Computation Period and all
adjustments to the records and accounts of such Business Unit which have the
effect of increasing the cash accounts of such Business Unit for such
Computation Period less (ii) all costs and expenses actually incurred by Rouse
and its subsidiaries during such Computation Period which are properly
chargeable to such Business Unit and all adjustments to the records and
accounts of such Business Unit which have the effect of decreasing the cash
accounts of such Business Unit for such Computation Period and less (iii) the
Computation Period Tax Adjustment.
"General Business Unit Reduction Amount" means, with respect to any
Calculation Date, an amount equal to the sum of (i) 3% of the gross cash
proceeds from sales of real estate included in the General Business Unit
during all Computation Periods, reduced by all amounts taken into account in
all prior Computation Periods plus (ii) to the extent that all or any portion
of the amount under clause (i) is not taken into account on the Calculation
Date for the Computation Period during which such gross cash proceeds were
actually received by Rouse or any of its subsidiaries, a cumulative 7.5% per
annum return, compounded semi-annually, on such amount from the Calculation
Date for the Computation Period during which such gross cash proceeds were so
received until the Calculation Date for the Computation Period in which such
amount is taken into account.
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"Howard Hughes Center Management Costs" means, with respect to any
Calculation Date, the aggregate amount of direct management costs incurred and
actually paid by Rouse and any of its subsidiaries in connection with the
Howard Hughes Center Business Unit during all Computation Periods which have
not been taken into account in any prior Computation Period.
"Hughes Funding" means the lesser of (i) the amount funded by Rouse pursuant
to the Funding Requirement (as defined below) and (ii) $10,000,000.
"Playa Vista Management Costs" means, with respect to any Calculation Date,
the aggregate amount of direct management costs incurred by Rouse and its
subsidiaries in connection with the Playa Vista Business Unit during all
Computation Periods which have not been taken into account in any prior
Computation Period.
"Playa Vista Management Costs Return" means a cumulative 15% per annum
return, compounded semi-annually, on the Playa Vista Management Costs from the
last day of the Computation Period during which such costs were actually paid
by Rouse or any of its subsidiaries until the Calculation Date for the
Computation Period in which the amount of such costs is taken into account.
"Rouse Funding" means the amount (not to exceed $5,000,000) funded by Rouse
pursuant to the Funding Requirement in excess of $10,000,000.
"Summerlin Business Unit Reduction Amount" means, with respect to any
Calculation Date, an amount equal to the sum of (i) 3% of the gross cash
proceeds from sales of real estate included in the Summerlin Business Unit
during all Computation Periods, reduced by all amounts taken into account in
all prior Computation Periods plus (ii) to the extent that all or any portion
of the amount under clause (i) is not taken into account on the Calculation
Date for the Computation Period during which such gross cash proceeds were
actually received by Rouse or any of its subsidiaries, a cumulative 7.5% per
annum return, compounded semi-annually, on such amount from the Calculation
Date for the Computation Period during which such gross cash proceeds were so
received until the Calculation Date for the Computation Period in which such
amount is taken into account.
"Underfunded Amount" means the amount of any costs or benefit payments
(other than taxes) paid or to be paid or incurred by THC or any of its
subsidiaries as the result of the termination of the THC qualified defined
benefit plan currently maintained by THC (after all costs that may be paid by
such plan are paid by the plan) to the extent such costs or benefit payments
are in excess of the reversion amount (before taxes) if any, of such plan on
the date of its liquidation, together with interest accruing thereon at the
rate of 5% from the date such costs are incurred or benefit payments made
until the date such benefit costs or payments are deducted from the aggregate
positive balances of the Business Trust Accounts (see "THE CONTINGENT STOCK
AGREEMENT; THE CONTRACTUAL RIGHTS--Distributions of Contingent Shares Based
Upon Cash Flow--Issuance of Contingent Shares" below).
"Valuation Date" means, (i) with respect to the General Business Unit and
the portion of the Summerlin Business Unit comprised of Summerlin North,
December 31, 2000, (ii) with respect to the Howard Hughes Center Business Unit
and the Playa Vista Business Unit, December 31, 2005 and (iii) with respect to
the remaining assets of the Summerlin Business Unit, December 31, 2009.
EARNOUT PERIOD; DISTRIBUTION BASED UPON EXCESS CASH FLOW. The Earnout Period
for each Business Unit is deemed to have commenced on January 1, 1996 and will
continue until the Valuation Date applicable to such Business Unit or portion
thereof. Contingent Shares will be issued to the Holders pursuant to a formula
for each Business Unit, based upon the Excess Cash Flow of such Business Unit
for each Computation Period. The price of the Rouse Common Stock upon which
the number of Contingent Shares issuable in respect of any Computation Period
will be calculated (the
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"Current Share Value") will be the average of the closing prices of Rouse
Common Stock on the NYSE Composite Tape (or such other securities exchange or
quotation system upon which Rouse Common Stock is then listed or quoted)
during the ten trading days prior to the date of computation (the "Computation
Date") consisting of (i) the five consecutive trading days ending on the last
day of the calendar month immediately preceding the calendar month in which
the Computation Date falls and (ii) the five consecutive trading days ending
on the Computation Date.
An amount equal to a percentage of the Excess Cash Flow of each Business
Unit will be recorded in a separate account established on the books and
records of Rouse (each, a "Business Unit Account"). Each Business Unit Account
will be credited with such percentage of the Excess Cash Flow of such Business
Unit for each Computation Period. If a Business Unit has Excess Cash Flow, the
Holders will be entitled to distributions of Contingent Shares as described
below.
(a) GENERAL BUSINESS UNIT ACCOUNT. To the extent that the General Business
Unit has Excess Cash Flow for any Computation Period, the Business Unit
Account for the General Business Unit will be credited with an amount equal to
50% of such Excess Cash Flow (with no credit to be made to such Business Unit
Account for the remaining 50%), until such Business Unit Account has been
credited with an aggregate amount equal to $20,450,000 plus a cumulative
return on such amount (or any portion thereof in respect of which such
Business Unit Account has not been previously credited) equal to 15% per
annum, compounded semi-annually, from January 1, 1996 to the date that such
amount or portion thereof shall have been credited to such Business Unit
Account. After the foregoing credits have been made, Excess Cash Flow will
first be reduced by an amount equal to the General Business Unit Reduction
Amount and thereafter the Business Unit Account for the General Business Unit
will be credited with an amount equal to 50% of the remaining Excess Cash
Flow.
(b) HOWARD HUGHES CENTER BUSINESS UNIT ACCOUNT. To the extent that the
Howard Hughes Center Business Unit has Excess Cash Flow for any Computation
Period, (i) such Excess Cash Flow will first be reduced by an amount equal to
the lesser of (a) such Excess Cash Flow and (b) the sum of the Howard Hughes
Center Management Costs plus, to the extent that such management costs
exceeded Excess Cash Flow in prior periods, a cumulative return on such excess
of 15% per annum, compounded semi-annually, from the date on which such
management costs were incurred to the date on which Excess Cash Flow for the
Howard Hughes Center Business Unit for any Computation Period shall have been
reduced by such management costs and (ii) thereafter, the Business Unit
Account for the Howard Hughes Center Business Unit will be credited with an
amount equal to 80% of the remaining Excess Cash Flow; provided, however, that
on each Calculation Date, prior to making such credit, the amount of such
credit shall be reduced by an amount equal to the aggregate of all amounts
paid by Rouse or any of its subsidiaries to Tooley & Company pursuant to that
certain Managing Developer Agreement, dated August 15, 1983, among Tooley &
Company, THC and HHPLP during all Computation Periods which have not been
taken into account in any prior Computation Period.
(c) SUMMERLIN BUSINESS UNIT ACCOUNT. To the extent that the Summerlin
Business Unit has Excess Cash Flow for any Computation Period, (i) the
Business Unit Account for the Summerlin Business Unit will be credited with an
amount equal to 50% of such Excess Cash Flow (with no credit to be made to
such Business Unit Account for the remaining 50%), until such Business Unit
Account has been credited with an aggregate amount equal to $32,450,000 plus a
cumulative return on such amount (or any portion thereof in respect of which
such Business Unit Account has not previously been credited) equal to 15% per
annum, compounded semi-annually, from January 1, 1996 to the date that such
amount or portion thereof shall have been credited to such Business Unit
Account, (ii) thereafter, such Business Unit Account will be credited with an
amount equal to 75% of the remaining Excess Cash Flow (with no credit to be
made to such Business Unit Account for the remaining 25%) until such Business
Unit Account has been credited with an aggregate amount equal to $40,000,000,
(iii) thereafter, such Business Unit Account will be credited with an amount
equal to 25% of the remaining
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Excess Cash Flow (with no credit to be made to such Business Unit Account for
the remaining 75%) until such Business Unit Account has been credited with an
aggregate amount equal to $13,333,333, (iv) thereafter, the remaining Excess
Cash Flow will be reduced by an amount equal to the Summerlin Business Unit
Reduction Amount and (v) thereafter, such Business Unit Account will be
credited with an amount equal to 50% of the remaining Excess Cash Flow.
(d) PLAYA VISTA BUSINESS UNIT ACCOUNT. To the extent that the Playa Vista
Business Unit has Excess Cash Flow for any Computation Period, (i) such Excess
Cash Flow will first be reduced by an amount equal to the Playa Vista
Management Costs and the Playa Vista Management Costs Return, (ii) thereafter,
the Business Unit Account for the Playa Vista Business Unit will be credited
with an amount equal to 90% of the remaining Excess Cash Flow (with no credit
to be made to such Business Unit Account for the remaining 10%) until such
Business Unit Account has been credited with an aggregate amount equal to the
Hughes Funding plus a cumulative return on such amount equal to 7% per annum,
compounded semi-annually, based on the amount of the Hughes Funding as of the
beginning of each prior Computation Period, (iii) thereafter, such Business
Unit Account will be credited with an amount equal to 10% of the remaining
Excess Cash Flow (with no credit to be made to such Business Unit Account for
with the remaining 90%) until such Business Unit Account has been credited
with an aggregate amount equal to 1/9th of the Rouse Funding plus a cumulative
return on the Rouse Funding equal to 7/9ths of 1% per annum, compounded semi-
annually, based on the amount of the Rouse Funding as of the beginning of each
prior Computation Period, (iv) thereafter, such Business Unit Account will be
credited with an amount equal to 75% of the remaining Excess Cash Flow (with
no credit to be made to such Business Unit Account for the remaining 25%)
until such Business Unit Account has been credited with an aggregate amount
equal to $25,000,000, (v) thereafter, such Business Unit Account will be
credited with an amount equal to 25% of the remaining Excess Cash Flow (with
no credit made to such Business Unit Account for the remaining 75%) until such
Business Unit Account has been credited with an aggregate amount equal to
$8,333,333 and (vi) thereafter, such Business Unit Account will be credited
with an amount equal to 50% of the remaining Excess Cash Flow.
ISSUANCE OF CONTINGENT SHARES. The number of Contingent Shares issuable for
any given Computation Period will be equal to the product of (i) 0.992 times
(ii) the sum of (A) an amount equal to (1) the aggregate positive balances of
the Business Unit Accounts as of the applicable Calculation Date divided by
(2) the Current Share Value plus (B) an amount equal to (1) the Dividend
Adjustment (as defined below) divided by (2) the Current Share Value. Upon
delivery by Rouse to the Holders of all Contingent Shares required to be
delivered in connection with any Calculation Date, the Business Unit Account
with respect to which such Contingent Shares were delivered will be debited by
the aggregate value (based on Current Share Value ("Value")) of the Contingent
Shares so delivered. "Dividend Adjustment" means, with respect to any
Calculation Date or Valuation Date, an amount equal to the product of (i) the
sum of any and all dividends and distributions on a share of Rouse Common
Stock having a record date within the period commencing on the applicable
Calculation Date or Valuation Date and ending on the date on which the
Contingent Shares required to be delivered to the Holders in connection with
such Calculation Date or Valuation Date are actually delivered to the Holders
times (ii) the number of Contingent Shares which Rouse is otherwise required
to deliver to the Holders in connection with such Calculation Date or
Valuation Date, as applicable. Rouse is obligated to deliver to each Holder,
as soon as practicable and in any event within 60 days after each Calculation
Date, that number of Contingent Shares determined by multiplying the aggregate
number of Contingent Shares required to be delivered by Rouse on such date by
such Holder's percentage interest under the Contingent Stock Agreement (a
"Percentage Interest").
Notwithstanding the foregoing, if an Underfunded Amount exists as of any
Calculation Date, the aggregate positive balances of the Business Unit
Accounts shall be reduced, prior to calculating the aggregate number of
Contingent Shares to be delivered, by an amount equal to the lesser of (i) the
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aggregate positive balances of the Business Unit Accounts as of such
Calculation Date and (ii) the amount of the Underfunded Amount which has not
previously been utilized to reduce the aggregate positive balances of the
Business Unit Accounts; provided, however, that in no event shall the
aggregate amount of such reduction exceed the Underfunded Amount.
DISTRIBUTIONS OF CONTINGENT SHARES BASED UPON APPRAISED VALUE
The Fair Market Value (as defined below) of the assets of each Business Unit
or portion thereof will be determined by appraisal as of the Valuation Date
with respect to such Business Unit or portion thereof. If Rouse and its
subsidiaries own less than 100% of the equity interests of any entity holding
assets included in any Business Unit, the Fair Market Value of such assets
will be determined by multiplying the Fair Market Value of such entity by the
percentage interest owned by Rouse and its subsidiaries, taking into account
any preferential rights associated with any equity interests in such entity.
Within five days after the Valuation Date with respect to each Business Unit
or portion thereof, the Representatives and Rouse will each appoint one
appraiser for each item of assets included in such Business Unit or portion
thereof. Such appraisers will, within five days after the second of them has
been appointed, appoint a third appraiser and such appraisers will constitute
the "Appraisal Panel" with respect to such item of assets. If the two
appraisers appointed are unable agree on the third appraiser within such five-
day period, either the Representatives or Rouse may apply to any court of
competent jurisdiction for the appointment of a third appraiser. If either the
Representatives or Rouse fails to appoint an appraiser within five days after
notice from the other that the recipient of such notice has failed to appoint
an appraiser within the five-day period referred to above, the appraiser
appointed by the other will be deemed to constitute the Appraisal Panel. Each
appraiser must be a real estate and financial expert generally recognized as
having current competence in the valuation of assets similar to the assets
being appraised in the area(s) where such assets are located. Each appraiser
must be independent and, as such, must not be an Associate (as defined in the
Contingent Stock Agreement) of Rouse or any Holder (other than as a result of
contractual relationships arising out of such appraisal or any prior appraisal
pursuant to the Contingent Stock Agreement). The fees and expenses of each
Appraisal Panel shall be paid by Rouse.
Each Appraisal Panel will be instructed to determine, within 45 days of its
appointment, the Fair Market Value of the Assets comprising the relevant
Business Unit or portion thereof as of the relevant Valuation Date. If any
Appraisal Panel consists of three appraisers, the Fair Market Value
determination that differs the most from the second highest Fair Market Value
determination of all three appraisers will be excluded, the remaining two Fair
Market Value determinations will be averaged and such average will constitute
the determination of the Appraisal Panel. The determination of the Fair Market
Value of such Assets by the Appraisal Panel will be final and binding on
Rouse, the Holders and the Representatives.
Upon determining the Fair Market Value of the assets comprising any Business
Unit or portion thereof, the aggregate Fair Market Value of all of the assets
of such Business Unit or portion thereof shall be reduced by an amount equal
to the amount of all accounts payable and other indebtedness properly
reflected on the records and books of account of such Business Unit or portion
thereof in accordance with the terms of the Contingent Stock Agreement which
have not been taken into account in determining the percentage of Excess Cash
Flow for any Computation Period to be credited to the applicable Business Unit
Account of such Business Unit or portion thereof, excluding any such amounts
which were taken into account in determining the Fair Market Value of any of
such Assets (the "Adjusted Fair Market Value"). Upon determining the Adjusted
Fair Market Value of any Business Unit or portion thereof, an amount equal to
such Adjusted Fair Market Value shall be credited to the account of the
Holders in the same manner that credits to the Business Unit Account for such
Business Unit are calculated, as if such Adjusted Fair Market Value were the
Excess Cash Flow upon which
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such calculations are to be made and taking into account all previous credits
which have been made to such Business Unit Account based upon Excess Cash Flow
for such Business Unit; provided, however, that (i) such amount shall be
determined without regard to any development or management fee otherwise
payable to Rouse or any of its subsidiaries, other than any General Business
Unit Reduction Amount or Summerlin Business Unit Reduction Amount (which for
purposes of such determination shall include 3% of the gross proceeds from
sales of real estate comprising the relevant Business Unit or portion thereof
prior to such Valuation Date irrespective of whether such proceeds have been
received by Rouse or any of its subsidiaries) which represents amounts
actually received by or owing to Rouse or any of its subsidiaries which have
not previously been taken into account with regard to the sale, prior to the
applicable Valuation Date, of any real estate which comprised the General
Business Unit or the Summerlin Business Unit and (ii) the amount determined to
be credited to the account of the Holders as provided above shall be reduced
by an amount equal to 50% of the fees and expenses of each Appraisal Panel
which have been paid by Rouse with respect to such Business Unit or portion
thereof. "Holders' FMV Allocation," when used with reference to the assets of
any Business Unit or portion thereof, means the portion of the Adjusted Fair
Market Value of such assets allocable to the account of the Holders pursuant
to this paragraph.
"Fair Market Value" means, with respect to any asset, the most probable
price in terms of money which such asset would bring at a fair sale for its
highest reasonable use, determined in a commercially reasonable manner, and
where the title to such asset will pass from the seller to the buyer with (i)
each of the buyer and the seller acting prudently and knowledgeably, (ii) the
price not being affected by any undue stimulus, (iii) neither the buyer nor
seller being under compulsion to sell or buy such asset, (iv) each of the
buyer and the seller being typically motivated, well informed and advised and
acting in what it considers to be its best interests, (v) a reasonable period
of time being allowed for exposure of such asset in the open market and (vi)
the payment of the purchase price being made in cash. In determining the Fair
Market Value of any asset, all liabilities relating to such asset will be
taken into account to the extent that they are secured by a lien on such asset
or would otherwise encumber such asset in the hands of the buyer, and the
appraisers shall assume that the asset being appraised is to be sold in a
commercially reasonable manner.
Rouse is obligated to deliver to each Holder (or his or her designee), as
soon as practicable and in any event within 12 months after the applicable
Valuation Date, that number of Contingent Shares determined by multiplying (i)
the aggregate number of Contingent Shares being delivered by Rouse on such
date by (ii) such Holder's Percentage Interest.
The price of the Rouse Common Stock upon which the number of Contingent
Shares issuable in respect of each appraisal will be calculated (the
"Valuation Distribution Share Value") will be the average of the closing
prices of Rouse Common Stock on the NYSE Composite Tape (or such other
securities exchange or quotation system upon which Rouse Common Stock is then
listed or quoted) during the 20 trading days consisting of the five
consecutive trading days ending on the last day of each of the four calendar
months immediately preceding the calendar month in which the Computation Date
falls.
If Rouse delivers all of the Contingent Shares with respect to the Valuation
Date for any Business Unit or portion thereof in one installment, the
aggregate number of Contingent Shares to be delivered by Rouse shall be
determined as of the date such shares are actually delivered to the Holders
and shall be a number equal to the product of (i) 0.992 times (ii) the sum of
(A) an amount equal to (1) the Holders' FMV Allocation with respect to such
assets divided by (2) the Valuation Distribution Share Value as of such date
plus (B) an amount equal to (1) the Dividend Adjustment with respect to the
number of Contingent Shares determined under subclause (A) above divided by
(2) the Valuation Distribution Share Value as of such date.
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If Rouse delivers the Contingent Shares with respect to any Business Unit or
portion thereof in more than one installment, on each date on which such
shares are actually delivered to the Holders, the "Holders' FMV Allocation
Amount" will be calculated, and will be equal to the product of:
(i) the aggregate number of Contingent Shares being delivered by Rouse on
such date times
(ii) the Valuation Distribution Share Value with respect to such date
times
(iii) a fraction, the numerator of which is such Valuation Distribution
Share Value and the denominator of which is the sum of (A) such Valuation
Distribution Share Value plus (B) the Dividend Adjustment with respect to
one share of Rouse Common Stock during the period commencing on the
applicable Valuation Date to and including such date times
(iv) 0.992.
Rouse shall continue to deliver Contingent Shares to the Holders with respect
to such Business Unit or portion thereof until such time as the sum of the
Holders' FMV Allocation Amount with respect to each date on which Rouse
delivers Contingent Shares in connection with the Valuation Date for such
Business Unit or portion thereof (such date of delivery, a "Valuation
Distribution Date") equals the Holders' FMV Allocation with respect to such
Business Unit or portion thereof. In connection with each such Valuation
Distribution Date, Rouse is obligated to deliver to each Holder (or his or her
designee) a number of Contingent Shares equal to the product of (i) the
aggregate number of Contingent Shares being delivered by Rouse on such
Valuation Distribution Date times (ii) such Holder's Percentage Interest.
Rouse is obligated to deliver to each Holder (or his or her designee), as soon
as practicable and in any event within 12 months after the applicable
Valuation Date, all Contingent Shares required to be delivered with respect to
each Business Unit or portion thereof.
FAILURE TO DELIVER CONTINGENT SHARES
In the event that Rouse fails to deliver Contingent Shares on or before any
date on which Rouse is obligated to deliver such Contingent Shares (each, a
"Delivery Date"), Rouse will be obligated to deliver to each Holder that
number of additional Contingent Shares ("Default Shares") which is equal to
the quotient of (i) the return, calculated at the Applicable Federal Rate (as
defined in the Contingent Stock Agreement) plus 5%, on an amount equal to (A)
the number of Contingent Shares which should have been delivered to such
Holder times (B) the Current Share Value utilized to determine the number of
Contingent Shares to be delivered by Rouse in connection with the applicable
Calculation Date, such return to accrue on such amount for the period
commencing on the Delivery Date and continuing thereafter until Rouse delivers
such Contingent Shares or Contingent Preferred Shares to such Holder divided
by (ii) the Current Share Value utilized to determine the number of Contingent
Shares to be delivered by Rouse in connection with the applicable Calculation
Date.
ROUSE STOCKHOLDER APPROVAL
Rouse has agreed to use its reasonable best efforts to obtain stockholder
approval (the "Rouse Stockholder Approval") of the Contingent Stock Agreement
and the transactions contemplated thereby, prior to July 15, 1997, to the
extent that the rules of the NYSE require such approval prior to Rouse issuing
new shares of Rouse Common Stock for delivery to the Holders in satisfaction
of its obligation to deliver Contingent Shares under the Contingent Stock
Agreement. If the Rouse Stockholder Approval is not obtained, Rouse will issue
Contingent Preferred Shares to the extent required under the Contingent Stock
Agreement. See "THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--
Contingent Preferred Shares" below.
CONTINGENT PREFERRED SHARES
In the event Rouse is precluded or is otherwise unable to deliver to the
Holders shares of Rouse Common Stock on any Delivery Date, including any
preclusion or inability resulting from the provisions
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of Rouse's listing agreement with the NYSE, Rouse is required to immediately
issue and deliver Contingent Preferred Shares. The aggregate number of
Contingent Preferred Shares to be issued and delivered on any Delivery Date
will be determined by dividing (i) 125% of the sum of (A) the aggregate number
of Contingent Shares required to be delivered on the Delivery Date plus (B)
the aggregate number of Default Shares by (ii) the quotient of $100 divided by
the Current Share Value used in calculating the number of such Contingent
Shares. Rouse's obligation to deliver Contingent Preferred Shares in lieu of
Contingent Shares in connection with any such inability or preclusion (but not
otherwise) will terminate upon the receipt of the Rouse Stockholder Approval.
See "THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--Covenants of
Rouse and the Business Unit Entities" below. For a description of the terms of
the Contingent Preferred Shares, see "DESCRIPTION OF ROUSE PREFERRED STOCK--
Increasing Rate Preferred Stock." In addition, at the option of the Holders,
Rouse is required to issue and deliver Contingent Preferred Shares to the
Holders upon the happening of certain events described in "THE CONTINGENT
STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--Events of Default" below.
Subject to the terms of the Articles Supplementary to the Rouse Charter
creating and designating the Increasing Rate Preferred Stock, Rouse may not
amend, alter or otherwise modify such Articles or the number of shares of or
the rights, preferences or privileges of the Increasing Rate Preferred Stock
thereunder unless (i) in the event that any Contingent Preferred Shares shall
have been issued and remain outstanding, such amendment, alteration or the
modification shall have been duly approved by the holders of the Contingent
Preferred Shares or the Representatives in accordance with the provisions of
the Increasing Rate Preferred Stock or (ii) in the event that no Contingent
Preferred Shares are issued and outstanding, Rouse shall have obtained the
Rouse Stockholder Approval; provided, however, that at any time during which
the circumstances described in clause (ii) have been satisfied, Rouse may,
without the consent of any Holder or the Representatives, amend such Articles
to eliminate the restrictions contained therein with respect to the issuance
of any capital stock of Rouse ranking on a parity with, or senior to, the
shares of Increasing Rate Preferred Stock with respect to distributions of
assets upon any dissolution, liquidation (partial or complete) or winding up
of Rouse or with respect to the payment of dividends.
REVIEW COMMITTEE
The Contingent Stock Agreement contemplates the establishment of a Review
Committee which will meet periodically to review and discuss the management,
operation and development of the Business Units and their assets. The Review
Committee will have five members, two of whom will be designated by Rouse, two
by the Representatives and the fifth by the four members previously
designated. Members of the Review Committee must be experienced (and generally
recognized as competent) in the management and development of residential and
commercial properties similar to the assets of the Business Units. Actions of
the Review Committee may be taken at a meeting of its members, by which the
affirmative vote of a majority of all such members shall be required, or by
unanimous written consent. The Review Committee must approve certain major
decisions by Rouse with respect to the assets of the Business Units prior to
Rouse taking of any action as a result of such decision (see THE CONTINGENT
STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--Covenants of Rouse and the Business
Unit Entities).
REPRESENTATIVES
The Representatives will be appointed as attorneys-in-fact of the Holders to
represent the Holders and act on their behalf with respect to matters arising
under the Contingent Stock Agreement. Platt W. Davis, III, David G. Elkins and
Kenneth E. Studdard have been designated as the initial Representatives.
Subject to certain limitations, the Representatives will have the power and
authority to interpret and amend the terms of the Contingent Stock Agreement
and to compromise and settle disputes between Rouse and the Holders arising
under the Contingent Stock Agreement. All actions
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taken by the Representatives (which shall be taken upon the written direction
of majority of the Representatives) will be binding upon the Holders, as if
expressly confirmed and ratified by them. Any Representative may be removed at
any time, with or without cause, by Holders holding more than 50% of the
Percentage Interests. The Representatives will be entitled to compensation for
the performance of their duties under, and indemnification against liabilities
incurred by them, in connection with the Contingent Stock Agreement.
EVENTS OF DEFAULT
The following events constitute "Events of Default" under the Contingent
Stock Agreement: (i) the inaccuracy of any representation, warranty or
statement made by Rouse in the Contingent Stock Agreement or in any writing
furnished to the Review Committee, any Representative or any Holder as of the
date made and in light of the circumstances in which they were made, which
inaccuracy, whether alone or together with all other inaccuracies, could
reasonably be expected to have a Material Adverse Effect (as defined below);
(ii) the breach by Rouse of its obligation to deliver Contingent Shares; (iii)
the breach by Rouse of any other material agreement, term or condition of the
Contingent Stock Agreement and Rouse's failure to cure such breach within 30
days after it first became aware of such breach; (iv) the taking of or the
omission to take any action by Rouse, which action or omission Rouse knows
will result and does result in Rouse's default of its covenants or agreements
in the Contingent Stock Agreement; (v) Rouse or HHPLP makes an assignment for
the benefit of creditors or is generally not paying its debts as they become
due; (vi) any decree or order for relief in respect of Rouse or HHPLP is
entered under any debtor relief law of any jurisdiction; (vii) Rouse or HHPLP
files a petition or otherwise applies to any governmental authority for, or
consents to, the appointment of, or the taking of possession by, a trustee,
receiver, custodian, liquidator or similar official of it or any substantial
part of its assets, or commences a voluntary case under any debtor relief law
of any jurisdiction; (viii) any such petition or application described in
clause (vii) above is filed, or any such proceeding is commenced, against
Rouse or HHPLP, and Rouse or HHPLP, as applicable, by any act indicates its
approval thereof, consents thereto or acquiesces therein, or an order,
judgment or decree is entered appointing any such trustee, receiver,
custodian, liquidator or similar official, or approving the petition in any
such proceeding, and such order, judgment or decree remains unstayed and in
effect for more than 60 consecutive days; (ix) any order, judgment or decree
is entered in any proceeding against Rouse or HHPLP decreeing the dissolution,
winding-up or liquidation of Rouse or HHPLP, and such order, judgment or
decree remains unstayed and in effect for more than 60 consecutive days; (x)
any order, judgment or decree is entered in any proceedings against Rouse or
HHPLP decreeing a split-up of Rouse or HHPLP, or which requires the
divestiture of any material asset or any material portion of the assets of
Rouse or HHPLP, and such order, judgment or decree remains unstayed and in
effect for more than 60 consecutive days; (xi) the Contingent Stock Agreement
at any time, for any reason, ceases to be in full force and effect or is
declared to be null and void in whole or in any material part by an order,
judgment or decree of any governmental authority, or the validity or
enforceability of the Contingent Stock Agreement is contested by or on behalf
of Rouse, or Rouse renounces, or denies that it is bound by the terms of, any
material provision of the Contingent Stock Agreement; (xii) any violation or
breach of, or default under, the governing documents of any Business Unit
Entity (as defined below) occurs and (if capable of being remedied) is not
remedied within 30 consecutive days after the date on which such failure first
became known to Rouse or such Business Unit Entity, which violation, breach or
default, alone or together with all other such violations, breaches and
defaults, could reasonably be expected to have a Material Adverse Effect; or
(xiii) the failure of Rouse to obtain the Rouse Stockholder Approval prior to
July 15, 1997.
"Material Adverse Effect" means a material adverse effect on (i) the
business, operations, condition (financial or otherwise), results of
operations or prospects of Rouse, any Business Unit Entity or any Business
Unit (but excluding the effects of economic, regulatory, tax and other matters
of general applicability or matters affecting real estate or the real estate
markets ("Independent Factors")) (ii) Rouse's ability to perform its
obligations under the Contingent Stock Agreement, (iii) the value,
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condition or marketability of any material assets of any Business Unit (but
excluding the effects of Independent Factors), (iv) the validity, legality or
enforceability of the Contingent Stock Agreement, (v) the ability of any
Holder to exercise or enforce any of its rights, powers or remedies under the
Contingent Stock Agreement or (vi) the ability of any Representative or any
member of the Review Committee to perform any of its duties or obligations or
enforce any of its rights, power or remedies under the Contingent Stock
Agreement.
If an Event of Default shall have occurred and be continuing (other than any
Event of Default applicable under the circumstances described in the following
paragraph), the Representatives may, by notice in writing delivered to Rouse,
accelerate the Valuation Date for the Business Units and (i) accelerate
Rouse's obligation to deliver Contingent Shares in connection therewith or
(ii) require Rouse, in satisfaction of its obligation to deliver Contingent
Shares thereafter, to issue and deliver to the Holders an aggregate number of
Contingent Preferred Shares (including fractional shares) determined by
dividing (A) the aggregate number of Contingent Shares which would otherwise
be delivered to the Holders pursuant to clause (i) by (B) the quotient of (1)
$100 divided by (2) the Current Share Value as of the date of such notice.
Upon receipt of such notice, Rouse shall cause the appraisals described in
"THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--Distributions of
Contingent Shares Based Upon Appraised Value" to be initiated and completed as
soon as practicable as of the Calculation Date for the most recent Computation
Period ended on or before the date of such notice, and Rouse will be obligated
to deliver such Contingent Shares or Contingent Preferred Shares, as
applicable, as soon as practicable and in any event within 15 days after the
completion of such appraisals.
If (i) but for the provisions described under "THE CONTINGENT STOCK
AGREEMENT; THE CONTRACTUAL RIGHTS--Limitation on Covenants and Agreements," an
Event of Default described in clause (iii) of the definition thereof would
have occurred and be continuing with respect to any Business Unit Entity
solely on account of the non-performance by Rouse of any of its covenants
relating to compliance with laws, payment of taxes and claims, maintenance of
insurance and preservation of corporate existence, as such covenant relates to
such Business Unit Entity and (ii) in connection with such circumstances, (A)
Rouse shall have determined in good faith that it would neither be
commercially reasonable nor in the best interests of Rouse and the Holders for
Rouse to take, or cause to be taken, the actions necessary to avoid such non-
performance and (B) Rouse shall have given prior written notice of such non-
performance to the Representatives, then the Representatives may, by notice in
writing delivered to Rouse, (1) accelerate Rouse's obligation to deliver
Contingent Shares with respect to the assets of the Business Unit to which
such non-performance relates or (2) require Rouse, in satisfaction of its
obligation to deliver Contingent Shares thereafter with respect to the assets
comprising the Business Unit to which such non-performance relates, to issue
and deliver to the Holders an aggregate number of Contingent Preferred Shares
(including fractional shares) determined by dividing (x) the aggregate number
of Contingent Shares which would otherwise be delivered to the Holders under
clause (1) above by (y) the quotient of (I) $100 divided by (II) the Current
Share Value as of the date of such notice. Upon receipt of such notice, Rouse
shall cause the appraisals described in "THE CONTINGENT STOCK AGREEMENT; THE
CONTRACTUAL RIGHTS--Distributions of Contingent Shares Based Upon Appraised
Value" to be initiated and completed with respect to such assets as soon as
practicable as of the Calculation Date for the most recent Computation Period
ended on or before the date of such notice, and Rouse will be obligated to
deliver such Contingent Shares or Contingent Preferred Shares, as soon as
practicable and in any event within 15 days after the completion of such
appraisals; provided, however, that in connection with any appraisal conducted
pursuant to this paragraph, the Appraisal Panel will be instructed to
determine the Fair Market Value of the relevant assets as if no person is
required to make any additional contribution to the capital of, or investment
in, or loan or advance in respect of, such assets.
If any foreclosure on, or the exercise of any similar remedy with respect
to, any of the assets comprising any Business Unit shall occur or (i) an Event
of Default described in clause (v), (vi), (vii),
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(viii), (ix) or (x) of the definition thereof shall have occurred and be
continuing with respect to any Business Unit Entity other than HHPLP, as if
such clauses applied to each such Business Unit Entity instead of Rouse and
HHPLP and (ii) if, in connection with such Event of Default, (A) Rouse shall
have determined in good faith that it would neither be commercially reasonable
nor in the best interests of Rouse and the Holders for Rouse to take, or cause
to be taken, the actions necessary to avoid such Event of Default and (B)
Rouse shall have given prior written notice of such Event of Default to the
Representatives, then, in any such event the Representatives may, by notice in
writing delivered to Rouse, (1) accelerate Rouse's obligation to deliver
Contingent Shares with respect to any assets of any Business Unit which are
owned by such Business Unit Entity or (2) require Rouse, in satisfaction of
Rouse's obligation to deliver Contingent Shares thereafter with respect to any
assets comprising any Business Unit which are owned by such Business Unit
Entity, to issue and deliver to the Holders an aggregate number of Contingent
Preferred Shares (including fractional shares) determined by dividing (x) the
aggregate number of Contingent Shares which would otherwise be delivered to
the Holders under clause (1) above by (y) the quotient of (I) $100 divided by
(II) the Current Share Value as of the date of such notice. Upon receipt of
such notice, Rouse shall cause the appraisals described in "THE CONTINGENT
STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--Distributions of Contingent Shares
Based Upon Appraised Value" to be initiated and completed with respect to such
assets as soon as practicable as of the Calculation Date for the most recent
Computation Period ended on or before the date of such notice, and Rouse will
be obligated to deliver such Contingent Shares or Contingent Preferred Shares,
as soon as practicable and in any event within 15 days after the completion of
such appraisals; provided, however, that in connection with any appraisal
conducted pursuant to this paragraph, the Appraisal Panel will be instructed
to determine the Fair Market Value of the relevant assets as if no person is
required to make any additional contribution to the capital of, or investment
in, or loan or advance in respect of, such assets.
COVENANTS OF ROUSE AND THE BUSINESS UNIT ENTITIES
During the Earnout Period for each Business Unit , Rouse will cause the
assets of such Business Unit to be maintained at all times in (i) HHPLP or
(ii) with the prior written consent of the Representatives, a separate
partnership or corporation directly or indirectly wholly owned by Rouse (each,
a "Business Unit Entity"). During the Earnout Period, the assets of the
Business Units will be developed and operated separately from other assets of
Rouse.
Under the Contingent Stock Agreement, without the prior written consent of a
majority of the members of the Review Committee, Rouse shall not permit or
cause any Business Unit Entity to, directly or indirectly: (i) transfer in
bulk more than 500 acres of real estate comprising any Business Unit; (ii)
borrow or otherwise become obligated in respect of any indebtedness in excess
of (A) $10,000,000 with respect to the General Business Unit, (B) $5,000,000
with respect to the Howard Hughes Center Business Unit, (C) zero with respect
to the Playa Vista Business Unit or (D) $75,000,000 plus the amount of any
special improvement district financings with respect to the Summerlin Business
Unit; (iii) create, incur or permit to exist any lien upon any of the assets
comprising any Business Unit (other than permitted encumbrances), except in
connection with a financing where the proceeds of such financing will be used
exclusively for the development or operation of such assets; (iv) engage in
the development of amenities in connection with the assets comprising any
Business Unit where the reasonably anticipated costs and expenses of such
development will exceed $10,000,000 (other than infrastructure required by law
or pursuant to any governmental approval in order to permit development which
would not otherwise be subject to Review Committee approval); (v) make any
premature infrastructure expenditures or any other infrastructure expenditures
which are excessive when considered in light of the projected schedule for
development of the assets of the Business Unit to which such infrastructure
relates; (vi) consolidate with or merge into any person or permit any person
to consolidate with or merge into such Business Unit Entity, sell all or
substantially all of the assets comprising any Business Unit or dissolve or
liquidate; or
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(vii) generally not pay, or admit in writing its inability to pay, its debts
as they mature, make a general assignment for the benefit of creditors,
institute any proceeding under any debtor relief law seeking to adjudicate
itself insolvent, seeking liquidation, winding-up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts,
or seeking the entry of an order for relief or the appointment of a receiver,
trustee or other similar official for it or for any substantial part of its
assets, or take any action similar official for it or for any substantial part
of its assets, or any action in furtherance of any such actions or, in any
involuntary proceeding under any debtor relief law, by any act indicate its
approval of such proceedings, its consent thereto or its acquiescence therein.
In addition, without the prior consent of majority of the members of the
Review Committee, Rouse shall not, and shall not permit or cause any Business
Unit Entity to, directly or indirectly: (i) permit any assets comprising any
Business Unit to be subject to the claims of creditors of Rouse, any Business
Unit Entity or any of their respective affiliates except for (A) claims
arising directly from the operation or ownership of such assets in the
ordinary course of business in compliance with the provisions of the
Contingent Stock Agreement and (B) claims of any person that is not an
Associate of Rouse or any Business Unit Entity (other than persons that are
Associates of Rouse or any Business Unit Entity solely due to the contractual
relationships under the applicable contract), arising under any contract
pursuant to which such person provides products or services to (x) the
applicable Business Unit Entity in connection with the assets comprising such
Business Unit and (y) Rouse, any other Business Unit Entity or such Business
Unit Entity in connection with its other operations, or any of their
respective affiliates, and other claims arising by operation of law, to the
extent that such claims are being contested in good faith by appropriate
proceedings promptly initiated and diligently conducted, but only if adequate
reserves have been established on the books of Rouse in connection with such
claims in accordance with generally accepted accounting principles; (ii) enter
into or permit to exist any contract, including any financing agreement or
arrangement, joint venture agreement or partnership agreement, which precludes
or places any material conditions or restrictions on the rights or ability of
Rouse or any Business Unit Entity to (A) make any payment or transfer or
perform any act required under the terms of the Contingent Stock Agreement or
(B) manage or develop the assets comprising any Business Unit in the ordinary
course, including pursuant to any non-competition covenant, restriction on
capital expenditures or indebtedness or restriction on transactions with
affiliates contained in any such contract; (iii) enter into any transaction
with any of its subsidiaries, affiliates or Associates (other than persons
that will become Associates solely as a result of such transaction) which (A)
involves any of the Business Units or any of the assets comprising any
Business Unit, other than transactions entered into the ordinary course of
business on terms no less favorable than those that could be obtained in an
arm's-length transaction with a person that is not an Associate of Rouse or
any Business Unit Entity, or (B) could reasonably be expected to result in a
material adverse effect on (1) Rouse's ability to perform its obligations
under the Contingent Stock Agreement, (2) the value, condition or
marketability of any assets comprising any Business Unit, (3) the validity,
legality, or enforceability of the Contingent Stock Agreement, (4) the ability
of any Holder to exercise or enforce any of its rights, powers or remedies
under the Contingent Stock Agreement or (5) the ability of any Representative
or any member of the Review Committee to perform any of his or her duties or
obligations, or to exercise or enforce any of his or her rights, powers or
remedies, under the Contingent Stock Agreement; or (iv) enter into any
transaction involving competition in any material respect with any Business
Unit or the assets comprising any Business Unit; provided, however, that the
purchase by Rouse from HHPLP of certain assets of the Summerlin Business Unit
for the purpose of constructing and operating for the foreseeable future a
regional shopping mall and entertainment complex thereon will not, in and of
itself, be deemed to involve competition between Rouse and the Summerlin
Business Unit.
Notwithstanding the foregoing, no transaction described in the two preceding
paragraphs shall require the consent of the Review Committee if and to the
extent that such transaction has been duly approved by the THC Board prior to
the Effective Time; provided, however, that any such transaction
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which is described in clause (ii) of the second preceding paragraph shall be
taken into account in determining whether the applicable Business Unit has
borrowed or otherwise become obligated with respect to indebtedness in excess
of the relevant amount.
Under the Contingent Stock Agreement, Rouse acknowledges and agrees that it
is accountable as a fiduciary to the Holders and their respective executors,
personal representatives, administrators, successors, heirs, distributees,
devisees, legatees and permitted assigns, which fiduciary duty shall be the
same as the fiduciary duty owed by a director of a corporation to the
stockholders of such corporation. Without limitation of the foregoing, Rouse
shall, and shall cause each Business Unit Entity to, (i) exercise reasonable
care and act with good faith and integrity in managing and operating the
Business Units and the assets comprising the Business Units and (ii) deal with
the Holders and the Representatives fairly and in good faith.
LIMITATION ON COVENANTS AND AGREEMENTS
Except as described under "THE CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL
RIGHTS--Capitalization of Business Units," no obligation or covenant imposed
by the Contingent Stock Agreement shall be construed to obligate Rouse or any
of its subsidiaries in any way to make loans to, advance funds to, invest
additional capital in or extend its credit in order to obtain financing for,
or provide working capital for, any Business Unit or any Business Unit Entity,
except in its sole and absolute discretion. Rouse makes no representation or
warranty that the operation of any Business Unit or any portion of the assets
of any Business Unit shall be profitable or that any Business Unit will have
receipts sufficient to obligate Rouse to deliver Contingent Shares under the
Contingent Stock Agreement.
CAPITALIZATION OF BUSINESS UNITS
Except as described below, Rouse and its subsidiaries have no obligation to
provide funds to any Business Unit in connection with the conduct of the
business and operations of such Business Unit.
PLAYA VISTA. To the extent that HHPLP (or any Business Unit Entity
succeeding to the interests of HHPLP in the assets of the Playa Vista Business
Unit), together with Maguire Thomas Partners/JMB Associates and Maguire Thomas
Partners/JMB Area C Associates (collectively, the "PV General Partners"),
determine to contribute additional capital to either of the PV Partnerships,
Rouse will make contributions on behalf of HHPLP in an amount not to exceed
$15,000,000 (the "Funding Requirement"); provided that Rouse will not be
obligated to make any such contribution unless (i) with respect to all or any
portion of the first $10,000,000 of the Funding Requirement, a majority of the
members of the Review Committee determine that Rouse should make such
contribution and (ii) with respect to all or any portion of the Funding
Requirement in excess of $10,000,000, all of the members of the Review
Committee determine that Rouse should make such contribution. Any capital
contributions made to the PV Partnerships during the period commencing on
January 1, 1996 to and including the Effective Time will be deemed to have
been made by Rouse. If Rouse funds less than $10,000,000 pursuant to the
Funding Requirement, on or before the tenth day after the Termination Date (as
defined below), the Business Unit Account for the Playa Vista Business Unit
will be credited with an amount equal to the sum of (A) $10,000,000 minus the
amount of the Hughes Funding plus (B) a 7% per annum return, compounded semi-
annually, on such amount from the date of the Contingent Stock Agreement to
date such amount is credited to the Business Unit Account for the Playa Vista
Business Unit. "Termination Date" means the date of consummation of the Playa
Vista Financings (as defined in the Contingent Stock Agreement) (see "THE
HUGHES CORPORATION--Los Angeles Properties--Playa Vista") or, if such
financings are not consummated, at such time as the agreements, if any,
between HHPLP and Maguire Thomas Partners for mutually agreed capital
commitments expire or are terminated.
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OTHER BUSINESS UNITS. From the Effective Time until nine months after the
Effective Time, Rouse shall, from time to time make a loan or loans to the
Business Unit Entities owning the assets of the General Business Unit, the
Howard Hughes Center Business Unit and the Summerlin Business Unit, on a
revolving credit basis, in an aggregate principal amount not at any time
exceeding $25,000,000 (the "Revolving Credit Loans"); provided, however, that
if, on the date which is nine months after the date on which the Effective
Time occurs (the "Effective Date"), the unutilized portion of the commitment
under the working capital component of the Bank of America credit facility
currently available to HHPLP, or any replacement facility, is less than
$20,000,000, then Rouse shall continue to, from time to time, make Revolving
Credit Loans to such Business Unit Entities until the date which is two years
after the Effective Date, in an aggregate principal amount not at any time
exceeding $20,000,000 minus the unutilized portion of such commitment on the
date which is nine months after the Effective Date. In no event will Rouse be
obligated to make loans unless the applicable Business Unit Entity could not
reasonably be expected to obtain funds for working capital requirements
through borrowing from a financial institution on commercially reasonable
terms. The proceeds of each Revolving Credit Loan will be used solely (i) for
working capital purposes of the relevant Business Unit and (ii) in connection
with the operation of the relevant Business Unit. If the aggregate working
capital requirements of two or more Business Units exceed $25,000,000 at any
time, the Revolving Credit Loans may be allocated by Rouse among such Business
Units as Rouse reasonably determines in good faith.
On each Calculation Date occurring while any Revolving Credit Loan is
outstanding, the working capital needs of the General Business Unit, the
Howard Hughes Center Business Unit and the Summerlin Business Unit will be
reviewed. If Excess Cash Flow exceeds funds required by a Business Unit for
working capital purposes, such excess shall be used to repay outstanding
amounts under Revolving Credit Loans made for the account of such Business
Unit, and thereafter to repay outstanding amounts under Revolving Credit Loans
made for the account of other Business Units. To the extent that a Revolving
Credit Loan made for the account of a Business Unit is paid for the account of
a different Business Unit, such payment shall constitute an Advance (as
defined below) by the Business Unit for whose account such payment was made to
the Business Unit for whose account such Revolving Credit Loan was borrowed
and a payment by the Business Unit Entity for whose account such Revolving
Credit Loan was borrowed to Rouse.
LOANS AND ADVANCES
Rouse may, at its option, make loans and advances to any Business Unit
Entity for the account of any Business Unit from time to time for the sole
purpose of providing working capital and other funds for use in connection
with such Business Unit as contemplated by the Contingent Stock Agreement
(each a "Loan"); provided, however, that prior to making any Loan, Rouse will
pay or cause to be paid in cash any payables owed to such Business Unit by
Rouse or any affiliate of Rouse, irrespective of whether the same are due and
payable. To the extent that any Business Unit requires funds for such
purposes, Rouse may, at its option, (i) cause the applicable Business Unit
Entity to borrow such funds for the account of such Business Unit from a
financial institution on commercially reasonable terms or (ii) make a Loan to
such Business Unit Entity for the account of such Business Unit on arm's
length terms provided that if such Business Unit Entity could not reasonably
be expected to obtain such funds through a borrowing from a financial
institution at a per annum interest rate of less than 15%, than such Loan
shall accrue interest at the rate of 15% per annum.
If (i) any Business Unit has insufficient funds for working capital
purposes; (ii) Rouse is not obligated to make a Revolving Credit Loan to the
applicable Business Unit Entity; (iii) third party financing to fund such
working capital requirements is unavailable to such Business Unit Entity; and
(iv) Rouse elects not to make a Loan to such Business Unit Entity for the
account of such Business Unit, such Business Unit Entity or any other Business
Unit Entity may, with the unanimous consent of
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the Review Committee, loan funds to such Business Unit from any other Business
Unit (each such loan, an "Advance"); provided, however, that prior to any
Advance being made to such Business Unit, Rouse will pay or cause to be paid
in cash any payables owed to such Business Unit by Rouse or any affiliate of
Rouse, irrespective of whether the same are due and payable. Advances shall
not bear any interest and shall be repaid by the recipient Business Unit to
the Business Unit making such Advance on each Calculation Date thereafter, to
the extent that the Excess Cash Flow of such Business Unit as of such
Calculation Date exceeds its working capital requirements after giving effect
to any payments required to be made to Rouse in respect of Revolving Credit
Loans. The proceeds of an Advance are deemed to be a receipt by the Business
Unit receiving such Advance and an expenditure by the Business Unit making
such Advance for purposes of determining Excess Cash Flow for such Business
Units for the Computation Period during which such Advance is made.
ABANDONMENT OF ASSETS
If (i) Rouse, in its good faith judgment, determines, based upon reasonable
assumptions and after consultation with the Review Committee, that the
continued ownership and operation of any Business Unit would be neither
profitable to nor in the best interests of Rouse and the Holders; (ii) Rouse
is not obligated to make a Revolving Credit Loan to the applicable Business
Unit Entity; (iii) third party financing to fund the cash requirements of such
Business Unit is unavailable to the applicable Business Unit Entity; (iv)
Rouse is unwilling to make a Loan to the applicable Business Unit Entity in
connection with such Business Unit; and (v) the Review Committee has rejected
a request to have another Business Unit make an Advance to such Business Unit,
then Rouse may cease to operate such Business Unit; provided, however, that
prior to any such cessation, Rouse shall (A) unless otherwise consented to by
the Representatives, use commercially reasonable efforts for a period of at
least 12 months to market and sell or lease the assets of such Business Unit
and (B) if no potential purchaser or lessee for any of such assets exists as
of the last day of such period, Rouse shall, unless otherwise consented to by
the Representatives, sell any such assets at a public auction, for cash or
credit, at the highest price bid for such assets at such auction.
BOARD REPRESENTATION
From the date of the Contingent Stock Agreement until the earlier to occur
of (i) the first day on which the Holders will no longer own, beneficially or
of record, at least 5% of the outstanding shares of Rouse Common Stock and
(ii) the expiration of ten years from the date of the Contingent Stock
Agreement, the Representatives will be entitled to designate an individual for
election to the Board of Directors of Rouse; provided, however, that such
individual is reasonably acceptable to Rouse at the time of his other initial
designation. Pursuant to the terms of the THC Merger Agreement, in accordance
with its bylaws, the Board of Directors of Rouse, at its February 22, 1996
meeting, determined to increase the size of its Board of Directors by one and
to fill the vacancy created by such increase by the election of the Holders'
Designee (i.e., William R. Lummis), which election will be effective as of the
Effective Time. See "MANAGEMENT OF ROUSE--Addition of Director and Executive
Officer as a Result of the Mergers." Such Holders' Designee shall serve until
the first annual meeting of the stockholders of Rouse following the Effective
Time and until his or her successor shall be duly elected and qualified or
until his or her death, disability, removal or resignation.
So long as the Representatives possess the right of designation described
above, Rouse will nominate (or will cause to be nominated) for election at
each annual meeting of the stockholders of Rouse after the Effective Time, the
incumbent Holders' Designee or such other individual as the Representatives
may designate; provided, however, that such other individual is reasonably
acceptable to Rouse at the time of his or her initial designation.
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So long as the Representatives possess the right of designation described
above, if the Holders' Designee should die, become disabled, be removed,
retire or resign during the term of his or her office, the Representatives
will be entitled to designate a successor Holders' Designee reasonably
acceptable to Rouse at the time of his or her initial designation, in which
event Rouse will cause such successor Holders' Designee to be promptly elected
as a member of the Board of Directors of Rouse to fill the vacancy created by
such death, disability, removal, retirement or resignation. So long as the
Representative possess the right of designation described above, without the
prior written consent of the Representatives (which consent will not be
unreasonably withheld), neither Rouse nor its Board of Directors will (i)
recommend that the Holders' Designee be removed by the stockholders of Rouse
or (ii) fail to recommend any incumbent Holders' Designee for re-election.
REPRESENTATIONS AND WARRANTIES
Rouse makes certain representations and warranties in the Contingent Stock
Agreement relating to, among other things: (i) organization and qualification
to do business; (ii) authorization, execution, delivery, performance and
enforceability of the Contingent Stock Agreement and the absence of conflicts,
violations and defaults as a result thereof under charters and bylaws,
statutes, rules and regulations, judgments, orders and decrees and certain
agreements; (iii) receipt of all necessary approvals and consents from
governmental authorities; (iv) due authorization and valid issuance of the
Contingent Shares and Contingent Preferred Shares at the time of issuance; (v)
free tradeability of the Contingent Shares upon receipt; (vi) effectiveness of
the Registration Statement (of which this Proxy Statement/Prospectus
constitutes a part); (vii) registration of the Contingent Shares and the
Contingent Preferred Shares under state securities laws; (viii) absence of
certain claims, demands or proceedings; (ix) absence of any judgments, orders,
injunctions or decrees that would have a material adverse effect on Rouse's
ability to perform its obligations under the Contingent Stock Agreement, the
value or marketability of the assets of the Business Units and other matters;
and (x) accuracy and completeness of any factual information provided by Rouse
or any Business Unit to the Holders or their agents.
FINANCIAL AND OTHER INFORMATION TO BE PROVIDED BY ROUSE
Rouse is required to furnish to the Review Committee and the Representatives
as soon as available (and in any event not later than 60 days) after the end
of each Computation Period: (i) a report prepared and certified by an
authorized officer with respect to each Business Unit, prepared as of the last
day of such Computation Period, setting forth the amount and purpose of each
reserve established and/or maintained by Rouse or any Business Unit Entity
with respect to any of the Business Units accompanied by a certificate of such
authorized officer stating (A) that all such reserves comply with and satisfy
the definition of "Reserve" contained in the Contingent Stock Agreement and
(B) whether or not during or at the end of such Computation Period any Event
of Default existed and, if any Event of Default existed, specifying the nature
and period of existence thereof and what action Rouse or such Business Unit
Entity has taken, is taking or proposes to take with respect thereto; (ii) a
report prepared and certified by an authorized officer with respect to each
Business Unit, prepared as of the last day of such Computation Period (A)
specifying (1) receipts received by Rouse, any Business Unit Entity or any of
their respective subsidiaries during such Computation Period with respect to
such Business Unit and the aggregate amount of receipts received by Rouse, any
Business Unit Entity or any of their respective subsidiaries during the period
from the effective date of the Contingent Stock Agreement to and including the
last day of such Computation Period with respect to such Business Unit, (2)
expenditures incurred by Rouse, any Business Unit Entity or any of their
respective subsidiaries during such Computation Period with respect to such
Business Unit and the aggregate amount of any and all expenditures incurred by
Rouse, any Business Unit Entity or any of their respective subsidiaries during
the period from the effective date of the Contingent Stock Agreement to and
including the last day of such Computation Period with respect to such
Business Unit and (3) the
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amount of Excess Cash Flow with respect to such Business Unit as of the last
day of such Computation Period and the aggregate amount of Excess Cash Flow
during the period from the effective date the of the Contingent Stock
Agreement to and including the last day of such Computation Period with
respect to such Business Unit and (B) showing in reasonable detail the manner
in which such amounts were calculated; and (iii) except after the last
Computation Period of any calendar year, an operating statement with respect
to each Business Unit for such Computation Period and the portion of the
calendar year then ended, together with a certificate of an authorized officer
stating that such operating statement has been prepared (A) in accordance with
generally accepted accounting principles and (B) using such allocations,
conventions and methods as are consistent with generally accepted accounting
principles and have been consistently utilized by Rouse or the applicable
Business Unit Entity with respect to such Business Unit.
Rouse is required to furnish to the Review Committee and the Representatives
as soon as available (and in any event not later than 120 days) after the end
of each calendar year, an operating statement with respect to each Business
Unit for such calendar year, together with a certificate of an authorized
officer stating that such operating statement has been prepared (i) in
accordance with generally accepted accounting principles and (ii) using such
allocations, conventions and methods as are consistent with generally accepted
accounting principles and have been consistently utilized by Rouse or the
applicable Business Unit Entity with respect to such Business Unit.
In addition, Rouse is required to provide the Review Committee and the
Representatives with prompt notice of (i) the occurrence of any Event of
Default and any proposed action with respect thereto, (ii) any violation of
any licenses, permits, registrations, exemptions, franchises or other
authorizations or consents obtained from governmental authorities in
connection with the Business Units and any amendment or revocation thereof if
such violation or amendment or revocation could reasonably be expected to have
a Material Adverse Effect, (iii) any violation of, or noncompliance with
remedial obligations under, any environmental statute to which the Business
Units or any of their assets are subject or any contamination of the
environment if such violation or contamination could reasonably be expected to
have a Material Adverse Effect, (iv) the existence of any claim, demand or
proceeding with respect to matters (including violations of environmental
statutes and releases of hazardous materials into the environment) affecting
any Business Unit if such claim, demand or proceeding could reasonably be
expected to have a Material Adverse Effect and (v) the incurrence of any lien
(or the taking of any action leading thereto) on the assets of any Business
Unit if such lien could reasonably be expected to have a Material Adverse
Effect. Rouse will also provide the Review Committee and the Representatives
with (i) copies of all periodic reports, proxy statements and registration
statements that it files with the Commission or any national securities
exchange, and (ii) copies of all press releases and other written statements
it makes available to the public relating to the Business Units or any of
their assets or to any event, circumstance or condition which could reasonably
be expected to have a Material Adverse Effect.
CONSOLIDATION AND MERGERS; SUCCESSORS
Rouse will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of Rouse, by agreement in form and substance reasonably
acceptable to the Representatives, to expressly assume and agree to perform
the Contingent Stock Agreement in the same manner and to the same extent that
Rouse would be required to perform it if no such succession had taken place.
In the Contingent Stock Agreement, Rouse acknowledges that such agreement
and the rights of the Holders thereunder (including (i) the right of the
Holders to receive securities which are freely tradeable and readily
marketable and (ii) the non-taxable receipt by the Holders of Rouse Common
Stock pursuant to the THC Merger and of Contingent Shares or Contingent
Preferred Shares
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thereunder) are of major importance to the Holders and that each Holder is
justified in believing and assuming that Rouse will not voluntarily undertake
or complete any Prohibited Transaction (as defined below) and Rouse agrees
that, without the prior written consent of the Majority Holders (as defined
below), it will not undertake or complete any Prohibited Transaction.
"Prohibited Transaction" means (A) any reorganization of Rouse or any
consolidation or merger of Rouse with or into another entity, (B) any
recapitalization, reclassification or change in the capital structure of
Rouse, (C) any partial or complete liquidation, dissolution or winding up of
the affairs of Rouse or (D) any other transaction or event if, in any such
case and for any reason, (1) Rouse or any successor to Rouse shall be
incapable of, or restricted or prohibited from, delivering (on a timely basis)
freely tradeable and readily marketable securities comparable to the
Contingent Shares or the Contingent Preferred Shares (as applicable) or (2)
such transaction or event could reasonably be expected to have a prejudicial
effect on the Holders with respect to their non-taxable receipt of securities
pursuant to the THC Merger Agreement or the Contingent Stock Agreement.
In the event Rouse desires to implement any transaction of the type
described in clauses (A) through (D) of the preceding paragraph which Rouse
has concluded, in good faith, does not constitute a Prohibited Transaction (a
"Proposed Transaction"), Rouse shall, as soon as practicable prior to the
implementation of the Proposed Transaction, give written notice to the
Representatives describing the Proposed Transaction in reasonable detail and
setting forth Rouse's conclusion that the Proposed Transaction does not
constitute a Prohibited Transaction and the reasons therefor. Such notice may
also contain a request that the Representatives agree with the conclusion set
forth therein. Upon receipt of any such request, the Representatives shall
consider the same in good faith and shall be authorized (but not obligated) to
agree, on behalf of the Holders, with Rouse's conclusion that the Proposed
Transaction does not constitute a Prohibited Transaction. Any such agreement
of the Representatives (i) shall be in writing, (ii) shall be limited to the
Proposed Transaction in question and shall not extend or apply to any other
transaction or event and (iii) may be conditioned upon and subject to the
execution and delivery to the Representatives of one or more instruments in
writing designed to fairly and equitably protect the rights, privileges,
interests and remedies of the Holders and the Representatives against one or
more effects of the Proposed Transaction. Moreover, each such agreement of the
Representatives shall be binding upon the Holders and, in the absence of fraud
or bad faith, Rouse shall be fully protected in acting in accordance with such
agreement.
DISPUTE RESOLUTION
In the event of any dispute between Rouse, on the one hand, and the
Representatives, on the other hand, with respect to any matter covered by the
Contingent Stock Agreement, Rouse and the Representatives (the "Disputants")
shall first use their best efforts to resolve such dispute between themselves.
If the Disputants are unable to resolve the dispute within 15 days, they agree
to submit the dispute to mediation in accordance with the Commercial Mediation
Rules of the American Arbitration Association. The Disputants will jointly
appoint a mutually acceptable mediator, seeking assistance from the American
Arbitration Association if they are unable to agree upon such appointment
within ten days following the 15-day period referred to above. Upon
appointment of the mediator, the Disputants agree to participate in good faith
in the mediation and negotiations relating thereto for 20 days. If the
Disputants are not successful in resolving the dispute through mediation
within such 20-day period, either Disputant may submit the dispute to
arbitration. The fees and expenses of the mediator shall be borne by the non-
prevailing party or, in the event there is no clear prevailing party, as the
mediator deems appropriate. To submit a dispute to arbitration, a Disputant
must give written notice to the other Disputant, in which event the dispute
shall be settled by arbitration. The fees and expenses of the arbitrators
shall be borne by the non-prevailing Disputant or, in the event there is no
clear prevailing Disputant, as the arbitrators deem appropriate. All
arbitration conferences and hearing shall be held in Wilmington, Delaware or
at such other place as the Disputants may mutually agree.
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AMENDMENTS AND WAIVER
The Contingent Stock Agreement may not be amended, supplemented or modified,
nor may compliance by Rouse with any provision of the Contingent Stock
Agreement be waived (either generally or in a particular instance and either
retroactively or prospectively), except, in each case, by an instrument in
writing duly entered into by Rouse and all of the Representatives. Without
limitation of the foregoing, the Representatives may, without the consent of
any of the Holders, enter into one or more instruments supplemental to the
Contingent Stock Agreement as they may deem desirable in order to (i) add to
the covenants of Rouse in the Contingent Stock Agreement, (ii) surrender any
right or power conferred upon Rouse by the Contingent Stock Agreement, (iii)
evidence any succession of any person to Rouse and the assumption by such
successor of the covenants of Rouse contained in the Contingent Stock
Agreement, (iv) cure any ambiguity in (or cure, correct or supplement any
defective provision of) the Contingent Stock Agreement in such manner as shall
not be inconsistent with the Contingent Stock Agreement or adversely affect
the rights, privileges or remedies of the Holders under the Contingent Stock
Agreement. Notwithstanding the foregoing, no such amendment, supplement,
modification or waiver will be effective:
(A) except as provided in clause (B) below, without the prior written
consent of Holders whose combined Percentage Interests represent more than
50% of the Percentage Interests of all Holders (excluding Rouse, its
subsidiaries and affiliates (the "Majority Holders"), if such amendment,
supplement, modification or waiver would (1) add any provision to the
Contingent Stock Agreement, change in any manner or eliminate any of the
provisions of the Contingent Stock Agreement or modify in any respect the
rights of the Holders under the Contingent Stock Agreement, in each case if
such addition, change, elimination or modification would materially and
adversely affect the rights, privileges or remedies of the Holders under
the Contingent Stock Agreement or (2) waive any Event of Default;
(B) without the prior written consent of all the Holders, if such
amendment, supplement, modification or waiver would (1) change the amount
of, or times for the delivery of, Contingent Shares or Contingent Preferred
Shares to be delivered by Rouse under the Contingent Stock Agreement in a
manner adverse to the Holders, (2) change the Valuation Date of any
Business Unit, (3) reduce the Percentage Interest of any Holder (other than
due to an assignment to a permitted assignee), (4) substitute any equity
interest for the Contingent Shares or Contingent Preferred Shares required
to be delivered by Rouse under the Contingent Stock Agreement (unless
otherwise specifically permitted in the Contingent Stock Agreement), (5)
waive any Event of Default under clause (ii) of the definition thereof or
(6) change the provisions of the Contingent Stock Agreement with respect to
amendments, supplements, modifications and waivers (except to increase any
percentage required to approve any such amendment, supplement, modification
or waiver or to provide that certain other provisions of the Contingent
Stock Agreement cannot be amended, supplemented, modified or waived without
the consent of all of the Holders affected thereby);
(C) without the prior written consent of all members of the Review
Committee, if such amendment, supplement, modification or waiver would
adversely affect the rights, duties or immunities of the members of the
Review Committee under the Contingent Stock Agreement; or
(D) without the prior written consent of all of the Representatives, if
such amendment, supplement, modification or waiver would adversely affect
the rights, duties or immunities of the Representatives under the
Contingent Stock Agreement.
Notwithstanding anything to the contrary contained in the Contingent Stock
Agreement, Article V of the Contingent Stock Agreement (relating to the
Representatives) may be amended, supplemented or modified at any time solely
by an instrument in writing signed (x) by the Representatives with the consent
of the Majority Holders and (y) if and to the extent that such amendment,
modification or supplement would in any way be prejudicial to Rouse, by Rouse.
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SELECTED FINANCIAL DATA OF ROUSE
The following table sets forth certain selected financial information of
Rouse as of and for each of the years in the five year period ended December
31, 1995. Such selected financial information has been derived from the
audited consolidated financial statements of Rouse which, for each year in
such five-year period, have been audited by KPMG Peat Marwick LLP, independent
accountants. The following financial information should be read in conjunction
with Rouse's Consolidated Financial Statements and Notes thereto and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ROUSE" included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULT DATA:
Revenues from
continuing
operations............ $ 672,821 $ 671,171 $ 646,805 $ 597,105 $ 573,498
Earnings (loss) from
continuing
operations............ 5,850 6,606 (1,291) (15,849) 2,424
Earnings (loss) from
continuing operations
applicable to common
shareholders per share
of common stock....... (.18) (.14) (.27) (.33) .05
BALANCE SHEET DATA:
Total assets-cost
basis................. 2,985,609 2,915,860 2,874,982 2,726,281 2,637,452
Total assets-current
value basis........... 4,852,403 4,736,961 4,588,636 4,217,819 4,174,093
Debt and capital
leases................ 2,538,315 2,532,920 2,473,596 2,498,983 2,374,527
Shareholders' equity
(deficit):
Historical cost basis.. 42,584 95,026 113,151 (34,848) 17,328
Current value basis.... 1,539,155 1,614,245 1,525,606 1,188,896 1,274,070
Shareholders' equity
(deficit) per share of
common stock:
Historical cost basis
(1)................... .73 1.63 1.98 (.74) .36
Current value basis
(1)................... 26.30 27.75 26.75 25.50 26.60
OTHER SELECTED DATA:
Earnings before
depreciation and
deferred taxes from
operations (EBDT)
(2)................... 108,360 94,710 78,281 52,282 46,820
Net cash provided by
(used in):
Operating activities... 107,001 113,775 101,149 66,630 67,226
Investing activities... (64,995) (178,551) (154,446) (144,836) (96,210)
Financing activities... 3,518 40,618 47,068 98,914 17,271
Ratio of earnings to
combined fixed charges
and Preferred stock
dividend requirements
(3)(4)................ -- -- -- -- --
Cash dividends per
share of common stock
for the period........ .80 .68 .62 .60 .60
Cash dividends per
share of convertible
preferred stock for
the period............ 3.25 3.25 2.83 -- --
Market price per share
of common stock at end
of period (5)......... 20.13 19.25 17.75 18.00 18.25
Market price per share
of convertible
Preferred stock at end
of period............. 51.63 48.50 53.75 -- --
Weighted average common
shares outstanding.... 47,814 47,565 47,411 47,994 48,157
Number of common shares
outstanding at end of
period................ 47,923 47,571 47,562 47,292 48,193
Number of convertible
Preferred shares
outstanding at end of
period................ 4,505 4,505 4,025 -- --
</TABLE>
- -------
(1) Historical cost basis shareholders' equity (deficit) per share of Rouse
Common Stock and current value basis shareholders' equity per share of
Rouse Common Stock assume the conversion of Rouse's Series A Convertible
Preferred stock.
(2) Rouse 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 and should not
be considered as an alternative to cash flows as a measure of liquidity.
However, Rouse believes that EBDT provides relevant information about its
operations and is necessary, along with net earnings (loss), for an
understanding of its operating results.
(3) 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 other than capitalized interest. Fixed
charges include interest costs, the estimated interest component of rent
expense and certain other items.
(4) Total fixed charges and Preferred stock dividend requirements exceeded
Rouse's earnings available for fixed charges and Preferred stock dividend
requirements by $14,086,000, $8,934,000, $17,722,000, $29,449,000 and
$10,347,000 for the years ended December 31, 1995, 1994, 1993, 1992, 1991,
respectively.
(5) The market price of Rouse Common Stock as of the close of business on May
13, 1996 was $23.75 per share.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ROUSE
GENERAL
Rouse's primary business is the acquisition, development and management of
income-producing real estate projects. Rouse operates a diversified portfolio
of retail centers, office buildings and mixed-use and other properties located
throughout the United States. In addition, Rouse develops and sells land for
residential, commercial and other uses, primarily in Columbia, Maryland.
Management believes that Rouse's financial position is sound and that its
liquidity and capital resources are adequate. As shown in the supplemental
current value basis financial statements, current value basis shareholders'
equity, which is an important indication of Rouse's financial strength, was
$1.54 billion at December 31, 1995, slightly down from $1.61 billion at
December 31, 1994.
Rouse has continued to achieve strong financial results in recent periods,
despite the generally difficult environment for retail businesses. Earnings
before depreciation and deferred taxes ("EBDT"), which is defined and
discussed in detail below, increased 14% in 1995 and 21% in 1994, including
increases of 12% and 19%, respectively, in EBDT from retail centers. These
results have been made possible by several factors, including strong
performances from Rouse's larger, major market retail centers, expansions of
certain retail centers and retail centers in which Rouse has acquired
ownership interests, consistently good earnings from land sales and operating
properties in Columbia, refinancing of a significant amount of project-related
debt at lower interest rates and, to a lesser extent, dispositions or
modifications of the terms of agreements relating to properties which were
incurring losses before depreciation and deferred taxes.
Management believes that the outlook is for continued satisfactory growth in
EBDT from existing properties. Prospects for growth in EBDT from land sales
and office/mixed-use properties in 1996 are good given the solid or improving
conditions in the major markets in which Rouse operates. EBDT from retail
centers is also expected to grow in 1996, although the rate of growth is
expected to slow given the continued difficult retailing environment. The
planned acquisition of THC will allow Rouse to capitalize on its existing
strengths in retail and office/mixed-use projects and large-scale land
development projects and to establish a significant presence in the fast-
growing Las Vegas market. The acquisition is scheduled to close in the second
quarter of 1996 and is expected to contribute significantly to the growth in
EBDT in 1996. For the longer term, Rouse intends to focus its development
efforts on Columbia, the assets acquired in the purchase of THC, opportunities
to expand and/or revitalize existing retail centers and projects in growing
markets which have not had excessive retail development. Rouse will also
continue to selectively dispose of retail centers that do not appear to have
future prospects consistent with Rouse's objectives, particularly smaller
centers in smaller markets. The objective is to refine and continually upgrade
the portfolio so that it is comprised of top tier properties that will produce
consistently strong increases in earnings and current values.
OPERATING RESULTS
This discussion and analysis of operating results covers each of Rouse's
four business segments as management believes that a segment analysis provides
the most effective means of understanding Rouse's business. Note 13 to the
Consolidated Financial Statements of Rouse included elsewhere in this Proxy
Statement/Prospectus should be referred to when reading this discussion.
OPERATING PROPERTIES: Rouse 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).
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Rouse'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 Rouse for most of its operating expenses. Substantially all of
Rouse'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 Rouse'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 Rouse's lenders based on
operating results and, in some instances, a share of a property's residual
value upon sale or refinancing or at maturity.
Revenues from retail properties increased $5,205,000 in 1995 and $22,877,000
in 1994. The increase in 1995 was attributable to the operations of expansions
opened in August 1994 and March 1995, higher effective rents on re-leased
space and purchases of ownership interests in two retail centers. These
increases were partially offset by the effects of lower average occupancy
(90.9% in 1995 compared to 92.3% in 1994), lower recoveries of operating
expenses due to expense reduction efforts, and dispositions of interests in
properties in the first quarter of 1994 and second quarter of 1995. The
increase in 1994 was attributable to the operations of expansions opened in
1994, a full year of operations of expansions opened and properties acquired
in 1993 and higher effective rents on re-leased space. The increase was also
due to higher occupancy levels at Rouse's larger, major market retail centers
and increased lease cancellation payments received as a result of tenant
restructurings or downsizings. These increases were partially offset by the
disposition of a retail center in the first quarter of 1994.
Total operating and interest expenses for retail properties decreased
$7,661,000 in 1995 and increased $8,965,000 in 1994. The decrease in 1995 was
attributable primarily to the effects of lower average occupancy levels, lower
operating expenses due to expense reduction efforts, lower bad debt expenses
due to recoveries of amounts previously reserved, the dispositions referred to
above and reductions in interest expense due to debt repayments and
refinancings completed in 1994 and early 1995 at certain properties. These
decreases were partially offset by increases in expenses associated with the
operations and financing of the properties opened or acquired referred to
above. 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 Rouse'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 to lower
interest expense on fixed rate property debt due to debt repayments and
refinancings at certain properties.
Revenues from office/mixed-use properties decreased $1,606,000 in 1995 and
increased $2,540,000 in 1994. The decrease in 1995 was attributable primarily
to dispositions of properties in the third quarter of 1994 and second quarter
of 1995 and lower recoveries of operating expenses due to lower occupancy
levels and reduced operating expenses at certain projects. These decreases
were partially offset by increased revenues at certain hotel and office
properties in Columbia due to higher occupancy levels and increases in tenant
lease cancellation payments due to tenant restructurings and downsizings. 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.
Total operating and interest expenses for office/mixed-use properties
decreased $3,324,000 in 1995 and increased $1,835,000 in 1994. The decrease in
1995 was attributable primarily to the
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dispositions of properties referred to above, lower bad debt expense due to
recoveries of amounts previously reserved and lower operating expenses at
certain projects. These decreases were partially offset by expenses related to
the openings of two industrial buildings in Columbia in the second quarter of
1994 and higher interest expense on a mixed-use project. Interest on this
project's loan was lower in 1994 because Rouse 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 1994. The increase in 1994 was due primarily
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 and refinancings and the
exercise of the interest rate reduction option referred to above mitigated the
overall increase in interest and operating expenses in 1994.
LAND SALES: Rouse'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 $33,403,000 in 1995, $35,232,000 in 1994 and
$35,313,000 in 1993. The decrease in revenues in 1995 was due primarily to
lower sales of land for commercial/other uses in Columbia.
Land sales costs and expenses were $22,898,000 in 1995, $24,905,000 in 1994
and $23,480,000 in 1993. The decrease in 1995 was attributable to lower cost
of sales due to the lower land sales revenues referred to above. The increase
in 1994 was attributable primarily to higher operating and interest expenses
due to a lower level of land development activity on projects other than
Columbia.
DEVELOPMENT: Development expenses were $7,646,000 in 1995, $6,989,000 in
1994 and $4,348,000 in 1993. 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 $3,800,000 in 1995,
$3,400,000 in 1994 and $2,900,000 in 1993. New business costs relate primarily
to the initial evaluation of potential acquisition and development
opportunities. These costs were $3,488,000 in 1995, $3,094,000 in 1994 and
$953,000 in 1993. The increases in pre-construction reserve additions and new
business costs in 1995 and 1994 were attributable to Rouse's more active
pursuit of potential development and acquisition opportunities.
CORPORATE: Corporate revenues consist of interest income earned on temporary
investments, including investments of unused proceeds from refinancings of
certain properties. Corporate interest income was $2,772,000 in 1995,
$2,892,000 in 1994 and $3,862,000 in 1993. The decreases in 1995 and 1994 were
attributable primarily to lower average investment balances.
Corporate expenses consist of certain interest and operating expenses, as
discussed below, reduced by costs capitalized or allocated to other segments.
Interest is capitalized on corporate funds
invested in projects under development, and interest on the proceeds of
corporate borrowings and distributions on the proceeds of Rouse-obligated
mandatorily redeemable preferred securities which are used for other segments
are allocated to those segments. Accordingly, corporate interest expense
consists primarily of interest on the convertible subordinated debentures, the
unsecured 8.5% notes and unused proceeds from refinancings of certain
properties, net of interest capitalized on
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development projects or allocated to other segments, and corporate operating
expenses consist primarily of general and administrative costs and
distributions on the redeemable preferred securities, net of distributions
allocated to other segments.
Corporate interest costs were $14,032,000 in 1995, $13,934,000 in 1994 and
$18,571,000 in 1993. Of such amounts, $3,747,000, $2,564,000 and $2,158,000
were capitalized in 1995, 1994 and 1993, respectively, on funds invested in
development projects. The decrease in corporate interest costs in 1994 was
attributable primarily to redemption of a $100,000,000 issue of convertible
subordinated debentures in May 1993. The higher level of interest capitalized
in 1995 reflects the higher level of corporate funds invested in development
projects, consistent with Rouse's more active pursuit of development
opportunities.
GAIN (LOSS) ON DISPOSITIONS OF ASSETS AND OTHER PROVISIONS, NET: The loss on
dispositions of assets and other provisions, net, for 1995 consisted primarily
of a provision for loss of $12,321,000 (recorded in the fourth quarter) on a
litigation judgment involving a former tenant as discussed in Note 19 to the
Consolidated Financial Statements of Rouse included elsewhere in this Proxy
Statement/ Prospectus and provisions for losses totaling $15,589,000
recognized on retail centers Rouse decided to sell. These losses were
partially offset by a gain of $2,379,000 related to the disposition of a
retail center.
The loss on dispositions of assets and other provisions, net, for 1994
consisted primarily of losses totaling $8,045,000 incurred on dispositions of
interests in two retail centers, a hotel and an office building and a
provision for loss of $2,212,000 on an industrial building. These losses were
partially offset by a gain of $2,761,000 on disposition of an interest in a
retail center Rouse continues to manage.
The loss on dispositions of assets and other provisions, net, for 1993
consisted 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 Rouse would not continue to support the property under the
existing arrangements with lenders, public authorities and others involved and
that it was unlikely that Rouse would recover all of its investment in the
property based on forecasts of future cash flows.
EXTRAORDINARY LOSSES, NET OF RELATED INCOME TAX BENEFITS: The extraordinary
losses in 1995, 1994 and 1993 resulted from early extinguishments or required
partial early redemptions of debt and aggregated $13,278,000, $6,824,000 and
$12,322,000, respectively, less deferred income tax benefits of $4,647,000,
$2,377,000 and $4,271,000, respectively.
NET EARNINGS (LOSS): Rouse had a net loss of $2,781,000 in 1995, net
earnings of $2,159,000 in 1994 and a net loss of $9,342,000 in 1993. Rouse's
operating income (after depreciation and amortization) was $35,918,000 in
1995, $21,259,000 in 1994 and $8,841,000 in 1993. The improvements in
operating income in 1995 and 1994 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: Rouse 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 and should not be considered
as an alternative to cash flows as a measure of liquidity. However, Rouse
believes that EBDT provides relevant information about its operations and is
necessary, along with net earnings (loss), for an understanding of its
operating results.
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Depreciation and amortization are excluded from EBDT because, as shown in
the current value basis balance sheets, Rouse's portfolio of operating
properties is worth substantially more than its undepreciated historical cost.
Deferred income taxes are excluded from EBDT because payments of income taxes
have not been significant and are not anticipated to become significant in the
near term. 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 $108,360,000 in 1995, $94,710,000 in 1994 and $78,281,000 in 1993.
The increases in EBDT in 1995 and 1994 were due primarily to improved results
from the operating properties business segment, particularly retail
properties. The significant changes in revenues and expenses comprising EBDT
by segment are described above.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Management believes that the current values of Rouse's assets and
liabilities are the most realistic indicators of Rouse's financial strength
and future profitability. Current values of Rouse's interests in operating
properties (including interests in unconsolidated real estate ventures) and
land held for development and sale represent the present values of forecasted
net operating cash flows from these properties--Rouse's most significant
assets. Since 1976, revaluation equity, the aggregate increment of current
value over cost basis net book value of Rouse's assets and liabilities, has
increased at a compound annual rate of 14%. The majority of Rouse's
revaluation equity relates to larger, major market retail centers which
continue to be a favored real estate investment. However, revaluation equity
decreased $23,000,000 or 1.5% to $1.50 billion at December 31, 1995. The
decrease was due primarily to increases in the current value of deferred
income taxes (e.g., the present value of estimated future tax payments) and
the current value of publicly traded debt not specifically related to
interests in properties. Also, the rate of increase in the current values of
properties moderated significantly in 1995 compared to 1994 and 1993. While
investors' yield requirements for top tier retail centers did not change
significantly during the year, the yield requirements for certain other
properties increased. As a result, the modest increases in values of Rouse's
larger, major market retail centers in 1995 were largely offset by decreases
in the values of certain other properties. In addition, the projected growth
in cash flows was reduced for many retail centers in 1995 as compared to 1994,
primarily because of slower assumed growth in tenant sales as a result of the
continued difficult retail environment.
Cost basis shareholders' equity decreased to $42,584,000 at December 31,
1995 from $95,026,000 at December 31, 1994. The decrease was due primarily to
the payment of regular quarterly dividends on Rouse Common Stock and Rouse
Preferred Stock.
Rouse had cash and cash equivalents and investments in marketable securities
totaling $97,832,000 and $79,547,000 at December 31, 1995 and 1994,
respectively, including $2,910,000 and $2,001,000, respectively, held for
restricted uses.
Net cash provided by operating activities was $107,001,000, $113,775,000 and
$101,149,000 in 1995, 1994 and 1993, respectively. The changes in cash
provided by operating activities were due
primarily to the factors discussed above in the 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.
In particular, net cash provided by operating activities for 1995 was reduced
due to payment of certain pension obligations and other liabilities.
In 1995 and 1994, over 80% of Rouse's debt consisted of mortgages and bonds
collateralized by operating properties. Scheduled principal payments on
property debt were $36,446,000, $46,750,000 and $20,735,000 in 1995, 1994 and
1993, respectively. The decrease in 1995 was due primarily to
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early repayments of property debt, and 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
$75,742,000 in 1996, $80,430,000 in 1997, $42,524,000 in 1998, $132,200,000 in
1999 and $184,330,000 in 2000. The balloon payments for 1996 include
$65,000,000 related to a retail center mortgage due in August. Rouse expects
to refinance the mortgage on a long-term basis at or prior to its scheduled
maturity. Rouse 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
their scheduled repayment dates.
Rouse has historically relied primarily on fixed rate, nonrecourse loans
from private institutional lenders to finance its operating properties and
expects that it will continue to do so in the future. In recent years,
however, Rouse has made greater use of the public capital markets to meet its
capital resource needs. Since 1993, Rouse has completed public debt and equity
offerings aggregating over $600,000,000 (including the unused portion of the
medium-term notes), the proceeds of which have been used primarily to repay or
refinance corporate and property debt and to provide liquidity and funds for
other corporate purposes. These transactions were completed on terms which
allowed Rouse to reduce its overall cost of capital while restructuring its
debt maturities and increasing its financial flexibility. Rouse 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 $61,591,000, $78,628,000 and $87,243,000 in
1995, 1994 and 1993, 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. Rouse's share of these costs has been financed primarily from proceeds
of refinancings of the related properties or other properties, credit line
borrowings and a portion of the proceeds of the 8.5% unsecured notes.
Cash expenditures for acquisitions of interests in properties were
$28,206,000 in 1995, $94,113,000 in 1994 and $34,967,000 in 1993. These costs
were financed primarily by nonrecourse debt. The acquisitions in 1995
consisted of the purchases of partnership interests in three retail centers,
two of which were financed in whole or in part by the sellers. The
acquisitions in 1994 consisted primarily of the purchase of land underlying a
retail center and the related equity interest of the former ground lessor. The
acquisitions in 1993 consisted primarily of purchases of partners' interests
in retail properties.
Rouse has available sources of capital in addition to those discussed above.
Rouse's equity interests in its operating properties, land held for
development and sale and land in development represent sources of funds either
through sales or refinancings. The aggregate equity value of these interests
as of December 31, 1995 was approximately $2,444,000,000. Rouse also has lines
of credit available totaling $158,920,000 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, Rouse may issue additional medium-term notes of up to $49,700,000
through February 1997.
The agreements relating to certain of the lines of credit, the 8.5%
unsecured notes, the medium-term notes and certain other loans impose
limitations on Rouse. The most restrictive of these limit Rouse's ability to
incur certain types of additional debt if Rouse does not maintain specified
debt service coverage ratios. The agreements also impose restrictions on sale,
lease and certain other transactions, subject to various exclusions and
limitations. These restrictions have not limited Rouse's normal business
activities and are not expected to do so in the foreseeable future.
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POSSIBLE ACQUISITION OF THE HUGHES CORPORATION
On February 22, 1996, Rouse's Board of Directors approved the terms of
agreements to acquire all of the issued and outstanding shares of THC Common
Stock and the ownership interests of stockholders of THC in an affiliated
partnership. Consummation of the transactions is subject to certain closing
conditions. For additional information about this transaction, refer to Note
20 to the Consolidated Financial Statements of Rouse included elsewhere in
this Proxy Statement/Prospectus.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." Statement No.
121 establishes new standards for measurement and recognition of impairment of
long-lived assets. The Statement will be effective with respect to Rouse in
1996 and initial adoption is not expected to have a material effect on the
financial position or results of operations reported by Rouse.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Statement No. 123 permits companies to adopt a new fair value
based method to account for stock-based employee compensation plans or to
continue using the intrinsic value method. If the intrinsic value method is
used, information concerning the pro forma effects on net earnings (loss) and
earnings (loss) per share of common stock of adopting the fair value based
method is required to be presented in the footnotes to the financial
statements. The Statement also requires additional footnote disclosures about
stock-based employee compensation arrangements, regardless of the method used
to account for them. Rouse intends to continue using the intrinsic value
method to account for its stock-based employee compensation plans and will
provide the pro forma and additional disclosures about the plans in its 1996
financial statements, as required by Statement No. 123.
IMPACT OF INFLATION
The major portion of Rouse's operating properties, its retail centers, is
substantially protected from declines in the purchasing power of the dollar.
Retail leases generally provide for minimum rents plus percentage rents based
on sales over a minimum base. Generally, increases in tenant sales (whether
due to increased unit sales or increased prices from demand or general
inflation) will result in increased rental revenue to Rouse. A substantial
portion of the tenant leases (retail and office) also provide for other rents
which reimburse Rouse for certain of its operating expenses; consequently,
increases in these costs do not have a significant impact on Rouse's operating
results. Rouse has a significant amount of debt which, in a period of
inflation, will result in a holding gain since debt will be paid off with
dollars having less purchasing power.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The foregoing discussion includes forward-looking statements which reflect
Rouse's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and
uncertainties, including those identified below, which could cause actual
results to differ materially from historical results or those anticipated. The
words "believe," "expect," "anticipate" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of their dates. Rouse
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise. The following factors could cause actual results to differ
materially from historical results or those anticipated: (1) real estate
investment risks; (2) development risks; (3) illiquidity of real estate
investments; (4) dependence on rental income from real property; (5) effect of
uninsured loss; (6) lack of geographical diversification; (7) possible
environmental liabilities; (8) difficulties of compliance with the Americans
with Disabilities Act; (9) competition; and (10) changes in the economic
climate. For a more detailed discussion of these factors, see "RISK FACTORS--
Real Estate Development and Investment Risks."
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MANAGEMENT OF ROUSE
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Rouse are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Anthony W. Deering(b).......... 51 President, Chief Executive Officer and
Director
Douglas A. McGregor............ 54 Executive Vice President for Development
and Operations
Jeffrey H. Donahue............. 50 Senior Vice President, Chief Financial
Officer and Director of the Finance
Division
Duke S. Kassolis............... 44 Senior Vice President and Director of
Office and Mixed-Use Operations
Paul I. Latta, Jr.............. 52 Senior Vice President and Director of
Retail Operations
Robert Minutoli................ 45 Senior Vice President and Director of
Acquisitions
Robert D. Riedy................ 50 Senior Vice President and Director of
Retail Leasing
Alton J. Scavo................. 50 Senior Vice President, Director of the
Community Development Division and General
Manager of Columbia
Jerome D. Smalley.............. 46 Senior Vice President and Director of the
Commercial and Office Development Division
George L. Yungmann............. 53 Senior Vice President, Controller and
Director of the Controller's Division
David H. Benson(a)............. 58 Director
Jeremiah E. Casey(b)(c)........ 56 Director
Rohit M. Desai(a)(b)........... 57 Director
Mathias J. DeVito(a)(b)........ 65 Chairman of the Board and Director
Juanita T. James(b)(c)......... 43 Director
Thomas J. McHugh(b)(c)......... 64 Director
Hanne M. Merriman(a)........... 54 Director
Roger W. Schipke(a)............ 59 Director
Alexander B. Trowbridge(b)(c).. 66 Director
</TABLE>
- --------
(a) Member of Audit Committee.
(b) Member of Executive Committee.
(c) Member of Personnel Committee.
Officers of Rouse are elected annually and serve at the discretion of the
Board of Directors of Rouse. All directors serve until the next annual meeting
of shareholders and until their successors have been duly elected and
qualified.
ANTHONY W. DEERING has been a member of the Board of Directors of Rouse
since 1993. Mr. Deering is a Director and President and Chief Executive
Officer of Rouse. Previously, he was President and Chief Operating Officer of
Rouse from February 1993 to February 1995; Executive Vice President, Finance
and Administration and Chief Financial Officer of Rouse from November 1990 to
February 1993; and Senior Vice President and Chief Financial Officer of Rouse
from 1978 to November 1990. Mr. Deering is a director of Kleinwort Benson
Holdings Inc. Advisory Board and T. Rowe Price Fixed Income and International
Mutual Funds. He is a Trustee of the Baltimore Museum of Art, the Friends
School of Baltimore, and the Parks and People Foundation of The Foundation for
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Baltimore Recreation and Parks. Mr. Deering also is a member of the Mayor's
Business Advisory Council of the City of Baltimore.
DOUGLAS A. MCGREGOR has been Executive Vice President for Development and
Operations of Rouse since August 1993. He served as Executive Vice President
for Development and Director of the Office and Community Development Division
of Rouse from November 1990 to August 1993 and as Senior Vice President and
Director of the Office and Community Development Division of Rouse from July
1978 to November 1990.
JEFFREY H. DONAHUE has been Senior Vice President and Chief Financial
Officer and Director of the Finance Division of Rouse since September 1993. He
served as Vice President and Treasurer of Rouse from February 1981 to August
1993.
DUKE S. KASSOLIS has been Senior Vice President and Director of Office and
Mixed-Use Operations of Rouse since September 1993. From September 1986 to
August 1993 he served as Vice President and Director of Office and Commercial
Properties of Rouse.
PAUL I. LATTA, JR. has been Senior Vice President and Director of Retail
Operations of Rouse since September 1993. From December 1990 to August 1993 he
served as Vice President and Associate Division Director, Operating Properties
Division of Rouse.
ROBERT MINUTOLI has been Senior Vice President and Director of Acquisitions
of Rouse since September 1993. From December 1989 to August 1993 he served as
Vice President and Associate Director for Office Development of Rouse.
ROBERT D. RIEDY has been Senior Vice President and Director of Retail
Leasing of Rouse since September 1993. From December 1990 to September 1993 he
served as Vice President and Associate Division Head for Commercial
Development of Rouse.
ALTON J. SCAVO has been Senior Vice President, Director of the Community
Development Division and General Manager of Columbia since September 1993.
From January 1978 to August 1993 he served as Vice President and Associate
Director of the Community Development Division of Rouse.
JEROME D. SMALLEY has been Senior Vice President and Director of the
Commercial and Office Development Division of Rouse since September 1993. From
December 1989 to August 1993 he served as Vice President and Associate
Director for Office Development of Rouse.
GEORGE L. YUNGMANN has been Senior Vice President, Controller and Director
of the Controller's Division of Rouse since September 1993. From September
1974 to August 1993 he served as Vice President, Controller and Director of
the Controller's Division of Rouse.
DAVID H. BENSON has been a member of the Board of Directors of Rouse since
1987. Mr. Benson is a member of the Board of Directors of Kleinwort Benson
Group plc, a bank holding company, and Chairman of the Board of Kleinwort
Charter Investment Trust plc and Trustee of The Pilot Funds, both of which are
investment management companies. Previously, Mr. Benson was Vice Chairman of
the Board of Kleinwort Benson Group plc. Mr. Benson is a director of British
Gas plc, The Dover Corporation, Harrow Corporation, Kleinwort Benson Group
plc, Kleinwort Benson U.S.A. Inc., Kleinwort Charter Investment Trust plc,
Leach International, Inc. and Marshall Cavendish. He also is a Trustee of the
Charities Official Investment Fund and the Edward James Foundation.
JEREMIAH E. CASEY has been a member of the Board of Directors of Rouse since
1990. Mr. Casey is Chief Executive, USA, of Allied Irish Banks plc and
Chairman of the Board of First Maryland Bancorp and its banking subsidiaries.
Mr. Casey is a director of Allied Irish Banks plc and a director of the
Federal Reserve Bank of Richmond, Baltimore Branch. He also is a director of
the
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Children's Research and Healing Center, Inc., Ireland-United States Council
for Commerce & Industry, Inc., Irish Educational Development Foundation, Inc.,
The Kennedy Kreiger Institute, Inc. and The World Trade Center Institute. Mr.
Casey also is a Trustee of both Mercy Medical Center and The Walters Art
Gallery.
ROHIT M. DESAI has been a member of the Board of Directors of Rouse since
1980. Mr. Desai is Chairman of the Board and President of Desai Capital
Management Incorporated ("DCMI"), a specialized investment firm managing
assets of various institutional clients, and Managing General Partner of Rohit
M. Desai Associates and Rohit M. Desai Associates--II, which are the general
partners, respectively, of Equity-Linked Investors, L.P. ("ELI") and Equity-
Linked Investors--II ("ELI-II"), New York partnerships for institutional
investors (DCMI is an adviser to ELI and ELI-II). Mr. Desai is also a director
of Sunglass Hut International, Inc., Finlay Enterprises, Inc. and Finlay Fine
Jewelry Corporation (a subsidiary of Finlay Enterprises, Inc.).
MATHIAS J. DEVITO has been a member of the Board of Directors of Rouse since
1972. Mr. DeVito is Chairman of the Board of Rouse. Previously, he was
Chairman of the Board and Chief Executive Officer of Rouse. Mr. DeVito is a
director of Allied Irish Banks plc, First Maryland Bancorp and USAir Group,
Inc. He is Chairman of the Board of the Baltimore Empowerment Management
Corporation, and a member of both the Business Committee for the Arts, Inc.
and the Greater Baltimore Committee. Mr. DeVito also is a Trustee of the
Maryland Institute, College of Art.
JUANITA T. JAMES has been a member of the Board of Directors of Rouse since
1989. Ms. James is Senior Vice-President of the Book-of-the-Month Club, Inc.,
a subsidiary of Time Warner Inc. Previously, she was President and Chief
Executive Officer of Time-Life Libraries, Incorporated. Ms. James is a Charter
Trustee of Princeton University and a member of both the Advisory Council of
Bethune-Cookman College and the National Coalition of 100 Black Women.
THOMAS J. MCHUGH has been a member of the Board of Directors of Rouse since
1980. Mr. McHugh is President of McHugh Associates, Inc., a registered
investment adviser. Mr. McHugh is a director of Philadelphia Consolidated
Holding Corp. and is Vice Chairman and Trustee of St. Joseph's University.
HANNE M. MERRIMAN has been a member of the Board of Directors of Rouse since
1992. Ms. Merriman is a Retail Business Consultant for Hanne Merriman
Associates, a retail consulting firm. Previously, she was President and Chief
Operating Officer of Nan Duskin, Inc., a women's specialty store. Ms. Merriman
is a director of AnnTaylor Stores Corporation, CIPSCO Incorporated, State Farm
Mutual Automobile Insurance Company, T. Rowe Price Mutual Funds and USAir
Group, Inc. She is also a Trustee of the American-Scandinavian Foundation and
a member of the National Women's Forum.
ROGER W. SCHIPKE has been a member of the Board of Directors of Rouse since
1992. Mr. Schipke is Chairman of the Board and Chief Executive Officer of
Sunbeam-Oster Company, Inc., a corporation that engages in the sale of various
consumer products. Previously, he was Chairman of the Board, President and
Chief Executive Officer of The Ryland Group, Inc. and Senior Vice-President of
General Electric Company, with worldwide responsibility for appliance
products. Mr. Schipke is a director of The Brunswick Corporation, Legg Mason,
Inc. and Oakwood Homes Corporation.
ALEXANDER B. TROWBRIDGE has been a member of the Board of Directors of Rouse
since 1985. Mr. Trowbridge is President of Trowbridge Partners, Inc., a
corporation that engages in the consulting business. Mr. Trowbridge is a
director of The Gillette Co., Harris Corp., ICOS Corp., New England Mutual
Life Insurance Co., PHH Corporation, Sun Company, Inc., Sun Resorts
International Ltd. and WMX Technologies, Inc. He also serves as a director of
several publicly owned mutual funds managed by Warburg Pincus Counsellors,
Inc. Mr. Trowbridge is a Trustee of both The Aspen Institute and Phillips
Academy Andover.
152
<PAGE>
ADDITION OF DIRECTOR AND EXECUTIVE OFFICER AS A RESULT OF THE MERGERS
If the Mergers are consummated, William R. Lummis will become a director of
Rouse, and John L. Goolsby will become an executive officer of Rouse.
WILLIAM R. LUMMIS, age 67, has been Chairman of the Board of THC since 1976.
He served as Chief Executive Officer of THC from 1977 until 1990. Prior to
joining THC, Mr. Lummis was a partner in the Houston law firm of Andrews &
Kurth L.L.P. He has served as administrator of the Estate of Howard R. Hughes,
Jr. since 1976. He is a trustee of the Howard Hughes Medical Institute. He is
a former director of Nevada Power Company, Republic Airlines, Inc., Texas
American Bancshares, Inc. and Texas American Bank/Galleria, Houston, Texas.
JOHN L. GOOLSBY, age 54, has been President and a director of THC since 1988
and the Chief Executive Officer of THC since 1990. Mr. Goolsby joined THC as
Vice President of Real Estate in 1980; was promoted to Senior Vice President
in 1983; to Executive Vice President in 1984; and to President and Chief
Operating Officer in 1988. He was named Chief Executive Officer of THC in
1990. He is a director of Nevada Power Company, Bank of America Nevada and
America West Airlines, Inc., and a former director of First Interstate Bank
Nevada.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the annual and long-
term compensation for services in all capacities to Rouse for the years ended
December 31, 1995, 1994 and 1993 of those persons who were the Chief Executive
Officer and the four other most highly compensated officers of Rouse in 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------- ------------------------
RESTRICTED SECURITIES
NAME STOCK UNDERLYING ALL OTHER
AND PRINCIPAL AWARD(S) OPTIONS COMPENSATION
POSITION YEAR SALARY($) BONUS($) ($) (#) ($)
------------- ---- ---------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mathias J. DeVito....... 1995 121,154 None None None 1,625,157(1)(7)
Chairman of the Board
and 1994 700,000 630,000 None None 4,620(8)
Chief Executive
Officer(1) 1993 548,625 438,900 None 100,000 92,497(9)(10)
Anthony W. Deering...... 1995 625,000 520,313 3,725,000(2) None 180,245(7)
President and Chief
Executive 1994 500,000 412,500 None 50,000 180,245(8)
Officer(2) 1993 450,000(3) 315,000 1,256,250(3) 75,000 54,497(9)
Douglas A. McGregor..... 1995 430,000 298,334 None(4) None 113,995(7)
Executive Vice President
for 1994 400,000 300,000 None 30,000 54,620(8)
Development and
Operations 1993 358,000(5) 232,700 456,250(5) 25,000 54,497(9)
Larry M. Wolf........... 1995 285,000 157,463 None None 4,620(7)
Senior Vice President
and 1994 285,000 138,225 None 22,500 4,620(8)
Director of Corporate 1993 277,200 152,460 None 40,000 4,497(9)
Merchandising and
Creative Services
Jeffrey H. Donahue...... 1995 260,000 139,490 None(4) None 46,183(7)
Senior Vice President
and 1994 240,000 134,400 None 22,500 4,620(8)
Chief Financial Officer 1993 223,654 105,170 166,250(6) None 4,497(9)
Paul I. Latta, Jr....... 1995 260,000 132,275 None(4) None 46,183(7)
Senior Vice President
and 1994 240,000 129,600 None 22,500 4,620(8)
Director of Retail
Operations 1993 228,966 107,065 166,250(6) None 4,497(9)
</TABLE>
153
<PAGE>
- --------
(1) Mr. DeVito retired as Chief Executive Officer and from his employment
with Rouse on February 23, 1995. He continues to serve as Chairman of the
Board of Directors of Rouse. During 1995, Mr. DeVito received a special
retirement bonus of $1,605,358, financial planning services having a
value of $16,164 and matching contributions under Rouse's 401(k) Savings
Plan in the amount of $3,635. For additional information, see "MANAGEMENT
OF ROUSE--Employment Arrangements" below.
(2) During 1994 and early 1995, Mr. Deering was President and Chief Operating
Officer of Rouse. Mr. Deering was elected as Chief Executive Officer on
February 23, 1995 upon Mr. DeVito's retirement from this position. Upon
Mr. Deering's assumption of the role of Chief Executive Officer of Rouse,
the Board of Directors of Rouse, acting pursuant to Rouse's 1994 Stock
Incentive Plan, awarded Mr. Deering 200,000 shares of Rouse Common Stock
(the "1995 Bonus Shares"). Ownership of the 1995 Bonus Shares vests 20%
on January 2nd in each of the years 1996, 1997, 1998, 1999 and 2000. Any
1995 Bonus Shares that have not vested will be forfeited if the recipient
leaves Rouse's employ for any reason other than death, disability or
discharge without good cause (which is defined to include certain changes
in control of Rouse). Dividends are paid on the foregoing shares. As of
December 31, 1995, Mr. Deering had aggregate restricted shareholdings of
287,500 shares of Rouse Common Stock having a value, based on the value
of Rouse's shares on that date, of $5,857,813.
(3) In February 1993, in conjunction with the election of Mr. Deering as
President and Chief Operating Officer of Rouse, the Board of Directors of
Rouse adjusted his salary and, acting pursuant to Rouse's 1990 Stock
Bonus Plan, awarded Mr. Deering 75,000 shares of Rouse Common Stock (the
"1993 Bonus Shares"). Ownership of the 1993 Bonus Shares vests 10% on
January 2nd in each of the years 1994, 1995 and 1996, 15% on January 2nd
in each of the years 1997 and 1998, and 20% on January 2nd in each of the
years 1999 and 2000. Any 1993 Bonus Shares that have not vested will be
forfeited if the recipient leaves Rouse's employ for any reason other
than death, disability or discharge without good cause (which is defined
to include certain changes in control of Rouse). Dividends are paid on
the foregoing shares.
(4) As of December 31, 1995, Mr. McGregor had aggregate restricted
shareholdings of 46,250 shares of Rouse Common Stock having a value,
based on the value of Rouse's shares on that date, of $942,344, and both
Messrs. Donahue and Latta had aggregate restricted shareholdings of
13,125 shares of Common Stock having a value, based on the value of
Rouse's shares on that date, of $267,422.
(5) In September 1993, in conjunction with Mr. McGregor's assumption of
expanded responsibilities as Executive Vice President for Development
and Operations, the Board of Directors of Rouse adjusted his salary and,
acting pursuant to Rouse's 1990 Stock Bonus Plan, awarded Mr. McGregor
25,000 shares of Rouse Common Stock (the "1993 Bonus Shares"). Ownership
of the 1993 Bonus Shares vests 25% on September 23rd in each of the
years 1995, 1996, 1997 and 1998. Any 1993 Bonus Shares that have not
vested will be forfeited if the recipient leaves Rouse's employ for any
reason other than death, disability or discharge without good cause
(which is defined to include certain changes in control of Rouse).
Dividends are paid on the foregoing shares.
(6) In September 1993, the Board of Directors, acting pursuant to Rouse's
1990 Stock Bonus Plan, awarded both Messrs. Donahue and Latta 17,500
shares of Rouse Common Stock (the "1993 Bonus Shares"). Ownership of the
1993 Bonus Shares vests 25% on January 2nd in each of the years 1995,
1996, 1997 and 1998. Any 1993 Bonus Shares that have not vested will be
forfeited if the recipient leaves Rouse's employ for any reason other
than death, disability or discharge without good cause (which is defined
to include certain changes in control of Rouse). Dividends are paid on
the foregoing shares.
(7) Includes installments on loans by Rouse relating to restricted stock
awards under Rouse's 1990 Stock Bonus Plan. Installments were forgiven by
Rouse during 1995 in the amount of $175,625 as to Mr. Deering, $109,375
as to Mr. McGregor and $41,563 as to both Messrs. Donahue and
154
<PAGE>
Latta. Also includes matching contributions available to employees of
Rouse generally under Rouse's 401(k) Savings Plan in the amount of $4,620
for each of the named executive officers, except for Mr. DeVito, who
received $3,635 due to his partial year of service as Chief Executive
Officer.
(8) Includes installments on loans by Rouse relating to restricted stock
awards under Rouse's 1990 Stock Bonus Plan. Installments were forgiven by
Rouse during 1994 in the amount of $175,625 as to Mr. Deering and $50,000
as to Mr. McGregor. Also includes matching contributions available to
employees of Rouse generally under Rouse's 401(k) Savings Plan in the
amount of $4,620 for each of the named executive officers.
(9) Includes installments on loans by Rouse relating to restricted stock
awards under Rouse's 1990 Stock Bonus Plan. Installments were forgiven by
Rouse during 1993 in the amount of $50,000 as to both Messrs. Deering and
McGregor. Also includes matching contributions available to employees of
Rouse generally under Rouse's 401(k) Savings Plan in the amount of $4,497
for each of the named executive officers.
(10) Includes a distribution of $88,000 in 1993 as partial payment of Mr.
DeVito's vested pension benefits that had accrued under Rouse's Pension
Plan and Supplemental Retirement Benefit Plan during his more than 24
years of service to Rouse. The distribution was approved by the Board of
Directors as part of an agreement intended to remove any detriment in
respect to Mr. DeVito's pension benefit resulting from his continuing to
serve Rouse after attaining age 62 in August 1992, the normal retirement
age at which full benefits become payable under Rouse's retirement plans.
OPTIONS AND STOCK APPRECIATION RIGHTS
No stock options or stock appreciation rights ("SARs") were granted to any
executive officer of Rouse in 1995. No SAR was exercised since no SARs have
been granted at any time under Rouse's Stock Option and Stock Incentive Plans.
The following table summarizes information relating to stock option
exercises during 1995 and the number and value of unexercised options
previously granted to the executive officers named in the Summary Compensation
Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS(1)
SHARES ACQUIRED OPTIONS AT FY-END (#) AT FY-END ($)
NAME ON EXERCISE (#) VALUE REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- ----------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Anthony W. Deering None None 108,750/116,250 $286,719/$172,656
Mathias J. DeVito None None 221,000/None $ 64,125/None
Douglas A. McGregor None None 96,250/133,750 $278,906/$121,719
Jeffrey H. Donahue None None 16,482/101,018 $ 8,336/$191,352
Paul I. Latta, Jr. None None 16,482/101,018 $ 8,336/$191,352
Larry M. Wolf None None 60,000/52,500 $ 6,250/$ 49,688
</TABLE>
- -------
(1) An "in-the-money" stock option is an option for which the market price, on
December 29, 1995, of Rouse Common Stock underlying the option exceeds the
exercise price (i.e., the market price of Rouse Common Stock on the date
the option was granted). The value shown represents stock price
appreciation since the grant date of the option.
155
<PAGE>
EMPLOYMENT ARRANGEMENTS
On November 30, 1994, Rouse entered into an agreement with Mr. DeVito in
connection with his retirement as Chief Executive Officer and retirement from
employment with Rouse that became effective on February 23, 1995 (the
"Retirement Agreement"). Under the Retirement Agreement, Mr. DeVito received a
special retirement bonus of $1,605,358, which was paid in a lump sum on
February 23, 1995, and financial planning services having a value of $16,164.
Mr. DeVito continues to serve as Chairman of the Board of Directors of
Rouse. In that capacity, Mr. DeVito presides over meetings of the Board of
Directors and stockholders of Rouse, serves as Chairman of the Executive
Committee and a member of the Audit Committee of the Board and oversees the
Contributions Committee of Rouse. Mr. DeVito also is available to consult with
management of Rouse and undertake certain specific advisory services at the
request of the Board of Directors or the Chief Executive Officer. For his
services as Chairman of the Board as described above, and in lieu of any other
directors' fees, Mr. DeVito will receive an annual fee of $100,000 through
December 31, 1997, at which time the Board will review Mr. DeVito's role as
Chairman. Rouse also provides appropriate office space and secretarial and
other support to Mr. DeVito and reimburses him for expenses incurred in
connection with his responsibilities as Chairman.
With respect to all named executive officers, all stock option grants, bonus
stock grants and related loans under Rouse's Stock Option, Stock Bonus and
Stock Incentive Plans provide that any non-vested portion of a stock option
grant will vest, any remaining restrictions upon bonus stock shares will be
released and any related loan balance will be forgiven if the person dies,
becomes disabled, retires on or after the normal retirement age of 62 or is
discharged without good cause (which is defined to include certain changes in
control of Rouse). If such an event were to occur with respect to an executive
officer, all stock options not yet exercised, as set forth above in the table
captioned "Aggregated Option Exercises in Last Fiscal Year and FY-End Option
Values," would become vested, and the outstanding principal loan balances set
forth below in "MANAGEMENT OF ROUSE--Indebtedness of Executive Officers" would
be forgiven. In addition, Mr. Deering and Mr. McGregor would have forfeiture
restrictions released on 287,500 and 111,250 shares, respectively, of bonus
stock, and both Messrs. Donahue and Latta would have forfeiture restrictions
released on 48,125 shares of bonus stock.
Rouse also has a severance plan available on a non-discriminatory basis to
all employees, including executive officers, that provides benefits for
involuntary terminations of employment, except for discharges for cause or
disciplinary reasons. Severance pay generally is equal to one week's salary
for each six months (or portion of six months) of service performed in the
first three years of employment and one week's salary for each full or partial
year worked in excess of three years. Group medical and life insurance
coverage also are continued at no cost to the individual for up to 90 days.
INDEBTEDNESS OF EXECUTIVE OFFICERS
In November 1990, upon the elections of Anthony W. Deering and Douglas A.
McGregor as Executive Vice-Presidents of Rouse, the Board of Directors awarded
Messrs. Deering and McGregor shares of Rouse Common Stock pursuant to Rouse's
1990 Stock Bonus Plan. In February 1993, upon the election of Mr. Deering as
President and Chief Operating Officer, the Board awarded Mr. Deering shares of
Rouse Common Stock pursuant to Rouse's 1990 Stock Bonus Plan. In September
1993, the Board of Rouse, acting pursuant to Rouse's 1990 Stock Bonus Plan,
awarded shares of Rouse Common Stock as incentive awards to certain of Rouse's
executive officers in conjunction with a reorganization of the
responsibilities of senior management, which included the election of eight
new Senior Vice Presidents. In February 1995, upon the election of Mr. Deering
as Chief Executive Officer, the Board awarded Mr. Deering shares of Rouse
Common Stock pursuant to Rouse's 1994 Stock Incentive Plan. In February 1996,
the Board awarded certain executive officers shares of Rouse Common Stock
pursuant to Rouse's 1994 Stock Incentive Plan. In connection with such grants
of
156
<PAGE>
bonus stock and to assist the recipients in paying related tax and other
obligations, the Board approved loans to such executive officers. Each loan is
to be forgiven, except as to interest, in either four or five equal annual
installments if the person continues to serve Rouse.
In March 1989, the Personnel Committee of the Board of Directors of Rouse
(the "Personnel Committee") granted stock options to Messrs. Kassolis,
Minutoli, Riedy and Smalley (elected as Senior Vice Presidents in 1993)
pursuant to Rouse's 1990 Stock Option Plan. At the same time, the Board of
Directors of Rouse authorized loans to each person to be made in connection
with the exercise of the options. Subsequently, the terms of the options were
modified by the Board of Directors of Rouse or the Personnel Committee to
permit, as an alternative, open market purchases of the same number of shares
of Rouse Common Stock and loans in the amount of the open market purchases.
Each loan is to be forgiven, except as to interest, in five equal annual
installments if the person continues to serve Rouse.
The following table lists those executive officers who received loans in
connection with the bonus stock grants and the stock option grants described
in the two preceding paragraphs, and whose maximum indebtedness to Rouse from
January 1, 1995 through May 13, 1996 exceeded $60,000:
<TABLE>
<CAPTION>
MAXIMUM PRINCIPAL
AMOUNT OF
LOANS OUTSTANDING
FROM 1-1-95 PRINCIPAL AMOUNT
NAME OF RELATIONSHIP THROUGH 5-13- OF LOANS OUTSTANDING
INDIVIDUAL WITH ROUSE 96(1) ON 5-13-96
---------- ------------------------ ----------------- --------------------
<C> <S> <C> <C>
Anthony W. Deering... President and Chief $2,326,875 $1,771,250
Executive Officer
Jeffrey H. Donahue... Senior Vice President, 166,250 124,687
Chief Financial Officer
and Director of the
Finance Division
Duke S. Kassolis..... Senior Vice President 262,375 215,625
and Director of Office
and Mixed-Use Operations
Paul I. Latta, Jr.... Senior Vice President 166,250 124,688
and Director of Retail
Operations
Douglas A. McGregor.. Executive Vice President 337,500 178,125
for Development and
Operations
Robert Minutoli...... Senior Vice President 275,901 187,449
and Director of
Acquisitions
Robert D. Riedy...... Senior Vice President 197,343 143,217
and Director of Retail
Leasing
Alton J. Scavo....... Senior Vice President, 166,250 124,688
Director of the
Community Development
Division and General
Manager of Columbia
Jerome D. Smalley.... Senior Vice President 371,050 283,837
and Director of the
Commercial and Office
Development Division
George L. Yungmann... Senior Vice President, 118,750 89,063
Controller and Director
of the Controller's
Division
</TABLE>
- --------
(1) Interest accrues on the principal amount of the outstanding loans and is
payable on December 31st of each year. The interest rate on all the loans
is 6% per year, except that the interest rates on the loans relating to
the stock bonus grants that were made in September 1993 and February 1996
are 5.35% and 5% per year, respectively.
157
<PAGE>
DIRECTORS' FEES AND OTHER TRANSACTIONS
Under current Rouse policy, an annual fee of $27,500 is paid to each
director of Rouse (other than Mr. DeVito) who is not employed by Rouse on a
full-time or other basis, and the Chairman of a Board Committee receives an
additional annual fee of $3,000. Each director (other than Mr. DeVito) also is
paid a fee of $1,250 for attendance at any meeting of the Board of Directors
of Rouse and $1,000 for attendance at any meeting of a Committee of the Board
or for special assignments. Mr. DeVito receives an annual fee of $100,000 for
his services as Chairman of the Board of Directors, Chairman of the Executive
Committee and a member of the Audit Committee and for advisory services
rendered to Rouse. See "MANAGEMENT OF ROUSE--Employment Arrangements" above.
Under The Rouse Company 1994 Stock Incentive Plan (the "Plan"), which was
approved by the stockholders on May 12, 1994, non-employee directors receive
5,000-share stock option grants of Rouse Common Stock upon their initial
election. Each director receives an additional 1,000-share stock option grant
upon re-election as a director at each subsequent annual meeting.
In February, 1996, the Board replaced the directors' retirement income
benefit with a program of credits to a nonqualified Rouse Common Stock account
established for each director. Beginning in February, 1996, each director's
account will be credited with an amount equal to 10% of the annual fee for
each year of service on the Board, which amount shall be deemed invested in
Rouse Common Stock. A director will receive the value of this account upon
retirement from the Board. The retirement income benefit for current directors
would be eliminated, but each current director would receive an initial credit
to his or her account equal to 10% of the current annual fee multiplied by the
director's past years of service. At retirement from the Board, each current
director would be entitled to receive the value of his or her account, but no
current director would receive less than an amount equal to the then present
value of the payments such director would have received under the terminated
retirement plan, based on such director's years of service as of February,
1996.
David H. Benson is a member of the Board of Kleinwort Benson Group plc
(together with its subsidiaries and affiliates, "Kleinwort Benson"), and his
interest in the matters described below arises solely from such position.
Rouse has investment banking relationships with Kleinwort Benson under which
Rouse maintains a revolving credit facility with Kleinwort Benson and is
indebted to Kleinwort Benson for certain loans. In addition, Kleinwort Benson
assists from time to time in obtaining various forms of financing for Rouse.
Transactions between Rouse and certain companies with which Jeremiah E.
Casey is associated are described under "MANAGEMENT OF ROUSE--Compensation
Committee Interlocks and Insider Participation" below.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the persons who served on the Personnel Committee of the Board
were Jeremiah E. Casey, Juanita T. James, Thomas J. McHugh and Alexander B.
Trowbridge. Mr. Casey, Chairman of the Board of First Maryland Bancorp and its
principal subsidiary The First National Bank of Maryland (the "Bank"), is a
member of the Personnel Committee, which Committee has certain
responsibilities relating to the compensation of executive officers of Rouse.
Mathias J. DeVito, Chairman of the Board of Rouse during 1995 and until
February 23, 1995, Chief Executive Officer of Rouse, is a director of First
Maryland Bancorp. Mr. DeVito also is Chairman of the Management and
Compensation Committee of First Maryland Bancorp, which Committee reviews and
recommends compensation arrangements for executive officers, including Mr.
Casey.
Rouse maintains various banking relationships with the Bank involving
depository accounts, the issuance of letters of credit, the purchase of short-
term, high quality money market instruments from the Bank and other cash
management services. The Bank also served as the transfer agent for Rouse
Common Stock and Series A Preferred Stock (as defined below) through December
31, 1995. Further,
158
<PAGE>
subsidiaries and affiliates of Rouse are indebted to the Bank for certain
loans. In addition, the Bank leases space at various locations in Maryland
from subsidiaries and affiliates of Rouse. Mr. Casey's interest in these
matters arises solely from the positions he holds with the Bank and its parent
First Maryland Bancorp.
HUGHES EXECUTIVE COMPENSATION
Executive Cash Compensation. The following table reflects the cash
compensation paid by Hughes for the year ended December 31, 1995 to the
executive officer of THC who will become an executive officer of Rouse upon
the closing of the Mergers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------------------------------
LONG-TERM
NAME AND OTHER ANNUAL COMPENSATION OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (1) COMPENSATION (2) PAYOUTS (3) COMPENSATION (4)
- ------------------------ ---- -------- --------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
John L. Goolsby
President and Chief Ex-
ecutive Officer....... 1995 $445,486 $694,500 $ -- $461,806 $23,030
</TABLE>
- --------
(1) Includes a bonus of $387,000 ordinarily payable in January 1996 that was
accelerated and paid in December 1995.
(2) No amount is included for "perquisites and other personal benefits"
because such amount is less than the lesser of $50,000 or 10% of reported
salary and bonus.
(3) Includes payouts of $207,000 ordinarily payable in January 1996 that were
accelerated and paid in December 1995.
(4) The amount represents Hughes' matching contributions made on behalf of the
employee to Hughes' qualified and nonqualified saving plans.
Benefit Plans. Hughes has adopted, and Mr. Goolsby has been eligible to
receive benefits under, an annual incentive compensation plan, a qualified
401(k) savings plan, a nonqualified supplemental 401(k) plan, a qualified
defined benefit pension plan and a nonqualified supplemental pension plan. The
compensation committee of the Hughes board of directors determines
discretionary annual bonuses, which in Mr. Goolsby's case may not exceed 90%
of his base salary, under the annual incentive plan for participating officers
based upon individual performance. Assuming his retirement at age 65, and
based upon his 14 credited years of service as of December 31, 1995. Mr.
Goolsby would be entitled to annual retirement benefits under the qualified
defined benefit pension plan and nonqualified supplemental pension plan of
approximately $120,000. See "BACKGROUND AND REASONS FOR THE MERGERS--Interests
of Certain Persons in the Mergers."
Goolsby Incentive Agreement. Mr. Goolsby, THC and HHPLP are parties to the
Goolsby Incentive Agreement. The Goolsby Incentive Agreement entitles Mr.
Goolsby to payments, payable over a three-year period (subject to acceleration
in the event of a change in control), equal to a specified percentage, which
increases periodically, of distributions made to Stockholders and Unitholders.
Mr. Goolsby was entitled to receive payments equal to 0.7% of distributions
made to Stockholders and Unitholders in 1995 and is entitled to receive
payments equal to 0.8% of distributions made to Stockholders and Unitholders
in 1996. See "BACKGROUND AND REASONS FOR THE MERGERS--Interests of Certain
Persons in the Mergers" for a description of certain other terms of the
Goolsby Incentive Agreement.
159
<PAGE>
HUGHES--CERTAIN TRANSACTIONS
Mr. Goolsby, the President and Chief Executive Officer of THC and a director
of each of THC and THHC, will be employed by Rouse after the Mergers. In
addition, Mr. Lummis, Chairman of the Board of THC and a director of THHC,
will be a director of Rouse after the Mergers. Messrs. Davis and Studdard,
directors of THC and THHC, will be Representatives designated under the
Contingent Stock Agreement.
Mr. Goolsby holds phantom interests in THC Common Stock and Class I Units
under the Goolsby Incentive Agreement. Rouse will acquire these phantom
interests in connection with the Mergers. See "BACKGROUND AND REASONS FOR THE
MERGERS--Interests of Certain Persons in the Merger" and "THE PARTNERSHIP
MERGER AGREEMENT--Goolsby HHPLP Payment" for a description of certain other
terms of the Goolsby Incentive Agreement.
Mr. Lummis may be deemed to have beneficial ownership of 1,152 shares of THC
Common Stock and 173,372 Class 1 Units and, accordingly, has an interest in
the approval of the Mergers. Mr. Lummis disclaims beneficial ownership of all
securities held by THC and THHC in HHPLP. See "PRINCIPAL STOCKHOLDERS AND
UNITHOLDERS OF THC AND HHPLP" and "BACKGROUND AND REASONS FOR THE MERGERS--
Interests of Certain Persons in the Mergers." Mr. Lummis retired from full-
time employment with THC in 1990. THC entered into a ten-year consulting
agreement with Mr. Lummis under which he is required to be available for
frequent consultation and to perform various other functions and under which
he receives a consulting fee of $60,000 per year. In connection with the
termination of such consulting agreement upon consummation of the Mergers, Mr.
Lummis will receive a cash payment of $235,000. Mr. Lummis is also a
participant in the Summa Corporation Benefit Restoration Plan. See "BACKGROUND
AND REASONS FOR THE MERGERS--Interests of Certain Persons in the Mergers."
160
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF THC
The following table sets forth certain selected financial information of THC
as of and for each of the years in the five-year period ended December 31,
1995. Such selected financial information has been derived from the audited
consolidated financial statements of THC which, for each year in such five-
year period, have been audited by Deloitte & Touche LLP, independent
accountants. The following financial information should be read in conjunction
with THC's consolidated financial statements and notes thereto and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THC" included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS DATA:
Operating revenues............. $293,384 $169,926 $135,397 $ 87,743 $ 84,021
Gross profit from operations... 148,639 70,357 67,634 40,894 46,264
Income (loss) before cumulative
effect of accounting change... 45,139 8,403 (22,713) 4,826 10,372
Net income (loss).............. 45,139 8,403 (27,044) 4,826 10,372
Per share:
Income (loss) before
cumulative effect of
accounting change........... 679.13 126.43 (341.72) 72.61 156.05
Net income (loss)............ 679.13 126.43 (406.88) 72.61 156.05
BALANCE SHEET DATA:
Total assets................... 677,478 662,642 628,365 632,686 566,854
Notes and mortgages payable.... 332,276 332,520 328,214 277,403 223,328
Cash dividends declared per
common share.................. 138.79 147.50 91.84 36.86 126.20
</TABLE>
161
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THC
INTRODUCTION
The following discussion should be read in conjunction with the Consolidated
Financial Statements of THC and Notes thereto included elsewhere in this Proxy
Statement/Prospectus.
THC (which, for purposes of this Management's Discussion and Analysis of
Financial Condition and Results of Operations of THC, includes THHC, HHPLP and
their respective consolidated subsidiaries) is a vertically-integrated real
estate investment, management and development company whose assets are located
principally in the Las Vegas, Nevada metropolitan area. THC's real estate
assets consist of: (i) office buildings, mixed-use industrial properties and
retail centers which produce rent income ("rental properties"), (ii) land
under development ("development properties") and (iii) land planned for future
development and surplus land THC intends to sell as market conditions permit
("investment properties").
The following discussion and analysis describes the operating performance of
each of THC's principal business activities separately; management believes
that such an analysis is the most effective means of understanding its
business. THC does not allocate certain significant items, such as general and
administrative expense and interest expense, to its principal business
activities because THC does not believe such an allocation would be
meaningful. Because of the effect on net income of (i) the minority interests
of the shareholders in the net income of HHPLP and (ii) required adoptions of
new accounting pronouncements, both of which are adjustments to income from
operations, THC furthermore believes that gross profit margins and income from
operations are the most relevant indicators of its operating performance.
The ownership, management and development of rental properties results in a
predictable stream of rental income. The sales of development property parcels
are difficult to predict, but they have occurred during the last three years
on a regular basis. With respect to sales of investment properties, it is
difficult to predict whether or when such sales will occur or the amounts to
be realized upon disposition. Sales of investment properties can have a
material but unpredictable impact on THC's results of operations.
THC's development activity is capital intensive and generally requires a
significant investment before any revenues are recognized. THC typically funds
these activities by advances under the Credit Facility (described below),
Special Improvement District ("SID") financing, its available capital and
funds provided by current operations. During the development of a project,
certain costs directly associated with the development activity, such as
project administration, interest and real estate taxes, are capitalized to the
project and amortized in future periods. The activities relating to the sales
of investment properties require minimal capital investment.
THC generates a significant portion of its revenues from the sales of
Summerlin land to home builders, and it allows qualified buyers to make
installment payments relating to such purchases. Lien releases are granted as
the buyer makes payments. Depending upon the amount of the down payment made
by the buyer and the amount of unencumbered acreage released to the buyer, THC
records revenue on either the "full accrual" or the "installment" methods.
Under the full accrual method, THC records all revenue received or to be
received upon passage of title, once a minimum of 20% of the purchase price
has been paid in cash by the buyer and once certain other conditions, defined
by generally accepted accounting principles, have been met. Under the
installment method, THC records revenue ratably as cash is received. THC
typically sells custom home lots on a cash basis.
162
<PAGE>
STOCKHOLDER AGREEMENT
In 1989, the principal owners of THC entered into the Stockholder Agreement
to govern broad aspects of the operation of THC's business. Among other
things, this agreement provides for proportionate representation of the
principal owners on the THC Board, establishes certain dividend objectives
(subject to adjustment if they conflict with the needs of THC's normal
business operations), limits THC's operations to the development or sale of
its existing real estate assets and directs the THC Board and management to
develop a plan prior to 1996 which will afford all owners an opportunity to
realize the fair value of their investment in THC. THC has operated within the
constraints of this agreement since 1989, and the financial results of THC
should be considered in light of such constraints.
As is further discussed in Note 9 to the Consolidated Financial Statements
of THC and Notes thereto included elsewhere in this Proxy
Statement/Prospectus, THC entered into a non-binding letter of intent in
January 1996 with respect to the Mergers. In February 1996, the Mergers were
approved by the boards of directors of both companies, and the Merger
Agreements were executed by both parties.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
THC has maintained a high degree of liquidity in recognition of the capital-
intensive nature of the real estate development industry (particularly with
respect to the development of master-planned communities), economic conditions
and the structural changes relative to conventional financing (sources and
terms). THC has maintained this liquidity to ensure that it has the resources
and flexibility necessary for selective development activities and to maintain
entitlements.
THC's commercial and industrial development activity during 1993 was
relatively modest, and only two rental properties containing a total of 85,000
square feet were completed during the year. Remaining 1993 capital
expenditures were generally limited to those necessary to protect entitlements
and improve tenant retention in existing properties. In 1994, 457,000 square
feet of new commercial and industrial space (including a 127,000 square foot
building sold to Household Credit Services in 1995) were added in Las Vegas
because of the increased demand and reduced inventory that then existed in
that market. Based upon the continuation of this demand and reduced inventory
into 1995, THC developed an additional 585,000 square feet of commercial and
industrial space in Las Vegas, including office buildings containing 368,000
square feet and industrial buildings containing 188,000 square feet. Also
during 1995, THC sold its 60% interest in Park 2000, a mixed-used industrial
park that contained 509,000 square feet.
The current Las Vegas commercial and industrial market continues to
experience low vacancy rates as a result of a very strong local economy and
because production of new inventory has not kept pace with demand. For these
reasons, management plans to commence construction of approximately 722,000
square feet of new commercial and industrial space in its Las Vegas projects
in 1996. In Los Angeles, THC plans to commence construction of a 120,000
square foot pre-leased office building, subject to satisfactory negotiations
of the transaction with the prospective lessee. If completed, the building
would be THC's first addition in that market since a 37,000 square foot built-
to-suit sports club was completed in 1993.
In 1993 through 1995, THC continued to invest in capital improvements at
Summerlin in order to maintain the momentum which THC believes has resulted
from: (i) the significant demand in the overall residential segment of the Las
Vegas real estate market and (ii) the growing desirability of Summerlin in
particular.
163
<PAGE>
THC's capital expenditure requirements in 1996, estimated to be
$175,000,000, and beyond will be dependent on the level of development
activity that takes place, which in turn will be dependent on market
conditions. THC's existing capital reserves and existing and anticipated
financing sources are expected to be adequate to satisfy THC's currently
anticipated capital expenditure requirements.
Construction activity relating to new commercial and industrial facilities
and development at Summerlin has been funded primarily through the Credit
Facility (as defined below), SID financing, available capital and funds from
operations. THC repays the amounts drawn on the Credit Facility relating to
development activity at Summerlin through parcel sales to merchant builders
and custom lot sales. The construction of rental buildings is typically
financed through the Credit Facility, with such interim financing being
typically replaced by long-term financing once the buildings reach stabilized
occupancy. The placement of long-term financing for stabilized rental
buildings completed in 1995 was deferred, however, pending the Mergers.
In the future, THC intends to rely on the sources described in the preceding
paragraph to fund its currently anticipated construction and development
activity, but can give no assurance that such sources will continue to be
available in the future.
OPERATING ACTIVITIES
Cash provided from operating activities was $195,813,000, $81,426,000 and
$65,492,000 in 1995, 1994 and 1993, respectively. This cash flow resulted
primarily from sales at Summerlin, surplus land sales and net revenues derived
from THC's portfolio of rental properties.
Cash received from rental properties was $66,915,000, $62,326,000 and
$50,511,000 in 1995, 1994 and 1993, respectively. These gains occurring during
this three-year period are primarily the result of increases in THC's property
portfolio.
Cash flows from property sales were $204,884,000, $89,360,000 and
$63,627,000 in 1995, 1994 and 1993, respectively. Cash flows from Summerlin
community development land sales were $75,165,000 in 1995, $74,581,000 in 1994
and $43,199,000 in 1993. With the exception of a built-to-suit sale in 1995
that resulted in cash proceeds of $22,340,000, most of the remaining cash
flows from property sales in each year resulted from sales of investment
lands.
Because merchant builders were having difficulties obtaining land
acquisition and development financing through conventional sources, THC
initiated a program in 1991 pursuant to which qualified builders could
purchase land at Summerlin and make installment payments relating to such
purchases. While these financing difficulties have eased during the
intervening years, THC continues to offer short-term financing to qualified
builders as a sales incentive. As a result of its conservative financing
policies, which typically involve short payback periods and significant
builder equity, THC has yet to incur a loss of principal on builder financing
transactions and has at the same time earned yields on these notes that are
well above what it could have earned on its typical short-term investments.
The collections relating to installment notes are included in cash provided
from operating activities. At December 31, 1995, approximately $33,000,000 in
land financing notes was outstanding, all of which is considered to be
collectible.
INVESTING ACTIVITIES
Capital expenditures consist substantially of the capitalized costs of
developing Summerlin and THC's commercial and industrial properties. Capital
expenditures totaled $104,558,000, $77,617,000 and $66,368,000 in 1995, 1994
and 1993, respectively. Approximately 41%, 36% and 45% in 1995, 1994 and 1993,
respectively, of THC's total capital expenditures related to community
development activity in Summerlin, with the remainder relating substantially
to commercial and industrial development in Las Vegas.
164
<PAGE>
Capital spending increased from 1993 through 1995 as THC responded to the
extremely strong demand in the Las Vegas market for residential housing and
commercial and industrial product. THC plans to continue to devote most of its
capital resources to its Las Vegas properties as long as this market continues
to experience significant growth, and the aggregate level of capital spending
during 1996 is expected to increase by approximately 67% over the 1995 level.
In 1996, THC intends to commence construction on commercial and industrial
facilities at several of its Las Vegas projects containing an aggregate of
722,000 square feet. Additionally, THC plans to commence construction on a
120,000 square foot pre-leased office building at its Los Angeles office
center in 1996, subject to satisfactory negotiations of the transaction with
the prospective lessee. THC anticipates that the capital necessary for this
development and construction will be provided from the Credit Facility, SID
financing, available capital and funds from operations. However, no assurances
can be given that such sources of capital will continue to be available in the
future.
THC has and plans to continue to develop extensive recreational and common
area facilities to promote a quality lifestyle at Summerlin. Among these
amenities is the TPC at Summerlin, an 18-hole championship golf course and
clubhouse which is managed by an affiliate of PGA. PGA has a currently-
exercisable long-term option to purchase the TPC at a nominal price. In
addition, THC began construction in 1995 on a second 18-hole golf course
within Summerlin which will also fall within the scope of PGA's existing
purchase option. It is anticipated that the funds necessary to complete
construction of this golf course will be provided from operations.
FINANCING ACTIVITIES
Net cash provided by debt-related financing activities in 1995, 1994 and
1993 was $16,410,000, $4,081,000 and $52,900,000, respectively. Notes and
mortgages payable were $332,276,000, $332,520,000 and $328,214,000 at December
31, 1995, 1994 and 1993, respectively. These notes and mortgages payable,
together with THC's cash reserves and funds provided from operations, are the
principal sources for financing capital expenditures.
During 1995, THC consummated the following material financing transactions:
. An additional $11,000,000 (net of repayments) was drawn against the Bank
of America revolving line of credit (the "Credit Facility").
. Permanent financing in the amount of $9,000,000 was placed on an 86,000
square foot building in Hughes Center that was completed in 1994.
. As a result of the sale of THC's interest in Park 2000, mortgage debt of
$10,622,000 was removed from the balance sheet in December 1995.
As was previously discussed, permanent financing was not placed on
stabilized rental buildings completed in 1995 pending the outcome of the
Mergers.
The characteristics of notes and mortgages payable at December 31, 1995 are
principally non-recourse (66%) and fixed-rate (65%), with varying maturities.
The weighted average interest rate was 7.99% at December 31, 1995, and
$47,481,000 of debt matures during 1996. Included in the 1996 maturities is
the $39,544,000 mortgage on the First Interstate Tower at Hughes Center in Las
Vegas which matured on January 1. The maturity on this mortgage was extended
to July 1, 1996 and THC intends to refinance this debt as it matures.
In December 1989, the City of Las Vegas issued SID tax-exempt bonds in the
amount of $73,885,000 to fund the construction of certain public improvements
benefitting approximately 3,400 acres of property at Summerlin. Of this
amount, $66,581,000 is expected to be received by THC. The improvements to be
acquired by the City of Las Vegas were or will be constructed by THC and any
excess of the actual costs of construction over the amounts financed by the
SID has been or will be paid by the Company. At December 31, 1995, 1994 and
1993, $6,321,000, $13,218,000 and
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<PAGE>
$19,554,000, respectively, of SID financing was reflected on the consolidated
balance sheets as an offset to development properties. It is anticipated that
additional proceeds from this financing of $7,304,000 will be received in the
future as new infrastructure improvements at Summerlin are completed and
transferred to the City of Las Vegas. This indebtedness will be reduced
through principal payments by THC or as Summerlin land parcels within the
special improvement district are sold and the assessments are either assumed
by the purchasers or paid.
Special improvement district financing will be a significant source of
funding for future Summerlin development costs. THC intends to create new
special improvement districts in Summerlin as development progresses to new
areas. Two new special improvement districts are planned to be created in 1996
for the financing of new villages.
See Note 4 to the Consolidated Financial Statements of THC included
elsewhere in this Proxy Statement/Prospectus for further discussion of notes,
mortgages and assessments payable.
RESULTS OF OPERATIONS
As noted above, the following discussion and analysis regarding THC's
results of operations describes the operating performance of each of THC's
principal business activities separately; management believes that such an
analysis is the most effective means of understanding its business.
RENTAL PROPERTIES
Rental properties consist of office, mixed-use industrial and retail
properties and ground leases principally in the Las Vegas and, to a lesser
extent, the Los Angeles metropolitan areas. Operating revenues from rental
properties are derived primarily from the leasing of these holdings.
THC's strategy regarding the construction of rental properties is to build
only when it has obtained significant pre-construction leasing commitments or,
alternatively, when management believes that the balance of supply and demand
for the type of property in question makes it reasonably probable that the new
property will lease up quickly. Management believes that the construction of
"speculative" rental properties is a sound business practice in markets such
as Las Vegas which are characterized by low vacancies and high demand.
Management stresses quality in the design and construction of its rental
properties and believes that its properties have established a high
architectural standard. These properties are typically located in master-
planned projects that are attractively landscaped, in prime locations for
their respective markets and restrictive in terms of the types of activities
that can be performed by tenants. For these reasons, THC generally can command
above-market leasing rates for its properties.
Operating revenues from rental properties were $65,344,000 in 1995,
$59,926,000 in 1994 and $53,014,000 1993. The increase in operating revenues
from 1993 through 1995 was due primarily to the increase in THC's inventory of
rented space that occurred during that time as a result of its construction
activities.
Lease statistics for THC's rental properties (including those owned jointly
with its consolidated joint venture partners) at December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Rentable square footage (in thousands).................. 4,038 3,972 3,593
Leased square footage (in thousands).................... 3,685 3,715 3,440
Percentage rented....................................... 91.3%(1) 93.5% 95.7%
</TABLE>
- --------
(1) Excluding the effect of a 165,000 square foot office building in Hughes
Center that was placed in service in November, the percentage rented at
December 31, 1995 was 93.8%.
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<PAGE>
During 1995, THC developed an additional 585,000 square feet of commercial
and industrial space in Las Vegas, including office buildings containing
368,000 square feet and industrial buildings containing 188,000 square feet.
Also during 1995, THC sold its 60% interest in Park 2000, a mixed-used
industrial park that contained 509,000 square feet.
Costs of revenues for rental properties were $24,651,000 in 1995,
$24,293,000 in 1994 and $19,605,000 in 1993, resulting in gross profit margins
of 62%, 59% and 63% in 1995, 1994 and 1993, respectively. Included in these
costs are abandoned tenant costs, net of recoveries, which were net expenses
of $310,000 and $623,000 in 1995 and 1994, respectively, and net recoveries of
$1,898,000 in 1993. Excluding the effect of abandoned tenant costs, net of
recoveries, gross profit margins for rental properties were 63%, 61% and 59%
in 1995, 1994 and 1993, respectively.
DEVELOPMENT PROPERTIES
In Summerlin, THC develops land pursuant to its master plan and sells the
developed lots and acreage to merchant home builders, developers and
individuals. THC also develops land in Summerlin and its other Las Vegas and
Los Angeles projects for commercial, industrial and retail use. Typically, THC
constructs buildings and sitewide improvements and continues to own and manage
the properties upon completion, sometimes with joint venture partners. It will
also, however, enter into land leases, land sales and build-to-suit sales
transactions. Land in THC's development projects that is sold to others is
sold subject to a number of conditions which are intended to ensure that its
use will serve as an enhancement to the project as a whole.
Operating revenues from development properties were $122,080,000 in 1995,
$98,050,000 in 1994 and $63,030,000 in 1993. Most of this revenue resulted
from sales of Summerlin land, which began in 1988. The increase in land sales
at Summerlin during the past three years is the result of increased demand.
An analysis of revenues from development properties is as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Summerlin revenues:
Merchant home builder parcels........................ $ 63,609 $59,256 $39,377
Custom home lots..................................... 18,894 18,149 13,778
Commercial/industrial parcels........................ 28,760 3,286 229
Del Webb Communities, Inc. parcels................... 7,409 13,456 6,671
Other Summerlin revenues............................. 1,211 1,700 68
-------- ------- -------
Subtotal........................................... 119,883 95,847 60,123
Other revenues......................................... 2,197 2,203 2,907
-------- ------- -------
Total.............................................. $122,080 $98,050 $63,030
======== ======= =======
</TABLE>
Within Summerlin, sales fall into four general categories--sales of finished
parcels to merchant home builders, sales of finished custom home lots to
individuals, sales of land parcels and built-to-suit buildings in
commercial/industrial parks and periodic "bulk" sales of undeveloped land to
Del Webb Communities, Inc. Del Webb is a developer of master-planned active-
adult retirement communities. Since 1988, Del Webb has purchased from the
Company 2,493 acres of undeveloped land in Summerlin for the creation and
expansion of its Sun City Las Vegas at Summerlin community. These sales have
resulted in revenues from development properties of approximately $66,200,000.
It should be noted that THC makes bulk sales infrequently, due to the small
number of potential bulk buyers, and these sales cannot be depended upon as a
source of stable, predictable revenues.
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<PAGE>
Other development property revenues result from sales of finished parcels or
built-to-suit buildings, primarily to end users, in THC's other projects.
Gross profit margins on development property sales were 25% in 1995, 27% in
1994 and 28% in 1993. The decline in gross profit margins from 1993 to 1994
was largely influenced by the inclusion in 1993 of a portion of a 1991 bulk
land sale to Del Webb which had a gross profit margin of 77%. Additionally,
the gross profit margins of each of the years 1993 through 1995 were
negatively impacted by the sale of a built-to-suit building to Household
Credit Services ("Household"). As part of this transaction, the underlying
land was contributed to Household, and Household assumed the special
improvement district financing that encumbered the land. This land
contribution was made as an inducement to "seed" Summerlin with a major
employer. While the sale actually occurred in 1995, accruals of estimated
losses were recorded in both 1994 and 1993. Excluding the effects of the
aforementioned transactions, gross profit margins were 31% in 1995, 28% in
1994 and 24% in 1993.
INVESTMENT PROPERTIES
Investment properties consist of land planned for future development and
surplus land THC intends to sell as market conditions permit. Of the 16,263
acres classified by THC as investment property as of December 31, 1995, 14,585
acres were in Summerlin. THC plans to develop this land in the long term, and
currently it does not have water commitments. In early 1996, THC entered into
a development agreement with Clark County (the county in which Summerlin is
located) which secured entitlements for 6,145 acres of the Summerlin
investment land. The remaining 8,440 acres are unentitled. Other significant
parcels of THC's investment property portfolio, in terms of value, are located
in North Las Vegas, on the Las Vegas Strip and in Los Angeles. While
management believes that THC's investment properties may have significant
value, sales of this land cannot be considered a stable and predictable source
of revenue.
Operating revenues from investment properties were $105,960,000 in 1995,
$11,950,000 in 1994 and $19,353,000 in 1993. 1995 revenues included
$64,986,000 from sales of land on the Las Vegas Strip, $16,858,000 from sales
of North Las Vegas land, $12,228,000 from sales of land in Park 2000 and
$7,620,000 from the sale of surplus land in Los Angeles. Sales of North Las
Vegas land comprised substantially all of 1994 operating revenues from
investment properties. Included in 1993 revenues was $15,000,000 from the sale
of land on the Las Vegas Strip and $1,725,000 from the sale of Summerlin
investment land to Del Webb.
Costs of revenues for investment properties consist primarily of the basis
of land sold and the holding costs, such as property taxes, associated with
the land. Investment land sales typically produce a higher gross profit margin
than development land sales due to the minimal improvement costs that have
generally been made. The gross profit margins for investment properties were
73% in 1995, 72% in 1994 and 86% in 1993.
OTHER INCOME AND EXPENSES
General and administrative expenses were $10,056,000 in 1995, $10,605,000 in
1994 and $10,549,000 in 1993. These expenses represent THC's general corporate
overhead. The primary component of this expense is payroll and related
expense, which was $5,447,000 in 1995, $5,627,000 in 1994 and $6,149,000 in
1993.
Interest income was $13,524,000 in 1995, $8,270,000 in 1994 and $6,412,000
in 1993 and is earned primarily from short-term investments and notes
receivable from purchasers of land. The increase in interest income between
1993 to 1995 was primarily the result of higher levels of invested funds and
higher receivables from land sales. In 1995, $1,251,000 of interest income was
recorded as it was received on disproportionate capital contributions made by
THC to Park 2000 Associates, the partnership entity that owned Park 2000.
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<PAGE>
Interest cost is incurred primarily on the permanent financing on THC's
rental properties, on infrastructure financing at THC's development projects
and on the Credit Facility, which is used as a source of construction
financing and for general corporate purposes. Partially offsetting interest
cost incurred is capitalized interest, which is the interest directly
associated with development and construction activities. An analysis of the
components of interest expense is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Interest cost incurred............................... $28,785 $28,701 $28,922
Capitalized interest................................. (8,044) (5,526) (4,590)
------- ------- -------
Interest expense................................... $20,741 $23,175 $24,332
======= ======= =======
</TABLE>
While the average balances of notes and mortgages increased slightly over
the three year period ended December 31, 1995, interest rates on new debt were
generally declining. As a result of the foregoing offsetting conditions,
interest cost incurred during 1993 through 1995 was fairly constant. The
increase in capitalized interest from 1993 through 1995 was due primarily to
an increase in the average accumulated expenditures relating to property
undergoing development activities. These average accumulated expenditures were
$64,807,000, $46,067,000 and $36,481,000 in 1995, 1994 and 1993, respectively.
The weighted average interest rate on outstanding debt was 7.94%, 8.39% and
7.95% in 1995, 1994 and 1993, respectively.
In 1993, THC recorded a charge of $80,208,000 for the write-down of the net
book value of certain assets. The majority of the write-down was based upon
the net present value of the estimated future cash flows of the properties. Of
the total write-down, $63,971,000 was a write-down of the net book value of
assets located principally at Howard Hughes Center. The declining market
values in the Los Angeles commercial real estate market over the past several
years, combined with the capital spending that has been required to protect
the development entitlements of this project, resulted in an excess of net
book value over expected future cash flows. Because the net book value was not
expected to be recovered from future cash flows, the project's net book value
was written down to a fair value that was determined on a discounted cash flow
basis. Additionally, $8,802,000 of the write-down was the result of
management's decision to fully reserve THC's investment in MTP-AC. For further
discussion of this investment and write-down, see Note 3 to the Consolidated
Financial Statements of THC and Notes thereto included elsewhere in this Proxy
Statement/Prospectus. The remaining amount, $7,435,000, relates to the write-
off of certain capitalized projects costs that management determined had no
future value. An additional charge of $747,000 was recorded in 1994 primarily
to reflect the continued decline in estimated fair value of one of the
properties written down in 1993.
Minority interests in income of consolidated partnerships represents the
income in consolidated partnerships that is owned by parties other than THC.
The most substantial of these minority interests is the interest in HHPLP that
is owned directly by the shareholders. In the three years ended December 31,
1995, their combined direct ownership in HHPLP was 48.28% until July 1994 and
47.80% thereafter. As a result of disproportionate distributions made by HHPLP
to the shareholders, THC and its corporate affiliates are entitled as of
January 1, 1996 to receive 72.55% of HHPLP's operating distributions until
their distribution preference is satisfied. The shareholders' direct interests
in HHPLP's consolidated results of operations were $41,916,000 and $15,238,000
in the net income of 1995 and 1994, respectively, and $21,665,000 in the net
loss of 1993.
The provision for income taxes was $25,198,000 and $4,309,000 in 1995 and
1994, respectively, and a benefit of $12,009,000 in 1993. These amounts
resulted in effective tax rates for book purposes of 35.8% in 1995, 33.9% in
1994 and 34.6% in 1993. The effective tax rate for these years differed from
the statutory federal rate of 35% for a number of reasons, none of which were
individually significant. At December 31, 1995, the Consolidated Financial
Statements of THC and Notes thereto
169
<PAGE>
included elsewhere in this Proxy Statement/Prospectus include a net deferred
tax asset of $7,387,000. Management believes that this asset should be
realized since THC has unrealized asset appreciation, a strong earnings
history and anticipated future reversals of existing taxable temporary
differences. See Note 5 to the Consolidated Financial Statements of THC and
Notes thereto included elsewhere in this Proxy Statement/Prospectus for
additional information on the provision for income taxes and the net deferred
tax asset.
Effective January 1, 1993, THC adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, Accounting for Income Taxes. The adoption of SFAS
109 changed THC's method of accounting for income taxes from the "deferred"
method (an operating statement approach) to the "asset/liability" method (a
balance sheet approach). The cumulative effect of the adoption of SFAS 109 was
not material to the Consolidated Financial Statements of THC and Notes thereto
included elsewhere in this Proxy Statement/Prospectus.
Also effective January 1, 1993, THC adopted SFAS No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. SFAS 106 requires
accrual basis accounting for retiree medical benefits. Prior to 1993, THC
expensed the premiums for retiree medical benefits as the premiums were paid.
THC's adoption of SFAS 106 resulted in a net charge to income of $4,331,000 (a
total charge of $7,830,000 less $1,268,000 attributable to the minority
interest of the shareholders in HHPLP and an income tax benefit of $2,231,000)
for the cumulative effect of the change in accounting principle for periods
prior to 1993. The pre-tax expense of providing postretirement benefits other
than pensions increased from $955,000 in 1993 to $1,095,000 in 1994. In 1995,
however, a credit to expense of $280,000 was recorded primarily as a result of
changes to THC's postretirement health plan that became effective April 1,
1995. As of December 31, 1995, the THC's actuarially-calculated accumulated
postretirement benefit obligation related to such plan was $5,476,000. At that
same date, its recorded liability was $8,253,000. For additional information
on THC's postretirement health plan, see Note 7 to the Consolidated Financial
Statements of THC and Notes thereto included elsewhere in this Proxy
Statement/Prospectus.
THC implemented SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of in 1995 upon its issuance
by the Financial Accounting Standards Board. THC had been applying the
principles prescribed by SFAS 121 prior to its issuance. Therefore, the
implementation of SFAS 121 had no effect on the Consolidated Financial
Statements of THC. See the Summary of Significant Accounting Policies
accompanying the Consolidated Financial Statements of THC and Notes thereto
included elsewhere in this Proxy Statement/Prospectus for further discussion
of SFAS 121.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The foregoing discussion includes forward-looking statements which reflect
THC's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and
uncertainties, including those identified below, and could cause actual
results to differ materially from historical results or those anticipated. The
words "believe," "expect," "anticipate" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of their dates. THC
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise. The following factors, among others, could cause actual results to
differ materially from historical results or those anticipated: (1) real
estate investment risks; (2) development risks; (3) illiquidity of real estate
investments; (4) dependence on rental income from real property; (5) effect of
uninsured loss; (6) lack of geographical diversification; (7) possible
environmental liabilities; (8) difficulties of compliance with Americans with
Disabilities Act; (9) competition; (10) changes in the economic climate; (11)
water availability in the Las Vegas metropolitan area; (12) availability of
infrastructure; (13) non-Nevada gaming; (14) California risks; (15) limited
control with respect to certain properties; and (16) bankruptcy of Joint
Venture Partners. For a more detailed discussion of these factors, see "RISK
FACTORS--Real Estate Development and Investment Risks" and "RISK FACTORS--
Additional Risks Relating to the Business of THC and its Subsidiaries."
170
<PAGE>
PRINCIPAL STOCKHOLDERS AND UNITHOLDERS OF THC AND HHPLP
The following table presents certain information, as of January 31, 1996,
concerning the beneficial ownership of THC Common Stock and Class 1 Units by
(i) each person known to own beneficially in excess of 5% of the outstanding
THC Common Stock or Class 1 Units, (ii) each director of THC and THHC, (iii)
the chief executive officer and each of the four other most highly compensated
executive officers of THC and THHC (the "Named Officers") and (iii) all
directors and officers of THC and THHC, respectively, as a group. "Beneficial
ownership" is as defined under the Exchange Act, under which, among other
things, the power to vote or the power to dispose of a security is deemed
beneficial ownership; as a result, under the definition more than one person
may be deemed the owner of a single security, and amounts in the table may not
total to securities actually owned or outstanding.
<TABLE>
<CAPTION>
THC COMMON STOCK CLASS 1 UNITS
----------------------- ----------------------
PERCENT
PERCENT OF ALL UNITS
NAME(1) NUMBER OF ALL SHARES(2) NUMBER (3)
------- ------ ---------------- --------- ------------
<S> <C> <C> <C> <C>
THCP(4)......................... 47,091 70.9% 7,084,947 70.9%
RD&C(5)(6)...................... 12,628 19.0% 1,900,000 19.0%
9.5 Trust(6).................... 6,314 9.5% 950,000 9.5%
Platt W. Davis, III(7)(8)(9).... 47,091 70.9% 7,084,947 70.9%
Howard Hughes Gano(8)........... 1,408 2.1% 211,852 2.1%
Michael V. Perrin(8)............ 155 * 23,382 *
William R. Lummis(8)............ 1,152 1.7% 173,372 1.7%
Milton H. West, Jr.(7)(8)....... 47,091 70.9% 7,084,947 70.9%
All THC directors and officers
as a
group (20 persons)............. 3,693 5.6% 555,649 5.6%
All THHC directors and officers
as a
group (20 persons)............. 3,693 5.6% 555,649 5.6%
</TABLE>
- --------
* Indicates less than 1%.
(1) The following directors or Named Officers do not own any THC Common Stock
or Class 1 Units and, therefore, have been excluded from the table:
Messrs. Goolsby, Dorfmeyer, Olson, Studdard, Vacchina, Morrison, Niarchos,
Kilduff, Van Epp and Brooks.
(2) Based on 66,466 shares of THC Common Stock outstanding.
(3) Based on 10,000,000 Class 1 Units outstanding, which Class 1 Units
collectively represent a 47.8% ownership interest in HHPLP.
(4) No partner of THCP owns more than 5% of any class of voting securities of
either THC or HHPLP. Messrs. Davis, Frederick R. Lummis, Jr. and West have
the power, as managing partners of THCP, generally to exercise voting and
investment power over the THC Common Stock and the Class 1 Units held by
THCP, although in certain matters they may exercise such powers only with
the approval of a majority in interest of the partners in THCP. See
"PRINCIPAL STOCKHOLDERS AND UNITHOLDERS OF THC AND HHPLP--THCP."
(5) RD&C is not the record owner of Class 1 Units but rather holds an
irrevocable proxy with respect to the Class 1 Units owned by its
beneficiaries. See "PRINCIPAL STOCKHOLDERS AND UNITHOLDERS OF THC AND
HHPLP--RD&C."
(6) No beneficiary of either RD&C or the 9.5 Trust owns more than 5% of any
class of voting securities of THC or HHPLP. See "PRINCIPAL STOCKHOLDERS
AND UNITHOLDERS OF THC AND HHPLP--RD&C" and "PRINCIPAL STOCKHOLDERS AND
UNITHOLDERS OF THC AND HHPLP--The 9.5 Trust." RD&C and the 9.5 Trust will
terminate at the Effective Time and distribute the consideration to be
received in the Mergers to their respective beneficiaries.
(7) The named individual is a managing partner of THCP, but disclaims
beneficial ownership of all securities held by THCP except those
attributable to his interests therein, which are shown in the table, which
in the case of Mr. Davis is 587 shares of THC Common Stock and 88,272
Class 1 Units, and in the case of Mr. West is 544 shares of THC Common
Stock and 81,792 Class 1 Units.
(8) The named individual is a director of THC and THHC, but disclaims
beneficial ownership of all securities held by THC and THHC in HHPLP.
(9) Mr. Davis, a director of THC, is co-trustee of the Platt W. Davis III
Trust, a partner of THCP, which beneficially owns 320.02 shares of THC
Common Stock and 48,148.44 Class 1 Units held by THCP. Mr. Davis disclaims
beneficial ownership of all securities of THC or HHPLP held by such Trust
or beneficially owned by such Trust through THCP.
171
<PAGE>
THCP
THCP is a Texas general partnership among certain of the heirs of Howard R.
Hughes, Jr., and various successors, essentially family members and various
active partners and former partners, and persons succeeding to the interests
of such persons by gift, inheritance or assignment, of Andrews & Kurth L.L.P.
THCP has been in existence since 1977. THCP received its holdings in THC and
HHPLP, as a distribution from the Estate of Howard R. Hughes, Jr. (the
"Estate"), in 1989. THCP's address is 4200 Texas Commerce Tower, Houston,
Texas 77002, Attn.: George E. Vetters.
Pursuant to the Agreement of Partnership of THCP (as amended and restated as
of June 1, 1989, the "THCP Partnership Agreement"), the managing partners of
THCP (the "Managing Partners") have broad power and authority with respect to
voting the THC Common Stock and the Class 1 Units held by THCP and have the
exclusive power to conduct, direct and exercise full control over all
activities of THCP. The Managing Partners are prohibited, however, from taking
any actions which make it impossible to carry on the business of THCP, or
amending the THCP Partnership Agreement or Stockholder Agreement or admitting
a person as a partner of THCP (a "THCP Partner") other than pursuant to the
terms of the THCP Partnership Agreement. In addition, the THCP Partnership
Agreement prohibits the Managing Partners, without first obtaining the consent
of majority in interest of THC Partners, from, among other things: (a)
selling, exchanging, disposing or encumbering any of the THC Common Stock or
the Class 1 Units; (b) voting any of the THC Common Stock or the Class 1 Units
in favor of, or otherwise consenting to, any merger, consolidation or
combination of THC, HHPLP and/or THHC; (c) selling or encumbering all or
substantially all of the assets of THC, HHPLP or THHC; or (d) amending,
supplementing or otherwise modifying the Stockholder Agreement. The Managing
Partners are elected by the THCP Partners every third year, commencing with
the election of the Managing Partners that was held in May 1992. The current
Managing Partners of THCP are Platt W. Davis, III, Frederick R. Lummis, Jr.
and Milton H. West, Jr.
THCP Partners and their assignees ("THCP Assignees") may withdraw from THCP
and receive the balance of their capital accounts only in a limited number of
circumstances and only pursuant to the terms of the THCP Partnership
Agreement. Any THCP Partner may totally withdraw from THCP at the end of any
calendar year. In addition, a THCP Partner may either totally or partially
withdraw from THCP if THCP receives an offer from a third party to purchase or
otherwise acquire the THC Common Stock or Class 1 Units held by THCP (a
"Tender Offer"). Similarly, a THCP Partner may either totally or partially
withdraw from THCP if the THCP Partners become entitled to include their pro
rata portion of the THC Common Stock or Class 1 Units held by THCP in a
proposed registration of THC Common Stock or Class 1 Units for sale to the
public (a "Registered Offering"). However, in order to be entitled to totally
or partially withdraw from THCP in connection with a Tender Offer or a
Registered Offering, the withdrawing THCP Partner must commit to sell all of
the THC Common Stock and Class 1 Units distributed to such THCP Partner
pursuant to the Tender Offer or in the Registered Offering. Finally, a THCP
Partner may either totally or partially withdraw from THCP at any time if such
THCP Partner commits to sell all of the THC Common Stock and Class 1 Units
distributed to such THCP Partner to a third party. Withdrawal from THCP in any
of the foregoing circumstances is subject to certain notification requirements
which are imposed by the THCP Partnership Agreement. Any THCP Partner totally
or partially withdrawing from THCP is also required to deliver a proxy to the
Managing Partners authorizing the Managing Partners to vote the THC Common
Stock and the Class 1 Units distributed to such THCP Partner until the earlier
to occur of (i) the termination of the Stockholder Agreement and (ii) the sale
of the THC Common Stock and the Class 1 Units to an unrelated third party. In
addition, such THCP Partner must furnish THCP with a written undertaking to
comply with applicable state and federal securities laws upon any transfer of
the THC Common Stock or Class 1 Units distributed to such THCP Partner.
THCP currently holds 47,090.81 shares of THC Common Stock and 7,084,947
Class 1 Units. THCP dissolves on the earliest to occur of: (a) December 31,
2039; (b) an election to dissolve THCP
172
<PAGE>
by the Managing Partners, which election is approved by the holders of more
than 50% of the aggregate balance of all of the capital accounts in THCP; (c)
the entry of a decree of judicial dissolution of THCP; (d) the resignation of
all of the Managing Partners and the continuance of all of the vacancies
created by such resignations for a period of 60 days; and (e) the reduction of
the shares of THC Common Stock held by THCP to a level less than 10% of all of
the issued and outstanding shares of THC Common Stock.
The Managing Partners have proposed an amendment to the THCP Partnership
Agreement providing for certain amendments to the THCP Partnership Agreement
and for the continuance of THCP after the Mergers. Unless such amendment is
approved, THCP will dissolve upon the consummation of the Mergers.
RD&C
RD&C is a Delaware voting trust established in 1989 to hold the THC Common
Stock of its beneficiaries and to vote the shares thereof, and to vote the
Class 1 Units of such beneficiaries pursuant to an irrevocable proxy, with
respect to matters within the scope of the Stockholder Agreement and matters
brought to votes of Stockholders or Unitholders generally. The beneficiaries
of RD&C received their THC Common Stock and Class 1 Units as a distribution of
the Estate in 1989. The beneficiaries of RD&C consist of certain heirs of
Howard R. Hughes, Jr. and their assigns.
The Trustee of RD&C is First Interstate Bank of Nevada, N.A. (the "RD&C
Trustee"). The RD&C Trustee's address is: Las Vegas Trust Department, 3800
Howard Hughes Parkway, Las Vegas, Nevada 89109, Attn.: Rose Robb, Vice
President. The Trust Agreement for RD&C (the "RD&C Trust Agreement") provides
that the RD&C Trustee is empowered to vote all of the THC Common Stock held by
RD&C; provided, however, that, in any votes conducted in connection with the
nomination, election or removal of directors of THC, the RD&C Trustee must
vote all of the THC Common Stock as directed by George W. Roberts, husband of
Agnes L. Roberts (deceased), Elspeth L. DePould and Barbara L. Cameron (the
"Principal RD&C Stockholders"). Each Principal RD&C Stockholder has the power
to direct the RD&C Trustee to nominate, elect or remove one (but only one)
director of THC with such power rotating among the Principal RD&C Stockholders
from year to year. Under the formula set forth in the Stockholder Agreement,
RD&C is currently entitled to nominate two directors. With respect to any
other matters coming before the Stockholders for a vote, the RD&C Trustee is
empowered to vote the THC Common Stock held by RD&C as each of the
beneficiaries directs the RD&C Trustee with regard to the THC Common Stock
beneficially owned by such beneficiary. Beneficiaries are not entitled to
withdraw the THC Common Stock from RD&C until RD&C has been terminated but may
transfer their interests in RD&C by transferring the voting trust certificates
issued to such beneficiary, subject to a right of first refusal held by the
Principal RD&C Stockholders. RD&C currently holds 12,628.54 shares of THC
Common Stock and an irrevocable proxy with respect to Class 1 Units owned by
its beneficiaries; it expires on the earlier to occur of: (i) May 31, 1999;
and (ii) termination of the Stockholder Agreement. Accordingly, RD&C will
terminate upon the consummation of the Mergers.
THE 9.5 TRUST
The 9.5 Trust is a Delaware voting trust established in 1989 to hold the THC
Common Stock and Class 1 Units of its beneficiaries and to vote such shares of
THC Common Stock and Class 1 Units with respect to matters within the scope of
the Stockholder Agreement and matters brought to votes of Stockholders and
Unitholders generally. The beneficiaries of the 9.5 Trust received their THC
Common Stock and Class 1 Units as a distribution of the Estate in 1989. The
beneficiaries of the 9.5 Trust consist of heirs of Howard R. Hughes, Jr. and
their assigns.
The Trustee of the 9.5 Trust is Wachovia Bank of Georgia, N.A. (the "9.5
Trustee"). The 9.5 Trustee's address is: 191 Peachtree Street NE, Atlanta,
Georgia 30303, Attn.: Richard Britzius. The 9.5 Trustee succeeded First
Interstate Bank of Nevada, N.A., in 1993. The Trust Agreement for the
173
<PAGE>
9.5 Trust (the "9.5 Trust Agreement") provides that the 9.5 Trustee is
empowered to vote all of the THC Common Stock held by the 9.5 Trust; provided,
however, that in any votes conducted in connection with the election of
directors of THC, the 9.5 Trustee must vote all of the THC Common Stock for
the director selected by the holders of 51% of the voting trust certificates
issued to beneficiaries of the 9.5 Trust (the "9.5 Voting Trust Certificates")
and as provided in the Stockholder Agreement. With respect to any other
matters coming before the Stockholders for a vote, the 9.5 Trustee is
empowered to vote the THC Common Stock held by the 9.5 Trust as each of the
holders of the 9.5 Voting Trust Certificates directs the 9.5 Trustee with
regard to the THC Common Stock beneficially owned by such holder. The holders
of 9.5 Voting Trust Certificates are permitted to assign their 9.5 Voting
Trust Certificates; provided, however, that the assignee delivers an executed
counterpart of the 9.5 Trust Agreement to the 9.5 Trustee. A trust committee
consisting of Don Hughes, Norton Bond, David Byrne and Wayne Fisher has been
established under the 9.5 Trust Agreement, although no powers or duties of
such committee are provided in the 9.5 Trust Agreement. The 9.5 Trust
currently holds 6,314.27 shares of THC Common Stock and 950,000 Class 1 Units;
it expires on the earlier to occur of: (a) July 7, 1999; and (b) the
termination of the Stockholder Agreement. Accordingly, the 9.5% Trust will
terminate upon the consummation of the Mergers.
174
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
are based upon the consolidated financial statements of Rouse and THC,
adjusted to give effect to the Mergers. The pro forma condensed combined
balance sheet and statement of operations are provided to illustrate the
effect of the Mergers on Rouse and have been prepared using the purchase
method of accounting. These statements reflect how the balance sheet of Rouse
might have appeared at December 31, 1995 if the Mergers had been consummated
at that date and how the statement of operations of Rouse for the year ended
December 31, 1995 might have appeared if the Mergers had been consummated on
January 1, 1995. These unaudited pro forma condensed combined financial
statements are not necessarily indicative of the results of operations or
financial position of Rouse that would have occurred had the Mergers occurred
at the beginning of the period presented or on the date indicated, nor are
they necessarily indicative of the future results or financial position of
Rouse.
These unaudited pro forma condensed combined financial statements should be
read in conjunction with the audited consolidated financial statements of
Rouse and of THC, including the notes thereto, which are included elsewhere in
this Proxy Statement/Prospectus. The unaudited pro forma adjustments are based
upon information set forth in this Proxy Statement/Prospectus, and certain
assumptions included in the notes to the unaudited pro forma condensed
combined financial statements.
As indicated above, the Mergers will be accounted for by the purchase method
of accounting. Accordingly, Rouse's cost to acquire THC will be allocated to
the assets acquired and liabilities assumed according to their respective fair
values, with any excess being allocated to goodwill. The unaudited pro forma
condensed combined financial statements indicate that the aggregate fair value
of the assets acquired and liabilities assumed in the purchase are
$602,618,000 and $315,368,000, respectively, and that the excess cost
allocable to goodwill is $10,495,000.The purchase allocation adjustments made
in connection with the development of the unaudited pro forma condensed
combined financial statements are based on the information available at this
time. Subsequent adjustments and refinements to the allocation may be made
based on additional information.
175
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE HUGHES THE HUGHES THE ROUSE
THE ROUSE CORPORATION CORPORATION COMPANY AND
COMPANY AND AND PRO FORMA AND SUBSIDIARIES
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS SUBSIDIARIES, (PRO FORMA
(HISTORICAL) (HISTORICAL) (NOTE 2) AS ADJUSTED COMBINED)
ASSETS ------------ ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Property
Operating properties,
net.................. $2,487,037 $287,022 $ 3,769 (1) $393,885 $2,880,922
(6,575)(4)
109,669 (5)
Properties in
development.......... 56,151 139,251 (101,755)(1) 44,531 100,682
7,035 (5)
Properties held for
sale................. 22,602 -- -- -- 22,602
Land held for
development and
sale................. 134,168 16,625 108,076 (1) 111,350 245,518
(13,351)(5)
---------- -------- --------- -------- ----------
Total property...... 2,699,958 442,898 106,868 549,766 3,249,724
Prepaid expenses,
deferred charges and
other assets........... 151,068 47,808 (34,917)(2) 37,543 188,611
(17)(4)
24,669 (5)
Accounts and notes
receivable............. 36,751 43,538 (3,769)(1) 44,508 81,259
4,739 (5)
Investments in
marketable securities.. 2,910 49,135 (49,135)(2) -- 2,910
Cash and cash
equivalents............ 94,922 94,099 (92,692)(2) 1,222 96,144
(185)(4)
---------- -------- --------- -------- ----------
Total............... $2,985,609 $677,478 $ (44,439) $633,039 $3,618,648
========== ======== ========= ======== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Debt.................... $2,479,529 332,276 $ 6,321 (1) $329,543 $2,809,072
(17,000)(3)
(4,275)(4)
(27,779)(5)
40,000 (5)
Other liabilities....... 244,347 217,925 (162,177)(3) 71,246 315,593
(2,502)(4)
10,000 (5)
8,000 (5)
Deferred income taxes... 81,649 -- 55,850 (5) 55,850 137,499
Company-obligated
mandatorily redeemable
preferred securities of
a trust holding solely
Parent Company
subordinated debt
securities............. 137,500 -- -- -- 137,500
Shareholders' equity.... 42,584 127,277 (176,744)(2) 176,400 218,984
179,177 (3)
46,690 (5)
---------- -------- --------- -------- ----------
Total............... $2,985,609 $677,478 $ (44,439) $633,039 $3,618,648
========== ======== ========= ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
176
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE HUGHES THE ROUSE
THE ROUSE CORPORATION COMPANY AND
COMPANY AND AND PRO FORMA SUBSIDIARIES
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS (PRO FORMA
(HISTORICAL) (HISTORICAL) (NOTE 3) COMBINED)
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues................. $672,821 $313,449 $(20,508)(1) $956,094
(880)(2)
(8,788)(8)
Operating expenses,
exclusive of provision
for bad debts,
depreciation and
amortization............ 347,560 156,927 (6,566)(1) 537,069
(269)(2)
(6,324)(4)
(2,503)(5)
525 (7)
50,202 (10)
(2,483)(11)
Interest expense......... 212,963 20,741 (1,628)(1) 232,484
(350)(2)
4,293 (3)
(3,535)(6)
Provision for bad debts.. 3,318 75 -- 3,393
Depreciation and amorti-
zation.................. 73,062 19,624 (11,441)(12) 81,245
Gain (loss) on disposi-
tions of assets and
other provisions, net... (25,749) -- -- (25,749)
-------- -------- -------- --------
Earnings from continuing
operations before income
taxes................... 10,169 116,082 (50,097) 76,154
Income taxes............. 4,319 25,198 16,364(13) 45,881
-------- -------- -------- --------
5,850 90,884 (66,461) 30,273
Minority interests in
(losses) income of con-
solidated partnerships.. -- 45,745 (38)(2) 769
(3,022)(1)
(41,916)(9)
-------- -------- -------- --------
Earnings from continuing
operations.............. $ 5,850 $ 45,139 $(21,485) $ 29,504
======== ======== ======== ========
Earnings from continuing
operations per share of
common stock after pro-
vision for dividends on
Preferred stock (Note
4)...................... $ (.18) $ .26
======== ========
Weighted average number
of common shares out-
standing................ 47,814 8,820 56,634
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
177
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET AND STATEMENT OF
OPERATIONS
(UNAUDITED)
(1) BASIS OF PRESENTATION
On February 27, 1996, Rouse entered into the Merger Agreements pursuant to
which Rouse will acquire all of the issued and outstanding shares of THC
Common Stock and the ownership interests of stockholders of THC in HHPLP.
The aggregate consideration payable by Rouse in the Mergers consists of cash
to be paid to the Unitholders of $40,000,000 (to be borrowed on credit lines
available to Rouse) and shares of Rouse Common Stock valued at $176,400,000 to
be issued to the Holders (the number of shares to be determined by the average
closing price of the Rouse Common Stock for the 30 consecutive trading days
ending five days prior to the Closing Date). Additional shares of Rouse Common
Stock or Increasing Rate Preferred Stock may be issued to the Holders
subsequent to closing pursuant to terms of the Contingent Stock Agreement
based on values of certain specified assets at various termination dates from
2000 to 2009 and cash flows generated from development and/or sale of those
assets prior to the termination dates. The Contingent Stock Agreement is, in
substance, an arrangement under which Rouse and the Holders, through the
receipt of additional shares, benefit from EBDT from operations, if any, of
the Business Units during their respective Earnout Periods, and Rouse will
issue additional shares to the Holders based on the value, if any, of the
assets of the Business Units at their respective Valuation Dates. Rouse will
account for the Holders' shares of EBDT from each Business Unit during the
portion of the Earnout Period occurring after the Closing Date as an operating
expense. Rouse will account for share issuances to the Holders determined as
of the Valuation Dates (contingent consideration) as an additional cost to
acquire the related assets.
Under the terms of the Partnership Merger Agreement, the Unitholders are
also entitled to receive a Special Distribution prior to closing, including
the cash and cash equivalents and marketable securities (collectively, "cash")
held by THC at December 31, 1995. The distribution of cash to the Unitholders
is not part of the consideration payable by Rouse in the Mergers. Under the
terms of the Contingent Stock Agreement, Rouse is also obligated to make
payments of up to $10,000,000 with respect to the Playa Vista Business Unit
(the Hughes Funding). The payments will be in the form of capital
contributions to the PV Partnerships or, if such contributions are less than
$10,000,000 at a specified date, distributions of additional shares of Rouse
Common Stock or Increasing Rate Preferred Stock to the Holders. The Hughes
Funding obligation is considered part of the consideration payable by Rouse in
the Mergers.
The accompanying unaudited pro forma condensed consolidated balance sheet
and statement of operations are provided to illustrate the effect of the
Mergers on Rouse and have been prepared using the purchase method of
accounting. These statements reflect how the balance sheet might have appeared
at December 31, 1995 if the Mergers had been consummated at that date and how
the statement of operations for the year ended December 31, 1995 might have
appeared if the Mergers had been consummated on January 1, 1995. These pro
forma statements are not necessarily indicative of either the results that
would have occurred if the acquisition had been consummated at the dates
indicated or of future results of the combined companies. In addition, the
allocation of the purchase price is based upon information available at this
time. Subsequent adjustments and refinements to the allocation may be made
based on additional information.
The unaudited pro forma condensed combined balance sheet as of December 31,
1995 has been prepared from the consolidated balance sheets of Rouse and THC
as of that date, adjusted for certain items as explained in note 2.
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THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET AND STATEMENT OF
OPERATIONS (UNAUDITED)--(CONTINUED)
The unaudited pro forma condensed combined statement of operations for the
year ended December 31, 1995 has been prepared from the consolidated
statements of operations of Rouse and THC for such year, adjusted for certain
items as explained in note 3.
(2)ADJUSTMENTS TO PRO FORMA BALANCE SHEET
The accompanying unaudited pro forma condensed combined balance sheet as of
December 31, 1995 reflects certain adjustments which are explained below.
These adjustments are required to give effect to matters directly attributable
to the acquisition and to reclassify certain assets and liabilities of THC to
conform to the presentation used by Rouse. Explanations of the adjustments are
as follows:
(1) To reclassify certain land and property assets and infrastructure
financing assessments payable to conform with Rouse's method of
presentation.
(2) To adjust for the assets not being acquired by Rouse primarily, cash
and cash equivalents ($92,692,000), marketable securities
($49,135,000) which are to be distributed to the Unitholders prior to
closing as the Special Distribution (see "THE PARTNERSHIP MERGER
AGREEMENT--Conversion of Class 1 Units") and various intangible and
other assets recorded by THC.
(3) To adjust for liabilities not being assumed by Rouse, primarily
minority interests in HHPLP ($144,796,000), obligations under certain
debt and incentive consultancy/termination agreements and benefit
plans which are to be paid or defeased from the Special Distribution
payable to the Unitholders prior to closing (see "THE PARTNERSHIP
MERGER AGREEMENT-- Conversion of Class 1 Units").
(4) To adjust the assets and liabilities of an office building partnership
in which Rouse will have 50% joint interest and control with another
entity. In accordance with the established accounting policies of
Rouse, the accounts of this partnership will be consolidated using the
proportionate share method of accounting. The partnership owns 3930
Howard Hughes Parkway (see "THE HUGHES CORPORATION--Rentable Square
Footage of Properties by Location and Type of Property").
(5) To record liabilities incurred ($10 million payable pursuant to the
"Hughes Funding" obligation set forth in the Contingent Stock
Agreement, $40 million payable pursuant to the Partnership Merger
Agreement and $2 million payable to John L. Goolsby to acquire his
remaining rights under the Goolsby Incentive Agreement) (see "THE
CONTINGENT STOCK AGREEMENT; THE CONTRACTUAL RIGHTS--Capitalization of
Business Units," "THE PARTNERSHIP MERGER AGREEMENT--Conversion of
Class 1 Units" and "BACKGROUND AND REASONS FOR THE MERGERS--Interests
of Certain Persons in the Mergers," respectively), adjust assets
acquired and liabilities assumed to fair value, record goodwill
($10,495,000) and recognize deferred income taxes for differences
between the new financial reporting bases of the assets acquired and
liabilities assumed by Rouse in the Mergers and their tax bases (which
are assumed to be unaffected by the Mergers).
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THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET AND STATEMENT OF
OPERATIONS (UNAUDITED)--(CONTINUED)
(3)ADJUSTMENTS TO PRO FORMA STATEMENT OF OPERATIONS
The accompanying unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1995 reflects certain adjustments
which are explained below. These adjustments are required to give effect to
matters directly attributable to the Mergers and to report results of
operations of THC in accordance with accounting policies of Rouse where such
policies differ significantly from those which were applied by THC in
preparing its financial statements and to reclassify certain revenues and
expenses of THC to conform to the presentation used by Rouse. Explanations of
the adjustments are as follows:
(1) Eliminate revenues, expenses and gain on sale of a mixed-
use/industrial business park which was not part of the acquisition.
(2) Account for the operations of an office building in which Rouse will
have a 50% ownership interest (3930 Howard Hughes Parkway) using the
proportionate share method.
(3) Record interest expense on the $10,000,000 "Hughes Funding" obligation
and the credit line borrowings of $40,000,000 used to finance a
portion of the purchase price. The interest rate used for the Hughes
Funding is fixed at 7% pursuant to the Contingent Stock Agreement. The
interest rate used on the credit line borrowing is variable, and the
rate used (8%) is based on the rate expected to be in effect at
closing. A one-eighth percent variance in the rate assumed results in
a $56,000 change in earnings from continuing operations before income
taxes.
(4) Adjust cost of land sales for differences in the cost basis of land.
(5) Adjust operating expenses to eliminate costs relating to employee
compensation plans of THC to be terminated and not replaced subsequent
to closing.
(6) Adjust interest expense for differences in the cost bases of assets
qualifying for interest capitalization.
(7) Amortize excess of cost over fair value of net assets acquired
($10,495,000) over an estimated useful life of 20 years.
(8) Eliminate income from short-term investments and investments in
marketable securities because all cash, cash equivalents and
marketable securities will be distributed to Unitholders or used by
Hughes prior to closing.
(9) Eliminate minority interest of the Unitholders in earnings.
(10) Record the share of EBDT of the Business Units attributable to the
Holders under the Contingent Stock Agreement during the Earnout
Period.
(11) Eliminate costs incurred by THC under its recapitalization plan
relating to the Proposed Initial Public Offering. See "BACKGROUND AND
REASONS FOR THE MERGERS--Background."
(12) Reduce depreciation and amortization expense related to properties in
operation for the net effects of different property bases and
different estimated useful lives in accordance with the established
accounting policies of Rouse. Property bases increased as a result of
fair value adjustments and useful lives used in calculating
depreciation range from 31 to 49 years.
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THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET AND STATEMENT OF
OPERATIONS (UNAUDITED)--(CONTINUED)
(13) Record tax effect of pro forma adjustments using an assumed effective
tax rate of 36.3% and providing a valuation allowance of 100% for the
tax effects of the temporary difference ($18,223,000) related to the
expense recorded for earnings of the Business Units attributable to
the Holders under the Contingent Stock Agreement. The temporary
difference arises because a portion (assumed to be 100% in the first
year) of the payments required under the Contingent Stock Agreement
are not deductible currently for income tax purposes. Based upon a
preliminary analysis, Rouse is not able to determine that it is more
likely than not that it will realize the tax benefits of this expense
and, accordingly, has taken a conservative approach to the valuation
of this asset.
The unaudited pro forma condensed combined statement of operations includes
items which may be considered to be of an unusual and/or nonrecurring nature
and which are not related to the Mergers. THC's operating results for 1995
include revenues and earnings from continuing operations
of $105,960,000 and $76,905,000, respectively, relating to sales of investment
properties. These results include significant transactions involving land
located on the Las Vegas Strip and certain other properties which are not
similar to the properties included in the investment properties portfolio
which Rouse is acquiring in the Mergers. While the levels of revenues and
earnings from sales of investment properties following the Mergers will depend
on a number of factors, certain of which are difficult to predict, Rouse
anticipates that revenues and earnings from sales of investment properties in
future years are likely to be substantially lower than those reported by THC
in 1995.
(4)EARNINGS PER SHARE
The weighted average number of shares of common stock outstanding used in
the calculation of earnings per share was computed assuming shares of Rouse
Common Stock issuable at closing of the THC Merger are valued at $20 per
share. Shares issuable under the Contingent Stock Agreement were not
considered in the calculation as their effect is not material.
The effects of a $1 increase or decrease in the price per share of Rouse
Common Stock from the $20 price per share assumed and the effects of using the
Ceiling and Floor per share prices ($23 and $18, respectively, see "THE THC
MERGER AGREEMENT--Manner and Basis of Converting Shares") on the pro forma
weighted average number of common shares outstanding and pro forma earnings
from continuing operations per share of common stock after provision for
dividends on Preferred stock are summarized as follows:
<TABLE>
<CAPTION>
CEILING FLOOR ASSUMED ASSUMED
PRICE PRICE PRICE PRICE
OF $23 OF $18 OF $21 OF $19
------- ------- ------- -------
<S> <C> <C> <C> <C>
Earnings from continuing operations applicable
to common shareholders........................ $14,863 $14,721 $14,863 $14,863
======= ======= ======= =======
Weighted average number of common shares
outstanding................................... 55,484 57,351 56,214 57,098
======= ======= ======= =======
Earnings from continuing operations per share
of common stock after provision for dividends
on Preferred stock............................ $ .27 $ .26 $ .26 $ .26
======= ======= ======= =======
</TABLE>
The effects of a $.05 change in dividends per share of Rouse Common Stock on
earnings from continuing operations applicable to common shareholders and
earnings from continuing operations per share of common stock after provision
for dividends on Preferred stock are not material (less than $.01 per share).
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DESCRIPTION OF ROUSE COMMON STOCK
GENERAL
The following summary of certain terms and provisions of the Rouse Common
Stock does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the MGCL and to the terms and provisions of the
Rouse Charter and the Rouse By-Laws, copies of which are filed as exhibits to
the Registration Statement of which this Proxy Statement/Prospectus forms a
part.
The Rouse Charter authorizes the issuance of 250,000,000 shares of Rouse
Common Stock and, as of February 20, 1996, there were 47,922,749 shares of
Rouse Common Stock issued and outstanding and 2,269 record holders thereof.
All outstanding shares of Rouse Common Stock are validly issued, fully paid
and nonassessable.
Presently, Rouse has outstanding 500,000 warrants to purchase Rouse Common
Stock (the "Warrants"). Each Warrant allows the holder thereof to purchase one
share of Rouse Common Stock at an exercise price of $18 per share, subject to
adjustment in certain circumstances. The Warrants expire on September 23,
1997.
Rouse also has outstanding $130,000,000 aggregate principal amount of 5 3/4%
Convertible Subordinated Debentures due 2002. The debentures are convertible
into Rouse Common Stock at a conversion price equal to $28.625 principal
amount of each debenture for each share of Rouse Common Stock (subject to
adjustment in certain circumstances).
The Series A Convertible Preferred Stock, par value $0.01 per share, of
Rouse (the "Series A Preferred Stock"), of which 4,505,009 shares were issued
and outstanding as of February 20, 1996, is convertible into Rouse Common
Stock. See "DESCRIPTION OF ROUSE PREFERRED STOCK--Series A Preferred Stock--
Conversion Rights." In addition, the Increasing Rate Preferred Stock will be
exchangeable, at Rouse's option, for Rouse Common Stock. See "DESCRIPTION OF
ROUSE PREFERRED STOCK--Increasing Rate Preferred Stock--Exchange."
DIVIDEND RIGHTS
The holders of Rouse Common Stock are entitled to receive such dividends as
are declared by the Board of Directors of Rouse, after payment of, or
provision for, full cumulative dividends for outstanding Preferred stock, par
value $0.01 per share, of Rouse ("Rouse Preferred Stock").
VOTING RIGHTS
Each share of Rouse Common Stock is entitled to one vote on all matters
submitted to a vote of stockholders, including the election of directors.
Cumulative voting for directors is not permitted. Holders of Rouse Common
Stock and Rouse Preferred Stock, when outstanding and when entitled to vote,
vote as a class, except with respect to matters that (i) relate only to the
rights, terms or conditions of Rouse Preferred Stock, (ii) affect only the
holders of Rouse Preferred Stock, or (iii) relate to the rights of the holders
of Rouse Preferred Stock if Rouse fails to fulfill any of its obligations
regarding such stock.
LIQUIDATION RIGHTS
Upon any dissolution, liquidation or winding up of Rouse, the holders of
Rouse Common Stock are entitled to receive pro rata all of Rouse's assets and
funds remaining after payment of, or provision for, creditors and distribution
of, or provision for, preferential amounts and unpaid accumulated dividends to
holders of Rouse Preferred Stock, including the Series A Preferred Stock.
PREEMPTIVE RIGHTS
Holders of Rouse Common Stock have no preemptive right to purchase or
subscribe for any shares of Rouse capital stock.
SPECIAL STATUTORY REQUIREMENTS FOR CERTAIN TRANSACTIONS
The summaries of the following statutes do not purport to be complete and
are subject to and qualified in their entirety by reference to the applicable
provisions of the MGCL.
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BUSINESS COMBINATION STATUTE. The MGCL establishes special requirements with
respect to "business combinations" between Maryland corporations and
"interested stockholders" unless exemptions are applicable. Among other
things, the law prohibits for a period of five years a merger or other
specified transactions between a company and an interested stockholder and
requires a super-majority vote for such transactions after the end of such
five-year period.
"Interested stockholders" are all persons owning beneficially, directly or
indirectly, 10% or more of the outstanding voting stock of a Maryland
corporation. "Business combinations" include any merger or similar transaction
subject to a statutory vote and additional transactions involving transfers of
assets or securities in specified amounts to interested stockholders or their
affiliates. Unless an exemption is available, transactions of these types may
not be consummated between a Maryland corporation and an interested
stockholder or its affiliates for a period of five years after the date on
which the stockholder first became an interested stockholder and thereafter
may not be consummated unless recommended by the board of directors of the
Maryland corporation and approved by the affirmative vote of at least 80% of
the votes entitled to be cast by all holders of outstanding shares of voting
stock and 66 2/3% of the votes entitled to be cast by all holders of
outstanding shares of voting stock other than the interested stockholder. A
business combination with an interested stockholder which is approved by the
board of directors of a Maryland corporation at any time before an interested
stockholder first becomes an interested stockholder is not subject to the
five-year moratorium or special voting requirements. The Rouse By-Laws
specifically provide that the foregoing provisions apply to any such business
combination with Rouse. However, on February 22, 1996, the Rouse Board
exempted the transactions contemplated by the Merger Agreements and the
Contingent Stock Agreement from the provisions of the business combination
statute. An amendment to a Maryland corporation charter electing not to be
subject to the foregoing requirements must be approved by the affirmative vote
of at least 80% of the votes entitled to be cast by all holders of outstanding
shares of voting stock and 66 2/3% of the votes entitled to be cast by holders
of outstanding shares of voting stock who are not interested stockholders. Any
such amendment is not effective until 18 months after the vote of stockholders
and does not apply to any business combination of a corporation with a
stockholder who was an interested stockholder on the date of the stockholder
vote. Rouse has not adopted any such amendment to its charter.
CONTROL SHARE ACQUISITION STATUTE. The MGCL imposes limitations on the
voting rights of shares acquired in a "control share acquisition." The
Maryland statute defines a "control share acquisition" at the 20%, 33 1/3% and
50% acquisition levels, and requires a two-thirds stockholder vote (excluding
shares owned by the acquiring person and certain members of management) to
accord voting rights to stock acquired in a control share acquisition. The
statute also requires Maryland corporations to hold a special meeting at the
request of an actual or proposed control share acquirer generally within 50
days after a request is made with the submission of an "acquiring person
statement," but only if the acquiring person (a) posts a bond for the cost of
the meeting and (b) submits a definitive financing agreement to the extent
that financing is not provided by the acquiring person. In addition, unless
the charter or bylaws provide otherwise, the statute gives the Maryland
corporation, within certain time limitations, various redemption rights if
there is a stockholder vote on the issue and the grant of voting rights is not
approved, or if an "acquiring person statement" is not delivered to the target
within ten days following a control share acquisition. Moreover, unless the
charter or bylaws provide otherwise, the statute provides that if, before a
control share acquisition occurs, voting rights are accorded to control shares
which result in the acquiring person having majority voting power, then
minority stockholders have appraisal rights. An acquisition of shares may be
exempted from the control share statute provided that a charter or bylaw
provision is adopted for such purpose prior to the control share acquisition.
The Rouse By-laws specifically provide that the provisions relating to control
share acquisitions do not apply.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Rouse Common Stock is The Bank of New
York, New York, New York.
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DESCRIPTION OF ROUSE PREFERRED STOCK
GENERAL
The following summaries of certain terms and provisions of the Rouse
Preferred Stock do not purport to be complete and are subject to, and
qualified in their entirety by reference to, the MGCL and the terms and
provisions of the Rouse Charter, including the Articles Supplementary setting
forth the particular terms of (i) the Increasing Rate Preferred Stock, (ii)
the Series A Preferred Stock and (iii) the Rouse Junior Preferred Stock, and
to the Rouse By-Laws, forms of which are filed as exhibits to the Registration
Statement of which this Proxy Statement/Prospectus forms a part.
The Rouse Charter authorizes the issuance of 50,000,000 shares of Rouse
Preferred Stock, of which (i) 4,505,168 shares have been classified as Series
A Preferred Stock, (ii) 10,000,000 shares have been classified as Increasing
Rate Preferred Stock and (iii) 37,362 shares have been classified as Rouse
Junior Preferred Stock. Rouse Preferred Stock may be issued from time to time
in one or more series, without stockholder approval, with such voting powers
(full or limited), designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof as shall be established by the Board of Directors of
Rouse. Thus, without stockholder approval, Rouse could authorize the issuance
of Rouse Preferred Stock with voting, conversion and other rights that could
dilute the voting power and other rights of the holders of Rouse Common Stock.
INCREASING RATE PREFERRED STOCK
GENERAL. On February 22, 1996, the Board of Directors of Rouse authorized
Rouse to classify and issue the Increasing Rate Preferred Stock as part of the
50,000,000 shares of authorized Rouse Preferred Stock.
When issued, the Increasing Rate Preferred Stock will be validly issued,
fully paid and nonassessable. The holders of Increasing Rate Preferred Stock
will have no preemptive rights with respect to any shares of capital stock of
Rouse or any other securities of Rouse convertible into or carrying rights or
options to purchase any such shares. The Increasing Rate Preferred Stock will
not be subject to any sinking fund. Unless exchanged for Rouse Common Stock or
redeemed, the Increasing Rate Preferred Stock will have a perpetual term, with
no maturity. The shares of Rouse Common Stock issuable upon the exchange of
Increasing Rate Preferred Stock will be listed on the NYSE.
RANKING. The Increasing Rate Preferred Stock will rank junior to the Series
A Preferred Stock, will rank pari passu with any other Parity Stock (as
defined below) and will rank senior to the Rouse Junior Preferred Stock, the
Rouse Common Stock and any other Junior Stock (as defined below) with respect
to the payment of dividends and amounts upon liquidation, dissolution or
winding up.
While any shares of Increasing Rate Preferred Stock are outstanding, unless
Rouse first obtains the consent of the Representatives or the consent of at
least 66 2/3% of the outstanding shares of Increasing Rate Preferred Stock,
Rouse may not, either directly or indirectly or through a merger or
consolidation of Rouse with another entity (a "Rouse Merger"), (i) issue (or
approve the issuance of) or increase the authorized number of shares of any
Parity Dividend Stock, Parity Liquidation Stock or Prior Stock (as such terms
are defined below), (ii) declare, pay or set apart funds for the payment of
any dividends (other than dividends payable in Junior Stock) or make any other
distribution on or with respect to shares of Junior Stock, (iii) declare, pay
or set apart funds for the payment of any dividends
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(other than dividends payable in Junior Stock) or make any other distribution
on or with respect to shares of Parity Dividend Stock or Parity Liquidation
Stock, unless simultaneously therewith a proportionate dividend on the
Increasing Rate Preferred Stock is ratably distributed or (iv) redeem, retire
or otherwise acquire for value or set apart any funds for the redemption or
purchase of any shares of Junior Stock (other than Rouse Common Stock to
effect an Exchange (as defined below)) or any warrant, option or right to
acquire shares thereof.
"Junior Stock" means Rouse Common Stock and any other capital stock of Rouse
ranking junior to the Increasing Rate Preferred Stock with respect to
distributions of assets upon the dissolution, liquidation or winding up of
Rouse, whether voluntary or involuntary, or with respect to the payment of
dividends.
"Parity Dividend Stock" means any capital stock of Rouse ranking on a parity
with the Increasing Rate Preferred Stock with respect to the payment of
dividends.
"Parity Liquidation Stock" means any capital stock of Rouse ranking on a
parity with the Increasing Rate Preferred Stock with respect to distributions
of assets upon the dissolution, liquidation or winding up of Rouse, whether
voluntary or involuntary.
"Parity Stock" means any capital stock of Rouse ranking on a parity with the
Increasing Rate Preferred Stock with respect to distributions of assets upon
the dissolution, liquidation or winding up of Rouse, whether voluntary or
involuntary, or with respect to the payment of dividends.
"Prior Stock" means any capital stock of Rouse ranking prior to the
Increasing Rate Preferred Stock with respect to distributions of assets upon
the dissolution, liquidation or winding up of Rouse, whether voluntary or
involuntary, or with respect to the payment of dividends.
DIVIDENDS. Holders of shares of Increasing Rate Preferred Stock will be
entitled to receive for each such share, when and as declared by the Board of
Directors of Rouse, out of funds of Rouse legally available for payment,
cumulative cash dividends on the Liquidation Value (as defined below) of such
share at the Dividend Rate (as defined below). Dividends on the Increasing
Rate Preferred Stock will be payable semi-annually (each, a "Dividend Payment
Date") at such rate on the first business day following the end of each six-
month period beginning January 1 and July 1 of each year (each such six-month
period, a "Dividend Period"). Dividends will be payable to holders of record
as they appear on the stock records of Rouse at the close of business 15 days
prior to the end of the applicable Dividend Period. Dividends on shares of
Increasing Rate Preferred Stock (whether or not earned or declared) will
accrue from the date of issuance of such shares (the "Issue Date") until such
shares are redeemed or exchanged as described below. Dividends will be
cumulative from the Issue Date, whether or not in any Dividend Period or
Periods there are funds of Rouse legally available for the payment of such
dividends. Accumulations of dividends on shares of Increasing Rate Preferred
Stock will not bear interest.
Unless all accrued and unpaid dividends on Increasing Rate Preferred Stock
have been paid in full or funds sufficient for such payment have been set
apart therefor, Rouse may not (i) pay or set apart funds for the payment of
any dividend with respect to any Junior Dividend Stock (as defined below),
(ii) pay or set apart funds for the payment of any dividend with respect to
any Parity Dividend Stock, other than pro rata with, and recognizing all
accrued and unpaid dividends on, the Increasing Rate Preferred Stock and all
other classes or series of Parity Dividend Stock, (iii) make any distribution
(other than in Junior Dividend Stock) on, redeem or purchase any Junior
Liquidation Stock or (iv) make any distribution on, redeem or purchase any
Parity Liquidation Stock.
To the extent that Rouse does not have sufficient funds to pay (or set apart
for payment) the full amount of accrued but unpaid dividends on the Increasing
Rate Preferred Stock on any given Dividend
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Payment Date, any payments made (or funds set apart for such payments) by
Rouse in respect of such dividends will be made ratably to the holders of such
Increasing Rate Preferred Stock in proportion to the number of shares held by
them.
"Base Rate" means (i) with respect to the Dividend Period during which Rouse
issues shares of Increasing Rate Preferred Stock for the first time, the
dividend rate, as determined by a nationally recognized investment banking
firm selected by Rouse for such purpose and reasonably acceptable to the
Representatives, which would be required in order for Rouse to successfully
sell at par (i.e., stated liquidation value), in a private placement
transaction, a class or series of its perpetual preferred stock as of such
time and (ii) with respect to each subsequent Dividend Period, the dividend
rate, as determined by a nationally recognized investment banking firm
selected by Rouse for such purpose and reasonably acceptable to the
Representatives, which would be required in order for Rouse to successfully
sell at par (i.e., stated liquidation value), in a private placement
transaction, a class of its perpetual preferred stock as of the first day of
such Dividend Period.
"Dividend Rate" means a rate per annum equal to the Base Rate plus the
Spread, in each case as in effect during a Dividend Period; provided, however,
that in the event that any share of Increasing Rate Preferred Stock shall have
an Issue Date other than on the first day of any Dividend Period, the Dividend
Rate with respect to such share during the Dividend Period in which such Issue
Date occurs shall be calculated on the basis of the applicable Dividend Rate
for such Dividend Period for the period commencing with the Issue Date to and
including the last day of such Dividend Period.
"Junior Dividend Stock" means Rouse Common Stock and any other capital stock
of Rouse ranking junior to the Increasing Rate Preferred Stock with respect to
the payment of dividends.
"Junior Liquidation Stock" means Rouse Common Stock and any capital stock of
Rouse ranking junior to the Increasing Rate Preferred Stock with respect to
distributions of assets upon the dissolution, liquidation or winding up of
Rouse, whether voluntary or involuntary.
"Liquidation Value" means, with respect to a share of Increasing Rate
Preferred Stock, $100 plus all dividends (whether or not earned or declared),
accrued and unpaid on such share.
"Spread" (i) for the Dividend Period during which Rouse issues shares of
Increasing Rate Preferred Stock for the first time shall be 3.50% per annum
and (ii) for each Dividend Period thereafter shall be the Spread for the
immediately preceding Dividend Period plus 0.50%.
REDEMPTION. Subject to the next sentence, any holder of Increasing Rate
Preferred Stock may elect to have Rouse redeem all or any portion of such
holder's shares on any Dividend Payment Date (the "Redemption Date") by
delivering to Rouse a redemption notice at least 30 but not more than 60 days
prior to such Redemption Date. Any shares subject to redemption must have been
issued at least one year prior to the date of such redemption notice.
For each share of Increasing Rate Preferred Stock to be redeemed, Rouse must
pay on the Redemption Date an amount equal to the sum of (i) 110% of the
Liquidation Value of such share as of such Redemption Date plus (ii) all
accrued and unpaid dividends (whether or not earned or declared) on such share
as of such Redemption Date. In the event Rouse is required to redeem shares of
the Increasing Rate Preferred Stock but does not have sufficient funds legally
available to redeem all such shares, Rouse must apply the funds it does have
legally available to redeem on a ratable basis as many shares subject to
redemption as is possible. If Rouse fails to redeem all shares required to be
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redeemed by it on any given Redemption Date because of insufficient legally
available funds, the holders of Increasing Rate Preferred Stock will be able
to exercise the Special Voting Right described below.
EXCHANGE. Rouse may, at its option, exchange shares of Rouse Common Stock on
any Dividend Payment Date (an "Exchange Date") for any or all shares of
Increasing Rate Preferred Stock outstanding on such Exchange Date (each, an
"Exchange"); provided that in connection with such Exchange, (i) Rouse
delivers an exchange notice at least 30 but not more than 60 days prior to
such Exchange Date and (ii) on the Exchange Date, Rouse pays each holder of
the shares of Increasing Rate Preferred Stock to be exchanged an amount equal
to all accrued but unpaid dividends on such shares to such Exchange Date. The
number of shares of Rouse Common Stock to be exchanged for each share of
Increasing Rate Preferred Stock will be a number equal to the Liquidation
Value divided by the Current Share Value on the last day of the Dividend
Period immediately preceding the Exchange Date. If, in connection with an
Exchange, Rouse intends to exchange fewer than all the outstanding shares of
Increasing Rate Preferred Stock, the number of shares of Increasing Rate
Preferred Stock to be exchanged will be determined ratably among the holders
of such stock according to the respective number of shares held by them.
LIQUIDATION. The holders of shares of Increasing Rate Preferred Stock will
be entitled to receive in the event of any liquidation, dissolution or winding
up of Rouse, whether voluntary or involuntary, the Liquidation Value for each
share of Increasing Rate Preferred Stock (the "Liquidation Preference"), and
no more.
Until the holders of the Increasing Rate Preferred Stock have been paid the
Liquidation Preference in full, no payment may be made to any holder of Junior
Liquidation Stock upon the liquidation, dissolution or winding up of Rouse.
If, upon any liquidation, dissolution or winding up of Rouse, the assets of
Rouse, or any proceeds thereof, distributable among the holders of the shares
of Increasing Rate Preferred Stock are insufficient to pay in full the
Liquidation Preference, then such assets, or the proceeds thereof, will be
distributed among the holders of shares of Increasing Rate Preferred Stock
ratably in accordance with the respective amounts which would be payable on
such shares of Increasing Rate Preferred Stock if all amounts payable thereon
were paid in full. Neither a Rouse Merger nor a voluntary sale, lease,
conveyance, exchange or transfer of all or substantially all of Rouse's assets
(except in connection with a plan of liquidation, dissolution or winding up of
Rouse) will be considered a liquidation, dissolution or winding up, voluntary
or involuntary, of Rouse.
VOTING RIGHTS. Except as described below, or except as otherwise from time
to time required by applicable law, the holders of shares of Increasing Rate
Preferred Stock will have no voting rights.
Whenever (i) any accrued but unpaid dividends on the Increasing Rate
Preferred Stock (whether or not earned or declared) are in arrears for at
least one Dividend Period, (ii) Rouse fails to effect any redemption described
above or (iii) Rouse fails to effect any Exchange, then (x) the number of
directors then constituting the Board of Directors of Rouse will be increased
by one and (y) the holders of shares of Increasing Rate Preferred Stock,
voting separately as a class, will have the exclusive right (the "Special
Voting Right") to elect a director to fill such vacancy either (1) at a
properly called special meeting of the holders of the Increasing Rate
Preferred Stock called for such purpose or (2) at any annual meeting of
stockholders of Rouse. Holders of Increasing Rate Preferred Stock will have
the right to exercise the Special Voting Right until such time as (i) all
accumulated dividends on the Increasing Rate Preferred Stock shall have been
paid in full, (ii) all redemptions required to be made on any Redemption Date
have been made and (iii) all Exchanges required to be made have been made. In
exercising the Special Voting Right, each share of Increasing Rate Preferred
Stock will be entitled to one vote.
TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for the
Increasing Rate Preferred Stock will be The Bank of New York, New York, New
York.
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SERIES A PREFERRED STOCK
GENERAL. On February 2, 1993 and November 30, 1994, the Board of Directors
of Rouse authorized Rouse to classify and issue the Series A Preferred Stock
as part of the 50,000,000 shares of authorized Rouse Preferred Stock. As of
February 20, 1996, 4,505,009 shares of Series A Preferred Stock were issued
and outstanding. The holders of the Series A Preferred Stock have no
preemptive rights. The Series A Preferred Stock is not subject to any sinking
fund or other obligation of Rouse to redeem or retire the Series A Preferred
Stock. Unless converted or redeemed by Rouse, the Series A Preferred Stock has
a perpetual term, with no maturity. The Series A Preferred Stock is listed on
the NYSE under the symbol "RSEPrA." The shares of Rouse Common Stock issuable
upon conversion or redemption of the Series A Preferred Stock are listed on
the NYSE.
RANKING. The Series A Preferred Stock ranks senior to the Rouse Common Stock
and will rank senior to the Rouse Junior Preferred Stock and the Increasing
Rate Preferred Stock, in each case, with respect to the payment of dividends
and amounts upon liquidation, dissolution or winding up.
While any shares of Series A Preferred Stock are outstanding, Rouse may not
authorize, create or increase the authorized amount of any class or series of
stock that ranks senior to the Series A Preferred Stock with respect to the
payment of dividends or amounts upon liquidation, dissolution or winding up
without the consent of the holders of 66 2/3% of the outstanding shares of
Series A Preferred Stock and all other shares of Voting Preferred Shares (as
defined below), voting as a single class. However, Rouse may create additional
classes of stock, increase the authorized number of shares of Rouse Preferred
Stock or issue series of Rouse Preferred Stock ranking on a parity with the
Series A Preferred Stock with respect, in each case, to the payment of
dividends and amounts upon liquidation, dissolution and winding up (a "Parity
Capital Stock") without the consent of any holder of Series A Preferred Stock.
DIVIDENDS. Holders of shares of Series A Preferred Stock are entitled to
receive, when, as and if declared by the Board of Directors of Rouse, out of
funds legally available for payment, cumulative cash dividends at the rate per
annum of 6.50% per share on the liquidation preference thereof or $3.25 per
share of Series A Preferred Stock. Dividends on the Series A Preferred Stock
are payable quarterly on the first calendar day of January, April, July and
October of each year (and, in the case of any accrued but unpaid dividends, at
such additional times and for such interim periods, if any, as determined by
the Board of Directors of Rouse) at such annual rate. Dividends are payable to
holders of record at the close of business on such record dates, not exceeding
60 days preceding the payment dates thereof, as shall be fixed by the Board of
Directors of Rouse. Dividends accrue from the date of the original issuance of
Series A Preferred Stock. Dividends are cumulative from such date, whether or
not in any dividend period or periods there are funds of Rouse legally
available for the payment of such dividends. Accumulations of dividends on
shares of Series A Preferred Stock will not bear interest. Dividends payable
on the Series A Preferred Stock for any period greater or less than a full
dividend period are computed on the basis of a 360-day year consisting of
twelve 30-day months. Dividends payable on the Series A Preferred Stock for
each full dividend period are computed by dividing the annual dividend rate by
four.
Except as provided in the next sentence, no dividend will be declared or
paid on any Parity Capital Stock unless full cumulative dividends have been
declared and paid or are contemporaneously declared and funds sufficient for
payment set aside on the Series A Preferred Stock for all prior dividend
periods. If accrued dividends on the Series A Preferred Stock for all prior
dividend periods have not been paid in full, then any dividend declared on the
Series A Preferred Stock for any dividend period and on any Parity Capital
Stock will be declared ratably in proportion to accrued and unpaid dividends
on the Series A Preferred Stock and such Parity Capital Stock.
Rouse may not (i) declare, pay or set apart funds for the payment of any
dividend or other distribution with respect to any Junior Capital Stock (as
defined below) or (ii) redeem, purchase or
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otherwise acquire for consideration any Junior Capital Stock through a sinking
fund or otherwise (other than a redemption or purchase or other acquisition of
shares of Rouse Common Stock made for purposes of an employee incentive or
benefit plan of Rouse or any subsidiary), unless (A) all cumulative dividends
with respect to the Series A Preferred Stock and any Parity Capital Stock at
the time such dividends are payable have been paid or funds have been set
apart for payment of such dividends and (B) sufficient funds have been paid or
set apart for the payment of the dividend for the current dividend period with
respect to the Series A Preferred Stock and any Parity Capital Stock. The
foregoing limitations do not restrict Rouse's ability to take the foregoing
actions with respect to any Parity Capital Stock.
As used herein, (i) the term "dividend" does not include dividends payable
solely in shares of Junior Capital Stock, or in options, warrants or rights to
holders of Junior Capital Stock to subscribe for or purchase any Junior
Capital Stock, and (ii) the term "Junior Capital Stock" means Rouse Common
Stock, the Increasing Rate Preferred Stock and any other class of capital
stock of Rouse now or hereafter issued and outstanding that ranks junior as to
the payment of dividends or amounts upon liquidation, dissolution and winding
up to the Series A Preferred Stock.
REDEMPTION. The shares of Series A Preferred Stock are redeemable at the
option of Rouse, in whole or in part, for such number of shares of Rouse
Common Stock as equals the liquidation preference of the Series A Preferred
Stock to be redeemed divided by the Conversion Price (as defined below under
"DESCRIPTION OF ROUSE PREFERRED STOCK--Series A Preferred Stock--Conversion
Rights") as of the opening of business on the date set for such redemption
(equivalent to a conversion rate of 2.3529 shares of Rouse Common Stock for
each share of Series A Preferred Stock), subject to adjustment in certain
circumstances. Rouse may exercise this option only if for 20 trading days,
within any period of 30 consecutive trading days, including the last trading
day of such period, the closing price of Rouse Common Stock on the NYSE
Composite Tape exceeds $25.50, subject to adjustment in certain circumstances.
In order to exercise its redemption option, Rouse must issue a press release
announcing the redemption prior to the opening of business on the second
trading day after the conditions in the preceding sentences have, from time to
time, been met.
On the redemption date, Rouse must pay on each share of Series A Preferred
Stock to be redeemed any accrued and unpaid dividends, in arrears, for any
dividend period ending on or prior to the redemption date. In the event that
full cumulative dividends on the Series A Preferred Stock and any Parity
Capital Stock have not been paid or declared and set apart for payment, the
Series A Preferred Stock may not be redeemed in part and Rouse may not
purchase or acquire shares of Series A Preferred Stock otherwise than pursuant
to a purchase or exchange offer made on the same terms to all holders of
shares of Series A Preferred Stock.
LIQUIDATION PREFERENCE. The holders of shares of Series A Preferred Stock
are entitled to receive in the event of any liquidation, dissolution or
winding up of Rouse, whether voluntary or involuntary, $50.00 per share of
Series A Preferred Stock plus an amount per share of Series A Preferred Stock
equal to all dividends (whether or not earned or declared) accrued and unpaid
thereon to the date of final distribution to such holders (the "Liquidation
Preference"), and no more.
Until the holders of the Series A Preferred Stock have been paid the
Liquidation Preference in full, no payment will be made to any holder of
Junior Capital Stock upon the liquidation, dissolution or winding up of Rouse.
If, upon any liquidation, dissolution or winding up of Rouse, the assets of
Rouse, or proceeds thereof, distributable among the holders of the shares of
Series A Preferred Stock are insufficient to pay in full the Liquidation
Preference and the liquidation preference with respect to any other shares of
Parity Capital Stock, then such assets, or the proceeds thereof, will be
distributed among the holders of shares of Series A Preferred Stock and any
such Parity Capital Stock ratably in accordance with the respective amounts
which would be payable on such shares of Series A Preferred Stock and any such
Parity Capital Stock if all amounts payable thereon were paid in full. Neither
a consolidation or merger of Rouse with another corporation, a statutory share
exchange by Rouse nor
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a sale or transfer of all or substantially all of Rouse's assets will be
considered a liquidation, dissolution or winding up, voluntary or involuntary,
of Rouse.
VOTING RIGHTS. Except as indicated below, or except as otherwise from time
to time required by applicable law, the holders of shares of Series A
Preferred Stock have no voting rights.
If and whenever six quarterly dividends (whether or not consecutive) payable
on the Series A Preferred Stock or any other Parity Capital Stock are in
arrears, whether or not earned or declared, the number of directors then
constituting the Rouse Board will be increased by two and the holders of
shares of Series A Preferred Stock, voting together as a class with the
holders of any other series of Parity Capital Stock (any such other series,
the "Voting Preferred Shares"), will have the right to elect two additional
directors to serve on the Board of Directors of Rouse at an annual meeting of
stockholders or a properly called special meeting of the holders of the Series
A Preferred Stock and such Voting Preferred Shares and at each subsequent
annual meeting of stockholders until all such dividends and dividends for the
current quarterly period on the Series A Preferred Stock and such other Voting
Preferred Shares have been paid or declared and set aside for payment.
Except as required by law, the holders of Series A Preferred Stock are not
entitled to vote on any merger or consolidation involving Rouse or a sale of
all or substantially all of the assets of Rouse.
CONVERSION RIGHTS. The shares of Series A Preferred Stock are convertible,
in whole or in part, at any time, at the option of the holders thereof, into
shares of Rouse Common Stock at a conversion price of $21.25 per share of
Rouse Common Stock (equivalent to a conversion rate of 2.3529 shares of Rouse
Common Stock for each share of Series A Preferred Stock), subject to
adjustment as described below (the "Conversion Price"). The right to convert
shares of Series A Preferred Stock called for redemption will terminate at the
close of business on a redemption date.
The Conversion Price is subject to adjustment for stock dividends, the
issuance of rights or warrants for Rouse Common Stock at a price per share
less than the fair market value thereof, subdivisions, combinations and
reclassifications of Rouse Common Stock, and certain distributions to holders
of Rouse Common Stock of indebtedness of Rouse or assets. In addition to the
foregoing adjustments, Rouse is permitted to make such reductions in the
Conversion Price as it considers to be advisable in order that any event
treated for federal income tax purposes as a dividend of stock or stock rights
will not be taxable to the holders of the Rouse Common Stock. No adjustment of
the Conversion Price is required to be made in any case until cumulative
adjustments amount to 1% or more of the Conversion Price. Any adjustments not
so required to be made will be carried forward and taken into account in
subsequent adjustments.
In any transaction (including, without limitation, a merger, consolidation,
statutory share exchange, a tender offer for all or substantially all of the
shares of Rouse Common Stock or a sale of all or substantially all of Rouse's
assets) where shares of Rouse Common Stock will be converted into the right to
receive stock, securities or other property (including cash or any combination
thereof), each share of Series A Preferred Stock, if convertible after the
consummation of the transaction, will thereafter be convertible into the kind
and amount of shares of stock and other securities and property receivable
(including cash or any combination thereof) upon the consummation of such
transaction by a holder of that number of shares or fraction thereof of Rouse
Common Stock into which one share of Series A Preferred Stock was convertible
immediately prior to such transaction. Rouse may not become a party to any
such transaction unless the terms thereof are consistent with the foregoing.
ROUSE JUNIOR PREFERRED STOCK
GENERAL. On February 22, 1996, the Board of Directors of Rouse authorized
Rouse to classify and issue 37,362 shares of the Rouse Junior Preferred Stock
as part of the 50,000,000 shares of authorized Rouse Preferred Stock.
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The THC Merger Agreement contemplates that in the THC Merger, each share of
THC Common Stock owned by THHC at the Effective Time will be converted into
the right to receive one share of Rouse Junior Preferred Stock.
RANKING. The Rouse Junior Preferred Stock will rank senior to the Rouse
Common Stock and junior to all other Rouse Preferred Stock (unless the terms
of such Rouse Preferred Stock specifically provide that it will rank junior to
or on parity with the Rouse Junior Preferred Stock), with respect to payment
of dividends and amounts upon liquidation, dissolution or winding up.
DIVIDENDS. Holders of shares of Junior Preferred Stock will be entitled to
receive for each such share, when and as declared by the Board of Directors of
Rouse, out of funds of Rouse legally available for payment, a cumulative
annual cash dividend equal to the greater of (i) % of the liquidation
preference of such Rouse Junior Preferred Stock (the "Liquidation Preference")
or (ii) the lesser of 200% of the amount determined under clause (i) above or
the Liquidation Preference divided by the Average Closing Price (the
"Multiplier") multiplied by the aggregate per share amount of all cash and
non-cash dividends (other than dividends payable in Rouse Common Stock),
subject to adjustment for stock splits, combinations and dividends on the
Rouse Common Stock. Accumulations of dividends on shares of Rouse Junior
Preferred Stock will not bear interest.
Until all accumulated dividends are paid in full, Rouse may not without
first obtaining the consent of at least 66 2/3% of the outstanding shares of
Rouse Junior Preferred Stock, (i) declare or pay dividends on or make any
other distribution on, or redeem or purchase or otherwise acquire for
consideration any shares of Rouse capital stock ranking junior to the Rouse
Junior Preferred Stock (other than such shares acquired in exchange for other
shares of Rouse capital stock ranking junior to the Rouse Junior Preferred
Stock), (ii) declare or pay dividends on or make any other distributions on
any shares of Rouse capital stock ranking on parity with the Rouse Junior
Preferred Stock other than dividends payable ratably on the Rouse Junior
Preferred Stock and any other parity stock or (iii) redeem or purchase or
otherwise acquire for consideration any shares of Rouse capital stock ranking
on a parity with the Rouse Junior Preferred Stock except pursuant to an offer
that treats fairly and equitably all holders of Rouse Junior Preferred stock
and such parity stock.
REDEMPTION. The Rouse Junior Preferred Stock is not subject to redemption.
LIQUIDATION. The holders of shares of Rouse Junior Preferred Stock will be
entitled to receive in the event of any liquidation, dissolution or winding up
of Rouse, whether voluntary or involuntary, a liquidation preference for each
share of Rouse Junior Preferred Stock equal to the greater of (i) the sum of
$4,148.60 plus all accrued and unpaid dividends on such share to the date of
payment and (ii) an amount equal to the Multiplier multiplied by the aggregate
per share amount to be distributed to holders of Rouse Common Stock in
connection with such liquidation, dissolution or winding up, in each case
subject to adjustment for stock splits, combinations and dividends on the
Rouse Common Stock. Until the holders of the Rouse Junior Preferred Stock have
been paid their aggregate liquidation preference in full, no payment will be
made to (i) any holder of Rouse capital stock ranking on a parity with the
Rouse Junior Preferred Stock, except distributions made ratably on the Rouse
Junior Preferred Stock and any stock ranking on parity therewith, or (ii) any
holder of Rouse capital stock ranking junior to the Rouse Junior Preferred
Stock.
VOTING RIGHTS. Except as otherwise from time to time required by applicable
law, the holders of shares of Rouse Junior Preferred Stock will have no voting
rights.
CONSOLIDATION, MERGER. In the event of a merger, consolidation or other
transaction in which shares of Rouse Common Stock are exchanged for cash,
stock, securities or other property, holders of Rouse Junior Preferred Stock
will be entitled to receive for each share of their stock the per share
consideration received by holders of Rouse Common Stock multiplied by the
Multiplier, subject to adjustment for stock splits, combinations and dividends
on the Rouse Common Stock.
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COMPARATIVE RIGHTS OF ROUSE STOCKHOLDERS AND THC STOCKHOLDERS
The rights of the stockholders of THC are currently governed by the DGCL,
the THC Charter, the THC By-Laws and (in the case of substantially all
Stockholders) the Stockholder Agreement. Upon consummation of the THC Merger,
the stockholders will become stockholders of Rouse and their rights as
stockholders of Rouse will be governed by the MGCL, the Rouse Charter and the
Rouse By-Laws. The following summary sets forth certain material differences
between the rights of the Stockholders and holders of Rouse Common Stock and
Rouse Preferred Stock. This summary is qualified in its entirety by reference
to the full text of the THC Charter, the THC By-Laws, the Stockholder
Agreement, the Rouse Charter and the Rouse By-Laws and the provisions of the
DGCL and the MGCL.
AUTHORIZED CAPITAL STOCK
The total number of authorized shares of capital stock of THC is 137,362
shares of THC Common Stock. The total number of authorized shares of capital
stock of Rouse is 300,000,000 shares, consisting of 50,000,000 shares of Rouse
Preferred Stock and 250,000,000 shares of Rouse Common Stock.
DIVIDENDS
The DGCL provides that the directors of every corporation, subject to
restrictions contained in its certificate of incorporation, may declare and
pay dividends on the shares of its capital stock either (i) out of surplus or
(ii) if there is no surplus, out of net profits for the fiscal year in which
the dividend is declared and/or the preceding fiscal year, unless the
corporation's capital is less than the amount of capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets. The THC By-Laws provide that the THC Board may
determine what dividends, if any, will be declared and paid to the holders of
THC Common Stock, subject to conformity with law and the THC Charter.
So long as the Stockholder Agreement remains in effect, the THC Board is
required to endeavor to accomplish certain quarterly dividend objectives. The
targeted dividend amount for any quarter may be adjusted by the THC Board if
the payment of such dividends would likely conflict with applicable fiduciary
duties and laws, the rights of THC's creditors or applicable contractual and
other obligations of THC in effect at the time the Principal Owners entered
into the Stockholder Agreement and its reasonably anticipated fixed and
contingent capital needs. Moreover, THC, THHC and HHPLP are not required to
sell, transfer or dispose of any assets or incur any indebtedness in order to
pay dividends pursuant to the Stockholder Agreement but THC is required to use
reasonable efforts to borrow funds or cause HHPLP to borrow funds if necessary
to pay dividends. However, neither THC nor HHPLP may be required under the
Stockholder Agreement to: (i) incur indebtedness aggregating in excess of
$50,000,000 at any time outstanding to pay dividends or distributions; (ii)
incur indebtedness on other than commercially reasonable terms; or (iii) incur
indebtedness which will cause THC's or HHPLP's ability to timely pay all of
their respective indebtedness and other obligations to be not reasonably
assured. In addition to the targeted quarterly dividends, THC is required, so
long as the Stockholder Agreement remains in effect, to endeavor to pay
additional dividends in an amount equal to the aggregate cash or cash
equivalents held by THC, THHC and HHPLP at the end of any calendar year which
are not required to: (i) meet existing and reasonably anticipated obligations,
needs and contingencies or (ii) carry out and complete any business plans
adopted by the THC Board.
Under the MGCL, a board of directors may authorize a distribution unless,
after giving effect to such distribution, (i) a corporation would not be able
to pay its indebtedness as such indebtedness becomes due in the usual course
of business or (ii) a corporation's total assets would be less than total
liabilities plus, unless the charter provides otherwise, the amount that would
be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights of stockholders whose
preferential rights on dissolution are superior to those receiving the
distribution.
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The Rouse Charter provides that holders of Rouse Common Stock are entitled to
such dividends as may be declared from time to time by the Board of Directors
of Rouse, subject to the payment of preferential dividends upon any Rouse
Preferred Stock. See "DESCRIPTION OF ROUSE PREFERRED STOCK."
PREEMPTIVE RIGHTS
Under the DGCL, a stockholder does not have preemptive rights unless such
rights are specifically granted in the certificate of incorporation. The THC
Charter does not grant such rights to the stockholders of THC.
With respect to charters filed prior to October 1995, the MGCL granted
preemptive rights unless the charter stated otherwise. The Rouse Charter
states that no holders of Rouse stock shall have any preferential rights of
subscription to any stock or securities convertible into shares of stock of
Rouse except as the Board of Directors of Rouse may determine and at the price
it may fix. Currently, holders of Rouse Common Stock have no preemptive
rights. The Rouse Charter also allows the Board to offer any shares of stock
or convertible securities to holders of any class or classes of stock or other
securities then existing to the exclusion of holders of any or all classes of
securities then existing.
QUORUM
Both the THC By-Laws and the Rouse By-Laws provide that, at a meeting of
stockholders, the presence in person or by proxy of stockholders entitled to
cast a majority of all the votes entitled to be cast at the meeting
constitutes a quorum, unless otherwise required by law or by the THC Charter
or the Rouse Charter, respectively.
VOTING RIGHTS
Under the DGCL, unless otherwise provided in the certificate of
incorporation and subject to other qualifications of the DGCL, each
stockholder shall be entitled to one vote for each share of capital stock
held. The THC By-Laws state that each stockholder is entitled to one vote for
each share of stock held.
The MGCL provides that each outstanding share of stock is entitled to one
vote on each matter submitted to a vote at a meeting of stockholders, unless
the charter provides otherwise. The Rouse Charter and the Rouse By-Laws
provide that each holder of Rouse Common Stock is entitled to one vote for the
election of directors and on all other matters submitted for stockholder
approval, except as otherwise provided in the Rouse Charter with respect to
certain matters that relate only to holders of Rouse Preferred Stock. In
addition, except with respect to certain matters relating only to holders of
Rouse Preferred Stock, (i) holders of Rouse Common Stock and Rouse Preferred
Stock vote as a single class and (ii) holders of Rouse Preferred Stock
generally do not have voting rights. For a discussion of the voting rights of
holders of Rouse Preferred Stock, see "ROUSE PREFERRED STOCK--Increasing Rate
Preferred Stock--Voting Rights," "ROUSE PREFERRED STOCK--Rouse Series A
Preferred Stock--Voting Rights" and "ROUSE PREFERRED STOCK--Rouse Junior
Preferred Stock--Voting Rights."
Both the THC By-Laws and the Rouse By-Laws provide that, unless otherwise
required by law or by the THC Charter or the Rouse Charter, respectively, a
majority of all the votes cast at a meeting at which a quorum is present is
sufficient to approve any matter at such meeting, except that a plurality of
all the votes cast at a meeting at which a quorum is present is sufficient to
elect a director.
ACTION WITHOUT A MEETING
The THC By-Laws state that nothing contained therein shall be deemed to
restrict the power of stockholders to take any action required or permitted to
be taken by them without a meeting, in accordance with applicable provisions
of law. Under the DGCL, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without
a vote, if written consents setting forth
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the action taken are signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote upon such
action were present and voted. The THC Charter does not restrict such rights.
Under the MGCL, any action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting only if a unanimous written
consent is signed by each stockholder entitled to vote on the matter and a
written waiver of any right to dissent is signed by each stockholder who would
have been entitled to notice of, but not to vote at, such stockholder meeting.
PROXIES
The THC By-Laws provide that each stockholder entitled to vote at a meeting
of stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person to act for him by
written proxy, but, consistent with the DGCL, no such proxy is valid after
three years from its date unless the proxy provides otherwise. Both the MGCL
and the Rouse By-Laws grant stockholders the right to vote by written proxy,
which is not valid for more than eleven months unless otherwise stated in such
proxy.
NO CUMULATIVE VOTING
The DGCL and the MGCL permit charters to provide for cumulative voting in
the election of directors, but neither the Rouse Charter nor the THC Charter
so provides. Both the MGCL and the Rouse By-Laws provide that, in the election
of directors, each share of stock may be voted for as many individuals as
there are directors to be elected and for whose election the share is entitled
to be voted.
POWER TO CALL SPECIAL MEETING
The DGCL provides that special meetings of stockholders may be called by the
board of directors or by such persons authorized in the certificate of
incorporation or the by-laws. The THC By-Laws state that special meetings of
stockholders may be called by the Chairman of the THC Board, the THC Board or
by the Secretary at the written request of the holders of at least 51% of the
outstanding shares of capital stock of THC entitled to vote who have filed
with the Secretary a written application for such meeting stating the time,
place and purpose thereof.
Under the MGCL, a special meeting of stockholders may be called by the
president, the board of directors or any other person specified in the charter
or the by-laws. Additionally, the secretary of a corporation must call a
special meeting of stockholders on the written request of stockholders
entitled to cast at least 25% of all votes entitled to be cast at the meeting,
subject to certain limitations. Legislation has been introduced in Maryland
which, if adopted, would permit an increase of the 25% to not higher than 50%
by a charter or by-law amendment. The Rouse By-Laws provide that a special
meeting of stockholders may be called by the Chairman of the Board or, if
unavailable, by the Chief Executive Officer or the President, or by a majority
of the Board of Directors of Rouse . A special meeting may be called at the
request of stockholders if and as required by law and, in such case, the Board
or the Chief Executive Officer will establish the date of the special meeting,
which will not be more than 90 days after the requesting stockholders have
established that Rouse is required by law to hold the special meeting and paid
to Rouse any costs of the meeting required by law to be paid by them.
NUMBER OF DIRECTORS; CLASSIFICATION
The DGCL provides that a board of directors shall consist of one or more
members. The number of directors shall be fixed by or in the manner provided
in the by-laws unless the certificate of incorporation fixes the number, in
which case a change in such number shall be made only by amendment of the
certificate. The THC By-Laws set the number of directors constituting the THC
Board at ten, but provide that the then-authorized number of directors may
decrease the number of directors to no less than the greater of (i) one and
(ii) the number of directors required pursuant to the Stockholder Agreement.
The THC Board currently consists of ten persons.
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<PAGE>
Under the formula provided in the Stockholder Agreement, the 9.5 Trust is
entitled to nominate one director for so long as the 9.5 Trust holds "Voting
Power" (as hereinafter defined) with respect to at least 8.55% of all of the
issued and outstanding THC Common Stock. RD&C is entitled to nominate two
directors for so long as RD&C holds Voting Power with respect to at least
17.1% of all of the issued and outstanding THC Common Stock but is only
entitled to nominate one director if RD&C holds Voting Power with respect to
less than 17.1% of the issued and outstanding THC Common Stock, and then only
if RD&C holds Voting Power with respect to at least 8.55% of the issued and
outstanding THC Common Stock. THCP is entitled to nominate one director for
each 8.55% of the issued and outstanding THC Common Stock for which THCP holds
Voting Power, subject to a maximum nomination of seven directors. However,
during any period in which THCP is entitled to nominate seven directors, one
of its nominees must be a person who is not an affiliate or "Constituent" (as
hereinafter defined) of THC, THCP, HHPLP or THHC. Each Principal Owner is
required to vote all of its THC Common Stock for the nominees designated by
the other Principal Owners. For purposes of the Stockholder Agreement: (i)
"Voting Power" means with respect to any share of THC Common Stock, the power
and authority (whether given by proxy, power of attorney, agreement or
otherwise) to vote such share of THC Common Stock on any matter contemplated
by the Stockholder Agreement and to vote such share of THC Common Stock any
other matter that may be submitted to the Stockholders or for their
consideration and approval; and (ii) "Constituent" means any person (including
certain relatives and trusts and estates) or entity that is a stockholder,
partner, beneficiary or member of, or owner of an economic interest in, any
Principal Owner.
Under the MGCL, a Maryland corporation shall have the number of directors
provided in its charter until changed by the by-laws. A corporation with
outstanding stock and three or more stockholders shall have at least three
directors at all times. The by-laws may authorize a majority of the entire
board to alter, within specified limits, the number of directors set by the
charter or by-laws. Pursuant to the Rouse Charter and the Rouse By-Laws, a
majority of the entire Board of Directors of Rouse may alter the number of
directors to not more than 25 nor less than three. The Rouse By-Laws set the
current number of directors of Rouse at ten.
Under the DGCL, pursuant to the certificate of incorporation or a by-law
adopted by a vote of the stockholders, a corporation may classify its board of
directors. Neither the THC Charter nor THC By-Laws provide for a classified
board of directors. Although the MGCL also permits the articles of
incorporation to provide for a classified board of directors, the Rouse
Charter does not so provide.
ELECTION AND TENURE OF DIRECTORS
In the case of both THC and Rouse, stockholders elect directors at the
annual meeting of stockholders for each company, and such directors hold
office until the next annual meeting or until their successors are elected and
qualified.
REMOVAL OF DIRECTORS
The THC By-Laws provide that, except as otherwise provided by law, the THC
Charter or the Stockholder Agreement, the stockholders may at any time remove
from office or terminate the employment of any director, officer, employee or
agent of THC with or without cause. The DGCL generally provides that any or
all directors may be removed, with or without cause, by a majority of the
stockholders entitled to vote in the election of directors.
The Principal Owner that nominated a director of THC in accordance with the
Stockholder Agreement has the exclusive right to remove or replace such
director and also has the exclusive right to nominate the successor to such
director if such director ceases to be a director for any reason and if, in
each case, such Principal Owner then holds Voting Power sufficient to nominate
such director. A Principal Owner may be required to remove a director that
such Principal Owner appointed upon the request of any other Principal Owner
if such director is failing to act in a manner consistent with the
implementation of the Business Policy (as hereinafter defined) and if certain
other conditions are met.
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<PAGE>
The MGCL states that, except in certain instances, the stockholders may
remove any director, with or without cause, by the affirmative vote of a
majority of all votes entitled to be cast, unless otherwise provided in the
charter. Similarly, according to the Rouse By-Laws, at any special or annual
meeting of the stockholders, any director may be removed from office by a vote
of a majority of all the votes that are entitled to be cast by all shares of
stock outstanding and entitled to vote for the election of directors.
VACANCY ON THE BOARD AND NEWLY CREATED DIRECTORSHIPS
Under the THC By-Laws, except as otherwise provided by law, the THC Charter
or the Stockholder Agreement, any vacancy occurring in the office of any
director through death, resignation, removal or otherwise and any newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. The DGCL
contains a similar provision, and also states that, if the directors then in
office constitute less than a majority of the corporation's board of
directors, then, upon application by stockholders representing at least 10% of
the outstanding shares entitled to vote for such directors, the Delaware Court
of Chancery may order a stockholder election of directors to be held to fill
vacancies on the board or replace directors elected by the directors then in
office.
Under the MGCL, stockholders may fill a vacancy on the board of directors
which results from the removal of a director. Also, unless the charter or by-
laws of a corporation provide otherwise, (i) a majority of the remaining
directors, whether or not sufficient to constitute a quorum, may fill a
vacancy on the board of directors which results from any cause except an
increase in the number of directors and (ii) a majority of the entire board of
directors may fill a vacancy which results from an increase in the number of
directors. The Rouse By-Laws provide that a majority of the directors on the
Board of Directors of Rouse, whether or not sufficient to constitute a quorum,
may fill a vacancy on such Board. Also, stockholders may elect a director to
serve for the balance of the term of a director removed by stockholders.
LIMITATION OF LIABILITY
As permitted by the DGCL, the THC Charter limits the personal liability of a
director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability for (i) any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) violation of
certain provisions of the DGCL, (iv) any transaction from which the director
derived an improper personal benefit or (v) any act or omission prior to the
adoption of such provision.
Pursuant to the MGCL and the Rouse Charter, directors' personal liability to
Rouse or to any stockholder of Rouse for money damages has been eliminated,
except to the extent that (i) it is established that such directors actually
received an improper benefit or profit in money, property or services, for the
amount of the benefit or profit in money, property or services actually
received, (ii) a judgment or other final adjudication adverse to such
directors is entered in a proceeding based on a finding in the proceeding that
such directors' action, or failure to act, was the result of active and
deliberate dishonesty and was material to the cause of action adjudicated in
the proceeding or (iii) in certain other circumstances. The MGCL and the Rouse
Charter also limit the liability of officers of a corporation to the same
extent directors' liability is limited. The limitation of liability afforded
by the Rouse Charter does not preclude or limit recovery of damages by third
parties, such as creditors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Both the THC Charter and the Rouse Charter provide indemnification to
directors and officers, including the advance of legal expenses, to the full
extent authorized by applicable law, and allow such indemnification to be
extended to other employees and agents as determined to be appropriate. Under
196
<PAGE>
the DGCL, directors and officers, as well as other employees and agents, may
be indemnified against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement in connection with certain threatened, pending
or completed actions, suits or proceedings to which such persons were made or
threatened to be made a party by reason of the fact that such persons are or
were directors, officers, employees or agents of the corporation or are or
were serving as such at another entity at the request of the corporation,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests
of the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe their conduct was unlawful. A similar standard
of care is applicable in the case of actions by or in the right of the
corporation, except that indemnification extends only to expenses (including
attorney's fees) incurred in connection with the defense or settlement of such
an action, except where a person has been adjudged liable to the corporation,
unless and to the extent that the Delaware Court of Chancery or the court that
determined such person's liability determines that such person is fairly and
reasonably entitled to indemnification. The THC Charter also specifies that
THC is required to indemnify a person seeking indemnification in connection
with a proceeding initiated by such person only if such proceeding was
authorized by the THC Board.
The MGCL generally provides that a director of a corporation may be
indemnified against judgments, penalties, fines, settlements and reasonable
expenses actually incurred in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including in connection with an action by or in the right of
the corporation so long as the director has not been found liable) unless it
is established that (i) the act or omission of the director was material to
the matter giving rise to the proceeding and either was committed in bad faith
or was the result of active and deliberate dishonesty, (ii) the director
actually received an improper personal benefit in money, property or services,
or (iii) in the case of any criminal proceeding, the director had reasonable
cause to believe that the act or omission was unlawful. The MGCL also permits
a court of appropriate jurisdiction to order indemnification in certain
circumstances. The MGCL allows similar indemnification for officers, employees
or agents of a corporation.
The DGCL requires that a director, officer, employee or agent of a
corporation be indemnified against expenses (including attorneys' fees) to the
extent that such person has been successful in the defense of any action, suit
or proceeding in which such person would be entitled to indemnification. The
MGCL provides a similar right for directors and officers of a corporation,
unless such right is limited by the corporation's charter. The Rouse Charter
does not so limit the rights of directors and officers of Rouse. Both the DGCL
and the MGCL also require that a corporation determine that indemnification is
appropriate under the circumstances because the applicable standards of
conduct required by the respective statute have been met.
Under the DGCL, the termination of any proceeding by judgment, order,
settlement or conviction or upon a plea of nolo contendere or its equivalent,
does not, of itself, create a presumption that such person is prohibited from
being indemnified. The same rule applies under Maryland law as to terminations
due to judgments, orders or settlements, but a termination by conviction or
plea of nolo contendere creates a rebuttable presumption that such person is
not entitled to indemnification. In addition, the MGCL provides that a person
found liable on the grounds that such person improperly received personal
benefit may not be indemnified by the corporation, except for expenses upon
approval of the court.
Both the THC Charter and the Rouse By-Laws also specify that (i) such
indemnification shall inure to the benefit of heirs, executors and
administrators of those entitled to indemnification and (ii) such right of
indemnification shall not be deemed exclusive of any other rights to which a
director, officer, employee or agent may be entitled pursuant to law,
agreements or vote of stockholders or directors, both as to actions in an
official capacity and as to actions in other capacities.
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AMENDMENT OF BY-LAWS
The DGCL vests the power to adopt, amend and repeal by-laws in the
stockholders entitled to vote and permits a corporation to confer such power
on its board of directors. The THC By-Laws and the THC Charter authorize the
THC Board to make, alter or repeal the THC By-Laws by the affirmative vote of
a majority of the then-authorized directors and the THC By-Laws state that
stockholders may make, alter or amend the THC By-Laws by a majority of the
stock issued and outstanding and entitled to vote.
Under the MGCL, the power to adopt, alter and repeal the by-laws is vested
in the stockholders, except to the extent the charter or by-laws vest it in
the board of directors. Under the Rouse Charter and the Rouse By-Laws, the
Rouse By-Laws may be altered, amended or added to by the Board of Directors of
Rouse, except as otherwise provided by law.
AMENDMENT OF CHARTER
Under the DGCL, unless otherwise provided in the certificate of
incorporation, a proposed amendment to the certificate of incorporation
requires an affirmative vote of a majority of the stockholders entitled to
vote on the matter. If any such amendment would adversely affect the rights of
any holders of shares of a class or series of stock, the vote of the holders
of a majority of all outstanding shares of such class or series, voting as a
class, is also necessary to authorize such amendment. In the THC Charter, THC
reserves the right to amend, alter, change or repeal any provision of the THC
Charter in the manner prescribed by statute and subjects all rights conferred
upon stockholders therein to such reservation.
The MGCL provides that a proposed amendment to a corporation's charter must
be approved by the stockholders of the corporation by the affirmative vote of
two-thirds of all the votes entitled to be cast on the matter, unless the
articles of incorporation require a greater or lesser proportion of votes. In
the Rouse Charter, Rouse reserves the right to make any amendments of the
Rouse Charter which are authorized by law, including amendments to change the
terms of any class of its stock by classification, reclassification or
otherwise; provided, however, no such amendment which changes the terms of
outstanding stock will be valid unless authorized by the holders of two-thirds
of all such stock at the time outstanding.
BUSINESS COMBINATIONS
Under the DGCL, approval by the affirmative vote of the holders of a
majority of the outstanding stock of a corporation entitled to vote is
required for a merger or consolidation or sale, lease, or exchange of all or
substantially all of the corporation's assets to be consummated. Unless the
corporate charter provides otherwise, no vote of the stockholders of a
surviving corporation is required to approve a merger if (i) the agreement of
merger does not amend in any respect the surviving corporation's charter, (ii)
each share of the corporation's stock outstanding immediately prior to the
effective date of the merger is to remain outstanding and (iii) the number of
shares of the surviving corporation's common stock to be issued or delivered
under the plan of merger does not exceed 20% of the surviving corporation's
common stock outstanding immediately prior to the effective date of the
merger. The THC Charter and THC By-Laws have no specific provisions addressing
such transactions.
Under the MGCL, a vote of the holders of two-thirds of all outstanding
shares of stock of a corporation entitled to vote thereon is required to
approve a merger, consolidation, share exchange or transfer of all or
substantially all of the corporation's assets, subject to certain exceptions.
Unless the charter states otherwise, the vote of the stockholders of a
surviving corporation is not required to approve a merger if (i) the plan of
merger does not reclassify or change its outstanding stock or otherwise amend
the corporation's charter and (ii) the number of shares of common stock to be
issued or transferred in the merger does not exceed 15% of the number of its
shares of the same class
198
<PAGE>
outstanding immediately before the effective date of the merger. The Rouse
Charter and Rouse By-Laws have no specific provisions relating to such
transactions.
BUSINESS COMBINATIONS WITH CERTAIN STOCKHOLDERS
The DGCL generally prohibits any "business combination" (defined to include
certain transactions, including mergers and consolidations) between a Delaware
corporation and any "interested stockholder" (defined generally as any person
who, directly or indirectly, beneficially owns 15% or more of the outstanding
voting stock of the corporation) for a period of three years following the
date that such stockholder became an interested stockholder. These
restrictions do not apply, however, (i) if certain approvals are obtained or
requirements are met, (ii) if the corporation, in the manner set forth in the
DGCL, expressly elects not to be governed by such provisions, (iii) if the
corporation does not have a class of voting stock that is (a) listed on a
national securities exchange, (b) authorized for quotation on NASDAQ or (c)
held of record by more than 2,000 stockholders, unless any of the foregoing
results from an action taken by or involving an interested stockholder or (iv)
in certain other circumstances. The THC Charter and THC By-Laws do not address
these provisions of the DGCL. Pursuant to clause (iii) above, such provisions
are inapplicable to THC.
The MGCL also contains provisions relating to certain "business
combinations" with "interested stockholders." See "DESCRIPTION OF ROUSE COMMON
STOCK--Special Statutory Requirements for Certain Transactions." Under the
MGCL, such transactions may be prohibited for a five-year period and
thereafter may be subject to, among other things, certain stockholder
approvals. The Rouse By-Laws provide that such provisions of the MGCL shall
apply to any "business combinations" with Rouse.
CONTROL SHARE ACQUISITIONS
The Rouse By-Laws state that the applicable provisions of the MGCL with
respect to "control-share acquisitions," as defined in the MGCL, shall not
apply to any control share acquisitions of shares of the stock of Rouse. See
"DESCRIPTION OF ROUSE COMMON STOCK--Special Statutory Requirements for Certain
Transactions." The DGCL does not contain an analogous provision.
APPRAISAL RIGHTS
Under the DGCL, dissenting stockholders may be entitled to the right to
demand and receive payment of the "fair value" of their shares in the event of
a merger or consolidation. See "THE MERGERS--Dissenters' Rights." The DGCL
also provides that a corporation may provide in its certificate of
incorporation that appraisal rights are available for shares of its stock in
certain instances, including any merger or consolidation in which the
corporation is a constituent corporation.
Stockholders of a Maryland corporation generally have the right to demand
and receive payment of the fair value of their stock in the event of certain
mergers, consolidations, share exchanges or transfers of assets or if the
corporation amends its charter in a way that alters the contract rights
expressly set forth in the charter of any outstanding stock and substantially
adversely affects stockholders' rights, unless the right to do so is reserved
in the corporation's charter, subject to certain exceptions. However, except
as otherwise provided by the MGCL, stockholders do not have appraisal rights
if, among other things, (i) such stock is listed on a national securities
exchange or is designated as a national market system security on an
interdealer quotation system by the NASD, or (ii) such stock is that of the
successor corporation in the merger, unless the merger alters the contract
rights of the stock as expressly set forth in the charter and the charter does
not reserve the right to do so, or the stock is to be changed or converted in
whole or in part in the merger into something other than either stock in the
successor or cash, scrip or other rights or interests, arising out of
provisions for the treatment of fractional shares of stock in the successor.
In the Rouse Charter, Rouse reserves the right to make any amendments of its
charter, including amendments changing the terms of any class of its stock;
provided, however, such amendments must be authorized by the holders of two-
thirds of all such stock at the time outstanding.
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EXPERTS
The consolidated financial statements and schedules of Rouse and its
consolidated subsidiaries as of December 31, 1995 and 1994, and for each of
the years in the three-year period ended December 31, 1995, have been included
in the Registration Statement (of which this Proxy Statement/ Prospectus forms
a part) in reliance upon (1) the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein and upon the
authority of said 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, included
elsewhere herein, and upon the authority of said firm as experts in real
estate consultation.
The consolidated financial statements of THC and its consolidated
subsidiaries as of December 31, 1995 and 1994, and for each of the three years
in the period ended December 31, 1995 included in the Registration Statement
(of which this Proxy Statement/Prospectus forms a part) have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Rouse Common Stock and the Increasing Rate Preferred
Stock to be issued in the THC Merger or pursuant to the Contingent Stock
Agreement has been passed upon for Rouse by Piper & Marbury L.L.P., Baltimore,
Maryland. Certain tax consequences of the THC Merger have been passed upon for
Rouse by Fried, Frank, Harris, Shriver & Jacobson (a partnership including
professional corporations), New York, New York. Certain tax consequences of
the THC Merger and the Partnership Merger have been passed upon for the
Stockholders and Unitholders by Andrews & Kurth L.L.P., Houston, Texas. An
aggregate of approximately 9.9% of the THC Common Stock and Class 1 Units is
beneficially owned by certain partners and employees of Andrews & Kurth
L.L.P., trusts for family members of certain partners of Andrews & Kurth
L.L.P., and an endowment with respect to which Andrews & Kurth L.L.P. holds a
reserved interest to all ordinary income. David G. Elkins, a partner of
Andrews & Kurth L.L.P., will be a Representative designated under the
Contingent Stock Agreement, serving as such in his individual capacity and not
in his capacity as a partner of Andrews & Kurth L.L.P.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF ROUSE
<TABLE>
<S> <C>
Consolidated Cost Basis and Current Value Basis Financial Statements:
Independent Auditors' Report............................................ F-2
Report of Independent Real Estate Consultants........................... F-3
Consolidated Cost Basis and Current Value Basis Financial Statements:
Consolidated Cost Basis and Current Value Basis Balance Sheets at
December 31, 1995 and 1994............................................ F-4
Consolidated Cost Basis Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993...................................... F-6
Consolidated Cost Basis Statements of Shareholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993.......................... F-7
Consolidated Cost Basis Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993...................................... F-8
Consolidated Current Value Basis Statements of Changes in Revaluation
Equity for the Years Ended December 31, 1995, 1994 and 1993........... F-10
Notes to Consolidated Financial Statements.............................. F-11
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders The Rouse Company:
We have audited the consolidated cost basis financial statements of The
Rouse Company and subsidiaries as listed in the accompanying index. We have
also audited the supplemental consolidated current value basis financial
statements listed in the index. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated cost basis financial statements present
fairly, in all material respects, the financial position of The Rouse Company
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As more fully described in note 1 to the consolidated financial statements,
the supplemental consolidated current value basis financial statements
referred to above have been prepared by management to present relevant
financial information about The Rouse Company and its subsidiaries which is
not provided by the cost basis financial statements and are not intended to be
a presentation in conformity with generally accepted accounting principles. In
addition, as more fully described in note 1, the supplemental consolidated
current value basis financial statements do not purport to present the net
realizable, liquidation or market value of the Company as a whole.
Furthermore, amounts ultimately realized by the Company from the disposal of
properties may vary from the current values presented.
In our opinion, the supplemental consolidated current value basis financial
statements referred to above present fairly, in all material respects, the
information set forth therein on the basis of accounting described in note 1
to the consolidated financial statements.
KPMG Peat Marwick LLP
Baltimore, Maryland
February 22, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT REAL ESTATE CONSULTANTS
LANDAUER ASSOCIATES, INC. 666 FIFTH AVENUE NEW YORK, NEW YORK 10103
KPMG Peat Marwick LLP and The Board of Directors and Shareholders The Rouse
Company:
We have reviewed estimates of the market value of equity and other interests
in certain real property owned and/or managed by The Rouse Company (the
Company) and its subsidiaries as of December 31, 1995 and 1994. The properties
reviewed at December 31, 1995 include all the projects identified as "In
Operation" on the "Projects of The Rouse Company" table on pages 58 through 62
of the Annual Report for 1995, land held for development and sale, certain
parcels of land in development and certain other properties held for sale. The
properties reviewed at December 31, 1994 were the same, except for the
properties which were acquired or disposed of during 1995.
The total values of its equity and other interests estimated by the Company
were $2,444,218,000 and $2,338,624,000 at December 31, 1995 and 1994,
respectively.
Based upon our review, we concur with the Company's estimates of the total
value of the property interests appraised. In our opinion, the aggregate value
estimated by the Company varies less than 10% from the aggregate value we
would estimate in a full and complete appraisal of the same interests. A
variation of less than 10% between appraisers implies substantial agreement as
to the most probable market value of such property interests.
The data used in our review were supplied to us in summary form by the
Company. We have relied upon the Company's interpretation and summaries of
leases, operating agreements, mortgages and partnership, joint venture and
management agreements. We have had complete and unrestricted access to all
underlying documents and have confirmed certain information by reference to
such documents. We have found no discrepancies in the data and, to the best of
our knowledge, believe all such data to be accurate and complete. The basic
assumptions used by the Company and the individual value estimates prepared by
the Company were, in our opinion, fair and reasonable. No assumption has been
made with respect to a bulk sale of the entire holdings or groups of property
interests. We have also physically inspected, within the past three years,
substantially all of the properties which were reviewed.
We certify that neither Landauer Associates, Inc. nor the undersigned have
any present or prospective interest in the Company's properties, and we have
no personal interest or bias with respect to the parties involved. To the best
of our knowledge and belief, the facts upon which the analysis and conclusions
were based are materially true and correct. No one, other than the undersigned
assisted by members of our staff, performed the analyses and reached the
conclusions resulting in the opinion expressed in this letter. Our fee for
this assignment was not contingent on any action or event resulting from the
analysis, opinions, or conclusions in, or the use of, this review. Our review
has been prepared in conformity with the Uniform Standards of Professional
Appraisal Practice.
Sincerely,
Landauer Associates, Inc.
James C. Kafes, MAI, CRE Deborah A. Jackson
Managing Director Senior Vice President
Director of Retail Valuation
February 22, 1996
F-3
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
CONSOLIDATED COST BASIS AND CURRENT VALUE BASIS BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
CURRENT VALUE COST CURRENT VALUE COST
BASIS (NOTE 1) BASIS BASIS (NOTE 1) BASIS
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Property (notes 4, 5, 6,
7, 11 and 18):
Operating properties:
Property and deferred
costs of projects.... $4,323,010 $3,006,356 $4,232,913 $2,937,565
Less accumulated
depreciation
and amortization..... 519,319 490,158
---------- ---------- ---------- ----------
4,323,010 2,487,037 4,232,913 2,447,407
Properties in
development............ 62,030 56,151 70,866 65,348
Properties held for
sale................... 22,602 22,602 8,809 8,809
Land held for
development and sale... 149,324 134,168 153,637 132,293
---------- ---------- ---------- ----------
Total property........ 4,556,966 2,699,958 4,466,225 2,653,857
---------- ---------- ---------- ----------
Prepaid expenses, deferred
charges and other
assets................... 160,854 151,068 159,956 151,223
Accounts and notes
receivable (note 8)...... 36,751 36,751 31,233 31,233
Investments in marketable
securities............... 2,910 2,910 30,149 30,149
Cash and cash
equivalents.............. 94,922 94,922 49,398 49,398
---------- ---------- ---------- ----------
Total................. $4,852,403 $2,985,609 $4,736,961 $2,915,860
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
CONSOLIDATED COST BASIS AND CURRENT VALUE BASIS BALANCE SHEETS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
CURRENT VALUE COST CURRENT VALUE COST
BASIS (NOTE 1) BASIS BASIS (NOTE 1) BASIS
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
LIABILITIES
Debt (note 11):
Property debt not
carrying a Parent
Company guarantee of
repayment............. $1,990,041 $1,990,041 $1,998,445 $1,998,445
---------- ---------- ---------- ----------
Parent Company debt and
debt carrying a Parent
Company guarantee of
repayment:
Property debt........ 138,488 138,488 223,731 223,731
Convertible
subordinated
debentures.......... 126,750 130,000 105,950 130,000
Other debt........... 231,884 221,000 116,500 120,700
---------- ---------- ---------- ----------
497,122 489,488 446,181 474,431
---------- ---------- ---------- ----------
Total debt......... 2,487,163 2,479,529 2,444,626 2,472,876
---------- ---------- ---------- ----------
Obligations under
capital leases (note
18).................... 58,786 58,786 60,044 60,044
Accounts payable,
accrued expenses and
other liabilities...... 185,561 185,561 205,317 205,317
Deferred income taxes
(note 14).............. 445,613 81,649 412,729 82,597
Company-obligated
mandatorily redeemable
preferred securities of
a trust holding solely
Parent Company
subordinated debt
securities (note 12)... 136,125 137,500 -- --
SHAREHOLDERS' EQUITY
(NOTES 16 AND 17)
Series A Convertible
Preferred stock with a
liquidation preference
of $225,250 in 1995 and
$225,252 in 1994....... 45 45 45 45
Common stock of 1c par
value per share;
250,000,000 shares
authorized; issued
47,922,749 shares in
1995 and 47,571,046
shares in 1994......... 479 479 476 476
Additional paid-in
capital................ 309,943 309,943 306,674 306,674
Accumulated deficit..... (267,883) (267,883) (212,169) (212,169)
Revaluation equity...... 1,496,571 -- 1,519,219 --
---------- ---------- ---------- ----------
Total shareholders'
equity............ 1,539,155 42,584 1,614,245 95,026
---------- ---------- ---------- ----------
Commitments and
contingencies
(notes 18, 19 and 20)
Total.............. $4,852,403 $2,985,609 $4,736,961 $2,915,860
========== ========== ========== ==========
</TABLE>
F-5
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
CONSOLIDATED COST BASIS STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues........................................ $672,821 $671,171 $646,805
Operating expenses, exclusive of provision for
bad debts, depreciation and amortization....... 347,560 356,958 352,217
Interest expense (note 11)...................... 212,963 213,583 210,806
Provision for bad debts......................... 3,318 5,185 4,741
Depreciation and amortization (note 4).......... 73,062 74,186 70,200
Gain (loss) on dispositions of assets and other
provisions, net (note 15)...................... (25,749) (7,923) (5,769)
-------- -------- --------
Earnings before income taxes and extraordinary
losses....................................... 10,169 13,336 3,072
-------- -------- --------
Income taxes (note 14):
Current--primarily state...................... 620 735 760
Deferred--primarily Federal................... 3,699 5,995 3,603
-------- -------- --------
4,319 6,730 4,363
-------- -------- --------
Earnings (loss) before extraordinary losses... 5,850 6,606 (1,291)
Extraordinary losses, net of related income tax
benefits (note 11)............................. 8,631 4,447 8,051
-------- -------- --------
Net earnings (loss)........................... $ (2,781) $ 2,159 $ (9,342)
======== ======== ========
Net loss applicable to common shareholders.... $(17,422) $(10,922) $(20,723)
======== ======== ========
Loss per share of common stock after provision
for dividends on Preferred stock (note 16):
Loss before extraordinary losses.............. $ (.18) $ (.14) $ (.27)
Extraordinary losses.......................... (.18) (.09) (.17)
-------- -------- --------
Total....................................... $ (.36) $ (.23) $ (.44)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
CONSOLIDATED COST BASIS STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE ADDITIONAL
PREFERRED COMMON PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT
----------- ------ ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1992........ $-- $473 $ 83,450 $(118,771)
Net loss............................ -- -- -- (9,342)
Dividends declared:
Common stock--$.62 per share...... -- -- -- (29,404)
Preferred stock--$2.83 per share.. -- -- -- (11,381)
Proceeds from exercise of stock op-
tions, net......................... -- 3 446 --
Amortization of restricted common
stock.............................. -- -- 2,068 --
Issuance of Preferred stock (note
16)................................ 40 -- 195,569 --
---- ---- -------- ---------
Balance at December 31, 1993........ 40 476 281,533 (168,898)
Net earnings........................ -- -- -- 2,159
Dividends declared:
Common stock--$.68 per share...... -- -- -- (32,349)
Preferred stock--$3.25 per share.. -- -- -- (13,081)
Proceeds from exercise of stock op-
tions, net......................... -- -- 108 --
Amortization of restricted common
stock.............................. -- -- 2,225 --
Issuance of Preferred stock (note
16)................................ 5 -- 22,808 --
---- ---- -------- ---------
Balance at December 31, 1994........ 45 476 306,674 (212,169)
Net loss............................ -- -- -- (2,781)
Dividends declared:
Common stock--$.80 per share...... -- -- -- (38,292)
Preferred stock--$3.25 per share.. -- -- -- (14,641)
Proceeds from exercise of stock op-
tions, net......................... -- 3 2,139 --
Amortization of restricted common
stock.............................. -- -- 1,130 --
---- ---- -------- ---------
Balance at December 31, 1995........ $ 45 $479 $309,943 $(267,883)
==== ==== ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
CONSOLIDATED COST BASIS STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received............. $ 625,373 $ 622,033 $ 600,594
Proceeds from land sales...................... 33,233 37,482 33,830
Interest received............................. 10,323 10,297 9,712
Land development expenditures................. (16,874) (16,760) (20,407)
Operating expenditures:
Operating properties........................ (308,425) (315,607) (309,130)
Land sales, development and corporate....... (18,738) (11,880) (9,034)
Interest paid:
Operating properties........................ (202,120) (195,751) (184,278)
Land sales, development and corporate....... (15,771) (16,039) (20,138)
--------- --------- ---------
Net cash provided by operating activities... 107,001 113,775 101,149
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for properties in development and
improvements to existing properties funded by
debt......................................... (61,591) (78,628) (87,243)
Expenditures for property acquisitions........ (28,206) (94,113) (34,967)
Expenditures for improvements to existing
properties funded by cash provided by
operating activities:
Tenant leasing and remerchandising.......... (8,344) (8,121) (7,374)
Building and equipment...................... (4,688) (5,155) (5,967)
Purchases of marketable securities............ (5,411) (70,189) (88,594)
Proceeds from redemptions or sales of
marketable securities........................ 32,650 74,443 72,400
Other......................................... 10,595 3,212 (2,701)
--------- --------- ---------
Net cash used in investing activities....... (64,995) (178,551) (154,446)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of property debt....... 288,851 446,628 358,995
Repayments of property debt:
Scheduled principal payments................ (36,446) (46,750) (20,735)
Other payments.............................. (413,438) (304,977) (405,772)
Proceeds from issuance of other debt.......... 124,831 -- 120,329
Repayments of other debt...................... (42,440) (8,968) (160,657)
Proceeds from issuance of Company-obligated
mandatorily redeemable preferred securities.. 132,951 -- --
Proceeds from issuance of Preferred stock..... -- -- 195,609
Proceeds from exercise of stock options....... 2,142 108 449
Dividends paid................................ (52,933) (45,423) (41,150)
--------- --------- ---------
Net cash provided by financing activities... 3,518 40,618 47,068
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents.................................. 45,524 (24,158) (6,229)
Cash and cash equivalents at beginning of
year......................................... 49,398 73,556 79,785
--------- --------- ---------
Cash and cash equivalents at end of year...... $ 94,922 $ 49,398 $ 73,556
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
CONSOLIDATED COST BASIS STATEMENTS OF CASH FLOWS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
RECONCILIATION OF NET EARNINGS (LOSS) TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
NET EARNINGS (LOSS)............................. $(2,781) $ 2,159 $ (9,342)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization................. 73,062 74,186 70,200
(Gain) loss on dispositions of assets and
other provisions, net........................ 25,749 7,923 5,769
Extraordinary losses, net of related income
tax benefits................................. 8,631 4,447 8,051
Additions to pre-construction reserve......... 3,800 3,400 2,900
Provision for bad debts....................... 3,318 5,185 4,741
Decrease (increase) in:
Accounts and notes receivable............... (3,836) (3,150) (407)
Other assets................................ 1,357 5,323 (3,373)
Increase (decrease) in accounts payable,
accrued expenses and other liabilities....... (10,690) 5,754 21,437
Deferred income taxes......................... 3,699 5,995 3,603
Other, net.................................... 4,692 2,553 (2,430)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES....... $107,001 $113,775 $101,149
======== ======== ========
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Value of non-cash consideration given in
acquisitions of interests in properties........ $ 79,811 $ 1,129 $ 13,416
Mortgage and other debt assumed in acquisitions
of interests in properties..................... 6,175 -- 71,995
Mortgage debt extinguished on dispositions of
interests in properties........................ 20,779 15,681 --
Capital lease obligations incurred.............. 1,837 613 1,541
Series A Convertible Preferred stock issued in
satisfaction of mortgage debt.................. -- 23,000 --
======== ======== ========
</TABLE>
F-9
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
CONSOLIDATED CURRENT VALUE BASIS STATEMENTS OF CHANGES IN REVALUATION EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
REVALUATION EQUITY AT BEGINNING OF YEAR.... $1,519,219 $1,412,455 $1,223,744
Revaluation equity attributable to
interests in operating properties sold or
disposed.................................. 3,082 5,609 --
---------- ---------- ----------
1,522,301 1,418,064 1,223,744
---------- ---------- ----------
Value of interests in operating properties
opened or acquired........................ 8,152 -- 7,075
Change in value of interests in other
operating properties, including properties
held for sale............................. 39,233 101,168 226,258
Change in value of land in development and
land held for development and sale,
including effects of sales and transfers
to operating properties................... (5,827) 1,007 (10,761)
---------- ---------- ----------
Change in value of interests in operating
properties, land in development and land
held for development and sale........... 41,558 102,175 222,572
Change in value of other property.......... 1,053 (337) (456)
Change in value attributable to debt,
exclusive of operating property debt...... (34,509) 32,068 (3,818)
Change in present value of potential income
taxes, net of cost basis deferred income
taxes..................................... (33,832) (32,751) (29,587)
---------- ---------- ----------
(25,730) 101,155 188,711
---------- ---------- ----------
REVALUATION EQUITY AT END OF YEAR.......... $1,496,571 $1,519,219 $1,412,455
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. CURRENT VALUE BASIS FINANCIAL STATEMENTS
(A) CURRENT VALUE REPORTING
The Company's interests in operating properties, land held for development
and sale and certain other assets have appreciated in value and, accordingly,
their aggregate current value substantially exceeds their aggregate cost basis
net book value determined in conformity with generally accepted accounting
principles. The current value basis financial statements present information
about the current values to the Company of its assets and liabilities and the
changes in such values. The current value basis financial statements are not
intended to present the current liquidation values of assets or liabilities of
the Company or its net assets taken as a whole.
Management believes that the current value basis financial statements more
realistically reflect the underlying financial strength of the Company. The
current values of the Company's interests in operating properties, including
interests in unconsolidated real estate ventures, represent management's
estimates of the value of these assets primarily as investments. These values
will generally be realized through future cash flows generated by the
operation of these properties over their economic lives. The current values of
land held for development and sale represent management's estimates of the
value of these assets under long-term development and sales programs.
Shareholders' equity on a current value basis was $1,539,155,000 or $26.30
per share of common stock at December 31, 1995 and $1,614,245,000 or $27.75
per share of common stock at December 31, 1994. The per share calculations
assume the conversion of the Preferred stock.
The process for estimating the current values of the Company's assets and
liabilities requires significant estimates and judgments by management. These
estimates and judgments are made based on information and assumptions
considered by management to be adequate and appropriate in the circumstances;
however, they are not subject to precise quantification or verification and
may change from time to time as economic and market factors, and management's
evaluation of them, change.
The current value basis financial statements are an integral part of the
Company's annual report to shareholders but they are not presented as part of
the Company's quarterly reports to shareholders. The extensive market
research, financial analysis and testing of results required to produce
reliable current value information make it impractical to report this
information on an interim basis.
(B) BASES OF VALUATION
INTERESTS IN OPERATING PROPERTIES--The current value of the Company's
interests in operating properties is the Company's share (based on its
underlying ownership interest) of each property's equity value (i.e., the
present value of its forecasted net cash flow and residual value, if
applicable, after deducting payments on debt specifically related to the
property) plus the outstanding balance of related debt. The current value of
the Company's interests in unconsolidated real estate ventures is the present
value of the Company's share of forecasted net cash flow, including incentive
management fees, and residual value of the respective real estate ventures.
The forecasts of net cash flow generally cover periods of eleven years, are
based on an evaluation of the history and future of each property and are
supported by market studies, analyses of tenant lease terms and projected
sales performance and detailed estimates of revenues and operating expenses.
F-11
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The present values of forecasted net cash flows are determined using
internal rates of return which vary by project and between years as investor
yield requirements change. The resulting values recognize the considerable
differences between properties in terms of quality, age, outlook and risk as
well as the prevailing yield requirements of investors for income-producing
properties.
PROPERTIES IN DEVELOPMENT--Properties in development are carried at the same
amounts as in the cost basis financial statements except that certain parcels
of land are carried at their estimated current values. Management believes
that properties in development have values in excess of their historical cost,
but has followed a practice of not recognizing any value increment until these
properties are completed and operating.
PROPERTIES HELD FOR SALE--Properties held for sale are carried at their
estimated fair value less costs to sell. Fair values are based on contract
prices, negotiations with prospective purchasers or management's estimates of
future cash flows from operations and sale of the properties, where
appropriate.
LAND HELD FOR DEVELOPMENT AND SALE--The current value of land held for
development and sale is based on the present value of forecasted net cash
flows under development and sales programs. These programs set forth the
proposed timing and cost of all improvements necessary to bring the properties
to saleable condition, the pace and price of sales and the costs to administer
the programs and sell the properties.
DEBT--Debt and obligations under capital leases specifically related to
interests in operating properties are carried at the same amount as in the
cost basis balance sheets since the value of the Company's equity interest in
each property is based on net cash flow after payments on the debt or leases.
The current values of publicly-traded debt not specifically related to
interests in properties are determined using quoted market prices. The current
values of other debt and obligations under capital leases are carried at the
same amount as in the cost basis balance sheets since the difference between
the stated and estimated market interest rates for such obligations is not
material.
DEFERRED INCOME TAXES--Because the current value basis financial statements
are prepared on the assumption that values will generally be realized over the
long-term through operating cash flows and not through liquidation, the
deferred income tax obligation on a current value basis is the estimated
present value of income tax payments which may be made based on projections of
taxable income through 2047. The projections of taxable income reflect all
allowable deductions permitted under the Internal Revenue Code. The discount
rates used to compute the present value of income tax payments are based on
the internal rates of return used to compute the current values of assets,
adjusted to reflect the Company's assessment of the greater uncertainty with
respect to the ultimate timing and amounts of income tax payments.
OTHER ASSETS AND LIABILITIES--Substantially all other assets and liabilities
are carried in the current value basis balance sheets at the lower of cost or
net realizable value--the same stated value as in the cost basis balance
sheets.
F-12
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(C) REVALUATION EQUITY
The aggregate difference between the current value basis and cost basis of
the Company's assets and liabilities is reported as revaluation equity in the
shareholders' equity section of the consolidated current value basis balance
sheets.
The components of revaluation equity at December 31, 1995 and 1994 are as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Value of interests in operating properties:
Retail centers................................. $ 2,038,316 $ 1,981,731
Office, mixed-use and other.................... 256,080 208,187
Value of land held for development and sale...... 134,097 138,182
Value of land in development..................... 15,725 10,524
----------- -----------
Total equity value............................. 2,444,218 2,338,624
Debt related to equity interests................. 2,141,610 2,142,510
----------- -----------
Total asset value.............................. 4,585,828 4,481,134
Depreciated cost of interests in operating prop-
erties and costs of land held for development
and sale, land in development and certain other
assets.......................................... (2,728,820) (2,668,766)
Present value of potential income taxes related
to revaluation equity, net of cost basis
deferred income taxes........................... (363,964) (330,132)
Other, net....................................... 3,527 36,983
----------- -----------
Total revaluation equity....................... $ 1,496,571 $ 1,519,219
=========== ===========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
The Company acquires, develops and/or manages income-producing properties
located throughout the United States and develops and sells land for
residential, commercial and other uses, primarily in Columbia, Maryland. The
income-producing properties consist of retail centers, office buildings and
mixed-use and other properties. The retail centers produce over 70% of the
Company's revenues and are primarily regional shopping centers in suburban
market areas. Retail centers also include specialty marketplaces in certain
downtown areas and several village centers in Columbia. The office, mixed-use
and other properties produce over 20% of the Company's revenues. The office
properties are primarily suburban buildings in the Columbia and Baltimore
market areas or components of large-scale mixed-use properties located in
urban markets which also include retail, parking and other uses. Land
development and sales operations produce about 5% of the Company's annual
revenues and are predominantly related to large-scale, long-term community
developments.
(B) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The Rouse
Company, all subsidiaries and partnerships in which it has a majority interest
and control and the Company's proportionate share of the assets, liabilities,
revenues and expenses of unincorporated real estate ventures in which it has
joint interest and control with other venturers. Investments in other ventures
are accounted for using the equity or cost methods as appropriate in the
circumstances. Significant intercompany balances and transactions are
eliminated in consolidation.
F-13
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
judgments that affect the reported amounts of assets and liabilities and
disclosures of contingencies at the date of the financial statements and
revenues and expenses recognized during the reporting period. Actual results
could differ from those estimates.
Certain amounts for prior years have been reclassified to conform with the
presentation for 1995.
(C) PROPERTY
Properties to be developed or held and used in operations are carried at
cost reduced for impairment losses, where appropriate, based on estimated
undiscounted future cash flows. Properties held for sale are carried at cost
reduced for applicable valuation allowances. Acquisition, development and
construction costs of operating properties, properties in development and land
development projects are capitalized including, where applicable, salaries and
related costs, real estate taxes, interest and pre-construction costs. The
pre-construction stage of development of an operating property (or an
expansion of an existing property) includes efforts and related costs to
secure land control and zoning, evaluate feasibility and complete other
initial tasks which are essential to development. These costs are transferred
to construction and development in progress when the pre-construction tasks
are completed. Provision is made for potentially unsuccessful pre-construction
efforts by charges to operations. Costs of significant improvements,
replacements and renovations at operating properties are capitalized, while
costs of maintenance and repairs are expensed as incurred. Certain costs
associated with financing and leasing of operating properties are capitalized
as deferred costs and amortized over the periods benefited by the
expenditures.
Depreciation of operating properties is computed using the straight-line
method. The annual rate of depreciation for most of the Company's retail
centers is based on a 55 year composite life and a salvage value of
approximately 10%, producing an effective annual rate of depreciation for new
properties of 1.8% of depreciable cost. The other retail centers, all office
buildings and other properties are generally depreciated using composite lives
ranging primarily from 40 years to 50 years, producing effective annual rates
of depreciation for such properties ranging from 2.5% to 2.0%.
Properties held for sale are carried at the lower of cost less accumulated
depreciation or estimated net realizable value. Operating properties are
classified as properties held for sale when marketing of the properties for
sale is authorized by management.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." Statement No.
121 establishes new standards for measurement and recognition of impairment of
long-lived assets. The Statement will be effective with respect to the Company
in 1996 and initial adoption is not expected to have a material effect on the
financial position or results of operations reported by the Company.
(D) SALES OF PROPERTY
Gains from sales of operating properties and revenues from land sales are
recognized using the full accrual method provided that various criteria
relating to the terms of the transactions and any subsequent involvement by
the Company with the properties sold are met. Gains or revenues relating to
transactions which do not meet the established criteria are deferred and
recognized when the criteria are met or using the installment or cost recovery
methods, as appropriate in the circumstances.
F-14
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For land sale transactions under terms of which the Company is required to
perform additional services and incur significant costs after title has
passed, revenues and costs of sales are recognized proportionately on a
percentage of completion basis.
Cost of land sales is generally determined as a specified percentage of land
sales recognized for each land development project. The cost percentages used
are based on estimates of development costs and sales revenues to completion
of each project and are revised periodically for changes in estimates or in
development plans. The specific identification method is used to determine
cost of sales of certain parcels of land.
(E) LEASES
Leases which transfer substantially all the risks and benefits of ownership
to tenants are considered finance leases and the present values of the minimum
lease payments and the estimated residual values of the leased properties, if
any, are accounted for as receivables. Leases which transfer substantially all
the risks and benefits of ownership to the Company are considered capital
leases and the present values of the minimum lease payments are accounted for
as property and debt. Direct costs of negotiating and consummating tenant
leases are deferred and amortized over the terms of the related leases.
In general, minimum rent revenues are recognized when due from tenants;
however, estimated collectible minimum rent revenues under leases which
provide for varying rents over their terms are averaged over the terms of the
leases.
(F) INCOME TAXES
Deferred income taxes are accounted for using the asset and liability
method. Under this method, deferred income taxes are recognized for temporary
differences between the financial reporting bases of assets and liabilities
and their respective tax bases and for operating loss and tax credit
carryforwards based on enacted tax rates expected to be in effect when such
amounts are realized or settled. However, deferred tax assets are recognized
only to the extent that it is more likely than not that they will be realized
based on consideration of available evidence, including tax planning
strategies and other factors. The effects of changes in tax laws or rates on
deferred tax assets and liabilities are recognized in the period that includes
the enactment date.
(G) INVESTMENTS IN MARKETABLE SECURITIES AND CASH AND CASH EQUIVALENTS
Investments with maturities at dates of purchase in excess of three months
are classified as marketable securities and carried at amortized cost as it is
the Company's intention to hold these investments until maturity. Short-term
investments with maturities at dates of purchase of three months or less are
classified as cash equivalents, except that any such investments purchased
with the proceeds of loans which may be expended only for specified purposes
are classified as investments in marketable securities. At December 31, 1995
and 1994, investments in marketable securities consist primarily of U.S.
government and agency obligations with maturities of less than one year and
include $2,910,000 and $2,001,000, respectively, which are held for restricted
uses.
(H) INTEREST RATE EXCHANGE AGREEMENTS
The Company makes limited use of interest rate exchange agreements,
including interest rate caps and swaps, primarily to manage interest rate risk
associated with variable rate debt. Under
F-15
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
interest rate cap agreements, the Company makes initial premium payments to
the counterparties in exchange for the right to receive payments from them if
interest rates on the related variable rate debt exceed specified levels
during the agreement period. Premiums paid are amortized to interest expense
over the terms of the agreements using the interest method and payments
receivable from the counterparties are accrued as reductions of interest
expense. Under interest rate swap agreements, the Company and the
counterparties agree to exchange the difference between fixed rate and
variable rate interest amounts calculated by reference to specified notional
principal amounts during the agreement period. Notional principal amounts are
used to express the volume of these transactions, but the cash requirements
and amounts subject to credit risk are substantially less. Amounts receivable
or payable under swap agreements are accounted for as adjustments to interest
expense on the related debt.
Parties to interest rate exchange agreements are subject to market risk for
changes in interest rates and risk of credit loss in the event of
nonperformance by the counterparty. The Company deals only with highly rated
financial institution counterparties (which, in certain cases, are also the
lenders on the related debt) and does not expect that any counterparties will
fail to meet their obligations.
(I) OTHER INFORMATION ABOUT FINANCIAL INSTRUMENTS
Fair values of financial instruments approximate their carrying value in the
financial statements except for debt and related interest rate exchange
agreements for which fair value information is provided in note 11.
(J) EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Earnings (loss) per share of common stock is computed by dividing net
earnings (loss), after deducting dividends on Preferred stock, by the weighted
average number of shares of common stock outstanding during the year. The
numbers of shares used in the computations were 47,814,000 for 1995,
47,565,000 for 1994 and 47,411,000 for 1993. Common stock equivalents have not
been used in computing earnings (loss) per common share because their effects
are not material or are anti-dilutive.
(K) STOCK-BASED COMPENSATION
The Company uses the intrinsic value method to account for stock-based
employee compensation plans. Under this method, compensation cost is
recognized for awards of shares of common stock to employees only if the
quoted market price of the stock at the grant date (or other measurement date,
if later) is greater than the amount the employee must pay to acquire the
stock. In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation." Statement No. 123 permits companies to adopt a new fair
value based method to account for stock-based employee compensation plans or
to continue using the intrinsic value method. If the intrinsic value method is
used, information concerning the pro forma effects on net earnings (loss) and
earnings (loss) per share of common stock of adopting the fair value based
method is required to be presented in the footnotes to the financial
statements. The Statement also requires additional footnote disclosures about
stock-based employee compensation arrangements, regardless of the method used
to account for them. The Company intends to continue using the intrinsic value
method to account for its stock-based employee compensation plans and will
provide the pro forma and additional disclosures about the plans in its 1996
financial statements, as required by Statement No. 123.
F-16
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. REAL ESTATE VENTURES
The Company has joint interest and control with other venturers in various
operating properties which are accounted for using the proportionate share
method. These projects are managed by the Company. The consolidated financial
statements include the Company's proportionate share of its historical cost of
these projects and depreciation based on the Company's depreciation policies
which differ, in certain cases, from those of the joint ventures.
The condensed, combined balance sheets of these ventures and the Company's
proportionate share of their assets, liabilities and equity at December 31,
1995 and 1994 and the condensed, combined statements of earnings of these
ventures and the Company's proportionate share of their revenues and expenses
for 1995, 1994 and 1993 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
COMBINED PROPORTIONATE SHARE
----------------- -------------------
1995 1994 1995 1994
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Total assets, primarily property..... $339,121 $389,987 $ 151,195 $ 179,868
======== ======== ========= =========
Liabilities, primarily long-term
debt................................ $313,282 $325,309 $ 145,113 $ 153,238
Venturers' equity.................... 25,839 64,678 6,082 26,630
-------- -------- --------- ---------
Total liabilities and venturers'
equity.............................. $339,121 $389,987 $ 151,195 $ 179,868
======== ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
COMBINED PROPORTIONATE SHARE
-------------------------- -----------------------
1995 1994 1993 1995 1994 1993
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $128,979 $143,573 $144,564 $58,085 $65,650 $66,432
Operating and interest
expenses............... 77,223 83,492 87,290 35,336 38,592 40,689
Depreciation and
amortization........... 13,071 13,281 12,396 3,472 3,680 3,833
-------- -------- -------- ------- ------- -------
Net earnings............ $ 38,685 $ 46,800 $ 44,878 $19,277 $23,378 $21,910
======== ======== ======== ======= ======= =======
</TABLE>
F-17
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company holds minority interests in certain real estate ventures which
are accounted for using the equity or cost methods, as appropriate. Most of
these projects are managed by the Company and the agreements relating to them
generally provide for preference returns to the Company when operating results
or sale or refinancing proceeds exceed specified levels. The condensed,
combined balance sheets of these ventures at December 31, 1995 and 1994 and
their condensed combined statements of earnings for 1995, 1994 and 1993 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Total assets, primarily property...................... $1,507,438 $1,200,252
========== ==========
Liabilities, primarily long-term debt................. $ 481,528 $ 373,303
Venturers' equity..................................... 1,025,910 826,949
---------- ----------
Total liabilities and venturers' equity............... $1,507,438 $1,200,252
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues......................................... $209,100 $200,728 $197,333
Operating and interest expenses.................. 141,509 133,470 142,740
Depreciation and amortization.................... 39,701 37,701 36,768
Loss on disposition.............................. -- 25,722 --
-------- -------- --------
Net earnings..................................... $ 27,890 $ 3,835 $ 17,825
======== ======== ========
</TABLE>
The Company's share of net earnings of these ventures was $3,712,000 in
1995, $1,856,000 in 1994 and $723,000 in 1993.
4. OPERATING PROPERTIES
Property and deferred costs of projects at December 31, 1995 and 1994 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Buildings and improvements............................ $2,516,625 $2,457,926
Land.................................................. 185,265 181,169
Deferred costs........................................ 118,930 124,643
Investments in unconsolidated real estate ventures.... 84,772 68,195
Receivables under finance leases...................... 81,632 81,408
Furniture and equipment............................... 19,132 24,224
---------- ----------
Total............................................... $3,006,356 $2,937,565
========== ==========
</TABLE>
Depreciation expense for 1995, 1994 and 1993 was $59,247,000, $59,914,000
and $55,508,000, respectively. Amortization expense for 1995, 1994 and 1993
was $13,815,000, $14,272,000 and $14,692,000, respectively.
5. PROPERTIES IN DEVELOPMENT
Properties in development include construction and development in progress
and pre-construction costs, net. The construction and development in progress
accounts include land and land improvements of $16,056,000 at December 31,
1995 and $11,216,000 at December 31, 1994.
F-18
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Changes in pre-construction costs, net, for 1995 and 1994 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Balance at beginning of year, before pre-construction
reserve................................................ $20,633 $18,473
Costs incurred.......................................... 12,451 10,337
Costs transferred to construction and development in
progress............................................... (7,405) (3,663)
Costs transferred to operating properties............... (1,686) (2,401)
Costs of unsuccessful projects written off.............. (2,530) (2,113)
------- -------
21,463 20,633
Less pre-construction reserve........................... 15,379 14,109
------- -------
Balance at end of year, net............................. $ 6,084 $ 6,524
======= =======
</TABLE>
6. PROPERTIES HELD FOR SALE
At December 31, 1995, operating properties held for sale include four retail
centers with an aggregate net carrying value of $15,493,000 and an industrial
building with a net carrying value of $7,109,000. Revenues and operating
losses relating to these properties for 1995 were $8,355,000 and $1,174,000,
respectively. All of the properties are expected to be sold in 1996.
7. LAND HELD FOR DEVELOPMENT AND SALE
Land held for development and sale at December 31, 1995 and 1994 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Land under development..................................... $ 87,196 $ 84,872
Undeveloped land........................................... 42,921 42,794
Finished land.............................................. 4,051 4,627
-------- --------
Total.................................................... $134,168 $132,293
======== ========
</TABLE>
8. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable at December 31, 1995 and 1994 are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Accounts receivable, primarily accrued rents and income
under tenant leases...................................... $58,916 $53,674
Notes receivable from sales of properties................. 2,303 2,683
------- -------
61,219 56,357
Less allowance for doubtful receivables................... 24,468 25,124
------- -------
Total................................................... $36,751 $31,233
======= =======
</TABLE>
F-19
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accounts and notes receivable due after one year were $13,967,000 and
$15,469,000 at December 31, 1995 and 1994, respectively.
Credit risk with respect to receivables from tenants is not highly
concentrated due to the large number of tenants and the geographic
diversification of the Company's operating properties. The Company performs
in-depth credit evaluations of prospective new tenants and requires security
deposits in certain circumstances. Tenants' compliance with the terms of their
leases is monitored closely, and the allowance for doubtful receivables is
established based on analyses of the risk of loss on specific tenant accounts,
historical trends and other relevant information. Notes receivable relate
primarily to sales of land and operating properties and are generally secured
by first liens on the related properties.
9. PENSION PLANS
The Company has a defined benefit pension plan (the "funded plan") covering
substantially all employees. The Company's policy is to fund, at a minimum,
current service costs and amortization of unfunded accrued liabilities subject
to the limits of the Internal Revenue Code. In addition, the Company has
separate, non-qualified unfunded retirement plans (the "unfunded plans")
covering employees whose defined benefits exceed the limits of the funded plan
and directors. Benefits under the pension plans are based on the participants'
years of service and compensation.
The net pension cost includes the following components (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost..................................... $ 2,382 $ 2,904 $ 2,191
Interest cost on projected benefit obligations... 3,309 3,425 2,991
Actual return on funded plan assets.............. (5,422) (1,930) (1,790)
Other, net....................................... 3,262 927 897
------- ------- -------
Net pension cost............................... $ 3,531 $ 5,326 $ 4,289
======= ======= =======
</TABLE>
F-20
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the pension plans at December 31, 1995 and 1994 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------------------ ------------------
FUNDED UNFUNDED FUNDED UNFUNDED
PLAN PLANS PLAN PLANS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Accumulated benefit obligations:
Vested............................... $ 31,045 $ 4,658 $ 24,059 $ 9,380
Nonvested............................ 2,983 393 3,040 338
-------- ------- -------- -------
Total.............................. $ 34,028 $ 5,051 $ 27,099 $ 9,718
======== ======= ======== =======
Projected benefit obligations.......... $ 38,808 $ 6,801 $ 30,173 $10,746
Plan assets at fair value.............. (34,084) -- (27,465) --
-------- ------- -------- -------
Excess of projected benefit obligations
over plan assets...................... 4,724 6,801 2,708 10,746
Unamortized prior service cost......... (2,124) (3,067) (2,359) (3,559)
Unrecognized net gain (loss)........... (10,783) (1,077) (3,836) 391
Unrecognized net obligation at January
1, 1987, net of amortization.......... (664) (810) (730) (945)
Additional minimum liability........... -- 3,204 -- 3,085
-------- ------- -------- -------
Accrued (prepaid) pension cost......... $ (8,847) $ 5,051 $ (4,217) $ 9,718
======== ======= ======== =======
</TABLE>
The projected benefit obligations for the plans were determined using
discount rates of 7.25%, 8.875% and 7.5% in 1995, 1994 and 1993, respectively.
The rate of compensation increases assumed was 4.5% in 1995, 1994 and 1993.
The expected long-term rate of return on plan assets of the funded plan was
11% in 1995, 1994 and 1993. The assets of the funded plan consist primarily of
pooled separate accounts with an insurance company and marketable equity
securities.
10. OTHER POSTRETIREMENT BENEFITS
The Company has a retiree benefits plan that provides postretirement medical
and life insurance benefits to full-time employees who meet minimum age and
service requirements. The Company pays the full cost of participants' life
insurance coverage and makes contributions based on years of service to the
cost of participants' medical insurance coverage, subject to a maximum annual
contribution.
The postretirement benefit cost includes the following components (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost.......................................... $ 607 $ 741 $ 603
Interest cost on accumulated benefit obligation....... 853 823 785
Amortization of transition obligation at
January 1, 1993...................................... 484 485 484
Amortization of net gain.............................. (26) -- --
------ ------ ------
Net postretirement benefit cost..................... $1,918 $2,049 $1,872
====== ====== ======
</TABLE>
F-21
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The status of the postretirement benefit plan at December 31, 1995 and 1994
is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................. $ 3,195 $ 2,964
Other fully eligible participants........................ 1,720 1,637
Other active participants................................ 8,186 5,748
------- -------
13,101 10,349
Unrecognized net gain (loss)............................... (502) 1,028
Unrecognized transition obligation......................... (8,235) (8,719)
------- -------
Accrued postretirement benefit cost........................ $ 4,364 $ 2,658
======= =======
</TABLE>
The weighted average discount rates used to determine the accumulated
postretirement benefit obligation were 7.25%, 8.875% and 7.5% in 1995, 1994,
and 1993, respectively. The transition obligation at January 1, 1993 is being
amortized to postretirement benefit cost over 20 years. Because the Company's
contributions are fixed, health care cost trend rates do not affect the
accumulated postretirement benefit obligation.
11. DEBT
In recognition of the various characteristics of real estate financing, debt
is classified as follows:
(a) "Property debt not carrying a Parent Company guarantee of repayment"
which is subsidiary company debt having no express written obligation which
would require the Company to repay the principal amount of such debt during
the full term of the loan (nonrecourse loans); and
(b) "Parent Company debt and debt carrying a Parent Company guarantee of
repayment" which is debt of the Company and subsidiary company debt with an
express written obligation of the Company to repay the principal amount of
such debt during the full term of the loan (Company and recourse loans).
With respect to property debt not carrying a Parent Company guarantee of
repayment, the Company has in the past and may in the future, under some
circumstances, support those subsidiary companies whose annual obligations,
including debt service, exceed operating revenues. At December 31, 1995 and
1994, property debt not carrying a Parent Company guarantee of repayment
includes $443,440,000 and $675,825,000, respectively, of mortgages and bonds
relating to operating properties of subsidiary companies which are subject to
agreements with lenders requiring the Company to provide support for operating
and debt service costs, where necessary, for defined periods or until
specified conditions relating to the operating results of the properties are
met.
Debt at December 31, 1995 and 1994 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Mortgages and bonds................................... $1,997,998 $2,063,978
Convertible subordinated debentures................... 130,000 130,000
Medium-term notes..................................... 100,300 --
Other loans........................................... 251,231 278,898
---------- ----------
Total............................................... $2,479,529 $2,472,876
========== ==========
</TABLE>
F-22
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Mortgages and bonds are secured by deeds of trust or mortgages on properties
and general assignments of rents. This debt matures in installments through
2025 and, at December 31, 1995, bears interest at a weighted average effective
rate of 8.70%, including lender participations. At December 31, 1995,
approximately $589,641,000 of this debt is subject to payment of additional
interest based on the operating results of the related properties in excess of
stated levels. In addition, certain of such debt provides for payments to
lenders of shares of the related properties' residual values, if any, upon
sale or refinancing or at maturity.
The convertible subordinated debentures bear interest at 5.75% and mature in
2002. The debentures are convertible into one share of common stock for each
$28.63 of par value.
The Company has registered $150,000,000 of unsecured, medium-term notes
which may be issued to the public from time to time through February 1997. The
notes may be issued, subject to market conditions, for varying terms (nine
months to 30 years) and at fixed or variable interest rates based on market
indices at the time of issuance. The notes outstanding at December 31, 1995,
mature at various dates from 1996 to 2015, bear interest at a weighted average
effective rate of 7.68% (including an average rate of 6.61% on $38,800,000 of
variable rate notes) and have a weighted average maturity of 6.5 years.
Other loans include $120,000,000 of 8.5% unsecured notes due in 2003,
various property acquisition and land loans, and certain other borrowings.
These loans include aggregate unsecured borrowings of $229,372,000 and
$259,751,000 at December 31, 1995 and 1994, respectively, and at December 31,
1995, bear interest at a weighted average effective rate of 8.61%.
The annual maturities of debt as of December 31, 1995 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
COMPANY AND NONRECOURSE
RECOURSE LOANS LOANS TOTAL
-------------- ----------- ----------
<S> <C> <C> <C>
1996................................... $ 11,507 $ 98,922 $ 110,429
1997................................... 8,044 110,492 118,536
1998................................... 22,017 60,157 82,174
1999................................... 32,051 136,829 168,880
2000................................... 60,316 161,492 221,808
Subsequent to 2000..................... 355,553 1,422,149 1,777,702
-------- ---------- ----------
Total................................ $489,488 $1,990,041 $2,479,529
======== ========== ==========
</TABLE>
Approximately $65,000,000 of nonrecourse debt maturing in 1996 relates to a
retail center mortgage due in August. The Company expects to refinance this
mortgage on a long-term basis at or prior to its scheduled maturity.
At December 31, 1995, the Company had entered into interest rate cap
agreements which expire in December 1996 and April 1997. These agreements
limit the average interest rate on $58,250,000 of mortgages to 9.86% through
April 1997 and limit the interest rate on advances up to $55,000,000 under a
line of credit to 11.55% through December 1996.
The interest rate swap agreements outstanding at December 31, 1995 were not
material. Interest rate exchange agreements did not have a material effect on
the weighted average effective interest rates on debt at December 31, 1995 and
1994 or interest expense for the years ended December 31, 1995, 1994 and 1993.
F-23
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total interest costs were $219,838,000 in 1995, $220,971,000 in 1994 and
$219,705,000 in 1993 of which $6,875,000, $7,388,000 and $8,899,000 were
capitalized, respectively.
During 1995, 1994 and 1993, the Company incurred extraordinary losses,
related to extinguishments of debt prior to scheduled maturity or required
partial early redemptions of debt, of $13,278,000, $6,824,000 and $12,322,000,
respectively, less related deferred income tax benefits of $4,647,000,
$2,377,000 and $4,271,000, respectively. The sources of funds used to pay the
debt and fund the prepayment penalties, where applicable, included
refinancings of properties in each of the three years, issuance of the medium-
term notes and the Company-obligated mandatorily redeemable preferred
securities in 1995 and issuance of the 8.5% unsecured notes and Preferred
stock in 1993.
At December 31, 1995, the Company had available unused lines of credit
totaling $158,920,000. The agreements relating to certain of the lines of
credit, the 8.5% unsecured notes, the medium-term notes 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 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.
In accordance with the Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments," the estimated fair
value of debt is determined based on quoted market prices for publicly traded
debt and on the discounted estimated future cash payments to be made for other
debt. The discount rates used approximate current market rates for loans or
groups of loans with similar maturities and credit quality. The estimated
future payments include scheduled principal and interest payments, cash flows
under interest rate exchange agreements, where applicable, and lenders'
participations in operating results and residual values of the related
properties, where applicable. The carrying amount and estimated fair value of
the Company's debt at December 31, 1995 and 1994 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed rate debt.................. $2,195,137 $2,249,968 $2,152,270 $2,105,794
Variable rate debt............... 284,392 284,392 320,606 320,606
---------- ---------- ---------- ----------
$2,479,529 $2,534,360 $2,472,876 $2,426,400
========== ========== ========== ==========
</TABLE>
Fair value estimates are made at a specific point in time, are subjective in
nature and involve uncertainties and matters of significant judgment.
Settlement of the Company's debt obligations at fair value may not be possible
and may not be a prudent management decision.
12. COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
The redeemable preferred securities consist of 5,500,000 Cumulative
Quarterly Income Preferred Securities (preferred securities), with a
liquidation amount of $25 per security, which were issued in November 1995 by
a statutory business trust that is wholly-owned by the Company. The trust used
the proceeds of the preferred securities and other assets to purchase at par
$141,753,000 of junior subordinated debentures (debentures) of the Company due
in November 2025, which debentures are the sole assets of the trust.
F-24
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Payments to be made by the trust on the preferred securities are dependent
on payments that the Company has undertaken to make, particularly the payments
to be made by the Company on the debentures. Compliance by the Company with
these undertakings, taken together, would have the effect of providing a full,
irrevocable and unconditional guarantee of the trust's obligations under the
preferred securities.
Distributions on the preferred securities are payable from interest payments
received on the debentures and are due quarterly at a rate of 9.25% of the
liquidation amount, subject to deferral for up to five years under certain
conditions. Distributions payable are included in operating expenses.
Redemptions of the preferred securities are payable at the liquidation amount
from redemption payments received on the debentures. The Company may redeem
the debentures at par at any time after November 27, 2000, but redemptions at
or prior to maturity are payable only from the proceeds of issuance of capital
stock of the Company or of securities substantially comparable in economic
effect to the preferred securities.
13. OPERATING RESULTS AND ASSETS BY LINE OF BUSINESS
Operating results before gain (loss) on dispositions of assets and other
provisions, net, income taxes and extraordinary losses are summarized by line
of business as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operating properties:
Revenues................................... $636,646 $633,047 $607,630
Operating expenses, exclusive of provision
for bad debts, depreciation and
amortization.............................. 313,525 322,278 322,793
Interest expense........................... 197,249 196,690 189,805
Provision for bad debts.................... 3,318 5,185 4,741
Depreciation and amortization.............. 73,062 74,186 70,200
-------- -------- --------
49,492 34,708 20,091
-------- -------- --------
Land sales:
Revenues................................... 33,403 35,232 35,313
Operating costs and expenses............... 17,827 19,877 19,387
Interest expense........................... 5,071 5,028 4,093
-------- -------- --------
10,505 10,327 11,833
-------- -------- --------
Development:
Operating costs and expenses............... 7,288 6,494 3,853
Interest expense........................... 358 495 495
-------- -------- --------
(7,646) (6,989) (4,348)
-------- -------- --------
Corporate:
Interest income............................ 2,772 2,892 3,862
Interest expense........................... 10,285 11,370 16,413
Other expenses............................. 8,920 8,309 6,184
-------- -------- --------
(16,433) (16,787) (18,735)
-------- -------- --------
Operating income............................. $ 35,918 $ 21,259 $ 8,841
======== ======== ========
</TABLE>
F-25
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The assets by line of business at December 31, 1995, 1994 and 1993 are as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Operating properties........................ $2,656,527 $2,617,045 $2,556,237
Land sales.................................. 141,275 136,986 140,673
Development................................. 63,732 68,863 63,656
Corporate................................... 124,075 92,966 114,416
---------- ---------- ----------
Total..................................... $2,985,609 $2,915,860 $2,874,982
========== ========== ==========
</TABLE>
14. INCOME TAXES
Income tax expense is reconciled to the amount computed by applying the
Federal corporate tax rate as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Tax at statutory rate on earnings before income
taxes and extraordinary losses................... $3,560 $4,668 $1,075
State income taxes, net of Federal income tax
benefit.......................................... 759 2,062 1,398
Effect of increase in Federal tax rate............ -- -- 1,890
------ ------ ------
Income tax expense................................ $4,319 $6,730 $4,363
====== ====== ======
Effective rate.................................... 42.5% 50.5% 142.0%
====== ====== ======
</TABLE>
The net deferred tax obligations at December 31, 1995 and 1994 consist of
the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Total deferred tax liabilities............................ $299,717 $285,713
Total deferred tax assets................................. 218,068 203,116
-------- --------
Net deferred tax obligations............................ $ 81,649 $ 82,597
======== ========
</TABLE>
The tax effects of temporary differences and carryforwards that are included
in the net deferred tax obligations at December 31, 1995 and 1994 relate to
the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Property, primarily differences in depreciation and
amortization and treatment of interest and certain
other costs.......................................... $ 273,585 $ 260,457
Accounts and notes receivable, primarily differences
in timing of recognition of rent revenues and
doubtful receivables................................. 5,684 5,070
Accrued expenses, primarily differences in timing of
recognition of interest, compensation and pension
expenses............................................. (4,925) (58)
Operating loss and tax credit carryforwards........... (192,695) (182,872)
--------- ---------
Total............................................... $ 81,649 $ 82,597
========= =========
</TABLE>
The net operating losses carried forward from December 31, 1995 for Federal
income tax purposes aggregate approximately $538,000,000.
F-26
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As indicated above, the deferred tax assets relate primarily to operating
loss carryforwards for Federal income tax purposes. These loss carryforwards
will begin to expire in 1998, and the ultimate realization of these assets is
dependent upon the generation of sufficient future taxable income to use the
loss carryforwards before they expire. Based on the scheduled reversal of the
deferred tax liabilities (particularly those relating to depreciation of
property) and projections of future taxable income over the loss carryforward
period, management believes it is more likely than not that the Company will
realize the benefits of the operating loss carryforwards at December 31, 1995.
The amount of the deferred tax asset considered realizable could be reduced,
however, if estimates of future taxable income are reduced.
15. GAIN (LOSS) ON DISPOSITIONS OF ASSETS AND OTHER PROVISIONS, NET
Gain (loss) on dispositions of assets and other provisions, net, is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Provision for a litigation judgment............. $(12,321) $ -- $ --
Net loss on operating properties................ (13,210) (7,496) (5,432)
Other, net...................................... (218) (427) (337)
-------- ------- -------
Total......................................... $(25,749) $(7,923) $(5,769)
======== ======= =======
</TABLE>
The provision for a litigation judgment in 1995 relates to the matter
involving a former tenant at the Riverwalk Shopping Center discussed in note
19.
The net loss on operating properties in 1995 relates primarily to provisions
for losses recognized on retail centers the Company decided to sell
($15,589,000). These provisions were partially offset by a gain on disposition
of a retail center ($2,379,000).
The net loss on operating properties in 1994 relates primarily to losses
incurred on dispositions of interests in two retail centers, a hotel and an
office building ($8,045,000) and a provision for loss on an industrial
building ($2,212,000). These losses were partially offset by a gain on
disposition of an interest in a retail center the Company continues to manage
($2,761,000).
The net loss on operating properties in 1993 relates to a provision for loss
recognized on a retail center. This loss was recognized based on management's
determination that the Company would not continue to support the property
under the arrangements with the lenders, public authorities and others
involved and that it was unlikely that the Company would fully recover its
investment in the property based on forecasts of future cash flows.
16. SERIES A CONVERTIBLE PREFERRED STOCK
The Company has authorized issuance of 50,000,000 shares of Preferred stock
of 1c par value per share of which 4,505,168 shares have been classified as
Series A Convertible Preferred. At December 31, 1995 and 1994, 4,505,009 and
4,505,041 shares, respectively, were issued. The Company sold 4,025,000 shares
of the Series A Convertible Preferred stock in a public offering in 1993 and
issued 480,168 shares valued at $23,000,000 in 1994 in connection with a
modification of terms of a debt agreement related to a retail center. The
shares of Series A Convertible Preferred stock have a liquidation preference
of $50 per share and earn dividends at an annual rate of 6.5% of the
F-27
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
liquidation preference. At the option of the holders, each share of Preferred
stock is convertible into shares of the Company's common stock at a conversion
rate of approximately 2.35 shares of common stock for each share of Preferred
stock, subject to adjustment in certain circumstances. In addition, beginning
March 1, 1996, the shares of Preferred stock are redeemable for shares of
common stock at the option of the Company, subject to certain conditions.
17. COMMON STOCK
At December 31, 1995, shares of authorized and unissued common stock are
reserved as follows: (a) 2,471,580 shares for issuance under the Company's
stock option and stock bonus plans; (b) 4,540,692 shares for conversion of the
convertible subordinated debentures; (c) 10,600,020 shares for the conversion
of the Preferred stock; and (d) 500,000 shares for exercise of the warrants
issued to Trizec Investments Corporation discussed below.
Under the Company's stock option plans, options to purchase shares of common
stock and stock appreciation rights may be awarded to officers and employees.
Stock options are granted with an exercise price equal to the market price of
the common stock on the date of grant and typically vest over a three- to
five-year period, subject to certain conditions. The Company has not granted
any stock appreciation rights. A summary of changes in the outstanding stock
options under the stock option plans is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year................ 2,228,102 1,709,302 1,438,542
Options granted............................. 200,500 566,000 350,000
Options exercised:
$11.17 per share.......................... -- -- (41,340)
$11.83 per share.......................... -- (5,700) (2,400)
$14.75 per share.......................... (2,600) -- --
$15.33 per share.......................... (174,602) (3,000) (9,500)
$18.00 per share.......................... (2,250) -- --
Options cancelled........................... (21,750) (38,500) (26,000)
--------- --------- ---------
Balance at end of year...................... 2,227,400 2,228,102 1,709,302
========= ========= =========
</TABLE>
Options to purchase 1,229,000 shares are exercisable at December 31, 1995 at
prices ranging from $13.50 to $27.00 per share.
Under the Company's stock bonus plans, shares of common stock may be awarded
to officers and employees. Shares awarded under the plans are typically
subject to forfeiture restrictions which lapse at defined annual rates. In
connection with the stock bonus plan awards, the Company typically makes loans
to the recipients for the payment of related income taxes, which loans are
forgiven in installments subject to the recipients' continued employment. The
total loans outstanding at December 31, 1995 and 1994 were $3,829,000 and
$2,620,000, respectively. The Company recognizes any forgiven loan
installments, amortization of the fair value of the stock awarded and certain
related costs as compensation costs over the terms of the awards. Such costs
amounted to $2,763,000 in 1995, $1,663,000 in 1994 and $2,415,000 in 1993.
In 1992, seven investors acquired 8,500,000 shares of the Company's common
stock in a private placement from Trizec Investments Corporation (Trizec).
Stock warrants allowing Trizec to purchase
F-28
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
500,000 shares of common stock at a price of $18 per share until September
1997 were issued by the Company to facilitate the transaction.
18. LEASES
The Company, as lessee, has entered into operating leases expiring at
various dates through 2076. Rents under such leases aggregated $9,421,000 in
1995, $11,927,000 in 1994 and $17,483,000 in 1993, including contingent rents,
based on the operating performance of the related properties, of $3,644,000,
$6,232,000 and $10,006,000 respectively. In addition, real estate taxes,
insurance and maintenance expenses are obligations of the Company. The minimum
rent payments due under operating leases in effect at December 31, 1995 are
summarized as follows (in thousands):
<TABLE>
<S> <C>
1996.............................................................. $ 5,775
1997.............................................................. 5,717
1998.............................................................. 5,653
1999.............................................................. 5,621
2000.............................................................. 5,621
Subsequent to 2000................................................ 242,039
--------
Total........................................................... $270,426
========
</TABLE>
Obligations under capital leases relate to the Company's headquarters
building and certain operating properties and equipment. The property and
other asset accounts include costs of $66,207,000 and $70,651,000 and
accumulated depreciation of $19,130,000 and $21,249,000 at December 31, 1995
and 1994, respectively, related to these leases. The minimum rent payments due
under capital leases and their present value at December 31, 1995 are
summarized as follows (in thousands):
<TABLE>
<S> <C>
1996............................................................ $ 9,289
1997............................................................ 8,904
1998............................................................ 8,255
1999............................................................ 7,806
2000............................................................ 7,554
Subsequent to 2000.............................................. 194,825
---------
236,633
Imputed interest at rates ranging from 5.59% to 13.00%.......... (177,847)
---------
Obligations under capital leases, net......................... $ 58,786
=========
</TABLE>
Space in the Company's operating properties is leased to approximately 6,300
tenants. In addition to minimum rents, the majority of the retail center
leases provide for percentage rents when the tenants' sales volumes exceed
stated amounts, and the majority of the retail center and office leases
provide for other rents which reimburse the Company for certain of its
operating expenses. Rents from tenants are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Minimum rents..................................... $310,149 $303,425 $289,422
Percentage rents.................................. 15,362 17,144 19,133
Other rents....................................... 217,037 220,532 219,168
-------- -------- --------
Total........................................... $542,548 $541,101 $527,723
======== ======== ========
</TABLE>
F-29
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The minimum rents to be received from tenants under operating leases in
effect at December 31, 1995 are summarized as follows (in thousands):
<TABLE>
<S> <C>
1996............................................................ $ 288,219
1997............................................................ 262,700
1998............................................................ 232,995
1999............................................................ 200,765
2000............................................................ 173,551
Subsequent to 2000.............................................. 532,880
----------
Total......................................................... $1,691,110
==========
</TABLE>
Certain of the Company's tenant leases are accounted for as finance leases
since the terms of the leases transfer substantially all of the risks and
benefits of ownership to the tenants. Rents under such leases aggregated
$8,780,000 in 1995, $8,511,000 in 1994 and $6,601,000 in 1993. The minimum
rent payments to be received from tenants under finance leases are
approximately $8,900,000 in each of the next five years. The net investment in
finance leases at December 31, 1995 and 1994 is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Total minimum rent payments to be received over lease
terms................................................ $167,050 $175,609
Estimated residual values of leased properties........ 3,123 3,123
Unearned income....................................... (88,541) (97,324)
-------- --------
Net investment in finance leases.................... $ 81,632 $ 81,408
======== ========
</TABLE>
19. OTHER COMMITMENTS AND CONTINGENCIES
Commitments for the construction and development of properties in the
ordinary course of business and other commitments not set forth elsewhere
amount to approximately $10,000,000 at December 31, 1995.
At December 31, 1995, subsidiaries of the Company have contingent
liabilities of approximately $25,138,000 with respect to future minimum rents
under long-term lease obligations of certain joint ventures and approximately
$18,000,000 with respect to bank letters of credit issued to secure their
obligations under certain agreements. In addition, the Company had contingent
liabilities with respect to debt of certain joint ventures aggregating
approximately $37,454,000.
On November 6, 1990, Robert P. Guastella Equities, Inc. ("Plaintiff"), a
former tenant at the Riverwalk Shopping Center in New Orleans, Louisiana
("Riverwalk"), which is owned and operated by New Orleans Riverwalk
Associates, an affiliate of the Company ("NORA"), filed suit in the Civil
District Court of Orleans Parish, Louisiana against NORA, the Company, two
Company affiliates, and a partner of NORA (collectively, "Defendants").
Plaintiff alleges that Defendants breached Plaintiff's lease agreement with
NORA for the operation of a restaurant at Riverwalk and that as a result of
these breaches it suffered losses and could not pay the rentals due under the
lease agreement, as a result of which the lease and its tenancy were
terminated by NORA. Plaintiff sought damages of approximately $600,000 for
these alleged breaches. In addition, on September 3, 1992, Plaintiff claimed
$33,000,000 for alleged lost future profits which it claimed it would have
earned had its lease not been terminated. The Defendants filed answers denying
the claims of Plaintiff and asserting other
F-30
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
defenses. NORA also asserted a counterclaim against Plaintiff and its
individual guarantors for past due rentals and other charges in the
approximate amount of $300,000 plus interest and attorneys' fees as provided
for in the lease agreement. The case was tried before a jury and, on October
28, 1993, the jury returned a verdict against Defendants upon which judgment
was entered by the trial court on January 7, 1994, in the total net amount of
approximately $9,128,000 (including a net award for lost future profits of
approximately $8,640,000) plus interest and attorneys' fees. On May 6, 1994,
the trial court denied all post-trial motions of both Plaintiff and
Defendants. The trial court also entered an amended judgment in which it
awarded the Plaintiff $450,000 in attorneys' fees and awarded Defendants
$25,000 in attorneys' fees.
On May 23, 1994, Defendants appealed this judgment to the Louisiana Court of
Appeal, Fourth Circuit. On November 16, 1995, the Louisiana Court of Appeal
reduced the judgment by $240,000, but otherwise affirmed the damage award to
Plaintiff. Defendants subsequently filed a motion for reconsideration with the
Louisiana Court of Appeal, which was denied on December 19, 1995. On January
18, 1996, Defendants filed a petition requesting the Louisiana Supreme Court
to consider a further appeal of this judgment.
The Company recorded in the fourth quarter of 1995 a pre-tax provision in
the amount of $12,321,000, 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 and certain of its subsidiaries are defendants in various other
litigation matters arising in the ordinary course of business, some of which
involve claims for damages that are substantial in amount. Some of these
litigation matters are covered by insurance. In the opinion of management,
adequate provision has been made for losses with respect to all litigation
matters, where appropriate, and the ultimate resolution of all such litigation
matters is not likely to have a material effect on the consolidated financial
position of the Company. Due to the Company's modest and fluctuating net
earnings (loss), it is not possible to predict whether the resolution of these
matters is likely to have a material effect on the Company's consolidated net
earnings (loss) and it is, therefore, possible that the resolution of these
matters could have such a material effect in any future quarter or fiscal
year.
20. POSSIBLE ACQUISITION OF THE HUGHES CORPORATION AND RELATED MATTERS
On February 22, 1996, the Company's Board of Directors approved the terms of
agreements to acquire all of the issued and outstanding shares of common stock
of The Hughes Corporation and the ownership interests of stockholders of The
Hughes Corporation in an affiliated partnership (together "Hughes"). The
assets of Hughes consist primarily of a regional shopping center and a large-
scale, master-planned community in Las Vegas, Nevada, four large-scale,
master-planned business parks and various other properties in Nevada and
Southern California. The total purchase cost is approximately $520,000,000
consisting primarily of debt to be assumed or incurred in connection with the
acquisition (including $10,000,000 payable to the owners of Hughes) and shares
of common stock of the Company valued at $176,400,000. Additional shares of
common stock of the Company may be issued to the owners of Hughes subsequent
to closing based on the values of certain specified assets at various
termination dates from 2000 to 2009 and the cash flows generated from
development and/or sale of those assets prior to the termination dates. The
acquisition will be accounted for using the purchase method and is expected to
close in the second quarter of 1996. However, the transactions are conditioned
upon approval by the requisite vote of the holders of the common stock of The
Hughes Corporation and certain other closing conditions and, accordingly,
there can be no assurance that the transactions will be consummated.
F-31
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF THC
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Independent Auditors' Report.............................................. F-33
Consolidated Balance Sheets............................................... F-34
Consolidated Statements of Operations..................................... F-35
Consolidated Statements of Shareholders' Equity........................... F-36
Consolidated Statements of Cash Flows..................................... F-37
Summary of Significant Accounting Policies................................ F-39
Notes to Consolidated Financial Statements................................ F-42
</TABLE>
F-32
<PAGE>
LOGO
To the Board of Directors and Shareholders of
The Hughes Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of The Hughes
Corporation and Subsidiaries (the "Company") as of December 31, 1995 and 1994,
and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Hughes Corporation and
Subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
Deloitte & Touche llp
Las Vegas, Nevada February 23, 1996
F-33
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Properties (Notes 4, 6 and 8):
Rental properties........................................ $373,550 $350,112
Development properties................................... 139,251 145,059
Investment properties.................................... 16,625 34,620
Reserve for depreciation................................. (86,528) (80,403)
-------- --------
Total properties--net.................................. 442,898 449,388
-------- --------
Investments in Unconsolidated Partnerships (Notes 3 and
8)........................................................ 588 644
-------- --------
Other Assets:
Cash and cash equivalents................................ 94,099 55,418
Marketable securities.................................... 49,135 67,142
Receivables (net of reserves of $6,377 in 1995 and $6,953
in 1994) (Notes 4 and 6)................................ 43,538 42,315
Deferred charges and other (Notes 5 and 7)............... 47,220 47,735
-------- --------
Total other assets..................................... 233,992 212,610
-------- --------
TOTAL................................................ $677,478 $662,642
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes and Mortgages Payable (Note 4)....................... $332,276 $332,520
-------- --------
Accounts Payable and Accrued Liabilities (Notes 7 and 9)... 34,027 33,573
-------- --------
Other Liabilities and Deferred Credits (Note 3)............ 34,447 29,333
-------- --------
Commitments and Contingencies (Notes 3 and 9)
Minority Interests in Consolidated Partnerships (Notes 1
and 2):
Beneficiaries of the Estate of Howard R. Hughes, Jr...... 144,796 178,156
Nonaffiliated partners................................... 4,655 (1,950)
-------- --------
Total minority interests in consolidated partnerships.. 149,451 176,206
-------- --------
Shareholders' Equity (Notes 1 and 9):
Common stock--$1 par value; 137,362 shares authorized and
66,466 shares issued.................................... 67 67
Additional paid-in capital............................... 3,707 3,707
Retained earnings........................................ 123,150 87,236
Net unrealized gain on investment securities (net of
income tax
of $190)................................................ 353
-------- --------
Total shareholders' equity............................. 127,277 91,010
-------- --------
TOTAL................................................ $677,478 $662,642
======== ========
</TABLE>
See the accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements.
F-34
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operating Revenues (Note 10):
Rental properties (Notes 2 and 6)............... $ 65,344 $ 59,926 $ 53,014
Development properties.......................... 122,080 98,050 63,030
Investment properties........................... 105,960 11,950 19,353
-------- -------- --------
Total.......................................... 293,384 169,926 135,397
-------- -------- --------
Costs of Revenues:
Rental properties (Note 2)...................... 24,651 24,293 19,605
Development properties.......................... 91,039 71,963 45,440
Investment properties........................... 29,055 3,313 2,718
-------- -------- --------
Total.......................................... 144,745 99,569 67,763
-------- -------- --------
Gross Profit from Operations..................... 148,639 70,357 67,634
General and administrative expense (Notes 7 and
9).............................................. (10,056) (10,605) (10,549)
Interest income.................................. 13,524 8,270 6,412
Interest expense, net of capitalized interest of
$8,044 in 1995, $5,526 in 1994 and $4,590 in
1993 (Note 4)................................... (20,741) (23,175) (24,332)
Depreciation and amortization.................... (19,624) (16,079) (15,952)
Write-down of the net book value of certain as-
sets (Notes 3 and 8)............................ (747) (80,208)
Other--net (Note 3).............................. 4,340 389 333
-------- -------- --------
Income (Loss) before Income Taxes, Minority
Interests and Cumulative Effect of Accounting
Change.......................................... 116,082 28,410 (56,662)
-------- -------- --------
Benefit (Provision) for Income Taxes (Note 5).... (25,198) (4,309) 12,009
-------- -------- --------
Minority interests in losses (income) of
consolidated partnerships:
Beneficiaries of the Estate of Howard R. Hughes,
Jr. (Note 1)................................... (41,916) (15,238) 21,665
Nonaffiliated partners.......................... (3,829) (460) 275
-------- -------- --------
Total.......................................... (45,745) (15,698) 21,940
-------- -------- --------
Income (Loss) before Cumulative Effect of
Accounting Change............................... 45,139 8,403 (22,713)
Cumulative Effect of Change in Accounting for
Postretirement Benefits other than Pensions (Net
of Income Tax Benefit of $2,231) (Note 7)....... (4,331)
-------- -------- --------
Net Income (Loss)................................ $ 45,139 $ 8,403 $(27,044)
======== ======== ========
Earnings (Loss) Per Share of Common Stock:
Income (loss) before cumulative effect of
accounting change.............................. $ 679.13 $ 126.43 $(341.72)
Cumulative effect of change in accounting
principle...................................... (65.16)
-------- -------- --------
Net Income (Loss)................................ $ 679.13 $ 126.43 $(406.88)
======== ======== ========
Weighted Average Shares of Common Stock
Outstanding..................................... 66,466 66,466 66,466
======== ======== ========
</TABLE>
See the accompanying Summary of Significant Accounting Policies andNotes to
Consolidated Financial Statements.
F-35
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31 (IN THOUSANDS, EXCEPT SHARES OF COMMON STOCK)
<TABLE>
<CAPTION>
NET
UNREALIZED
TOTAL COMMON STOCK ADDITIONAL GAIN ON
SHAREHOLDERS' -------------- PAID-IN RETAINED INVESTMENT
EQUITY SHARES DOLLARS CAPITAL EARNINGS SECURITIES
------------- ------ ------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1993................... $125,559 66,466 $67 $3,707 $121,785
Net Loss.............. (27,044) (27,044)
Cash Distributions De-
clared............... (6,104) (6,104)
-------- ------ --- ------ -------- ----
Balance, December 31,
1993................... 92,411 66,466 67 3,707 88,637
Net Income............ 8,403 8,403
Cash Distributions De-
clared............... (9,804) (9,804)
-------- ------ --- ------ -------- ----
Balance, December 31,
1994................... 91,010 66,466 67 3,707 87,236
Net Income............ 45,139 45,139
Cash Distributions De-
clared............... (9,225) (9,225)
Net Unrealized Gain on
Investment
Securities........... 353 $353
-------- ------ --- ------ -------- ----
Balance, December 31,
1995................... $127,277 66,466 $67 $3,707 $123,150 $353
======== ====== === ====== ======== ====
</TABLE>
See the accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements.
F-36
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31 (IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Cash received from rental properties........... $ 66,915 $ 62,326 $ 50,511
Cash proceeds from sales of development and
investment properties......................... 204,884 89,360 63,627
Cash paid for operating and administrative
costs......................................... (52,775) (49,885) (39,320)
Interest paid, net of amounts capitalized...... (19,980) (22,936) (23,038)
Interest received.............................. 13,433 8,769 6,611
Income taxes paid.............................. (21,014) (6,450) (1,029)
Litigation settlement received................. 7,000
Other--net..................................... 4,350 242 1,130
-------- -------- --------
Net cash provided by operating activities.... 195,813 81,426 65,492
-------- -------- --------
Cash Flows from Investing Activities:
Capitalized costs on properties being devel-
oped.......................................... (97,183) (68,811) (48,558)
Additions to rental properties................. (7,375) (4,836) (11,590)
Purchases of marketable securities............. (89,922) (84,554) (131,989)
Proceeds from redemptions or sales of market-
able securities............................... 109,037 93,803 81,429
Purchase of interest in Hughes Parkway Associ-
ates.......................................... (7,913)
Sale of interest in Park 2000 Associates....... 5,163
Interest received on excess contributions to
Park 2000 Associates.......................... 1,251
Advances to Maguire Thomas Partners--Playa Vis-
ta............................................ (4,316)
Contribution to Maguire Thomas Partners--Playa
Vista Area C.................................. (1,200)
Other--net..................................... 1,758 2,332 1,195
-------- -------- --------
Net cash used in investing activities........ (89,500) (62,066) (110,713)
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds from borrowings and refinancings...... 41,218 27,935 118,126
Principal payments on notes, mortgages and as-
sessments..................................... (24,808) (23,854) (65,226)
Distributions to beneficiaries of the Estate of
Howard R. Hughes, Jr.......................... (84,000) (15,000) (9,000)
Contribution from Hilton Hotels Corporation to
3930 Building Partnership..................... 2,325
Other--net..................................... (2,367) 413 (1,869)
-------- -------- --------
Net cash provided by (used in) financing ac-
tivities.................................... (67,632) (10,506) 42,031
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equiva-
lents........................................... 38,681 8,854 (3,190)
Cash and Cash Equivalents at Beginning of Peri-
od.............................................. 55,418 46,564 49,754
-------- -------- --------
Cash and Cash Equivalents at End of Period....... $ 94,099 $ 55,418 $ 46,564
======== ======== ========
</TABLE>
See the accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements.
F-37
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
FOR THE YEARS ENDED DECEMBER 31
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net Income (Loss)................................ $ 45,139 $ 8,403 $(27,044)
-------- -------- --------
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by Operating Activities:
Cost basis of land sales....................... 104,478 70,693 39,689
Noncash proceeds from land sales............... (48,706) (60,665) (33,495)
Decrease in receivables........................ 40,797 28,900 14,258
Depreciation and amortization.................. 19,624 16,079 15,952
Minority interests in income (losses) of
consolidated partnerships..................... 45,745 15,698 (21,940)
Write-down of the net book value of certain as-
sets.......................................... 747 80,208
Increase in deferred charges................... (1,787) (4,914) (15,502)
Increase (decrease) in accounts payable and
accrued liabilities........................... (3,221) 983 12,019
Increase (decrease) in other liabilities and
deferred credits.............................. 625 5,342 (8,725)
Gain on sale of interest in Park 2000 Associ-
ates.......................................... (2,982)
Interest received on excess contributions to
Park 2000 Associates.......................... (1,251)
Litigation settlement received................. 7,000
Cumulative effect of change in accounting for
postretirement benefits other than pensions... 4,331
Increase (decrease) in deferred gain on land
sales......................................... (3,290) 2,177 (2,064)
Decrease (increase) in prepaid expenses and
other assets.................................. (441) (2,828) 1,284
Other--net..................................... 1,083 811 (479)
-------- -------- --------
Total adjustments............................ 150,674 73,023 92,536
-------- -------- --------
Net Cash Provided by Operating Activities........ $195,813 $ 81,426 $ 65,492
======== ======== ========
Supplemental Schedule of Noncash Transactions
Notes received on sales of development and
investment properties........................... $ 40,614 $ 47,204 $ 24,872
Debt assumed by purchasers of development proper-
ties............................................ 12,650 13,461 8,623
Capitalized development costs paid from re-
stricted investments............................ 3,970 6,220
Land and building transferred to a consolidated
partnership..................................... 10,531
Estimated future development costs on sales of
development properties.......................... 9,503 14,015 4,061
Cash distributions declared but unpaid at year
end............................................. 5,000 4,000 3,000
</TABLE>
See the accompanying Summary of Significant Accounting Policies and
Notes to Consolidated Financial Statements.
F-38
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices of The Hughes Corporation
and Subsidiaries (the "Company") follow:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
The Hughes Corporation, its wholly-owned subsidiary The Howard Hughes
Corporation and other corporations and partnerships in which it has a majority
ownership interest or control. All material intercompany balances and
transactions have been eliminated in consolidation. Corporations and
partnerships in which the Company does not have a majority ownership interest
or control are accounted for using the equity method of accounting.
PROPERTIES AND DEPRECIATION
The Company capitalizes costs directly associated with the acquisition,
development and construction of each real estate project until the project is
substantially complete and ready for its intended use. Capitalized costs also
include interest, property taxes, insurance and direct project administration
that are associated with projects under development.
Properties are carried at cost, which includes expenditures for
improvements, less any adjustments for real estate asset valuations.
Depreciation is computed using the straight-line method, generally over
estimated service lives of 3 to 33 1/3 years. Expenditures for maintenance and
repairs are charged to expense as incurred. Gain or loss is recognized on
sales or retirements of properties and improvements.
REAL ESTATE ASSET VALUATION
The Company implemented Statement of Financial Accounting Standards ("SFAS")
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of in 1995 upon its issuance by the Financial Accounting
Standards Board. The Company had been applying the principles prescribed by
SFAS 121 prior to its issuance. Therefore, the implementation of SFAS 121 had
no effect on the Company's consolidated financial statements.
Consistent with the requirements of SFAS 121, the Company periodically
estimates the fair values of its real estate assets and compares these values
to the net book values of the assets. For real estate held for sale, any
excess of net book value over estimated fair value less costs to sell is
charged to current earnings. For all other real estate, the undiscounted
future cash flows of the assets, aggregated on a project-by-project basis, are
compared against the net book values of the assets. If the undiscounted future
cash flows are less than the net book values of the assets, the excess of the
net book values over the estimated fair values, as are determined by a
discounted cash flow method, is charged to current earnings.
DEFERRED CHARGES
Lease commissions, legal fees and other costs related to acquiring tenants
are capitalized and amortized over the terms of the respective leases. In
order to recognize rental income on a straight-line basis, rental abatements
and reduced rent periods given to tenants are accrued as revenue, with an
offset to a deferred receivable, and amortized over the terms of the
respective leases. Loan origination fees are capitalized and amortized over
the terms of the respective loans.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of short-term deposits and highly-liquid
investment securities having maturities of three months or less when
purchased.
F-39
<PAGE>
MARKETABLE SECURITIES
Marketable securities consist of highly-liquid investment securities having
maturities of more than three months at date of purchase.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Company adopted SFAS No. 115, Accounting for Certain Investments in Debt
and Equity Securities, on January 1, 1994. In accordance with SFAS 115, prior
years' financial statements have not been restated to reflect the change in
accounting method. There was no cumulative effect as a result of adopting SFAS
115 in 1994.
The Company's investment securities, along with certain cash and cash
equivalents that are not deemed securities under SFAS 115, are carried on the
consolidated balance sheets in the cash and cash equivalents and marketable
securities categories. SFAS 115 addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values
and for all investments in debt securities, and requires that such securities
be classified as either held to maturity, trading or available-for-sale.
Management determines the appropriate classification of its investment
securities at the time of purchase and re-evaluates such determination at each
balance sheet date. Pursuant to the criteria that are prescribed by SFAS 115,
the Company has classified its investment securities in inventory as
available-for-sale. Available-for-sale securities are required to be carried
at fair value, with unrealized gains and losses, net of tax, reported in a
separate component of shareholders' equity. Realized gains and losses are
taken into income in the period of realization.
At December 31, securities classified as available-for-sale were comprised
of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
----------------------------- ---------
GROSS
AMORTIZED UNREALIZED MARKET AMORTIZED
COST GAIN VALUE COST
--------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Debt Securities:
Debt securities issued by the U.S.
Treasury and other U.S. government
corporations and agencies........... $ 47,158 $299 $ 47,457 $ 52,294
Corporate debt securities............ 90,570 115 90,685 67,411
-------- ---- -------- --------
Total.............................. $137,728 $414 $138,142 $119,705
======== ==== ======== ========
Equity Securities...................... $ 1,221 $627 $ 1,848 $ 869
======== ==== ======== ========
</TABLE>
The estimated fair value of the Company's portfolio of investment securities
at December 31, 1994 closely approximated amortized cost. There were,
therefore, no material unrealized gains or losses on investment securities and
no recorded adjustments to amortized cost of investment securities at such
date. At December 31, 1995 and 1994, debt securities had maturity dates
ranging from less than one week to two years.
Proceeds from sales of available-for-sale securities in the year ended
December 31, 1995 and 1994 were $32,577,000 and $7,714,000, respectively. No
material gains or losses were realized on these sales. The basis on which cost
was determined in computing realized gain or loss was specific identification.
During the year ended December 31, 1994, a permanent impairment of $593,000
was recorded based upon the decline in fair value below amortized cost basis
of certain available-for-sale equity securities.
F-40
<PAGE>
RECEIVABLES
Receivables arise primarily from property rentals and real estate sales made
in the ordinary course of operations. Receivables with carrying values of
$43.5 million and $42.3 million at December 31, 1995 and 1994 have an
estimated fair value of $48.0 million and $46.5 million at those dates,
respectively, based on interest rates currently available for receivables
having similar terms. Maturities of receivables, net of reserves, at
December 31, 1995 total $32.6 million in 1996; $5.6 million in 1997; $.3
million in 1998; $.4 million in 1999; $.5 million in 2000; and $4.1 million
thereafter.
INCOME TAXES
Deferred income taxes arise from temporary differences resulting from income
and expense items being reported for financial accounting and tax purposes in
different periods. The computation of deferred income taxes was modified as of
January 1, 1993 to adopt the "asset/liability" method as prescribed by SFAS
No. 109, Accounting for Income Taxes. See Note 5 for additional information
regarding the calculation of income taxes.
SALES AND PROFIT RECOGNITION
Profits on the sale of real estate are recognized by the full accrual method
when title has passed, the buyer has made a substantial commitment, the usual
risks and rewards of ownership have been transferred to the buyer and the
terms of any notes received from the buyer give the Company reasonable
assurance of collection. If the buyer's commitment is not considered adequate,
as determined by generally accepted accounting principles and generally as
measured by cash paid, profit is recognized by the installment method.
ALLOCATION OF COMMON PROJECT COSTS
The Company allocates common costs of a development project to the income-
producing properties and development land within the project to reflect the
value added to the underlying land by the costs.
Cost allocations are generally based on relative sales values. If that
method is impracticable, common costs are allocated based on area methods (for
example, square footage or acreage) or other methods as are appropriate under
the circumstances.
USAGE OF ESTIMATES AND ASSUMPTIONS
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities.
It is at least reasonably possible that changes in these estimates and
assumptions will occur in the near term that would materially impact the
Company's financial statements. Certain significant estimates and assumptions
used by the Company include (i) the cost of improvements that will be incurred
in the readying for sale of land under development, (ii) the future cash flows
used in estimating the fair values of the Company's real estate assets and
(iii) the actuarial assumptions used in the valuation of the accumulated
benefit obligations of its postretirement benefit plans.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
F-41
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
The Company is a vertically-integrated real estate investment, management
and development company whose assets are located principally in the Las Vegas,
Nevada metropolitan area and, to a lesser extent, in the Los Angeles,
California metropolitan area. The Company's real estate assets consist of:
(i) office buildings, mixed-use industrial properties and retail centers which
produce rent income ("rental properties"), (ii) land under development
("development properties"), and (iii) land planned for future development and
surplus land the Company intends to sell as market conditions permit
("investment properties"). Because the Company's operations are concentrated
in two geographical markets, it would likely be negatively impacted by
conditions which would negatively impact those markets.
All of the outstanding common stock of the Company was owned by the Estate
of Howard R. Hughes, Jr. (the "Estate") until February 1989, at which time
such stock was distributed by the Estate to the beneficiaries of the Estate
(the "Beneficiaries").
The Company and the Beneficiaries owned 52.20% and 47.80%, respectively, of
Howard Hughes Properties, Limited Partnership ("HHPLP") at December 31, 1995.
The Beneficiaries received their interests in February and December 1989
distributions from the Estate. Their interests in HHPLP are treated in the
consolidated financial statements as minority interests in a consolidated
partnership.
2. RELATED PARTIES
Material transactions between the Company and related parties were as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Rent revenue and operating expense reimbursements from
minority partners of consolidated partnerships........ $3,095 $2,875 $2,758
Management and other fees paid to minority partners of
consolidated partnerships............................. 2,034 1,911 1,969
</TABLE>
3. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS
Maguire Thomas Partners-Playa Vista, a California Limited Partnership ("MTP-
PV") was formed in 1989. It is owned 40% by the Company as a limited partner
and owns 974 acres of land in Playa Vista, a real estate project in Los
Angeles, California. The general and remaining limited interests in MTP-PV are
owned by an unaffiliated company which also manages the partnership. The
Company has preferential rights to cash distributions from MTP-PV of
$211,579,000 at December 31, 1995, the payment of which is dependent upon the
partnership having surplus cash and upon the partnership's ability to continue
as a going concern. The liabilities associated with the Company's investment
in MTP-PV exceeded the assets contributed by the Company in 1989 to MTP-PV by
$2,884,000 and $7,219,000 at December 31, 1995 and 1994, respectively. This
investment is included in other liabilities and deferred credits on the
consolidated balance sheets. Pursuant to the provisions of the partnership
agreement, the Company has no obligation, fixed or contingent, with respect to
the properties, assets or business of MTP-PV. The Company elected, however, to
make advances of $4,316,000 to MTP-PV in 1995. These advances were matched on
an equal basis by the managing partner in the partnership. No advances were
made by either partner in 1994.
The Company also owns a 40% limited partnership interest in Maguire Thomas
Partners-Playa Vista Area C, a California Limited Partnership ("MTP-AC"),
which was formed in 1990 to acquire and develop the remaining 66 acres in
Playa Vista not owned by MTP-PV ("Area C") and certain additional land
adjacent to Area C. The general and remaining limited interests in MTP-AC are
owned by an affiliate of
F-42
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the managing general partner of MTP-PV. Such affiliate also manages MTP-AC. As
of December 31, 1995, the Company had contributed $9,005,000 to MTP-AC. The
Company could be required to contribute additional cash of up to $7,795,000 to
MTP-AC pursuant to the partnership agreement.
Under an agreement with the owner of Area C, which is the trustee (the
"Trustee") of a trust created on behalf of the State of California (the
"State"), MTP-AC has an option to acquire all or a portion of Area C through
the scheduled closing date of December 31, 2000. The closing purchase price
for Area C of $115,191,000 is subject to various credits, including all option
payments made. Under the terms of the agreement, as amended, MTP-AC has paid
$11,000,000 through December 31, 1995 and, on the closing date, will be
required to make a further cash payment of $10,000,000 and execute a
promissory note secured by a deed of trust for the unpaid balance of the
purchase price. The note will provide for annual payments of principal and
interest in an amount sufficient to fully amortize the remaining principal
over 30 years and will become due and payable on December 31, 2005. Unless
there is a material breach of the agreement by the seller, the option payments
made are nonrefundable. MTP-AC is not required to make any additional option
payments so long as it is using its best faith efforts to obtain entitlements.
MTP-PV has assumed responsibility for the development of Playa Vista,
including the land under option to MTP-AC, and allocates certain common costs
of the project to MTP-AC. In September 1993, the Los Angeles City Council
approved a vesting tentative tract map for the first phase of development of
Playa Vista.
The financing of the pre-development holding costs and the costs associated
with obtaining the first phase development entitlements for Playa Vista were
financed in prior years primarily by a $150,000,000 loan facility that was
modified in 1993 to become a term loan payable in February 1994. Pursuant to
provisions contained in the note, the due date was extended to February 1995.
The note is non-amortizing, with interest payable on a monthly basis. MTP-PV
ceased paying interest on the note in November 1994 and is currently in
default under the note. The amounts due on the note at December 31, 1995 and
1994 were $167,527,000 and $152,841,000, respectively, including both
principal and accrued interest. MTP-PV is currently in negotiations with the
lender to extend the maturity date and modify the terms of the note; it is
uncertain, however, whether such efforts will be successful. Because of this
default, there is substantial doubt about the ability of MTP-PV and MTP-AC to
continue as going concerns.
In 1993, the Company determined that, as a result of the declining market
values that had occurred in the Los Angeles real estate market over the past
several years, its investment in MTP-AC would likely not be recoverable. As a
result, the Company fully reserved its investment in MTP-AC. The resulting
charge of $8,802,000 is a component of the write-down of the net book value of
certain assets included in the Company's consolidated statement of operations
for the year ended December 31, 1993. See Note 8.
In their unaudited financial statements for the years ended December 31,
1995 and 1994, MTP-PV and MTP-AC recorded provisions for the write-down of the
carrying values of their assets to the assets' estimated net realizable
values. These write-downs resulted in 1995 charges to the earnings of MTP-PV
and MTP-AC of $70,658,000 and $1,326,000, respectively, and 1994 charges to
the earnings of MTP-PV and MTP-AC of $129,820,000 and $21,286,000,
respectively. Due to the uncertainties in the net realizable value estimation
process, however, the ultimate net realizable values may be materially
different from the amounts recorded on the balance sheets of MTP-PV and MTP-
AC. Because of the Company's negative and zero bases, respectively, in these
partnerships, no additional write-downs were required by the Company in 1995
or 1994.
F-43
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In October 1995, the Company and the partners of the managing general
partner of MTP-PV entered into a binding letter of intent which provides that,
subject to certain conditions, the ownership of MTP-PV and MTP-AC would be
restructured. As a result of this restructuring, the Company's residual
interests in MTP-PV and MTP-AC would become 47% and the partners of the
managing general partner of MTP-PV would receive the right to receive cash
distributions on a concurrent but generally lesser basis than the Company. The
manner in which the Company's preferential cash distribution rights accrue
would not change as a result of the binding letter of intent.
The Company additionally owns interests in other unconsolidated
partnerships. The financial statements of these partnerships are not material
to the Company's consolidated financial statements taken as a whole.
The combined financial position at December 31, 1995 and 1994 and the
combined results of operations for the years ended December 31, 1995, 1994 and
1993 for unconsolidated partnerships in which the Company owns an interest are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
----------------------------- -----------------------------
MTP-PV MTP-PV
AND ALL AND ALL
TOTAL MTP-AC(1) OTHER(1) TOTAL MTP-AC(1) OTHER(1)
-------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Property--net........... $223,365 $204,977 $18,388 $248,507 $244,566 $3,941
Other assets............ 3,376 2,632 744 5,322 4,986 336
-------- -------- ------- -------- -------- ------
Total............... $226,741 $207,609 $19,132 $253,829 $249,552 $4,277
======== ======== ======= ======== ======== ======
Liabilities............. $207,269 $203,417 $ 3,852 $177,020 $173,721 $3,299
Partners' equity........ 19,472 4,192 15,280 76,809 75,831 978
-------- -------- ------- -------- -------- ------
Total............... $226,741 $207,609 $19,132 $253,829 $249,552 $4,277
======== ======== ======= ======== ======== ======
The Company's recorded
portion of partners'
equity (deficit):
Included in
investments in
unconsolidated
partnerships......... $ 588 $ 588 $ 644 $ 644
Included in other
liabilities and
deferred credits..... (2,884) $ (2,884) (7,219) $ (7,219)
-------- -------- ------- -------- -------- ------
Total............... $ (2,296) $ (2,884) $ 588 $ (6,575) $ (7,219) $ 644
======== ======== ======= ======== ======== ======
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------- ------------------------------ ------------------------
MTP-PV MTP-PV MTP-PV
AND ALL AND ALL AND ALL
TOTAL MTP-AC(1) OTHER(1) TOTAL MTP-AC(1) OTHER(1) TOTAL MTP-AC OTHER(1)
-------- --------- -------- --------- --------- -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 735 $ 52 $ 683 $ 493 $ 216 $ 277 $ 1,706 $55 $ 1,651
Expenses................ (72,795) (72,125) (670) (151,702) (151,286) (416) (1,639) (1,639)
-------- -------- ----- --------- --------- ----- ------- --- -------
Net income (loss)..... $(72,060) $(72,073) $ 13 $(151,209) $(151,070) $(139) $ 67 $55 $ 12
======== ======== ===== ========= ========= ===== ======= === =======
The Company's recorded
portion of
partnerships' net
income (loss).......... $ (38) $ 19 $ (57) $ 28 $ 40 $ (12) $ 26 $21 $ 5
======== ======== ===== ========= ========= ===== ======= === =======
</TABLE>
- --------
(1) Unaudited.
F-44
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. NOTES, MORTGAGES AND ASSESSMENTS PAYABLE
Notes, mortgages and assessments payable at December 31 are comprised of the
following (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Notes and mortgages on rental properties:
Non-recourse............................................ $219,423 $226,104
Recourse................................................ 36,853 39,480
-------- --------
Subtotal.............................................. 256,276 265,584
Revolving credit and term loan agreement.................. 62,000 51,000
Other notes and mortgages................................. 14,000 15,936
-------- --------
Total notes and mortgages payable..................... 332,276 332,520
Infrastructure financing assessments payable (offset
against development properties on the consolidated
balance sheets).......................................... 6,321 13,218
-------- --------
Total notes, mortgages and assessments payable........ $338,597 $345,738
======== ========
</TABLE>
Notes and mortgages on rental properties are secured by deeds of trust on
real estate and general assignments of rents. This debt matures in
installments through the year 2010 and, at December 31, 1995, bears interest
at rates ranging from 5.37% to 10.25%, with a weighted average interest rate
of 7.96%, and is collateralized by real property having a net book value of
$214,837,000. At December 31, 1995, approximately 78% of this debt carries
fixed interest rates with the remainder having variable interest rates. Most
of the fixed rate notes and mortgages contain prepayment penalty and/or yield
maintenance payment provisions and restrictions on the transferability of
ownership interests.
The Company has an unsecured revolving credit and term loan agreement under
which, as amended in November 1994, the Company may borrow up to $100,000,000
until May 1997. The loan balance as of May 1, 1997 will become a term loan
payable in 12 quarterly installments, beginning in November 1997. A fee of
3/8% of the outstanding loan balance will be payable upon conversion.
Commitment fees of 1/4% per annum of the maximum advance amount, or the loan
balance once the loan is converted to a term loan, will be paid until the loan
is paid in full. The rate of interest varies with the market rate and was
7.66% at December 31, 1995. The agreement contains restrictive covenants
regarding minimum equity, maximum debt-to-equity and minimum debt service
coverage. Management believes that the Company is in compliance with the
restrictive covenants of this and all other debt agreements as of December 31,
1995.
Other notes and mortgages at December 31, 1994 are comprised of two
infrastructure loans, one of which was paid off in 1995. The remaining loan at
December 31, 1995 matures in installments through the year 2007 and, at
December 31, 1995, bears interest at a fixed rate of 10.00%.
Infrastructure financing assessments payable of $6,321,000 and $13,218,000
at December 31, 1995 and 1994, respectively, are offset against development
properties on the Company's consolidated balance sheets. This debt originated
in December 1989, when the City of Las Vegas (the "City") issued tax-exempt
bonds in the amount of $73,885,000 to fund the acquisition of certain public
improvements benefitting property located in the City's Special Improvement
District No. 404 (the "District"). The District is comprised of approximately
3,400 acres of the Company's Summerlin project. The improvements to be
acquired were or will be constructed and paid for by the Company. As of
December 31, 1995, improvements and associated expenses with a cost of
$66,581,000 have been
F-45
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
acquired from the Company. The City has custodial control of the remaining
bond proceeds of $7,304,000. Payment of the bonds is secured by lien
assessments on the property within the District. This property has a cost of
$50,746,000 at December 31, 1995. The bonds are payable in monthly or semi-
annual installments over a 20-year term by the Company or subsequent owners of
the liened property. The interest rates on the majority of the bonds are
variable, based upon market conditions. The interest rates on the remaining
bonds are fixed. The weighted average interest rate on the bonds, including
both the fixed and variable interest rate components, was 5.37% at December
31, 1995. As of December 31, 1995, $51,471,000 of the assessments have been
assumed by buyers of Summerlin property, $8,304,000 of the assessments have
been paid by the Company and $485,000 of the assessments, relating to rental
properties owned by the Company, are included in notes and mortgages payable
on the consolidated balance sheet. The remaining unpaid portion of the bonds
relating to acquired improvements was $6,321,000 at December 31, 1995 and is
offset against development properties on the consolidated balance sheet.
Maturities of notes, mortgages and assessments payable at December 31, 1995,
including the amounts payable on special improvement district bond proceeds
not yet received by the Company, total $47,481,000 in 1996; $26,918,000 in
1997; $30,349,000 in 1998; $28,156,000 in 1999; $23,068,000 in 2000; and
$189,929,000 thereafter.
The estimated fair value of the Company's notes, mortgages and assessments
payable at December 31, 1995 is $357,167,000. This estimated fair value is
based on interest rates currently available for obligations having similar
terms and remaining maturities, and is somewhat subjective in nature.
Settlement of the Company's debt obligations at fair value would not
necessarily be possible and would not necessarily be a prudent management
decision.
5. INCOME TAXES
Components of the provision (benefit) for income taxes, which are
substantially federal, are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ --------
<S> <C> <C> <C>
Current............................................ $22,787 $3,570 $ 3,651
Deferred........................................... 2,411 739 (15,660)
------- ------ --------
Total provision (benefit)........................ $25,198 $4,309 $(12,009)
======= ====== ========
</TABLE>
The income tax provision (benefit) as set forth in the preceding table
produces an effective income tax rate greater or less than the statutory
federal income tax rate. The reconciliation of the statutory federal income
tax rate to the effective income tax rate is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Federal tax statutory rate... $24,618 35.0% $4,452 35.0% $(12,154) (35.0)%
Adjustments:
Nondeductible expenses..... 123 .2 190 1.5 141 .4
State taxes, net of federal
effect.................... 107 .2 (377) (1.1)
Federal surtax exemption... (100) (.8) 347 1.0
Incremental tax due to
progressive rates......... 328 .4
Other--net................. 22 .0 (233) (1.8) 34 .1
------- ---- ------ ---- -------- -----
Provision (benefit) for
income taxes (1)........ $25,198 35.8% $4,309 33.9% $(12,009) (34.6)%
======= ==== ====== ==== ======== =====
</TABLE>
- --------
(1)Calculated on income before income taxes and cumulative effect of
accounting change.
F-46
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The deferred tax provision (benefit) is attributable to the following (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- --------
<S> <C> <C> <C>
Property, net of accumulated depreciation:
Asset valuation write-down.................... $ (89) $ (8,231)
Other property items--net..................... $ 491 494 (1,084)
Basis of investments in partnerships other than
HHPLP:
Asset valuation write-down.................... 861 (6,069)
Other partnership items--net.................. (250) 1,063 (123)
Deferred gains.................................. 847 (1,025) 723
Accrued expenses................................ 755 (1,162) (456)
Reserves not currently deductible............... (40) (100) 59
Employee benefit plans.......................... (2) (183) (537)
Other deferred items--net....................... 610 880 58
------ ------- --------
Deferred provision (benefit)................ $2,411 $ 739 $(15,660)
====== ======= ========
</TABLE>
In February 1992, the Financial Accounting Standards Board issued SFAS No.
109, Accounting for Income Taxes, which the Company adopted effective January
1, 1993. The adoption of SFAS 109 changed the Company's method of accounting
for income taxes from the "deferred" method (an operating statement approach)
to the "asset/liability" method (a balance sheet approach). The cumulative
effect of the adoption of SFAS 109 was not material to the Company's
consolidated financial statements.
The valuation allowance for state taxes decreased by $250,000 at December
31, 1995. The components of the Company's net deferred tax asset at December
31, which is included in deferred charges and other on the consolidated
balance sheets, are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax liabilities:
Basis of investments in partnerships other than HHPLP... $(2,672) $(2,922)
Other net tax reserves.................................. (1,624) (764)
Deferred tax assets:
Property and accumulated depreciation................... 6,134 6,625
Employee benefit plans.................................. 3,488 3,486
Reserves not currently deductible....................... 1,468 1,428
Deferred gains.......................................... 682 1,529
Accrued expenses........................................ 561 1,316
------- -------
Subtotal.............................................. 8,037 10,698
Valuation allowance for state taxes..................... (650) (900)
------- -------
Net deferred tax asset................................ $ 7,387 $ 9,798
======= =======
</TABLE>
6. LEASING ACTIVITIES
The Company leases property, principally real property, to related parties
and others under agreements which expire over the next 21 years. Minimum
future rentals at December 31, 1995 due under noncancelable operating leases,
including leases to related parties, total $46,431,000 in 1996; $41,620,000 in
1997; $37,356,000 in 1998; $33,284,000 in 1999; $28,960,000 in 2000; and
$87,987,000 thereafter. Leases to related parties total $16,494,000, including
$1,474,000 annually through 2000 and $9,124,000 thereafter.
F-47
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property subject to operating leases at December 31 is comprised of the
following (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Rental properties....................................... $339,453 $309,942
Reserve for depreciation................................ (69,626) (67,165)
-------- --------
Net book value........................................ $269,827 $242,777
======== ========
</TABLE>
The Company's net investment in direct financing leases, included in
receivables on the consolidated balance sheets, is as follows at December 31
(in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Minimum lease payments receivable.......................... $11,600 $12,561
Unearned income............................................ (8,384) (9,146)
Unguaranteed residual value................................ 689 689
Executory Costs............................................ (136) (163)
------- -------
Net investment........................................... $ 3,769 $ 3,941
======= =======
</TABLE>
Minimum lease payments receivable at December 31, 1995 are comprised of
$923,000 due in 1996; $928,000 in 1997; $983,000 in 1998; $965,000 in 1999;
$965,000 in 2000; and $7,389,000 thereafter.
7. POSTRETIREMENT BENEFIT PLANS
Defined-Contribution Retirement Plan
The Company maintains an employee savings plan under which employees can
make either pre-tax 401(k) contributions or after-tax contributions. Employees
must be at least 18 years old to become participants in the plan. The Company
matches 75% of employee contributions to the plan, not to exceed 6% of the
annual base compensation paid to the employee. Company matching contributions
vest after an employee has participated in the plan for three years. The
amounts expensed for Company matching contributions to the plan were $286,000
in 1995, $251,000 in 1994 and $245,000 in 1993.
Defined-Benefit Pension Plans
The Company has a qualified defined-benefit pension plan and a nonqualified,
unfunded pension benefit restoration plan. Both plans cover certain of the
Company's current and former employees. Employees are eligible to participate
in the plan once they have met certain age and length of service criteria.
Benefits under these plans generally are based upon the employee's years of
service and compensation during the years immediately preceding retirement,
and participants become fully vested after completing five years of service.
The costs of the qualified pension plan are funded based on the annual
contributions required by applicable federal regulations. The assets of the
qualified pension plan are invested in a balanced portfolio consisting
primarily of fixed-income securities.
F-48
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's costs of the pension and pension benefit restoration plans for
1995, 1994 and 1993 and the status of these plans are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
-------------------- -------------------- --------------------
PENSION RESTORATION PENSION RESTORATION PENSION RESTORATION
PLAN PLAN PLAN PLAN PLAN PLAN
------- ----------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Components of pension
cost:
Service costs......... $ 426 $ 63 $ 411 $ 73 $ 455 $ 38
Interest costs........ 1,713 135 1,654 133 1,672 116
Actual return on plan
assets............... (3,939) 675 (2,912)
Net amortization and
deferral............. 1,309 71 (3,520) 84 65 68
------- ------- ------- ------- ------- -------
Total pension cost
(credit)........... $ (491) $ 269 $ (780) $ 290 $ (720) $ 222
======= ======= ======= ======= ======= =======
Actuarial present value
of benefit obligations:
Vested benefits....... $21,819 $ 1,461 $19,920 $ 1,363 $20,625 $ 1,357
Nonvested benefits.... 616 100 494 87 556 45
------- ------- ------- ------- ------- -------
Accumulated benefit
obligations............ 22,435 1,561 20,414 1,450 21,181 1,402
Effect of assumed
increase in
compensation levels.... 2,003 343 1,611 371 1,821 188
------- ------- ------- ------- ------- -------
Projected benefit obli-
gation................. 24,438 1,904 22,025 1,821 23,002 1,590
Plan assets at fair val-
ue..................... 28,139 25,928 28,330
------- ------- ------- ------- ------- -------
Excess (deficiency) of
assets over projected
benefit obligation..... 3,701 (1,904) 3,903 (1,821) 5,328 (1,590)
Unrecognized net
transition liability
(asset)................ (1,972) 300 (2,332) 348 (2,692) 396
Unrecognized net prior
service liability
(cost)................. (173) 239 (187) 259 77
Unrecognized net loss
(gain)................. 1,672 288 1,353 299 (756) 453
Additional liability
above accrued pension
cost................... (484) (535) (661)
------- ------- ------- ------- ------- -------
Prepaid (accrued)
pension cost....... $ 3,228 $(1,561) $ 2,737 $(1,450) $ 1,957 $(1,402)
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Major assumptions:
Discount rate............................................ 7.25% 8.00% 7.50%
Rate of increase in compensation levels.................. 5.00% 5.50% 5.50%
Expected long-term rate of return on plan assets......... 9.00% 9.00% 9.50%
</TABLE>
F-49
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other Postretirement Benefit Plans
The Company also has a qualified, unfunded benefit plan that provides
medical and life insurance to certain retirees. Through December 31, 1994, all
premiums for the postretirement medical portion of the plan were paid by the
Company. Changes to the plan that became effective April 1, 1995, however,
require retirees becoming eligible from that date forward to pay a portion of
the medical premiums. The cost of the life insurance provided to eligible
retirees is reimbursed by the plan participants based upon the Company's per-
participant cost of the insurance. Retirees are eligible to participate in the
plan once they have met certain age and length of service criteria.
The Company's cost of providing medical and life insurance to retirees for
1995 and 1994, net of reimbursements, and the status of the components of the
plan as of December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Components of net periodic postretirement benefits cost:
Service cost........................................... $ 142 $ 432
Interest cost.......................................... 392 663
Net amortization and deferral.......................... (814)
------- -------
Net periodic postretirement benefits cost (credit)..... $ (280) $ 1,095
======= =======
Accumulated postretirement benefit obligation:
Active employees....................................... $ 1,571 $ 3,102
Retirees............................................... 3,905 5,774
------- -------
Total................................................ 5,476 8,876
Plan assets at fair value................................
------- -------
Funded status............................................ (5,476) (8,876)
Unrecognized prior service cost.......................... (3,624)
Unrecognized net loss (gain)............................. 847 (7)
------- -------
Accrued postretirement cost.............................. $(8,253) $(8,883)
======= =======
Major assumptions:
Discount rate.......................................... 7.25% 8.00%
Salary scale........................................... 5.00% 5.50%
Healthcare Trend:
1995................................................... 45.00% 11.00%
1996................................................... 10.00% 10.00%
1997................................................... 9.00% 9.00%
1998................................................... 8.00% 8.00%
1999................................................... 7.00% 7.00%
2000 and beyond........................................ 6.25% 7.00%
</TABLE>
Effective January 1, 1993, the Company adopted SFAS No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. SFAS 106 requires
accrual basis accounting for postretirement benefits other than pensions, the
most significant of which is retiree medical benefits. Prior to 1993, the
Company expensed the premiums for retiree medical benefits as they were paid.
The adoption of SFAS 106 resulted in a net charge for the pre-1993 cumulative
effect of adopting SFAS 106 of $4,331,000 (a total charge of $7,830,000 less
$1,268,000 attributable to the minority interests in HHPLP and an income tax
benefit of $2,231,000). The 1993 expense for postretirement benefits other
than pensions was $955,000, which included $451,000 that was related to
adopting SFAS 106. The 1994 expenses and 1995 credit were $1,095,000 and
$(280,000), respectively. A 1%
F-50
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
increase in the trend rate for health care costs would have increased the pre-
1993 cumulative effect of adopting SFAS 106 by 12.1% and the 1993 expense by
16.5%.
Possible Termination of Postretirement Benefit Plans
In February 1996, the Company's Board of Directors voted to terminate the
Company's defined-benefit pension plan if the Mergers (as defined below) are
consummated. See Note 9 for further discussion of the Mergers. Termination of
these plans would increase certain obligations presented in the preceding
tables; however, the impact to the Company's financial statements that would
result from such termination is not expected to be material. Further subject
to the Mergers taking place, the Company would cease making contributions to
its defined-contribution retirement plan upon the closing date of the
transaction. Other postretirement benefit plans for current retirees would
remain in place through the year ending December 31, 1996. If the Mergers take
place, retiree benefits will be provided consistent with The Rouse Company's
postretirement benefit plans.
8. WRITE-DOWN OF THE NET BOOK VALUE OF CERTAIN ASSETS
A charge of $80,208,000 was recorded in 1993 to write down the net book
value of certain assets. The majority of the write-down was based upon the net
present value of the estimated future cash flows of the properties. Of this
amount, $63,971,000 was a write-down of the net book value of assets located
principally at Howard Hughes Center. The declining market values in the Los
Angeles commercial real estate market over the past several years, combined
with the capital spending that has been required to protect the development
entitlements of this project, resulted in an excess of net book value over
fair value that was determined on a discounted cash flow basis. Additionally,
$8,802,000 of the write-down was the result of management's decision to fully
reserve the Company's investment in MTP-AC. See Note 3. The remaining amount,
$7,435,000, relates to the write-off of certain capitalized project costs that
management determined had no future value. An additional charge of $747,000
was recorded in 1994 primarily to reflect the continued decline in estimated
fair value of one of the properties written down in 1993.
9. COMMITMENTS AND CONTINGENCIES
In June 1989, shareholders controlling over 99% of the Company's common
stock entered into an agreement (the "Agreement") which provided for
proportionate representation on the Board of Directors (the "Board") of the
Company and required the Board to adopt a business policy which would have as
principal objectives a plan for providing liquidity in ownership interests and
paying regular cash distributions. In connection with the objective of
providing liquidity in ownership interests, the Agreement required the Company
to develop and implement a plan prior to 1996 which would have afforded all
shareholders an opportunity to realize the fair value of their investment in
the Company in a manner that would not have required liquidation of the assets
of the Company.
With respect to the payment of regular cash distributions, the targeted
minimum for each year subsequent to the calendar year 1995 is $50,000,000. The
Agreement provides for additional cash distributions to the extent that excess
funds are available. Through December 31, 1995, the Company and its affiliated
entities have distributed $61,291,000 in excess of targeted amounts since the
effective date of the Agreement. All distributions are subject to the approval
of the Board and may be reduced in whole or in part if, in the Board's
judgement, the payment of such distributions would conflict with the ability
of the Company to carry out its normal business operations or to pay creditors
or obligations that are binding on the Company. The Agreement also requires
that the Company not finance certain capital expenditures from internally-
generated funds unless the Board concludes that the use of cash for such
purposes is in the best interests of the shareholders. The Company is
furthermore prohibited from engaging in business activities other than those
of the nature in which it is presently engaged.
F-51
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In January 1996, The Hughes Corporation and its subsidiary, HHPLP entered
into a non-binding letter of intent with respect to the possible mergers of
The Hughes Corporation and its subsidiary, HHPLP with subsidiaries of The
Rouse Company (the "Mergers"). In February 1996, the Mergers were approved by
the boards of directors of both companies, and binding merger agreements were
executed by both parties. The Mergers are still, however, subject to various
contingencies including approval by the Company's shareholders. If
consummated, the Mergers would result in the termination of the Agreement.
The Tournament Players Club at Summerlin (the "TPC") is an 18-hole golf
course located within the Company's Summerlin development. The TPC is managed
by an affiliate of PGA TOUR ("PGA"), which also has an option to acquire the
TPC. In 1995, the Company commenced construction on a second 18-hole golf
course within Summerlin which falls within the scope of PGA's existing
purchase option. PGA's option permits it to offset certain non-cash credits
against the option price. In the event that PGA exercises its purchase option,
the Company will be entitled to receive certain revenues and net operating
profits from the TPC and the second golf course through the year 2021.
In 1988, an entity now owned by the Company sold its Harolds Club casino in
Reno, Nevada. This facility was located on leased land that was subject to six
separate leases. While the purchaser of Harolds Club assumed these leases, the
Company remains contingently liable for four of them. As of December 31, 1995,
the aggregate future leases payments under these leases for which the Company
remains contingently liable total $7,695,000, including $406,000 due in 1996;
$381,000 in 1997; $363,000 in 1998; $363,000 in 1999; $372,000 in 2000; and
$5,810,000 thereafter.
On February 24, 1994, the Nevada Department of Environmental Protection
("NDEP") filed suit against the Company and several other parties alleging
statutory and common law violations arising from an underground plume of fuels
and chemicals at and around the McCarran International Airport in Las Vegas.
The contamination allegedly emanates from a fuel tank farm formerly operated
by the Company and affects property formerly leased by the Company. NDEP seeks
civil penalties, damages and remediation. The Company believes that this suit
will not have a material adverse effect on its consolidated financial
condition or its results of operations because of the likely cost of
remediation and because another defendant in the suit, Triton Energy
Corporation, which purchased the Company's interest in the affected property
in 1988, has an agreement to indemnify the Company for all costs associated
with the clean-up of the fuel tank farm. The Company has received an open
extension of time to respond to the suit. The suit is currently not proceeding
as NDEP attempts to resolve the suit with Triton Energy Corporation.
The Company is subject to legal proceedings and claims that arise in the
normal course of its business. In the opinion of management, the amount of
ultimate liability with respect to these legal proceedings and claims will not
materially affect the consolidated financial statements of the Company.
As an owner and developer of commercial properties, there exists the
possibility that environmental contamination conditions may exist that would
require the Company to take corrective action. The amount of such future costs
cannot be determined. However, management believes any such costs would not
materially affect the Company's consolidated financial statements.
F-52
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. MAJOR CUSTOMERS
The Company had two customers that accounted for 10% or more of its revenues
in one or more of the three years ended December 31, 1995. These two customers
accounted, respectively, for the following revenues in each of those years (in
thousands):
<TABLE>
<CAPTION>
CUSTOMER TYPE OF SALES 1995 1994 1993
-------- ------------- ------- ---- -------
<S> <C> <C> <C> <C>
Circus Circus Enterprises,
Inc........................... Investment land sale $15,000
Gordon Gaming Corporation...... Investment land sales $61,838
</TABLE>
11. SELECTED FINANCIAL DATA
The following is a summary of selected quarterly financial data (unaudited)
for the years ended December 31, 1995 and 1994 (in thousands, except share
data):
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 TOTAL
----------- ------------ ------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating Revenues
1995.................. $101,700 $36,991 $80,587 $74,106 $293,384
1994.................. 54,324 32,940 47,255 35,407 169,926
Gross Profit from
Operations
1995.................. 53,957 19,176 52,149 23,357 148,639
1994.................. 19,153 14,405 22,002 14,797 70,357
Net Income (Loss)
1995.................. 13,126 3,084 24,622 4,307 45,139
1994.................. 2,584 (533) 4,437 1,915 8,403
Net Income (Loss) per
Common Share
1995.................. 197.48 46.40 370.45 64.80 679.13
1994.................. 38.88 (8.02) 66.76 28.81 126.43
</TABLE>
In evaluating the preceding data, it should be recognized that large non-
recurring parcel sales are occasionally made by the Company which can result
in significant fluctuations of operating results between quarters. Other
material transactions may affect comparability as well.
The following material transactions, in particular, address the
comparability of quarter-by-quarter data:
. $21.5 million in revenue was recorded in the fourth quarter of 1995 on
the sale of a land parcel located on the Las Vegas Strip, resulting in a
gross profit of $16.8 million.
. $40.3 million in revenue was recorded in the second quarter of 1995 on
the sale of a land parcel located on the Las Vegas Strip, resulting in a
gross profit of $33.2 million.
. $21.9 million in revenue was recorded in the first quarter of 1995 on the
sale of a building, built by the Company, to Household Credit Services in
Summerlin. Because the Company contributed the land as an incentive for
Household Credit to become the first major employer in Summerlin, there
was no profit on the sale.
. $3.8 million in costs was charged against earnings in the third quarter
of 1994 when the decision was made to abandon a proposed initial public
offering.
F-53
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a five-year comparison of selected financial data for the
years ended December 31 (in thousands, except share data):
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS DATA:
Operating Revenues......... $293,384 $169,926 $135,397 $ 87,743 $ 84,021
Gross Profit from
Operations................ 148,639 70,357 67,634 40,894 46,264
Income (Loss) before
Cumulative Effect of
Accounting Change......... 45,139 8,403 (22,713) 4,826 10,372
Net Income (Loss).......... 45,139 8,403 (27,044) 4,826 10,372
Per Share:
Income (Loss) before
Cumulative Effect of
Accounting Change....... 679.13 126.43 (341.72) 72.61 156.05
Net Income (Loss)........ 679.13 126.43 (406.88) 72.61 156.05
BALANCE SHEET DATA:
Total Assets............... 677,478 662,642 628,365 632,686 566,854
Notes and Mortgages
Payable................... 332,276 332,520 328,214 277,403 223,328
Cash Dividends Declared Per
Common Share.............. 138.79 147.50 91.84 36.86 126.20
</TABLE>
F-54
<PAGE>
APPENDIX A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
COMPOSITE
AGREEMENT AND PLAN OF MERGER
AMONG
THE HUGHES CORPORATION,
THE ROUSE COMPANY
AND
TRC ACQUISITION COMPANY I
DATED AS OF FEBRUARY 22, 1996,
AS AMENDED MAY 1, 1996 AND MAY 13, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
COMPOSITE AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I--THE MERGER................................................... A-2
Section 1.1 The Merger............................................. A-2
Section 1.2 Effective Time of the Merger........................... A-2
Section 1.3 Effects of the Merger.................................. A-2
ARTICLE II--THE SURVIVING CORPORATION AND PARENT........................ A-2
Section 2.1 Certificate of Incorporation........................... A-2
Section 2.2 By-Laws................................................ A-2
Section 2.3 Directors of Parent.................................... A-2
Section 2.4 Directors and Officers of Surviving Corporation........ A-2
ARTICLE III--CONVERSION OF SHARES....................................... A-3
Section 3.1 Conversion of Company Shares in the Merger............. A-3
Section 3.2 Subsidiary Shares...................................... A-4
Section 3.3 Dissenters' Rights..................................... A-4
Section 3.4 Exchange of Certificates............................... A-4
Section 3.5 No Fractional Securities............................... A-6
Section 3.6 Closing................................................ A-6
Section 3.7 Closing of the Company's Transfer Books................ A-6
Section 3.8 Distribution to John L. Goolsby........................ A-7
ARTICLE IV--REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY..... A-7
Section 4.1 Organization and Qualification......................... A-7
Section 4.2 Capitalization......................................... A-8
Section 4.3 Subsidiaries........................................... A-9
Section 4.4 Authority; Non-Contravention; Approvals................ A-9
Section 4.5 Reports and Financial Statements....................... A-10
Section 4.6 Absence of Undisclosed Liabilities..................... A-11
Section 4.7 Absence of Certain Changes or Events................... A-11
Section 4.8 Litigation............................................. A-11
Section 4.9 Registration Statement and Proxy Statement............. A-11
Section 4.10 No Violation of Law.................................... A-12
Section 4.11 Compliance with Agreements............................. A-12
Section 4.12 Taxes.................................................. A-12
Section 4.13 Employee Benefit Plans; ERISA.......................... A-13
Section 4.14 Labor Controversies.................................... A-14
Section 4.15 Environmental Matters.................................. A-14
Section 4.16 Non-competition Agreements............................. A-15
Section 4.17 Title to Assets........................................ A-16
Section 4.18 Reorganization......................................... A-16
Section 4.19 No Parent Stockholders' Approval Required.............. A-16
Section 4.20 Relationship with Affiliates........................... A-16
Section 4.21 Licenses, Permits, Certificates of Occupancy, Zoning,
Etc. Relating to Properties........................... A-17
Section 4.22 Physical Condition..................................... A-17
Section 4.23 Contracts and Commitments.............................. A-17
Section 4.24 Insurance.............................................. A-18
ARTICLE V--REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ A-18
Section 5.1 Organization and Qualification......................... A-18
Section 5.2 Capitalization......................................... A-18
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 5.3 Subsidiaries........................................... A-19
Section 5.4 Authority; Non-Contravention; Approvals................ A-19
Section 5.5 Financial Statements................................... A-21
Section 5.6 Absence of Undisclosed Liabilities..................... A-21
Section 5.7 Absence of Certain Changes or Events................... A-21
Section 5.8 Litigation............................................. A-21
Section 5.9 Registration Statement and Proxy Statement............. A-21
Section 5.10 No Violation of Law.................................... A-22
Section 5.11 Compliance with Agreements............................. A-22
Section 5.12 Taxes.................................................. A-22
Section 5.13 Employee Benefit Plans; ERISA.......................... A-23
Section 5.14 Labor Controversies.................................... A-24
Section 5.15 Environmental Matters.................................. A-24
Section 5.16 Non-competition Agreements............................. A-25
Section 5.17 Title to Assets........................................ A-25
Section 5.18 Reorganization......................................... A-25
Section 5.19 Merger Approval........................................ A-25
Section 5.20 Relationships with Affiliates.......................... A-25
Section 5.21 Fairness Opinion....................................... A-26
Section 5.22 Leases................................................. A-26
Section 5.23 Licenses, Permits, Certificates of Occupancy, Zoning,
Etc. Relating to Properties........................... A-26
Section 5.24 Physical Condition..................................... A-27
Section 5.25 Contracts and Commitments.............................. A-27
Section 5.26 Insurance.............................................. A-28
ARTICLE VI--CONDUCT OF BUSINESS PENDING THE MERGER...................... A-28
Section 6.1 Conduct of Business by the Company Pending the Merger.. A-28
Conduct of Business by Parent and Subsidiary Pending
Section 6.2 the Merger............................................. A-29
Section 6.3 Control of the Company's Operations.................... A-30
Section 6.4 Control of Parent's Operations......................... A-30
Section 6.5 Acquisition Transactions............................... A-30
ARTICLE VII--ADDITIONAL AGREEMENTS...................................... A-31
Section 7.1 Access to Information.................................. A-31
Section 7.2 Registration Statement, etc. .......................... A-32
Section 7.3 Hughes Owners' Approval, etc. ......................... A-33
Section 7.4 Securities Act Compliance; Affiliates; Resale.......... A-33
Section 7.5 Exchange Listing....................................... A-34
Section 7.6 Reservation of Shares; Preferred Securities............ A-34
Section 7.7 Expenses and Fees...................................... A-35
Section 7.8 Agreement to Cooperate................................. A-35
Section 7.9 Public Statements...................................... A-35
Section 7.10 Company Employee Benefit Plans......................... A-35
Section 7.11 Notification of Certain Matters........................ A-37
Section 7.12 Directors' and Officers' Indemnification............... A-37
Corrections to the Proxy Statement and Registration
Section 7.13 Statement.............................................. A-38
Section 7.14 Hughes Name............................................ A-38
Section 7.15 Contingent Stock Agreement............................. A-39
Section 7.16 Maintenance of Company Records; Personnel.............. A-39
Section 7.17 Permitted Dividends and Distributions.................. A-39
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE VIII--CONDITIONS................................................ A-40
Conditions to Each Party's Obligation to Effect the
Section 8.1 Merger................................................ A-40
Section 8.2 Conditions to Obligation of the Company to Effect the
Merger............................................... A-40
Section 8.3 Conditions to Obligations of Parent and Subsidiary to
Effect the Merger.................................... A-41
ARTICLE IX--TERMINATION, AMENDMENT AND WAIVER........................... A-42
Section 9.1 Termination........................................... A-42
Section 9.2 Effect of Termination................................. A-43
Section 9.3 Amendment............................................. A-44
Section 9.4 Waiver................................................ A-44
ARTICLE X--GENERAL PROVISIONS........................................... A-44
Section 10.01 Non-Survival of Representations and Warranties........ A-44
Section 10.02 Brokers............................................... A-44
Section 10.03 Notices............................................... A-45
Section 10.04 Interpretation........................................ A-46
Section 10.05 Miscellaneous......................................... A-46
Section 10.06 Jurisdiction.......................................... A-46
Section 10.07 Counterparts.......................................... A-47
Section 10.08 Parties in Interest................................... A-47
Section 10.09 Knowledge............................................. A-47
Section 10.10 Limitation of Liability............................... A-47
Section 10.11 Severability.......................................... A-47
EXHIBIT A--DEFINITIONS--REFERENCE TABLE................................. A-48
</TABLE>
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<PAGE>
COMPOSITE AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of February 22, 1996, as amended
by the Letter Agreements, dated May 1, 1996 and May 13, 1996 ("Agreement"), is
by and among The Rouse Company, a Maryland corporation ("Parent"), TRC
Acquisition Company I, a Delaware corporation and a wholly-owned subsidiary of
Parent ("Subsidiary''), and The Hughes Corporation, a Delaware corporation
(the "Company'').
W I T N E S S E T H:
Whereas, The Howard Hughes Corporation ("THHC'') is a Delaware corporation
and a wholly-owned subsidiary of the Company; and
Whereas, Howard Hughes Properties, Limited Partnership ("HHPLP") is a
Delaware limited partnership whose sole general partner is THHC; and
Whereas, Parent desires to acquire the business and properties of the
Company and all the outstanding Class 1 Units of HHPLP (the "Class 1 Units'');
and
Whereas, at the date hereof, (i) 37,362 of the issued and outstanding shares
of common stock, $1.00 par value per share, of the Company ("Company Common
Stock'') are owned by THHC and (ii) all the remaining issued and outstanding
shares of Company Common Stock (such remaining shares being hereinafter
referred to as the "Target Common Stock'') are owned by certain other persons
and entities (collectively, the "Hughes Owners''); and
Whereas, the respective boards of directors of Parent, Subsidiary and the
Company have approved the merger of the Company with and into Subsidiary on
the terms set forth in this Agreement (the "Merger''); and
Whereas, in connection with the Merger, (i) the Hughes Owners will receive
(a) shares of common stock, par value $0.01 per share, of Parent ("Parent
Common Stock") or, alternatively, a combination of cash and shares of Parent
Common Stock and (b) rights to receive additional shares of Parent Common
Stock or, in certain circumstances, Rouse Preferred Stock (as hereinafter
defined), and (ii) THHC will receive shares of Junior Preferred Stock (as
hereinafter defined) of Parent, in each case in exchange for issued and
outstanding shares of Company Common Stock, all upon the terms and conditions
set forth in this Agreement; and
Whereas, Parent, Subsidiary and the Company intend the Merger to qualify as
a reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code''), and the regulations thereunder, and
that the Company and stockholders of the Company recognize no gain or loss for
federal income tax purposes upon conversion of their shares of capital stock
of the Company into the consideration herein provided, except to the extent
cash is received; and
Whereas, concurrently with the execution and delivery hereof, Parent, TRC
Acquisition Company II, a Delaware corporation and a wholly-owned subsidiary
of Parent (the "Other Subsidiary'' and, together with the Subsidiary, the
"Subsidiaries''), and HHPLP are entering into an Agreement and Plan of Merger
(the "Other Merger Agreement'' and, together with this Agreement, the "Merger
Agreements'') providing for the merger of the Other Subsidiary with and into
HHPLP (the "Other Merger'' and, together with the Merger, the "Mergers''); and
Whereas, in connection with the Other Merger, the holders of the Class 1
Units will receive the consideration provided for in the Other Merger
Agreement;
Now, Therefore, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, agree as follows (all capitalized terms used
and defined in this Agreement are listed for convenience of reference in the
table attached hereto as Exhibit A):
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<PAGE>
ARTICLE I
The Merger
Section 1.1. THE MERGER. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2) in
accordance with the Delaware General Corporation Law (the "DGCL"), the Company
shall be merged with and into Subsidiary and the separate existence of the
Company shall thereupon cease. Subsidiary shall be the surviving corporation
in the Merger and is hereinafter sometimes referred to as the "Surviving
Corporation."
Section 1.2. EFFECTIVE TIME OF THE MERGER. The Merger shall become effective
at such time (the "Effective Time'') as shall be stated in a Certificate of
Merger, in a form mutually acceptable to Parent and the Company, to be filed
with the Secretary of State of the State of Delaware in accordance with the
DGCL (the "Merger Filing''). The Merger Filing shall be made simultaneously
with or as soon as practicable after the closing of the transactions
contemplated by this Agreement in accordance with Section 3.6. The parties
acknowledge that it is their mutual desire and intent to consummate the
Mergers as soon as practicable after the date hereof. Accordingly, the parties
shall use all reasonable efforts to consummate, as soon as practicable, the
transactions contemplated by this Agreement in accordance with Section 3.6.
Section 1.3. EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 259 of the DGCL.
ARTICLE II
The Surviving Corporation and Parent
Section 2.1. CERTIFICATE OF INCORPORATION. The certificate of incorporation
of Subsidiary, in form reasonably acceptable to Parent and the Company and
consistent with this Agreement, as in effect immediately prior to the
Effective Time shall be the certificate of incorporation of the Surviving
Corporation after the Effective Time, until thereafter amended in accordance
with its terms and as provided in the DGCL, except that Article I thereof
shall be amended in the Merger to read in its entirety as follows: "The name
of the Corporation is The Hughes Corporation."
Section 2.2. BY-LAWS. The by-laws of Subsidiary, in form reasonably
acceptable to Parent and the Company and consistent with this Agreement, as in
effect immediately prior to the Effective Time shall be the by-laws of the
Surviving Corporation after the Effective Time, and thereafter may be amended
in accordance with their terms and as provided by the Certificate of
Incorporation of the Surviving Corporation and the DGCL.
Section 2.3. DIRECTORS OF PARENT. Effective as of the Effective Time, the
board of directors of Parent shall elect as one of its members a designee of
the Company reasonably acceptable to Parent's board of directors. Such
designee (the "Hughes Designee'') shall serve in accordance with the By-laws
of Parent and in accordance with the provisions of the Contingent Stock
Agreement (as defined in Section 7.15) until his successor is duly elected or
appointed and qualified.
Section 2.4. DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The directors
and officers of Subsidiary in office immediately prior to the Effective Time
shall be the directors and officers of the Surviving Corporation, and such
directors and officers shall serve in accordance with the by-laws of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified.
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ARTICLE III
Conversion of Shares
Section 3.1. CONVERSION OF COMPANY SHARES IN THE MERGER. (a) Subject to
Sections 3.3, 3.4, 3.5 and 3.8 and to the termination rights in Sections
9.1(a)(vii) and 9.1(b)(vii), at the Effective Time, by virtue of the Merger
and without any action on the part of the Company or any holder of any capital
stock of the Company, each share of Target Common Stock that is issued and
outstanding immediately prior to the Effective Time shall be converted into
the right to receive:
(i) that number of shares of Parent Common Stock as shall equal the
quotient (rounded to the nearest thousandth of a share) (the "Exchange
Ratio") determined by dividing (1) the sum of (A) the quotient obtained by
dividing $176.4 million by the total number of shares of Target Common
Stock outstanding at the Effective Time plus (B) the product of (x) the sum
("Aggregate Parent Dividends") of any and all dividends and other
distributions on a share of Parent Common Stock having a record date during
the period commencing on January 1, 1996 and ending on the later of (I) the
Closing Date (as defined in Section 3.6) and (II) the date upon which
certificates evidencing shares of Parent Common Stock to which holders of
shares of Target Common Stock are entitled are registered in the name of
such holder (or the name of the Beneficial Stockholder (as hereinafter
defined) in the event notice is given as provided in Section 3.4(a), or the
name of any transferee) upon the stock transfer books and records of Parent
times (y) the number of shares of Parent Common Stock per share of Target
Common Stock determined by dividing the quotient obtained pursuant to
paragraph (a)(i)(A) above by the Average Closing Price (as hereinafter
defined) by (2) subject to the provisions of Section 9.1(a)(vii) and
Section 9.1(b)(vii) hereof, the average of the closing prices of Parent
Common Stock on The New York Stock Exchange, Inc. ("NYSE") composite tape
for the 30 consecutive trading days ending five days prior to the Closing
Date (the "Average Closing Price"); and
(ii) rights to receive additional shares of Parent Common Stock or, in
certain circumstances, shares of Rouse Preferred Stock (as defined in
Section 7.6(b)) under the Contingent Stock Agreement (as defined in Section
7.15);
provided, however, that if the Exchange Ratio as computed above would result
in the issuance by Parent in the Merger of a number of shares of Parent Common
Stock exceeding 19.9% of the total number of shares of Parent Common Stock
issued and outstanding as of 4:00 p.m. New York City time on the business day
next preceding the Closing Date ("Total Parent Common Stock"), then, in lieu
of the consideration specified in clause (i) above, each such share of Target
Common Stock shall be converted into the right to receive:
(1) that number of shares of Parent Common Stock determined by using an
Exchange Ratio ("Maximum Exchange Ratio") which results in the issuance of
shares of Parent Common Stock in connection with the Merger equal (as
nearly as practicable) to 19.9% of the Total Parent Common Stock ("Maximum
Shares of Parent Common Stock"); and
(2) cash, without interest, in an amount determined by dividing (a) the
sum of (i) $176.4 million less an amount equal to the product of (A) the
Maximum Shares of Parent Common Stock times (B) the Average Closing Price
plus (ii) an amount equal to the product of the Aggregate Parent Dividends
times the Maximum Shares of Parent Common Stock, by (b) the total number of
issued and outstanding shares of Target Common Stock outstanding at the
Effective Time.
(b) The Exchange Ratio and the Maximum Exchange Ratio shall be appropriately
adjusted to reflect fully the effect of any stock split, reverse stock split,
stock dividend, recapitalization, reorganization or similar change with
respect to Parent Common Stock between the date hereof and the Closing Date.
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<PAGE>
(c) At the Effective Time, by virtue of the Merger and without any action on
the part of the Company or any holder of any capital stock of the Company,
each share of Company Common Stock that is owned at the Effective Time by the
Company, THHC or any other subsidiary of the Company or by Parent, Subsidiary
or any other subsidiary of Parent shall be converted into the right to receive
at and as of the Effective Time, in exchange therefor, one share of Junior
Preferred Stock (as defined in Section 7.6(b)).
Section 3.2. SUBSIDIARY SHARES. At the Effective Time, by virtue of the
Merger and without any action on the part of Parent as the sole stockholder of
Subsidiary, each issued and outstanding share of common stock, par value $.01
per share, of Subsidiary ("Subsidiary Common Stock") shall continue to be
outstanding at and after the Effective Time without any change therein and
shall continue as a share of the Surviving Corporation.
Section 3.3. DISSENTERS' RIGHTS. (a) Notwithstanding the provisions of
Section 3.1 or any other provision of this Agreement to the contrary, shares
of Target Common Stock that are issued and outstanding immediately prior to
the Effective Time and are held by stockholders who have not voted such shares
in favor of the approval and adoption of this Agreement and who shall have
properly demanded appraisal of such shares of Target Common Stock in
accordance with Section 262 of the DGCL (the "Dissenting Shares") shall not be
converted into the right to receive the Merger consideration as set forth in
Section 3.1 at or after the Effective Time, unless and until the holder of
such Dissenting Shares shall have failed to perfect or shall have effectively
withdrawn or lost such right to appraisal and payment under the DGCL. If a
holder of Dissenting Shares shall have so failed to perfect or shall have
effectively withdrawn or lost such right to appraisal and payment, then, as of
the Effective Time or the occurrence of such event, whichever last occurs,
such holder's Dissenting Shares shall be converted into and represent solely
the right to receive the Merger consideration, without any interest thereon,
as provided in Section 3.1.
(b) The Company shall comply with any provisions of Section 262(d) of the
DGCL which are required to be performed by the Company prior to the Effective
Time, to the reasonable satisfaction of Parent. The Company shall give Parent
(i) prompt notice of any written demands for appraisal, withdrawals of demands
for appraisal and any other instrument served pursuant to Section 262 of the
DGCL and received by the Company and (ii) the opportunity to participate in
all negotiations and proceedings with respect to demands for appraisal under
Section 262 of the DGCL. Without the prior written consent of Parent, the
Company will not voluntarily make any payment with respect to any demands for
appraisal and will not settle or offer to settle any such demands.
Section 3.4. EXCHANGE OF CERTIFICATES. (a) From and after the Effective
Time, each record holder of an outstanding certificate which immediately prior
to the Effective Time represented shares of Target Common Stock or, at the
request of such holder as hereinafter provided, any person or entity that is
entitled to receive shares of Parent Common Stock upon termination or
dissolution of such holder (individually "Beneficial Stockholder" and
collectively "Beneficial Stockholders") shall be entitled to receive in
exchange therefor, upon surrender thereof to an exchange agent reasonably
satisfactory to Parent and the Company (the "Exchange Agent"), a check payable
to the order of such holder or Beneficial Stockholder, as the case may be, in
the amount of any cash consideration and/or a certificate or certificates
representing the number of whole shares of Parent Common Stock to which such
holder or Beneficial Stockholder, as the case may be, is entitled pursuant to
Section 3.1. Any holder of shares of Target Common Stock that desires to have
the Merger consideration specified in Section 3.1 issued and paid to any of
the Beneficial Stockholders of such holder shall, not later than five days
prior to Closing (as defined in Section 3.6), provide notice to Parent, which
notice shall set forth the number of shares of Target Common Stock owned of
record by such holder, the names and addresses of the persons or entities who
are to receive such shares of Parent Common Stock and written instructions to
register the shares of Parent Common Stock in the name of each such Beneficial
Stockholder, the proportionate interest in shares of Target Common Stock owned
beneficially by each
A-4
<PAGE>
such Beneficial Stockholder and such other information as may be reasonably
requested by Parent. The issuance of shares of Parent Common Stock and payment
of any cash consideration to a Beneficial Stockholder in accordance with
written instructions from the holder of record of shares of Target Common
Stock and as required in Section 3.1 for the proportionate interest of such
Beneficial Stockholder shall fully satisfy and discharge the obligation of
Parent with respect to such interest under this Article III.
(b) Notwithstanding any other provision of this Agreement, (i) until holders
or transferees of certificates theretofore representing shares of Target
Common Stock have surrendered them for exchange as provided herein, no
dividends shall be paid with respect to any shares represented by such
certificates and no payment for fractional shares shall be made and (ii)
without regard to when such certificates representing shares of Target Common
Stock are surrendered for exchange as provided herein, no interest shall be
paid on any dividends or any payment for fractional shares. Upon surrender of
a certificate which immediately prior to the Effective Time represented shares
of Target Common Stock, there shall be paid to the holder of such certificate
the amount of any dividends which theretofore became payable, but which were
not paid by reason of the foregoing, with respect to the number of whole
shares of Parent Common Stock represented by the certificate or certificates
issued upon such surrender.
(c) If any payment for shares of Target Common Stock is to be made or any
certificate for shares of Parent Common Stock is to be issued in a name other
than (i) the name of a Beneficial Stockholder or (ii) the name in which the
certificate surrendered for payment or in exchange therefor is registered, it
shall be a condition of payment or such exchange that the surrendered
certificate be properly endorsed or otherwise in proper form for transfer and
that the person requesting payment or such exchange either (A) pay to the
Exchange Agent any transfer or other taxes required by reason of the payment
or issuance of Parent Common Stock to a person other than the registered
holder of the surrendered certificate or (B) establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not payable.
(d) Subject to Section 3.8, at or prior to the Effective Time, Parent shall
make available to the Exchange Agent the certificates representing shares of
Parent Common Stock and cash required to effect the exchanges and any payments
referred to in Section 3.4(a) above and cash for payment of any fractional
shares referred to in Section 3.5.
(e) Promptly after the Effective Time, the Exchange Agent shall mail to each
holder of record of a certificate or certificates that immediately prior to
the Effective Time represented outstanding shares of Target Common Stock (the
"Company Certificates") (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Company
Certificates shall pass, only upon actual delivery of the Company Certificates
to the Exchange Agent) and (ii) instructions for use in effecting the
surrender of the Company Certificates in exchange for cash and/or certificates
representing shares of Parent Common Stock. Upon surrender of Company
Certificates for cancellation to the Exchange Agent, together with a duly
executed letter of transmittal and such other documents as the Exchange Agent
shall reasonably require, the holder of record of such Company Certificates
or, in case a notice as specified in Section 3.4(a) has been timely received
from such holder of record, each Beneficial Stockholder specified in such
notice, as the case may be, shall be entitled to receive in exchange therefor
a check in payment of the cash portion of the Merger consideration, if any,
and a certificate representing that number of whole shares of Parent Common
Stock into which the shares of Target Common Stock theretofore represented by
the Company Certificates so surrendered shall have been converted pursuant to
the provisions of Section 3.1, and the Company Certificates so surrendered
shall be canceled. Notwithstanding the foregoing, neither the Exchange Agent
nor any party hereto shall be liable to a holder of shares of Target Common
Stock for any portion of the cash consideration or shares of Parent Common
Stock or dividends or
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<PAGE>
distributions thereon delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(f) Promptly following the date which is nine months after the Effective
Time, the Exchange Agent shall deliver to Parent all cash, certificates
(including any Parent Common Stock) and other documents in its possession
relating to the transactions described in this Agreement, and the Exchange
Agent's duties shall terminate. Thereafter, each holder of a Company
Certificate may surrender such Company Certificate to the Surviving
Corporation and (subject to applicable abandoned property, escheat and similar
laws) receive the cash consideration and/or Parent Common Stock payable and
issuable in exchange therefor, without any interest thereon. Notwithstanding
the foregoing, none of the Exchange Agent, Parent, Subsidiary, the Company or
the Surviving Corporation shall be liable to a holder of Target Common Stock
for any portion of the cash consideration or Parent Common Stock delivered to
a public official pursuant to applicable abandoned property, escheat and
similar laws.
(g) In the event any Company Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Company Certificate to be lost, stolen or destroyed, and provided the
Company's records indicate such person is the registered owner of the related
Target Common Stock, the Surviving Corporation shall issue in exchange for
such lost, stolen or destroyed Company Certificate cash consideration and/or
the Parent Common Stock deliverable in respect thereof determined in
accordance with this Article III. When authorizing such payment in exchange
therefor, the Secretary of the Surviving Corporation may, in his discretion
and as a condition precedent to the issuance thereof, require the owner of
such lost, stolen or destroyed Company Certificate to give the Surviving
Corporation such indemnity as he may reasonably direct as protection against
any claim that may be made against the Surviving Corporation with respect to
the Company Certificate alleged to have been lost, stolen or destroyed.
Section 3.5. NO FRACTIONAL SECURITIES. Notwithstanding any other provision
of this Agreement, no certificates or scrip for fractional shares of Parent
Common Stock shall be issued in the Merger and no Parent Common Stock
dividend, stock split or interest shall relate to any fractional security, and
such fractional interests shall not entitle the owner thereof to vote or to
any other rights of a security holder. In lieu of any such fractional shares,
each holder or Beneficial Stockholder of Target Common Stock who would
otherwise have been entitled to receive a fraction of a share of Parent Common
Stock upon surrender of Company Certificates for exchange pursuant to this
Article III shall be entitled to receive from the Exchange Agent a cash
payment, without interest, equal to such fraction multiplied by the Average
Closing Price.
Section 3.6. CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Andrews &
Kurth L.L.P., 600 Travis, 4200 Texas Commerce Tower, Houston, Texas, or such
other location as shall be mutually agreeable to Parent and the Company on the
fifth business day immediately following the date on which the last of the
conditions set forth in Article VIII (other than the condition for
simultaneous consummation of the Mergers) is fulfilled or waived, or at such
other time and place as Parent and the Company shall agree (the date on which
the Closing occurs is referred to in this Agreement as the "Closing Date").
Section 3.7. CLOSING OF THE COMPANY'S TRANSFER BOOKS. At and after the
Effective Time, holders of Company Certificates shall cease to have any rights
as stockholders of the Company, except for the right to receive securities of
Parent and/or cash as contemplated by Section 3.1, the right to receive cash
for payment of fractional shares pursuant to Section 3.5 and any rights which
may exist with respect to Dissenting Shares pursuant to Section 3.3. At the
Effective Time, the stock transfer books of the Company shall be closed and no
transfer of shares of Target Common Stock which were outstanding immediately
prior to the Effective Time shall thereafter be made. If, after the Effective
Time, subject to the terms and conditions of this Agreement, Company
Certificates formerly
A-6
<PAGE>
representing Target Common Stock are presented to the Surviving Corporation,
they shall be canceled and exchanged for securities of Parent and/or cash in
accordance with this Article III.
Section 3.8. DISTRIBUTION TO JOHN L. GOOLSBY. Concurrently with the delivery
of certificates representing shares of Parent Common Stock and cash, if any,
pursuant to paragraphs (d) and (e) of Section 3.4 (before reduction by the
Goolsby Shares and the Goolsby Payment, as hereinafter defined), Parent shall
(a) issue and deliver to John L. Goolsby ("Goolsby") certificates representing
8/10ths of 1% of the aggregate number of shares of Parent Common Stock
issuable pursuant to Section 3.1 (the "Goolsby Shares") (together with payment
in cash for any fractional share) and (b) pay or cause to be paid to Goolsby
8/10ths of 1% of the aggregate cash consideration, if any, payable to holders
of Target Common Stock (exclusive of any cash payments for fractional shares)
("Goolsby Payment"), it being understood and agreed that the issuance and
delivery of the Goolsby Shares and Goolsby Payment, if any, as aforesaid is
being made on behalf of and as an accommodation to the Company, Subsidiary (as
successor by merger to the Company) and HHPLP and in partial performance of
their obligations to Goolsby under that certain Amended and Restated Long-Term
Incentive Compensation Agreement, dated January 1, 1994, between Goolsby and
the Company and HHPLP, as heretofore amended. It is also understood and agreed
that (a) the total number of shares of Parent Common Stock issuable by Parent
and amount of the cash payment, if any, pursuant to Section 3.1 and paragraphs
(a) and (d) of Section 3.4 shall be reduced by the Goolsby Shares and the
Goolsby Payment, if any, and (b) the issuance of the Goolsby Shares and making
of the Goolsby Payment will result in the receipt of compensation by Goolsby
for tax purposes when such shares or payment are received by Goolsby. The
Company, Subsidiary and HHPLP agree that they shall report to the appropriate
authorities (federal, state or other) the delivery of the Goolsby Shares and
making of the Goolsby Payment as described in the immediately preceding
sentence and that none shall report in any fashion inconsistent therewith.
Further, consistent with such result, HHPLP, on behalf of the Company or
Parent, as the case may be, shall withhold from that portion of the payments
payable to Goolsby pursuant to Section 3.6 of the Other Merger Agreement the
amount of all taxes (federal, state and other) required to be withheld with
respect to the Goolsby Shares and the Goolsby Payment. Parent, the Company,
Subsidiary (as successor by merger to the Company) and HHPLP hereby agree that
the value of the Goolsby Shares to be delivered hereunder shall be valued
based on the Average Closing Price determined in good faith by Goolsby, the
Company, Parent and Subsidiary taking into account all relevant factors (such
as discounts for blockage and other appropriate discounts) affecting the
market value of the Goolsby Shares at the time of such delivery to Goolsby.
ARTICLE IV
Representations and Warranties of Parent and Subsidiary
Except as otherwise set forth in the Disclosure Schedule of Parent attached
hereto and incorporated herein by reference for all purposes ("Parent
Disclosure Schedule"), Parent and Subsidiary each represent and warrant to the
Company as follows:
Section 4.1. ORGANIZATION AND QUALIFICATION. (a) Each of Parent and
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and has the
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. Each of
Parent and Subsidiary is qualified to do business and is in good standing in
each jurisdiction in which the properties owned, leased or operated by it or
the nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing will not,
when taken together with all other such failures, have a Material Adverse
Effect (as defined in paragraph (b) below). True, accurate and complete copies
of each of Parent's and Subsidiary's charters and by-laws,
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in each case as in effect on the date of this Agreement, including all
amendments thereto, have heretofore been delivered to the Company.
(b) For purposes of this Agreement, "Material Adverse Effect" means (i) when
used with reference to Parent, a material adverse effect upon (A) the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of Parent and its subsidiaries taken as a
whole or (B) the ability of Parent or Subsidiary to comply with or satisfy in
any material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement or the Other Merger Agreement and (ii)
when used with reference to the Company, a material adverse effect upon (A)
the business, operations, properties, assets, condition (financial or other),
results of operations or prospects of the Company and its subsidiaries taken
as a whole or (B) the ability of the Company or HHPLP to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement or the Other Merger
Agreement, excepting from the foregoing clauses (i) and (ii) effects caused by
matters of general applicability, such as economic, regulatory, tax or other
matters of general applicability or matters generally affecting real estate
markets. In this Agreement, an act, omission, event, circumstance or condition
which is "material" shall include, without limitation, any act, omission,
event, circumstance or condition which, alone or together with all other acts,
omissions, events, circumstances and conditions, could reasonably be expected
to result in liabilities, obligations, damages, losses, costs or expenses of
the Parent and/or its subsidiaries in excess of $20 million, or of the Company
and/or its subsidiaries, in excess of $10 million. In determining whether any
act, omission, event, circumstance or condition, alone or together with all
other acts, omissions, events, circumstances or conditions, has a Material
Adverse Effect on, or is material to, Parent or the Company, any effect on
properties, assets or financial condition shall be determined on a current
value basis and not on a cost basis, and any effect on results of operations
shall be determined on the basis of the effect on earnings before interest,
taxes, depreciation and amortization and not on net earnings after deducting
interest, taxes, depreciation and amortization. Also, any determination as to
whether any act, omission, event, circumstance or condition has a Material
Adverse Effect on or is material to any person or entity shall be made only
after taking into account all effective insurance coverage and effective
indemnification with respect to such act, omission, event, circumstance or
condition to the extent such insurance coverage or indemnification is not
disputed.
Section 4.2. CAPITALIZATION. (a) The authorized capital stock of Parent
consists of (i) 250,000,000 shares of Parent Common Stock, of which 47,922,749
shares are outstanding on the date of this Agreement, and (ii) 50,000,000
shares of preferred stock, of which 4,505,009 shares of Series A Convertible
Preferred Stock ("Existing Preferred Stock") are authorized, issued and
outstanding on the date hereof. All of the issued and outstanding shares of
Parent Common Stock and Existing Preferred Stock are validly issued and are
fully paid, nonassessable and free of preemptive rights. The Parent Disclosure
Schedule sets forth a true, accurate and complete copy of the powers,
designations, rights and preferences of the Existing Preferred Stock.
(b) The authorized capital stock of Subsidiary consists of 5,000 shares of
Subsidiary Common Stock, of which 1,000 shares are issued and outstanding,
which shares are owned beneficially and of record by Parent.
(c) Except for the transactions contemplated by this Agreement and the
Contingent Stock Agreement described in Section 7.15, there are (i) no
outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement and also including any rights plan or other anti-takeover
agreement, obligating Parent or any subsidiary (as defined in Section 4.3(b))
of Parent to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock (as defined in paragraph (d) below) of
Parent or obligating Parent or any subsidiary of Parent to grant, extend or
enter into any such agreement or commitment and (ii)
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no voting trusts, proxies or other agreements or understandings to which
Parent or any subsidiary of Parent is a party or is bound or, to the knowledge
of Parent, to which any other person or entity is a party or is bound, with
respect to the voting of any shares of capital stock of Parent. The shares of
Parent Common Stock to be issued to the Hughes Owners in the Merger will be,
at the Effective Time, duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights. The shares of Parent Common Stock
and Rouse Preferred Stock to be issued or delivered pursuant to the Contingent
Stock Agreement will be, at the time of such issuance or delivery, duly
authorized, validly issued, fully paid and nonassessable and free of
preemptive rights.
(d) For purposes of this Agreement, "capital stock" means, when used with
reference to any corporation, partnership or other entity, any and all shares,
interests, participations or other equivalents in the equity interest (however
designated) in such corporation, partnership or other entity.
Section 4.3. SUBSIDIARIES. (a) Each direct and indirect corporate subsidiary
(as defined in paragraph (b) below) of Parent is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted, except for such failures as would not, when taken together
with all other such failures, have a Material Adverse Effect. Each subsidiary
of Parent is qualified to do business, and is in good standing, in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing would not,
when taken together with all such other failures, have a Material Adverse
Effect. All of the outstanding shares of capital stock of each corporate
subsidiary of Parent are validly issued, fully paid, nonassessable and free of
preemptive rights, and are owned directly or indirectly by Parent, free and
clear of any liens, claims, encumbrances, mortgages, security interests,
equities or charges of any nature whatsoever (collectively "Liens"). There are
no subscriptions, options, warrants, rights, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions or arrangements
relating to the issuance, sale, voting, transfer, ownership or other rights
with respect to any shares of capital stock of any corporate subsidiary of
Parent, including any right of conversion or exchange under any outstanding
security, instrument or agreement.
(b) For purposes of this Agreement, the term "subsidiary" shall mean, when
used with reference to any person or entity, any corporation, partnership,
joint venture or other entity of which such person or entity (either acting
alone or together with its other subsidiaries) owns, directly or indirectly,
50% or more of the stock or other voting interests, the holders of which are
entitled to vote for the election of a majority of the board of directors or
any similar governing body of such corporation, partnership, joint venture or
other entity and, in the case of the Company, shall include the Playa Vista
Partnerships (as such term is defined in the Contingent Stock Agreement).
Section 4.4. AUTHORITY; NON-CONTRAVENTION; APPROVALS. (a) Parent and each of
the Subsidiaries have full corporate power and authority to enter into the
Merger Agreements to which they are a party and, subject to the Parent
Required Statutory Approvals (as defined in Section 4.4(c)), to consummate the
transactions contemplated hereby and thereby. The Merger Agreements have been
approved by the respective boards of directors of Parent and each of the
Subsidiaries and by Parent as the sole stockholder of each of the Subsidiaries
and no other corporate proceedings on the part of Parent or either of the
Subsidiaries are necessary to authorize the execution and delivery of the
Merger Agreements and the consummation by Parent and each of the Subsidiaries
of the transactions contemplated thereby. The Merger Agreements have been duly
executed and delivered by Parent and each of the Subsidiaries which are a
party thereto and, assuming the due authorization, execution and delivery
thereof by the Company, constitute a valid and legally binding agreement of
Parent and each of the Subsidiaries which are a party thereto enforceable
against each of them in accordance with their respective terms, except as such
enforcement may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) general equitable principles.
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(b) The execution and delivery of the Merger Agreements by Parent and each
of the Subsidiaries do not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or give rise to any obligation to
make payments or provide compensation under, or result in the creation of any
Lien upon any of the properties or assets of Parent or any of its
subsidiaries, under any of the terms, conditions or provisions of (i) the
respective charters, by-laws, partnership agreements or other similar
organizational instruments of Parent or any of its subsidiaries, (ii) any
statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to Parent or any of its subsidiaries or any of their respective
properties or assets or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease, partnership
agreement, joint venture agreement or other instrument, obligation or
agreement of any kind to which Parent or any of its subsidiaries is now a
party or by which Parent or any of its subsidiaries or any of their respective
properties or assets may be bound or affected. The consummation by Parent and
the Subsidiaries of the transactions contemplated by the Merger Agreements
will not result in any violation, conflict, breach, termination, acceleration
or creation of any Liens under any of the terms, conditions or provisions
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions described in clause (ii)
above, to obtaining (prior to the Effective Time) the Parent Required
Statutory Approvals. The Parent Disclosure Schedule specifically describes all
material consents required from commercial lenders, lessors or other third
parties and all material violations, conflicts, breaches, defaults,
terminations, accelerations, payments, compensations or creations of Liens
referred to in the foregoing sentences of this paragraph (b). Excluded from
the foregoing sentences of this paragraph (b), insofar as they apply to the
terms, conditions or provisions described in clauses (ii) and (iii) of the
first sentence of this paragraph (b), and from the preceding sentence, are
such violations, conflicts, breaches, defaults, terminations, accelerations,
payments, compensations or creations of Liens, that, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(c) Except for (i) the filings by Parent, the Company and HHPLP required by
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing of the Registration Statement (as defined in Section
4.9) with the Securities and Exchange Commission (the "SEC") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), and the declaration
of the effectiveness thereof by the SEC, and filings with various state blue
sky authorities, (iii) the making of the Merger Filings (as defined herein and
in the Other Merger Agreement) with the Secretary of State of the State of
Delaware and (iv) any required filings with or approvals from applicable state
environmental authorities, public service commissions and public utility
commissions (the filings and approvals referred to in clauses (i) through (iv)
are collectively referred to as the "Parent Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of the Merger Agreements by Parent or
each of the Subsidiaries (as applicable) or the consummation by Parent or the
Subsidiaries of the transactions contemplated thereby. The Parent Disclosure
Schedule specifically describes all material required filings with or
approvals from applicable state environmental authorities, public service
commissions and public utility commissions that are referred to in clause (iv)
of this Section 4.4(c). Excluded from the foregoing provisions of this
paragraph (c) are such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or obtained, as the
case may be, would not, individually or in the aggregate, have a Material
Adverse Effect.
Section 4.5. REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1993, Parent
has filed with the SEC all forms, statements, reports and documents (including
all exhibits, amendments and supplements thereto) required to be filed by it
under each of the Securities Act, the Securities Exchange Act of 1934, as
amended ("Exchange Act"), and the respective rules and regulations
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thereunder, all of which, as amended if applicable, complied as of their
respective filing dates in all material respects with all applicable
requirements of the appropriate act and the rules and regulations thereunder.
Parent has previously delivered to the Company copies of its (a) Annual
Reports on Form 10-K for the fiscal year ended December 31, 1994 and for each
of the two immediately preceding fiscal years, as filed with the SEC, (b)
proxy and information statements relating to (i) all meetings of its
stockholders (whether annual or special) and (ii) actions by written consent
in lieu of a stockholders' meeting from January 1, 1993 until the date hereof
and (c) all other reports, including quarterly reports, or registration
statements filed by Parent with the SEC since January 1, 1993 (other than
registration statements filed on Form S-8) (collectively, the "Parent SEC
Reports"). As of their respective dates, the Parent SEC Reports did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and unaudited
interim consolidated financial statements of Parent included in the Parent SEC
Reports (collectively, the "Parent Financial Statements") have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the financial position of Parent and its subsidiaries as of
the dates thereof and the results of their operations and changes in cash flow
for the periods then ended, subject, in the case of the unaudited interim
financial statements, to normal year-end and audit adjustments and any other
adjustments described therein.
Section 4.6. ABSENCE OF UNDISCLOSED LIABILITIES. Neither Parent nor any of
its subsidiaries had at December 31, 1994, or has incurred since that date,
any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature, except liabilities, obligations or contingencies
which (a) are accrued or reserved against in the Parent Financial Statements
or reflected in the notes thereto, (b) were incurred after December 31, 1994
in the ordinary course of business and consistent with past practices, (c)
could not, singly or in the aggregate, reasonably be expected to have a
Material Adverse Effect or (d) have been discharged or paid in full prior to
the date hereof.
Section 4.7. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30, 1995,
Parent has not suffered or experienced any Material Adverse Effect. Except as
set forth in or contemplated by the Merger Agreements or the Parent Disclosure
Schedule, since the date of the most recent balance sheet contained in the
Parent Financial Statements, Parent and its subsidiaries have not engaged in
any material transaction of a kind that would be prohibited after the date
hereof pursuant to Section 6.2.
Section 4.8. LITIGATION. There are no claims, suits, actions or proceedings
pending or, to the knowledge of Parent, threatened against, relating to or
affecting Parent or any of its subsidiaries before any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
that seek to restrain or enjoin the consummation of either of the Mergers or
seek other relief or remedy and which could reasonably be expected, either
alone or in the aggregate with all such claims, actions or proceedings, to
have a Material Adverse Effect. Neither Parent nor any of its subsidiaries is
subject to any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator, which prohibits or restricts the consummation of the
transactions contemplated by either of the Merger Agreements or which could
reasonably be expected, either alone or in the aggregate with all such
judgments, decrees, injunctions, rules or orders, to have a Material Adverse
Effect.
Section 4.9. REGISTRATION STATEMENT AND PROXY STATEMENT. (a) None of the
information to be supplied by Parent or its subsidiaries for inclusion in the
Registration Statement on Form S-4 to be filed under the Securities Act with
the SEC by Parent in connection with the Merger for the purpose of registering
the securities of Parent to be issued pursuant to this Agreement and the
Contingent Stock Agreement (the "Registration Statement") will, at the time
the Registration Statement or any
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amendment or supplement thereto becomes effective or at the time of the Hughes
Owners' Meeting (as defined in Section 7.3), contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Registration
Statement will, as of its effective date, comply as to form in all material
respects with all applicable laws, including the provisions of the Securities
Act and the Exchange Act and the rules and regulations promulgated thereunder.
(b) None of the information to be supplied by Parent or its subsidiaries for
inclusion in the Proxy Statement (as defined in Section 5.9), or any
amendments thereof or supplements thereto, will, at the time the Proxy
Statement, or amendment or supplement thereto, is mailed to the Hughes Owners
and at the time of the Hughes Owners' Meeting, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(c) No representation is made by Parent or Subsidiary with respect to
information supplied by the Company, its subsidiaries or the Hughes Owners for
inclusion in the Registration Statement or the Proxy Statement.
Section 4.10. NO VIOLATION OF LAW. Neither Parent nor any of its
subsidiaries is in violation of, or has been given notice or been charged with
any violation of, any law, statute, order, rule, regulation, ordinance, or
judgment (including, without limitation, any applicable Environmental Law, as
defined in Section 4.15(b)) of any governmental or regulatory body or
authority, except for violations which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect. To the
knowledge of Parent, no investigation or review by any governmental or
regulatory body or authority against or involving Parent or any of its
subsidiaries is pending or threatened, nor has any governmental or regulatory
body or authority indicated an intention to conduct the same, other than, in
each case, those the outcome of which, as far as reasonably can be foreseen,
will not have a Material Adverse Effect. Parent and its subsidiaries have all
permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct their
businesses as presently conducted (collectively, the "Parent Permits"), except
for permits, licenses, franchises, variances, exemptions, orders,
authorizations, consents and approvals (a) for future development of
properties not yet obtained or (b) the absence of which, alone or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
Parent and its subsidiaries are not in violation of the terms of any Parent
Permit, except for delays in filing reports or violations which, alone or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
Section 4.11. COMPLIANCE WITH AGREEMENTS. Parent and each of its
subsidiaries are not in breach or violation of or in default in the
performance or observance of any term or provision of, and no event has
occurred which, with lapse of time or action by a third party, could result in
a default under (a) the respective charters, by-laws, partnership agreements
or other similar organizational instruments of Parent or any of its
subsidiaries or (b) any contract, commitment, agreement, indenture, mortgage,
loan agreement, note, lease, bond, license, approval or other instrument to
which Parent or any of its subsidiaries is a party or by which any of them is
bound or to which any of their property is subject, except, in the case of
clause (b) above, for breaches, violations and defaults which could not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
Section 4.12. TAXES. (a) Parent and its subsidiaries have (i) duly filed
with the appropriate governmental authorities all Tax Returns (as defined in
Section 4.12(c)) required to be filed by them for all periods ending on or
prior to the Effective Time and for which a tax return is required to be filed
prior to the Effective Time (including pursuant to extensions properly
obtained), and such filed Tax Returns are correct and complete in all material
respects, (ii) duly paid in full or made adequate
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provision for the payment of all Taxes (as defined in Section 4.12(b)) for all
periods ending at or prior to December 31, 1995 and (iii) duly withheld and
paid all Taxes required by applicable law to have been withheld and paid as of
the Effective Time in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party. The
liabilities and reserves for Taxes reflected in the most recent balance sheet
included in the Parent SEC Reports are adequate to cover all Taxes for all
periods ending at or prior to the date of such balance sheet and there are no
material Liens for Taxes upon any property or assets of Parent or any
subsidiary thereof, except for Liens for Taxes not yet due. There are no
unresolved issues of law or fact which, to the knowledge of Parent, exist or
which arise out of a notice of deficiency, proposed deficiency or assessment
from the Internal Revenue Service (the "IRS") or any other governmental taxing
authority with respect to Taxes of the Parent or any of its subsidiaries.
Neither Parent nor any of its subsidiaries is a party to any agreement
providing for the allocation or sharing of Taxes with any entity that is not,
directly or indirectly, a wholly-owned corporate subsidiary of Parent other
than agreements the consequences of which are fully and adequately reserved
for in the Parent Financial Statements. None of Parent or its subsidiaries has
been a member of an affiliated group filing a consolidated federal income Tax
Return (other than the consolidated federal income Tax Return of the
affiliated group of corporations of which Parent is the common parent).
Excluded from this Section 4.12(a) are any Taxes, Tax Returns or other matters
pertaining to Taxes of the Parent or any of its subsidiaries which, alone or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(b) For purposes of this Agreement, the term "Taxes" shall mean all taxes,
including, without limitation, income, estimated income, gross receipts,
excise, property, sales, withholding, social security, occupation, use,
service, service use, license, payroll, franchise, transfer and recording
taxes, fees and charges, windfall profits, severance, customs, import, export,
employment or similar taxes, charges, fees, levies or other assessments
imposed by the United States, or any state, local or foreign government or
subdivision or agency thereof, whether computed on a separate, consolidated,
unitary, combined or any other basis, and such term shall include any
interest, fines, penalties or additional amounts and any interest in respect
of any additions, fines or penalties attributable or imposed on or with
respect to any such taxes, charges, fees, levies or other assessments.
(c) For purposes of this Agreement, the term "Tax Return" shall mean any
return, report or other document or information required to be supplied to a
taxing authority in connection with Taxes.
Section 4.13. EMPLOYEE BENEFIT PLANS; ERISA. (a) The Parent Disclosure
Schedule lists all material employee benefit plans, programs, arrangements or
practices, including employee benefit plans within the meaning set forth in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), which any of Parent or its subsidiaries maintains or to
which any of them makes or is obligated to make contributions, and each
employee benefit plan subject to Title IV of ERISA maintained or contributed
to by any person or entity while such person or entity would be treated as a
single employer with Parent or any of its subsidiaries within the meaning of
Section 414(b) or (c) of the Code (the "Parent Plans"). Neither Parent nor its
subsidiaries has any obligation to create any additional such plan, to amend
any such plan so as to increase benefits thereunder, or to continue any such
plan, except as required under the written terms of the Parent Plans, under
existing collective bargaining agreements, if any, or to comply with
applicable law.
(b) There have been no prohibited transactions within the meaning of Section
406 or 407 of ERISA or Section 4975 of the Code with respect to any of the
Parent Plans that could result in penalties, taxes or liabilities which,
singly or in the aggregate, could reasonably be expected to have a Material
Adverse Effect. Except for premiums, no liability has been or is expected to
be incurred under Title IV of ERISA with respect to any of the Parent Plans.
Neither the Pension Benefit Guaranty Corporation nor any plan administrator
has instituted proceedings to terminate any of the Parent Plans subject to
Title IV of ERISA other than in a "standard termination" described in Section
4041(b) of ERISA. None of the Parent Plans has incurred any "accumulated
funding deficiency" (as defined in Section 302 of ERISA
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and Section 412 of the Code), whether or not waived, as of the last day of the
most recent fiscal year of each of the Parent Plans ended prior to the date of
this Agreement. The current present value of all projected benefit obligations
under each of the Parent Plans which is subject to Title IV of ERISA did not,
as of its latest valuation date, exceed the then current value of the assets
of such plan allocable to such benefit liabilities by more than the amount, if
any, disclosed in the Parent Disclosure Statement, based upon reasonable
actuarial assumptions currently utilized for such Parent Plan. Each of the
Parent Plans has been operated and administered in all material respects in
accordance with applicable laws and agreements during the period of time
covered by the applicable statute of limitations. Each of the Parent Plans
which is intended to be "qualified" within the meaning of Section 401(a) of
the Code is so qualified. With respect to any Multi-employer Plans as defined
in Section 4001(a)(3) of ERISA, neither Parent nor any of its subsidiaries has
made or suffered a "complete withdrawal" or a "partial withdrawal," as such
terms are respectively defined in Sections 4203, 4204 and 4205 of ERISA and,
to the knowledge of Parent and its subsidiaries, no event has occurred or is
expected to occur which presents a material risk of a complete or partial
withdrawal under such Sections. To the knowledge of Parent and its
subsidiaries, there are no material pending, threatened or anticipated claims
involving any of the Parent Plans other than claims for benefits in the
ordinary course. No event has occurred or circumstance exists that could
reasonably be expected to result in a material increase in benefit costs under
any Parent Plan that is self-insured or unfunded. Parent and its subsidiaries
have no liability under Title IV of ERISA based on any plan that is not a
Parent Plan and there is no basis for any such liability to be asserted
against Parent or any of its subsidiaries. Neither Parent nor its subsidiaries
has prepared or prefunded any existing Parent Plan that is a welfare plan
through a trust, reserve, premium stabilization or similar account.
(c) The Parent Disclosure Schedule contains a true and complete list of all
material employment contracts and other employee benefit arrangements with
"change of control" or similar provisions and all severance agreements with
executive officers.
Section 4.14. LABOR CONTROVERSIES. There are no controversies pending or, to
the knowledge of Parent, threatened between Parent or its subsidiaries and any
representatives of any of their employees. To the knowledge of Parent, there
are no organizational efforts presently being made involving any of the
presently unorganized employees of Parent and its subsidiaries. Parent and its
subsidiaries have complied with all laws relating to the employment of labor,
including, without limitation, any provisions thereof relating to wages,
hours, collective bargaining, and the payment of social security and similar
taxes and no person has, to the knowledge of Parent, asserted that Parent or
any of its subsidiaries is liable for any arrears of wages or any taxes or
penalties for failure to comply with any of such laws. Excluded from the
foregoing sentences of this Section 4.14 are controversies, organizational
efforts, non-compliance and liabilities which, singly or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
Section 4.15. ENVIRONMENTAL MATTERS. (a) Parent and its subsidiaries have
conducted their respective businesses in compliance with all applicable
Environmental Laws (as defined in paragraph (b) below), including, without
limitation, having all permits, licenses and other approvals and
authorizations necessary for the operation of their respective businesses as
presently conducted. None of the properties currently or, to the knowledge of
Parent, formerly owned or operated by Parent or any of its subsidiaries
contain any Hazardous Substance (as defined in paragraph (c) below) in amounts
exceeding the levels permitted by applicable Environmental Laws. Neither
Parent nor any of its subsidiaries has received any notices, demand letters or
requests for information from any Federal, state, local or foreign
governmental entity or third party, which has not heretofore been resolved
with such governmental entity or third party, indicating that Parent or any of
its subsidiaries may be in violation of, or liable under, any Environmental
Law. There are no civil, criminal or administrative actions, suits, demands,
claims, hearings, investigations or proceedings pending or, to the knowledge
of Parent, threatened against Parent or any of its subsidiaries relating to
any violation, or alleged
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violation, of any Environmental Law. No reports have been filed, or are
required to be filed, by Parent or any of its subsidiaries concerning the
release of any Hazardous Substance or the threatened or actual violation of
any Environmental Law. No Hazardous Substance has been disposed of, released
or transported in violation of any applicable Environmental Law from any
properties owned by Parent or any of its subsidiaries. There have been no
environmental investigations, studies, audits, tests, reviews or other
analyses regarding compliance or noncompliance with any applicable
Environmental Law conducted by or which are in the possession of Parent or its
subsidiaries relating to the activities of Parent or its subsidiaries which
have not been made available for review by representatives of the Company
prior to the date hereof. Neither Parent, its subsidiaries nor any of their
respective properties are subject to any material liabilities or expenditures
(fixed or contingent) relating to any suit, settlement, court order,
administrative order, regulatory requirement, judgment or claim asserted or
arising under any Environmental Law. Excluded from this Section 4.15(a) are
any violations or conditions that, singly or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(b) As used herein, "Environmental Law" means any Federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, legal doctrine, order, judgment, decree,
injunction, requirement or agreement with any governmental entity relating to
(i) the protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, groundwater, drinking
water supply, surface land, subsurface land, plant and animal life or any
other natural resource) or (ii) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of, Hazardous Substances, in each
case as amended and as in effect on the date hereof. The term "Environmental
Law" includes, without limitation, (i) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. (S) 9601 et seq.,
as amended by the Superfund Amendment and Reauthorization Act of 1986 and as
further amended, the Federal Water Pollution Control Act, 33 U.S.C. (S) 1251
et seq., as amended, the Solid Waste Disposal Act of 1976, 42 U.S.C. (S) 6901
et seq., as amended, the Clean Air Act, 42 U.S.C. (S) 7401 et seq., as
amended, the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq., as
amended, the Hazardous Material Transportation Act, 49 Ap. U.S.C.A. (S) 1801
et seq., as amended, the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. (S) 136 et seq., as amended, and comparable state and local laws, and
(ii) any common law or equitable doctrine (including, without limitation,
injunctive relief and tort doctrines such as negligence, nuisance, trespass
and strict liability) that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of, effects of or
exposure to any Hazardous Substance.
(c) As used herein, "Hazardous Substance" means any substance presently or
hereafter listed, defined, designated or classified as hazardous, toxic,
radioactive, or dangerous, or otherwise regulated, under any Environmental
Law. Hazardous Substance includes any substance to which exposure is regulated
by any government authority or any Environmental Law including, without
limitation, any toxic waste, pollutant, contaminant, hazardous substance,
toxic substance, hazardous waste, special waste, industrial substance or
petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos, or asbestos containing material, urea formaldehyde foam
insulation, lead or polychlorinated biphenyls.
Section 4.16. NON-COMPETITION AGREEMENTS. Except with respect to single
purpose entities which are restricted as such under terms of their partnership
agreements or financings applicable to them, neither Parent nor any subsidiary
of Parent is a party to any agreement which purports to restrict or prohibit
in any material respect any of them from, directly or indirectly, engaging in
any business involving the acquisition, ownership, development and operation
of real estate projects or any other material business currently engaged in by
Parent or the Company, or any corporations or other entities affiliated with
either of them. None of the officers, directors or key employees of Parent or
any of its
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subsidiaries is a party to any agreement which, by virtue of such person's
relationship with Parent or any subsidiary of Parent, restricts in any
material respect Parent or any subsidiary of Parent from, directly or
indirectly, engaging in any of the businesses described above.
Section 4.17. TITLE TO ASSETS. Parent and each of its subsidiaries has good
and marketable title in fee simple to all its real property and good title to
all its leasehold interests and other properties as reflected in the most
recent balance sheet included in the Parent Financial Statements, other than
such properties and assets that have been disposed of in the ordinary course
of business since the date of such balance sheet (all such properties and
leasehold interests being referred to herein as the "Parent Properties"), free
and clear of all Liens, except (a) the Lien for current taxes, payments of
which are not yet delinquent, (b) such imperfections in title, easements and
Liens, if any, as are not substantial in character, amount or extent and do
not materially detract from the value or interfere with the present use of the
property subject thereto or affected thereby or otherwise materially impair
Parent's business operations (in the manner presently carried on by Parent),
(c) Liens existing on the date hereof securing indebtedness for borrowed money
reflected in such balance sheet and (d) other matters which, singly or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
All leases under which Parent leases any real or personal property are in good
standing, valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing default or event which
with notice or lapse of time or both would become a default other than
defaults under such leases which, singly or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
Section 4.18. REORGANIZATION. None of Parent, Subsidiary or any of their
affiliates has taken or agreed or intends to take any action or has any
knowledge of any fact or circumstance that would prevent the Merger from
constituting a reorganization qualifying under the provisions of Section
368(a) of the Code. It is the present intention of Parent and Subsidiary to
continue at least one significant historic business line of the Company, or to
use at least a significant portion of the Company's historic business assets
in a business, in each case within the meaning of Treasury Regulation
(S) 1.368-1(d).
Section 4.19. NO PARENT STOCKHOLDERS' APPROVAL REQUIRED. There is no
requirement of any applicable law, statute, order, rule, regulation, ordinance
or judgment of any governmental or regulatory body or authority (including,
without limitation, the NYSE) which requires the approval or adoption by the
stockholders of Parent of either of the Merger Agreements, or any of the
transactions contemplated hereby or thereby.
Section 4.20. RELATIONSHIPS WITH AFFILIATES. (a) There are no material
contracts, agreements or arrangements currently in effect between Parent or
any of its subsidiaries, on the one hand, and any Related Person (as defined
in paragraph (b) below), on the other hand, other than any contracts,
agreements or arrangements entered into the ordinary course of business. As
used in this paragraph (a), a contract, agreement or arrangement shall be
deemed "material" if it (i) calls for payments to or from the Parent or any of
its subsidiaries, on the one hand, from or to any third party, on the other
hand, of an amount in excess of $100,000 for any 12-month period commencing on
or after the date hereof and (ii) is not terminable solely at the option of
Parent or any of its subsidiaries, as the case may be, without penalty on not
more than 90 days' notice.
(b) For purposes of this Agreement, the term "Related Person" means, when
used with reference to any entity, (i) any employee, officer, director,
partner or shareholder (or any one acting in a similar capacity) of such
entity, (ii) any grandparent, parent, aunt, uncle, niece, nephew, sister,
brother, son, daughter, grandchild, son-in-law or daughter-in-law of any
person described in clause (i), and (iii) any person or entity that directly,
or indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, any person described in clause (i) or
(ii).
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Section 4.21. LICENSES, PERMITS, CERTIFICATES OF OCCUPANCY, ZONING, ETC.
RELATING TO PROPERTIES. Except for matters affecting the Parent Properties
which, alone or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect:
(a) all certificates, permits and licenses from any governmental
authority having jurisdiction over any of the Parent Properties, or any
agreement, easement or other right which is necessary to permit the lawful
use and operation of the buildings and improvements on any of the Parent
Properties or which is necessary to permit the lawful use and operation of
all driveways, roads and other means of egress and ingress to and from any
of the Parent Properties have been obtained and are in full force and
effect, and there is no pending or, to the knowledge of Parent, threatened
modification or cancellation of any of same;
(b) neither Parent nor any of its subsidiaries has received any notice
from any governmental body or authority to the effect that (i) any
condemnation or rezoning proceedings are pending or threatened with respect
to any of the Parent Properties or (ii) any zoning, building or similar
law, code, ordinance, order or regulation is or will be violated by the
continued maintenance, operation or use of any buildings or other
improvements on any of the Parent Properties;
(c) neither Parent nor any of its subsidiaries is in default under any
agreement entered into with a governmental body or authority in connection
with a site approval, zoning reclassification or other similar action
relating to the Parent Properties (e.g., Local Improvement District, Road
Improvement District, Environmental Mitigation);
(d) neither Parent nor any of its subsidiaries has received notice of,
and Parent has no knowledge of, any proposed change in the assessed value
of any of the Parent Properties other than customary increases in the
state, county and/or city where the Parent Properties are located;
(e) except for agreements or commitments entered into in the ordinary
course of business, none of the Parent Properties is subject to any so-
called "recapture agreement" involving refund for sewer extension, over
sizing utility, lighting or like expense or charge for work or services
done upon or relating to any of the Parent Properties;
(f) there is no existing or, to the knowledge of Parent, proposed or
threatened eminent domain or similar proceeding, or private purchase in
lieu of such a proceeding, affecting any Parent Properties; and
(g) each of the Parent Properties is an independent unit which does not
rely on any facilities (other than facilities covered by Liens described in
Section 4.17 above, or facilities of municipalities or public utility and
water companies) located on any property not included in any of the Parent
Properties to fulfill any municipal or governmental requirement or for the
furnishing to any of the Parent Properties of any essential building
systems or utilities.
Section 4.22. PHYSICAL CONDITION. Parent has no knowledge of any structural
defects or deficiencies in the improvements comprising any portion of the
Parent Properties which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect. The improvements and tangible
personal property (including, without limitation, plumbing equipment, seismic
compliance, heating, ventilation or air conditioning systems, electric wiring
and fixtures, gas distribution system and water and sewage drainage systems)
presently on or in the Parent Properties are in satisfactory working order and
condition (reasonable wear and tear and repairs in process excepted), except
for conditions which, individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect.
Section 4.23. CONTRACTS AND COMMITMENTS. The Parent Disclosure Schedule
lists all of the following written or oral contracts or agreements (including
any and all amendments thereto) to which,
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as of the date hereof, Parent or any of its subsidiaries is a party or by
which Parent or any of its subsidiaries or the Parent Properties is bound: (a)
contracts, not entered into in the ordinary course of business on an arm's-
length basis, that are continuing over a period of more than six months from
the date hereof and are not terminable by Parent and its subsidiaries on 60
days or less notice without penalties or premiums (including contracts to
provide advertising allowances or promotional services); (b) any agreements
for the purchase by Parent and its subsidiaries of any materials, equipment,
services or supplies, not entered into in the ordinary course of business on
an arm's-length basis, that may not be terminated by Parent and its
subsidiaries without penalty upon less than three months' notice; (c) any
agreements or arrangements for the sale of any of the Parent Properties other
than in the ordinary course of business on an arm's-length basis; and (d) any
agreements or arrangements for the grant of any preferential rights to
purchase any of the Parent Properties or that require the consent of any third
party to the transfer and assignment of any of the Parent Properties or any
rights of Parent and its subsidiaries (other than preferential purchase rights
or consent rights or restrictions on transfer set forth in partnership or
joint venture agreements with respect to Parent Properties or interests of
Parent and its subsidiaries entered into in the ordinary course of business).
Excluded from the foregoing clauses (a) through (d) are contracts, agreements
and arrangements the existence, absence, enforceability or violation of which,
singly or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
Section 4.24. INSURANCE. All insurance policies currently in force for which
Parent and its subsidiaries paid or are obligated to pay all or any part of
the premiums (a) are in full force and effect, and all premiums due thereon
have been paid, (b) Parent and its subsidiaries have complied with the
provisions of each applicable policy, and (c) there are no pending claims
against any such insurance by Parent and its subsidiaries as to which insurers
have denied liability (although insurers have in many instances and as a
matter of course undertaken defense subject to reservation of rights to deny
liability), except with respect to the foregoing clauses (a) through (c) for
such failure to pay premiums, non-compliance claims or other matters that,
alone or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect. All self-insurance arrangements affecting Parent and its
subsidiaries are in compliance with all requirements of applicable federal,
state and local laws and regulations where the failure to comply could have a
Material Adverse Effect.
ARTICLE V
Representations and Warranties of the Company
Except as otherwise set forth in the Disclosure Schedule of the Company
attached hereto and incorporated herein by reference (the "Company Disclosure
Schedule"), the Company represents and warrants to Parent and Subsidiary as
follows:
Section 5.1. ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. The Company is qualified to do business and is in good
standing in each jurisdiction in which the properties owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in
good standing will not, when taken together with all other such failures, have
a Material Adverse Effect. True, accurate and complete copies of the Company's
Certificate of Incorporation and By-laws, in each case as in effect on the
date hereof, including all amendments thereto, have heretofore been delivered
to Parent.
Section 5.2. CAPITALIZATION. (a) The authorized capital stock of the Company
consists of 137,362 shares of Company Common Stock, of which 103,828 shares of
Company Common Stock
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are issued and outstanding on the date of this Agreement. All of such issued
and outstanding shares are validly issued and are fully paid, nonassessable
and free of preemptive rights. Except for 37,362 shares of Company Common
Stock held by THHC, no subsidiary of the Company holds any shares of the
capital stock of the Company.
(b) There are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement and also including any rights plan or other
anti-takeover agreement, obligating the Company or any subsidiary of the
Company to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of the Company or obligating the
Company or any subsidiary of the Company to grant, extend or enter into any
such agreement or commitment. There are no voting trusts, proxies or other
agreements or understandings to which the Company or any subsidiary of the
Company is a party or is bound or, to the knowledge of the Company, to which
any other person or entity is a party or is bound, with respect to the voting
of any shares of capital stock of the Company, except as evidenced by or set
forth in (i) that certain Amended and Restated Agreement of Partnership dated
as of June 1, 1989 of THC Partners, a Texas general partnership ("THC
Partners") and those certain trust instruments consisting of The R.D.&C.
Voting Trust and the trust commonly referred to as The 9.5% Group Voting
Trust, each being a Delaware voting trust formed in 1989 (collectively, the
"Delaware Voting Trusts"), with THC Partners and the Delaware Voting Trusts
being holders of record of shares of Target Common Stock on the date of this
Agreement and (ii) that certain Stockholder Agreement dated as of May 1, 1989
by and among THC Partners, and the Delaware Voting Trusts.
Section 5.3. SUBSIDIARIES. Each direct and indirect corporate subsidiary of
the Company and HHPLP is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization and has the requisite power
and authority to own, lease and operate its assets and properties and to carry
on its business as it is now being conducted, except for such failures as
would not, when taken together with all other such failures, have a Material
Adverse Effect. Each subsidiary of the Company is qualified to do business,
and is in good standing, in each jurisdiction in which the properties owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification necessary, except where the failure to be so qualified and
in good standing will not, when taken together with all such other failures,
have a Material Adverse Effect. All of the outstanding shares of capital stock
of each corporate subsidiary of the Company are validly issued, fully paid,
nonassessable and free of preemptive rights and are owned directly or
indirectly by the Company free and clear of any Liens. There are no
subscriptions, options, warrants, rights, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions or arrangements
relating to the issuance, sale, voting, transfer, ownership or other rights
with respect to any shares of capital stock of any corporate subsidiary of the
Company, including any right of conversion or exchange under any outstanding
security, instrument or agreement.
Section 5.4. AUTHORITY; NON-CONTRAVENTION; APPROVALS. (a) Each of the
Company and HHPLP has full corporate power and authority to enter into the
Merger Agreement to which it is a party and, subject to the Hughes Owners'
Approval (as defined in Section 7.3) and the Company Required Statutory
Approvals (as defined in paragraph (c) below), to consummate the transactions
contemplated thereby. The Merger Agreement has been approved by the board of
directors of the Company and the Other Merger Agreement has been approved by
the respective boards of directors of the Company and THHC (in its capacity as
sole general partner of HHPLP), and no other corporate proceedings on the part
of the Company or HHPLP are necessary to authorize the execution and delivery
of the Merger Agreements or, except for the Hughes Owners' Approval, the
consummation by the Company and HHPLP of the transactions contemplated
thereby. Each of the Company and HHPLP have duly executed and delivered the
Merger Agreement to which it is a party, and, assuming the due authorization,
execution and delivery thereof by Parent and the Subsidiaries, the Merger
Agreements
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constitute a valid and legally binding agreement of the Company and HHPLP, as
applicable, enforceable against the Company and HHPLP, as applicable, in
accordance with their respective terms, except as such enforcement may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors' rights
generally and (ii) general equitable principles.
(b) The execution and delivery of the Merger Agreements by the Company and
HHPLP do not violate, conflict with or result in a breach of any provision of,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or give rise to any obligation to make payments or provide
compensation under, or result in the creation of any Lien upon any of the
properties or assets of the Company, HHPLP or any of their subsidiaries under,
any of the terms, conditions or provisions of (i) the respective charters, by-
laws, partnership agreements or other similar organizational instruments of
the Company, HHPLP or any of their subsidiaries, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any court or governmental authority applicable to the Company,
HHPLP or any of their subsidiaries or any of their respective properties or
assets or (iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease, partnership agreement, joint
venture agreement or other instrument, obligation or agreement of any kind to
which the Company, HHPLP or any of their subsidiaries is now a party or by
which the Company, HHPLP or any of their subsidiaries or any of their
respective properties or assets may be bound or affected. The consummation by
the Company and HHPLP of the transactions contemplated by the Merger
Agreements will not result in any violation, conflict, breach, termination,
acceleration or creation of Liens under any of the terms, conditions or
provisions described in clauses (i) through (iii) of the preceding sentence,
subject (A) in the case of the terms, conditions or provisions described in
clause (ii) above, to obtaining (prior to the Effective Time) the Company
Required Statutory Approvals and the Hughes Owners' Approval and (B) in the
case of the terms, conditions or provisions described in clause (iii) above,
to obtaining (prior to the Effective Time) consents required from commercial
lenders, lessors or other third parties. The Company Disclosure Schedule
specifically describes all material consents required from commercial lenders,
lessors or other third parties and all material violations, conflicts,
breaches, defaults, terminations, accelerations, payments, compensations or
creations of Liens referred to in the foregoing sentences of this paragraph
(b). Excluded from the foregoing sentences of this paragraph (b), insofar as
they apply to the terms, conditions or provisions described in clauses (ii)
and (iii) of the first sentence of this paragraph (b), and from the preceding
sentence, are such violations, conflicts, breaches, defaults, terminations,
accelerations, payments, compensations or creations of Liens that, singly or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(c) Except for (i) the filings by Parent, the Company and HHPLP required by
the HSR Act, (ii) the filing of the Registration Statement with the SEC
pursuant to the Securities Act and the declaration of the effectiveness
thereof by the SEC and filings with various state blue sky authorities, (iii)
the making of the Merger Filings (as defined herein and in the Other Merger
Agreement) with the Secretary of State of the State of Delaware in connection
with the Mergers and (iv) any required filings with or approvals from
applicable state environmental authorities, public service commissions and
public utility commissions (the filings and approvals referred to in clauses
(i) through (iv) are collectively referred to as the "Company Required
Statutory Approvals"), no declaration, filing or registration with, or notice
to, or authorization, consent or approval of, any governmental or regulatory
body or authority is necessary for the execution and delivery of the Merger
Agreements by the Company or HHPLP or the consummation by the Company or HHPLP
of the transactions contemplated thereby. The Company Disclosure Schedule
specifically describes all material required filings with or approvals from
applicable state environmental authorities, public service commissions and
public utility commissions that are referred to in clause (iv) of this
paragraph (c). Excluded from the foregoing provisions of this paragraph
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(c) are such declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, as the case may be,
would not, singly or in the aggregate, have a Material Adverse Effect.
Section 5.5. FINANCIAL STATEMENTS. The Company has previously delivered or
made available to Parent copies of its (a) consolidated audited financial
statements of the Company and its subsidiaries for the fiscal year ended
December 31, 1994 and for each of the two immediately preceding fiscal years,
and (b) unaudited interim consolidated financial statements of the Company and
its subsidiaries for the quarterly period ended September 30, 1995, and for
each of the two immediately preceding quarterly periods, prepared and
certified by the chief financial officer of the Company (the audited
consolidated financial statements and unaudited consolidated interim financial
statements being collectively referred to herein as the "Company Financial
Statements"). The Company Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the financial position of the Company and its subsidiaries
as of the dates thereof and the results of their operations and changes in
cash flow for the periods then ended subject, in the case of the unaudited
interim financial statements, to normal year-end and audit adjustments and any
other adjustments described therein.
Section 5.6. ABSENCE OF UNDISCLOSED LIABILITIES. Neither the Company nor any
of its subsidiaries had at December 31, 1994, or has incurred since that date,
any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature, except liabilities, obligations or contingencies
which (a) are accrued or reserved against in the Company Financial Statements
or reflected in the notes thereto, (b) were incurred after December 31, 1994
in the ordinary course of business and consistent with past practices, (c)
could not, singly or in the aggregate, reasonably be expected to have a
Material Adverse Effect or (d) have been discharged or paid in full prior to
the date hereof.
Section 5.7. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30, 1995,
the Company has not suffered or experienced any Material Adverse Effect.
Except as set forth in or contemplated by this Agreement or the Company
Disclosure Schedule, since the date of the most recent balance sheet contained
in the Company Financial Statements, the Company and its subsidiaries have not
engaged in any material transaction of a kind that would be prohibited after
the date hereof pursuant to Section 6.1.
Section 5.8. LITIGATION. There are no claims, suits, actions or proceedings
pending or, to the knowledge of the Company, threatened against, relating to
or affecting the Company or any of its subsidiaries before any court,
governmental department, commission, agency, instrumentality or authority or
any arbitrator that seek to restrain the consummation of either of the Mergers
or seek other relief or remedy and which could reasonably be expected, either
alone or in the aggregate with all such claims, actions or proceedings, to
have a Material Adverse Effect. Neither the Company nor any of its
subsidiaries is subject to any judgment, decree, injunction, rule or order of
any court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator, which prohibits or restricts the consummation of
the transactions contemplated by either of the Merger Agreements or which
could reasonably be expected, either alone or in the aggregate with all
judgments, decrees, injunctions, rules or orders, to have a Material Adverse
Effect.
Section 5.9. REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information to be supplied by the Company, its subsidiaries or the Hughes
Owners for inclusion in (a) the Registration Statement or (b) the proxy
statement (the "Proxy Statement") to be distributed by the Company in
connection with the Hughes Owners' Meeting (as defined in Section 7.3) will,
in the case of the Proxy Statement or any amendments thereof or supplements
thereto, at the time of the mailing of the Proxy Statement and any amendments
or supplements thereto, and at the time of the Hughes Owners'
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Meeting or, in the case of the Registration Statement, as amended or
supplemented, at the time it becomes effective and at the time of the Hughes
Owners' Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
are made, not misleading. No representation is made by the Company with
respect to information supplied by Parent or either of the Subsidiaries for
inclusion in the Registration Statement or the Proxy Statement.
Section 5.10. NO VIOLATION OF LAW. Neither the Company nor any of its
subsidiaries is in violation of or has been given notice or been charged with
any violation of, any law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable Environmental Law) of
any governmental or regulatory body or authority, except for violations which,
singly or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect. To the knowledge of the Company, no investigation or
review by any governmental or regulatory body or authority against or
involving the Company or any of its subsidiaries is pending or threatened, nor
has any governmental or regulatory body or authority indicated an intention to
conduct the same, other than, in each case, those the outcome of which, as far
as reasonably can be foreseen, will not have a Material Adverse Effect. The
Company and its subsidiaries have all permits, licenses, franchises,
variances, exemptions, orders and other governmental authorizations, consents
and approvals necessary to conduct their businesses as presently conducted
(collectively, the "Company Permits"), except for permits, licenses,
franchises, variances, exemptions, orders, authorizations, consents and
approvals (a) for future development of properties not yet obtained or (b) the
absence of which, alone or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect. The Company and its subsidiaries are not in
violation of the terms of any Company Permit, except for delays in filing
reports or violations which, alone or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect.
Section 5.11. COMPLIANCE WITH AGREEMENTS. The Company and each of its
subsidiaries are not in breach or violation of or in default in the
performance or observance of any term or provision of, and no event has
occurred which, with lapse of time or action by a third party, could result in
a default under, (a) the respective charters, by-laws, partnership agreements
or other similar organizational instruments of the Company or any of its
subsidiaries or (b) any contract, commitment, agreement, indenture, mortgage,
loan agreement, note, lease, bond, license, approval or other instrument to
which the Company or any of its subsidiaries is a party or by which any of
them is bound or to which any of their property is subject, except, in the
case of clause (b) above, for breaches, violations and defaults which, alone
or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.
Section 5.12. TAXES. The Company and its subsidiaries have (a) duly filed
with the appropriate governmental authorities all Tax Returns required to be
filed by them for all periods ending on or prior to the Effective Time and for
which a tax return is required by applicable law to be filed on or prior to
the Effective Time (including pursuant to extensions properly obtained), and
such filed Tax Returns are correct and complete in all material respects, (b)
duly paid in full or made adequate provision for the payment of all Taxes for
all periods ending at or prior to December 31, 1995 and (c) duly withheld and
paid all Taxes required by applicable law to have been withheld and paid as of
the Effective Time in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party. The
liabilities and reserves for Taxes reflected in the Company balance sheet
included in the Company Financial Statements as of and for the period ended
September 30, 1995 are adequate to cover all Taxes for all periods ending at
or prior to the date of such balance sheet and there are no material Liens for
Taxes upon any property or asset of the Company or any subsidiary thereof,
except for Liens for Taxes not yet due. There are no unresolved issues of law
or fact which, to the knowledge of the Company, exist or which arise out of a
notice of deficiency, proposed deficiency or assessment from the IRS or any
other governmental taxing authority with respect to Taxes of the Company or
any of its subsidiaries. Except for Tax Returns identified in Section 9.4(b)
of the Data Inventory List (as defined in Section 5.22(b)), the Company
Disclosure Schedule lists all federal, state, local and foreign income Tax
Returns filed with respect to any of the Company and
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its subsidiaries for taxable periods ended on or after January 1, 1993, and
indicates those Tax Returns that have been audited, or those Tax Returns that
are currently the subject of audit. The Company has made available or
delivered to Parent correct and complete copies of all federal income Tax
Returns, examination reports and statements of deficiencies assessed against
or agreed to by the Company or any of its subsidiaries since January 1, 1993.
Neither the Company nor its subsidiaries has waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency other than waivers and extensions which are no longer
in effect. Neither the Company nor any of its subsidiaries is a party to any
agreement providing for the allocation or sharing of Taxes with any entity
that is not, directly or indirectly, a wholly-owned corporate subsidiary of
the Company other than agreements the consequences of which are fully and
adequately reserved for in the Company Financial Statements. None of the
Company or its subsidiaries has been a member of an affiliated group filing a
consolidated federal income Tax Return (other than the consolidated federal
income Tax Return of the affiliated group of corporations of which the Company
is the common parent). Excluded from this Section 5.12 are any Taxes, Tax
Returns or other matters pertaining to Taxes of the Company or any of its
subsidiaries which, alone or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect. The Company and its subsidiaries
have not made any payment, are not obligated to make any payment and are not a
party to any agreement that obligates them to make a payment that will not be
deductible under Section 280G of the Code.
Section 5.13. EMPLOYEE BENEFIT PLANS; ERISA. (a) The Company Disclosure
Schedule lists all material employee benefit plans, programs, arrangements and
practices, including employee benefit plans within the meaning set forth in
Section 3(3) of ERISA, which any of the Company or its subsidiaries maintains
or to which any of them makes or is obligated to make contributions, and each
employee benefit plan subject to Title IV of ERISA maintained or contributed
to by any person while such person would be treated as a single employer with
the Company or any of its subsidiaries within the meaning of Section 414(b) or
(c) of the Code (the "Company Plans"). Neither the Company nor its
subsidiaries has any obligation to create any additional such plan, to amend
any such plan so as to increase benefits thereunder or to continue any such
plan, except as required under the written terms of the Company Plans, under
existing collective bargaining agreements, if any, or to comply with
applicable law.
(b) There have been no prohibited transactions within the meaning of Section
406 or 407 of ERISA or Section 4975 of the Code with respect to any of the
Company Plans that could result in penalties, taxes or liabilities which,
singly or in the aggregate, could have a Material Adverse Effect. Except for
premiums, no liability has been or is expected to be incurred under Title IV
of ERISA with respect to any of the Company Plans. Neither the Pension Benefit
Guaranty Corporation nor any plan administrator has instituted proceedings to
terminate any of the Company Plans subject to Title IV of ERISA other than in
a "standard termination" described in Section 4041(b) of ERISA. None of the
Company Plans has incurred any "accumulated funding deficiency" (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, as
of the last day of the most recent fiscal year of each of the Company Plans
ended prior to the date of this Agreement. The current present value of all
projected benefit obligations under each of the Company Plans which is subject
to Title IV of ERISA did not, as of its latest valuation date, exceed the then
current value of the assets of such plan allocable to such benefit liabilities
by more than the amount, if any, disclosed in the Company Disclosure Statement
based upon reasonable actuarial assumptions currently utilized for such
Company Plan. Each of the Company Plans has been operated and administered in
all material respects in accordance with applicable laws and agreements during
the period of time covered by the applicable statute of limitations. Each of
the Company Plans which is intended to be "qualified" within the meaning of
Section 401(a) of the Code is so qualified. With respect to any Multi-employer
Plans, as defined in Section 4001(a)(3) of ERISA, neither the Company nor any
of its subsidiaries has made or suffered a "complete withdrawal" or a "partial
withdrawal," as such terms are respectively defined in Sections 4203, 4204 and
4205 of ERISA and, to the knowledge of the Company and its subsidiaries, no
event has occurred or is expected to occur which presents a material risk of a
complete or partial
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withdrawal under such Sections. To the knowledge of the Company and its
subsidiaries, there are no material pending, threatened or anticipated claims
involving any of the Company Plans other than claims for benefits in the
ordinary course. No event has occurred or circumstance exists that could
reasonably be expected to result in a material increase in benefit costs under
any Company Plan that is self-insured or unfunded. The Company and its
subsidiaries have no liability under Title IV of ERISA based on any plan that
is not a Company Plan and there is no basis for any such liability to be
asserted against the Company or any of its subsidiaries. Neither Company nor
its subsidiaries has prepared or prefunded any existing Company Plan that is a
welfare plan through a trust, reserve, premium stabilization or similar
account.
(c) The Company Disclosure Schedule contains a true and complete list of all
material employment contracts and other employee benefit arrangements with
"change of control" or similar provisions and all severance agreements with
executive officers.
Section 5.14. LABOR CONTROVERSIES. There are no controversies pending or, to
the knowledge of the Company, threatened between the Company or its
subsidiaries and any representatives of any of their employees. To the
knowledge of the Company, there are no organizational efforts presently being
made involving any of the presently unorganized employees of the Company or
its subsidiaries. The Company and its subsidiaries have, to the knowledge of
the Company, complied with all laws relating to the employment of labor,
including, without limitation, any provisions thereof relating to wages,
hours, collective bargaining and the payment of social security and similar
taxes. No person has, to the knowledge of the Company, asserted that the
Company or any of its subsidiaries is liable for any arrears of wages or any
taxes or penalties for failure to comply with any of such laws. Excluded from
the foregoing sentences of this Section 5.14 are controversies, organizational
efforts, non-compliance and liabilities which, singly or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
Section 5.15. ENVIRONMENTAL MATTERS. The Company and its subsidiaries have
conducted their respective businesses in compliance with all applicable
Environmental Laws, including, without limitation, having all permits,
licenses and other approvals and authorizations necessary for the operation of
their respective businesses as presently conducted. None of the properties
currently or, to the knowledge of the Company, formerly owned or operated by
the Company or any of its subsidiaries contain any Hazardous Substance in
amounts exceeding the levels permitted by applicable Environmental Laws.
Neither the Company nor any of its subsidiaries has received any notices,
demand letters or requests for information from any Federal, state, local or
foreign governmental entity or third party, which has not heretofore been
resolved with such governmental entity or third party, indicating that the
Company or any of its subsidiaries may be in violation of, or liable under,
any Environmental Law. There are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or to
the knowledge of the Company, threatened against the Company or any of its
subsidiaries relating to any violation, or alleged violation, of any
Environmental Law. No reports have been filed, or are required to be filed, by
the Company or any of its subsidiaries concerning the release of any Hazardous
Substance or the threatened or actual violation of any Environmental Law. No
Hazardous Substance has been disposed of, released or transported in violation
of any applicable Environmental Law from any properties owned by the Company
or any of its subsidiaries. There have been no environmental investigations,
studies, audits, tests, reviews or other analyses regarding compliance or
noncompliance with any applicable Environmental Law conducted by or which are
in the possession of the Company or its subsidiaries relating to the
activities of the Company or its subsidiaries which have not been made
available for review by representatives of Parent prior to the date hereof.
Neither the Company, its subsidiaries nor any of their respective properties
are subject to any material liabilities or expenditures (fixed or contingent)
relating to any suit, settlement, court order, administrative order,
regulatory requirement, judgment or claim asserted or arising under any
Environmental Law. Excluded from this Section 5.15 are any violations or
conditions that, singly or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect.
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Section 5.16. NON-COMPETITION AGREEMENTS. Except with respect to single
purpose entities which are restricted as such under terms of their partnership
agreements or financings applicable to them, neither the Company nor any
subsidiary of the Company is a party to any agreement which purports to
restrict or prohibit in any material respect any of them from, directly or
indirectly, engaging in any business involving the acquisition, ownership,
development and operation of real estate projects or any other material
business currently engaged in by the Company or any subsidiary of the Company.
None of the officers, directors or key employees of the Company or any of its
subsidiaries is a party to any agreement which, by virtue of such person's
relationship with the Company or any subsidiary of the Company, restricts in
any material respect the Company or any subsidiary of the Company from,
directly or indirectly, engaging in any of the businesses described above.
Section 5.17. TITLE TO ASSETS. The Company and each of its subsidiaries has
good and marketable title in fee simple to all its real property and good
title to all its leasehold interests and other properties, including the real
property identified in the Asset Inventory List (as defined in Section
5.22(b)), as reflected in the most recent balance sheet included in the
Company Financial Statements, other than properties and assets that have been
disposed of in the ordinary course of business since the date of such balance
sheet or preparation of such Asset Inventory List (all such properties and
leasehold interests being referred to herein as the "Company Properties"),
free and clear of all Liens, except (a) the Lien of current taxes or
assessments, payments of which are not yet delinquent, (b) such imperfections
in title, easements and Liens, if any, as are not substantial in character,
amount or extent and do not materially detract from the value, or interfere
with the present use of the property subject thereto or affected thereby, or
otherwise materially impair the Company's business operations (in the manner
presently carried on by the Company), (c) Liens existing on the date hereof
securing indebtedness for borrowed money reflected in such balance sheet or in
the Data Inventory List and (d) other matters which, singly or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
True and correct copies of all leases under which the Company and any of its
subsidiaries lease any substantial amount of real or personal property have
been delivered or made available to Parent and such leases (other than any
lease which has expired by its terms) are in good standing, valid and
effective in accordance with their respective terms, and there is not, under
any of such leases, any existing default or event which with notice or lapse
of time or both would become a default other than defaults under such leases
which, singly or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
Section 5.18. REORGANIZATION. Neither the Company nor any of its affiliates
has taken or agreed or intends to take any action or has any knowledge of any
fact or circumstance that would prevent the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a) of the Code.
The Company Disclosure Schedule sets forth each stockholder of the Company
that owns of record more than 5% or, to the knowledge of the Company,
beneficially more than 1%, of the Target Common Stock.
Section 5.19. MERGER APPROVAL. The affirmative vote of stockholders of the
Company required for approval and adoption of this Agreement and the Merger is
a majority of the shares of Target Common Stock present in person or by proxy
at a meeting of such stockholders and entitled to vote thereat. No approval of
the partners of HHPLP (other than by THHC in its capacity as sole general
partner of HHPLP) is required by applicable law for approval and adoption of
the Other Merger Agreement and the Merger contemplated thereby.
Section 5.20. RELATIONSHIPS WITH AFFILIATES. There are no contracts,
agreements or arrangements currently in effect between the Company or any of
its subsidiaries, on the one hand, and any Related Person (other than the
Company or any of its subsidiaries), on the other hand, other than any
contracts, agreements or arrangements entered into the ordinary course of
business. As used in this Section 5.20, a contract, agreement or arrangement
shall be deemed "material" if it (a) calls for payments to or from the Company
or any of its subsidiaries, on the one hand, and any third party, on
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the other hand, of an amount in excess of $100,000 for any 12-month period
commencing on or after the date hereof and (b) is not terminable solely at the
option of Company or any of its subsidiaries, as the case may be, without
penalty on not more than 90 days' notice.
Section 5.21. FAIRNESS OPINION. The Company has received the opinion of
Morgan Stanley Realty Incorporated ("Morgan Stanley") to the effect that the
consideration to be received by the Hughes Owners in the Merger is fair, from
a financial point of view, to the Hughes Owners.
Section 5.22. LEASES. (a) The Office Rent Roll and the Fashion Show Rent
Roll (as such terms are defined in paragraph (b) below) set forth a list of
all material leases of the Company Properties, and the information contained
in the Office Rent Roll and, to the best knowledge of the Company, the Fashion
Show Rent Roll as to the material terms of the leases is true and correct in
all material respects, except for any inaccuracies or omissions which, alone
or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect. As used in this Section 5.22, a lease shall be deemed
"material" if it (i) calls for payment to or from the Company or any of its
subsidiaries, on the one hand, and any third party, on the other hand, of an
amount in excess of $25,000 for any 12-month period commencing on or after the
date hereof and (ii) is not terminable solely at the option of the Company or
any of its subsidiaries, as the case may be, without penalty on no more than
90 days' notice.
(b) As used in this Agreement (i) "Data Inventory List" means that certain
Data Room Inventory dated October 11, 1995, as supplemented by Addenda 1-8, a
copy of which is included as part of the Company Disclosure Schedule, (ii)
"Office Rent Roll" means that certain compilation of data concerning the
Company's office leases which is contained in the Company's "Dynalease Files,"
(iii) "Fashion Show Rent Roll" means that certain compilation of data
concerning the tenant space leases and department store agreements for Fashion
Show Mall as contained in the Data Inventory List, Section 4.7(a)1 and (iv)
"Asset Inventory List" means that list of properties, assets and interests
owned by the Company and its subsidiaries as set forth in Exhibits 3-7 of that
certain letter dated November 21, 1995 from J. E. Hoke Slaughter to B. Owen
Williams, in each case as such information has been supplemented by the
information and data with respect to the Data Inventory List, Office Rent
Roll, Fashion Show Rent Roll and Asset Inventory List set forth or referred to
in the Company Disclosure Schedule, which information set forth in the
preceding clauses (i) through (iv) has been previously been delivered or made
available by the Company to Parent.
Section 5.23. LICENSES, PERMITS, CERTIFICATES OF OCCUPANCY, ZONING, ETC.
RELATING TO PROPERTIES. Except for matters affecting the Company Properties
which, alone or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect:
(a) all certificates, permits and licenses from any governmental
authority having jurisdiction over any of the Company Properties, or any
agreement, easement or other right which is necessary to permit the lawful
use and operation of the buildings and improvements on any of the Company
Properties or which is necessary to permit the lawful use and operation of
all driveways, roads and other means of egress and ingress to and from any
of the Company Properties have been obtained and are in full force and
effect, and there is no pending or, to the knowledge of the Company,
threatened modification or cancellation of any of same;
(b) neither the Company nor any of its subsidiaries has received any
notice from any governmental body or authority to the effect that (i) any
condemnation or rezoning proceedings are pending or threatened with respect
to any of the Company Properties or (ii) any zoning, building or similar
law, code, ordinance, order or regulation is or will be violated by the
continued maintenance, operation or use of any buildings or other
improvements on any of the Company Properties;
(c) neither the Company nor any of its subsidiaries is in default under
any agreement entered into with a governmental body or authority in
connection with a site approval, zoning
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reclassification or other similar action relating to the Company Properties
(e.g., Local Improvement District, Road Improvement District, Environmental
Mitigation);
(d) neither the Company nor any of its subsidiaries has received notice
of, and the Company has no knowledge of, any proposed change in the
assessed value of any of the Company Properties other than customary
increases in the state, county and/or city where the Company Properties are
located;
(e) except for agreements or commitments entered into in the ordinary
course of business, none of the Company Properties is subject to any so-
called "recapture agreement" involving refund for sewer extension, over
sizing utility, lighting or like expense or charge for work or services
done upon or relating to any of the Company Properties;
(f) there is no existing or, to the knowledge of the Company, proposed or
threatened eminent domain or similar proceeding, or private purchase in
lieu of such a proceeding, affecting any Company Properties; and
(g) each of the Company Properties is an independent unit which does not
rely on any facilities (other than facilities covered by Liens described in
Section 5.17 above, or facilities of municipalities or public utility and
water companies) located on any property not included in any of the Company
Properties to fulfill any municipal or governmental requirement or for the
furnishing to any of the Company Properties of any essential building
systems or utilities.
Section 5.24. PHYSICAL CONDITION. The Company has no knowledge of any
structural defects or deficiencies in the improvements comprising any portion
of the Company Properties which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect. The improvements and
tangible personal property (including, without limitation, plumbing equipment,
seismic compliance, heating, ventilation or air conditioning systems, electric
wiring and fixtures, gas distribution system and water and sewage drainage
systems) presently on or in the Company Properties are in satisfactory working
order and condition (reasonable wear and tear and repairs in process
excepted), except for conditions which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
Section 5.25. CONTRACTS AND COMMITMENTS. Except for those written contracts
identified in the Data Inventory List and except for matters which could not,
singly or in the aggregate, reasonably be expected to have a Material Adverse
Effect, the Company Disclosure Schedule lists all of the following written or
oral contracts or agreements (including any and all amendments thereto) to
which, as of the date hereof, the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or the Company
Properties is bound: (a) any agreements with any present shareholder (other
than any subsidiary of the Company or any of its subsidiaries), employee,
officer, director, general partner, limited partner or consultant (or former
shareholder, employee, officer, director, general partner, limited partner or
consultant to the extent there remain at the date hereof obligations to be
performed by the Company and its subsidiaries); (b) agreements or indentures
relating to the borrowing of money having a remaining principal balance on the
date hereof in an amount exceeding $1,000,000; (c) any joint venture or
profit-sharing agreement; (d) contracts, not entered into in the ordinary
course of business on an arm's-length basis, that are continuing over a period
of more than six months from the date hereof and are not terminable by the
Company and its subsidiaries on 60 days' or less notice without penalties or
premiums (including contracts to provide advertising allowances or promotional
services); (e) any agreements for the purchase by the Company and its
subsidiaries of any materials, equipment, services, or supplies not entered
into in the ordinary course of business on an arm's-length basis, that may not
be terminated by the Company and its subsidiaries without penalty upon less
than three months' notice; (f) any agreements or arrangements for the sale of
any of the Company Properties other than in the ordinary course of business on
an arm's-length
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basis, or for the grant of any preferential rights to purchase any of the
Company Properties or that require the consent of any third party to the
transfer and assignment of any of the Company Properties or any rights of the
Company and its subsidiaries (other than preferential purchase rights or
consent rights or restrictions on transfer set forth (i) the various loan and
other debt agreements set forth in the Data Inventory List, or (ii) in
partnership or joint venture agreements with respect to the Company Properties
or interests of the Company and its subsidiaries entered into in the ordinary
course of business as set forth in the Data Inventory List); (g) any
commitments for charitable contributions by the Company or any of its
subsidiaries; and (h) any other agreements (other than leases referred to in
Section 5.22) to which the Company or any of its subsidiaries is a party or by
which they or any of the Company Properties are bound and which involves
consideration or other obligation in excess of $1,000,000.
Section 5.26. INSURANCE. Except for the insurance policies identified in
Section 8.4 of the Data Inventory List, the Company Disclosure Schedule sets
forth a complete list of all insurance policies currently in force for which
the Company and its subsidiaries paid or are obligated to pay all or any part
of the premiums. All such policies (a) are in full force and effect on the
date of this Agreement, and all premiums due thereon have been paid, (b) the
Company and its subsidiaries have complied with the provisions of each
applicable policy, and (c) there are no pending claims against any such
insurance by the Company and its subsidiaries as to which insurers have denied
liability (although insurers have in many instances and as a matter of course
undertaken defense subject to reservation of rights to deny liability), except
with respect to the foregoing clauses (a) through (c) for such failure to pay
premiums, non-compliance claims or other matters that, alone or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
Except for the insurance policies identified in Section 8.4 of the Data
Inventory List, the Company Disclosure Schedule sets forth a complete and
accurate list and description of all self-insurance arrangements affecting the
Company and its subsidiaries, and such self-insurance arrangements are in
compliance with all requirements of applicable federal, state and local laws
and regulations where the failure to comply could have a Material Adverse
Effect.
ARTICLE VI
Conduct of Business Pending the Merger
Section 6.1. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. Except
as otherwise contemplated by this Agreement, the Other Merger Agreement or the
Company Disclosure Schedule, after the date hereof and prior to the Closing
Date or earlier termination of this Agreement, unless Parent shall otherwise
agree in writing, the Company shall, and shall cause its subsidiaries, to:
(a) conduct their respective businesses in the ordinary and usual course
of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective charters, by-laws,
partnership agreements or other similar organizational instruments or (ii)
split, combine or reclassify their outstanding capital stock or (iii)
declare, set aside or pay any dividend or distribution payable in stock or
property (other than cash or cash equivalents), except for the payment of
dividends or distributions by a wholly-owned subsidiary of the Company;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of their capital stock or other
equity interests of any class or any debt or equity securities convertible
into, exchangeable for or exercisable for such capital stock or other
equity interests (other than equity interests which may be issued by HHPLP
to the Company or any of its subsidiaries for consideration estimated by
the Company to be reasonably equivalent to the value of the interests
issued), or enter into any contract, agreement, commitment or arrangement
with respect to any of the foregoing;
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(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than borrowings and refinancings in
the ordinary course of business, (ii) redeem, purchase, acquire or offer to
purchase or acquire any shares of its capital stock or any options,
warrants or rights to acquire any of its capital stock or any security
convertible into or exchangeable for its capital stock, (iii) take or fail
to take any action which action or failure to take action would cause the
Company or its stockholders (except to the extent that any stockholders
receive cash, including cash in lieu of fractional shares) to recognize
gain or loss for federal income tax purposes as a result of the
consummation of the Merger, (iv) make any acquisition of any assets or
businesses or any other capital expenditures other than expenditures for
fixed or capital assets in the ordinary course of business and consistent
with the Company's most recent three year business plan made available for
review by Parent prior to the date hereof, (v) sell, pledge, dispose of or
encumber any assets or businesses other than sales in the ordinary course
of business and consistent with the Company's 1996 business plan heretofore
delivered by the Company to Parent, (vi) loan, advance funds or make any
investment in or capital contribution to any other person or entity other
than to HHPLP or any subsidiary of the Company or otherwise in the ordinary
course of business, or (vii) enter into any contract, agreement, commitment
or arrangement with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, preserve the goodwill and
business relationships with customers and others having business
relationships with them and not engage in any action, directly or
indirectly, with the intent to adversely impact the transactions
contemplated by this Agreement;
(f) subject to restrictions imposed by applicable law and upon request,
confer on a regular and frequent basis with one or more representatives of
Parent to report operational matters of materiality and the general status
of ongoing operations;
(g) not enter into or amend any employment, consulting, severance,
special pay arrangement with respect to termination of employment or other
similar arrangements or agreements with any directors, officers,
consultants or key employees;
(h) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
health care, employment or other employee benefit plan, agreement, trust,
fund or arrangement for the benefit or welfare of any employee or retiree,
except as required to comply with changes in applicable law;
(i) use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are
consistent with past practice; and
(j) not make, change or revoke any Tax election or make any agreement or
settlement regarding Taxes with any taxing authority.
Section 6.2. CONDUCT OF BUSINESS BY PARENT AND SUBSIDIARY PENDING THE
MERGER. Except as otherwise contemplated by this Agreement, the Other Merger
Agreement or the Parent Disclosure Schedule, after the date hereof and prior
to the Closing Date or earlier termination of this Agreement, unless the
Company shall otherwise agree in writing, Parent shall, and shall cause its
subsidiaries, to:
(a) conduct their respective businesses in the ordinary and usual course
of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective charters, by-laws
or other similar governing instruments, (ii) split, combine or reclassify
(whether by stock dividend or otherwise)
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their outstanding capital stock, or (iii) declare, set aside or pay any
dividend or distribution payable in cash, stock, property or otherwise,
except for (A) the payment of dividends or distributions by a wholly-owned
subsidiary of Parent and (B) payment by Parent of regular quarterly
dividends on issued and outstanding shares of Parent Common Stock in an
amount not exceeding and consistent with Parent's dividend policy as of the
date hereof and on issued and outstanding shares of Existing Preferred
Stock consistent with the dividend terms thereof;
(c) not take or fail to take any action which action or failure to take
action would cause Parent or its stockholders to recognize gain or loss for
federal income tax purposes as a result of the consummation of the Merger;
(d) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, preserve the goodwill and
business relationships with customers and others having business
relationships with them and not engage in any action, directly or
indirectly, with the intent to adversely impact the transactions
contemplated by this Agreement;
(e) subject to restrictions imposed by applicable law and upon request,
confer on a regular and frequent basis with one or more representatives of
the Company to report operational matters of materiality and the general
status of ongoing operations; and
(f) use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are
consistent with past practice.
Section 6.3. CONTROL OF THE COMPANY'S OPERATIONS. Nothing contained in this
Agreement shall give to Parent, directly or indirectly, rights to control or
direct the operations of the Company or any subsidiary of the Company prior to
the Effective Time. Prior to the Effective Time, the Company and its
subsidiaries shall exercise, consistent with the terms and conditions of this
Agreement, complete control and supervision of their respective operations.
Section 6.4. CONTROL OF PARENT'S OPERATIONS. Nothing contained in this
Agreement shall give to the Company, directly or indirectly, rights to control
or direct the operations of Parent or any subsidiary of Parent prior to the
Effective Time. Prior to the Effective Time, Parent and its subsidiaries shall
exercise, consistent with the terms and conditions of this Agreement, complete
control and supervision of their respective operations.
Section 6.5. ACQUISITION TRANSACTIONS. (a) After the date hereof and prior
to the Effective Time or earlier termination of this Agreement, the Company
shall not, and shall not permit any of its subsidiaries to, initiate, solicit,
negotiate, encourage or provide confidential information to facilitate, and
the Company shall, and shall cause each of its subsidiaries to, cause any
officer, director or employee of, or any attorney, accountant, investment
banker, financial advisor or other agent retained by the Company, not to
initiate, solicit, negotiate, encourage or provide non-public or confidential
information to facilitate, any proposal or offer to acquire all or any
substantial part of the business and properties of the Company, THHC or HHPLP
or any capital stock of the Company, THHC or HHPLP, or any of their
subsidiaries whether by merger, purchase of assets, purchase of securities,
tender offer or otherwise, whether for cash, securities or any other
consideration or combination thereof (any such transactions being referred to
herein as "Acquisition Transactions").
(b) Notwithstanding the provisions of paragraph (a) above, the Company may,
in response to an unsolicited proposal with respect to an Acquisition
Transaction (a "Takeover Proposal"), furnish (subject to a confidentiality
agreement in substantially the form of the confidentiality agreement entered
into between the Company and Parent) confidential or non-public information
concerning the business, properties or assets of the Company or any of its
subsidiaries to a financially capable corporation,
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partnership, person or other entity or group (a "Potential Acquirer") or
negotiate with such Potential Acquirer if the board of directors of the
Company determines (i) after consultation with one or more of the Company's
independent financial advisors, that providing confidential or non-public
information to the Potential Acquirer could to lead to an Acquisition
Transaction more favorable to the Hughes Owners than the Mergers and (ii)
after consultation with the Company's outside legal counsel, that the failure
to provide such confidential or non-public information to such Potential
Acquirer would likely constitute a breach of its fiduciary duty to the Hughes
Owners.
(c) In the event the Company shall determine to provide any information or
negotiate as described in paragraph (b) above, or shall receive any Takeover
Proposal, the Company shall promptly inform Parent that information is to be
provided, that negotiations with respect to an Acquisition Transaction are to
take place or that a Takeover Proposal has been received and shall furnish to
Parent the identity of the person receiving such information and, if a
Takeover Proposal has been received, the identity of the person making such
Takeover Proposal and either a copy of such Takeover Proposal or a description
of the material terms thereof.
(d) Notwithstanding any provision in this Agreement or elsewhere to the
contrary, the Company may formally and legally accept any Takeover Proposal
received by it, but only if (i) the board of directors of the Company shall
have duly determined, after consultation with its financial advisor, that such
Takeover Proposal is more favorable to the Hughes Owners, from a financial
point of view, than the Mergers and, after consultation with counsel as to the
fiduciary duty of the board of directors under applicable law, that acceptance
of such Takeover Proposal is in the best interests of the Hughes Owners, (ii)
at least ten business days prior to the formal acceptance of such Takeover
Proposal, the Company shall have furnished Parent a copy of such Takeover
Proposal or a description of the material terms thereof, (iii) Parent shall
have failed within such ten-day period to offer to amend the terms of this
Agreement and the Other Merger Agreement in order that the Mergers would be at
least as favorable to the Hughes Owners as such Takeover Proposal, and (iv)
simultaneously with the acceptance of such Takeover Proposal, the Company
shall have paid to Parent the break-up fee specified in Section 9.2. In making
the determinations required by clauses (i), (ii) and (iii) above, the board of
directors of the Company shall consider all relevant considerations and
factors, including, without limitation, the form and value of the
consideration, the extent to which the economic benefits of the Takeover
Proposal differ from the economic benefits contemplated by this Agreement and
the Other Merger Agreement, the likelihood that the Potential Acquirer will be
able to obtain financing to consummate the Acquisition Transaction
contemplated by the Takeover Proposal, the proposed closing date of such
Acquisition Transaction, the certainty of consummation, antitrust issues, tax
consequences, resale restrictions on securities and closing conditions.
ARTICLE VII
Additional Agreements
Section 7.1. ACCESS TO INFORMATION. (a) Prior to the date of this Agreement,
the Company and its subsidiaries have given to Parent and the Subsidiary and
their respective accountants, counsel, financial advisors and other
representatives (the "Parent Representatives"), and Parent and its
subsidiaries have given to the Company and its accountants, counsel, financial
advisors and other representatives (the "Company Representatives"), full
access during normal business hours to all of their respective properties,
books, contracts, commitments and records (including, but not limited to, Tax
Returns) and, based upon such access each of the Company and Parent
acknowledge and represent to the other that it has completed such review
(including, without limitation, environmental review) and examination of such
matters as is desired by such party incident to the transactions contemplated
by this Agreement and the Other Merger Agreement, including review of matters
set forth or disclosed in the Company Disclosure Schedule and the Parent
Disclosure Schedule, as the
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case may be; provided, however, that no investigation pursuant to this Section
7.1(a) shall amend or modify any representations or warranties made herein or
in the Other Merger Agreement or the conditions to the obligations of the
respective parties to consummate the Mergers or shall alter or affect the
operative effect of such representations, warranties or conditions to
consummation of the Mergers with respect to any additional information
concerning the businesses, properties and personnel of Parent, Subsidiary or
the Company and/or their respective subsidiaries reviewed pursuant to Section
7.1(b) or otherwise arising prior to the Closing.
(b) Commencing on the date hereof through the period prior to the Effective
Time, the Company, Parent and the Subsidiaries shall furnish, and shall cause
their respective subsidiaries to furnish, promptly to one another (i) a copy
of each report, schedule and other document filed or received by any of them
pursuant to the requirements of federal or state securities laws or filed with
the SEC in connection with the transactions contemplated by this Agreement or
which may have a material effect on their respective businesses, properties or
personnel and (ii) such additional information concerning their respective
businesses, properties and personnel as Parent or either of the Subsidiaries
or the Company, as the case may be, shall reasonably request.
(c) Parent and its subsidiaries shall hold and shall use their reasonable
best efforts to cause the Parent Representatives to hold, and the Company and
its subsidiaries shall hold and shall use their reasonable best efforts to
cause the Company Representatives to hold, in strict confidence all non-public
documents and information furnished to Parent and the Subsidiaries or to the
Company, as the case may be, in connection with the transactions contemplated
by this Agreement and the Other Merger Agreement, except that (i) Parent, the
Subsidiaries and the Company may disclose such information as may be necessary
in connection with seeking the Parent Required Statutory Approvals, the
Company Required Statutory Approvals and the Hughes Owners' Approval and (ii)
after consultation, each of Parent, the Subsidiaries and the Company may
disclose any information that it is required by law or judicial or
administrative order to disclose.
(d) In the event that this Agreement is terminated in accordance with its
terms, each party shall promptly redeliver to the other or destroy all non-
public written material provided pursuant to this Section 7.1 and shall not
retain any copies, extracts or other reproductions in whole or in part of such
written material. In such event, all documents, memoranda, notes and other
writings prepared by Parent or the Company based on the information in such
material shall be destroyed (and Parent and the Company shall use their
respective reasonable best efforts to cause their advisors and representatives
to similarly destroy their documents, memoranda and notes), and such
destruction (and reasonable best efforts) shall be certified in writing by an
authorized officer supervising such destruction.
(e) The Company shall promptly advise Parent in writing of any change or the
occurrence of any event after the date of this Agreement having, or which,
insofar as can reasonably be foreseen, in the future may have, a Material
Adverse Effect on the Company. Parent shall promptly advise the Company in
writing of any change or the occurrence of any event after the date of this
Agreement having, or which, insofar as can reasonably be foreseen, in the
future may have, a Material Adverse Effect on Parent.
Section 7.2. REGISTRATION STATEMENT, ETC. Parent shall file with the SEC the
Registration Statement covering all securities of Parent to be issued in
connection with the Merger and pursuant to the Contingent Stock Agreement as
soon as is reasonably practicable after the date hereof and shall use all
reasonable efforts to have the Registration Statement declared effective by
the SEC as promptly as practicable. Parent shall also take any action required
to be taken under applicable state blue sky or securities laws in connection
with the issuance of Parent Common Stock, Rouse Preferred Stock and other
securities pursuant hereto. The Company shall promptly furnish to Parent all
information, and take such other actions, as may reasonably be requested by
Parent in connection with
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any action necessary or appropriate in satisfying the requirements of the
preceding sentences. The information provided and to be provided by the
Company and its subsidiaries for use in the Registration Statement shall be
true and correct in all material respects without omission of any material
fact which is required by applicable law (including SEC rules and regulations)
to be stated in the Registration Statement or which is required to make such
information not false or misleading as of the date thereof and in light of the
circumstances under which given or made.
Section 7.3. HUGHES OWNERS' APPROVAL, ETC. (a) The Company shall as promptly
as practicable, submit this Agreement and the Other Merger Agreement and the
transactions contemplated hereby and thereby for the approval of the Hughes
Owners at a meeting of the Hughes Owners (the "Hughes Owners' Meeting") and,
subject to the fiduciary duties of the board of directors of the Company under
applicable law, shall use its reasonable best efforts to obtain the approval
and adoption of this Agreement, the Other Merger Agreement and the
transactions contemplated hereby and thereby by the Hughes Owners (the "Hughes
Owners' Approval") . The Hughes Owners' Meeting shall be held as soon as
practicable following the date upon which the Registration Statement becomes
effective. Subject to the fiduciary duties of the board of directors of the
Company under applicable law, the Company shall, through its board of
directors, recommend to the Hughes Owners approval of this Agreement, the
Other Merger Agreement and the transactions contemplated hereby and thereby.
Notwithstanding the foregoing or any other provision of this Agreement or the
Other Merger Agreement, in no event shall the Company be obligated to mail the
Proxy Statement to the Hughes Owners or conduct the Hughes Owners' Meeting
unless the Registration Statement shall have been declared effective by the
SEC and unless Morgan Stanley shall have confirmed, as of the date on which
the Proxy Statement is first distributed to the Hughes Owners, its fairness
opinion referred to in Section 5.21.
(b) The Company (i) acknowledges that a breach of its covenant contained in
paragraph (a) above to convene a meeting of the Hughes Owners and call for a
vote thereat with respect to the approval of this Agreement, the Other Merger
Agreement and the transactions contemplated hereby and thereby will result in
irreparable harm to Parent which may not be compensable in money damages and
(ii) agrees that such covenant shall be specifically enforceable and that
specific performance and injunctive relief shall be a remedy properly
available to Parent for a breach of such covenant.
(c) Parent shall promptly furnish to the Company all information, and take
such other actions, as may reasonably be requested by the Company in
connection with any action necessary or appropriate in satisfying the
requirements of paragraph (a) above. The information provided and to be
provided by Parent for use in the Registration Statement and the Proxy
Statement shall be true and correct in all material respects without omission
of any material fact which is required to make such information not false or
misleading as of the date thereof and in light of the circumstances under
which given or made.
Section 7.4. SECURITIES ACT COMPLIANCE; AFFILIATES; RESALE. (a) The Company
shall use its reasonable best efforts to cause each principal executive
officer, each director and each other person who is an "affiliate" (as that
term is used in paragraphs (c) and (d) of Rule 145 under the Securities Act)
of the Company to deliver to Parent, at or prior to the Effective Time, a
written agreement (an "Affiliate Agreement") in form and substance reasonably
acceptable to the Company and Parent to the effect that such person will not
offer to sell, sell or otherwise dispose of any shares of Parent Common Stock
issued in the Merger, except, in each case, pursuant to an effective
registration statement or in compliance with Rule 145, as amended from time to
time, or in a transaction which, in the opinion of legal counsel reasonably
satisfactory to Parent, is exempt from the registration requirements of the
Securities Act.
(b) Prior to or at the Effective Time, Parent will execute and deliver to
the Representatives (as defined in the Contingent Stock Agreement described in
Section 7.15) a Registration Rights Agreement in substantially the form of the
Registration Rights Agreement attached hereto as Exhibit B.
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(c) The Company shall use its reasonable best efforts to cause each holder
of record and Beneficial Stockholder of the Company at the Effective Time to
execute and deliver to Parent, at or prior to the Effective Time:
(i) a Lock-up Agreement substantially to the effect set forth in the form
attached hereto as Exhibit C (collectively, the "Lock-up Agreements");
(ii) a tax representation letter substantially to the effect set forth in
the form attached hereto as Exhibit D (collectively, the "Tax
Representation Letters"); and
(iii) a Voting Agreement in substantially the form attached hereto as
Exhibit E (collectively, the "Voting Agreements").
(d) The Company shall use its reasonable best efforts to cause THC Partners
to execute and deliver to Parent, at or prior to the Effective Time, a letter
("THC Partners Agreement") indicating its agreement that, notwithstanding
anything in this Agreement to the contrary, during the period ending on the
first anniversary of the Effective Time and without the consent of Parent,
which consent will not be unreasonably withheld, THC Partners will not sell,
exchange or otherwise dispose of more than 50% of the shares of Parent Common
Stock received by it and registered in its name on the stock transfer books of
Parent as of the Effective Time by reason of the Merger. Excepted from the
foregoing restriction on transfer is any disposition of shares of Parent
Common Stock by THC Partners (A) to any Beneficial Stockholder of THC Partners
or the successors or assigns of such Beneficial Stockholder; (B) by operation
of law or pursuant to a bankruptcy or insolvency proceeding; (C) pursuant to
judicial order, legal process, execution or attachment; (D) pursuant to or in
connection with a tender or exchange offer for all of the Parent Common Stock;
(E) to Parent or any of its subsidiaries; or (F) pursuant to an underwritten
public offering and distribution registered under the Securities Act or any
exemption from registration thereunder. The restrictions imposed by the THC
Partners Agreement shall not be applicable to any shares of Parent Common
Stock owned by any of the Beneficial Stockholders of THC Partners or the
successors or assigns of such Beneficial Stockholder, whether received from
THC Partners as a distribution or otherwise.
Section 7.5. EXCHANGE LISTING. Parent shall use its reasonable best efforts
to effect, at or before the Effective Time, authorization for listing on the
NYSE, upon official notice of issuance, of the shares of Parent Common Stock
to be issued pursuant to the Merger and to cause shares of Parent Common Stock
and, to the extent permitted by applicable rules of the NYSE, other securities
issuable pursuant to the Contingent Stock Agreement to be listed as therein
provided.
Section 7.6. RESERVATION OF SHARES; PREFERRED SECURITIES. (a) Prior to the
Effective Time, and at all times thereafter, Parent shall reserve and keep
available, free from preemptive rights, out of its authorized but unissued or
treasury shares of Parent Common Stock and Rouse Preferred Stock (as
hereinafter defined), such number of shares of Parent Common Stock and Rouse
Preferred Stock as shall be issuable (i) in the Merger, as provided in Section
3.1(a), and (ii) pursuant to the Contingent Stock Agreement. Parent
acknowledges and agrees that all shares of Parent Common Stock so issuable
shall be, when issued, duly and validly issued, fully paid and non-assessable.
(b) Prior to the Effective Time, Parent shall take such corporate action
as shall be necessary to authorize the issuance of:
(i) a class or series of 10,000,000 shares of its preference stock
designated as Increasing Rate Cumulative Preferred Stock ("Rouse
Preferred Stock") which class or series of preferred stock shall have
the powers, designations, rights and preferences set forth in Exhibit F
attached hereto and shall be issuable at the times and in the manner
set forth in the Contingent Stock Agreement; and
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(ii) a class or series of 37,362 shares of its preference stock
designated as % Junior Preferred Stock, 1996 Series (the "Junior
Preferred Stock" and, together with the Rouse Preferred Stock, the
"Preferred Securities"), which class or series of preferred stock shall
have the powers, designations, rights and preferences set forth in
Exhibit G attached hereto and shall be issuable for shares of Company
Common Stock pursuant to Section 3.1(c).
Parent acknowledges and agrees that all shares of Preferred Securities so
issuable shall be, when issued, duly and validly issued, fully paid and non-
assessable.
Section 7.7. EXPENSES AND FEES. Except as provided in Article IX, the escrow
agreement of even date herewith between Parent and the Company (the "Escrow
Agreement") and the Other Merger Agreement, all costs and expenses incurred in
connection with the Merger Agreements and the transactions contemplated
thereby shall be paid by the party incurring such expenses, whether or not the
Mergers are consummated.
Section 7.8. AGREEMENT TO COOPERATE. (a) Subject to the terms and conditions
herein provided, each of the parties hereto shall use all reasonable efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including using its reasonable efforts to obtain all necessary or appropriate
waivers, consents and approvals and SEC "no-action" letters to effect all
necessary registrations, filings and submissions and to lift any injunction or
other legal bar to either of the Mergers (and, in such case, to proceed with
the Mergers as expeditiously as possible), subject, however, to the requisite
votes of the boards of directors of the Company and Parent and of the Hughes
Owners.
(b) Without limitation of the foregoing, each of Parent and the Company
undertakes and agrees to file as soon as practicable after the date hereof a
Notification and Report Form under the HSR Act with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division"). Each of Parent and the Company shall (i) use its
reasonable efforts to comply as expeditiously as possible with all lawful
requests of the FTC or the Antitrust Division for additional information and
documents and (ii) to request early termination of the waiting period and not
extend any waiting period under the HSR Act or enter into any agreement with
the FTC or the Antitrust Division not to consummate the transactions
contemplated by either of the Merger Agreements, except with the prior written
consent of the other parties hereto.
(c) In the event any litigation is commenced by any person or entity
relating to the transactions contemplated by either of the Merger Agreements,
including any Acquisition Transaction, Parent shall have the right, at its own
expense, to participate therein, and the Company will not settle any such
litigation without the consent of Parent, which consent will not be
unreasonably withheld or delayed.
Section 7.9. PUBLIC STATEMENTS. The parties shall consult with each other
prior to issuing any press release or any written public statement with
respect to either of the Merger Agreements or the transactions contemplated
thereby and shall not issue any such press release or written public statement
prior to such consultation.
Section 7.10. COMPANY EMPLOYEE BENEFIT PLANS. (a) Through December 31, 1996,
Parent shall, or shall cause its subsidiaries, as the case may be, to continue
without amendment or change, except changes which increase compensation or
benefits paid or payable thereunder or as may be required by law, the Company
Plans and the participation therein of those who are employees of the Company
and its subsidiaries on the Closing Date ("Company Employees"); provided,
however, the Company's incentive bonus plans shall be terminated on the
Closing Date and replaced with a bonus plan for the remainder of 1996 which
provides substantially equivalent levels of bonus compensation opportunities
or compensation opportunities as otherwise mutually agreed by the parties.
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Notwithstanding the foregoing, the Company shall (i) cease benefit accruals
under its Pension Plan on or before the Closing Date and initiate steps to
terminate such plan, which shall include any amendments necessary to increase
benefits by any overfunding amount and (ii) cease contributions to its 401(k)
Savings Plan on the Closing Date. As provided in paragraph (c) below, the
Company Employees shall be eligible to participate in Parent's Pension Plan
and 401(k) Savings Plan beginning on the Closing Date, subject to the terms of
Parent's Pension Plan and 401(k) Savings Plan.
(b) With respect to Parent Plans, on and after the Closing Date, Parent
shall, and shall cause its subsidiaries to, grant all Company Employees credit
for all service with the Company and its subsidiaries (and their respective
predecessors) prior to the Closing Date for all purposes for which such
service was recognized by the Company and its subsidiaries under any
corresponding Company Plan; provided, however, that Company Employees shall be
credited with service for eligibility and vesting purposes only, and not for
benefit accrual purposes, under Parent's Pension Plan. On and after January 1,
1997, Parent shall, or shall cause its subsidiaries to, cover the Company
Employees in Parent Plans in which similarly situated employees of Parent or
its subsidiaries participate; provided, however, in no event shall a Company
Employee's entitlement to (i) vacation benefits be at any time reduced from
that to which he is entitled under the Company vacation plan or policy as of
December 31, 1996, and (ii) severance benefits be, at any time during the one
year period after the Closing Date, reduced from that to which he is entitled
under The Howard Hughes Corporation Severance Program as in effect on the
Closing Date. In addition, on and after January 1, 1997, retirees of the
Company and its subsidiaries shall be eligible for retiree life insurance
coverage on a basis that is no less favorable than the retiree life insurance
coverage made available to retirees of Parent and its subsidiaries.
(c) With respect to the Company's retiree health, dental and vision plans,
Parent shall, or shall cause its subsidiaries, to (i) continue such plans for
those persons who, as of the Closing Date, are participants or beneficiaries
in such plans, (ii) "grandfather" Paul Carter, Ann Merrill, Robert Morrison,
Gary Ray and David Sommer to enable them to retire under such plans (or any
successor plans) upon their subsequent termination of employment with Parent
and its subsidiaries, and (iii) "grandfather" those Company Employees who are
age 50 or older but have not met the eligibility requirements for retirement
as of Closing Date under the Company's retiree health, dental and vision
plans, to enable them to receive retiree coverage upon their subsequent
termination of employment with Parent and its subsidiaries if, at such time,
(A) they would satisfy the eligibility requirements of the Company retiree
health, dental or vision plans, as applicable, as in effect on the Closing
Date, and (B) either they would not satisfy the eligibility requirements for
retiree coverage under Parent's retiree plans or Parent does not have any such
plan). Parent's obligation under the preceding sentence shall be limited to
the contribution by Parent or its subsidiaries annually of an amount not to
exceed the lesser of (i) $1,750 per person toward the cost or (ii) the full
cost of retiree health, dental and vision plan coverage; provided however that
notwithstanding the foregoing, during the five-year period after the Closing
Date Parent shall, or shall cause its subsidiaries to, pay the full cost of
retiree health, dental and vision plan coverage for those persons who were
either retired or "grandfathered" under the Company's retiree health, dental
and/or vision plans, as applicable, on April 1, 1995. Further, Parent shall
not eliminate or change the retiree health coverage benefits for any retiree
(or beneficiary) of the Company and its subsidiaries, except to the extent (i)
substantially comparable health coverage benefits are provided under a
replacement plan or (ii) such elimination or change is consistent with that
made for similarly situated retirees (and beneficiaries thereof) of Parent and
its subsidiaries. Finally, until the fifth anniversary of the Effective Time,
Parent shall not eliminate or change the retiree dental or vision coverage
benefits for any retiree (or beneficiary) of the Company and its subsidiaries,
except to the extent substantially comparable dental and vision coverage
benefits are provided under a replacement plan or plans.
(d) In the event Goolsby's interests in that certain Amended and Restated
Long-Term Incentive Compensation Agreement, dated as of January 1, 1994, as
heretofore amended, between Goolsby,
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HHPLP and the Company are not extinguished as described in the letter dated
February 27, 1996, between Goolsby, Parent, the Company and HHPLP and
notwithstanding any other provision in this Agreement to the contrary, Parent,
Subsidiary (as the successor by merger to the Company) and HHPLP shall
continue without amendment or change, except changes agreed to by all parties,
such Long-Term Incentive Compensation Agreement.
Section 7.11. NOTIFICATION OF CERTAIN MATTERS. Each of the Company, Parent
and Subsidiary agrees to give prompt notice to each other of, and to use their
respective reasonable best efforts to prevent or promptly remedy, (a) the
occurrence or failure to occur or the impending or threatened occurrence or
failure to occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement to
be untrue or inaccurate in any material respect at any time from the date
hereof to the Effective Time and (b) any material failure on its part to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 7.11 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
Section 7.12. DIRECTORS' AND OFFICERS' INDEMNIFICATION. (a) After the
Effective Time, Parent shall, and shall cause the Surviving Corporation to,
indemnify and hold harmless, to the same extent provided on the date of this
Agreement in the Company's certificate of incorporation and bylaws and
pursuant to any indemnification agreements disclosed in the Company Disclosure
Schedule, each present and former director, officer, employee and agent of the
Company or any of its subsidiaries (each, together with such person's heirs,
executors or administrators, an "Indemnified Party" and collectively, the
"Indemnified Parties") against any costs or expenses (including attorneys
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
arising out of, relating to or in connection with any action or omission
occurring prior to the Effective Time (including, without limitation, acts or
omissions in connection with such persons serving as an officer, director or
other fiduciary in any entity if such service was at the request or for the
benefit of the Company or any subsidiary) or arising out of or pertaining to
the transactions contemplated by this Agreement or the Other Merger Agreement.
In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) Parent and the
Surviving Corporation, as the case may be, shall pay the reasonable fees and
expenses of counsel selected by the Indemnified Parties, which counsel shall
be reasonably satisfactory to the Indemnified Parties, Parent and the
Surviving Corporation, promptly after statements therefor are received, (ii)
Parent and the Surviving Corporation will cooperate in the defense of any such
matter and (iii) any determination required to be made with respect to whether
an Indemnified Party's conduct complies with the standards set forth under the
DGCL or other applicable standard and the Parent's or the Surviving
Corporation's respective charter or by-laws shall be made by independent legal
counsel acceptable to the Parent or the Surviving Corporation, as the case may
be, and the Indemnified Party; provided, however, that neither Parent nor the
Surviving Corporation shall be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld or delayed);
and, provided further, that Parent and the Surviving Corporation shall not be
obligated pursuant to this Section to pay the fees and disbursements of more
than one counsel for all Indemnified Parties in any single claim, action,
suit, proceeding or investigation, except to the extent that, in the opinion
of counsel for the Indemnified Parties, two or more of such Indemnified
Parties have conflicting interests in the outcome of such claim, action suit,
proceeding or investigation.
(b) Parent agrees, without being obligated by reason of this paragraph (b)
to financially guarantee any obligations of the Surviving Corporation, (i)
subject to availability, to cause the Surviving Corporation to maintain the
Company's current insurance policies for directors' and officers' liabilities
or an equivalent policy or policies having terms and conditions no less
advantageous for all present and former officers and directors of the Company
than those in effect on the date of this Agreement for six years from and
after the Effective Time to cover acts and omissions of directors and officers
of
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the Company occurring prior to the Effective Time; provided such directors and
officers shall cooperate with Parent and the Surviving Corporation to maintain
such insurance policies or to obtain equivalent policies, and shall furnish
all information reasonably requested by Parent or the Surviving corporation in
connection therewith, and (ii) to cause the Surviving Corporation to maintain
in effect for six years any provision of the by-laws or certificate of
incorporation of the Company and any successor corporation thereof (including
the Surviving Corporation) and any contractual agreements or undertakings
("Indemnification Agreements") executed by the Company relating to the rights
to indemnification of officers and directors of the Company with respect to
acts and omissions occurring prior to the Effective Time, which provisions
shall not be less favorable than the indemnification provisions currently
contained in the Company's certificate of incorporation and by-laws and the
Indemnification Agreements listed in the Company Disclosure Schedule. After
the Effective Time, Parent will refrain from taking any action which would
render the Surviving Corporation incapable of performing its obligations under
this Section 7.12 or the Indemnification Agreements. Parent agrees that, at
all times from and after the Effective Time, it shall be deemed in its
capacity as the sole stockholder of the Surviving Corporation to have
unconditionally ratified such Indemnification Agreements. Parent agrees that
it will promptly notify the Representatives (as defined in the Contingent
Stock Agreement) in the event that, at any time after the Effective Time, the
insurance policies hereinabove referred to shall terminate or become
unavailable.
(c) In the event the Surviving Corporation or Parent or any of their
successors or assigns (i) consolidates with or merges into any other person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provisions shall be made so that the successors and assigns of the Surviving
Corporation or Parent shall assume the obligations set forth in this Section
7.12.
Section 7.13. CORRECTIONS TO THE PROXY STATEMENT AND REGISTRATION
STATEMENT. Prior to the date of approval of the Merger by stockholders of the
Company (a) each of the Company, Parent and Subsidiary shall correct promptly
any information provided by it to be used specifically in the Proxy Statement
or the Registration Statement that shall have become false or misleading in
any material respect, and to cause the Proxy Statement and Registration
Statement (or any amendment or supplement to either such document) as so
corrected to be disseminated to the holders of record of Target Common Stock
and the Hughes Owners and (b) Parent shall take all steps necessary to file
with the SEC and have declared effective or cleared by the SEC any amendment
or supplement to the Registration Statement so as to correct the same, in each
case to the extent required by applicable law.
Section 7.14. HUGHES NAME. Subject to Section 5.18, at or prior to the
Closing, the Company and its subsidiaries shall be entitled to transfer and
assign to a nominee (for other than the Hughes Owners) selected by the Company
all or any portion of their rights, titles and interests in and to the name
"Howard R. Hughes" and all derivations thereof (the "Hughes Name") and all
Howard R. Hughes ("Hughes") archives and memorabilia currently located and
maintained in the corporate offices of the Company in Las Vegas, Nevada and at
the storage locations reflected on the Company Disclosure Schedule; provided,
however, that such transfer and assignment shall be subject to the requirement
that: (a) at the option of the Company, HHPLP and its subsidiaries shall
either retain the right, or shall receive at the Closing a License Agreement
in form reasonably acceptable to the Company and Parent (the "License
Agreement") effectively granting to HHPLP, as of the Effective Time, a
perpetual, royalty free license, to use the Hughes Name, the image and
likeness of Hughes and copies of photos of Hughes which are part of the
archives and memorabilia referenced above in connection with the ownership and
development of land, the construction of buildings and other improvements
thereon and business activities directly related thereto, and (b) any
agreement effectuating transfer and assignment of rights with respect to the
Hughes Name to the Company's nominee shall entitle Parent to limit the use of
the Hughes Name in such manner that the name shall
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not be used in any manner which would materially interfere with HHPLP's
permitted use of the Hughes Name or expose the Hughes Name to ridicule and,
provided further, that if such transfer and assignment of rights to the Hughes
Name is not made by the Company and its subsidiaries, Parent shall execute and
deliver to the Representatives at the Closing an agreement, in form and
substance reasonably acceptable to Parent and the Company, to the effect that
neither Parent nor any of its subsidiaries shall use the Hughes Name in a
manner other than was contemplated by the License Agreement or which would
expose the Hughes Name to ridicule.
Section 7.15. CONTINGENT STOCK AGREEMENT. At or prior to the Closing, Parent
will execute and deliver to the Representatives, for the benefit of the Hughes
Owners, the Representatives and their respective heirs, representatives,
successors and assigns, a Contingent Stock Agreement substantially in the form
attached hereto as Exhibit H (the "Contingent Stock Agreement") effectively
granting to the Hughes Owners rights to receive, and obligating Parent to
issue or deliver to the Hughes Owners, additional shares of Parent Common
Stock or, in certain circumstances, Rouse Preferred Stock based upon certain
formulas with respect to the business, assets and properties of the Company
and its subsidiaries described in the Contingent Stock Agreement.
Section 7.16. MAINTENANCE OF COMPANY RECORDS; PERSONNEL. For a period of
seven years after the Closing Date (or such longer period as may be required
by any governmental agency or as a result of threatened or ongoing litigation
or any tax audit or other administrative proceeding):
(a) Parent shall not, and shall not permit any of its subsidiaries to,
dispose of or destroy any of the books, records and files of the Company or
any subsidiaries of the Company ("Business Documents") which exist at the
Effective Time and which become subject to the direct or indirect control
of Parent pursuant to the Merger. If Parent wishes to dispose of or destroy
any of such Business Documents after that time, it shall first give 30
days' prior written notice to the Representatives which notice shall
specify in reasonable detail the Business Documents proposed to be
destroyed, and the Representatives shall have the right, at their option
and expense, upon prior written notice to Parent within such 30 day period
of the specific documents desired to be retained by the Representatives to
take possession of all or such portion of the Business Documents so
specified within 30 days after the date of the Representatives' notice to
Parent.
(b) Parent shall allow the Representatives or their agents access to all
such Business Documents during regular business hours and upon reasonable
notice at Parent's principal place of business or at any location where
such Business Documents are stored, and the Representatives shall have the
right, at their own expense, to make copies of any of such Business
Documents; provided however, that any such access or copying shall be done
in such a manner so as not to interfere unreasonably with the normal
conduct of Parent and its subsidiaries' business or operations.
(c) Parent shall make available to the Representatives, upon written
request and at the locations in which such persons are employed (i)
personnel of Parent and its subsidiaries to assist the Representatives in
locating and obtaining Business Documents maintained by Parent and (ii) any
personnel of Parent and its subsidiaries previously in the employ of the
Company or its subsidiaries in anticipation of, or preparation for,
existing or future litigation, tax return preparation, tax audits or other
administrative proceedings or matters in which the Company or any of its
subsidiaries or affiliates, or any of the holders of record or Hughes
Owners, is involved and which is related to business or transactions
conducted prior to the Effective Time by the Company or such subsidiaries
or affiliates. Such access rights shall be exercised in a manner not to
interfere unreasonably with such person's duties. The Representatives will
reimburse Parent out of funds held in the Escrow Account established under
the Contingent Stock Agreement for its reasonable costs in making such
personnel available.
Section 7.17. PERMITTED DIVIDENDS AND DISTRIBUTIONS. After the date hereof
the Company shall be entitled to distribute to the Hughes Owners (whether by
dividend or otherwise) all cash and
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cash equivalents owned by the Company so long as such dividends and
distributions are not inconsistent with the representations in Section 5.18
and subject to any limitations on such dividends or distributions which may be
set forth in the Other Merger Agreement. No such distribution shall reduce the
consideration to be paid to the Hughes Owners in connection with the Mergers.
ARTICLE VIII
Conditions
Section 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) this Agreement and the transactions contemplated hereby shall have
been approved and adopted by the requisite vote of the stockholders of the
Company under applicable law and the Other Merger Agreement and the
transactions contemplated thereby shall have been approved by the holders
of a majority of the Class 1 Units;
(b) the waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated;
(c) the Registration Statement shall have become effective in accordance
with the provisions of the Securities Act, and no stop order suspending
such effectiveness shall have been issued and remain in effect and no
proceeding for that purpose shall have been instituted by the SEC or any
state regulatory authorities;
(d) the shares of Parent Common Stock issuable in the Merger and pursuant
to the Contingent Stock Agreement shall have been authorized for listing on
the NYSE upon official notice of issuance;
(e) no preliminary or permanent injunction or other order or decree by
any federal or state court which prevents the consummation of the Merger
shall have been issued and remain in effect (each party agreeing to use
commercially reasonable efforts to have any such injunction, order or
decree lifted);
(f) no action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any state or federal government or governmental
agency in the United States which would prevent the consummation of the
Merger or make the consummation of the Merger illegal;
(g) all governmental waivers, consents, orders and approvals legally
required for the consummation of the Merger and the transactions
contemplated hereby shall have been obtained and be in effect on the
Closing Date; and
(h) the Other Merger shall be consummated simultaneously with the
consummation of the Merger.
Section 8.2. CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. Unless waived in writing by the Company, the obligation of the Company
to effect the Merger shall be subject to the fulfillment at or prior to the
Closing Date of the following additional conditions:
(a) Parent and Subsidiary shall have performed in all material respects
their agreements contained in this Agreement and the Other Merger Agreement
required to be performed on or prior to the Closing Date and the
representations and warranties of Parent and Subsidiary contained in this
Agreement and the Other Merger Agreement shall be true and correct in all
material respects on and as of the date made and on and as of the Closing
Date as if made at and as of the Closing Date, except for any
representations and warranties made as of a specified date, which shall be
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true and correct in all material respects as of the specified date, and the
Company shall have received a certificate of the Chairman of the Board, the
President or a Vice President of Parent and of the President or a Vice
President of Subsidiary to that effect;
(b) the Company shall have received an opinion or opinions of Fried,
Frank, Harris, Shriver & Jacobson, Piper & Marbury L.L.P. and/or Bruce I.
Rothschild, counsel for Parent and Subsidiary, reasonably satisfactory to
the Company, dated the Closing Date and covering the due incorporation of
Parent and Subsidiary, the binding nature of this Agreement and the
Contingent Stock Agreement, the effectiveness of the Merger, the validity
of Parent Common Stock and Preferred Securities to be issued in connection
with the Merger and pursuant to the Contingent Stock Agreement and such
other matters as may be reasonably requested by the Company;
(c) the Company shall have received an opinion of Andrews & Kurth L.L.P.,
counsel for the Company, in form and substance reasonably satisfactory to
the Company, dated the Closing Date, covering the federal income tax
consequences to the Company and the Hughes Owners as a result of
consummation of the Merger as a reorganization described in Section 368(a)
of the Code;
(d) the Company shall have received "comfort" letters in customary form
from KPMG Peat Marwick LLP, certified public accountants for Parent and
Subsidiary, dated the date of the Proxy Statement, the effective time of
the Registration Statement and the Closing Date (or such other date
reasonably acceptable to the Company) with respect to certain financial
statements and other financial information with respect to the Parent and
its subsidiaries included in the Registration Statement and any subsequent
changes in specified balance sheet and income statement items, including
total assets, total stockholders' equity, total revenues, and earnings
before depreciation and deferred taxes;
(e) all governmental waivers, consents, orders, and approvals legally
required for the consummation of the Merger and the transactions
contemplated hereby shall have been obtained and be in effect at the
Closing Date, and no governmental authority shall have promulgated any
statute, rule or regulation which, when taken together with all such
promulgations, would materially impair the value to the Hughes Owners of
the Merger;
(f) the fairness opinion referred to in Section 5.21 shall not have been
withdrawn;
(g) the Registration Rights Agreement shall have been executed and
delivered as required by Section 7.4(b);
(h) the Contingent Stock Agreement shall have been executed and delivered
as required by Section 7.15;
(i) the Hughes Designee shall have been elected to the board of directors
of Parent as required by Section 2.3;
(j) the Preferred Securities shall have been authorized as required by
Section 7.6(b); and
(k) in the absence of any transfer and assignment of rights to the Hughes
Name, Parent shall have executed and delivered the Agreement contemplated
by the last proviso in Section 7.14.
Section 8.3. CONDITIONS TO OBLIGATIONS OF PARENT AND SUBSIDIARY TO EFFECT
THE MERGER. Unless waived in writing by Parent, the obligations of Parent and
Subsidiary to effect the Merger shall be subject to the fulfillment at or
prior to the Closing Date of the additional following conditions:
(a) each of the Company and HHPLP shall have performed in all material
respects its agreements contained in this Agreement and the Other Merger
Agreement required to be
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performed on or prior to the Closing Date and the representations and
warranties of the Company and HHPLP contained in this Agreement and the
Other Merger Agreement shall be true and correct in all material respects
on and as of the date made and on and as of the Closing Date as if made at
and as of the Closing Date, except for any representations and warranties
made as of a specified date, which shall be true and correct in all
material respects as of the specified date, and Parent shall have received
a certificate of the President or of a Vice President of the Company to
that effect;
(b) Parent shall have received an opinion or opinions of Andrews & Kurth
L.L.P. and/or Michael C. Niarchos, counsel for the Company, reasonably
satisfactory to Parent, dated the Closing Date and covering the due
incorporation of the Company, the binding nature of this Agreement, the
effectiveness of the Merger, the validity of the Company Common Stock to be
exchanged in the Merger and such other matters as may be reasonably
requested by Parent;
(c) Parent shall have received an opinion or opinions of Fried, Frank,
Harris, Shriver & Jacobson, counsel for the Parent, in form and substance
reasonably satisfactory to Parent, dated the Closing Date, covering the
federal income tax consequences to Parent and Subsidiary as a result of
consummation of the Merger as a reorganization described in Section 368(a)
of the Code;
(d) Parent shall have received "comfort" letters in customary form from
Deloitte & Touche LLP, certified public accountants for the Company, dated
the effective time of the Registration Statement and the Closing Date (or
such other date reasonably acceptable to Parent) with respect to certain
financial statements and other financial information with respect to the
Company and its subsidiaries included in the Company Disclosure Schedule
and any subsequent changes in specified balance sheet and income statement
items, including total assets, working capital, total stockholders' equity
and total revenues;
(e) the Affiliate Agreements, the Lock-up Agreements and the THC Partners
Agreement shall have been furnished as required by Section 7.4; provided
that (i) no Lock-up Agreement shall be required from any Beneficial
Stockholder who is entitled to receive less than 5,000 whole shares of
Parent Common Stock at Closing of the Merger and (ii) this condition as it
relates to Lock-up Agreements under Section 7.4(c)(i) shall be satisfied so
long as Lock-up Agreements are obtained from holders of record and/or
Beneficial Stockholders of not less than 50% of the Target Common Stock;
(f) the License Agreement shall have been executed and delivered if
required by Section 7.14;
(g) all governmental waivers, consents, orders and approvals legally
required for the consummation of the Merger and the transactions
contemplated hereby shall have been obtained and be in effect at the
Closing Date, and no governmental authority shall have promulgated any
statute, rule or regulation which, when taken together with all such
promulgations, would materially impair the value to Parent of the Merger;
and
(h) less than 5% of the shares of Target Common Stock are Dissenting
Shares as provided in Section 3.3.
ARTICLE IX
Termination, Amendment and Waiver
Section 9.1. TERMINATION. This Agreement shall terminate automatically if
the Other Merger Agreement shall be terminated, and may be terminated as set
forth below at any time prior to the Closing Date, whether before or after the
Hughes Owners' Approval has been obtained:
(a) The Company shall have the right to terminate this Agreement:
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(i) if the Merger is not completed by July 15, 1996 otherwise than on
account of delay or default on the part of the Company;
(ii) if the Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of the Company and the
Company shall have used commercially reasonable efforts to resist the
entry of such order;
(iii) if the Company accepts a Takeover Proposal in accordance with
Section 6.5(d);
(iv) if Parent (A) fails to perform in any material respect any of
its covenants in this Agreement and (B) does not cure such default in
all material respects within 15 days after notice of such default is
given to Parent by the Company;
(v) if, at the Hughes Owners' Meeting or any adjournment thereof, the
Hughes Owners Approval shall not be obtained;
(vi) if Parent or Subsidiary shall have breached any of its
representations and warranties set forth in Article IV of this
Agreement, which breach cannot be cured prior to the Closing and has
not been waived by the Company; or
(vii) if the Average Closing Price as computed pursuant to Section
3.1(a)(i) is greater than $23.00 (the "Ceiling Amount") unless, within
two business days after receipt of written notice of the Company's
election to terminate under this clause (vii), Parent notifies the
Company of Parent's agreement to fix the Average Closing Price at the
Ceiling Amount.
(b) Parent shall have the right to terminate this Agreement:
(i) if the Merger is not completed by July 15, 1996 otherwise than on
account of delay or default on the part of Parent or the Subsidiaries;
(ii) if the Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of Parent or the
Subsidiaries and Parent and the Subsidiaries shall have used
commercially reasonable efforts to resist the entry of such order;
(iii) if the Company accepts a Takeover Proposal in accordance with
Section 6.5(d);
(iv) if the Company (A) fails to perform in any material respect any
of its covenants in this Agreement and (B) does not cure such default
in all material respects within 15 days after notice of such default is
given to the Company by Parent;
(v) if, at the Hughes Owners' Meeting or any adjournment thereof, the
Hughes Owners Approval shall not be obtained;
(vi) if the Company shall have breached any of its representations
and warranties set forth in Article V of this Agreement, which breach
cannot be cured prior to the Closing and has not been waived by Parent;
or
(vii) if the Average Closing Price as computed pursuant to Section
3.1(a)(i) is less than $18.00 (the "Floor Amount") unless, within two
business days after receipt of written notice of Parent's election to
terminate under this clause (vii), the Company notifies Parent of the
Company's agreement to fix the Average Closing Price at the Floor
Amount.
Section 9.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or the Company, as provided in Section 9.1, this
Agreement shall forthwith become void and there shall be no further obligation
on the part of the Company, Parent, Subsidiary or their respective officers or
directors, except that:
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(a) if the Company terminates this Agreement pursuant to Section
9.1(a)(iii) or if Parent terminates this Agreement pursuant to Section
9.1(b)(iii), then the Company agrees to pay to Parent a break-up fee in the
amount of $5 million ("Break-up Fee");
(b) if the Company terminates this Agreement pursuant to Section
9.1(a)(iv), then Parent agrees that the Company shall have the right to
request and receive all sums then held in the escrow account under the
Escrow Agreement; and
(c) if Parent terminates this Agreement pursuant to Section 9.1(b)(iv),
then Parent may elect either (i) to receive the Break-up Fee as its sole
and exclusive remedy or (ii) to pursue its remedies at law or in equity,
provided that, if Parent pursues its remedies as aforesaid, in no event
shall the aggregate liability of the Company and HHPLP under this Agreement
and the Other Merger Agreement exceed the sum of $15,000,000 (inclusive of
the Break-up Fee).
In the case of any such termination, Sections 7.1, 7.7 and 7.9 shall survive.
Receipt by Parent of the Break-up Fee in the circumstances set forth in clause
(a) or clause (c)(i) above and receipt by the Company of the funds held in
escrow under the Escrow Agreement in the circumstances set forth in clause (b)
above shall be the sole and exclusive remedy of Parent and the Company, as the
case may be, for such matters. Notwithstanding anything to the contrary
herein, acceptance by the Company of a Takeover Proposal and termination of
this Agreement pursuant to Section 9.1(a)(iii) shall not constitute a breach
of this Agreement.
Section 9.3. AMENDMENT. This Agreement may not be amended except by action
taken by the parties' respective Boards of Directors or duly authorized
committees thereof or pursuant to authority granted by such Boards of
Directors or duly authorized committees thereof and then only by an instrument
in writing signed on behalf of each of the parties hereto and in compliance
with applicable law (including, if such amendment is effected after obtaining
the Hughes Owners' Approval as contemplated by Section 7.3, requirements of
Section 251 of the DGCL).
Section 9.4. WAIVER. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE X
General Provisions
Section 10.1. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement shall survive the Merger, and
after the Effective Time, no person or entity shall have any further
obligation, nor shall any claim be asserted or action be brought, with respect
thereto.
Section 10.2. BROKERS. The Company represents and warrants that no broker,
finder or investment banker is entitled to any brokerage, finder's or other
fee or commission (except for the fees payable to Morgan Stanley) in
connection with the Merger or the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company. Parent and
Subsidiary represent and warrant that no broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission (except for
the fees payable to Alex. Brown & Sons Incorporated) in connection with the
Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Subsidiary.
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Section 10.3. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed duly given if delivered personally, mailed
by registered or certified mail (return receipt requested), delivered by
federal express or other nationally recognized overnight courier service or
sent via facsimile to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to Parent or Subsidiary to:
The Rouse Company
10275 Little Patuxent Parkway
Columbia, Maryland 21044-3456
Attention: Robert Minutoli, Senior Vice President
Telecopier: (410) 992-6392
with copies to:
The Rouse Company
10275 Little Patuxent Parkway
Columbia, Maryland 21044-3456
Attention: Bruce I. Rothschild
Telecopier (410) 992-6392
and
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Arthur Fleischer, Jr., P.C
Telecopier: (212) 859-4000
(b) If to the Company, to:
The Hughes Corporation
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
Attention: John L. Goolsby, President and Chief Executive Officer
Telecopier: (702) 791-4353
with copies to:
The Hughes Corporation
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
Attention: Michael C. Niarchos, Sr. Vice President
and General Counsel
Telecopier: (702) 791-4385
and
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Attention: David G. Elkins
Telecopier: (713) 220-4285
All such communications shall be deemed to have been duly given: (A) in the
case of a notice sent by certified or registered mail, on the date receipted
for (or refused) on the return receipt; (B) in the case
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of a notice delivered by hand, when personally delivered; (C) in the case of a
notice sent by facsimile, upon transmission subject to telephone confirmation
of receipt; and (D) in the case of a notice sent by overnight mail or
overnight courier service, the date delivered at the designated address, in
each case given or addressed as aforesaid.
Section 10.4. INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary
intention appears, (i) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
Section 10.5. MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof, (b) is not intended to confer upon any other person any rights or
remedies hereunder, except for rights of Indemnified Parties under Section
7.12 and rights of Beneficial Stockholders under Article III hereof as herein
provided and (c) shall not be assigned by operation of law or otherwise,
except that Subsidiary may assign this Agreement to any other wholly-owned
subsidiary of Parent. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS,
INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF
DELAWARE APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN
SUCH STATE WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
Section 10.6. JURISDICTION. Each of the Company, Parent and Subsidiary
hereby irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of Delaware and of the United States
of America located in the State of Delaware (the "Delaware Courts") for any
litigation arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any litigation relating
thereto except in such courts), waives any objection to the laying of venue of
any such litigation in the Delaware Courts and agrees not to plead or claim in
any Delaware Court that such litigation brought therein has been brought in an
inconvenient forum; provided, however that nothing in this Section 10.6 is
intended to waive the right of any party to remove any such action or
proceeding commenced in any such Delaware state court to an appropriate
Delaware federal court to the extent the basis for such removal exists under
applicable law. Parent and Subsidiary hereby irrevocably (a) appoint The
Corporation Trust Company (the "Process Agent"), with an office on the date
hereof at 1209 Orange St., Wilmington, Delaware 19801, as its agent to receive
on behalf of either of them service of copies of the summons and complaint and
any other process which may be served in any such litigation, (b) agree that
service of process may be made on Parent or Subsidiary by mailing, by
certified mail, a copy of such summons, complaint or other process to Parent
or Subsidiary in care of the Process Agent at the Process Agent's above
address, with a copy to Parent or Subsidiary, as applicable, at its address
for notice specified herein, and (c) authorizes and directs the Process Agent
to accept such service on their behalf. The Company hereby irrevocably (a)
appoints the Process Agent as its agent to receive on its behalf service of
copies of the summons and complaint and any other process which may be served
in any such litigation, (b) agrees that service of process may be made on the
Company by mailing, by certified mail, a copy of such summons, complaint or
other process to the Company in care of the Process Agent at the Process
Agent's above address, with a copy to the Company at its address for notice
specified herein, and (c) authorizes and directs the Process Agent to accept
such service on behalf of the Company. As an alternative method of service,
the parties further agree that the mailing by certified or registered mail,
return receipt requested, of any process required by such courts, to the
address specified in Section 10.3, shall constitute valid and lawful service
of process against them, without necessity for service by any other means
provided by statute or rule of court.
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Section 10.7. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 10.8. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and except as set forth in
the exception to Section 10.5(b), nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
Section 10.9. KNOWLEDGE. As used in this Agreement, the phrase "knowledge"
shall mean, as to any party, the chief executive officer, chief operating
officer, chief financial officer and those executive officers of a party
directly involved in the negotiation and consummation of the transactions
contemplated by this Agreement.
Section 10.10. LIMITATION OF LIABILITY. In no event shall any of the
following persons or entities be personally liable for any obligation under
this Agreement or the Other Merger Agreement nor shall recourse with respect
to the obligations under this Agreement or the Other Merger Agreement be had
to the assets or business of any of the following persons or entities:
(i) any stockholder, officer, director, employee or agent (past or
present) of THC, Parent or the Subsidiaries; or
(ii) any partner (other than the General Partner), employee or agent
(past or present) of HHPLP.
Section 10.11. SEVERABILITY. Should any provision of this Agreement be
judicially declared to be invalid, unenforceable or void, such decision will
not have the effect of invalidating or voiding the remainder of this
Agreement, and the part or parts of this Agreement so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom, and the
remainder will have the same force and effectiveness as if such stricken part
or parts had never been included herein.
In Witness Whereof, Parent, Subsidiary and the Company have caused this
Agreement to be signed by their respective officers to as of the date first
written above.
The Hughes Corporation
/s/ John A. Kilduff
By:__________________________________
Name: John A. Kilduff
Title: Senior Vice President
The Rouse Company
/s/ Robert Minutoli
By:__________________________________
Name: Robert Minutoli
Title: Senior Vice President
TRC Acquisition Company I
/s/ Robert Minutoli
By:__________________________________
Name: Robert Minutoli
Title: Senior Vice President
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<PAGE>
EXHIBIT A
DEFINITIONS--REFERENCE TABLE
<TABLE>
<C> <S>
"Acquisition Transactions" As defined in Section 6.5(a).
"Affiliate Agreement" As defined in Section 7.4(a).
"Aggregate Parent Dividends" As defined in Section 3.1(a)(i).
"Agreement" As defined in the Preamble.
"Antitrust Division" As defined in Section 7.8(b).
"Asset Inventory List" As defined in Section 5.22(b).
"Average Closing Price" As defined in Section 3.1(a)(i).
"Beneficial Stockholder" As defined in Section 3.4(a).
"Beneficial Stockholders" As defined in Section 3.4(a).
"Break-up Fee" As defined in Section 9.2(a).
"Business Documents" As defined in Section 7.16(a).
"capital stock" As defined in Section 4.2(d).
"Ceiling Amount" As defined in Section 9.1(a)(vii).
"Class 1 Units" As defined in the Recitals.
"Closing" As defined in Section 3.6.
"Closing Date" As defined in Section 3.6.
"Code" As defined in the Recitals.
"Company" As defined in the Preamble.
"Company Certificates" As defined in Section 3.4(e).
"Company Common Stock" As defined in the Recitals.
As defined in the premises to Article
"Company Disclosure Schedule" V.
"Company Employees" As defined in Section 7.10(a).
"Company Financial Statements" As defined in Section 5.5
"Company Permits" As defined in Section 5.10.
"Company Plans" As defined in Section 5.13(a).
"Company Properties" As defined in Section 5.17.
"Company Representatives" As defined in Section 7.1(a).
"Company Required Statutory Approvals" As defined in Section 5.4(c).
"Contingent Stock Agreement" As defined in Section 7.15.
"Data Inventory List" As defined in Section 5.22(b).
"Delaware Courts" As defined in Section 10.6.
"Delaware Voting Trusts" As defined in Section 5.2(b).
"DGCL" As defined in Section 1.1.
"Dissenting Shares" As defined in Section 3.3.
"Effective Time" As defined in Section 1.2.
"Environmental Laws" As defined in Section 4.15(b).
"ERISA" As defined in Section 4.13(a).
"Escrow Agreement" As defined in Section 7.7.
"Exchange Act" As defined in Section 4.5.
"Exchange Agent" As defined in Section 3.4(a).
"Exchange Ratio" As defined in Section 3.1(a)(i).
"Existing Preferred Stock" As defined in Section 4.2(a).
"Fashion Show Rent Roll" As defined in Section 5.22(b).
"Floor Amount" As defined in Section 9.1(b)(vii).
"FTC" As defined in Section 7.8(b).
"Goolsby" As defined in Section 3.8.
"Goolsby Payment" As defined in Section 3.8.
"Goolsby Shares" As defined in Section 3.8.
</TABLE>
A-48
<PAGE>
DEFINITIONS--REFERENCE TABLE--(CONTINUED)
<TABLE>
<C> <S>
"Hazardous Substance" As defined in Section 4.15(c).
"HHPLP" As defined in the Recitals.
"HSR Act" As defined in Section 4.4(c).
"Hughes" As defined in Section 7.14.
"Hughes Designee" As defined in Section 2.3.
"Hughes Name" As defined in Section 7.14.
"Hughes Owners" As defined in the Recitals.
"Hughes Owners' Approval" As defined in Section 7.3(a).
"Hughes Owners' Meeting" As defined in Section 7.3(a).
"Indemnification Agreements" As defined in Section 7.12(b).
"Indemnified Parties" As defined in Section 7.12(a).
"Indemnified Party" As defined in Section 7.12(a).
"IRS" As defined in Section 4.12(a).
"Junior Preferred Stock" As defined in Section 7.6(b)(ii).
"License Agreement" As defined in Section 7.14.
"Liens" As defined in Section 4.3(a).
"Lock-up Agreements" As defined in Section 7.4(c)(i).
"Material Adverse Effect" As defined in Section 4.1(b).
"Maximum Exchange Ratio" As defined in Section 3.1(a)(ii)(1).
"Maximum Shares of Parent Common Stock" As defined in Section 3.1(a)(ii)(1).
"Merger" As defined in the Recitals.
"Merger Agreements" As defined in the Recitals.
"Merger Filing" As defined in Section 1.2.
"Mergers" As defined in the Recitals.
"Morgan Stanley" As defined in Section 5.21.
"NYSE" As defined in Section 3.1(a)(i).
"Office Rent Roll" As defined in Section 5.22(b).
"Other Merger" As defined in the Recitals.
"Other Merger Agreement" As defined in the Recitals.
"Other Subsidiary" As defined in the Recitals.
"Parent" As defined in the Preamble.
"Parent Common Stock" As defined in the Recitals.
As defined in the premises to Article
"Parent Disclosure Schedule" IV.
"Parent Financial Statements" As defined in Section 4.5.
"Parent Permits" As defined in Section 4.10.
"Parent Plans" As defined in Section 4.13(a)
"Parent Properties" As defined in Section 4.17.
"Parent Representatives" As defined in Section 7.1(a).
"Parent Required Statutory Approvals" As defined in Section 4.4(c).
"Parent SEC Reports" As defined in Section 4.5.
"Preferred Securities" As defined in Section 7.6(b)(ii).
"Potential Acquirer" As defined in Section 6.5(b).
"Process Agent" As defined in Section 10.6.
"Proxy Statement" As defined in Section 5.9.
"Registration Statement" As defined in Section 4.9(a).
"Related Person" As defined in Section 4.20(b).
"Representatives" As defined in Section 7.15.
"Rouse Preferred Stock" As defined in Section 7.6(b)(i).
"SEC" As defined in Section 4.4(c).
</TABLE>
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<PAGE>
DEFINITIONS--REFERENCE TABLE--(CONTINUED)
<TABLE>
<S> <C>
"Securities Act" As defined in Section 4.4(c).
"Subsidiaries" As defined in the Recitals.
"Subsidiary" As defined in the Preamble.
"subsidiary" As defined in Section 4.3(b).
"Subsidiary Common Stock" As defined in Section 3.2.
"Surviving Corporation" As defined in Section 1.1.
"Takeover Proposal" As defined in Section 6.5(b).
"Target Common Stock" As defined in the Recitals.
"Tax Representation Letters" As defined in Section 7.4(c).
"Tax Return" As defined in Section 4.12(c).
"Taxes" As defined in Section 4.12(b).
"THC Partners" As defined in Section 5.2(b).
"THC Partners Agreement" As defined in Section 7.4(d).
"THHC" As defined in the Recitals.
"Total Parent Common Stock" As defined in Section 3.1(a)(ii).
"Voting Agreements" As defined in Section 7.4(c)(iii).
</TABLE>
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<PAGE>
APPENDIX B
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
COMPOSITE AGREEMENT AND PLAN OF MERGER
AMONG
HOWARD HUGHES PROPERTIES, LIMITED PARTNERSHIP,
THE ROUSE COMPANY
AND
TRC ACQUISITION COMPANY II
DATED AS OF FEBRUARY 22, 1996,
AS AMENDED MAY 1, 1996 AND MAY 13, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
COMPOSITE AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of February 22, 1996, as amended
by Letter Agreements, dated May 1, 1996 and May 13, 1996 (this "Agreement"),
is by and among The Rouse Company, a Maryland corporation ("Parent"), TRC
Acquisition Company II, a Delaware corporation and a wholly-owned subsidiary
of Parent ("Subsidiary"), and Howard Hughes Properties, Limited Partnership, a
Delaware limited partnership (the "Partnership").
PRELIMINARY STATEMENTS
1. The partner interests in the Partnership consist of (a) a general partner
interest, (b) limited partner interests designated as Class 1 LP Units ("Class
1 Units"), (c) limited partner interests designated as Class 2 LP Units
("Class 2 Units") and (d) a preferred limited partner interest (the "Class 3
Unit").
2. At the date hereof, (a) the general partner interest in the Partnership
is owned by The Howard Hughes Corporation, a Delaware corporation ("THHC"),
(b) all of the outstanding Class 1 Units are owned by certain persons and
entities (the "Hughes Owners"), (c) all of the Class 2 Units are owned by The
Hughes Corporation, a Delaware corporation ("THC"), THHC and HHC LP Corp., a
Delaware corporation and wholly-owned subsidiary of THHC ("LP Corp."), and (d)
the Class 3 Unit is owned by THHC.
3. The respective boards of directors of Parent, Subsidiary and THHC, in its
capacity as sole general partner of the Partnership (in such capacity, the
"General Partner"), have approved the merger of Subsidiary with and into the
Partnership on the terms set forth in this Agreement (the "Merger").
4. In connection with the Merger, (a) the outstanding Class 1 Units will be
converted into rights to receive cash in the amounts, upon the terms and
subject to the limitations set forth in this Agreement and (b) the outstanding
general partner interest and Class 2 Units and Class 3 Unit will remain
outstanding.
5. Concurrently with the execution and delivery hereof, Parent, TRC
Acquisition Company I, a Delaware corporation and a wholly-owned subsidiary of
Parent (the "Other Subsidiary"), and THC are entering into an Agreement and
Plan of Merger (the "Other Merger Agreement") providing for the merger of THC
with and into the Other Subsidiary (the "Other Merger" and, together with the
Merger, the "Mergers").
6. In connection with the Other Merger, the holders of the outstanding
shares of common stock, $1.00 par value per share, of THC ("THC Stock") will
receive the consideration provided for in the Other Merger Agreement.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I
The Merger
Section 1.1. THE MERGER. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2) in
accordance with the provisions of the Merger Filing (as defined in Section
1.2), the Delaware Revised Uniform Limited Partnership Act (the "Partnership
Act") and the General Corporation Law of the State of Delaware (the "DGCL"),
Subsidiary shall be
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<PAGE>
merged with and into the Partnership and the separate existence of Subsidiary
shall thereupon cease. The Partnership shall be the surviving entity in the
Merger and continue under the name it possesses immediately prior to the
Effective Time. The Partnership is sometimes hereinafter referred to as the
"Surviving Partnership."
Section 1.2. EFFECTIVE TIME OF THE MERGER. The Merger shall become effective
at such time (the "Effective Time") as shall be stated in a Certificate of
Merger, in a form mutually acceptable to Parent and the Partnership, to be
filed with the Secretary of State of the State of Delaware in accordance with
Section 17-211 of the Partnership Act and Section 263 of the DGCL (the "Merger
Filing"). The Merger Filing shall be made simultaneously with or as soon as
practicable after the closing of the transactions contemplated by this
Agreement in accordance with Section 1.4. The parties acknowledge that it is
their mutual desire and intent to consummate the Mergers as soon as
practicable after the date hereof. Accordingly, the parties shall use all
reasonable efforts to consummate, as soon as practicable, the transactions
contemplated by this Agreement in accordance with Section 1.4.
Section 1.3. EFFECTS OF THE MERGER. The Merger shall, from and after the
Effective Time, have the effects set forth in the Partnership Act and the
DGCL.
Section 1.4. CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Andrews &
Kurth L.L.P., 600 Travis, 4200 Texas Commerce Tower, Houston, Texas, or such
other location as shall be mutually agreeable to Parent and the Partnership on
the fifth business day immediately following the date on which the last of the
conditions set forth in Article VII (other than the condition for simultaneous
consummation of the Merger and the Other Merger) is fulfilled or waived, or at
such other time and place as Parent and the Partnership shall agree (the date
on which the Closing occurs is referred to in this Agreement as the "Closing
Date").
Section 1.5. CLOSING OF THE PARTNERSHIP'S TRANSFER BOOKS. At and as of the
Effective Time, the transfer books of the Partnership shall be closed with
respect to the transfer of Class 1 Units and no transfer of Class 1 Units
shall thereafter be made. At and after the Effective Time, holders of Class 1
Units shall be deemed to have withdrawn as, and shall cease to be, Limited
Partners or Assignees (as such terms are defined in the Partnership Agreement
referred to in Section 2.1) of the Partnership and shall have no further
interest in the Partnership or the Surviving Partnership or any allocations or
distributions of their respective income or property or otherwise, except for
the right to receive the consideration into which such Class 1 Units have been
converted pursuant to Section 3.1.
ARTICLE II
The Surviving Partnership
Section 2.1. GOVERNING DOCUMENTS. Following the Effective Time, the Sixth
Amended and Restated Agreement of Limited Partnership of the Partnership,
dated as of January 1, 1990, as amended and in effect immediately prior to the
Effective Time (the "Partnership Agreement"), shall be the agreement of
limited partnership of the Surviving Partnership until amended in accordance
with the provisions thereof and applicable law. At and after the Effective
Time, the certificate of limited partnership of the Partnership, as in effect
immediately prior to the Effective Time, shall be the certificate of limited
partnership of the Surviving Partnership unless and until amended in
accordance with the provisions of the Partnership Agreement and the
Partnership Act.
Section 2.2. PARTNERS. Following the Effective Time, (i) THHC shall be the
sole general partner of the Surviving Partnership until THHC resigns or is
removed in accordance with the provisions of the
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Partnership Agreement and applicable law and (ii) each of the holders of the
Class 2 Units and Class 3 Unit immediately prior to the Effective Time shall
be a limited partner of the Surviving Partnership until such holder ceases to
be a limited partner of the Surviving Partnership in accordance with the
provisions of the Partnership Agreement and the Partnership Act.
ARTICLE III
Conversion of Partnership Securities
Section 3.1. CONVERSION OF SECURITIES IN THE MERGER. At and as of the
Effective Time, by virtue of the Merger and without any action on the part of
the Partnership, Subsidiary or the Surviving Partnership or the holders of any
of the following securities:
(a) the general partner interest in the Partnership existing and
outstanding immediately prior to the Effective Time shall be and remain an
outstanding general partner interest in the Surviving Partnership;
(b) subject to Section 3.6, each Class 1 Unit outstanding immediately
prior to the Effective Time shall not be a limited partner interest in the
Surviving Partnership and shall be converted into:
(i) the right to receive from Parent, in accordance with the
provisions of Section 3.2, cash equal to the quotient of (A) the
Adjusted Cash Value minus an amount equal to the Special Distribution
(as such terms are defined in Section 3.3) divided by (B) the aggregate
number of Class 1 Units outstanding immediately prior to the Effective
Time; and
(ii) the right to receive from Parent, in accordance with the
provisions of Section 3.4, cash equal to the quotient of (A) the Value
Adjustment (as defined in Section 3.4) divided by (B) the aggregate
number of Class 1 Units outstanding immediately prior to the Effective
Time;
(c) each Class 2 Unit, the Class 3 Unit and any other limited partner
interest in the Partnership outstanding immediately prior to the Effective
Time shall be and remain an outstanding limited partner interest in the
Surviving Partnership; and
(d) each issued and outstanding share of common stock, par value $.01 per
share, of Subsidiary which is issued and outstanding immediately prior to
the Effective Time shall be automatically canceled and retired and shall
cease to exist, and no consideration shall be delivered in exchange
therefor.
Section 3.2. PAYMENT PROCEDURES. (a) From and after the Effective Time, the
holder of record on the books of the Partnership as of the Effective Time of
each outstanding Class 1 Unit (each, a "Registered Holder" and, collectively,
the "Registered Holders") or, at the request of such Registered Holder as
hereinafter provided, any person or entity that is entitled to receive the
consideration into which such Class 1 Unit shall have been converted at the
Effective Time upon termination or dissolution of such Registered Holder
(individually, a "Beneficial Holder" and, collectively, the "Beneficial
Holders"), shall be entitled to receive from the Paying Agent (as defined
below), as provided in paragraph (d) below, a wire transfer or bank check
payable to the order of such Registered Holder or Beneficial Holder, as the
case may be, in an amount equal to the cash consideration described with
respect to such Class 1 Unit in Section 3.1(b)(i). Any Registered Holder that
desires, in respect of any of the Class 1 Units held by it, to have the cash
consideration described with respect to such Class 1 Units in Section
3.1(b)(i) paid directly to any of its Beneficial Holders shall, not later than
three days prior to the Closing Date, provide notice thereof to Parent and the
Paying Agent (a "Direct Payment Notice"), which Direct Payment Notice shall
set forth (i) the number of such Class 1 Units, (ii) the names and addresses
of the persons or entities who are to receive such consideration,
(iii) instructions to make payment of such consideration to such persons or
entities, (iv) the
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<PAGE>
proportionate interest in such Class 1 Units beneficially owned by each such
Beneficial Holder and (v) such other information as may be reasonably
requested by Parent. As used herein, "Paying Agent" means a bank or trust
company reasonably satisfactory to Parent and the Partnership.
(b) If payment of the cash consideration described with respect to any Class
1 Unit in Section 3.1(b)(i) is to be made to a person or entity other than the
Registered Holder or a Beneficial Holder of such Class 1 Unit, it shall be a
condition to the payment of such consideration that (i) the Registered Holder
or Beneficial Holder to whom such consideration would have otherwise been paid
shall have provided the Paying Agent with documentation, in form and substance
reasonably satisfactory to the Paying Agent, evidencing the transfer of such
Class 1 Unit or the right to receive such consideration to such person or
entity (the "Transferee") and (ii) such Registered Holder or Beneficial
Holder, or the Transferee, shall have either (A) paid the Paying Agent an
amount equal to any transfer or other taxes required to be paid by reason of
the payment of such consideration to such Transferee or (B) established to the
satisfaction of the Paying Agent that all such taxes have been paid or that no
such tax is payable.
(c) Subject to Section 3.6, at or prior to the Effective Time, Parent shall
make available to the Paying Agent such funds as are required to effect the
cash payments contemplated by Section 3.1(b)(i) (the "Payment Fund").
(d) Promptly after the Effective Time, the Paying Agent shall:
(i) as to each Registered Holder, transmit to such Registered Holder by
wire transfer of immediately available funds, pursuant to wire transfer
instructions given by such Registered Holder to the Paying Agent in writing
at least two days prior to the Closing Date, an amount equal to (A) the
consideration to which such Registered Holder is entitled pursuant to
Section 3.1(b)(i) minus (B) any of such consideration which is payable by
the Paying Agent to any Beneficial Holder of such Registered Holder
pursuant to a Direct Payment Notice given by such Registered Holder as
provided in paragraph (a) above;
(ii) as to each Beneficial Holder named in a Direct Payment Notice given
by a Registered Holder as provided in paragraph (a) above, pay such
Beneficial Holder the consideration to which such Beneficial Holder is
entitled pursuant to Section 3.1(b)(i) in immediately available funds (A)
by transmission by wire transfer, pursuant to wire transfer instructions
given by such Beneficial Holder to the Paying Agent in writing at least two
days prior to the Closing Date or, in the absence of any such wire transfer
instructions, (B) by delivery of a bank check payable to the order of such
Beneficial Holder, mailed to such Beneficial Holder at his or its address
as provided in the Direct Payment Notice; and
(iii) as to all other Beneficial Holders and Transferees, mail to each
such person or entity for which the Paying Agent has received the
applicable notice described above, (A) a letter of transmittal and (B)
instructions for applying for the payment of the consideration payable to
such person or entity as described above.
Upon delivery of any duly executed letter of transmittal and such other
documents as the Paying Agent shall reasonably require, the Paying Agent shall
deliver to any Beneficial Holder or Transferee described in clause (iii) above
as to which the Paying Agent has received the applicable notice as described
above, and that has satisfied the conditions to receipt of such consideration,
in payment for such Class 1 Units, a bank check, in immediately available
funds, in an amount equal to the consideration into which such Class 1 Units
have been converted. Upon delivery by the Paying Agent of such check or
payment of consideration to the Registered Holders, Beneficial Holders and
Transferees as provided in this paragraph (d), the Class 1 Units held by such
Registered Holders, Beneficial Holders and Transferees shall be canceled.
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<PAGE>
(e) The Payment Fund shall not be expended or disbursed for any purpose
other than as described in this Section 3.2. If for any reason the Payment
Fund shall be inadequate to pay the amounts contemplated by Section 3.1(b)(i),
Parent shall be liable for the payment thereof. Notwithstanding the foregoing,
neither the Paying Agent nor any party hereto shall be liable to any
Registered Holder, Beneficial Holder or Transferee for any portion of the
consideration into which any Class 1 Units have been converted which has been
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(f) Promptly following the date which is nine months after the Effective
Time, the Paying Agent shall deliver to Parent all cash and other documents in
its possession relating to the transactions described in this Agreement, and
the Paying Agent's duties shall thereupon terminate. Thereafter, any
Registered Holder, or any Beneficial Holder or Transferee of Class 1 Units as
to which the Paying Agent or the Surviving Partnership has received the
applicable notice as described above and that has satisfied the conditions to
receipt of such consideration, which has not theretofore received the
consideration into which the Class 1 Units owned by him or it have been
converted, may apply to the Surviving Partnership for payment of such
consideration. Upon such application and the delivery of such other documents
as the Surviving Partnership shall reasonably require, the Surviving
Partnership shall deliver to such person or entity (subject to applicable
abandoned property, escheat and similar laws), in payment for such Class 1
Units, a check in an amount equal to the consideration into which such Class 1
Units have been converted. Upon delivery by the Surviving Partnership of such
check, such Class 1 Units shall be canceled. Notwithstanding the foregoing,
none of the Paying Agent, Parent, Subsidiary, the Partnership or the Surviving
Partnership shall be liable to any Registered Holder, Beneficial Holder or
Transferee for any portion of the consideration into which any Class 1 Units
have been converted which has been delivered to a public official pursuant to
applicable abandoned property, escheat and similar laws.
(g) In no event shall any Registered Holder, Beneficial Holder or Transferee
be entitled to receive interest on any of the funds to be received by such
person or entity pursuant to the Merger.
(h) The cash paid by Parent to effect the conversion of any Class 1 Units in
accordance with the terms hereof to any Registered Holder, Beneficial Holder
pursuant to a Direct Payment Notice or any other Beneficial Holder or
Transferee shall be deemed to have been paid in full satisfaction of all
rights pertaining to such Class 1 Units.
Section 3.3. SPECIAL DISTRIBUTION. Immediately prior to the Effective Time,
subject to the Partnership Act and to Section 3.6 of this Agreement, the
Partnership shall pay a special cash distribution (the "Special Distribution")
to the holders of Class 1 Units, proportionately in accordance with their
respective ownership of Class 1 Units, in an amount equal to the lesser of (a)
the amount of cash then held by the Partnership, THC and their subsidiaries
which is available for distribution to the Hughes Owners (which shall not
include amounts payable pursuant to Section 6.10) and (b) an amount equal to
the Adjusted Cash Value minus $5,000,000. For purposes of this Agreement,
"Adjusted Cash Value" means an amount (not less than zero) equal to:
(a) the sum of (i) the aggregate amount of Cash (as defined below)
reflected on the audited consolidated balance sheet of the Partnership and
its affiliates at and as of December 31, 1995 plus (ii) the Partnership's
pro rata portion of the aggregate amount of Cash held by each entity in
which the Partnership owns a minority interest at and as of December 31,
1995 plus (iii) $1,702,931 for the Park 2000 Note plus (iv) $764,500, such
amount representing one-half of the value of the parcel of real estate
located in "Hughes Center" in Las Vegas, Nevada which was ground leased by
HHPLP to Lawry's Inc. plus (v) $80,671, such amount representing the final
distribution of net assets (based on audit results) relating to HHPLP's
sale of its partnership interest in Park 2000 Associates plus (vi)
$40,000,000, which sum of the amounts provided in clauses (i) through (vi)
is believed to be approximately $185,845,000;
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minus
(b) the sum of:
(i) the aggregate amount of all dividends and distributions (other
than the Special Distribution) paid to holders of record after December
31, 1995 and on or prior to the Effective Time by (A) the Partnership
to the Hughes Owners on or with respect to the Class 1 Units or (B) THC
to its stockholders (other than from funds attributable to a
distribution made to THC by the Partnership pursuant to the preceding
clause (A)), provided, however, that in no event shall the aggregate
amount of such dividends and distributions exceed the amount specified
in paragraph (a) above minus the sum of the amounts described in
clauses (ii) through (xiii) of this paragraph (b), plus
(ii) an amount, calculated with respect to each subsidiary of the
Partnership or THC, equal to the product of (A) the amount of Cash
reflected on the audited consolidated balance sheet of THC and its
subsidiaries (including the Partnership) at and as of December 31,
1995, which is attributable to such subsidiary times (B) the combined
percentage of interests in the total equity of such subsidiary which
are not owned by THC and its subsidiaries, plus
(iii) the aggregate fees and expenses of Morgan Stanley Realty
Incorporated ("Morgan Stanley"), E&Y Kenneth Leventhal and any other
financial advisor or consultant engaged by the Partnership or THC in
connection with the Mergers, but excluding any such fees and expenses
paid prior to January 1, 1996, plus
(iv) the aggregate fees and expenses of Andrews & Kurth L.L.P. and
any other law firm engaged by the Partnership or THC in connection with
the Mergers (including a proportionate share of fees and expenses of
any counsel as to which costs are shared by mutual agreement between
Parent and the Partnership), but excluding any such fees and expenses
paid prior to January 1, 1996, plus
(v) the amount actually paid for special transaction incentive
bonuses to certain employees of the Partnership and THC as a result of
the consummation of the Mergers, plus
(vi) $1,100,000, being mutually agreed to be the amount required
(irrespective of whether the mutually agreed amount is in fact
sufficient for such purpose) to fund all amounts payable by the
Partnership or THC on or after the Effective Time under certain
consultancy/termination agreements entered into by THC or the
Partnership with James A. Cox, Jr., John W. Alderfer, the Estate of
Arthur M. Taylor, Richard G. Danner and Mark L. Fine, which agreements
shall remain the responsibility of the Partnership after the Effective
Time, plus
(vii) the amount actually paid for defeasing/funding remaining
amounts payable by the Partnership on or after the Effective Time under
Section 3 of the Amended and Restated Long-term Incentive Compensation
Agreement dated January 1, 1994, as amended ("Goolsby Incentive
Agreement") between the Partnership and John L. Goolsby ("Goolsby"),
representing amounts credited to Goolsby's incentive payment account
which will become vested and payable by reason of the Mergers, but
excluding (A) amounts paid pursuant to Section 3.6 of this Agreement
and Section 3.8 of the Other Merger Agreement and (B) any amounts which
may be payable to Goolsby under the Letter Agreement dated February 27,
1996 among Parent, the Partnership, the Company and Goolsby or in
settlement of his rights under the Goolsby Incentive Agreement with
respect to the Contingent Stock Agreement (as such term is defined in
the Other Merger Agreement), plus
(viii) the amount actually paid for defeasing/funding the amounts
payable by the Partnership on or after the Effective Time under the
consultancy/termination agreements entered into by the Partnership with
William R. Lummis, Vernon C. Olson, Elmer Vacchina and Robert E.
Morrison ("Morrison"), plus
(ix) the aggregate costs and expenses relating to the termination of
the Partnership's Long-term Incentive Plan, plus
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(x) any costs incurred in defeasing/funding the obligations of THC or
HHPLP under the Summa Corporation Benefit Restoration Plan and the
Summa Corporation Supplemental Savings Plan, plus
(xi) an amount to be mutually agreed upon by Parent and the
Partnership in good faith at least three days prior to the Closing Date
as being the sum of all principal, accrued interest and prepayment
penalties (if any) which would be payable by the Partnership if the
Partnership prepaid, as of the Effective Time, that portion of the loan
which is recourse to and guaranteed by THC made pursuant to that
certain loan agreement dated July 22, 1992 between the Partnership and
Credit Lyonnais Cayman Islands Branch in connection with the North
Point Building in Howard Hughes Center, plus
(xii) an amount to be mutually agreed upon by Parent and the
Partnership in good faith at least three days prior to the Closing Date
as being the cost (in excess of principal and interest) which would be
payable by the Partnership if the Partnership defeased, as of the
Effective Time, amounts due or to become due under that certain Note
Purchase Agreement dated March 1, 1993 between the Partnership and
Allstate Insurance Company in connection with the freeway ramps at
Howard Hughes Center in Los Angeles, California, plus
(xiii) $1,500,000, which sum shall be paid by the Partnership on the
Closing Date to the Escrow Agent for deposit in the Escrow Account
established by the Representatives pursuant to the Contingent Stock
Agreement, plus
(xiv) $788,000, such amount being one-half of the proceeds received
by the Partnership from the sale of a parcel of real estate owned by
the Partnership in north Las Vegas, Nevada in December 1995, plus
(xv) $160,000, such amount being one-half of the premiums estimated
to be incurred by THC and the Partnership for the five-year period
commencing with the Effective Time for retiree dental and vision
insurance coverage,
plus
(c) an amount, computed with reference to the period from and including
January 1, 1996 to and including the Effective Time, equal to the product
of (A) the amount described in paragraph (a) above minus the amount
described in paragraph (b)(ii) above times (B) 5% per annum ("Applicable
Interest Rate"),
minus
(d) an amount equal to the sum of the products of each amount paid under
clause (i) and clauses (iii) through (xiii) of paragraph (b) above on or
after January 1, 1996, and prior to the Effective Time, times the
Applicable Interest Rate, computed from the date of payment of each such
amount to the Effective Time.
For purposes of this Agreement, "Cash" means (i) cash and cash equivalents,
(ii), securities which (A) are listed on the New York Stock Exchange or the
American Stock Exchange, (B) are reported on the Nasdaq Stock Exchange
("NASDAQ"), (C) are part of an issue which is listed on the New York Stock
Exchange or the American Stock Exchange or reported on NASDAQ or (D) are
regularly quoted by brokers or dealers making a market in such securities,
(iii) readily marketable securities or obligations issued or guaranteed by the
United States or any foreign government or any state, province, territory or
other political subdivision thereof, (iv) securities issued or guaranteed by
any national or state bank, savings and loan association, credit union or
other financial institution and (v) any other item that would be reflected as
cash or cash equivalents on a balance sheet prepared in accordance with
generally accepted accounting principles, but reduced by credit balances in
any cash accounts. The Partnership
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shall provide evidence reasonably acceptable to Parent with respect to payment
and discharge of the obligations set forth in clauses (iii) through (xii) of
paragraph (b) above, except only for any such obligations which are not paid
and discharged at Closing but which will remain liabilities of the Surviving
Partnership and dealt with by it after Closing. Notwithstanding anything
herein or elsewhere to the contrary, the Surviving Partnership shall be solely
responsible for the payment of the obligations described in paragraph (b)
above from and after the Effective Time.
Section 3.4. VALUE ADJUSTMENT. (a) As soon as practicable (but in any event
within 90 days) following the Effective Time, Parent shall (i) close the
Partnership's books, (ii) compute, in accordance with Section 706(c)(2)(A) of
the Code and Section 1.706-1(c)(2) of the Income Tax Regulations, the Taxable
Income of the Partnership for the period commencing on January 1, 1996 and
ending on the Closing Date (the "Interim Period") and (iii) calculate the
Value Adjustment. As used herein, (i) "Taxable Income" means the Class 1 Units
share, as determined pursuant to the Partnership Agreement, of the excess, if
any, of the Partnership's items of income and gain for the Interim Period over
the Partnership's items of loss, deduction and credit for the Interim Period
(taking into account for this purpose the excess of the amount determined
under Section 3.3(c) over the amount determined under Section 3.3(d) as a
deduction to the extent not otherwise taken into account) and (ii) "Value
Adjustment" means an amount equal to 25% of the Taxable Income allocated to
the holders of the Class 1 Units with respect to the Interim Period.
(b) In computing Taxable Income as aforesaid, (i) the proration method set
forth in Section 1.706-1(c)(2)(ii) of the Income Tax Regulations shall not be
utilized and (ii) no items of income, gain, loss, deduction or credit realized
by the Surviving Partnership after the Effective Time will be taken into
account. In addition, the Partnership will utilize the method of tax
accounting and, to the extent applicable, the elections employed in the
preparation of the Partnership's federal income tax information return (Form
1065) for the year ended December 31, 1995.
(c) As soon as practicable (but in any event within 30 days) after Taxable
Income has been computed as aforesaid, (i) the Surviving Partnership shall
furnish to each Registered Holder a Schedule K-1 with respect to the Interim
Period and (ii) Parent shall pay the cash amounts described in Section
3.1(b)(ii).
Section 3.5. NO DISSENTERS' RIGHTS. No holder of any Class 1 Unit shall be
entitled to dissenters' rights in connection with the Merger.
Section 3.6. PAYMENT TO JOHN L. GOOLSBY. (a) Concurrently with the payments
by Parent to Registered Holders of Class 1 Units (or to the Beneficial
Stockholders or Transferees, as contemplated by Section 3.2) of amounts
provided in Section 3.2(d), Parent shall pay to Goolsby an amount (the
"Goolsby Payment") representing 8/10ths of 1% of the aggregate consideration
into which all Class 1 Units issued and outstanding at the Effective Time are
converted pursuant to Section 3.1(b)(i) of this Agreement (before reduction by
the Goolsby Payment). The consideration payable by Parent pursuant to Section
3.1(b)(i) shall be reduced by the Goolsby Payment. It is understood and agreed
that the Goolsby Payment is being made on behalf of and as an accommodation to
THC, the Other Subsidiary (as successor by merger to THC) and the Partnership
and in partial performance of their obligations to Goolsby under the Goolsby
Incentive Agreement.
(b) Contemporaneous with payment by the Partnership of the Special
Distribution as provided in Section 3.3, the Partnership shall pay to Goolsby
an amount ("Goolsby Special Distribution") equal to 8/10ths of 1% of the
aggregate amount of the Special Distribution calculated as provided in Section
3.3 (before reduction by the Goolsby Special Distribution). The Special
Distribution shall be reduced by the amount of the Goolsby Special
Distribution.
(c) The making of the payments provided in paragraphs (a) and (b) of this
Section 3.6 will result in the receipt of compensation by Goolsby for tax
purposes when such payments are received by
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Goolsby. The Company, Subsidiary and HHPLP agree that they shall report to the
appropriate authorities (federal, state or other) the payment of the Goolsby
Payment and the Goolsby Special Distribution as described herein and that none
shall report in any fashion inconsistent therewith. Further, consistent with
such result, Parent or the Partnership, as the case may be, shall withhold
from such payments the amount of all taxes (federal, state and other) required
to be withheld (i) with respect thereto and (ii) with respect to the Goolsby
Shares and Goolsby Payment as such terms are defined in and to be delivered or
paid pursuant to Section 3.8 of the Other Merger Agreement.
ARTICLE IV
Representations and Warranties of Parent and Subsidiary
Each of Parent and Subsidiary hereby (i) makes to the Partnership the
representations and warranties of Parent set forth in Article IV of the Other
Merger Agreement with the same effect as if such representations and
warranties (together with any related definitions) were set forth herein in
their entirety and (ii) represents and warrants to the Partnership that
Subsidiary is a subsidiary (as defined in the Other Merger Agreement) of
Parent.
ARTICLE V
Representations and Warranties of the Partnership
Section 5.1. CAPITALIZATION. (a) The Partnership represents and warrants to
Parent and Subsidiary that, as of the date of this Agreement, (i) THHC is the
sole general partner of the Partnership, (ii) there are 10,000,000 Class 1
Units outstanding, all of which are owned of record by the Hughes Owners,
(iii) there are 10,245,199 Class 2 Units outstanding, all of which are owned
beneficially and of record by THC, THHC and LP Corp., (iv) the Class 3 Unit
outstanding is owned beneficially and of record by THHC and (v) there are no
other outstanding partner interests in the Partnership.
(b) The Partnership represents and warrants to Parent and Subsidiary that
(i) there are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement and also including any rights plan or other
anti-takeover agreement, obligating the Partnership or any subsidiary of the
Partnership to issue, deliver or sell, or cause to be issued, delivered or
sold, additional partner interests in the Partnership (other than as
contemplated by Section 6.1(c) of the Other Merger Agreement) or obligating
the Partnership or any subsidiary of the Partnership to grant, extend or enter
into any such agreement or commitment and (ii) there are no voting trusts,
proxies or other agreements or understandings to which the Partnership or any
subsidiary of the Partnership is a party or is bound or, to the knowledge of
the Partnership, to which any other person or entity is a party or is bound,
with respect to the voting of any partner interests in the Partnership, except
as evidenced by or set forth in (A) the partnership agreements and trust
instruments of the holders of record of Class 1 Units on the date of this
Agreement and (B) that certain Stockholder Agreement dated as of May 1, 1989
by and among THC Partners, a Texas general partnership, the R. D. & C. Voting
Trust and the 9.5% Group Voting Trust.
Section 5.2. AUTHORITY; NON-CONTRAVENTION; APPROVALS. The Partnership
represents and warrants to Parent and Subsidiary that (a) the General Partner
has approved the execution, delivery and performance of this Agreement by the
Partnership and, accordingly, the Partnership has full partnership power and
authority to enter into this Agreement and, subject to the Company Required
Statutory Approvals (as defined in the Other Merger Agreement), to consummate
the transactions contemplated hereby, (b) subject to Section 7.2(e), no other
partnership proceedings on the part of the Partnership are necessary to
authorize the execution and delivery of this Agreement or the consummation by
the Partnership of the transactions contemplated hereby and (c) this Agreement
has been duly executed and delivered by the Partnership and, assuming the due
authorization, execution and delivery hereof by Parent and Subsidiary,
constitutes a valid and legally binding agreement of the Partnership,
enforceable against the Partnership in accordance with its terms, except as
such
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enforcement may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) general equitable principles.
Section 5.3. INCORPORATION OF REPRESENTATIONS AND WARRANTIES BY
REFERENCE. The Partnership hereby (i) makes to Parent and Subsidiary the
representations and warranties of THC set forth in Article V of the Other
Merger Agreement with the same effect as if such representations and
warranties (together with any related definitions) were set forth herein in
their entirety and (ii) represents and warrants to Parent and Subsidiary that
it is a subsidiary of THC.
Section 5.4. STATUS AS TAX PARTNERSHIP. The Partnership represents and
warrants to Parent and Subsidiary that for the period from its formation
through the Effective Time, the Partnership has been and will be treated as a
partnership for federal income tax purposes.
Section 5.5. FAIRNESS OPINION. The Partnership has received the opinion of
Morgan Stanley Realty Incorporated ("Morgan Stanley") to the effect that the
consideration to be received by the Hughes Owners in the Merger is fair, from
a financial point of view, to the Hughes Owners.
ARTICLE VI
Certain Covenants
Section 6.1. INCORPORATION OF COVENANTS BY REFERENCE. (a) The covenants and
agreements of Parent contained in Sections 7.1, 7.2, 7.3(c), 7.4(b), 7.5,
7.10, 7.13 and 7.14 of the Other Merger Agreement (together with any related
definitions) are hereby incorporated in this paragraph (a) as if set forth
herein in their entirety. Subsidiary agrees to perform and comply with each of
such covenants and agreements to the extent they relate to Subsidiary in its
capacity as a subsidiary of Parent.
(b) The covenants and agreements of THC contained in Sections 7.1, 7.2, 7.3,
7.4(b) and (c), 7.13 and 7.14 of the Other Merger Agreement (together with any
related definitions) are hereby incorporated in this paragraph (b) as if set
forth herein in their entirety. The Partnership agrees to perform and comply
with each of such covenants and agreements to the extent they relate to the
Partnership in its capacity as a subsidiary of THC.
Section 6.2. EXPENSES AND FEES. Except as provided in Section 3.3, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses,
whether or not the Merger is consummated.
Section 6.3. AGREEMENT TO COOPERATE. (a) Subject to the terms and conditions
herein provided, each of the parties hereto shall use all reasonable efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including using its reasonable efforts to obtain all necessary or appropriate
waivers, consents and approvals to effect all necessary registrations, filings
and submissions and to lift any injunction or other legal bar to the Merger.
(b) Without limitation of the foregoing, each of Parent and the Partnership
undertakes and agrees to file as soon as practicable after the date hereof a
Notification and Report Form under the HSR Act with the FTC and the Antitrust
Division (as such terms are defined in the Other Merger Agreement). Each of
Parent and the Partnership shall (i) use its reasonable efforts to comply as
expeditiously as possible with all lawful requests of the FTC or the Antitrust
Division for additional information and documents and (ii) to request early
termination of the waiting period and not extend any waiting period under the
HSR Act or enter into any agreement with the FTC or the Antitrust Division not
to
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consummate the transactions contemplated by this Agreement, except (A) in the
case of Parent and Subsidiary, with the prior written consent of the
Partnership and (B) in the case of the Partnership, with the prior written
consent of Parent.
(c) In the event any litigation is commenced by any person or entity
relating to the transactions contemplated by this Agreement, (i) Parent shall
have the right, at its own expense, to participate therein, and the
Partnership will not settle any such litigation without the consent of Parent,
which consent will not be unreasonably withheld and (ii) the Partnership shall
have the right, at its own expense, to participate therein, and neither Parent
nor Subsidiary will settle any such litigation without the consent of the
Partnership, which consent will not be unreasonably withheld.
Section 6.4. PUBLIC STATEMENTS. The parties shall consult with each other
prior to issuing any press release or any written public statement with
respect to this Agreement or the transactions contemplated hereby and shall
not issue any such press release or written public statement prior to such
consultation.
Section 6.5. DIRECTORS' AND OFFICERS' INDEMNIFICATION. (a) After the
Effective Time, Parent shall, and shall cause the Surviving Partnership to,
indemnify and hold harmless, to the same extent provided on the date of this
Agreement in the Partnership's partnership agreement and pursuant to any
indemnification agreements disclosed in the Company Disclosure Schedule (as
defined in the Other Merger Agreement), each present and former director,
officer, employee and agent of the Partnership or any of its subsidiaries
(each, together with such person's heirs, executors or administrators, an
"Indemnified Party" and collectively, the "Indemnified Parties") against any
costs or expenses (including attorneys fees), judgments, fines, losses,
claims, damages, liabilities and amounts paid in settlement in connection with
any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of, relating to or in connection
with any action or omission occurring prior to the Effective Time (including,
without limitation, acts or omissions in connection with such persons serving
as an officer, director or other fiduciary in any entity if such service was
at the request or for the benefit of the Partnership or any subsidiary) or
arising out of or pertaining to the transactions contemplated by this
Agreement or the Other Merger Agreement. In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), (i) Parent and the Surviving Partnership, as the case may be,
shall pay the reasonable fees and expenses of counsel selected by the
Indemnified Parties, which counsel shall be reasonably satisfactory to the
Indemnified Parties, Parent and the Surviving Partnership, promptly after
statements therefor are received, (ii) Parent and the Surviving Partnership
will cooperate in the defense of any such matter and (iii) any determination
required to be made with respect to whether an Indemnified Party's conduct
complies with the standards set forth under applicable laws and the Parent's
or the Surviving Partnership's respective charter, by-laws, partnership
agreement or other document shall be made by independent legal counsel
acceptable to the Parent or the Surviving Partnership, as the case may be, and
the Indemnified Party; provided, however, that neither Parent nor the
Surviving Partnership shall be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld or delayed);
and provided further, that Parent and the Surviving Partnership shall not be
obligated pursuant to this Section to pay the fees and disbursements of more
than one counsel for all Indemnified Parties in any single claim, action,
suit, proceeding or investigation, except to the extent that, in the opinion
of counsel for the Indemnified Parties, two or more of such Indemnified
Parties have conflicting interests in the outcome of such claim, action suit,
proceeding or investigation.
(b) Parent agrees, without being obligated by reason of this paragraph (b)
to financially guarantee any obligations of the Surviving Partnership, (i)
subject to availability, to cause the Surviving Partnership to maintain the
Partnership's current insurance policies for directors' and officers'
liabilities or an equivalent policy or policies having terms and conditions no
less advantageous for all present and former officers and directors of the
Partnership or its subsidiaries, or of any entity having the status
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of a partner of the Partnership on the date hereof, than those in effect on
the date of this Agreement for six years from and after the Effective Time to
cover acts and omissions of such directors and officers occurring prior to the
Effective Time; provided such directors and officers shall cooperate with
Parent to maintain such insurance policies or to obtain equivalent policies,
and shall furnish all information reasonably requested by Parent in connection
therewith, and (ii) to cause the Surviving Partnership to maintain in effect
for six years any provision of the partnership agreement of the Partnership
and any successor thereof (including the Surviving Partnership) and any
contractual agreements or undertakings ("Indemnification Agreements") executed
by the Partnership relating to the rights to indemnification of officers and
directors of the Partnership or any of its subsidiaries with respect to acts
and omissions occurring prior to the Effective Time, which provisions shall
not be less favorable than the indemnification provisions currently contained
in the partnership agreement of the Partnership and the Indemnification
Agreements listed in the Company Disclosure Schedule. After the Effective
Time, Parent will refrain from taking any action which would render the
Surviving Partnership incapable of performing its obligations under this
Section 6.5 or the Indemnification Agreements. Parent agrees that, at all
times from and after the Effective Time, it shall be deemed in its capacity as
the direct or indirect owner of all of the outstanding capital stock of the
general partner of the Surviving Partnership to have unconditionally ratified
such Indemnification Agreements. Parent agrees that it will promptly notify
the Representatives (as defined in the Contingent Stock Agreement referred to
in Section 7.15 of the Other Merger Agreement) in the event that, at any time
after the Effective Time, the insurance policies hereinabove referred to shall
terminate or become unavailable.
(c) In the event the Surviving Partnership or Parent or any of their
successors or assigns (i) consolidates with or merges into any other person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provisions shall be made so that the successors and assigns of the Surviving
Partnership or Parent shall assume the obligations set forth in this Section
6.5.
Section 6.6. NOTIFICATION OF CERTAIN MATTERS. (a) Each of Parent and
Subsidiary agrees to give prompt notice to the Partnership of, and to use
their respective reasonable best efforts to prevent or promptly remedy, (i)
the occurrence or failure to occur (or the impending or threatened occurrence
or failure to occur) of any event which the occurrence or failure to occur
would be likely to cause any of its representations or warranties contained
(or incorporated by reference) in this Agreement to be untrue or inaccurate in
any material respect at any time from the date hereof to the Effective Time
and (ii) any material failure on its part to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 6.6 shall not limit or otherwise affect the remedies available
hereunder to the Partnership.
(b) The Partnership agrees to give prompt notice to Parent of, and to use
its reasonable best efforts to prevent or promptly remedy, (i) the occurrence
or failure to occur (or the impending or threatened occurrence or failure to
occur) of any event which the occurrence or failure to occur would be likely
to cause any of its representations or warranties contained (or incorporated
by reference) in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Effective Time and (ii) any
material failure on its part to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 6.6 shall
not limit or otherwise affect the remedies available hereunder to Parent or
Subsidiary.
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Section 6.7. MAINTENANCE OF PARTNERSHIP RECORDS; PERSONNEL. For a period of
seven years after the Closing Date (or such longer period as may be required
by any governmental agency or as a result of threatened or ongoing litigation
or any tax audit or other administrative proceeding):
(a) Parent shall not, and shall not permit the Surviving Partnership or
any of their respective subsidiaries to, dispose of or destroy any of the
books, records and files of the Partnership or any subsidiaries of the
Partnership which exist at the Effective Time and which become subject to
the direct or indirect control of Parent as a result of the Merger (the
"Business Documents"). If Parent wishes to dispose of or destroy any of the
Business Documents after the Effective Time, it shall first give 30 days'
prior written notice to the Representatives (as defined in the Other Merger
Agreement), which notice shall specify in reasonable detail the Business
Documents proposed to be destroyed, and the Representatives shall have the
right, at their option and expense, upon prior written notice to Parent
within such 30-day period of the specific documents desired to be retained
by the Representatives, to take possession of all or such portion of the
Business Documents so specified within 30 days after the date of the
Representatives' notice to Parent.
(b) Parent shall allow the Representatives or their agents access to all
of the Business Documents during regular business hours and upon reasonable
notice at Parent's principal place of business or at any location where any
of the Business Documents are stored, and the Representatives shall have
the right, at their own expense, to make copies of any of the Business
Documents; provided however, that any such access or copying shall be done
in such a manner so as not to interfere unreasonably with the normal
conduct of Parent's and its subsidiaries' business or operations.
(c) Parent shall make available to the Representatives, upon written
request and at the locations in which such persons are employed, (i)
personnel of Parent and its subsidiaries (including the Surviving
Partnership) to assist the Representatives in locating and obtaining the
Business Documents and (ii) to the extent within the control of Parent and
its subsidiaries, any personnel of Parent and its subsidiaries previously
in the employ of the Partnership or its subsidiaries in anticipation of, or
preparation for, existing or future litigation, tax return preparation, tax
audits or other administrative proceedings or matters in which the
Partnership or any of its subsidiaries or affiliates, or any of the
Registered Holders, the Beneficial Holders or the Transferees, is involved
and which is related to business or transactions conducted prior to the
Effective Time by the Partnership or such subsidiaries or affiliates. Such
access rights shall be exercised in a manner not to interfere unreasonably
with such person's duties. The Representatives will reimburse Parent, out
of funds held in the Escrow Account, for Parent's reasonable out-of-pocket
expenses in making such personnel available.
Section 6.8. PERMITTED DIVIDENDS AND DISTRIBUTIONS. On or prior to the
Effective Time, the Partnership shall be entitled to distribute to the Hughes
Owners such amounts of cash as it shall determine in its sole discretion,
subject to the limitation provided in Section 3.3(b)(i). No such distribution
shall reduce the consideration to be paid to the Hughes Owners in connection
with the Merger.
Section 6.9. CONSULTING AGREEMENT. Unless Morrison shall be unable or
decline to do so, on or before the Closing Date the Partnership shall enter
into an agreement with Morrison providing for consulting services to be
rendered by Morrison to the Partnership and its subsidiaries for a period of
two years following the Closing Date, with compensation for such consulting
services and other terms and conditions to be substantially the same as set
forth in the consulting agreement currently in force and effect between
Morrison and the Partnership.
Section 6.10 ANNUAL INCENTIVE COMPENSATION PLAN. On the Closing Date, the
Partnership shall terminate the Partnership's annual incentive compensation
plan and make payment to parties entitled thereto of a pro rata portion of the
targeted annual incentive compensation bonuses based on the number of days
between January 1, 1996 and the Closing Date.
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ARTICLE VII
Conditions
Section 7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) the waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated;
(b) no preliminary or permanent injunction or other order or decree by
any federal or state court which prevents the consummation of the Merger
shall have been issued and remain in effect (each party agreeing to use
commercially reasonable efforts to have any such injunction, order or
decree lifted);
(c) no action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any state or federal government or governmental
agency in the United States which would prevent the consummation of the
Merger or make the consummation of the Merger illegal;
(d) all governmental waivers, consents, orders and approvals legally
required for the consummation of the Merger and the transactions
contemplated hereby shall have been obtained and be in effect on the
Closing Date; and
(e) the Other Merger shall be consummated simultaneously with the
consummation of the Merger.
Section 7.2. CONDITIONS TO OBLIGATION OF THE PARTNERSHIP TO EFFECT THE
MERGER. Unless waived in writing by the Partnership, the obligation of the
Partnership to effect the Merger shall be subject to the fulfillment at or
prior to the Closing Date of the following additional conditions:
(a) Parent and Subsidiary shall have performed in all material respects
their agreements contained (or incorporated by reference) in this Agreement
and the Other Merger Agreement required to be performed on or prior to the
Closing Date and the representations and warranties of Parent and
Subsidiary contained (or incorporated by reference) in this Agreement and
the Other Merger Agreement shall be true and correct on and as of the date
made and on and as of the Closing Date as if made at and as of the Closing
Date, except for any representations and warranties made as of a specified
date, which shall be true and correct as of the specified date, and the
Partnership shall have received a certificate of the Chairman of the Board,
the President or a Vice President of Parent and of the President or a Vice
President of Subsidiary to that effect;
(b) the Partnership shall have received an opinion or opinions of Fried,
Frank, Harris, Shriver & Jacobson, Piper & Marbury L.L.P. and/or Bruce I.
Rothschild, counsel for Parent and Subsidiary, reasonably satisfactory to
the Partnership, dated the Closing Date and covering the due incorporation
of Parent and Subsidiary, the binding nature of this Agreement, the
effectiveness of the Merger and such other matters as may be reasonably
requested by the Partnership;
(c) all governmental waivers, consents, orders, and approvals legally
required for the consummation of the Merger and the transactions
contemplated hereby shall have been obtained and be in effect at the
Closing Date, and no governmental authority shall have promulgated any
statute, rule or regulation which, when taken together with all such
promulgations, would materially impair the value to the Hughes Owners of
the Mergers;
(d) the fairness opinion referred to in Section 5.5 shall not have been
withdrawn;
(e) the Hughes Owners' Approval shall have been obtained as contemplated
by Section 7.3 of the Other Merger Agreement;
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(f) the Escrow Account deposit described in Section 3.3(b)(xiii) shall
have been made as required; and
(g) the consulting agreement with Morrison shall have been obtained if
required by Section 6.9.
Section 7.3. CONDITIONS TO OBLIGATIONS OF PARENT AND SUBSIDIARY TO EFFECT
THE MERGER. Unless waived in writing by Parent, the obligations of Parent and
Subsidiary to effect the Merger shall be subject to the fulfillment at or
prior to the Closing Date of the additional following conditions:
(a) each of the Partnership and THC shall have performed in all material
respects its agreements contained (or incorporated by reference) in this
Agreement and the Other Merger Agreement required to be performed on or
prior to the Closing Date and the representations and warranties of the
Partnership and THC contained (or incorporated by reference) in this
Agreement and the Other Merger Agreement shall be true and correct on and
as of the date made and on and as of the Closing Date as if made at and as
of the Closing Date, except for any representations and warranties made as
of a specified date, which shall be true and correct as of the specified
date, and Parent shall have received a certificate of the President or of a
Vice President of the General Partner to that effect;
(b) Parent shall have received (i) an opinion or opinions of Andrews &
Kurth L.L.P. and/or Michael C. Niarchos, counsel for the Partnership,
reasonably satisfactory to Parent, dated the Closing Date and covering the
due formation of the Partnership, the binding nature of this Agreement, the
effectiveness of the Merger, the number and terms of the issued and
outstanding Class 1 Units to be converted in the Merger and such other
matters as may be reasonably requested by Parent and (ii) an opinion of
Andrews & Kurth L.L.P., dated the Closing Date, to the effect that the
Partnership has been a partnership for federal income tax purposes for the
period from its formation through the Effective Time; and
(c) all governmental waivers, consents, orders and approvals legally
required for the consummation of the Merger and the transactions
contemplated hereby shall have been obtained and be in effect at the
Closing Date, and no governmental authority shall have promulgated any
statute, rule or regulation which, when taken together with all such
promulgations, would materially impair the value to Parent of the Mergers.
ARTICLE VIII
Termination, Amendment and Waiver
Section 8.1. TERMINATION. This Agreement may not be terminated except with
the prior written consent of Parent and the Partnership, except that this
Agreement shall terminate automatically if the Other Merger Agreement shall be
terminated. Nothing in this Section 8.1 shall relieve any party from liability
for any breach of this Agreement.
Section 8.2. AMENDMENT. This Agreement may not be amended except by action
taken by the respective boards of directors of Parent and THHC or duly
authorized committees thereof or pursuant to authority granted by such boards
of directors or duly authorized committees thereof and then only by an
instrument in writing signed on behalf of each of the parties hereto and in
compliance with applicable law (including, if such amendment is effected after
obtaining the Hughes Owners' Approval as contemplated by Section 7.3 of the
Other Merger Agreement, requirements of Section 263 of the DGCL).
Section 8.3. WAIVER. (a) At any time prior to the Effective Time, the
Partnership may (i) extend the time for the performance of any of the
obligations or other acts of Parent or Subsidiary, (ii) waive
B-15
<PAGE>
any inaccuracies in the representations and warranties of Parent and
Subsidiary contained or incorporated by reference herein or in any document
delivered pursuant thereto and (iii) waive compliance by Parent and Subsidiary
with any of the agreements or conditions contained or incorporated by
reference herein. Any consent or agreement by the Partnership to any such
extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of the Partnership.
(b) At any time prior to the Effective Time, Parent and Subsidiary may (i)
extend the time for the performance of any of the obligations or other acts of
the Partnership, (ii) waive any inaccuracies in the representations and
warranties of the Partnership contained or incorporated by reference herein or
in any document delivered pursuant thereto and (iii) waive compliance by the
Partnership with any of the agreements or conditions contained or incorporated
by reference herein. Any consent or agreement by Parent or Subsidiary to any
such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of Parent.
ARTICLE IX
General Provisions
Section 9.1. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained or incorporated by reference in this
Agreement shall survive the Merger, and after the Effective Time, no person or
entity shall have any further obligation, nor shall any claim be asserted or
action be brought, with respect thereto.
Section 9.2. BROKERS. The Partnership represents and warrants that no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee (except for the fees payable to Morgan Stanley and E&Y Kenneth
Leventhal) or commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Partnership. Parent and Subsidiary represent and warrant that no broker,
finder or investment banker is entitled to any brokerage, finder's or other
fee or commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent or Subsidiary.
Section 9.3. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed duly given if delivered personally, mailed
by registered or certified mail (return receipt requested), delivered by
federal express or other nationally recognized overnight courier service or
sent via facsimile to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to Parent or Subsidiary to:
The Rouse Company
10275 Little Patuxent Parkway
Columbia, Maryland 21044-3456
Attention: Robert Minutoli, Senior Vice President
Telecopier: (410) 992-6392
with copies to:
The Rouse Company
10275 Little Patuxent Parkway
Columbia, Maryland 21044-3456
Attention: Bruce I. Rothschild
Telecopier: (410) 992-6392
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<PAGE>
and
Fried, Frank, Harris, Shriver and Jacobson
One New York Plaza
New York, New York 10004
Attention: Arthur Fleischer, Jr., P.C.
Telecopier: (212) 859-4000
(b) If to the Partnership, to:
The Hughes Corporation
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
Attention: John L. Goolsby, President and Chief Executive Officer
Telecopier: (702) 791-4353
with copies to:
The Hughes Corporation
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
Attention: Michael C. Niarchos, Sr. Vice President
and General Counsel
Telecopier: (702) 791-4385
and
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Attention: David G. Elkins
Telecopier: (713) 220-4285
All such communications shall be deemed to have been duly given: (i) in the
case of a notice sent by certified or registered mail, on the date receipted
for (or refused) on the return receipt; (ii) in the case of a notice delivered
by hand, when personally delivered; (iii) in the case of a notice sent by
facsimile, upon transmission subject to telephone confirmation of receipt; and
(iv) in the case of a notice sent by overnight mail or overnight courier
service, the date delivered at the designated address, in each case given or
addressed as aforesaid.
Section 9.4. INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary
intention appears, (a) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (b) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
Section 9.5. ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement and
the Other Merger Agreement (including the documents and instruments referred
to herein and therein) (a) constitute the entire agreement among the parties
and supersede all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof, (b) is not intended to confer upon any other person any rights or
remedies hereunder, except for rights of the Beneficial Holders and the
Transferees under Article III and (c) shall not be assigned by operation of
law or otherwise, except that Subsidiary may assign this Agreement to any
other wholly-owned subsidiary of Parent.
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Section 9.6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE
STATE OF DELAWARE APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY
WITHIN SUCH STATE WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES
THEREOF.
Section 9.7. JURISDICTION. Each of the Partnership, Parent and Subsidiary
hereby irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of Delaware and of the United States
of America located in the State of Delaware (the "Delaware Courts") for any
litigation arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any litigation relating
thereto except in such courts), waives any objection to the laying of venue of
any such litigation in the Delaware Courts and agrees not to plead or claim in
any Delaware Court that such litigation brought therein has been brought in an
inconvenient forum; provided, however, that nothing in this Section 9.7 is
intended to waive the right of any party to remove any such action or
proceeding commenced in any Delaware state court to an appropriate Delaware
federal court to the extent the basis for such removal exists under applicable
law. Parent and Subsidiary hereby irrevocably (a) appoint The Corporation
Trust Company (the "Process Agent"), with an office on the date hereof at 1209
Orange St., Wilmington, Delaware 19801, as its agent to receive on behalf of
either of them service of copies of the summons and complaint and any other
process which may be served in any such litigation, (b) agree that service of
process may be made on Parent or Subsidiary by mailing, by certified mail, a
copy of such summons, complaint or other process to Parent or Subsidiary in
care of the Process Agent at the Process Agent's above address, with a copy to
Parent or Subsidiary, as applicable, at its address for notice specified
herein, and (c) authorizes and directs the Process Agent to accept such
service on their behalf. The Partnership hereby irrevocably (a) appoints the
Process Agent as its agent to receive on its behalf service of copies of the
summons and complaint and any other process which may be served in any such
litigation, (b) agrees that service of process may be made on the Partnership
by mailing, by certified mail, a copy of such summons, complaint or other
process to the Partnership in care of the Process Agent at the Process Agent's
above address, with a copy to the Partnership at its address for notice
specified herein, and (c) authorizes and directs the Process Agent to accept
such service on behalf of the Partnership. As an alternative method of
service, the parties further agree that the mailing by certified or registered
mail, return receipt requested, of any process required by such courts, to the
address provided for in Section 9.3, shall constitute valid and lawful service
of process against them, without necessity for service by any other means
provided by statute or rule of court.
Section 9.8. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 9.9. KNOWLEDGE. As used in this Agreement, the word "knowledge"
shall mean, as to any party, the chief executive officer, chief operating
officer, chief financial officer and those executive officers of a party
directly involved in the negotiation and consummation of the transactions
contemplated by this Agreement.
Section 9.10. GENERAL PARTNER AUTHORIZATION. The General Partner shall be
authorized at such time in its sole discretion as it deems appropriate, to
execute, acknowledge, verify, deliver, file and record, for and in the name of
the Partnership and, to the extent necessary, the General Partner and the
limited partners of the Partnership, any and all documents and instruments,
including, without limitation, the Merger Filing, and shall do and perform any
and all acts required by applicable law which the General Partner deems
necessary or advisable, in order to effectuate the Merger.
Section 9.11. IMITATION OF LIABILITY. In no event shall any of the
following persons or entities be personally liable for any obligation under
this Agreement or the Other Merger Agreement nor shall
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<PAGE>
recourse with respect to the obligations under this Agreement or the Other
Merger Agreement be had to the assets or business of any of the following
persons or entities:
(i) any stockholder, officer, director, employee or agent (past or
present) of THC, Parent, Subsidiary or the Other Subsidiary; or
(ii) any partner (other than the General Partner), employee or agent
(past or present) of the Partnership.
Section 9.12. NO RIGHT OF SET OFF. Anything herein or elsewhere to the
contrary notwithstanding, Parent's obligations to make the payments required
under this Agreement and otherwise perform its obligations hereunder shall not
be affected by any set off, counterclaim, recoupment, defense or other claim,
right or action that Parent or Subsidiary may have against any person or
entity.
Section 9.13. SEVERABILITY. Should any provision of this Agreement be
judicially declared to be invalid, unenforceable or void, such decision will
not have the effect of invalidating or voiding the remainder of this
Agreement, and the part or parts of this Agreement so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom, and the
remainder will have the same force and effectiveness as if such stricken part
or parts had never been included herein.
IN WITNESS WHEREOF, Parent, Subsidiary and the General Partner (acting on
behalf of the Partnership) have caused this Agreement to be signed by their
respective officers as of the date first above written.
Howard Hughes Properties, Limited
Partnership
By: The Howard Hughes Corporation,
its sole General Partner
/s/ John A. Kilduff
By:______________________________
Name: John A. Kilduff
Title: Senior Vice President
The Rouse Company
/s/ Robert Minutoli
By:__________________________________
Name: Robert Minutoli
Title: Senior Vice President
TRC Acquisition Company II
/s/ Robert Minutoli
By:__________________________________
Name: Robert Minutoli
Title: Senior Vice President
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<PAGE>
APPENDIX C
May 14, 1996
Boards of Directors
The Hughes Corporation
and The Howard Hughes Corporation
3800 Howard Hughes Parkway
17th Floor
Las Vegas, NV 89109
Gentlemen:
We understand that Howard Hughes Properties Limited Partnership ("HHPLP"),
The Rouse Company ("Rouse") and TRC Acquisition Company Il, an indirect wholly
owned subsidiary of Rouse ("Merger Sub II") have entered into an Agreement and
Plan of Merger, dated as of February 22, 1996 (the "Partnership Merger
Agreement"), which provides, among other things, for the merger of Merger Sub
II with and into HHPLP (the "Partnership Merger"). As part of the Partnership
Merger, HHPLP will make a special distribution of cash (the "Special
Distribution") to the holders of Class 1 Units immediately prior to the
consummation of the Partnership Merger. Pursuant to the Partnership Merger,
each outstanding Class 1 limited partnership unit of HHPLP (the "Class 1
Units") will be converted in the right to receive a certain amount of cash
(the "Partnership Merger Consideration") to be determined at closing pursuant
to a certain formula set forth in the Partnership Merger Agreement, based
upon, among other things, the amount of the Special Distribution. We further
understand that The Hughes Corporation ("THC" or the "Company" and, together
with its subsidiaries and affiliates, including HHPLP and subsidiaries and
affiliates of HHPLP, "Hughes"), Rouse and TRC Acquisition Company I, a wholly
owned subsidiary of Rouse ("Merger Sub I"), have entered into an Agreement and
Plan of Merger, dated as of February 22, 1996 (the "THC Merger Agreement"),
which provides, among other things, for the merger of THC with and into Merger
Sub I (the "THC Merger"). Pursuant to the THC Merger, each outstanding share
of common stock, par value $1.00 per share, of THC, other than shares held in
treasury or by THC or any subsidiary of THC or as to which dissenters' rights
have been perfected ("THC Common Stock"), will be converted into the right to
receive (i) a certain number of shares of common stock, par value $0.01 per
share, of Rouse ("Rouse Common Stock" or the "Stock Consideration"), pursuant
to a certain formula set forth in the THC Merger Agreement (and in certain
circumstances a certain amount of cash in lieu of Rouse Common Stock) and (ii)
certain additional shares of Rouse Common Stock or, under certain
circumstances, shares of a new series of preferred stock of Rouse
(collectively, the "Contingent Consideration" and together with the Stock
Consideration, the "THC Merger Consideration"), to be issued over a 14-year
period following the THC Merger based upon the cash flow generated from, and
the appraised value of, certain assets of Hughes. We further understand that
Rouse intends to enter into a Contingent Stock Agreement (the "Contingent
Stock Agreement") which provides for the terms and conditions governing the
issuance of the Contingent Consideration as provided in the THC Merger. The
terms and conditions of the Partnership Merger and the THC Merger
(collectively, the "Transaction") are more fully set forth in Partnership
Merger Agreement, the THC Merger Agreement and the Contingent Stock Agreement
(together, the "Transaction Documents"), respectively.
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<PAGE>
You have asked for our opinion as to whether each of (i) the Partnership
Merger Consideration to be received by the holders of Class 1 Units pursuant
to the Partnership Merger Agreement and (ii) the THC Merger Consideration to
be received by the holders of THC Common Stock pursuant to the THC Merger
Agreement and the Contingent Stock Agreement, are fair from a financial point
of view to such holders.
For purposes of the opinion set forth herein, we have:
(i)
analyzed certain internal financial statements and other financial and
operating data concerning Hughes prepared by the management of Hughes;
(ii)
analyzed certain financial forecasts prepared by the management of
Hughes and certain of its consultants and investment partners;
(iii)
discussed the past and current operations and financial condition and
the prospects of Hughes with senior executives of Hughes;
(iv)
conducted due diligence, including site tours with respect to certain
Hughes' real estate assets;
(v)
received certain market information prepared by management of Hughes
and its consultants;
(vi)
analyzed the potential for future distributions of Rouse Common Stock
to the holders of THC Common Stock in accordance with the terms set
forth in the Contingent Stock Agreement based upon certain forecasts
prepared by Hughes, and discussed with senior executives of Hughes
certain issues relating to such forecasts and future distributions;
(vii)
analyzed certain publicly available financial statements and certain
other information of Rouse;
(viii)
reviewed the reported prices and trading activity for Rouse Common
Stock;
(ix)
compared the prices and trading activity of Rouse Common Stock with
that of certain other comparable publicly-traded companies and their
securities;
(x)
discussed the financial condition of Rouse with senior executives of
Rouse;
(xi)
participated in discussions and negotiations among representatives of
the Hughes, Rouse and their financial and legal advisors;
(xii)
reviewed the Partnership Merger Agreement, the THC Merger Agreement and
the Contingent Stock Agreement; and
(xiii)
performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes
of this opinion. With respect to the financial forecasts provided to us, we
have assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgments of the future financial
performance of Hughes. In connection with our analyses regarding the estimated
value of the Contingent Consideration, with your consent, we have relied upon
the forecasts prepared by Hughes's management of the estimated future cash
flows relating to certain assets of Hughes. We have not made any independent
valuation or appraisal of the assets or liabilities of Hughes or Rouse. Our
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
We have been informed by Hughes that the outstanding Class 1 Units and
shares of THC Common Stock are beneficially held by a substantially identical
group of holders and that such holders' relative beneficial interest is the
same in both securities and we have taken this fact into consideration
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<PAGE>
in connection with this opinion. We express no opinion or recommendation as to
how the holders of Class 1 Units or shares of THC Common Stock should vote at
the meeting held in connection with the Transaction. We also note that, in our
evaluation of the Contingent Consideration and for purposes of this opinion,
we are not expressing a view as to whether and to what extent any Contingent
Consideration will actually be paid in the future.
We have acted as financial advisor to Hughes in connection with this
transaction and will receive a fee for our services. It is understood that
this letter is for the information of the Board of Directors of the Company
and may not be used for any other purpose without our prior written consent,
except that this opinion may be included in its entirety in any filing by
Hughes with the Securities and Exchange Commission with respect to the
proposed Transaction.
Based on the foregoing, we are of the opinion on the date hereof that each
of (i) the Partnership Merger Consideration to be received by the holders of
Class 1 Units, (ii) the THC Merger Consideration to be received by the holders
of THC Common Stock pursuant to the THC Merger Agreement and the Contingent
Stock Agreement, are fair from a financial point of view to such holders.
Very truly yours.
MORGAN STANLEY REALTY INCORPORATED
/s/ Scott M. Kelley
By:__________________________________
Scott M. Kelley
Principal
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<PAGE>
APPENDIX D
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THE ROUSE COMPANY
FORM OF CONTINGENT STOCK AGREEMENT
EFFECTIVE AS OF JANUARY 1, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
COMPOSITE CONTINGENT STOCK AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
ARTICLE I--DEFINITIONS AND INTERPRETATION............................... D-1
Section 1.01 Certain Defined Terms.................................. D-1
Section 1.02 Interpretation......................................... D-16
ARTICLE II--CONTINGENT SHARES........................................... D-17
Section 2.01 General................................................ D-17
Section 2.02 Business Unit Accounts................................. D-17
Section 2.03 Value Index for the General Business Unit Account...... D-17
Value Index for the Howard Hughes Center Business Unit
Section 2.04 Account................................................ D-18
Section 2.05 Value Index for the Playa Vista Business Unit Account.. D-18
Section 2.06 Value Index for the Summerlin Business Unit Account.... D-19
Section 2.07 Asset Appraisals and Holders' FMV Allocation........... D-20
Section 2.08 Delivery of Contingent Shares.......................... D-21
Section 2.09 Debits to Business Unit Accounts....................... D-25
Section 2.10 Tax Adjustments........................................ D-26
Section 2.11 Company Loans.......................................... D-27
Section 2.12 Advances............................................... D-27
Section 2.13 Underfunding of Employee Benefit Plans................. D-27
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF COMPANY.................. D-28
ARTICLE IV--CERTAIN COVENANTS........................................... D-30
Section 4.01 Information............................................ D-30
Section 4.02 Ownership of Assets of the Business Units.............. D-32
Section 4.03 Capitalization of Business Units....................... D-32
Section 4.04 Records and Books of Account........................... D-34
Negative Covenants of the Company and the Business Unit
Section 4.05 Entities............................................... D-34
Section 4.06 Board Representation................................... D-36
Section 4.07 Treasury Shares........................................ D-37
Section 4.08 Inspection............................................. D-37
Section 4.09 Maintain Registry...................................... D-38
Section 4.10 Compliance with Laws................................... D-38
Section 4.11 Taxes; Claims.......................................... D-38
Section 4.12 Insurance.............................................. D-38
Section 4.13 Corporate Existence; Etc. ............................. D-38
Registration of Contingent Shares; Compliance with
Section 4.14 Securities Laws........................................ D-39
Section 4.15 Rouse Shareholder Approval............................. D-39
Section 4.16 Contingent Preferred Shares............................ D-40
Section 4.17 Reservation of Shares.................................. D-40
Section 4.18 Abandonment of Assets.................................. D-40
ARTICLE V--CONCERNING THE REPRESENTATIVES............................... D-41
Section 5.01 Authority and Liabilities of the Representatives....... D-41
Section 5.02 Directions to Representatives.......................... D-42
Section 5.03 Reliance Upon Documents and Opinions of Counsel........ D-42
Section 5.04 No Responsibility for Recitals, Etc. .................. D-42
Section 5.05 Actions by Representatives............................. D-43
Section 5.06 Resignation and Removal................................ D-43
Section 5.07 Appointment of Successor Representative................ D-43
</TABLE>
D-i
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<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
Section 5.08 Acceptance of Appointment by Successor Representative... D-44
Section 5.09 Compensation and Indemnification........................ D-44
Section 5.10 Representatives' Escrow Account......................... D-44
Section 5.11 Confidentiality......................................... D-47
Section 5.12 Controlling Provisions.................................. D-47
Section 5.13 Indemnification......................................... D-47
ARTICLE VI--CONCERNING THE REVIEW COMMITTEE.............................. D-48
Section 6.01 General................................................. D-48
Section 6.02 Composition............................................. D-48
Section 6.03 Resignation and Removal................................. D-48
Section 6.04 Actions, etc. .......................................... D-49
Section 6.05 Confidentiality......................................... D-49
Section 6.06 Indemnification......................................... D-50
ARTICLE VII--MISCELLANEOUS............................................... D-50
Section 7.01 Notices................................................. D-50
Section 7.02 Dispute Resolution...................................... D-51
Section 7.03 Benefit and Burden...................................... D-52
Section 7.04 Consolidations, Mergers, Etc. .......................... D-52
Section 7.05 Company as Fiduciary.................................... D-53
Section 7.06 No Third Party Rights................................... D-53
Section 7.07 Amendments and Waiver................................... D-53
Section 7.08 Further Documents....................................... D-55
Section 7.09 Assignments............................................. D-55
Section 7.10 Severability............................................ D-55
Section 7.11 Specific Performance.................................... D-55
Section 7.12 Applicable Law.......................................... D-55
Section 7.13 Submission to Jurisdiction.............................. D-56
Section 7.14 Expenses................................................ D-56
Section 7.15 No Right of Set Off..................................... D-56
Section 7.16 No Partnership, Joint Venture or Agency................. D-56
Section 7.17 Survival of Representations and Warranties.............. D-56
Section 7.18 Payments and Interest................................... D-56
Section 7.19 Entire Agreement........................................ D-57
</TABLE>
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CONTINGENT STOCK AGREEMENT
This Contingent Stock Agreement, effective as of January 1, 1996, is by The
Rouse Company, a Maryland corporation (the "Company"), in favor of and for the
benefit of the Holders and the Representatives (as such terms are hereinafter
defined).
PRELIMINARY STATEMENTS
1. The Company, TRC Acquisition Company I, a newly-formed Delaware
corporation and a wholly-owned subsidiary of the Company ("Newco"), and The
Hughes Corporation, a Delaware corporation ("THC"), are parties to that
certain Agreement and Plan of Merger dated as of February 22, 1996 (the
"Merger Agreement"), which provides, among other things, for the merger of THC
with and into Newco (the "Merger"), as a result of which each outstanding
share of common stock of THC (other than shares held by THC or any of its
subsidiaries) will be converted into the right to receive (i) upon the
effectiveness of the Merger, shares of Rouse Common Stock (as hereinafter
defined) and, if required pursuant to the terms of the Merger Agreement, cash
and (ii) subsequent to the effectiveness of the Merger, additional shares of
Rouse Common Stock or, in certain circumstances, Rouse Preferred Stock,
pursuant to the terms of this Agreement.
2. The number of shares of Rouse Common Stock deliverable by the Company
upon the effectiveness of the Merger will be determined as provided in the
Merger Agreement. The number of shares of Rouse Common Stock deliverable by
the Company subsequent to the effectiveness of the Merger (the "Contingent
Shares") is not susceptible of being ascertained as of the time of the Merger
because of the uncertainty as to the value of certain Assets (as hereinafter
defined) as of the time of the Merger. Accordingly, the number of Contingent
Shares will be determined as provided in this Agreement based upon the future
economic performance of the Business Units (as hereinafter defined) and
related Assets.
3. It is a condition precedent to the obligations of THC to close the
transactions contemplated by the Merger Agreement that the Company shall have
executed and delivered this Agreement.
4. This Agreement and the Merger Agreement are inter-related and non-
severable, and the parties to the Merger Agreement would not have consummated
the Merger had this Agreement not been executed and delivered and vice versa.
NOW, THEREFORE, in consideration of the premises and the covenants contained
herein and in the Merger Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Company, intending to be legally bound, hereby agrees as follows:
ARTICLE I
Definitions and Interpretation
Section 1.01. CERTAIN DEFINED TERMS. Capitalized terms used in this
Agreement shall have the following respective meanings, except as otherwise
provided herein or as the context shall otherwise require:
"Adjusted Fair Market Value" has the meaning specified in Section
2.07(d).
"Adjusted Net Equity Balance" means, with respect to the General Business
Unit and the Summerlin Business Unit, an amount (not less than zero)
determined as of the beginning of each Computation Period equal to (i) the
Initial Net Equity of such Business Unit minus (ii) an amount
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equal to 200% of the aggregate credits to the Business Unit Account for
such Business Unit under Section 2.03(b) or Section 2.06(b), as applicable,
for all Prior Computation Periods (if any).
"Advance" has the meaning specified in Section 2.12.
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with such Person. The term
"control" (including, with correlative meaning, the terms "controlling",
"controlled by" and "under common control with") means the possession,
directly or indirectly, of the power to direct or cause direction of the
management and policies of a Person, whether through the ownership of
voting securities, by Contract or otherwise; provided, however, that in no
event shall the Company be deemed an Affiliate of any Holder or vice versa.
"Agreement" means this Contingent Stock Agreement.
"All Computation Periods" means, with respect to any Calculation Date,
all Computation Periods ending on or prior to such Calculation Date.
"Applicable Federal Rate" means, with respect to any day, the federal
short-term rate, mid-term rate or long-term rate, as applicable, determined
pursuant to Section 1274(d) of the Code and published by the Secretary of
the Treasury or his delegate for the most recent calendar month ending
prior to such day. The Applicable Federal Rate shall be based on semi-
annual compounding.
"Applicable Tax Rate" means, with respect to any Business Unit, 33.33% of
the marginal tax rate applicable to corporations subject to Subchapter C of
Chapter 1 of Subtitle A of the Code for each category of items of Business
Unit Income or Loss for such Business Unit for the period in which such
Business Unit Income or Loss was realized or sustained.
"Appraisal Panel" has the meaning specified in Section 2.07(b).
"Assets" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, tangible
or intangible, and wherever situated, including Equity Interests in any
other Person.
"Associate" means, with respect to any Person, (i) any Affiliate of such
Person, (ii) any trust or estate in which such Person has a substantial
beneficial interest or as to which such Person serves as a trustee or in a
similar fiduciary capacity, (iii) any relative or spouse of such Person or
any relative of such spouse, (iv) any relative or spouse of any director or
officer of such Person, (v) any current or former employee, agent, advisor,
consultant, officer, director, partner or stockholder of such Person and
(vi) any Person in which such Person has an Equity Interest or with which
such Person has a business relationship.
"Authorized Officer" means the chief executive officer, the president,
the chief financial officer, the chief accounting officer or any other
officer of the Company with responsibility for the administration of the
relevant portion of this Agreement.
"Business Unit Accounts" has the meaning specified in Section 2.02.
"Business Unit Entity" has the meaning specified in Section 4.02.
"Business Unit Income or Loss" has the meaning specified in Section
2.10(a).
"Business Units" means (i) the General Business Unit, (ii) the Howard
Hughes Center Business Unit, (iii) the Playa Vista Business Unit and (iv)
the Summerlin Business Unit.
"Calculation Date" means the last day of each Computation Period.
"Capital Expenditure" means any expenditure which, in accordance with
GAAP, should be classified as a capital expenditure.
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"Cash" means (i) cash and cash equivalents, (ii) Marketable Securities
and (iii) and any other item that would be reflected as cash or cash
equivalents on a balance sheet prepared in accordance with GAAP.
"Claim" means any claim, demand, investigation, cause of action, suit,
default, assessment, litigation, third party action, arbitral proceeding or
proceeding by or before any Governmental Authority or any other Person.
"Code" means the Internal Revenue Code of 1986, and any successor statute
of similar import, together with the regulations thereunder.
"Company" has the meaning specified in the introductory paragraph of this
Agreement.
"Company Consolidated Group" has the meaning specified in Section
2.10(a).
"Company Loan" has the meaning specified in Section 2.11.
"Company Members" has the meaning specified in Section 6.02.
"Computation Period" means the six-month period beginning on each January
1 and July 1 of each year; provided, however, that with respect to each
Business Unit (i) the first Computation Period shall commence on January 1,
1996 and (ii) the final Computation Period shall end on the Valuation Date
applicable to such Business Unit.
"Computation Period Distribution Amount" has the meaning specified in
Section 2.08(b).
"Computation Period Tax Adjustment" has the meaning specified in Section
2.10(c).
"Contingent Preferred Shares" has the meaning specified in Section 4.16.
"Contingent Shares" has the meaning specified in the Preliminary
Statements of this Agreement.
"Contingent Stock Distribution Discount Rate" means a rate equal to (i)
the lesser of (A) the lowest Applicable Federal Rate in effect during the
three-month period ended on February 29, 1996 and (B) the lowest Applicable
Federal Rate in effect during the three-month period ending on the last day
of the month in which the Effective Time occurs or (ii) such other rate as
may be required under applicable tax Laws.
"Contingent Stock Distribution Interest" means, with respect to any
Contingent Stock Distribution Value, such Contingent Stock Distribution
Value minus the applicable Contingent Stock Distribution Principal.
"Contingent Stock Distribution Principal" has the meaning specified in
Section 2.08(h).
"Contingent Stock Distribution Value" means, with respect to any Holder,
(i) in the case of any delivery of Contingent Shares (A) for any
Calculation Date, the product of (x) the Current Share Value as of such
Calculation Date times (y) the Computation Period Distribution Amount with
respect to such Calculation Date times (z) such Holder's Percentage
Interest and (B) for any Valuation Distribution Date, the product of (x)
the Valuation Distribution Share Value as of such Valuation Distribution
Date times (y) the number of Contingent Shares delivered to such Holder on
such Valuation Distribution Date and (ii) in the case of any delivery of
Contingent Preferred Shares for any Calculation Date or Valuation
Distribution Date, the product of (A) the stated liquidation value of a
Contingent Preferred Share times (B) the number of Contingent Preferred
Shares delivered to such Holder in connection with such Calculation Date or
Valuation Distribution Date.
"Contract" means any agreement, lease, license, evidence of indebtedness,
mortgage, deed of trust, note, bond, indenture, security agreement,
commitment, instrument, understanding or other contract, obligation or
arrangement of any kind.
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"Current Share Value" means, as of any date (the "computation date"), the
average of the closing per share sales prices of Rouse Common Stock during
the ten trading days consisting of (i) the five consecutive trading days
ending on the last day of the calendar month immediately preceding the
calendar month in which the computation date falls and (ii) the five
consecutive trading days ending on the computation date, in each case, on
the Composite Tape of the New York Stock Exchange or, if shares of Rouse
Common Stock are not then listed on the New York Stock Exchange, on the
principal United States securities exchange registered under the Exchange
Act on which shares of Rouse Common Stock are then listed or, if shares of
Rouse Common Stock are not then listed on any such stock exchange, the
average of the average closing bid and ask quotations with respect to a
share of Rouse Common Stock during the ten trading days consisting of (A)
the five consecutive trading days ending on the last day of the calendar
month immediately preceding the calendar month in which the computation
date falls and (B) the five consecutive trading days ending on the
computation date, in each case, on the NASDAQ or any successor system then
in use or, if no such quotations are then available, the average of the bid
and asked prices with respect to a share of Rouse Common Stock for such
trading days, as furnished by a member of the New York Stock Exchange
regularly making a market in the Rouse Common Stock selected by the Rouse
Board, or, if no such member firm is then making a market in Rouse Common
Stock, the fair market value on the computation date of a share of Rouse
Common Stock as determined in good faith by a majority of the members of
the Rouse Board after consultation with an independent financial advisor of
recognized national standing.
"Debt" means, for any Person, all Liabilities of such Person (i) for the
repayment of money borrowed (whether or not represented by bonds,
debentures, notes, securities or other similar instruments), (ii) to pay
the deferred or unpaid purchase price of goods, services or Assets, (iii)
as lessee under any lease which, in conformity with GAAP, is required to be
capitalized for balance sheet purposes, (iv) under guaranties, endorsements
(other than for collection or deposit in the ordinary course of business)
or assumptions of, or other contingent obligations in respect of, or to
purchase or otherwise acquire, any Liabilities of any other Person, (v) in
respect of letters of credit or other similar instruments, (vi) secured by
a Lien existing on Assets owned by such Person, whether or not the
Liabilities secured thereby shall have been assumed by such Person and/or
(vii) to redeem or repurchase any of such Person's Equity Interests.
"Debtor Relief Laws" means the Bankruptcy Code of the United States, and
any successor statute of similar import, and all other applicable
dissolution, liquidation, conservatorship, bankruptcy, moratorium,
readjustment of debt, compromise, rearrangement, receivership, insolvency,
fraudulent transfer or conveyance, reorganization or similar debtor relief
Laws from time to time in effect affecting the rights of creditors
generally.
"Delaware Courts" has the meaning specified in Section 7.13.
"Delivery Date" has the meaning specified in Section 4.16.
"Disputants" has the meaning specified in Section 7.02(a).
"Dividend Adjustment" means, with respect to any Calculation Date or
Valuation Date, an amount equal to the product of (i) the sum of any and
all dividends and other distributions paid on a share of Rouse Common Stock
after the date hereof, but only if, in the case of each such dividend or
distribution, the record date fixed for the purpose of determining the
Persons entitled to receive payment of such dividend or other distribution
falls within the period commencing on such Calculation Date or Valuation
Date, as applicable, and ending on the date on which the Contingent Shares
required to be delivered by the Company in connection with such Calculation
Date or Valuation Date, as applicable, are actually delivered to the
Holders times (ii) the number of Contingent Shares which the Company is
otherwise required to deliver to the Holders in connection with such
Calculation Date or Valuation Date, as applicable.
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"Effective Date" has the meaning specified in the Merger Agreement.
"Effective Time" has the meaning specified in the Merger Agreement.
"Eligible Assignee" means an assignee or transferee of the rights of a
Holder hereunder but only if such assignee or transferee is (i) a
beneficial owner of Equity Interests of such Holder as of the date hereof,
(ii) an executor, administrator or guardian of the estate of such Holder or
beneficial owner, (iii) an inter vivos trust for the benefit of such Holder
or beneficial owner or a member of such Holder's or beneficial owner's
immediate family, (iv) a legatee or heir of such Holder or beneficial owner
under the will of such Holder or beneficial owner or pursuant to the Laws
of descent and distribution, (v) a Person who acquires such rights by
operation of Law (including pursuant to a property settlement agreement,
plan or arrangement approved or ordered by any court) or (vi) the Company
or any Subsidiary of the Company.
"Environmental Laws" means any and all Laws, including any judgment,
permit, approval, decision or determination, pertaining to the environment
now or hereafter in effect and applicable to the Assets comprising any
Business Unit, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. (S) 9601 et seq., as
amended by the Superfund Amendment and Reauthorization Act of 1986 and as
further amended, the Federal Water Pollution Control Act, 33 U.S.C.
(S) 1251 et seq., as amended, the Solid Waste Disposal Act of 1976, 42
U.S.C. (S) 6901 et seq., as amended, the Clean Air Act, 42 U.S.C. (S) 7401
et seq., as amended, the Toxic Substances Control Act, 15 U.S.C. (S) 2601
et seq., as amended, the Hazardous Materials Transportation Act, 49 Ap.
U.S.C.A. (S) 1801 et seq., as amended, the Federal Insecticide, Fungicide
and Rodenticide Act, 7 U.S.C. (S) 136 et seq., as amended, and comparable
state and local Laws, and other environmental conservation and protection
Laws.
"Equity Interests" means, with respect to any Person and whether now
outstanding or issued after the date of this Agreement, any and all shares,
interests, participations or other equivalents in the equity (however
designated) of such Person and any and all options, warrants and other
rights to purchase or otherwise acquire an equity interest in such Person.
"Escrow Account" has the meaning specified in Section 5.10(a).
"Escrow Agent" has the meaning specified in Section 5.10(a).
"Escrow Agreement" has the meaning specified in Section 5.10(a).
"Escrow Termination Date" has the meaning specified in Section 5.10(a).
"Event of Default" means any of the following events:
(a) any representation, warranty or statement made by the Company in
this Agreement or in any writing furnished by the Company to the Review
Committee, any Representative or any Holder pursuant to this Agreement
is inaccurate in any respect on the date as of which made and in light
of the circumstances under which made, which inaccuracy, alone or
together with all other such inaccuracies, could reasonably be expected
to have a Material Adverse Effect;
(b) the Company fails to perform or observe any covenant or agreement
contained in Section 2.08;
(c) the Company fails to perform or observe any other material
agreement, term or condition contained in this Agreement and such
failure (if capable of being remedied) is not remedied within 30
consecutive days after the date on which such failure first became
known to the Company;
(d) the Company takes or omits to take any action with the knowledge
that such action or omission will result, and such action or omission
does result, in the default by the Company of any its covenants or
agreements contained in this Agreement;
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(e) the Company or HHPLP makes an assignment for the benefit of
creditors or is generally not paying its Debts as they become due;
(f) any decree or order for relief in respect of the Company or HHPLP
is entered under any Debtor Relief Law of any jurisdiction;
(g) the Company or HHPLP files a petition or otherwise applies to any
Governmental Authority for, or consents to, the appointment of, or the
taking of possession by, a trustee, receiver, custodian, liquidator or
similar official of it or any substantial part of its Assets, or
commences a voluntary case under any Debtor Relief Law of any
jurisdiction;
(h) any such petition or application described in clause (g) above is
filed, or any such proceeding commenced, against the Company or HHPLP,
and the Company or HHPLP, as applicable, by any act indicates its
approval thereof, consents thereto or acquiesces therein, or an order,
judgment or decree is entered appointing any such trustee, receiver,
custodian, liquidator or similar official, or approving the petition in
any such proceeding, and such order, judgment or decree remains
unstayed and in effect for more than 60 consecutive days;
(i) any order, judgment or decree is entered in any proceeding
against the Company or HHPLP decreeing the dissolution, winding-up or
liquidation of the Company or HHPLP, and such order, judgment or decree
remains unstayed and in effect for more than 60 consecutive days;
(j) any order, judgment or decree is entered in any proceedings
against the Company or HHPLP decreeing a split-up of the Company or
HHPLP, or which requires the divestiture of any material Asset or any
material portion of the Assets of the Company or HHPLP, and such order,
judgment or decree remains unstayed and in effect for more than 60
consecutive days;
(k) this Agreement shall at any time, for any reason, cease to be in
full force and effect or shall be declared to be null and void in whole
or in any material part by an order, judgment or decree of any
Governmental Authority, or the validity or enforceability of this
Agreement shall be contested by or on behalf of the Company, or the
Company shall renounce, or deny that it is bound by the terms of, any
material provision of this Agreement, it being understood that nothing
herein shall restrict the Company from asserting that its actions or
omissions do not constitute a violation of this Agreement;
(l) any violation or breach of, or default under, the governing
documents of any Business Unit Entity shall occur and (if capable of
being remedied) is not remedied within 30 consecutive days after the
date on which such failure first became known to the Company or such
Business Unit Entity, which violation, breach or default, alone or
together with all other such violations, breaches and defaults, could
reasonably be expected to have a Material Adverse Effect; or
(m) the failure of the shareholders of the Company to approve this
Agreement and the issuance and delivery of securities of the Company as
contemplated hereby prior to July 15, 1997.
"Excess Cash Flow" means, with respect to any Business Unit for any
Computation Period, an amount equal to its Receipts for such Computation
Period minus the sum of its Expenditures and Computation Period Tax Adjustment
(if any) for such Computation Period.
"Exchange Act" means the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder.
"Expenditures" means, with respect to any Business Unit for any Computation
Period, all costs and expenses incurred by the Company or any of its
Subsidiaries which are properly chargeable to
D-6
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such Business Unit in accordance with GAAP and actually paid during such
Computation Period and all adjustments to the records and books of account of
such Business Unit made in accordance with the terms of this Agreement which
have the effect of decreasing the Cash accounts of such Business Unit during
such Computation Period, including any and all:
(a) real estate commissions, legal fees and title costs incurred in
connection with the Transfer of any of the Assets comprising such Business
Unit;
(b) sales, franchise, licensing, property and other taxes (other than
taxes of any Governmental Authority measured by income);
(c) Capital Expenditures, insurance premiums, labor, supplies, utilities
and other services, infrastructure, amenities, improvements and
enhancements, whether on-site, off-site or regional, not reimbursed by the
purchaser of any of the Assets comprising such Business Unit or otherwise,
including costs in connection with installing utilities, roadways and
landscaping, which costs are allocable to any of the Assets comprising such
Business Unit on a basis reasonably determined by the Company;
(d) payments on indebtedness for borrowed money (including any Company
Loan and any Revolving Credit Loan), whether for principal or interest,
which indebtedness existed on the effective date hereof or was incurred
subsequent to the effective date hereof in the ordinary course of business
of any Business Unit Entity in accordance with the terms of this Agreement;
(e) overhead directly related to such Business Unit or, to the extent
that services are provided to the related Business Unit Entity by employees
of the Company or any of its Subsidiaries (such as financial, personnel,
legal, accounting, tax or other administrative services), the reasonable
actual costs incurred for such services, which costs shall not exceed the
costs at which such services could have been obtained by such Business Unit
Entity in an arms'-length transaction with a Person that is not an
Associate of the Company or any Business Unit Entity;
(f) costs and expenses in connection with the direct management of the
Assets comprising such Business Unit other than Howard Hughes Center
Management Costs and Playa Vista Management Costs;
(g) fees and expenses in connection with or as a result of any action or
proceeding brought, or any Claim made, by any Governmental Authority or any
other Person (other than the Review Committee, any Representative or any
Holder) directly relating to any of the Assets comprising such Business
Unit, unless such incurrence resulted from the gross negligence or willful
misconduct of the Company or any of its Subsidiaries constituting a
material breach of its obligations under this Agreement;
(h) increases in Reserves but only if and to the extent that such
increases are permitted by the definition of "Reserve" contained herein;
(i) fees, costs and expenses of the Review Committee which have been
allocated to such Business Unit in accordance with Section 6.01;
(j) Advances (or any portion thereof) repaid to any other Business Unit;
and
(k) Advances made to any other Business Unit;
provided, however, that except as expressly provided in the foregoing clauses
(a) through (k), the term "Expenditure" shall not include (i) any cost or
expense of the Company or any of its Subsidiaries for general overhead or non-
operating items, such as financial, personnel, legal, accounting, tax and
other general administrative services, (ii) any charges for interest on
intercompany advances or charges for other intercompany payments of any nature
other than payments for Assets or services directly related to the operation
of the Assets comprising such Business Unit or (iii) any share of the
consolidated tax Liability of the Company Consolidated Group (federal, state
or local), and provided further, that all
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Expenditures incurred by THC and its Subsidiaries during the period commencing
January 1, 1996 to and including the Effective Time, which would be properly
chargeable to any Business Unit in accordance with GAAP and are actually paid
during such period, shall be deemed for all purposes of this Agreement to have
been incurred and actually paid by the Company during such period with respect
to such Business Unit.
"Fair Market Value" has the meaning specified in Section 2.07(e).
"Funding Requirement" has the meaning specified in Section 4.03(a).
"GAAP" means generally accepted United States accounting principles, applied
on a consistent basis (except for changes in which the independent auditors of
the Person in question concur) as in effect from time to time unless the
application of a principle of accounting not in effect at the date hereof
would in any way be prejudicial to the Holders or to the Company, in which
event the generally accepted United States accounting principles as in effect
on the date hereof will be applied.
"General Business Unit" means any and all rights, title and interests
(subject to any related Liabilities) of the Company and its Subsidiaries and
Affiliates in and to (i) (A) the Assets located in Nevada and California
described on Exhibit B and all improvements thereon (if any), (B) the
available land component of Hughes Airport Center (as designated on Exhibit
D), (C) the available land component of Hughes Center (as designated on
Exhibit E) and (D) the available land component of Hughes Cheyenne Center (as
designated on Exhibit F) and (ii) to the extent that any of the foregoing are
held indirectly by the Company or any Business Unit Entity through any other
Person, (A) the Equity Interests held by the Company or such Business Unit
Entity in such other Person, (B) any securities issued or issuable with
respect to any such Equity Interests by way of distribution, (C) any Assets or
securities into which such Equity Interests or securities may be converted in
connection with a recapitalization, merger, consolidation or other
reorganization or otherwise and (D) any Cash, Equity Interests or other Assets
distributed with respect to such Equity Interests, securities or Assets.
"General Business Unit Account" has the meaning specified in Section 2.03.
"General Business Unit Reduction Amount" means, with respect to the General
Business Unit Account for any Calculation Date, an amount equal to the sum of
(i) 3% of the gross cash proceeds from sales of real estate comprising the
General Business Unit during All Computation Periods (except in connection
with the allocation of the Fair Market Value of any Assets among the Company
and the Holders in which case such amount shall be determined as provided in
Section 2.07(d)), reduced by all amounts taken into account in Section
2.03(c)(ii)(B) in all Prior Computation Periods plus (ii) to the extent that
all or any portion of the amount obtained under clause (i) is not taken into
account in Section 2.03(c)(ii)(B) on the Calculation Date for the Computation
Period during which such gross cash proceeds were actually received by the
Company or any of its Subsidiaries, a cumulative 7.5% per annum, compounded
semi-annually, return on such amount from the Calculation Date for the
Computation Period during which such gross cash proceeds were so received
until the Calculation Date for the Computation Period in which such amount is
taken into account in Section 2.03(c)(ii)(B).
"Governmental Approval" means any authorization, consent, approval, license,
franchise, lease, ruling, tariff, rate, permit, certificate or exemption of,
or filing or registration with, any Governmental Authority.
"Governmental Authority" means (i) any nation or government, (ii) any
federal, state, county, province, city, town, municipality, local or other
political subdivision thereof or thereto, (iii) any court, tribunal,
department, commission, board, bureau, instrumentality, agency, council,
arbitrator or other entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
D-8
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government and (iv) any other governmental entity, agency or authority having
or exercising jurisdiction over any relevant Person, item or matter.
"Hazardous Materials" means any hazardous or toxic substances or
contaminated material including asbestos (friable, non-friable or any other
form), polychlorinated biphenyls and any flammable materials, explosives,
radioactive materials, hazardous materials, hazardous waste, hazardous or
toxic or regulated substances or related materials defined in or under any
Environmental Law and any other substance, waste, pollutant, contaminant or
material, including petroleum products and derivatives, crude oil or fractions
thereof or any chemical which causes cancer or reproductive effects, which are
defined by applicable Law as hazardous or toxic or the use, transport,
disposal, storage, treatment, recycling, handling, discharge, Release or
emission of which is regulated or governed by any applicable Law.
"HHPLP" means Howard Hughes Properties, Limited Partnership, a Delaware
limited partnership.
"Holder Members" has the meaning specified in Section 6.02.
"Holders" means the Persons listed on Schedule 1 and all Eligible Assignees.
"Holders' Designee" has the meaning specified in Section 4.06(a).
"Holders' FMV Allocation" has the meaning specified in Section 2.07(d).
"Holders' FMV Allocation Amount" has the meaning specified in Section
2.08(c)(ii).
"Howard Hughes Center Business Unit" means any and all rights, title and
interests (subject to any related Liabilities) of the Company and its
Subsidiaries and Affiliates in and to (i) the approximately 69-acre tract of
land located in Los Angeles, California described on Exhibit C and all
improvements thereon and (ii) to the extent that any of the foregoing are held
indirectly by the Company or any Business Unit Entity through any other
Person, (A) the Equity Interests held by the Company or such Business Unit
Entity in such other Person, (B) any securities issued or issuable with
respect to any such Equity Interests by way of distribution, (C) any Assets or
securities into which such Equity Interests may be converted in connection
with a recapitalization, merger, consolidation or other reorganization or
otherwise and (D) any Cash, Equity Interests or other Assets distributed with
respect to such Equity Interests, securities or Assets.
"Howard Hughes Center Business Unit Account" has the meaning specified in
Section 2.03.
"Howard Hughes Center Management Costs" means, with respect to any
Calculation Date, the aggregate amount of direct management costs incurred and
actually paid by the Company and any of its Subsidiaries in connection with
the Howard Hughes Center Business Unit during All Computation Periods which
have not been taken into account under Section 2.04 in any Prior Computation
Period.
"Hughes Airport Center" means the approximately 382-acre tract of land
located in Las Vegas, Nevada described on Exhibit D and all improvements
thereon (except as noted on such Exhibit).
"Hughes Center" means the approximately 84-acre tract of land located in Las
Vegas, Nevada described on Exhibit E and all improvements thereon (except as
noted on such Exhibit).
"Hughes Cheyenne Center" means the approximately 211-acre tract of land
located in Las Vegas, Nevada described on Exhibit F and all improvements
thereon (except as noted on such Exhibit).
"Hughes Funding" means the lesser of (i) the amount funded by the Company
pursuant to the Funding Requirement and (ii) $10,000,000; provided, however,
that solely for the purposes of making
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the calculations required by Section 2.05(a) with respect to any Calculation
Date, such amount shall be reduced by an amount equal to the aggregate credits
to the Playa Vista Business Unit Account under Section 2.05(b) for all Prior
Computation Periods.
"Independent Member" has the meaning specified in Section 6.02.
"Initial Net Equity" means (i) $40,900,000 with respect to the General
Business Unit and (ii) $64,900,000 with respect to the Summerlin Business
Unit.
"Laws" means all laws, statutes, rules, regulations, ordinances, orders,
writs, injunctions or decrees and other pronouncements having the effect of
law of any Governmental Authority.
"Liability" means, with respect to any Person, any indebtedness, obligation
and other liability of such Person, whether absolute, accrued, contingent,
fixed or otherwise, or whether due or to become due.
"Lien" means (i) any mortgage, lien, charge, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, security interest, assessment,
adverse claim, levy, preference or priority or other security agreement of any
kind or nature whatsoever (whether voluntary or involuntary, affirmative or
negative, and whether imposed or created by Contract, operation of Law or
otherwise) in, on, of or with respect to any Assets or Equity Interests,
whether now owned or hereafter acquired, (ii) any other interest in Assets or
Equity Interests designed to secure the repayment of Debt or any other
obligation, whether arising by Contract, operation of Law or otherwise, (iii)
any Contract to give any of the foregoing and (iv) any conditional sale or
other title retention agreement and any financing lease having substantially
the same effect as any of the foregoing.
"Losses" means any and all damages (including consequential, punitive and
exemplary), fines, penalties, judgments, deficiencies, losses, costs and
expenses, including court costs, reasonable fees of attorneys, accountants and
other experts and other reasonable expenses of any Claim.
"Maguire Thomas Partners" means (i) Maguire Thomas Partners/JMB Associates,
a California limited partnership, and (ii) Maguire Thomas Partners/JMB Area C
Associates, a California limited partnership.
"Majority Holders" means, at any time, Holders whose combined Percentage
Interests represent more than 50% of the Percentage Interests of all Holders
(excluding the Company and its Subsidiaries and Affiliates).
"Marketable Securities" means (i) securities which (a) are listed on the New
York Stock Exchange or the American Stock Exchange, (b) are reported on
NASDAQ, (c) are part of an issue which is listed on the New York Stock
Exchange or the American Stock Exchange or is reported on NASDAQ or (d) are
regularly quoted by brokers or dealers making a market in such securities and
(ii) readily marketable securities or obligations issued or guaranteed by any
Governmental Authority.
"Material Adverse Effect" means a material adverse effect on (i) the
business, operations, condition (financial or otherwise), results of
operations or prospects of the Company, any Business Unit Entity or any
Business Unit, (ii) the Company's ability to perform its obligations under
this Agreement, (iii) the value, condition or marketability of any material
Assets comprising any Business Unit, (iv) the validity, legality or
enforceability of this Agreement, (v) the ability of any Holder to exercise or
enforce any of its rights, powers or remedies under this Agreement or (vi) the
ability of any Representative or any member of the Review Committee to perform
any of his duties or obligations, or to exercise or enforce any of his rights,
powers or remedies, under this Agreement, but excluding from clauses (i) and
(iii) hereof any effect caused by matters of general applicability, such as
economic, regulatory, tax or other matters of general applicability, or
matters generally affecting real estate or real estate
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markets. For purposes of this definition, the financial condition of the
Company, any Business Unit Entity or any Business Unit shall be determined on
the basis of the current value net worth of such Person.
"Merger" has the meaning specified in the Preliminary Statements of this
Agreement.
"Merger Agreement" has the meaning specified in the Preliminary Statements
of this Agreement.
"Merger Agreements" means (i) the Merger Agreement and (ii) the Agreement
and Plan of Merger, dated as of February 22, 1996, among the Company, TRC
Acquisition Company II and HHPLP relating to the Partnership Merger.
"NASDAQ" means The Nasdaq Stock Market.
"Newco" has the meaning specified in the Preliminary Statements of this
Agreement.
"Parties" means the Company, the Holders and the Representatives.
"Partnership Merger" means the merger of TRC Acquisition Company II, a
newly-formed Delaware corporation and a wholly-owned subsidiary of the
Company, with and into HHPLP, as a result of which each outstanding Class 1 LP
Unit of HHPLP will be converted into the right to receive cash.
"Percentage Interest" means (i) with respect to each Holder, the percentage
set opposite such Holder's name on Schedule 1, as such percentage may be
adjusted in connection with a Transfer to an Eligible Assignee, and (ii) with
respect to any Eligible Assignee, the percentage Transferred to such Eligible
Assignee by the Transferring Holder.
"Permitted Encumbrances" means any and all (i) Liens for taxes if the same
shall at the time not be delinquent or thereafter may be paid without penalty
or if such taxes are being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, but only if (A) such contest
could not reasonably be expected to have a Material Adverse Effect and (B)
such reserves or other appropriate provisions (if any) as shall be required by
GAAP shall have been made therefor, (ii) Liens consisting of easements, zoning
restrictions or other restrictions on the use of real property that do not
materially affect the value of the Assets encumbered thereby or materially
impair the ability of the Company or any Business Unit Entity to use such
Assets in its business, (iii) Liens of landlords, mechanics, materialmen,
warehousemen, carriers or other statutory Liens securing obligations that are
not yet due and are incurred in the ordinary course of business, (iv) Liens
resulting from deposits to secure payments of workmen's compensation or other
social security programs or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids or Contracts in the ordinary course
of business and (v) Liens existing on the date hereof or created after the
date hereof in accordance with the terms of this Agreement.
"Permitted Investments" has the meaning specified in Section 5.09(f).
"Person" means any individual, firm, corporation, trust, association,
company, limited liability company, joint stock company, partnership, joint
venture, Governmental Authority or other entity or enterprise.
"Playa Vista Business Unit" means any and all rights, title and interests
(subject to any related Liabilities) of the Company and its Subsidiaries and
Affiliates in and to (i) the limited partner interests held by HHPLP in the
Playa Vista Partnerships, (ii) any securities issued or issuable with respect
to any such limited partner interests by way of distribution, (iii) any Assets
or securities into which such limited partner interests or securities may be
converted in connection with a recapitalization, merger,
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consolidation or other reorganization or otherwise and (iv) any Cash, Equity
Interests or other Assets distributed with respect to such limited partner
interests, securities or Assets.
"Playa Vista Business Unit Account" has the meaning specified in Section
2.05.
"Playa Vista Financings" has the meaning specified in Section 4.03(a).
"Playa Vista Management Costs" means, with respect to any Calculation Date,
the aggregate amount of direct management costs incurred by the Company and
its Subsidiaries in connection with the Playa Vista Business Unit during All
Computation Periods which have not been taken into account under Section 2.05
in any Prior Computation Period.
"Playa Vista Management Costs Return" means a cumulative 15% per annum,
compounded semi-annually, return on the Playa Vista Management Costs from the
last day of the Computation Period during which such costs were actually paid
by the Company or any of its Subsidiaries until the Calculation Date for the
Computation Period in which such amount is taken into account under Section
2.05(a).
"Playa Vista Partnership Agreements" means (i) the Amended and Restated
Agreement of Limited Partnership dated February 14, 1989 of Maguire Thomas
Partners-Playa Vista, a California limited partnership, and (ii) the Agreement
of Limited Partnership dated September 26, 1990 of Maguire Thomas Partners--
Playa Vista Area C, a California limited partnership.
"Playa Vista Partnerships" means (i) Maguire Thomas Partners-Playa Vista, a
California limited partnership, and (ii) Maguire Thomas Partners--Playa Vista
Area C, a California limited partnership, being the entities formed by the
Playa Vista Partnership Agreements.
"Prior Computation Periods" means, with respect to any Calculation Date, all
Computation Periods ending prior to, but not on or after, such Calculation
Date.
"Process Agent" has the meaning specified in Section 7.13.
"Prohibited Transaction" has the meaning specified in Section 7.04(b).
"Proposed Transaction" has the meaning specified in Section 7.04(c).
"Receipts" means, with respect to any Business Unit for any Computation
Period, all Cash actually received by the Company or any of its Subsidiaries
during such Computation Period with respect to the operation and business of
such Business Unit and the Assets comprising such Business Unit and all
adjustments to the records and books of account of such Business Unit made in
accordance with the terms of this Agreement which have the effect of
increasing the Cash accounts of such Business Unit during such Computation
Period, including any and all:
(a) proceeds from the purchaser of any of the Assets comprising such
Business Unit (including any purchaser pursuant to an agreement that was
entered into prior to the effective date hereof), including, with respect
to the General Business Unit, the Howard Hughes Center Business Unit and
the Summerlin Business Unit, any proceeds paid (or deemed paid) by the
Company or any of its Subsidiaries to the applicable Business Unit Entity
for the account of the applicable Business Unit in connection with a
Transfer of any of the Assets of the General Business Unit, the Howard
Hughes Center Business Unit or the Summerlin Business Unit to the Company
or any of its Subsidiaries;
(b) proceeds of indebtedness for borrowed money (including any Company
Loan and any Revolving Credit Loan) received subsequent to the effective
date hereof;
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(c) decreases in any Reserves;
(d) insurance proceeds in respect of any casualty or other insured loss
to or affecting any of the Assets comprising such Business Unit;
(e) proceeds in respect of any taking of any of the Assets comprising
such Business Unit, or of any rights appurtenant thereto, by condemnation,
eminent domain or transfer in lieu thereof for public or quasi-public use
under any Law or arising out of any damage or diminution in value to the
Assets comprising such Business Unit in connection therewith;
(f) payments (including sinking fund payments) and distributions on or in
respect of any Equity Interests in any Person included in the Assets
comprising such Business Unit;
(j) Advances received from any other Business Unit; and
(k) repayments by any other Business Unit of any Advance (or any portion
thereof) made by such Business Unit;
provided, however, that for purposes of determining Receipts hereunder, to the
extent that the Company or any of its Subsidiaries receives proceeds, Cash,
Assets or other amounts of a kind described herein that relate both to the
Assets comprising such Business Unit and to other Assets of the Company or any
of its Subsidiaries, such proceeds, Cash, Assets and other amounts shall be
allocated to such Business Unit and to such other Assets by the Company on a
reasonable and equitable basis and, to the extent applicable, in accordance
with GAAP, and, provided further, that all Receipts actually received by THC
and its Subsidiaries during the period commencing January 1, 1996 to and
including the Effective Time with respect to the operation and business of the
Assets comprising such Business Unit shall be deemed for all purposes of this
Agreement to have been actually received by the Company during such period
with respect to such Business Unit.
"Registration Statement" has the meaning specified in paragraph (j) of
Article III.
"Release" means any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping or disposing into the
environment (including the abandonment or discarding of barrels, containers
and other closed receptacles).
"Representatives" means Platt W. Davis, III, David G. Elkins and Kenneth E.
Studdard and their respective successors who shall become such in the manner
prescribed in Article V.
"Representatives' Diversion Notice" has the meaning specified in Section
5.10(b).
"Reserve" means, with respect to any Business Unit, any contingency reserve
established and maintained in good faith by the Company or the relevant
Business Unit Entity with respect to such Business Unit in accordance with
GAAP, if applicable, but only if such reserve is reasonably necessary (i) for
working capital purposes approved by the Company in good faith, (ii) to fund
any payments for indebtedness for borrowed money with respect to such Business
Unit to the extent, and only to the extent, that such indebtedness exists on
the date hereof or is incurred subsequent to the date hereof (x) in the
ordinary course of the business of the Company or any of its Subsidiaries, (y)
in compliance with the terms of this Agreement and (z) solely for the purpose
of funding Expenditures or (iii) for any other proper purpose; provided,
however, that no such reserve may be established or maintained at any time
unless, and then only to the extent that, such action is consistent with sound
business practices and is in accordance with industry practices.
"Review Committee" has the meaning specified in Section 6.01.
"Revolving Credit Loans" has the meaning specified in Section 4.03(b).
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"Rouse Board" means the board of directors of the Company.
"Rouse Common Stock" means the common stock, par value $0.01, of the
Company, being the class of common stock of the Company listed on the New York
Stock Exchange on the date hereof, and any securities issued or issuable with
respect to any such common stock by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise.
"Rouse Funding" means the amount (not to exceed $5,000,000) funded by the
Company pursuant to the Funding Requirement in excess of $10,000,000;
provided, however, that solely for the purposes of making the calculations
required by Section 2.05(c) with respect to any Calculation Date, such amount
shall be reduced by an amount equal to 1,000% of the aggregate credits to the
Playa Vista Business Unit Account under Section 2.05(d) for all Prior
Computation Periods.
"Rouse Increasing Rate Preferred Stock" means the series of Rouse Preferred
Stock created and designated pursuant to the Articles Supplementary to the
Charter of the Company attached hereto as Exhibit A and consisting of
10,000,000 authorized and unissued shares.
"Rouse Preferred Stock" means the preferred stock, par value $0.01, of the
Company.
"SEC" means the Securities and Exchange Commission of the United States of
America or any successor thereof.
"Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder.
"State and Local Tax Adjustment" means, with respect to any Business Unit
for any taxable year, 33 1/3% of the aggregate income taxes that would be
imposed on the income of such Business Unit by each State or local tax
authority ("jurisdiction") as a result of the location of the Assets of such
Business Unit within such jurisdiction or the conduct of business by such
Business Unit within such jurisdiction, computed as if the Assets of such
Business Unit located in such jurisdiction or the operations of such Business
Unit in such jurisdiction were owned and conducted by a separate corporation
which has no contacts or nexus with any other jurisdiction other than the
jurisdiction in which such Assets are located or business is conducted.
"Subsidiary" means, with respect to any Person, each other Person of which
or in which such Person and its other Subsidiaries own, hold or control,
directly or indirectly, Equity Interests having ordinary voting power, in the
absence of contingencies, to elect a majority of the board of directors of
such other Person, or other Persons performing similar functions for such
other Person, or, if there are no such directors or other Persons, having a
majority of the general voting power with respect to the policies and
activities of such other Person.
"Summerlin" means the tract of land located in Las Vegas, Nevada described
on Exhibit G.
"Summerlin Business Unit" means any and all rights, title and interests
(subject to any related Liabilities) of the Company and its Subsidiaries and
Affiliates in and to (i)(A) the Assets located in Summerlin described on
Exhibit H and all improvements thereon (if any) and (B) the available land
component of Summerlin Commercial (as designated on Exhibit I), (ii) the
Tournament Players Club golf club located in Summerlin, including the 18-hole
championship golf course, the clubhouse and related structures, and (iii) to
the extent that any of the foregoing are held indirectly by the Company or any
Business Unit Entity through any other Person, (A) the Equity Interests held
by the Company or such Business Unit Entity in such other Person, (B) any
securities issued or issuable with respect to any such Equity Interests by way
of distribution, (C) any Assets or securities into which such Equity Interests
or securities may be converted in connection with a recapitalization, merger,
consolidation or other reorganization or otherwise and (D) any Cash or other
Assets distributed with respect to such Equity Interests, securities or
Assets.
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"Summerlin Business Unit Account" has the meaning specified in Section 2.06.
"Summerlin Business Unit Reduction Amount" means, with respect to the
Summerlin Business Unit Account for any Calculation Date, an amount equal to
the sum of (i) 3% of the gross cash proceeds from sales of real estate
comprising the Summerlin Business Unit during All Computation Periods (except
in connection with the allocation of the Fair Market Value of any Assets among
the Company and the Holders in which case such amount shall be determined as
provided in Section 2.07(d)), reduced by all amounts taken into account in
Section 2.06(e)(ii)(D) in all Prior Computation Periods plus (ii) to the
extent that all or any portion of the amount obtained under clause (i) is not
taken into account in Section 2.06(e)(ii)(D) on the Calculation Date for the
Computation Period during which such gross cash proceeds were actually
received by the Company or any of its Subsidiaries, a cumulative 7.5% per
annum, compounded semi-annually, return on such amount from the Calculation
Date for the Computation Period during which such gross cash proceeds were so
received until the Calculation Date for the Computation Period in which such
amount is taken into account in Section 2.06(e)(ii)(D).
"Summerlin Commercial" means that portion of Summerlin identified as such on
Exhibit I and all improvements thereon (except as noted on such Exhibit).
"Summerlin North" means that portion of Summerlin identified as being owned
by HHPLP on Exhibit J and all improvements thereon and the available land
component of Summerlin Commercial (as designated on Exhibit I).
"Tax Adjustment" means, with respect to any Business Unit for any taxable
year, the sum of (i) the product of (A) Business Unit Income or Loss for such
Business Unit for such taxable year times (B) the Applicable Tax Rate plus
(ii) the State and Local Tax Adjustment for such Business Unit for such
taxable year; provided, however, that the Tax Adjustment shall not be a
negative number.
"Termination Date" has the meaning specified in Section 4.03(a).
"THC" has the meaning specified in the Preliminary Statements of this
Agreement.
"Transfer" means, with respect to any Assets, any sale, Lien, pledge,
assignment or other disposition of such Assets, and such term, when used as a
verb, shall have correlative meanings.
"Treasury Shares" means shares of Rouse Common Stock held in the treasury of
the Company or any shares of authorized and unissued Rouse Common Stock
treated as treasury shares for purposes of listing on the New York Stock
Exchange by virtue of having been reacquired by the Company and restored to
the status of authorized but unissued shares.
"Valuation Date" means (i) with respect to the General Business Unit and the
portion of the Summerlin Business Unit comprised of Summerlin North, December
31, 2000, (ii) with respect to the Howard Hughes Center Business Unit and the
Playa Vista Business Unit, December 31, 2005 and (iii) with respect to the
remaining Assets comprising the Summerlin Business Unit, December 31, 2009.
"Valuation Distribution Date" means, with respect to any Business Unit, the
date on which any of the Contingent Shares required to be delivered by the
Company to the Holders in connection with the Valuation Date for such Business
Unit are actually delivered by the Company to the Holders.
"Valuation Distribution Share Value" means, as of any date (the "computation
date"), the average of the closing per share sales prices of Rouse Common
Stock during the twenty trading days consisting of the five consecutive
trading days ending on the last day of each of the four calendar months
immediately preceding the calendar month in which the computation date falls,
in each case, on the Composite Tape of the New York Stock Exchange or, if
shares of Rouse Common Stock are
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not then listed on the New York Stock Exchange, on the principal United States
securities exchange registered under the Exchange Act on which shares of Rouse
Common Stock are then listed or, if shares of Rouse Common Stock are not then
listed on any such stock exchange, the average of the average closing bid and
ask quotations with respect to a share of Rouse Common Stock during the twenty
trading days consisting of the five consecutive trading days ending on the
last day of each of the four calendar months immediately preceding the
calendar month in which the computation date falls, in each case, on the
NASDAQ or any successor system then in use or, if no such quotations are then
available, the average of the bid and asked prices with respect to a share of
Rouse Common Stock for such trading days, as furnished by a member of the New
York Stock Exchange regularly making a market in the Rouse Common Stock
selected by the Rouse Board, or, if no such member firm is then making a
market in Rouse Common Stock, the fair market value on the computation date of
a share of Rouse Common Stock as determined in good faith by a majority of the
members of the Rouse Board after consultation with an independent financial
advisor of recognized national standing.
Section 1.02. INTERPRETATION. In this Agreement, unless a clear contrary
intention appears:
(a) the words "hereof," "herein" and "hereunder" and words of similar import
refer to this Agreement as a whole and not to any particular provision of this
Agreement;
(b) reference to any gender includes each other gender and the neuter;
(c) all terms defined in the singular shall have the same meanings in the
plural and vice versa;
(d) reference to any Person includes such Person's heirs, executors,
personal representatives, administrators, successors and assigns; provided,
however, that nothing contained in this clause (d) is intended to authorize
any assignment not otherwise permitted by this Agreement;
(e) reference to a Person in a particular capacity excludes such Person in
any other capacity or individually;
(f) reference to any Contract means such Contract as amended, supplemented
or modified from time to time in accordance with the terms thereof;
(g) all references to Articles, Sections, Schedules and Exhibits shall be
deemed to be references to the Articles and Sections of this Agreement and the
Schedules and Exhibits attached hereto which are made a part hereof;
(h) the word "including" (and with correlative meaning "include") means
including, without limiting the generality of any description preceding such
term;
(i) with respect to the determination of any period of time, the word "from"
means "from and including" and the words "to" and "until" each means "to but
excluding";
(j) the captions and headings contained in this Agreement shall not be
considered or given any effect in construing the provisions hereof if any
question of intent should arise;
(k) reference to any Law or any Governmental Approval means such Law or
Governmental Approval as amended, modified, codified, reenacted, supplemented
or superseded in whole or in part, and in effect from time to time;
(l) accounting terms used but not defined herein shall be construed in
accordance with GAAP, and whenever the character or amount of any Asset,
Liability or item of income or expense is required to be determined, or any
consolidation or accounting computation is required to be made, such
determination or computation shall be made in accordance with GAAP;
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(m) all computations and calculations to be made hereunder in accordance
with GAAP shall be made by utilizing such allocations, conventions and methods
as are consistent with GAAP and have been utilized by the Company prior to the
date hereof or which may be subsequently adopted by the Company in accordance
with GAAP except as otherwise provided herein;
(n) the word "knowledge", when used in any representation, covenant or
warranty of the Company contained herein, means the actual knowledge of any
officer, director, key employee, division head or similar Person of the
Company or any of its Subsidiaries;
(o) where any provision of this Agreement refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision
shall be applicable whether such action is taken directly or indirectly by
such Person; and
(p) no provision of this Agreement shall be interpreted or construed against
any Person solely because that Person or its legal representative drafted such
provision.
ARTICLE II
Contingent Shares
Section 2.01. GENERAL. As part of the consideration to be received by the
Holders in connection with the Merger, the Company shall deliver the
Contingent Shares to the Holders (and, if required pursuant to Section
2.08(k), the Representatives) in the amounts and at the times set forth in
this Agreement. At the time they are delivered, the Contingent Shares shall be
(i) freely tradable shares (other than as a result of the actions, or based
upon the status, of the holder thereof) which are registered with the SEC
under the Securities Act of 1933, (ii) listed on the New York Stock Exchange,
the American Stock Exchange or NASDAQ and (iii) duly authorized, legally and
validly issued, fully paid and nonassessable and free of preemptive rights.
Section 2.02. BUSINESS UNIT ACCOUNTS. The Company shall establish and
maintain a separate account on its financial books and records with respect to
each Business Unit (collectively, the "Business Unit Accounts"). The initial
balance of each Business Unit Account shall be zero. Adjustments to the
Business Unit Accounts shall be made as of each Calculation Date in accordance
with the following provisions of this Article II.
Section 2.03. VALUE INDEX FOR THE GENERAL BUSINESS UNIT ACCOUNT. As of each
Calculation Date, the Business Unit Account maintained with respect to the
General Business Unit (the "General Business Unit Account") shall be credited
with an amount equal to the sum of the following:
(a) an amount equal to 50% of Excess Cash Flow of the General Business
Unit for the applicable Computation Period until the aggregate credits to
the General Business Unit Account under this clause (a) for All Computation
Periods equal a cumulative 7.5% per annum, compounded semi-annually, amount
calculated on the Adjusted Net Equity Balance of the General Business
Account as of the beginning of each Prior Computation Period;
(b) an amount equal to 50% of (i) Excess Cash Flow for the General
Business Unit for the applicable Computation Period minus (ii) 200% of the
credits to the General Business Unit Account under clause (a) above for
such Computation Period, until the aggregate credits to the General
Business Unit Account under this clause (b) for All Computation Periods
equal 50% of the Initial Net Equity of the General Business Unit Account;
and
(c) an amount equal to 50% of (i) Excess Cash Flow for the General
Business Unit for the applicable Computation Period minus (ii) the sum of
(A) 200% of the credits to the General
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Business Unit Account under clauses (a) and (b) above for such Computation
Period plus (B) the General Business Unit Reduction Amount as of such
Calculation Date.
Section 2.04. VALUE INDEX FOR THE HOWARD HUGHES CENTER BUSINESS UNIT
ACCOUNT. As of each Calculation Date, the Business Unit Account maintained
with respect to the Howard Hughes Center Business Unit (the "Howard Hughes
Center Business Unit Account") shall be credited with an amount equal to 80%
of (a) Excess Cash Flow for the Howard Hughes Center Business Unit for the
applicable Computation Period minus (b) the sum of (i) the Howard Hughes
Center Management Costs plus (ii) to the extent not taken into account under
this clause (ii) in any Prior Computation Period, an amount equal to a
cumulative 15% per annum, compounded semi-annually, return on the Howard
Hughes Center Management Costs from the last day of the Computation Period
during which such costs were actually paid by the Company or any of its
Subsidiaries until the Calculation Date for the Computation Period in which
such amount is taken into account under this clause (ii); provided, however,
that on each Calculation Date, the credit that would otherwise be made to the
Howard Hughes Center Business Unit Account on such Calculation Date shall be
reduced by (A) the aggregate of all amounts paid by the Company or any of its
Subsidiaries to Tooley & Company pursuant to that certain Managing Developer
Agreement dated August 15, 1993 between Tooley & Company and HHPLP during All
Computation Periods minus (B) the aggregate of all such amounts taken into
account pursuant to this Section 2.04 in all Prior Computation Periods.
Section 2.05. VALUE INDEX FOR THE PLAYA VISTA BUSINESS UNIT ACCOUNT. As of
each Calculation Date, the Business Unit Account maintained with respect to
the Playa Vista Business Unit (the "Playa Vista Business Unit Account") shall
be credited with an amount equal to the sum of the following:
(a) an amount equal to 90% of (i) Excess Cash Flow of the Playa Vista
Business Unit for the applicable Computation Period minus (ii) the sum of
(A) the Playa Vista Management Costs plus (B) the Playa Vista Management
Costs Return until the aggregate credits to the Playa Vista Business Unit
Account under this clause (a) for All Computation Periods equal a
cumulative 7% per annum, compounded semi-annually, amount calculated on the
Hughes Funding as of the beginning of each Prior Computation Period;
(b) an amount equal to 90% of (i) Excess Cash Flow for the Playa Vista
Business Unit for the applicable Computation Period minus (ii) the sum of
(A) the Playa Vista Management Costs plus (B) the Playa Vista Management
Costs Return taken into account under clause (a) above for the applicable
Computation Period plus (C) 10/9ths of the credits to the Playa Vista
Business Unit Account under clause (a) above for such Computation Period,
until the aggregate credits to the Playa Vista Business Unit Account under
this clause (b) for All Computation Periods equal the Hughes Funding;
(c) an amount equal to 10% of (i) Excess Cash Flow for the Playa Vista
Business Unit for the applicable Computation Period minus (ii) the sum of
(A) the Playa Vista Management Costs plus (B) the Playa Vista Management
Costs Return taken into account under clause (a) above for the applicable
Computation Period plus (C) 10/9ths of the credits to the Playa Vista
Business Unit Account under clauses (a) and (b) above for such Computation
Period, until the aggregate credits to the Playa Vista Business Unit
Account under this clause (c) for All Computation Periods equal a
cumulative 7/9ths of 1% per annum, compounded semi-annually, amount
calculated on the Rouse Funding as of the beginning of each Prior
Computation Period;
(d) an amount equal to 10% of (i) Excess Cash Flow for the Playa Vista
Business Unit for the applicable Computation Period minus (ii) the sum of
(A) the Playa Vista Management Costs plus (B) the Playa Vista Management
Costs Return taken into account under clause (a) above for the applicable
Computation Period plus (C) 10/9ths of the credits to the Playa Vista
Business Unit Account under clauses (a) and (b) above for such Computation
Period plus (D) 1,000% of the
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credits to the Playa Vista Business Unit Account under clause (c) above for
such Computation Period, until the aggregate credits to the Playa Vista
Business Unit Account under this clause (d) for All Computation Periods
equal 1/9th of the Rouse Funding;
(e) an amount equal to 75% of (i) Excess Cash Flow for the Playa Vista
Business Unit for the applicable Computation Period minus (ii) the sum of
(A) the Playa Vista Management Costs plus (B) the Playa Vista Management
Costs Return taken into account under clause (a) above for the applicable
Computation Period plus (C)10/9ths of the credits to the Playa Vista
Business Unit Account under clauses (a) and (b) above for such Computation
Period plus (D) 1,000% of the credits to the Playa Vista Business Unit
Account under clauses (c) and (d) above for such Computation Period, until
the aggregate credits to the Playa Vista Business Unit Account under this
clause (e) for All Computation Periods equal $25,000,000;
(f) an amount equal to 25% of (i) Excess Cash Flow for the Playa Vista
Business Unit for the applicable Computation Period minus (ii) the sum of
(A) the Playa Vista Management Costs plus (B) the Playa Vista Management
Costs Return taken into account under clause (a) above for the applicable
Computation Period plus (C) 10/9ths of the credits to the Playa Vista
Business Unit Account under clauses (a) and (b) above for such Computation
Period plus (D) 1,000% of the credits to the Playa Vista Business Unit
Account under clauses (c) and (d) above for such Computation Period plus
(E) 4/3rds of the credits to the Playa Vista Business Unit Account under
clause (e) above for such Computation Period, until the aggregate credits
to the Playa Vista Business Unit Account under this clause (f) for All
Computation Periods equal $8,333,333; and
(g) an amount equal to 50% of (i) Excess Cash Flow for the Playa Vista
Business Unit for the applicable Computation Period minus (ii) the sum of
(A) the Playa Vista Management Costs plus (B) the Playa Vista Management
Costs Return taken into account under clause (a) above for the applicable
Computation Period plus (C) 10/9ths of the credits to the Playa Vista
Business Unit Account under clauses (a) and (b) above for such Computation
Period plus (D) 1,000% of the credits to the Playa Vista Business Unit
Account under clauses (c) and (d) above for such Computation Period plus
(E) 4/3rds of the credits to the Playa Vista Business Unit Account under
clause (e) above for such Computation Period plus (F) 400% of the credits
to the Playa Vista Business Unit Account under clause (f) above for such
Computation Period.
Section 2.06. VALUE INDEX FOR THE SUMMERLIN BUSINESS UNIT ACCOUNT. As of
each Calculation Date, the Business Unit Account maintained with respect to
the Summerlin Business Unit (the "Summerlin Business Unit Account") shall be
credited with an amount equal to the sum of the following:
(a) an amount equal to 50% of Excess Cash Flow of the Summerlin Business
Unit for the applicable Computation Period until the aggregate credits to
the Summerlin Business Unit Account under this clause (a) for All
Computation Periods equal a cumulative 7.5% per annum, compounded semi-
annually, amount calculated on the Adjusted Net Equity Balance of the
Summerlin Business Unit Account as of the beginning of each Prior
Computation Period;
(b) an amount equal to 50% of (i) Excess Cash Flow for the Summerlin
Business Unit for the applicable Computation Period minus (ii) 200% of the
credits to the Summerlin Business Unit Account under clause (a) above for
such Computation Period, until the aggregate credits to the Summerlin
Business Unit Account under this clause (b) for All Computation Periods
equal to 50% of the Initial Net Equity of the Summerlin Business Unit;
(c) an amount equal to 75% of (i) Excess Cash Flow for the Summerlin
Business Unit for the applicable Computation Period minus (ii) 200% of the
credits to the Summerlin Business Unit Account under clauses (a) and (b)
above for such Computation Period, until the aggregate credits to the
Summerlin Business Unit Account under this clause (c) for All Computation
Periods equal $40,000,000;
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(d) an amount equal to 25% of (i) Excess Cash Flow for the Summerlin
Business Unit for the applicable Computation Period minus (ii) the sum of
(A) 200% of the credits to the Summerlin Business Unit Account under
clauses (a) and (b) above for such Computation Period plus (B) 4/3rds of
the credits to the Summerlin Business Unit Account under clause (c) above
for such Computation Period, until the aggregate credits to the Summerlin
Business Unit Account under this clause (d) for All Computation Periods
equal $13,333,333; and
(e) an amount equal to 50% of (i) Excess Cash Flow for the Summerlin
Business Unit for the applicable Computation Period minus (ii) the sum of
(A) 200% of the credits to the Summerlin Business Unit Account under
clauses (a) and (b) above for such Computation Period plus (B) 4/3rds of
the credits to the Summerlin Business Unit Account under clause (c) above
for such Computation Period plus (C) 400% of the credits to the Summerlin
Business Unit Account under clause (d) above for such Computation Period
plus (D) the Summerlin Business Unit Reduction Amount as of such
Calculation Date.
Section 2.07. ASSET APPRAISALS AND HOLDERS' FMV ALLOCATION. (a) The Fair
Market Value of the Assets comprising each Business Unit or portion thereof
shall be determined by appraisal as of the Valuation Date with respect to such
Business Unit or portion thereof. If any of the Assets comprising any Business
Unit are held indirectly by the Company or any Business Unit Entity through
any other Person, the appraisal required under this Section 2.07 with respect
to such Assets shall determine the Fair Market Value of such Assets as owned
by such other Person, in which event the Fair Market Value of such Assets for
purposes of computing the number of Contingent Shares to be delivered by the
Company in connection with such Valuation Date shall be determined by
multiplying such Fair Market Value by the percentage interest in the equity of
such other Person owned by the Company or such Business Unit Entity, taking
into account any preferential rights associated with any Equity Interest owned
by any Person therein.
(b) Within five days after the Valuation Date with respect to each Business
Unit or portion thereof, the Representatives and the Company shall each
appoint one appraiser for each item of Assets included in such Business Unit
or portion thereof. The two appraisers so appointed shall, within five days
after the second of them has been appointed, appoint a third appraiser and
such appraisers shall constitute the "Appraisal Panel" with respect to such
item of Assets. If the two appraisers appointed are unable to agree on the
third appraiser within such five-day period, either the Representatives or the
Company may apply to any court of competent jurisdiction for the appointment
of a third appraiser. If either the Representatives or the Company fails to
appoint an appraiser within five days after notice from the other that the
recipient of such notice has failed to appoint an appraiser within the five-
day period referred to above, the appraiser appointed by the other shall be
deemed to constitute the Appraisal Panel. Each appraiser shall be a real
estate and financial expert who is generally recognized as having current
competence in the valuation of Assets similar to the Assets being appraised in
the area(s) where such Assets are located. Each appraiser shall be independent
and, as such, shall not be an Associate of the Company or any Holder (other
than as a result of contractual relationships arising out of such appraisal or
any prior appraisal pursuant to this Agreement). The fees and expenses of each
Appraisal Panel shall be paid by the Company. Notwithstanding anything to the
contrary set forth above, any appraiser may be appointed to appraise more than
one item of Assets at any one time, or may be appointed repeatedly over time.
(c) Each Appraisal Panel shall be instructed to determine, within 45 days of
its appointment, the Fair Market Value of the Assets comprising the relevant
Business Unit or portion thereof as of the relevant Valuation Date. If any
Appraisal Panel consists of three appraisers, the Fair Market Value
determination that shall differ the most from the second highest Fair Market
Value determination of all three appraisers shall be excluded, the remaining
two Fair Market Value determinations shall be averaged and such average shall
constitute the determination of the Appraisal Panel. Each Appraisal Panel
shall furnish the Company and the Representatives with a written report of its
determination
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within the 45-day period referred to above, which report shall (i) be signed
by each member of such Appraisal Panel and (ii) specify the amount determined
by such Appraisal Panel to be the Fair Market Value of the relevant Assets as
of the relevant Valuation Date. The determination of the Fair Market Value of
such Assets by the Appraisal Panel shall be final and binding on the Parties.
(d) Upon determining the Fair Market Value of the Assets comprising any
Business Unit or portion thereof, the aggregate Fair Market Value of all of
the Assets comprising such Business Unit or portion thereof shall be reduced
by an amount equal to the amount of all accounts payable and other
indebtedness properly reflected on the records and books of account of such
Business Unit or portion thereof in accordance with the terms of this
Agreement which have not been taken into account as an Expenditure in
determining the Excess Cash Flow for any Computation Period for the applicable
Business Unit Account of such Business Unit or portion thereof, excluding any
such amounts which were taken into account in determining the Fair Market
Value of any of such Assets (the "Adjusted Fair Market Value"). Upon
determining the Adjusted Fair Market Value of any Business Unit or portion
thereof, an amount equal to such Adjusted Fair Market Value shall be allocated
between the Company and the Holders in the same manner that credits to the
Business Unit Account for such Business Unit are calculated under Section
2.03, 2.04, 2.05 or 2.06 (as appropriate), as if such Adjusted Fair Market
Value were the Excess Cash Flow upon which such calculations are to be made
and taking into account all previous credits which have been made to such
Business Unit Account based upon Excess Cash Flow for such Business Unit;
provided, however, that (i) such allocations shall be determined without
regard to any development or management fee otherwise payable to the Company
or any of its Subsidiaries, other than any General Business Unit Reduction
Amount or Summerlin Business Unit Reduction Amount (which for purposes of this
paragraph (d) shall include 3% of the gross proceeds from sales of real estate
comprising the applicable Business Unit prior to such Valuation Date
irrespective of whether such proceeds have been received by the Company or any
of its Subsidiaries) which represents amounts actually received by or owing to
the Company or any of its Subsidiaries which have not been taken into account
under Section 2.03(c)(ii)(B) or 2.06(e)(ii)(D), respectively, with regard to
the sale, prior to the applicable Valuation Date, of any real estate which
comprised the General Business Unit or the Summerlin Business Unit, and (ii)
the amount determined to be allocable to the Holders as provided above shall
be reduced by an amount equal to 50% of the fees and expenses of each
Appraisal Panel which have been paid by the Company with respect to such
Business Unit or portion thereof. As used herein, "Holders' FMV Allocation",
when used with reference to the Assets comprising any Business Unit or portion
thereof, means the portion of the Adjusted Fair Market Value of such Assets
allocable to the account of the Holders pursuant to this paragraph (d).
(e) For purposes of this Agreement, "Fair Market Value" means, with respect
to any Asset, the most probable price in terms of money which such Asset would
bring at a fair sale for its highest reasonable use, determined in a
commercially reasonable manner, and where the title to such Asset will pass
from the seller to the buyer with (i) each of the buyer and the seller acting
prudently and knowledgeably, (ii) the price not being affected by any undue
stimulus, (iii) neither the buyer nor seller being under compulsion to sell or
buy such Asset, (iv) each of the buyer and the seller being typically
motivated, well informed and advised and acting in what it considers to be its
best interests, (v) a reasonable period of time being allowed for exposure of
such Asset in the open market and (vi) the payment of the purchase price being
made in cash. In determining the Fair Market Value of any Asset, there shall
be taken into account, as appropriate, all Liabilities relating to such Asset
to the extent that they are secured by a Lien on such Asset or would otherwise
encumber such Asset in the hands of the buyer, and the appraisers shall assume
that the Asset being appraised is to be sold in a commercially reasonable
manner.
Section 2.08. DELIVERY OF CONTINGENT SHARES. (a) The Company shall be
obligated to deliver Contingent Shares with respect to each Business Unit (i)
following each Calculation Date (including the Valuation Date for such
Business Unit) as provided in paragraph (b) below and (ii) following the
Valuation Date for such Business Unit or portion thereof as provided in
paragraph (c) below.
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(b) The aggregate number of Contingent Shares to be delivered by the Company
to the Holders with respect to all of the Business Units following each
Calculation Date as contemplated by paragraph (a)(i) above shall be determined
as of such Calculation Date and shall be a number (the "Computation Period
Distribution Amount") equal to the product of (i) 0.992 times (ii) the sum of
(A) an amount equal to (x) the aggregate positive balances of the Business
Unit Accounts as of such Calculation Date divided by (y) the Current Share
Value as of such Calculation Date plus (B) an amount equal to (x) the Dividend
Adjustment with respect to the number of Contingent Shares determined under
clause (A) above divided by (y) the Current Share Value as of such Calculation
Date. The Company shall unconditionally and irrevocably deliver to each Holder
(or his designee), as soon as practicable and in any event within 60 days
after each Calculation Date, that number of Contingent Shares determined by
multiplying (1) the Computation Period Distribution Amount with respect to
such Calculation Date by (2) such Holder's Percentage Interest.
(c) The aggregate number of Contingent Shares to be delivered by the Company
to the Holders with respect to any Business Unit or portion thereof as
contemplated by paragraph (a)(ii) above shall be determined as follows:
(i) In the event that the Company delivers all of the Contingent Shares
contemplated by paragraph (a)(ii) above with respect to any Business Unit
or portion thereof in one installment, the aggregate number of Contingent
Shares to be delivered by the Company shall be determined as of the
Valuation Distribution Date for such Business Unit or portion thereof and
shall be a number equal to the product of (A) 0.992 times (B) the sum of:
(x) an amount equal to (1) the Holders' FMV Allocation with respect
to such Assets divided by (2) the Valuation Distribution Share Value as
of the Valuation Distribution Date for such Business Unit or portion
thereof plus
(y) an amount equal to (1) the Dividend Adjustment with respect to
the number of Contingent Shares determined under clause (x) above
divided by (2) the Valuation Distribution Share Value as of such
Valuation Distribution Date.
The Company shall unconditionally and irrevocably deliver to each Holder
(or his designee), as soon as practicable and in any event within 12 months
after the applicable Valuation Date, that number of Contingent Shares
determined by multiplying (a) the aggregate number of Contingent Shares
being delivered by the Company on such Valuation Distribution Date under
this clause (i) by (b) such Holder's Percentage Interest.
(ii) In the event that the Company delivers the Contingent Shares
contemplated by paragraph (a)(ii) above with respect to any Business Unit
or portion thereof in more than one installment, on each Valuation
Distribution Date for such Business Unit or portion thereof, the "Holders'
FMV Allocation Amount" shall be calculated, being an amount equal to the
product of:
(A) the aggregate number of Contingent Shares being delivered by the
Company on such Valuation Distribution Date times
(B) the Valuation Distribution Share Value with respect to such
Valuation Distribution Date times
(C) a fraction, the numerator of which is such Valuation Distribution
Share Value and the denominator of which is the sum of (x) such
Valuation Distribution Share Value plus (y) the Dividend Adjustment
with respect to one share of Rouse Common Stock during the period
commencing on the applicable Valuation Date to and including such
Valuation Distribution Date times
(D) 0.992.
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The Company shall continue to deliver Contingent Shares to the Holders with
respect to such Business Unit or portion thereof pursuant to this clause
(ii) until such time as the sum of the Holders' FMV Allocation Amount with
respect to each Valuation Distribution Date for such Business Unit or
portion thereof equals the Holders' FMV Allocation with respect to such
Business Unit or portion thereof. In connection with each such Valuation
Distribution Date, the Company shall unconditionally and irrevocably
deliver to each Holder (or his designee) a number of Contingent Shares
equal to the product of (1) the aggregate number of Contingent Shares being
delivered by the Company on such Valuation Distribution Date under this
clause (ii) times (2) such Holder's Percentage Interest. The Company shall
unconditionally and irrevocably deliver to each Holder (or his designee),
as soon as practicable and in any event within 12 months after the
applicable Valuation Date, all Contingent Shares required to be delivered
under paragraph (a)(ii) above with respect to each Business Unit or portion
thereof.
(d) In the event that the Company fails to deliver Contingent Shares on or
before the date on which the Company is obligated to deliver such Contingent
Shares, the Company shall become obligated to deliver to each Holder that
number of additional Contingent Shares which is equal to the quotient of (i)
the return, calculated at the Applicable Federal Rate plus 5%, on an amount
equal to (A) the number of Contingent Shares which should have been delivered
to such Holder times (B) the Current Share Value utilized to determine the
number of Contingent Shares to be delivered by the Company in connection with
the applicable Calculation Date, such return to accrue on such amount for the
period commencing on the day that such Contingent Shares were required to be
delivered by the Company to such Holder and continuing thereafter until the
Company delivers such Contingent Shares to such Holder or delivers Contingent
Preferred Shares to such Holder in accordance with Section 4.16 divided by
(ii) the Current Share Value utilized to determine the number of Contingent
Shares to be delivered by the Company in connection with the applicable
Calculation Date.
(e) If an Event of Default shall have occurred and be continuing (other than
any Event of Default applicable under the circumstances described in paragraph
(f) below), the Representatives may, by notice in writing delivered to the
Company, (i) accelerate the Company's obligation to deliver Contingent Shares
pursuant to paragraph (c) above or (ii) require the Company, in satisfaction
of the Company's obligation to deliver Contingent Shares thereafter, to issue
and deliver to the Holders an aggregate number of Contingent Preferred Shares
(including fractional shares) determined by dividing (A) the aggregate number
of Contingent Shares which would otherwise be delivered to the Holders
pursuant to paragraph (c) above by (B) the quotient of (x) $100 divided by (y)
the Current Share Value as of the date of such notice. Upon receipt of such
notice, the Company shall cause the appraisals described in Section 2.07 to be
initiated and completed as soon as practicable as of the Calculation Date for
the most recent Computation Period ended on or before the date of such notice,
and the Company shall unconditionally and irrevocably deliver such Contingent
Shares or Contingent Preferred Shares, as applicable, as soon as practicable
and in any event within 15 days after the completion of such appraisals.
(f) If (i) but for the provisions of Section 7.05(b), an Event of Default
described in clause (c) of the definition thereof would have occurred and be
continuing with respect to any Business Unit Entity solely on account of the
non-performance by the Company of any covenant contained in Section 4.10,
4.11, 4.12 or 4.13 as such covenant relates to such Business Unit Entity and
(ii) in connection with such circumstances, (A) the Company shall have
determined in good faith that it would neither be commercially reasonable nor
in the best interests of the Company and the Holders for the Company to take,
or cause to be taken, the actions necessary to avoid such non-performance and
(B) the Company shall have given prior written notice of such non-performance
to the Representatives confirming that the Company has made the determination
described in subclause (A) and setting forth, in reasonable detail, the
reasons therefor, then the Representatives may, by notice in writing delivered
to the Company, (i) accelerate the Company's obligation to deliver Contingent
Shares pursuant to
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paragraph (c) above with respect to the Assets comprising the Business Unit to
which such non-performance relates or (ii) require the Company, in
satisfaction of the Company's obligation to deliver Contingent Shares
thereafter with respect to the Assets comprising the Business Unit to which
such non-performance relates, to issue and deliver to the Holders an aggregate
number of Contingent Preferred Shares (including fractional shares) determined
by dividing (A) the aggregate number of Contingent Shares which would
otherwise be delivered to the Holders pursuant to paragraph (c) above by (B)
the quotient of (x) $100 divided by (y) the Current Share Value as of the date
of such notice. Upon receipt of such notice, the Company shall cause the
appraisals described in Section 2.07 to be initiated and completed with
respect to such Assets as soon as practicable as of the Calculation Date for
the most recent Computation Period ended on or before the date of such notice,
and the Company shall unconditionally and irrevocably deliver such Contingent
Shares or Contingent Preferred Shares, as applicable, as soon as practicable
and in any event within 15 days after the completion of such appraisals;
provided, however, that in connection with any appraisal conducted pursuant to
this paragraph (f), the Appraisal Panel shall be instructed to determine the
Fair Market Value of the relevant Assets as if no Person is required to make
any additional contribution to the capital of, or investment in, or loan or
advance in respect of, such Assets.
(g) If any foreclosure on, or the exercise of any similar remedy with
respect to, any of the Assets comprising any Business Unit shall occur or (i)
an Event of Default described in clause (e), (f), (g), (h), (i) or (j) of the
definition thereof shall have occurred and be continuing with respect to any
Business Unit Entity other than HHPLP, as if such clauses applied to each such
Business Unit Entity instead of the Company and HHPLP and (ii) if, in
connection with such Event of Default, (A) the Company shall have determined
in good faith that it would neither be commercially reasonable nor in the best
interests of the Company and the Holders for the Company to take, or cause to
be taken, the actions necessary to avoid such Event of Default and (B) the
Company shall have given prior written notice of such Event of Default to the
Representatives confirming that the Company has made the determination
described in subclause (A) and setting forth, in reasonable detail, the
reasons therefor, then in any such event the Representatives may, by notice in
writing delivered to the Company, (i) accelerate the Company's obligation to
deliver Contingent Shares pursuant to paragraph (c) above with respect to any
Assets comprising any Business Unit which are owned by such Business Unit
Entity or (ii) require the Company, in satisfaction of the Company's
obligation to deliver Contingent Shares thereafter with respect to any Assets
comprising any Business Unit which are owned by such Business Unit Entity, to
issue and deliver to the Holders an aggregate number of Contingent Preferred
Shares (including fractional shares) determined by dividing (A) the aggregate
number of Contingent Shares which would otherwise be delivered to the Holders
pursuant to paragraph (c) above by (B) the quotient of (x) $100 divided by (y)
the Current Share Value as of the date of such notice. Upon receipt of such
notice, the Company shall cause the appraisals described in Section 2.07 to be
initiated and completed with respect to such Assets as soon as practicable as
of the Calculation Date for the most recent Computation Period ended on or
before the date of such notice, and the Company shall unconditionally and
irrevocably deliver such Contingent Shares or Contingent Preferred Shares, as
applicable, as soon as practicable and in any event within 15 days after the
completion of such appraisals; provided, however, that in connection with any
appraisal conducted pursuant to this paragraph (g), the Appraisal Panel shall
be instructed to determine the Fair Market Value of the relevant Assets as if
no Person is required to make any additional contribution to the capital of,
or investment in, or loan or advance in respect of, such Assets.
(h) Except as otherwise required by applicable tax Laws, in connection with
each delivery of Contingent Shares or Contingent Preferred Shares pursuant to
this Agreement, the Contingent Stock Distribution Value of each Holder shall
be discounted to the effective date hereof at the Contingent Stock
Distribution Discount Rate to determine the amount of contingent stock
distribution principal (the "Contingent Stock Distribution Principal") and the
amount of Contingent Stock Distribution Interest. Contingent Stock
Distribution Interest shall be treated by the Company and each Holder as
interest for federal income tax purposes.
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(i) All Contingent Shares to be delivered hereunder shall be newly-issued
shares of Rouse Common Stock or, at the election of the Company, Treasury
Shares; provided, however, that (i) in the event the Company is precluded or
otherwise unable, for any reason, to deliver newly-issued shares of Rouse
Common Stock to the Holders, the Company shall deliver or cause to be
delivered Treasury Shares to the Holders and (ii) in the event the Company is
precluded or otherwise unable, for any reason, to deliver Treasury Shares to
the Holders, the Company shall deliver or cause to be delivered newly-issued
shares of Rouse Common Stock to the Holders.
(j) Notwithstanding anything to the contrary contained herein, at any time
at which the Company is obligated to deliver Contingent Shares to the Holders
pursuant to the terms of this Agreement, the Company shall not deliver any
fractional shares of Rouse Common Stock to any Holder and, in lieu of
delivering such fractional shares, the following provisions shall apply:
(i) with respect to any fractional shares which would have otherwise been
delivered by the Company to a Holder based upon Excess Cash Flow:
(A) if the last Calculation Date with respect to any Business Unit
shall not have occurred, on the next succeeding Calculation Date the
Company shall deliver to such Holder a number of Contingent Shares
equal to the sum of (x) such number of fractional shares plus (y) the
number of Contingent Shares which the Company is obligated to deliver
to such Holder based upon Excess Cash Flow for the Computation Period
ending on such succeeding Calculation Date plus (z) a number of
Contingent Shares equal to (1) the Dividend Adjustment with respect to
a share of Rouse Common Stock during the period commencing on the
Calculation Date on which such fractional shares would have otherwise
been delivered and ending on the date on which the Contingent Shares to
be delivered by the Company in connection with such succeeding
Calculation Date are actually delivered to the Holders multiplied by
(2) the number of such fractional shares divided by (3) the Current
Share Value utilized in determining the number of Contingent Shares to
be delivered by the Company in connection with such succeeding
Calculation Date; and
(B) if no Calculation Date with respect to any Business Unit or
portion thereof will occur after such Calculation Date, the Company
shall pay such Holder an amount in cash equal to such fractional shares
times the Current Share Value utilized in determining the number of
Contingent Shares to be delivered by the Company in connection with
such Calculation Date; and
(ii) with respect to any fractional shares which would otherwise have
been delivered by the Company to the Holders in connection with any
Valuation Date, the Company shall pay each Holder an amount in cash equal
to (A) the number of fractional shares which would have otherwise been
delivered by the Company to such Holder in connection with such Valuation
Date times (B) the Valuation Distribution Share Value utilized in
determining the number of Contingent Shares to be delivered by the Company
to the Holders in connection with such Valuation Date.
(k) Notwithstanding anything to the contrary contained in this Agreement, in
the event that the Company receives a Representatives' Diversion Notice in
accordance with the provisions of Section 5.10(b), the Company shall, in lieu
of delivering the number of Contingent Shares described in such
Representatives' Diversion Notice to the Holders, deliver such Contingent
Shares to the Representatives, in which event the number of Contingent Shares
otherwise deliverable to the Holders shall be appropriately reduced pro rata
in accordance with their respective Percentage Interests.
Section 2.09. DEBITS TO THE BUSINESS UNIT ACCOUNTS. Upon the delivery by the
Company to the Holders of all Contingent Shares required to be delivered in
connection with any Calculation Date, the Business Unit Account with respect
to which such Contingent Shares were delivered shall be debited by an amount
equal to the product of (i) the sum of the number of Contingent Shares so
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delivered by the Company plus the aggregate number of fractional shares which
were not delivered to the Holders in accordance with the provisions of Section
2.08(j) times (ii) the Current Share Value utilized in determining the number
of Contingent Shares delivered times (iii) 1.008.
Section 2.10. TAX ADJUSTMENTS. (a) The Company shall compute the pro forma
taxable income or loss for each Business Unit ("Business Unit Income or Loss")
for each taxable year, utilizing the method of tax accounting and, to the
extent applicable, the elections employed in the preparation of the
consolidated federal income tax return of the group of corporations of which
the Company is the common parent (the "Company Consolidated Group") for such
taxable year. Notwithstanding the form of ownership of a Business Unit, such
computation shall be made as though each Business Unit was a separate
corporation filing a separate return of taxable income which was taxed at the
Applicable Tax Rate, as determined with respect to such Business Unit. The
Business Unit Income or Loss for each Business Unit shall be computed
utilizing the actual items of income, gain, loss and deduction attributable to
the Assets, Liabilities and operations of such Business Unit; provided,
however, that in making such computation, the State and Local Tax Adjustment
shall be taken as a deduction.
(b) If such calculation results in a Business Unit Income or Loss which is a
loss for such taxable year, the Tax Adjustment for such year shall be zero and
such loss shall be carried forward and treated as an item of deduction that
will reduce any calculation of Business Unit Income or Loss of such Business
Unit which results in income in any future period in accordance with the
principles of Section 172(b) of the Code and the regulations promulgated
thereunder. No unutilized Business Unit Income or Loss which is a loss will be
carried back to any prior taxable year.
(c) The Company shall estimate the Business Unit Income or Loss of each
Business Unit for each Computation Period and, based upon such estimates,
shall compute the estimated Tax Adjustment for such Computation Period for
each Business Unit (the "Computation Period Tax Adjustment"). In the event and
to the extent that the Tax Adjustment with respect to any Business Unit for
the calendar year is different than the aggregate Computation Period Tax
Adjustments for such Business Unit for such year, such difference shall be
added to, or subtracted from, the next succeeding Computation Period Tax
Adjustment for such Business Unit until fully accounted for.
(d) The Business Unit Income or Loss and the Computation Period Tax
Adjustments for each Business Unit for each Computation Period shall be
determined by the Company within 20 days following the end of such Computation
Period.
(e) The Business Unit Income or Loss and the Computation Period Tax
Adjustments for each Business Unit for each taxable year shall be reviewed and
reported on by KPMG Peat Marwick LLP (or other independent certified public
accountants satisfactory to the Representatives) within 90 days following the
end of such taxable year. Such report shall be submitted to the Review
Committee for its approval within 90 days following the end of such taxable
year and, once approved, shall (except for adjustments contemplated by this
Section 2.10) be final, binding and conclusive for purposes of the
determinations to be made pursuant hereto.
(f) The Company shall furnish to the Representatives all information and
documentation necessary or useful in the computation of each Computation
Period Tax Adjustment and the Tax Adjustment. The Company shall permit the
Representatives, or their designated representatives, to have full access, at
any reasonable time and from time to time during the term of this Agreement
and for a period of five years thereafter, to all relevant tax returns and
supporting papers of the Company Consolidated Group and their Affiliates,
wherever located, and shall furnish, and request that the independent
accountants of the Company Consolidated Group furnish, to the Representatives,
such additional tax and other information and documents in the possession of
such Persons with respect to the Company Consolidated Group and the
computation of each Computation Period Tax Adjustment and the Tax Adjustment
as the Representatives may from time to time reasonably request.
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Section 2.11. COMPANY LOANS. The Company may, at its option, make loans and
advances to any Business Unit Entity for the account of any Business Unit from
time to time for the sole purpose of providing working capital and other funds
for use in connection with such Business Unit as contemplated by this
Agreement (each a "Company Loan"); provided, however, that prior to making any
Company Loan, the Company shall pay or cause to be paid in cash any payable
owed to such Business Unit by the Company or any Affiliate of the Company,
irrespective of whether the same are due and payable. To the extent that any
Business Unit requires funds for such purposes, the Company may, at its
option, (a) cause the applicable Business Unit Entity to borrow such funds for
the account of such Business Unit from a financial institution on commercially
reasonable terms or (b) make a Company Loan to such Business Unit Entity for
the account of such Business Unit. The interest rate applicable to each
Company Loan shall be no greater than the interest rate that would be charged
to the relevant Business Unit Entity for a comparable loan made to such
Business Unit Entity in an arms'-length transaction with a Person that is not
an Associate of the Company; provided, however, that if such Business Unit
Entity could not reasonably be expected to obtain such funds through a
borrowing from a financial institution at a per annum interest rate of less
than 15%, then such Company Loan shall accrue interest at the rate of 15% per
annum.
Section 2.12. ADVANCES. In the event that (a) any Business Unit has
insufficient funds for working capital purposes, (b) the Company is not
obligated to make a Revolving Credit Loan to the applicable Business Unit
Entity pursuant to Section 4.03(b), (c) third party financing to fund such
working capital requirements is unavailable to such Business Unit Entity and
(d) the Company elects not to make a Company Loan to such Business Unit Entity
for the account of such Business Unit, such Business Unit Entity or any other
Business Unit Entity may, with the unanimous consent of the Review Committee,
loan funds to such Business Unit from any other Business Unit (each such loan,
an "Advance"); provided, however, that prior to any Advance being made to such
Business Unit, the Company shall pay or cause to be paid in cash any payable
owed to such Business Unit by the Company or any Affiliate of the Company,
irrespective of whether the same are due and payable. Advances shall not bear
any interest and shall be repaid by the recipient Business Unit to the
Business Unit making such Advance on each Calculation Date thereafter, to the
extent that the Excess Cash Flow of such Business Unit as of such Calculation
Date exceeds its working capital requirements after giving effect to any
payments required to be made to the Company pursuant to Section 4.03(c).
Section 2.13. UNDERFUNDING OF EMPLOYEE BENEFIT PLANS. Notwithstanding
anything to the contrary contained in this Agreement, in the event that (a)
the termination of the qualified defined benefit plan currently maintained by
THC results in any costs or benefit payments (other than taxes) paid or to be
paid or incurred by THC or any of its Subsidiaries as the result of such
termination (after all costs that may be paid by such plan are paid by the
plan) which are in excess of the reversion amount (before taxes), if any, of
such plan on the date of its liquidation (the amount of such costs or benefit
payments together with interest accruing thereon at the rate of 5% from the
date such costs are incurred or benefit payments made until the date such
benefit costs or payments are deducted as set forth below being referred to as
the "Underfunded Amount") and (b) the Business Unit Accounts have an aggregate
positive balance as of any Calculation Date ending after the final
determination of such Underfunded Amount, then the aggregate positive balances
of the Business Unit Accounts shall be reduced, prior to calculating the
aggregate number of Contingent Shares to be delivered by the Company to the
Holders pursuant to Section 2.08(b), by an amount equal to the lesser of (i)
the aggregate positive balances of the Business Unit Accounts as of such
Calculation Date and (ii) the amount of such Underfunded Amount which has not
previously been utilized to reduce the aggregate positive balances of the
Business Unit Accounts; provided, however, that in no event shall the
aggregate amount of such reduction to the aggregate positive balances of the
Business Unit Accounts exceed the amount of such Underfunded Amount. The
Representatives shall be entitled to participate in all material decisions
related to the termination of such Pension Plan, including the bidding and
selection of any annuities purchased to fund the obligations of such Pension
Plan, and Rouse shall keep the Representatives fully informed of the status
and details of all actions taken or proposed to be taken in connection
therewith.
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ARTICLE III
Representations and Warranties of the Company
The Company hereby represents and warrants to each Holder and each
Representative that:
(a) the Company is a corporation duly organized, validly existing and in
good standing under the Laws of the State of Maryland and has all requisite
corporate power and authority to own, lease and operate its Assets, to
carry on its business as it is now being conducted and proposed to be
conducted and to execute and deliver this Agreement and consummate the
transactions contemplated hereby;
(b) each Subsidiary of the Company is duly organized, validly existing
and in good standing under the Laws of the jurisdiction of its organization
and has all requisite power and authority to own, lease and operate its
Assets and to carry on its business as it is now being conducted and
proposed to be conducted, except where the failure to be so organized,
qualified and in good standing, alone or together with all such other
failures, could not reasonably be expected to have a Material Adverse
Effect;
(c) the Company and each of its Subsidiaries is duly qualified to do
business and is in good standing in each jurisdiction in which its Assets
or the nature of the business conducted by it makes such qualification
necessary and where failure to so qualify would have a Material Adverse
Effect;
(d) the execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by the Rouse Board and no other corporate proceedings or
approvals on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby;
(e) this Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
such enforcement may be limited by applicable Debtor Relief Laws and
general equitable principles;
(f) except as provided herein, no Governmental Approvals and no
notifications, filings or registrations to or with any Governmental
Authority or any other Person is or will be necessary for the valid
execution and delivery by the Company of this Agreement or the consummation
of the transactions contemplated hereby, or the enforceability hereof,
other than those which have been obtained or made and are in full force and
effect and those which if not made or obtained, as the case may be, would
not, individually or in the aggregate, have a Material Adverse Effect;
(g) the execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated hereby do not and shall not,
by the lapse of time, the giving of notice or otherwise, (i) constitute a
breach or violation of, or default under, any Law, any provision contained
in the charter, bylaws or similar governing instruments of the Company or
any of its Subsidiaries or any provision contained in any Governmental
Approval or writ, injunction, order, judgment or decree of any Governmental
Authority or any Contract to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its Subsidiaries or any of
their respective Assets is bound or affected, which breach, violation or
default, alone or together with all other such breaches, violations and
defaults, could reasonably be expected to have a Material Adverse Effect or
(ii) result in or require the creation of any Lien upon any of the Assets
comprising any Business Unit;
(h) each share of Rouse Common Stock delivered pursuant to this Agreement
will, at the time of its delivery, be (i) freely tradable (other than as a
result of the actions, or based upon the status, of the holder thereof) and
registered with the SEC under the Securities Act, (ii) listed on the New
York Stock Exchange, the American Stock Exchange or NASDAQ and (iii) duly
authorized, legally and validly issued, fully paid and nonassessable and
free of preemptive rights;
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(i) each share of Rouse Preferred Stock delivered pursuant to this
Agreement will, at the time of its delivery, (i) be duly authorized,
legally and validly issued, fully paid and nonassessable and free of
preemptive rights and (ii) have the rights, preferences and privileges set
forth in the Articles Supplementary to the Charter of the Company attached
hereto as Exhibit A which have been duly adopted by the Company and filed
with the Maryland State Department of Assessments and Taxation;
(j) the Company has heretofore filed with the SEC a registration
statement on Form S-4 (No-333-01693) (the "Registration Statement"),
covering the shares of Rouse Common Stock issuable pursuant to the Merger
Agreement and the shares of Rouse Common Stock and Rouse Preferred Stock
issuable pursuant to this Agreement;
(k) the Registration Statement has become effective in accordance with
the provisions of the Securities Act, and no stop order suspending such
effectiveness has been issued and is in effect and no proceedings for that
purpose have been instituted by the SEC or any other Governmental
Authority;
(l) the securities covered by the Registration Statement have been
registered or qualified under all blue sky and other securities Laws
necessary to enable the Holders to consummate the disposition of such
securities by the Holders;
(m) the Company has reserved, free from preemptive rights, out of its
authorized but unissued shares of Rouse Common Stock or Treasury Shares,
such number of shares of Rouse Common Stock as shall be issuable pursuant
to this Agreement, such reservation being solely for the issuance of
Contingent Shares pursuant to this Agreement;
(n) the Company has reserved, free from preemptive rights, out of its
authorized but unissued shares of Rouse Preferred Stock, such number of
shares of Rouse Preferred Stock as shall be issuable pursuant to this
Agreement, such reservation being solely for the issuance of Contingent
Preferred Shares pursuant to this Agreement;
(o) there are no Claims pending or, to the knowledge of the Company,
threatened, and the Company has no knowledge of the basis for any Claim,
which, either alone or in the aggregate, (i) seeks to restrain or enjoin
the execution and delivery of this Agreement or the consummation of any of
the transactions contemplated hereby or the performance of any obligation
of the Company or any Business Unit Entity or (ii) could reasonably be
expected to have a Material Adverse Effect;
(p) there are no judgments or outstanding orders, injunctions, decrees,
stipulations or awards (whether rendered by a Governmental Authority or by
an arbitrator) against the Company or any of its Subsidiaries which
prohibit or restrict or could reasonably be expected to have a material
adverse effect on (i) the Company's ability to perform its obligations
under this Agreement, (ii) the value, condition or marketability of any
Assets comprising any Business Unit, (iii) the validity, legality or
enforceability of this Agreement, (iv) the ability of any Holder to
exercise or enforce any of its rights, powers or remedies under this
Agreement or (v) the ability of any Representative or any member of the
Review Committee to perform any of his duties or obligations, or to
exercise or enforce any of his rights, powers or remedies, under this
Agreement;
(q) none of the factual information hereafter furnished by the Company or
any Business Entity to the Review Committee, the Representatives or the
Holders for purposes of or in connection with this Agreement or any
transaction contemplated hereby will be intentionally untrue, incorrect,
incomplete or misleading in any respect as of the date as of which such
information is dated or certified; and
(r) the Company has no knowledge of any fact, circumstance, happening,
occurrence, event or any other matter which, alone or in the aggregate,
could reasonably be expected to have a
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material adverse effect on (i) the Company's ability to perform its
obligations under this Agreement, (ii) the validity, legality or
enforceability of this Agreement, (iii) the ability of any Holder to
exercise or enforce any of its rights, powers or remedies under this
Agreement or (iv) the ability of any Representative or any member of the
Review Committee to perform any of his duties or obligations, or to
exercise or enforce any of his rights, powers or remedies, under this
Agreement.
Each of the foregoing representations and warranties is made only as of the
date hereof, except that the representations and warranties contained in
clauses (g), (h), (i), (q) and (r) shall also apply prospectively as
contemplated thereby.
ARTICLE IV
Certain Covenants
Section 4.01. INFORMATION. The Company shall furnish to the Review Committee
and the Representatives all of the following:
(a) as soon as available (and in any event not later than 60 days) after
the end of each Computation Period, a report prepared and certified by an
Authorized Officer with respect to each Business Unit, prepared as of the
last day of such Computation Period, setting forth the amount and purpose
of each Reserve established and/or maintained by the Company or any
Business Unit Entity with respect to any of the Business Units, accompanied
by a certificate of such Authorized Officer stating (i) that all such
Reserves comply with and satisfy the definition of "Reserve" contained in
this Agreement and (ii) that the signer has reviewed this Agreement and has
made, or caused to be made under his supervision, a review of the
transactions of the Company and each Business Unit Entity relating to such
Computation Period and that such review did not disclose the existence
during or at the end of such Computation Period of any Event of Default or,
if any Event of Default exists, specifying the nature and period of
existence thereof and what action the Company or such Business Unit Entity
has taken, is taking or proposes to take with respect thereto;
(b) as soon as available (and in any event not later than 60 days) after
the end of each Computation Period, a report prepared and certified by an
Authorized Officer with respect to each Business Unit, prepared as of the
last day of such Computation Period (i) specifying (A) any and all Receipts
received by the Company, any Business Unit Entity or any of their
respective Subsidiaries during such Computation Period with respect to such
Business Unit and the aggregate amount of any and all Receipts received by
the Company, any Business Unit Entity or any of their respective
Subsidiaries during the period from the effective date hereof to and
including the last day of such Computation Period with respect to such
Business Unit, (B) any and all Expenditures incurred by the Company, any
Business Unit Entity or any of their respective Subsidiaries during such
Computation Period with respect to such Business Unit and the aggregate
amount of any and all Expenditures incurred by the Company, any Business
Unit Entity or any of their respective Subsidiaries during the period from
the effective date hereof to and including the last day of such Computation
Period with respect to such Business Unit and (C) the amount of Excess Cash
Flow with respect to such Business Unit as of the last day of such
Computation Period and the aggregate amount of Excess Cash Flow during the
period from the effective date hereof to and including the last day of such
Computation Period with respect to such Business Unit and (ii) showing in
reasonable detail the manner in which such amounts were calculated;
(c) as soon as available (and in any event not later than 60 days) after
the end of each Computation Period (except the last Computation Period of
any calendar year), an operating statement with respect to each Business
Unit for such Computation Period and the portion of the
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calendar year then ended, together with a certificate of an Authorized
Officer stating that such operating statement has been prepared (i) in
accordance with GAAP (except that such operating statement need not include
footnotes as required by GAAP) and (ii) using such allocations, conventions
and methods as are consistent with GAAP and have been consistently utilized
by the Company or the applicable Business Unit Entity with respect to such
Business Unit;
(d) as soon as available (and in any event not later than 120 days) after
the end of each calendar year, an operating statement with respect to each
Business Unit for such calendar year, together with a certificate of an
Authorized Officer stating that such operating statement has been prepared
(i) in accordance with GAAP (except that such operating statement need not
include footnotes as required by GAAP) and (ii) using such allocations,
conventions and methods as are consistent with GAAP and have been
consistently utilized by the Company or the applicable Business Unit Entity
with respect to such Business Unit;
(e) promptly upon the Company or any Business Unit Entity obtaining
knowledge thereof, written notice of the existence of any Event of Default
specifying the nature and period of existence thereof and what action the
Company or such Business Unit Entity has taken, is taking or proposes to
take with respect thereto;
(f) promptly upon any officer or director of the Company, of any Business
Unit Entity or of any of their respective Subsidiaries obtaining knowledge
thereof, notice of (i) any violation of, noncompliance with or remedial
obligations under any Governmental Approval or Environmental Law involving
or directly affecting any of the Assets comprising any Business Unit, (ii)
any Release or threatened Release involving or directly affecting in any
material respect any of the Assets comprising any Business Unit and (iii)
the amendment or revocation of any Governmental Approval with respect to
any of the Assets comprising any Business Unit that, in any such case
referred to in this paragraph (f), could reasonably be expected to have a
Material Adverse Effect;
(g) promptly upon receipt thereof by any officer or director of the
Company, of any Business Unit Entity or of any of their respective
Subsidiaries, and in any event within ten days after such receipt, a copy
of (i) any notice or Claim involving or directly affecting any of the
Business Units or any of the Assets comprising any Business Unit to the
effect that the Company, any Business Unit Entity, any of their respective
Subsidiaries or any other Person is or may be liable to any Person as a
result of the Release by the Company, any Business Unit Entity, any of
their respective Subsidiaries or any other Person of any Hazardous Material
into the environment and (ii) any notice involving or directly affecting
any of the Business Units or any of the Assets comprising any Business Unit
alleging any violation of any Governmental Approval or Environmental Law by
the Company, any Business Unit Entity, any of their respective Subsidiaries
or any other Person, which, in any case referred to in this paragraph (g),
could reasonably be expected to have a Material Adverse Effect;
(h) promptly upon any officer or director of the Company, of any Business
Unit Entity or of any of their respective Subsidiaries obtaining knowledge
thereof, and in any event within ten days thereafter, written notice of the
institution of, or threat of, any Claim or any other matter involving or
directly affecting any of the Business Units or any of the Assets
comprising any Business Unit that could reasonably be expected to have a
Material Adverse Effect and that has not previously been disclosed in
writing to the Review Committee and the Representatives pursuant to this
Agreement, and such information with respect to any material developments
in any such Claim as the Review Committee or any Representative may
reasonably request from time to time;
(i) promptly upon any officer or director of the Company, of any Business
Unit Entity or of any of their respective Subsidiaries obtaining knowledge
thereof, notice of (i) any taking, or proposal to take, any action with
respect to a Lien on any of the Assets comprising any Business Unit or (ii)
the creation or incurrence of any Lien (other than Permitted Encumbrances)
on any of the
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Assets comprising any Business Unit, in any such case, which could
reasonably be expected to have a Material Adverse Effect;
(j) promptly after the sending or filing thereof, copies of all proxy
statements which the Company sends to any holders of any of its securities,
and copies of all regular and periodic reports and all registration
statements (other than on Form S-8) which the Company files with the SEC or
any national securities exchange;
(k) promptly upon their distribution, copies of all press releases and
other written statements made available generally by the Company to the
public which relate to any of the Business Units or any of the Assets
comprising any Business Unit or which relate to any event, circumstance or
condition which could reasonably be expected to have a Material Adverse
Effect; and
(l) promptly, such other information in the possession of the Company,
any Business Unit Entity or any of their respective Subsidiaries as any
member of the Review Committee may from time to time reasonably request
respecting the Business Units or the Assets comprising any Business Unit.
Section 4.02. OWNERSHIP OF ASSETS OF THE BUSINESS UNITS. The Company shall
cause the Assets comprising each Business Unit to be maintained at all times
in (a) HHPLP or (b) with the prior written consent of the Representatives, a
(i) separate partnership in which the Company and its Subsidiaries are the
only partners or (ii) direct or indirect wholly-owned Subsidiary of the
Company (each of HHPLP and such partnerships or wholly-owned Subsidiaries
being herein called a "Business Unit Entity"). The Company shall at all times
be the direct or indirect owner of 100% of the Equity Interests of each
Business Unit Entity. The Assets of each Business Unit Entity shall be
developed and operated separate and apart from other Assets now owned or
hereafter acquired by the Company or any of its Subsidiaries or Affiliates and
shall be accounted for and administered hereunder as a single functional unit.
The Company shall, as soon as practicable and in any event within 30 days
after the execution and delivery of this Agreement, amend the Sixth Amended
and Restated Agreement of Limited Partnership of HHPLP, dated as of January 1,
1990, to include provisions which, and the Company shall cause each other
Business Unit Entity to have governing documents or be a party to Contracts
which, (A) implement the provisions of this Article IV, including provisions
which prohibit such Business Unit Entity from taking, directly or indirectly,
any of the actions described in Section 4.05 without the prior written consent
of a majority of the members of the Review Committee, (B) prohibit such
Business Unit Entity from developing commercial buildings on any of the Assets
comprising any Business Unit, (C) prohibit such Business Unit Entity, without
the prior unanimous approval of the Review Committee, from Transferring any of
the Assets comprising any Business Unit other than in transactions entered
into on terms no less favorable than those that could be obtained in an arm's-
length transaction with a Person that is not an Associate of the Company or
any Business Unit Entity and which provide consideration to the Company or
such Business Unit Entity in an amount at least equal to the Fair Market Value
of such Assets and (D) prohibit such Business Unit Entity from amending,
modifying or supplementing its governing documents or such Contracts in any
manner which affects the provisions described in clauses (A) through (C) above
or this clause (D). The Company shall, to the extent reasonably practicable,
consult with the Review Committee before initiating or responding to any
material Claim affecting any Business Unit or any of the Assets comprising
such Business Unit. The Representatives may, by an instrument in writing,
waive compliance by the Company with any provision of this Section 4.02,
either generally or in a particular instance and either retroactively or
prospectively.
Section 4.03. CAPITALIZATION OF BUSINESS UNITS. (a) With respect to the
Playa Vista Business Unit, capital requirements shall be as determined under
the Playa Vista Partnership Agreements. At the present time, capital
requirements are mutually determined by Maguire Thomas Partners and by HHPLP
or its Affiliates. However, such requirements are currently under review in
connection with the restructuring of the Playa Vista Partnership Agreements to
permit participation by Dreamworks SKG
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and the related equity and debt financings which are contemplated in
connection with such restructuring (the "Playa Vista Financings"). To the
extent that HHPLP (which term includes for purposes of the remaining
provisions of this paragraph (a) any Business Unit Entity succeeding to the
interests of HHPLP in the Assets comprising the Playa Vista Business Unit) or
its Affiliates, together with Maguire Thomas Partners, determine to contribute
additional capital to either of the Playa Vista Partnerships (including any
contributions in connection with the Dreamworks SKG restructuring), the
Company shall make such contributions to the Playa Vista Partnerships on
behalf of HHPLP or its Affiliates in an amount not to exceed $15,000,000 (the
"Funding Requirement"); provided, however, that the Company shall not be
obligated to make any such contribution unless (i) with respect to all or any
portion of the first $10,000,000 of the Funding Requirement, a majority of the
members of the Review Committee determine that the Company should make such
contribution at such time and (ii) with respect to all or any portion of the
Funding Requirement in excess of $10,000,000, all of the members of the Review
Committee determine that the Company should make such contribution at such
time and, provided further, that any capital contributions made to the Playa
Vista Partnerships during the period commencing January 1, 1996 to and
including the Effective Time shall be deemed for all purposes of this
Agreement to have been made by the Company pursuant to the Funding
Requirement. If funding is provided by the Company pursuant to the Funding
Requirement, the Holders shall be entitled to the benefit of the Hughes
Funding pursuant to the Value Indices with respect to the Playa Vista Business
Unit. If the Company funds less than $10,000,000 pursuant to the Funding
Requirement, the Company shall, on or before the tenth day after the
Termination Date, credit the Playa Vista Business Unit Account with an amount
equal to (A) $10,000,000 minus the amount of the Hughes Funding plus (B) a 7%
per annum, compounded semi-annually, return on such amount accruing from the
effective date hereof until such amount is credited to the Playa Vista
Business Unit Account. To the extent that all or any portion of the Funding
Requirement is not funded nor required to be funded pursuant to this paragraph
(a) and is not credited nor required to be credited to the Playa Vista
Business Unit Account pursuant to the immediately preceding sentence, the
obligation of the Company to fund such amount shall expire at such time as the
Playa Vista Financings are consummated or, if not consummated, at such time as
the agreements between HHPLP or its Affiliates and Maguire Thomas Partners for
mutually agreed commitments to capital for the project expire or are
terminated (the "Termination Date").
(b) Subject to the terms and conditions hereof, during the period commencing
on the Effective Date and continuing thereafter to and until the date which is
nine months after the Effective Date, the Company shall, from time to time,
make a loan or loans to the Business Unit Entities owning the Assets
comprising the General Business Unit, the Howard Hughes Center Business Unit
and the Summerlin Business Unit, on a revolving credit basis, in an aggregate
principal amount not at any time exceeding $25,000,000 (the "Revolving Credit
Loans"); provided, however, that if, on the date which is nine months after
the Effective Date, the unutilized portion of the commitment under the working
capital component of the Bank of America credit facility currently available
to HHPLP, or any replacement facility, is less than $20,000,000, then the
Company shall continue to, from time to time, make Revolving Credit Loans to
such Business Unit Entities until the date which is two years after the
Effective Date, in an aggregate principal amount not at any time exceeding
$20,000,000 minus the unutilized portion of such commitment on the date which
is nine months after the Effective Date. Each Revolving Credit Loan made by
the Company to a Business Unit Entity shall be made solely for the account of
a single Business Unit. In no event will the Company be obligated to make any
Revolving Credit Loan to any Business Unit Entity unless such Business Unit
Entity could not reasonably be expected to obtain funds for the working
capital requirements of the applicable Business Unit through a borrowing from
a financial institution on commercially reasonable terms. The proceeds of each
Revolving Credit Loan shall be used by the Business Unit Entity borrowing such
funds solely (i) for working capital purposes of the relevant Business Unit
for whose account such Revolving Credit Loan was made and (ii) in connection
with the operation of the relevant Business Unit for whose account such
Revolving Credit Loan was made and the Assets comprising such Business Unit.
The terms and
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conditions of each Revolving Credit Loan shall be no less favorable to the
borrowing Business Unit Entity than would be obtained in an arms'-length
transaction with a Person that is not an Associate, except that each Revolving
Credit Loan shall bear interest on the unpaid principal amount thereof from
the date such Revolving Credit Loan is made until repaid at a floating rate
per annum equal to the prime rate of interest charged from time to time by the
First National Bank of Maryland. In the event that the aggregate working
capital requirements of two or more of the Business Units referred to above
exceed $25,000,000 at any time, the Revolving Credit Loans required hereby may
be allocated by the Company between or among such Business Units as it
reasonably determines in good faith. The Revolving Credit Loans will not be
deemed to be Company Loans and vice versa.
(c) On each Calculation Date occurring while any amount under any Revolving
Credit Loan remains outstanding, the working capital needs of the General
Business Unit, the Howard Hughes Business Unit and the Summerlin Business Unit
shall be reviewed. To the extent that Excess Cash Flow for the applicable
Computation Period for any such Business Unit exceeds the funds required by
such Business Unit for working capital purposes, such excess shall be paid by
the applicable Business Unit Entity towards the repayment of any Revolving
Credit Loans made by the Company to such Business Unit Entity for the account
of such Business Unit. To the extent that any amount under any Revolving
Credit Loan remains outstanding after giving effect to the payments
contemplated by the immediately preceding sentence, any amounts held by the
applicable Business Unit Entities for the account of any Business Unit in
excess of the funds required by such Business Unit for working capital
purposes shall be paid to the Company by such Business Unit Entities, pro rata
based upon the amounts of such excess funds, towards the repayment of any
Revolving Credit Loans made by the Company to any Business Unit Entity for the
account of any other Business Unit. Any amount paid by a Business Unit Entity
for the account of a Business Unit towards the payment of a Revolving Credit
Loan made to a Business Unit Entity for the account of any other Business Unit
shall constitute (i) an Advance by the Business Unit for whose account such
payment is being made to the Business Unit for whose account such Revolving
Credit Loan was borrowed and (ii) a payment from the Business Unit for whose
account such Revolving Credit Loan was borrowed to the Company. Any payments
made by any Business Unit Entity to the Company pursuant to this paragraph (c)
shall be applied first to interest, then to principal.
Section 4.04. RECORDS AND BOOKS OF ACCOUNT. In order to enable the Company
and the Business Unit Entities to calculate the credits to the Business Unit
Accounts required to be made pursuant to Article II, the Company shall keep
adequate records and books of account in which complete entries will be made
accurately and fairly reflecting all financial transactions relating to each
Business Unit. The Company shall maintain, and shall cause each Business Unit
and each Business Unit Entity to maintain, a system of accounting established
and administered in accordance with sound business practices to permit
preparation of financial statements in conformity with GAAP and the financial
reports required under Section 4.01. The Company shall, and shall cause each
Business Unit Entity to, maintain separate records on a cash basis and
accurately record therein any and all Receipts, Expenditures, Reserves and Tax
Adjustments.
Section 4.05. NEGATIVE COVENANTS OF THE COMPANY AND THE BUSINESS UNIT
ENTITIES. (a) Without the prior written consent of a majority of the members
of the Review Committee, the Company shall not permit or cause any Business
Unit Entity to, directly or indirectly:
(i) Transfer in bulk more than 500 acres of real estate comprising any
Business Unit;
(ii) borrow or otherwise become obligated in respect of any indebtedness
in excess of (A) $10,000,000 with respect to the General Business Unit, (B)
$5,000,000 with respect to the Howard Hughes Center Business Unit, (C) zero
with respect to the Playa Vista Business Unit or (D) $75,000,000 plus the
amount of any special improvement district financings with respect to the
Summerlin Business Unit;
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(iii) create, incur or permit to exist any Lien upon any of the Assets
comprising any Business Unit (other than Permitted Encumbrances), except in
connection with a financing where the proceeds of such financing will be
used exclusively for the development or operation of such Assets;
(iv) engage in the development of amenities in connection with the Assets
comprising any Business Unit where the reasonably anticipated costs and
expenses of such development will exceed $10,000,000 (other than
infrastructure required by Law or pursuant to any Governmental Approval in
order to permit development which would not otherwise be subject to Review
Committee approval);
(v) make any premature infrastructure expenditures or any other
infrastructure expenditures which are excessive when considered in light of
the projected schedule for development of the Assets of the Business Unit
to which such infrastructure relates;
(vi) consolidate with or merge into any Person or permit any Person to
consolidate with or merge into such Business Unit Entity, sell all or
substantially all of the Assets comprising any Business Unit or dissolve or
liquidate; or
(vii) generally not pay, or admit in writing its inability to pay, its
Debts as they mature, make a general assignment for the benefit of
creditors, institute any proceeding under any Debtor Relief Law seeking to
adjudicate itself insolvent, seeking liquidation, winding-up,
reorganization, arrangement, adjustment, protection, relief or composition
of it or its Debts, or seeking the entry of an order for relief or the
appointment of a receiver, trustee or other similar official for it or for
any substantial part of its Assets, or take any action in furtherance of
any of such actions or, in any involuntary proceeding under any Debtor
Relief Law, by any act indicate its approval of such proceedings, its
consent thereto or its acquiescence therein.
(b) Without the prior consent of majority of the members of the Review
Committee, the Company shall not, and shall not permit or cause any Business
Unit Entity to, directly or indirectly:
(i) permit any of the Assets comprising any Business Unit to be subject
to the Claims of creditors of the Company, any Business Unit Entity or any
of their respective Affiliates except for (A) Claims arising directly from
the operation or ownership of such Assets in the ordinary course of
business in compliance with the provisions of this Agreement and (B) Claims
of any Person that is not an Associate of the Company or any Business Unit
Entity (other than Persons that are Associates of the Company or any
Business Unit Entity solely due to the contractual relationships under the
applicable Contract), arising under any Contract pursuant to which such
Person provides products or services to (x) the applicable Business Unit
Entity in connection with the Assets comprising such Business Unit and (y)
the Company, any other Business Unit Entity or such Business Unit Entity in
connection with its other operations, or any of their respective
Affiliates, and other Claims arising by operation of Law, to the extent
that such Claims are being contested in good faith by appropriate
proceedings promptly initiated and diligently conducted, but only if
adequate reserves have been established on the books of the Company in
connection with such Claims in accordance with GAAP;
(ii) enter into or permit to exist any Contract, including any financing
agreement or arrangement, joint venture agreement or partnership agreement,
which precludes or places any material conditions or restrictions on the
right or ability of the Company or any Business Unit Entity to (A) make any
payment or Transfer or perform any act required under the terms of this
Agreement or (B) manage or develop the Assets comprising any Business Unit
in the ordinary course, including pursuant to any non-competition covenant,
restriction on capital expenditures or indebtedness or restriction on
transactions with affiliates contained in any such Contract;
(iii) enter into any transaction with any of its Subsidiaries, Affiliates
or Associates (other than Persons that will become Associates solely as a
result of such transaction), which (A) involves any
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of the Business Units or any of the Assets comprising any Business Unit,
other than transactions entered into in the ordinary course of business on
terms no less favorable than those that could be obtained in an arm's-
length transaction with a Person that is not an Associate of the Company or
any Business Unit Entity, or (B) could reasonably be expected to result in
a material adverse effect on (1) the Company's ability to perform its
obligations under this Agreement, (2) the value, condition or marketability
of any Assets comprising any Business Unit, (3) the validity, legality or
enforceability of this Agreement, (4) the ability of any Holder to exercise
or enforce any of its rights, powers or remedies under this Agreement or
(5) the ability of any Representative or any member of the Review Committee
to perform any of his duties or obligations, or to exercise or enforce any
of his rights, powers or remedies, under this Agreement; or
(iv) enter into any transaction involving competition in any material
respect with any Business Unit or the Assets comprising any Business Unit,
it being understood and agreed, however, that the purchase by the Company
from HHPLP of the Assets comprising the Summerlin Business Unit which are
described in Exhibit K (subject to such adjustments to the configuration
and boundaries thereof as may become reasonably necessary during the
planning process and are approved by a majority of the members of the
Review Committee) for the purpose of constructing and operating for the
foreseeable future a regional shopping mall and entertainment complex
thereon shall not, in and of itself, be deemed to involve competition
between the Company and the Summerlin Business Unit;
(c) Notwithstanding the foregoing, no transaction described in clauses
(a)(i) through (a)(iv) above or clauses (b)(ii) through (b)(iv) above shall
require the consent of the Review Committee if and to the extent that such
transaction has been duly approved by the Board of Directors of THC prior to
the Effective Date; provided, however, that any such transaction which is
described in clause (a)(ii) above shall be taken into account in determining
whether the applicable Business Unit has borrowed or otherwise become
obligated with respect to indebtedness in excess of the relevant amount.
(d) Subject to the terms of the Articles Supplementary to the Charter of the
Company creating and designating the Rouse Increasing Rate Preferred Stock,
the Company shall not amend, alter or otherwise modify such Articles or the
number of shares, rights, preferences or privileges of the Rouse Increasing
Rate Preferred Stock thereunder unless (i) in the event that any Contingent
Preferred Shares shall have been issued and remain outstanding, such
amendment, alteration or other modification shall have been duly approved by
the holders of the Contingent Preferred Shares or the Representatives in
accordance with the provisions of the Rouse Increasing Rate Preferred Stock or
(ii) in the event that no Contingent Preferred Shares are issued and
outstanding, the Company shall have obtained the approval of its shareholders
contemplated by Section 4.15; provided, however, that at any time during which
the circumstances described in clause (ii) have been satisfied, the Company
may, without the consent of any Holder or the Representatives, amend such
Articles to eliminate the restrictions contained therein with respect to the
issuance of any capital stock of the Company ranking on a parity with, or
superior to, the shares of Rouse Increasing Rate Preferred Stock with respect
to distributions of assets upon any dissolution, liquidation (partial or
complete) or winding up of the Company or with respect to the payment of
dividends.
Section 4.06. BOARD REPRESENTATION. (a) From the date of this Agreement
until the earlier to occur of (i) the first day on which the Holders shall no
longer own, beneficially or of record, at least 5% of the outstanding shares
of Rouse Common Stock and (ii) the expiration of ten years from the date of
this Agreement, the Representatives will be entitled to designate an
individual for election to the Rouse Board; provided, however, that such
individual is reasonably acceptable to the Company at the time of his initial
designation. Pursuant to the terms of the Merger Agreement, the Company, in
accordance with its bylaws, has increased the size of the Rouse Board by one
and caused the vacancy created by such increase to be filled by the election
of the individual designated on behalf of the Holders in the Merger Agreement
(the "Holders' Designee"), which election is effective as of the
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Effective Date. Such Holders' Designee will serve until the first annual
meeting of the stockholders of the Company following the date hereof and until
his successor shall be duly elected and qualified or until his death,
disability, removal or resignation.
(b) So long as the Representatives possess the right of designation
described in paragraph (a) above, the Company shall nominate (or shall cause
to be nominated) for election at each annual meeting of the stockholders of
the Company after the date hereof, the incumbent Holders' Designee or such
other individual as the Representatives may designate; provided, however, that
such other individual is reasonably acceptable to the Company at the time of
his initial designation.
(c) So long as the Representatives possess the right of designation
described in paragraph (a) above, if the Holders' Designee should die, become
disabled, be removed, retire or resign during the term of his office, the
Representatives shall be entitled to designate a successor Holders' Designee
reasonably acceptable to the Company at the time of his initial designation,
in which event the Company shall cause such successor Holders' Designee to be
promptly elected as a member of the Rouse Board to fill the vacancy created by
such death, disability, removal, retirement or resignation.
(d) So long as the Representatives possess the right of designation
described in paragraph (a) above, without the prior written consent of the
Representatives (which consent will not be unreasonably withheld), neither the
Company nor the Rouse Board will (i) recommend that the Holders' Designee be
removed by the stockholders of the Company or (ii) fail to recommend any
incumbent Holders' Designee for reelection.
Section 4.07. TREASURY SHARES. All purchases or other acquisitions of shares
of Rouse Common Stock by the Company shall be implemented in compliance with
applicable Laws, including Rules 10b-5 and 10b-6 under the Exchange Act. The
Company will not purchase or otherwise acquire shares of Rouse Common Stock
with the intention or for the specific purpose, directly or indirectly, of
increasing the amount of any Current Share Value to be calculated hereunder.
Section 4.08. INSPECTION. The Company shall permit, and shall cause each
Business Unit Entity to permit, each Review Committee member, each
Representative and their respective representatives to (a) visit and inspect
the Assets comprising any Business Unit; (b) examine its books and records and
make copies thereof or extracts therefrom to the extent that the same relate
to the performance or non-performance of any of the terms of this Agreement,
any Business Unit or any of the Assets comprising any Business Unit; and (c)
discuss its affairs, finances and accounts with its officers and independent
accountants to the extent that the same relate to the performance or non-
performance of any of the terms of this Agreement, any Business Unit or any of
the Assets comprising any Business Unit (and by this provision the Company
authorizes such accountants to discuss with such Persons, to such extent, the
affairs, finances and accounts of the Company and any Business Unit Entity),
all at such reasonable times and as often as such Review Committee member or
such Representative may reasonably request. As an accommodation to the
Company, the Representatives will endeavor to arrange their visits and
inspections hereunder to coincide with the regular meetings of the Review
Committee contemplated by Section 6.01; provided, however, that the
Representatives shall not be so obligated if they believe the Company may not
be in compliance with any provision of this Agreement. All out-of-pocket
expenses incurred by the Company, the Holder Members and the Independent
Member in connection with such visits and inspections shall constitute
Expenditures hereunder; provided, however, that (i) in no event shall any
other cost or expense, including any salary or other wages, incurred by the
Company or any Business Unit Entity in connection with discussions between any
member of the Review Committee and any officers, directors or employees of the
Company or any Business Unit Entity be deemed an Expenditure hereunder and
(ii) if an Event of Default shall have occurred and be continuing, no costs or
expenses in connection with any visit or inspection by a member of the Review
Committee shall be deemed an Expenditure hereunder. All such visits and
inspections by a Representative shall be at the expense of the Holders;
provided, however,
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that (A) in no event shall the Company or any Business Unit Entity be entitled
to reimbursement for any cost or expense, including any salary or other wages,
incurred in connection with discussions between any Representative and any
officers, directors or employees of the Company or any Business Unit Entity,
(B) if an Event of Default shall have occurred and be continuing, all such
visits and inspections shall be at the expense of the Company and (C) no costs
or expenses described in clauses (A) and (B) shall be deemed an Expenditure
hereunder.
Section 4.09. MAINTAIN REGISTRY. The Company shall maintain a registry of
the Holders and record therein each Holder's name, address and Percentage
Interest. Such registry shall be kept at the principal corporate office of the
Company and shall be made available for inspection by any Representative or
any Holder during normal business hours upon reasonable prior notice. Such
registry shall initially be comprised of the Persons and other information set
forth on Schedule 1. Upon receipt of a written notice of Transfer to an
Eligible Assignee, such notice specifying the name of the Transferring Holder,
the name and address for notice purposes of such Eligible Assignee, the
Percentage Interest Transferred to such Eligible Assignee and the cause (if
applicable) of the Transfer, the Company shall revise the registry to reflect
such Transfer. The Company, the Representatives and the Escrow Agent may deem
and treat the Persons listed in the registry as the Holders for all purposes
of this Agreement. Any request, authority or consent of any Person who, at the
time of making of such request or giving such authority or consent, is a
Holder shall be conclusive and binding on any subsequent Eligible Assignee of
such Holder.
Section 4.10. COMPLIANCE WITH LAWS. Subject to the provisions of Section
7.05(b), the Company shall comply, and shall cause each Business Unit Entity
to comply, with all applicable Laws (including Environmental Laws) and
Governmental Approvals applicable to any of the Assets comprising any Business
Unit, non-compliance with which, alone or together with all other such non-
compliances, could reasonably be expected to have a Material Adverse Effect.
Subject to the provisions of Section 7.05(b), the Company shall obtain and
maintain, and shall cause each Business Unit Entity to obtain and maintain, as
and when required by applicable Law, all Governmental Approvals necessary for
its ownership and use of the Assets comprising any Business Unit, other than
such failures to obtain or maintain Governmental Approvals which, alone or
together with all other such failures, could not reasonably be expected to
have a Material Adverse Effect.
Section 4.11. TAXES; CLAIMS. Subject to the provisions of Section 7.05(b),
the Company shall pay and discharge, and shall cause each Business Unit Entity
to pay and discharge, all taxes, assessments and governmental charges or
levies imposed upon the Assets comprising any Business Unit and all lawful
Claims, other than such failures to pay and discharge taxes, assessments,
charges, levies and Claims which, alone or together with all such other such
failures, could not reasonably be expected to have a Material Adverse Effect.
Section 4.12. INSURANCE. Subject to the provisions of Section 7.05(b), the
Company shall maintain, and shall cause each Business Unit Entity to maintain,
insurance with financially sound, responsible and reputable insurance
companies or associations with respect to the Assets comprising any Business
Unit against such risks and in such amounts (and with co-insurance and
deductibles) as is customarily obtained by the Company in connection with its
own Assets and operations.
Section 4.13. CORPORATE EXISTENCE; ETC. Subject to the provisions of Section
7.05(b), and except as provided in Sections 4.05(a)(vi) and 7.04, the Company
shall, and shall cause each Business Unit Entity to, preserve and maintain its
existence, and the Company shall, and shall cause each Business Unit Entity
to, qualify and remain qualified as a foreign Person in each jurisdiction in
which any of the Assets comprising any Business Unit is located for so long as
the Company or such Business Unit Entity is the owner of such Assets.
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Section 4.14. REGISTRATION OF CONTINGENT SHARES AND CONTINGENT PREFERRED
SHARES; COMPLIANCE WITH SECURITIES LAWS. In connection with each delivery of
Contingent Shares or Contingent Preferred Shares under this Agreement, the
Company shall:
(a) cause the delivery of such Contingent Shares or Contingent Preferred
Shares to have been registered or qualified under the Securities Act and
all applicable blue sky and other securities Laws, such that the Contingent
Shares or Contingent Preferred Shares so delivered shall be transferable by
the Holders receiving such Contingent Shares or Contingent Preferred Shares
free of any restrictions imposed by the Securities Act (except for
restrictions, if applicable, under Rule 145 under the Securities Act);
(b) furnish to each Representative a signed counterpart, addressed to the
Representatives for the benefit of the Holders, of an opinion of counsel to
the Company, dated the date of delivery of such Contingent Shares or
Contingent Preferred Shares, reasonably satisfactory in form and substance
to the Representatives, to the effect that the delivery of such Contingent
Shares or Contingent Preferred Shares to the Holders has been registered
under the Securities Act, and all applicable blue sky and other securities
Laws;
(c) otherwise comply with all applicable rules and regulations of the SEC
with respect to the delivery of such Contingent Shares or Contingent
Preferred Shares;
(d) provide and cause to be maintained a transfer agent and registrar for
all Contingent Shares or Contingent Preferred Shares so delivered;
(e) cause such Contingent Shares to be listed, on or prior to the date of
such delivery, on the New York Stock Exchange, the American Stock Exchange
or NASDAQ;
(f) provide or have provided a CUSIP number for all Contingent Shares or
Contingent Preferred Shares so delivered; and
(g) make or have made all periodic filings that the Company shall be or
have been required to make or have made with the SEC pursuant to and
containing the information required by the Exchange Act.
Section 4.15. ROUSE SHAREHOLDER APPROVAL. (a) The Company shall use its
reasonable best efforts to obtain shareholder approval of this Agreement and
the transactions contemplated hereby, to the extent that the rules of the New
York Stock Exchange require such approval prior to the Company issuing new
shares of Rouse Common Stock for delivery to the Holders in satisfaction of
its obligation to deliver Contingent Shares hereunder, prior to July 15, 1997.
Without limitation of the foregoing, if and to the extent so required, prior
to July 1, 1997 the Company shall (i) submit this Agreement and the
transactions contemplated hereby for the approval of its shareholders at a
meeting of its shareholders to be held prior to July 15, 1997, (ii) through
the Rouse Board, recommend to its shareholders approval of this Agreement and
the transactions contemplated hereby and (iii) take such other actions as may
be required, or as the Representatives may reasonably request, in order to
obtain such shareholder approval prior to July 15, 1997. None of the
information to be supplied by the Company or its Subsidiaries for inclusion in
the proxy statement to be distributed in connection with the shareholders
meeting referred to above will, at the time of the mailing thereof and
amendments or supplements thereto and at the time of the meeting of the
shareholders referred to above, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. Such proxy statement
will comply as to form in all material respects with all applicable Laws.
(b) The Company (i) acknowledges that a breach of its covenant contained in
paragraph (a) above to convene a meeting of its shareholders and call for a
vote thereat with respect to the approval of this Agreement and the
transactions contemplated hereby will result in irreparable harm to the
Holders
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which will not be compensable in money damages and (ii) agrees that such
covenant shall be specifically enforceable and that specific performance and
injunctive relief shall be a remedy properly available to the Representatives
and the Holders for a breach of such covenant.
Section 4.16. CONTINGENT PREFERRED SHARES. Notwithstanding any provision of
this Agreement to the contrary, if the Company is required to deliver
Contingent Shares pursuant to this Agreement on any date (the "Delivery Date")
and if the Company is precluded or otherwise unable for any reason to deliver
such Contingent Shares on the Delivery Date, including any such preclusion or
inability which results because the issuance by the Company of shares of Rouse
Common Stock and delivery of such shares to the Holders in satisfaction of its
obligation to deliver Contingent Shares hereunder would be a breach or
violation of any then effective New York Stock Exchange Listing Agreement to
which the Company is a party, then the Company shall immediately issue and
deliver shares of Rouse Increasing Rate Preferred Stock ("Contingent Preferred
Shares") in lieu thereof. The aggregate number of Contingent Preferred Shares
(including fractional shares) to be issued and delivered by the Company on any
Delivery Date shall be determined by dividing (a) 125% of the sum of (i) the
aggregate number of Contingent Shares originally required to be delivered by
the Company on the Delivery Date plus (ii) the aggregate number of Contingent
Shares required to be delivered by the Company pursuant to Section 2.08(d) by
(b) the quotient of (i) $100 divided by (ii) the Current Share Value used in
calculating such aggregate number of such Contingent Shares. The obligation of
the Company to issue and deliver shares of Contingent Preferred Shares under
this Section 4.16 shall terminate if and when this Agreement and the
transactions contemplated hereby have been duly and validly approved by the
Company's shareholders as contemplated by Section 4.15; provided, however,
that no such termination shall relieve the Company from (A) any liability for
any breach of this Section 4.16 prior to such termination or (B) any
obligation to deliver Contingent Preferred Shares pursuant to Section 2.08(e).
Section 4.17. RESERVATION OF SHARES. (a) The Company will at all times
reserve and keep available (free of preemptive rights), out of its authorized
and unissued shares of Rouse Common Stock solely for issuance pursuant to this
Agreement, the full number of shares of Rouse Common Stock as the Rouse Board,
after consultation with independent financial advisors and legal counsel,
shall determine in good faith to be issuable under this Agreement.
(b) The Company will at all times reserve and keep available (free of
preemptive rights), solely for issuance pursuant to this Agreement, all shares
of Rouse Preferred Stock constituting the Rouse Increasing Rate Preferred
Stock.
Section 4.18. ABANDONMENT OF ASSETS. In the event that: (a) the Company, in
its good faith judgment, determines, based upon reasonable assumptions and
after consultation with the Review Committee, that the continued ownership and
operation of any Business Unit would be neither profitable to nor in the best
interests of the Company and the Holders; (b) the Company is not obligated to
make a Revolving Credit Loan to the applicable Business Unit Entity pursuant
to Section 4.03(b); (c) third party financing to fund the cash requirements of
such Business Unit is unavailable to the applicable Business Unit Entity; (d)
the Company is unwilling to make a Company Loan to the applicable Business
Unit Entity in connection with such Business Unit; and (e) the Review
Committee has rejected a request to have another Business Unit make an Advance
to such Business Unit, then the Company may cease to operate such Business
Unit; provided, however, that prior to any such cessation, the Company shall
(i) unless otherwise consented to by the Representatives, use commercially
reasonable efforts for a period of at least 12 months to market and sell or
lease the Assets comprising such Business Unit and (ii) if no potential
purchaser or lessee for any of such Assets exists as of the last day of such
period, the Company shall, unless otherwise consented to by the
Representatives, sell any such Assets at a public auction, for cash or credit,
at the highest price bid for such Assets at such auction. Any and all costs,
expenses and proceeds that are incurred, paid and received, as applicable, in
connection with any such sale of Assets shall constitute Receipts and
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Expenditures, as applicable, with respect to the applicable Business Unit and,
provided further, that in the event that such cessation relates to the Playa
Vista Business Unit prior to the Termination Date, and the Company has funded
less than $10,000,000 pursuant to the Funding Requirement, the Company shall,
on the date of such cessation, credit the Playa Vista Business Unit Account
with an amount equal to: (i) $10,000,000 minus the amount of the Hughes
Funding plus (ii) a 7% per annum, compounded semi-annually, return on such
amount accruing from the effective date hereof until such amount is credited
to the Playa Vista Business Unit Account.
ARTICLE V
Concerning the Representatives
Section 5.01. AUTHORITY AND LIABILITIES OF THE REPRESENTATIVES. (a) Except
as otherwise provided herein, (i) the Representatives shall have full power
and authority to represent the Holders with respect to all matters arising
under this Agreement and shall have, and may exercise, such rights, powers,
privileges and remedies as are reasonably incidental thereto and (ii) all
actions taken by the Representatives hereunder shall be binding upon the
Holders, as if expressly confirmed and ratified by each of the Holders.
Without limiting the generality of the foregoing, except as otherwise provided
herein, the Representatives shall have full power and authority, on behalf of
the Holders, to interpret all of the terms and provisions of this Agreement
and to compromise and settle all disputes between the Company and the Holders
(or any of them) arising under this Agreement. So long as the Representatives
are authorized to act under this Agreement, each of the Holders hereby
irrevocably appoints the Representatives to act as the attorney-in-fact of
such Holder, with full authority in its place and stead, and in the name of
the Holders, the Representatives or otherwise, from time to time to take any
action and to execute any instrument which the Representatives may deem
necessary or advisable to carry out their duties and responsibilities and
otherwise act under this Agreement.
(b) The Representatives will be acting herein solely as an accommodation to
the Holders, and each Representative, in exercising his rights, powers,
privileges and remedies and performing his duties and responsibilities
hereunder, will endeavor to use the same care that he uses when acting solely
for his own account. The duties of the Representatives shall be determined
only with reference to this Agreement, and no Representative is or shall be
charged with knowledge of, or with any duties or responsibilities under or in
connection with, any other document or instrument. No implied duties or
covenants shall be read into this Agreement on the part of the
Representatives. No Representative shall be obligated to take any legal action
hereunder which is contrary to applicable Law or which might, in such
Representative's judgment, involve any expense or Liability unless such
Representative has been indemnified to his satisfaction by the Holders. The
Representatives shall be authorized to exercise their discretion in acting or
refraining from acting hereunder and in connection herewith and shall not be
liable for any mistakes of fact or errors of judgment, or for any acts or
omissions of any kind, unless caused by the willful misconduct or gross
negligence of such Representative. IT IS THE INTENT OF THE PARTIES THAT NO
REPRESENTATIVE SHALL BE LIABLE FOR OR ON ACCOUNT OF ANY ACTION TAKEN OR
OMITTED BY HIM HEREUNDER OR IN CONNECTION HEREWITH CAUSED BY THE ORDINARY
NEGLIGENCE (WHETHER SOLE OR CONTRIBUTORY) OF SUCH REPRESENTATIVE. In no event
shall any Representative be liable to any Person for incidental, consequential
or indirect damages in his capacity as such. Except as provided in Sections
5.01(e) and 5.11, no Representative shall have any duty to the Company, any of
its Subsidiaries or the Review Committee, nor shall any Representative be
liable to the Company or any of its officers, directors, shareholders,
partners, employees, agents, servants or Subsidiaries or any member of the
Review Committee for any act or failure to act hereunder or connection
herewith.
(c) No Representative shall be under any obligation to make any
investigation in respect of the subject matter of this Agreement. No
Representative shall be charged with knowledge (actual or
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constructive) of any Event of Default or any failure on the part of the
Company in the performance of its obligations hereunder, unless a clear
written notice thereof shall have been previously furnished to such
Representative.
(d) Each individual serving as a Representative hereunder will be acting
only in his capacity as a Representative and not in his individual capacity or
in any other capacity, including as an agent, representative, employee,
officer, director, stockholder, partner or fiduciary of any other Person.
Accordingly, notwithstanding anything contained herein or elsewhere to the
contrary, in no event shall any Associate of any Representative be liable for
or on account of any action taken or omitted by such Representative nor shall
recourse be had to the Assets or business of any such Associate on account of
any such action or omission.
(e) Any Representative may be or become a Holder and may otherwise deal with
the Company and its Subsidiaries with the same rights he would have if he were
not a Representative hereunder. Without limitation of the foregoing, any
Representative who is also a Holder shall have, and may exercise, all the
rights and powers vested in such Representative in his capacity as a Holder
the same as if such Representative were not a Representative hereunder.
(f) No Representative shall hold himself out to be an agent, employee or
representative of the Company, and no act or omission by any Representative
shall bind or obligate the Company, any of its Subsidiaries or any Business
Unit Entity.
Section 5.02. DIRECTIONS TO REPRESENTATIVES. (a) The Representatives may
rely upon and shall in all respects be fully protected in acting or refraining
from acting in accordance with any request, instruction or direction of the
Majority Holders, and the Representatives shall not be liable for any action
taken, suffered or omitted by them in accordance with any such request,
instruction or direction. Each request, instruction or direction made or given
to the Representatives by the Majority Holders, and any action taken, suffered
or omitted by the Representatives pursuant thereto, shall be binding upon all
Holders. No Representative shall be under any obligation to take any action or
refrain from taking action at the request, instruction or direction of the
Holders (or any of them).
(b) The Representatives may at any time request instructions from the
Majority Holders with respect to any matter arising hereunder or in connection
herewith, and the Representatives (i) shall be entitled to refrain from acting
with respect to such matter unless and until they have received instructions
from the Majority Holders to do so and (ii) shall not incur Liability to any
Person by reason of so refraining.
Section 5.03. RELIANCE UPON DOCUMENTS AND OPINIONS OF COUNSEL. Each
Representative may rely and shall be fully protected in acting upon any
notice, request, consent, certificate, resolution, appraisal, report or other
paper or document believed by him to be genuine and to have signed or
presented by the proper Person or Persons. Each Representative may consult
with counsel (who may be of counsel to the Company) and the opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken or suffered by such Representative hereunder in good faith
and in accordance with the opinion of such counsel.
Section 5.04. NO RESPONSIBILITY FOR RECITALS, ETC. The recitals and
statements contained in this Agreement shall be taken as the recitals and
statements of the Company only, and no Representative assumes responsibility
for the correctness of the same. No Representative shall be liable or
responsible to any Person for (i) the representations, warranties or other
statements made by any other Person, (ii) the performance of this Agreement or
any other instrument or document by the Company or any of its Subsidiaries,
(iii) any actions taken or omitted by any other Person or (iv) the execution,
value, sufficiency, validity or enforceability of this Agreement or any other
instrument or document. No Representative shall be accountable to any Holder
for any shares of Rouse Common
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Stock or Rouse Increasing Rate Preferred Stock delivered hereunder or
responsible for the business, operations, Assets, condition (financial or
other) or results of operation of the Company or any of its Subsidiaries.
Section 5.05. ACTIONS BY REPRESENTATIVES. (a) Except as otherwise expressly
provided herein, all actions required or permitted to be taken by the
Representatives hereunder shall be evidenced by, and taken upon, the written
direction of a majority of the Representatives. The Company shall be entitled
to rely on the representations of a majority of the Representatives as to
their authority to take any action under or in connection with this Agreement.
(b) The Representatives may exercise any of their rights, power, privileges
or remedies hereunder or perform any of their duties hereunder either directly
or by or through agents or attorneys, and no Representative shall be
responsible for any misconduct or negligence on the part of any agent or
attorneys appointed by the Representatives with due care hereunder. The
Representatives shall be entitled to retain and consult with such independent
advisors and other experts as the Representatives shall deem necessary or
appropriate in connection with the performance of their duties and
responsibilities and the exercise of their authority or powers hereunder.
Section 5.06. RESIGNATION AND REMOVAL. (a) Any Representative may at any
time resign and be discharged of his duties and obligations hereunder by
giving not less than 30 days' prior written notice to the Company, the other
Representatives and the Holders. Such resignation shall take place on the day
specified in such notice, unless previously a successor Representative shall
have been appointed as provided in Section 5.07, in which event such
resignation shall take effect immediately upon the appointment of such
successor Representative.
(b) Any Representative may be removed at any time, with or without cause, by
an instrument or instruments in writing signed by the Majority Holders,
specifying the removal and the date when it shall take effect. Upon the
resignation or removal of any Representative becoming effective, all the
rights, powers, duties and obligations of such Representative shall forthwith
terminate except as otherwise provided herein.
(c) Subject to the provisions of Sections 5.01, 5.02, 5.03, 5.04 and 5.05,
no such resignation or removal shall relieve any Representative from Liability
for any breach of this Agreement by such Representative prior to the effective
date of such resignation or removal. Anything herein to the contrary
notwithstanding, all indemnities and rights to payment and reimbursement of
each Representative hereunder shall survive his resignation or removal and the
Company's performance of its obligations hereunder.
Section 5.07. APPOINTMENT OF SUCCESSOR REPRESENTATIVE. (a) In the event of
the death, resignation or incapacity of any Representative, the remaining
Representatives (whether one or more) shall appoint a successor Representative
by an instrument or instruments in writing executed by the remaining
Representatives and delivered to the Company and the Holders; provided,
however, that if no appointment of a successor Representative shall have been
made within 30 days after the date of such death, resignation or incapacity,
as the case may be, the Majority Holders shall have the right to appoint a
successor Representative by written notice given to the Company and the
remaining Representatives. For purposes of this paragraph (a), "incapacity"
means, when respect to any Representative, a physical or mental condition
which, in the good faith judgment of the other Representatives, (i) prevents
such Representative from being able to perform the services contemplated to be
performed by a Representative under this Agreement, (ii) has continued for at
least 90 days and (iii) is expected to continue.
(b) In the event a Representative shall be removed by the Majority Holders
as provided in Section 5.06(b), the Majority Holders may appoint a successor
Representative by an instrument or instruments
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in writing signed by the Majority Holders and delivered to the Company and the
remaining Representatives. In the event the Majority Holders fail to so
appoint a successor Representative within 30 days after the date of such
removal, the remaining Representatives (whether one or more) shall have the
right to appoint a successor Representative by an instrument or instruments in
writing executed by the remaining Representatives and delivered to the Company
and the Holders.
(c) If any Representative shall die or resign or be removed in accordance
with Section 5.06 and if a successor Representative shall not have been
appointed within 60 days after the day of such death, resignation or removal,
either of the remaining Representatives may apply to any court of competent
jurisdiction to appoint a successor Representative, and such court may
thereupon, after such notice (if any) as it may consider proper, appoint a
successor Representative.
Section 5.08. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR REPRESENTATIVE. Any
successor Representative appointed hereunder shall execute and deliver to the
remaining Representatives (for the express benefit of all the Holders) an
instrument in writing accepting such appointment (a copy of which shall be
sent to all Holders), and thereupon such successor Representative, without
further act or deed, shall become vested with all the rights, powers, duties
and obligations of his predecessor, with like effect as if originally named as
a Representative herein.
Section 5.09. COMPENSATION AND INDEMNIFICATION. (a) The Representatives
shall look solely to the Holders and the Escrow Account for payment of any
compensation payable to them for their services hereunder and for any
indemnification against any Liability incurred by them in connection with the
Agreement. As compensation for performance of services hereunder as
Representatives, each Representative shall receive an amount equal to $30,000
(subject to adjustment as provided below) per annum, payable monthly in
arrears on the last day of each calendar month for so long as such
Representative has any duties or obligations under this Agreement, plus such
additional compensation as may at any time or from time to time be proposed in
writing by the Representatives (or any one of them) and approved by the
Majority Holders. In the event this Agreement, or the period of service
hereunder of any Representative, shall commence or end on other than the first
or last day of a calendar month, such monthly amount (but no other amount
unless otherwise agreed) shall be appropriately prorated. All payments due to
the Representatives under the foregoing sentence may be paid from the Escrow
Account and the Representatives shall be authorized to make withdrawals from
the Escrow Account for such purpose. The amount of the annual fee referred to
above shall be adjusted upwards or downwards, as the case may be, for each
calendar year commencing after the date hereof by the amount of the change (if
any) in the Cost of Living during the prior calendar year based on the
Consumer Price Index for Urban Consumers All Items--Less Shelter--Index
(1967=100) as published with respect to the greater Houston metropolitan area
by the Bureau of Labor Statistics for the United States Department of Labor.
If such Index is discontinued or revised in any material respect, the
Representatives, acting in good faith and after consultation with an
independent consultant, shall designate a substitute index which shall
thereafter be used in order to obtain substantially the same result as would
have been obtained had such Index not been so discontinued or revised.
(b) In addition to the fees described above, each Representative shall be
entitled to be promptly reimbursed by the Holders for the reasonable out-of-
pocket expenses incurred by such Representative in connection with his service
as a Representative hereunder. All payments due to the Representatives under
the foregoing sentence may be paid from the Escrow Account and the
Representatives shall be authorized to make withdrawals from the Escrow
Account for such purpose.
Section 5.10. REPRESENTATIVES' ESCROW ACCOUNT. (a) Contemporaneously with
the execution of this Agreement, the Representatives shall establish a special
purpose escrow account with a bank or trust company selected by the
Representatives (the "Escrow Agent"). The Escrow Agent shall administer the
Escrow Account in accordance with the terms and conditions of an escrow
agreement
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to be entered into between the Representatives and the Escrow Agent (the
"Escrow Agreement"). The Escrow Agreement shall be in such form and contain
such terms and conditions (consistent with this Agreement) as the
Representatives shall approve. The Escrow Account shall be held by and remain
in the exclusive possession of, and under the sole dominion and control of,
the Representatives for the ratable benefit of the Holders and the
Representatives during the period from the date hereof until the date on which
the Representatives shall cease to have any further duties or obligations
hereunder (the "Escrow Termination Date") and shall be maintained at all times
in accordance with the terms of this Agreement. Unless otherwise specifically
provided herein, the Escrow Account shall be subject to debit or withdrawals
solely by the Representatives as provided in this Agreement and no other
Person shall have any control over or right of withdrawal from the Escrow
Account; provided, however, that if at any time there shall not be any
Representative then serving hereunder, disbursements from the Escrow Account
may be authorized upon written instructions from the Majority Holders. No
payments shall be made out of the Escrow Account except for the purposes and
on the terms provided in this Agreement. As security for all compensation,
expenses, indemnification payments and other amounts due or to become due to
the Representative hereunder, each Representative, without any action on the
part of the Holders, the Escrow Agent or any other Person, shall have and may
enforce a first priority security interest in and Lien upon all moneys and
other Assets contained from time to time in the Escrow Account.
(b) Concurrently with the execution of this Agreement, there is being
transferred to the Escrow Account the sum of $1,500,000 pursuant to
authorization set forth in that certain Agreement and Plan of Merger dated as
of February 22, 1996 among the Company, TRC Acquisition Company II, a Delaware
corporation, and HHPLP relating to the Partnership Merger. If, subsequent to
the date hereof, the Representatives acting in good faith believe that
additional funds are required or may be required for the Escrow Account in
order to enable the Representatives to receive the compensation to which they
are entitled hereunder and to discharge their responsibilities and duties and
otherwise act on behalf of Holders pursuant to this Agreement, the
Representatives shall have the right to direct that a specified number of the
Contingent Shares and/or Contingent Preferred Shares otherwise issuable to the
Holders hereunder, determined as of the next succeeding Calculation Date, be
withheld and instead delivered to or as directed by the Representatives, such
Contingent Shares and/or Contingent Preferred Shares to be withheld from the
Contingent Shares and/or Contingent Preferred Shares otherwise deliverable to
the Holders pro rata in accordance with their respective Percentage Interests.
Such direction shall be evidenced by notice duly authorized and given by the
Representatives to the Company (a "Representatives' Diversion Notice"), a copy
of which shall be concurrently mailed to all Holders, in which event the
Company shall be obligated to withhold and so direct and deliver the
Contingent Shares and/or Contingent Preferred Shares as provided in the
Representatives' Diversion Notice. The Representatives shall cause the
Contingent Shares and/or Contingent Preferred Shares so received to be sold as
promptly as prudent marketing conditions will permit with the net proceeds of
each such sale to be deposited to the Escrow Account. Any and all deposits
made into the Escrow Account shall be irrevocable and the amount of such
deposit and any interest and investment earnings thereon shall be held by the
Representatives and applied, invested and transferred solely as provided
herein and in the Escrow Agreement.
(c) Anything in this Section 5.10 to the contrary notwithstanding, the
Majority Holders may at any time or from time to time by written notice to the
Representatives (i) instruct the Representatives to withdraw any
Representatives' Diversion Notice or (ii) authorize or direct that all or part
of any amounts deposited in the Escrow Account in accordance with paragraph
(b) above be distributed to all Holders ratably in accordance with their
respective Percentage Interests.
(d) The Representatives shall maintain or cause to be maintained at the
expense of the Holders, books of account on a cash basis and record therein
(i) all funds received by the Representatives on behalf of the Holders, (ii)
all payments or disbursements of funds to the Representatives in payment of
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compensation or for reimbursement of expenses pursuant to Section 5.09, (iii)
all payments or disbursements to any other Person for the benefit of, or
approved by, the Holders, (iv) all other deposits into and transfers to and
from the Escrow Account and (v) all investment transactions contemplated by
paragraph (f) below effected by the Representatives and/or the Escrow Agent.
The Representatives shall endeavor to make such books of account available
during normal business hours for inspection by the Holders and their
respective representatives upon reasonable prior notice, but only if the
Holders or Holders requesting such inspection agree to pay all costs and
expenses relating thereto. In addition to such books of account, the
Representatives shall maintain or cause to be maintained at all times a
current list of the investments in the Escrow Account. Not later than the 60th
day after each Calculation Date, the Representatives shall provide or cause to
be provided to the Holders a statement specifying the amounts held in, and the
activity for, the Escrow Account at the close of business on the last business
day preceding such Calculation Date.
(e) The Representatives shall transfer funds available in the Escrow Account
as follows:
(i) at any time and from time to time, the Representatives shall withdraw
amounts held in the Escrow Account and apply such amounts as required or
permitted by this Agreement; and
(ii) on the Escrow Termination Date, the Representatives shall withdraw
any and all amounts held in the Escrow Account from the Escrow Account and,
after the payment or provision for payment of all expenses and Liabilities
of the Holders and the Representatives under this Agreement, transfer the
remaining amount to the Holders ratably in accordance with their respective
Percentage Interests.
In addition, the Representatives may at any time or from time to time withdraw
all or part of the funds in the Escrow Account and distribute the funds so
withdrawn to the Holders ratably in accordance with their respective
Percentage Interests.
(f) Amounts held in the Escrow Account shall be invested only in Permitted
Investments. Any interest, investment income or gain realized as a result of
any of the amounts held in the Escrow Account (net of the expenses incurred in
connection with making any Permitted Investments) shall be credited to the
Escrow Account and may be reinvested in Permitted Investments. Neither the
Escrow Agent nor any of the Representatives (or their Associates) shall have
any liability to any of the Holders or any other Person for any Loss resulting
from any Permitted Investment other than Losses arising out of his or its
willful misconduct, fraud or gross negligence. For purposes of this Agreement,
the term "Permitted Investments" means any of the following investments: (i)
securities issued or directly and fully guaranteed or insured by the United
States or any agency or instrumentality thereof (provided that the full faith
and credit of the United States is pledged in support thereof) having a
maturity not exceeding 30 days from the date of acquisition, (ii) time
deposits and certificates of deposit of any commercial bank of recognized
standing having capital and surplus in excess of $500,000,000, provided that
the long term senior unsecured debt of such bank is rated at least A+ or the
equivalent thereof by Standard & Poor's Corporation or at least A1 or the
equivalent thereof by Moody's Investors Service, having a maturity not
exceeding 30 days from the date of acquisition, and (iii) commercial paper
issued by the parent corporation of any commercial bank or by any domestic
corporation, provided that such commercial paper is rated at least A-1 or the
equivalent thereof by Standard & Poor's Corporation or at least P-1 or the
equivalent thereof by Moody's Investors Service, having a maturity not
exceeding 30 days from the date of acquisition.
(g) Any and all interest and other income earned or loss realized on any
Contingent Shares or Preferred Contingent Shares held by the Representatives
for the benefit of the Holders or any amounts held in the Escrow Account for
any and all federal, state and local income tax purposes shall be attributed
to the Holders. The Representatives shall provide, or cause to be provided,
information to the Holders to enable the Holders to (i) determine any and all
requirements of governmental authorities for the payment of taxes and the
reporting or withholding of any payments for tax purposes hereunder
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and (ii) prepare and file, or cause to be prepared and filed, all tax returns,
reports and other information required with respect to the Escrow Account. The
Holders, ratably according to their respective Percentage Interests, shall
indemnify and hold the Representatives harmless against any and all Claims,
Liabilities and Losses for tax withholding and/or reporting for any payments
made hereunder. Such indemnities shall survive the Escrow Termination Date,
the termination or discharge of this Agreement and the death, resignation or
removal of any Representative. The Representatives shall have no obligation
whatsoever with respect to the making, reporting or withholding of any
payments for tax purposes. If requested by the Representatives, each Holder
will provide the Representatives with such information as may be required by
applicable taxing authorities or tax Laws.
Section 5.11. CONFIDENTIALITY. No Representative will disclose to any
Person, or use for any improper purpose, any of documents or other information
furnished to it by the Company hereunder except for the purposes contemplated
by this Agreement. Notwithstanding the foregoing, each Representative shall be
permitted to:
(a) disclose any such documents or other information (i) to the Company
or any employee, agent, advisor, consultant, officer, director or
stockholder of the Company or any Affiliate of the Company, (ii) to any
member of the Review Committee or any employee, agent, legal counsel,
accountant, advisor or consultant of the Review Committee or (iii) to the
extent that such documents or information (A) are furnished or made
available to such Representative by the Company on a non-confidential
basis, (B) is or becomes generally known or available other than as a
result of a disclosure by such Representative or (C) is or becomes known or
available to such Representative on a non-confidential basis from a source
(other than the Company) which, to such Representative's knowledge, is not
prohibited from disclosing such documents or information to such
Representative by a legal, contractual, fiduciary or other obligation to
the Company; and
(b) otherwise disclose and use any such documents or other information
(i) as the Company shall approve from time to time (which approval shall
not be unreasonably withheld), (ii) as shall be required in response to any
summons or subpoena or in connection with any litigation, (iii) to the
extent such Representative believes it necessary to comply with applicable
Law or (iv) to the extent such Representative believes it necessary in the
performance of his duties and obligations hereunder or in the exercise or
enforcement of his rights, powers, privileges, remedies or immunities
hereunder.
If any Representative intends to disclose any information which is subject to
the foregoing confidentiality restriction pursuant to clause (b)(ii) or
(b)(iii) above, such Representative will notify the Company, to the extent
practicable, so that the Company may seek an appropriate protective order. If
requested by the Company, each Representative will acknowledge in writing that
he is aware that the United States securities laws prohibit any Person who has
material non-public information about a company with securities registered
under the Exchange Act from purchasing or selling securities of such company
based on such non-public information or disclosing such information to any
other Person under circumstances where it is reasonably foreseeable that other
such Person is likely to sell securities of such company based on such non-
public information.
Section 5.12. CONTROLLING PROVISIONS. If any provision of this Article V
conflicts with or is contrary to any other provision of this Agreement, such
provision of this Article V shall govern and control.
Section 5.13. INDEMNIFICATION. The Holders shall indemnify and save each
Representative harmless against any Claims, Liabilities and Losses, not
arising from his own gross negligence or intentional misconduct, which such
Representative may incur in the good faith exercise and performance of his
powers and responsibilities hereunder.
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ARTICLE VI
Concerning the Review Committee
Section 6.01. GENERAL. A committee (the "Review Committee") shall be
established for the purpose of meeting on a periodic basis (no less frequently
than once during each calendar quarter unless all of the members of the Review
Committee shall otherwise agree) to review and discuss the management,
operation and development of the Business Units and related Assets. In
connection with its preparation of any business plan for the management,
development and operation of the Business Units and related Assets or any
amendment thereto, the Company will consult with the Review Committee for the
purpose of seeking advice and recommendations from the Review Committee
regarding such business plan or amendment thereto. Promptly after each
business plan (or amendment thereto) is finalized, the Company will provide
each member of the Review Committee with a copy thereof. It is understood and
agreed that the object of each such business plan will be to maximize the
value of the Business Units and related Assets. The reasonable fees of, and
the reasonable costs and expenses incurred by, the Review Committee and its
members in furtherance of their responsibilities shall be borne by the Company
and fairly allocated among the Business Units for purposes of determining the
Excess Cash Flow of the Business Units, such allocation to be made in a manner
reasonably determined by the Company in good faith.
Section 6.02. COMPOSITION. The Review Committee shall be composed of five
members. Two members shall be designated by the Company (the "Company
Members") and two members shall be designated by the Representatives (the
"Holder Members"). The Company Members and the Holder Members shall jointly
appoint a fifth member (the "Independent Member") who shall be independent
and, as such, shall not be an Associate of the Company or any Holder. Each
Company Member may be an officer, employee or consultant of the Company. Each
member of the Review Committee shall be experienced in, and shall be generally
recognized as having current competence in, the management and development of
residential and commercial properties similar to the Assets comprising the
Business Units.
Section 6.03. RESIGNATION AND REMOVAL. (a) Any member of the Review
Committee may at any time resign and be discharged of his duties and
obligations hereunder by giving prior written notice to the Company, the
Representatives and the other members of the Review Committee.
(b) The Company shall have the exclusive right at any time, with or without
cause, to remove each Company Member by giving written notice to the
Representatives and the other members of the Review Committee, which notice
shall name the individual appointed by the Company to succeed such member. If
either Company Member shall die or resign, the Company shall have the
exclusive right to appoint a successor by giving written notice to the
Representatives and the other members of the Review Committee. If the Company
fails to appoint a successor within 15 days of becoming aware of such death or
resignation, the remaining members of the Review Committee shall be deemed to
constitute the Review Committee until such time as the Company appoints a
successor as aforesaid.
(c) The Representatives shall have the exclusive right at any time, with or
without cause, to remove each Holder Member by giving written notice to the
Company and the other members of the Review Committee, which notice shall name
the individual appointed by the Representatives to succeed such member. If
either Holder Member shall die or resign, the Representatives shall have the
exclusive right to appoint a successor by giving written notice to the Company
and the other members of the Review Committee. If the Representatives fail to
appoint a successor within 15 days of becoming aware of such death or
resignation, the remaining members of the Review Committee shall be deemed to
constitute the Review Committee until such time as the Representatives appoint
a successor as aforesaid.
(d) The Company Members and the Holder Members, acting unanimously, shall
have the exclusive right at any time, with or without cause, to remove the
Independent Member by giving written notice to the Representatives and the
Company, which notice shall name the individual unanimously
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appointed by the Company Members and the Holder Members to succeed such
Independent Member. If the Independent Member shall die or resign, the Company
Members and the Holder Members, acting unanimously, shall have the exclusive
right to appoint a successor by giving written notice to the Representatives
and the Company. If the Company Members and the Holder Members fail to
unanimously appoint a successor Independent Member within 15 days of becoming
aware of such death or resignation, any Company Member or Holder Member may
apply to any court of competent jurisdiction to appoint a successor
Independent Member, and such court may thereupon, after such notice (if any)
as it may consider proper, appoint a successor Independent Member.
(e) No such resignation or removal shall relieve any member of the Review
Committee from Liability for any breach of this Agreement by such member prior
to the effective date of such resignation or removal.
Section 6.04. ACTIONS, ETC. (a) Except as otherwise provided herein, all
actions required or permitted to be made by the Review Committee hereunder
shall require the affirmative vote of a majority of all the members of the
Review Committee.
(b) All actions of the Review Committee shall be taken either at a meeting
of the Review Committee at which all members are present (in person or by
telephone) or by unanimous written consent, and any purported action of the
Review Committee taken by any other means shall be void and of no effect for
purposes of this Agreement. Any member of the Review Committee may call a
meeting thereof on three days' notice (oral or written) to the other members.
The Review Committee shall keep regular minutes of its proceedings and report
the same to the Representatives when required. Subject to the foregoing
provisions of this Article VI, the Review Committee may fix its rules of
procedure.
(c) The Review Committee shall be entitled to retain and consult with such
independent advisors and other experts as the Review Committee shall deem
necessary or appropriate in connection with the performance of its duties and
responsibilities and the exercise of its powers and authority hereunder.
Section 6.05. CONFIDENTIALITY. The Company shall not be obligated to provide
any documents or other information to any member of the Review Committee
unless such member shall agree that all such documents and other information
will be kept confidential by such member and will be used by such member only
for the purposes contemplated by this Agreement. Notwithstanding the
foregoing, each member of the Review Committee shall be permitted to:
(a) disclose any such documents or other information (i) to the Company
or any employee, agent, advisor, consultant, officer, director or
stockholder of the Company or any Affiliate of the Company, (ii) to any
Representative or any employee, agent, legal counsel, accountant, advisor
or consultant of the Representatives or (iii) to the extent that such
documents or information (A) are furnished or made available to such member
by the Company on a non-confidential basis, (B) is or becomes generally
known or available other than as a result of a disclosure by such member or
(C) is or becomes known or available to such member on a non-confidential
basis from a source (other than the Company) which, to such member's
knowledge, is not prohibited from disclosing such documents or information
to such member by a legal, contractual, fiduciary or other obligation to
the Company; and
(b) disclose and use any such documents or other information (i) as the
Company shall approve from time to time (which approval shall not be
unreasonably withheld), (ii) as shall be required in response to any
summons or subpoena or in connection with any litigation, (iii) to the
extent such member believes it necessary to comply with applicable Law or
(iv) to the extent such member believes it necessary in the performance of
his duties and obligations hereunder or in the exercise or enforcement of
his rights, powers, privileges, remedies or immunities hereunder.
If any member of the Review Committee intends to disclose any information
which is subject to the foregoing confidentiality restriction pursuant to
clause (b)(ii) or (b)(iii) above, such member of the Review Committee will
notify the Company, to the extent practicable, so that the Company may seek
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an appropriate protective order. If requested by the Company, each member of
the Review Committee will acknowledge in writing that he is aware that the
United States securities laws prohibit any Person who has material non-public
information about a company with securities registered under the Exchange Act
from purchasing or selling securities of such company based on such non-public
information or disclosing such information to any other Person under
circumstances where it is reasonably foreseeable that such Person is likely to
sell securities of such company based on such non-public information.
Section 6.06. INDEMNIFICATION. The Company shall indemnify and save each
member of the Review Committee harmless against any Claims, Liabilities and
Losses, not arising from his own default, gross negligence or intentional
misconduct, which such member may incur in the good faith exercise and
performance of his powers and responsibilities hereunder.
ARTICLE VII
Miscellaneous
Section 7.01. NOTICES. Any and all notices, requests or other communications
hereunder shall be given in writing and delivered by: (a) regular, overnight
or registered or certified mail (return receipt requested), with first class
postage prepaid; (b) hand delivery; (c) facsimile transmission; or (d)
overnight courier service, to the Parties at the following addresses or
facsimile numbers:
(i) If to the Company:
The Rouse Company
10275 Little Patuxent Parkway
Columbia, Maryland 21044-3456
Attention: General Counsel
Telephone Number: (410) 992-6400
Facsimile Number: (410) 992-6392
With a copy to:
The Rouse Company
10275 Little Patuxent Parkway
Columbia, Maryland 21044-3456
Attention: President
(ii) If to the Representatives, to their respective addresses set forth
below:
Platt W. Davis, III
2500 First City Tower
1001 Fannin
Houston, Texas 77002
Telephone Number: (713) 758-2294
Facsimile Number: (713) 615-5246
David G. Elkins
4200 Texas Commerce Tower
600 Travis
Houston, Texas 77002
Telephone Number: (713) 220-4364
Facsimile Number: (713) 220-4285
Kenneth E. Studdard
6150 Westview
Houston, Texas 77055
Telephone Number: (713) 688-9233
Facsimile Number: (713) 688-5661
(iii) If to the Holders, as their names and addresses appear on the
registry described in Section 4.09, with copies to the Representatives
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or at such other address or number as shall be designated in a notice by the
Company to the Holders and the Representatives or by any Holder to the Company
and the Representatives or by any Representative to the Company, the Holders
and the other Representatives, in each case, given in accordance with this
Section 7.01. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given (A) in the case of a
notice sent by regular mail, three business days after it is duly deposited in
the mails; (B) in the case of a notice sent by registered or certified mail,
on the date receipted for (or refused) on the return receipt; (C) in the case
of a notice delivered by hand, when personally delivered; (D) in the case of a
notice sent by facsimile, upon transmission subject to telephone confirmation
of receipt; and (E) in the case of a notice sent by overnight mail or
overnight courier service, the date delivered at the designated address, in
each case given or addressed as aforesaid.
Section 7.02. DISPUTE RESOLUTION. (a) In the event of any dispute between
the Company, on the one hand, and the Representatives, on the other hand, with
respect to any matter covered by this Agreement (including whether the
provisions of this Agreement have been complied with), the Company and the
Representatives (the "Disputants") shall first use their best efforts to
resolve such dispute between themselves. If the Disputants are unable to
resolve the dispute within 15 days, they agree to submit the dispute to
mediation in accordance with the Commercial Mediation Rules of the American
Arbitration Association. The Disputants will jointly appoint a mutually
acceptable mediator, seeking assistance in such regard from the American
Arbitration Association if they are unable to agree upon such appointment
within ten days following the 15-day period referred to above. Upon
appointment of the mediator, the Disputants agree to participate in good faith
in the mediation and negotiations relating thereto for 20 days. If the
Disputants are not successful in resolving the dispute through mediation
within such 20-day period, either Disputant may submit the dispute to
arbitration in accordance with the following provisions of this Section 7.02.
The fees and expenses of the mediator shall be borne by the non-prevailing
party or, in the event there is no clear prevailing party, as the mediator
deems appropriate.
(b) To submit a dispute to arbitration as contemplated by paragraph (a)
above, a Disputant must give written notice to the other Disputant, in which
event the dispute shall be settled by arbitration in accordance with the
Expedited Procedures of the Commercial Arbitration Rules of the American
Arbitration Association except as otherwise provided below. The arbitrators
shall have sole discretion with regard to the admissibility of evidence. Each
Disputant shall have the right to be represented by counsel. All rulings of
the arbitrators shall be in writing, shall be determined by at least a
majority of their number and shall be delivered to the Disputants. The fees
and expenses of the arbitrators shall be borne by the non-prevailing Disputant
or, in the event there is no clear prevailing Disputant, as the arbitrators
deem appropriate.
(c) In the event there is any disputed question of law involved in any
arbitration proceeding hereunder, such as the proper legal interpretation of
any provision of this Agreement, the arbitrators shall make separate and
distinct findings of all facts material to the disputed question of law to be
decided and, on the basis of the facts so found, express their conclusion of
the question of law. The facts so found shall be conclusive and binding on the
Disputants, but any legal conclusion reached by the arbitrators from such
facts may be submitted by either Disputant to a court of law for final
determination by initiation of a civil action in the manner provided by law.
Such action, to be valid, must be commenced within 20 days after receipt of
the arbitrators' decision. If no civil action is commenced within such 20-day
period, the legal conclusion reached by the arbitrators shall be conclusive
and binding on the Disputants. Any such civil action shall be submitted, heard
and determined solely on the basis of the facts found by the arbitrators.
Neither of the Disputants shall, or shall be entitled to, submit any
additional or different facts for consideration by the court. In the event any
civil action is commenced under this paragraph (c), the party who prevails or
substantially prevails (as determined by the court) in such civil action shall
be entitled to recover from the other party all of its Losses incurred in
connection with such action and on appeal.
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(d) Except as limited by paragraph (c) above, the Disputants agree that
judgment upon the award rendered by the arbitrators may be entered in any
court of competent jurisdiction, and the Disputants hereby consent and commit
themselves to the jurisdiction of the courts of the State of Delaware and the
United States District Court for New Castle County, Delaware for purposes of
the enforcement of any arbitration award. In the event legal proceedings are
commenced to enforce the rights awarded in any arbitration proceeding
hereunder, the party who prevails or substantially prevails (as determined by
the court) in such legal proceeding shall be entitled to recover from the
other party all of its Losses incurred in connection with such legal
proceeding and on appeal.
(e) All arbitration conferences and hearings pursuant to this Section 7.02
shall be conducted in Wilmington, Delaware or at such other place as the
Disputants may mutually agree.
Section 7.03. BENEFIT AND BURDEN. (a) This Agreement shall inure to the
benefit of and shall be binding upon, the Parties and their respective
executors, personal representatives, administrators, successors, heirs,
distributees, devisees, legatees and permitted assigns.
(b) Anything herein or elsewhere to the contrary notwithstanding, all
covenants and agreements on the part of the Company herein are hereby declared
to be for the benefit of the Holders and the Representatives and their
respective executors, personal representatives, administrators, successors,
heirs, devisees, legatees and permitted assigns, and each such Person shall be
entitled to enforce this Agreement the same as if it were a signatory hereto.
Nothing in this Agreement is intended to, or shall, preclude or restrict any
Holder from instituting and maintaining in his or its own name such suits and
proceedings as such Person may deem necessary to enforce delivery of all
Contingent Shares and Contingent Preferred Shares which such Person is
entitled to receive hereunder or to otherwise protect and enforce such
Person's rights, privileges and interests hereunder.
Section 7.04. CONSOLIDATIONS, MERGERS, ETC. (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or Assets of the
Company, by agreement in form and substance reasonably acceptable to the
Representatives, to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Failure of the Company to
obtain such agreement prior to the effectiveness of any such succession shall
be a material breach of this Agreement. As used herein, the term "Company"
shall include any successor to its business and/or Assets as aforesaid which
executes and delivers the agreement provided for in this paragraph (a) or
which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of Law.
(b) The Company acknowledges that this Agreement and the rights of the
Holders hereunder (including (i) the right of the Holders to receive
securities which are freely tradable and readily marketable and (ii) the non-
taxable receipt by the Holders of Rouse Common Stock pursuant to the Merger
and of Contingent Shares hereunder) are of major importance to the Holders and
that each Holder is justified in believing and assuming that the Company will
not voluntarily undertake or complete any Prohibited Transaction. The Company
expressly agrees that, without the prior written consent of the Majority
Holders, it will not undertake or complete any Prohibited Transaction. As used
herein, "Prohibited Transaction" means (A) any reorganization of the Company
or any consolidation or merger of the Company with or into another entity, (B)
any recapitalization, reclassification or change in the capital structure of
the Company, (C) any partial or complete liquidation, dissolution or winding
up of the affairs of the Company or (D) any other transaction or event if, in
any such case and for any reason, (i) the Company or any successor to the
Company shall be incapable of, or restricted or prohibited from, delivering
(on a timely basis) freely tradable and readily marketable securities
comparable to the Contingent Shares or the Contingent Preferred Shares (as
applicable) hereunder or (ii) such transaction or event could reasonably be
expected to have a prejudicial effect on the Holders with respect to their
non-taxable receipt of securities pursuant to the Merger Agreement or this
Agreement.
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(c) In the event the Company desires to implement any transaction of the
type described in clauses (A) through (D) of paragraph (b) above which the
Company has concluded, in good faith, does not constitute a Prohibited
Transaction (a "Proposed Transaction"), the Company shall, as soon as
practicable prior to the implementation of the Proposed Transaction, give
written notice to the Representatives describing the Proposed Transaction in
reasonable detail and setting forth the Company's conclusion that the Proposed
Transaction does not constitute a Prohibited Transaction and the reasons
therefor. Such notice may also contain a request that the Representatives
agree with the conclusion set forth therein. Upon receipt of any such request,
the Representatives shall consider the same in good faith and shall be
authorized (but not obligated) to agree, on behalf of the Holders, with the
Company's conclusion that the Proposed Transaction does not constitute a
Prohibited Transaction. Any such agreement of the Representatives (i) shall be
in writing, (ii) shall be limited to the Proposed Transaction in question and
shall not extend or apply to any other transaction or event and (iii) may be
conditioned upon and subject to the execution and delivery to the
Representatives of one or more instruments in writing designed to fairly and
equitably protect the rights, privileges, interests and remedies of the
Holders and the Representatives against one or more effects of the Proposed
Transaction. Moreover, each such agreement of the Representatives shall be
binding upon the Holders and, in the absence of fraud or bad faith, the
Company shall be fully protected for purposes of this Section 7.04 in acting
in accordance with such agreement.
(d) Nothing in this Section 7.04 shall relieve the Company of any of its
obligations contained elsewhere in this Agreement.
Section 7.05. COMPANY AS FIDUCIARY. (a) The Company acknowledges and agrees
that it is accountable as a fiduciary to the Holders and their respective
executors, personal representatives, administrators, successors, heirs,
distributees, devisees, legatees and permitted assigns, which fiduciary duty
shall be the same as the fiduciary duty owed by a director of a corporation to
the stockholders of such corporation. Without limitation of the foregoing, the
Company shall, and shall cause each Business Unit Entity to, (i) exercise
reasonable care and act with good faith and integrity in managing and
operating the Business Units and the Assets comprising the Business Units and
(ii) deal with the Holders and the Representatives fairly and in good faith.
(b) Except as provided in Section 4.03, no obligation or covenant imposed on
the Company by this Agreement, including under Sections 4.10, 4.11, 4.12 and
4.13, shall be construed to obligate the Company or any of its Subsidiaries in
any way to make loans to, advance funds to, invest additional capital in or
extend its credit in order to obtain financing for, or provide working capital
for, any Business Unit or any Business Unit Entity, except in its sole and
absolute discretion. The Company makes no representation or warranty that the
operation of any Business Unit or any portion of the Assets of any Business
Unit shall be profitable or that any Business Unit will have Receipts
sufficient to obligate the Company to deliver Contingent Shares hereunder.
Section 7.06. NO THIRD PARTY RIGHTS. Nothing in this Agreement shall be
deemed to create any right in any creditor or other Person other than the
Parties, the members of the Review Committee and the other Persons referred to
in Section 7.03(a), and this Agreement shall not be construed in any respect
to be a Contract in whole or in part for the benefit of any Person other than
the Parties, the members of the Review Committee and the other Persons
referred to in Section 7.03(a).
Section 7.07. AMENDMENTS AND WAIVER. (a) Except as provided in Section 4.02,
this Agreement may be not be amended, supplemented or modified, nor may
compliance by the Company with any provision of this Agreement be waived
(either generally or in a particular instance and either retroactively or
prospectively), except in each case by an instrument in writing duly entered
into by the Company and all of the Representatives. Without limitation of the
foregoing, the Representatives may, without the consent of any of the Holders,
enter into one or more instruments supplemental hereto as they may deem
desirable in order to (i) add to the covenants of the Company in this
Agreement, (ii)
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surrender any right or power conferred upon the Company by this Agreement,
(iii) evidence any succession of any Person to the Company and the assumption
by such successor of the covenants of the Company contained herein, (iv) cure
any ambiguity in (or cure, correct or supplement any defective provision of)
this Agreement in such manner as shall not be inconsistent with this Agreement
or adversely affect the rights, privileges or remedies of the Holders under
this Agreement. Notwithstanding the foregoing, no such amendment, supplement,
modification or waiver will be effective:
(A) except as provided in clause (B) below, without the prior written
consent of the Majority Holders, if such amendment, supplement,
modification or waiver would (1) add any provision to this Agreement,
change in any manner or eliminate any of the provisions of this Agreement
or modify in any respect the rights of the Holders under this Agreement, in
each case if such addition, change, elimination or modification would
materially and adversely affect the rights, privileges or remedies of the
Holders under this Agreement, or (2) waive any Event of Default;
(B) without the prior written consent of all the Holders, if such
amendment, supplement, modification or waiver would (1) change the amount
of, or times for the delivery of, Contingent Shares or Contingent Preferred
Shares to be delivered by the Company under this Agreement in a manner
adverse to the Holders, (2) change the Valuation Date of any Business Unit,
(3) reduce the Percentage Interest of any Holder (other than due to an
assignment to an Eligible Assignee), (4) substitute any Equity Interest for
the Contingent Shares or Contingent Preferred Shares required to be
delivered by the Company under this Agreement (unless otherwise
specifically permitted in this Agreement), (5) waive any Event of Default
under clause (b) of the definition thereof or (6) change the provisions of
this Section 7.07 (except to increase any percentage required to approve
any such amendment, supplement, modification or waiver or to provide that
certain other provisions of this Agreement cannot be amended, supplemented,
modified or waived without the consent of all of the Holders affected
thereby);
(C) without the prior written consent of all members of the Review
Committee, if such amendment, supplement, modification or waiver would
adversely affect the rights, duties or immunities of the members of the
Review Committee under this Agreement; or
(D) without the prior written consent of all of the Representatives, if
such amendment, supplement, modification or waiver would adversely affect
the rights, duties or immunities of the Representatives under this
Agreement.
Notwithstanding anything to the contrary contained herein, Article V of this
Agreement may be amended, supplemented or modified at any time solely by an
instrument in writing signed (x) by the Representatives with the consent of
the Majority Holders and (y) if and to the extent that such amendment,
modification or supplement would in any way be prejudicial to the Company, by
the Company. In the case of any amendment, supplement, modification or waiver
referred to in clause (x) above, it shall not be necessary for the Majority
Holders to approve the particular form of such amendment, supplement,
modification or waiver, but it shall be sufficient if the Majority Holders
shall approve the substance thereof. Similarly, in the case of any amendment,
supplement, modification or waiver referred to in clause (y) above, it shall
not be necessary for the Holders to approve the particular form of such
amendment, supplement, modification or waiver, but it shall be sufficient if
the Holders shall approve the substance thereof. No such amendment,
supplement, modification or waiver shall extend to or affect any provision,
term or obligation not expressly amended, supplemented, modified or waived
thereby or impair any right consequent thereon. Any amendment, supplement,
modification or waiver entered into pursuant to this paragraph (a) shall be
binding upon all Parties. Copies of each amendment, supplement, modification
or waiver entered into pursuant to this paragraph (a) shall be delivered by
the Company to each of the Representatives and each Holder.
(b) The Company will not, directly or indirectly, pay or cause to be paid
any remuneration (whether in the form of a fee or otherwise) to any Holder as
consideration for or as an inducement to such
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Holder's consenting to any proposed amendment, supplement, modification or
waiver of this Agreement unless such remuneration is concurrently paid, on the
same terms, ratably to all the Holders.
(c) No failure or delay on the part of any Party in exercising any right,
power or privilege hereunder and no course of dealing between or among any of
the Parties shall operate as a waiver of any right, power or privilege
hereunder. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege hereunder. No notice to or demand on
any Party in any case shall entitle such Party to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the
rights of any Party to any other or further action in any circumstances
without notice or demand.
(d) None of the expenses (including, without limitation, counsel fees and
expenses) incurred by the Company or any Business Unit Entity in connection
with any amendment, supplement, modification or waiver of this Agreement shall
be deemed an Expenditure hereunder unless otherwise consented to by the
Representatives in writing.
Section 7.08. FURTHER DOCUMENTS. The Company agrees to execute any and all
documents, and to perform any and all other acts, as may be necessary or
reasonably requested by the Representatives to accomplish the purposes of this
Agreement.
Section 7.09. ASSIGNMENTS. (a) Except for a Transfer by a Holder to an
Eligible Assignee or as permitted by Section 7.04, neither this Agreement nor
any right, interest or obligation hereunder may be assigned by (i) by the
Company without the prior written consent of the Representatives or (ii) by
any Holder, and any attempt to do so shall be null and void.
(b) Except as otherwise provided herein or prohibited by applicable law, the
Company may acquire from any Holder all (but not less than all) of the rights
and interests of such Holder hereunder; provided, however, that (i) voting or
consensual rights of such Holder hereunder shall automatically expire and
terminate concurrently with the assignment to the Company of the rights and
interests of such Holder hereunder and (ii) in no event shall the Company or
any Subsidiary or Affiliate of the Company acquire the rights and interests of
a Holder hereunder prior to December 31, 1997.
Section 7.10. SEVERABILITY. Should any clause, sentence, paragraph,
subsection, Section or Article of this Agreement be judicially declared to be
invalid, unenforceable or void, such decision will not have the effect of
invalidating or voiding the remainder of this Agreement, and the part or parts
of this Agreement so held to be invalid, unenforceable or void will be deemed
to have been stricken herefrom, and the remainder will have the same force and
effectiveness as if such stricken part or parts had never been included
herein.
Section 7.11. SPECIFIC PERFORMANCE. The covenants and obligations contained
in this Agreement relate to special, unique and extraordinary matters and a
violation of any of the terms hereof or thereof by the Company would cause
irreparable injury to the Holders and/or the Representatives in an amount
which would be impossible to estimate or determine and for which any remedy at
law would be inadequate. As such, the Company agrees that if the Company fails
or refuses to fulfill any of its obligations under this Agreement or to make
any payment or deliver any instrument required hereunder, then the Holders
and/or the Representatives shall have the remedy of specific performance,
which remedy shall be cumulative and nonexclusive and shall be in addition to
any other rights and remedies otherwise available under any other Contract or
at law or in equity and to which the Holders and/or the Representatives might
be entitled.
Section 7.12. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE COMPANY HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF.
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Section 7.13. SUBMISSION TO JURISDICTION. The Company hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of Delaware and the United States of America located in the State
of Delaware (the "Delaware Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and
agrees not to commence any litigation relating thereto except in a Delaware
Court), waives any objection to the laying of venue of any such litigation in
any Delaware Court and agrees not to plead or claim that any litigation
brought in any Delaware Court has been brought in an inconvenient forum;
provided, however, that nothing contained in this Section 7.13 is intended to
waive the right of the Company to remove any action or proceeding commenced in
any state Delaware Court to an appropriate federal Delaware Court to the
extent the basis for such removal exists under applicable Law. The Company
hereby irrevocably (i) appoints The Corporation Trust Company (the "Process
Agent"), with an office on the date hereof at 1209 Orange Street, Wilmington,
Delaware 19801, as its agent to receive on behalf of it and its Assets service
of copies of the summons and complaint and any other process which may be
served in any such action or proceeding, (ii) agrees that service of process
may be made on the Company by mailing, by certified mail, a copy of such
process to the Company in care of the Process Agent at the Process Agent's
above address, with a copy to the Company at its address for notices specified
herein, and (iii) authorizes and directs the Process Agent to accept such
service on its behalf. As an alternative method of service, the Company also
irrevocably consents to the service of any and all process in any such action
or proceeding by the mailing by certified or registered mail, return receipt
requested, of any process required by any Delaware Court, to the address
specified for notices to the Company in Section 7.01.
Section 7.14. EXPENSES. Except as otherwise provided herein, each of the
Parties shall pay its own expenses incident to this Agreement and the
transactions contemplated hereby, including all legal and accounting fees and
disbursements. Notwithstanding anything contained herein to the contrary, if
any Party commences an action against another Party to enforce any of the
terms, covenants, conditions or provisions of this Agreement, or because of a
breach or alleged breach by such other Party of its obligations under this
Agreement, the prevailing Party in any such action shall be entitled to
recover its Losses incurred in connection with the prosecution or defense of
such action, from the losing Party.
Section 7.15. NO RIGHT OF SET OFF. Anything herein or elsewhere to the
contrary notwithstanding, the Company's obligations to make the payments and
deliver the Contingent Shares and Contingent Preferred Shares required under
this Agreement and otherwise perform its obligations hereunder shall not be
affected by any set off, counterclaim, recoupment, defense or other Claim,
right or action that the Company may have against any Person.
Section 7.16. NO PARTNERSHIP, JOINT VENTURE OR AGENCY. Neither the
execution, delivery or performance of this Agreement nor the consummation of
any of the transactions contemplated hereby is intended, nor will the same be
deemed or construed, to create a partnership, joint venture or agency for any
purpose between the Company or any Business Unit Entity and the Holders so as
to entitle any Holder to any share of the profits of any Business Unit or to
make any Holder in any way responsible for the Debts or Losses of the Company
or any Business Unit Entity, including those related to the Business Units.
Section 7.17. SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC. All
representations, warranties, indemnities, covenants and agreements made by the
Company in this Agreement or in any certificate, document or other instrument
delivered pursuant to this Agreement shall survive the execution and delivery
of this Agreement, any delivery of Contingent Shares or Contingent Preferred
Shares hereunder and any permitted Transfer of any of the rights of a Holder
hereunder, in each case notwithstanding any investigation heretofore or
hereafter made by or on behalf of such Holder.
Section 7.18. PAYMENTS AND INTEREST. All cash payments payable or to be
payable by the Company pursuant to this Agreement shall be payable in
immediately available funds and in such coin
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or currency of the United States of America that, at the time of payment, is
legal tender for the payment of public and private debts in the United States
of America and shall be made by electronic funds transfer as the payee shall
have directed to the Company in writing or, if no such direction shall have
been given to the Company, by check payable to the order of the payee and
mailed in the manner and at the address referred to in Section 7.01. All
amounts due under this Agreement which are not paid when due shall bear
interest until paid at the Applicable Federal Rate plus 5%.
Section 7.19. ENTIRE AGREEMENT. This Agreement sets forth all of the
promises, agreements, conditions, understandings, warranties and
representations among the Parties with respect to the transactions
contemplated hereby, and supersedes all prior agreements, arrangements and
understandings among the Parties, whether written, oral or otherwise. There
are no promises, agreements, conditions, understandings, warranties or
representations, oral or written, express or implied, among the Parties
concerning the subject matter hereof except as set forth herein.
IN WITNESS WHEREOF, the Company has executed this Agreement as of the date
first stated herein.
The Rouse Company
By:__________________________________
Printed Name:________________________
Title:_______________________________
ACCEPTANCE OF APPOINTMENT BY REPRESENTATIVES
The undersigned hereby (i) acknowledge that they have agreed to serve, and
hereby accept their respective appointments, as Representatives under the
foregoing Contingent Stock Agreement and (ii) assume and agree to perform all
the rights, powers, duties and obligations set forth with respect to the
Representatives in such Contingent Stock Agreement.
-------------------------------------
Platt W. Davis, III
-------------------------------------
David G. Elkins
-------------------------------------
Kenneth E. Studdard
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APPENDIX E
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is entered into as of the day of
, 1996 among The Rouse Company, a Maryland corporation (the
"Company"), and THC Partners, a Texas general partnership ("THC Partners").
PRELIMINARY STATEMENTS
1.The Company, TRC Acquisition Company I, a newly-formed Delaware
corporation and a wholly-owned subsidiary of the Company ("Merger Sub"),
and The Hughes Corporation, a Delaware corporation ("THC"), are parties
to that certain Merger Agreement dated as of February 22, 1996 (the
"Merger Agreement"), which provides, among other things, for the merger
(the "Merger") of THC with and into Merger Sub, as a result of which each
outstanding share of common stock of THC will be converted into the right
to receive shares of Rouse Common Stock (as hereinafter defined) and, if
required pursuant to the terms of the Merger Agreement, cash.
2.The shares of Rouse Common Stock issuable in connection with the Merger
will be issued (i) upon the effectiveness of the Merger, in the amounts
provided in the Merger Agreement (the "Initial Shares"), and (ii) in
connection with certain direct and indirect assets and properties of the
Company, the value of which cannot be effectively determined at the
present time, at the times and in the amounts provided in the Contingent
Stock Agreement (the "Contingent Shares").
3.It is a condition precedent to the obligation of THC to close the
transactions contemplated by the Merger Agreement that the Company shall
have executed and delivered this Agreement.
Now, Therefore, in consideration of the premises, the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. Capitalized terms used in this
Agreement have the following respective meanings:
"Affiliate" means (i) when used with reference to any partnership, any
Person that, directly or indirectly, owns or controls 10% or more of either
the capital or profit interests of such partnership or is a general partner of
such partnership or is a Person in which such partnership has a 10% or greater
direct or indirect equity interest and (ii) when used with reference to any
corporation, any Person that, directly or indirectly, owns or controls 10% or
more of the outstanding voting securities of such corporation or is a Person
in which such corporation has a 10% or greater direct or indirect equity
interest. In addition, the term "Affiliate," when used with reference to any
Person, means any other Person that, directly or indirectly, through one or
more intermediaries, controls, is controlled by or is under common control
with such Person. The term "control" (including, with correlative meaning, the
terms "controlling", "controlled by" and "under common control with") means
the possession, directly or indirectly, of the power to direct or cause
direction of the management and policies of a Person, whether through the
ownership of voting securities, by Contract or otherwise; provided, however,
that in no event shall the Company be deemed an Affiliate, as such defined
term is used in this Agreement, of any Holder or vice versa.
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"Agreement" means this Registration Rights Agreement, as the same may be
amended, modified or supplemented from time to time.
"Claim" means any claim, demand, investigation, cause of action, suit,
default, assessment, litigation, third party action, arbitral proceeding or
proceeding by or before any Governmental Authority or any other Person.
"Company" has the meaning specified in the introductory paragraph of this
Agreement.
"Company Indemnified Persons" has the meaning specified in Section 5.02.
"Contingent Shares" has the meaning specified in the recitals to this
Agreement.
"Contingent Stock Agreement" means that certain Contingent Stock Agreement
of even date herewith executed by the Company pursuant to the Merger
Agreement, as the same may be amended, modified or supplemented from time to
time.
"Contract" means any agreement, lease, license, evidence of indebtedness,
mortgage, deed of trust, note, bond, indenture, security agreement,
commitment, instrument, understanding or other contract, obligation or
arrangement of any kind.
"Curative Prospectus" has the meaning specified in Section 2.04(f).
"Effective Date" means the date on which the Effective Time (as defined in
the Merger Agreement) occurs.
"Eligible Assignee" means an assignee of the rights of a Holder hereunder
that has satisfied all of the conditions contained in Section 7.05.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Governmental Approval" means any authorization, consent, approval, license,
franchise, lease, ruling, tariff, rate, permit, certificate or exemption of,
or filing or registration with, any Governmental Authority.
"Governmental Authority" means (i) any nation or government, (ii) any
federal, state, county, province, city, town, municipality, local or other
political subdivision thereof or thereto, (iii) any court, tribunal,
department, commission, board, bureau, instrumentality, agency, council,
arbitrator or other entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government and (iv)
any other governmental entity with authority over the applicable Person or
assets and properties.
"Holders" means THC Partners and any Eligible Assignee.
"Holder Indemnified Person" has the meaning specified in Section 5.01.
"Indemnified Party" has the meaning specified in Section 5.03.
"Indemnifying Party" has the meaning specified in Section 5.03.
"Initial Shares" has the meaning specified in the recitals to this
Agreement.
"Laws" means all laws, statutes, rules, regulations, ordinances, orders,
writs, injunctions or decrees and other pronouncements having the effect of
law of any Governmental Authority.
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"Liability" means, with respect to any Person, any indebtedness, obligation
and other liability of such Person, whether absolute, accrued, contingent,
fixed or otherwise, or whether due or to become due.
"Losses" means any and all damages (including consequential, punitive and
exemplary), fines, penalties, judgments, deficiencies, losses, costs and
expenses, including court costs, reasonable fees of attorneys, accountants and
other experts and other reasonable expenses of any Claim.
"Merger" has the meaning specified in the recitals to this Agreement.
"Merger Agreement" has the meaning specified in the recitals to this
Agreement.
"Merger Sub" has the meaning specified in the recitals to this Agreement.
"Other Holder" has the meaning specified in Section 2.09.
"Participating Holders" means, with respect to any Registration, Holders
that are entitled to participate in, and are participating in or seeking to
participate in, such Registration.
"Participation Notice" means, with respect to any Piggyback Registration, a
written notice from a Holder to the Company pursuant to which such Holder
elects to participate in such Registration and specifying the Registrable
Shares intended to be disposed of by such Holder in such Registration.
"Permitted Suspension Period" has the meaning specified in Section 2.02.
"Person" means any individual, firm, corporation, trust, association,
company, limited liability company, joint stock company, partnership, joint
venture, Governmental Authority or other entity or enterprise.
"Piggyback Registration" means any registration of Registrable Shares under
the Securities Act effected in accordance with Section 2.03.
"Piggyback Registration Notice" has the meaning specified in Section 2.03.
"Process Agent" has the meaning specified in Section 7.12.
"Registrable Shares" means the Initial Shares acquired by THC Partners
pursuant to the transactions contemplated by the Merger Agreement and the
Contingent Shares acquired by THC Partners or any Eligible Assignee pursuant
to the transactions contemplated by the Contingent Stock Agreement, and
Initial Shares and Contingent Shares subsequently acquired by any Eligible
Assignee from THC Partners, directly or indirectly, and any securities issued
or issuable with respect to any such Initial Shares and/or Contingent Shares
by way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise; provided, however, that, with respect to any particular securities:
(a) such securities shall not be Registrable Shares at any time during
which the Holder thereof is entitled to sell all such securities held by
such Holder without registration pursuant to Rule 145(d) and in accordance
with the provisions of Rule 144 referenced therein, without any limitation
under Rule 144(e) on the amount of such securities that may be sold by such
Holder pursuant to Rule 145(d); and
(b) such securities shall cease to be Registrable Shares when (i) a
registration statement with respect to the sale of such securities shall
have become effective under the Securities Act and such securities shall
have been disposed of in accordance with the plan of distribution set forth
in such registration statement, (ii) such securities shall have been
distributed in accordance with
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Rule 145(d) or (iii) the Company and the Holder of such securities shall
have received an opinion of counsel experienced in securities Laws matters
reasonably acceptable to the Company and such Holder to the effect that
such Holder has no further obligation to comply with the requirements of
Rule 145 (and shall not be deemed to be an underwriter thereby) or the
registration requirements of the Securities Act or to deliver a prospectus
meeting the requirements of Section 10(a)(3) of the Securities Act in
connection with further sales by such Holder of such securities.
"Registration" means any Shelf Registration or any Piggyback Registration.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with this Agreement, including the obligations of
the Company under Section 2.04, including (i) all registration, filing,
securities exchange listing, rating agency and National Association of
Securities Dealers fees, (ii) all registration, filing, qualification and
other fees and expenses of complying with securities or "Blue Sky" Laws of all
jurisdictions in which the securities are to be registered and any legal fees
and expenses incurred in connection with the "Blue Sky" qualifications of the
Registrable Shares and the determination of their eligibility for investment
under the Laws of all such jurisdictions, (iii) all word processing,
duplicating, printing, messenger and delivery expenses, (iv) the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, (v)
premiums and other costs of policies of insurance against Liabilities arising
out of the public offering of the Registrable Shares being registered to the
extent the Company elects to obtain such insurance, and (vi) fees and expenses
of other Persons retained or employed by the Company other than underwriters
retained under Section 2.08 with respect to a Shelf Registration.
"Requisite Participating Holders" means, with respect to any Registration,
Participating Holder(s) owning a majority interest of the Registrable Shares
to be included in such Registration.
"Rouse Common Stock" means the common stock, par value $0.01 per share, of
the Company, and any securities issued or issuable with respect to any such
common stock by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise.
"Rule 144" means Rule 144 promulgated by the SEC under the Securities Act,
and any successor provision thereto.
"Rule 145" means Rule 145 promulgated by the SEC under the Securities Act,
and any successor provision thereto.
"SEC" means the United States Securities and Exchange Commission or any
successor thereof.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"Shelf Registration" means any registration of Registrable Shares under the
Securities Act effected in accordance with Section 2.01.
"Shelf Period" has the meaning specified in Section 2.02.
"Shelf Registration Statement" has the meaning specified in Section 2.01.
"Suspension Event" has the meaning specified in Section 2.04(f).
"Suspension Notice" has the meaning specified in Section 2.07.
"Suspension Period" has the meaning specified in Section 2.07.
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"Termination Date" has the meaning specified in Section 6.01.
"THC" has the meaning specified in the recitals to this Agreement.
"THC Partners" has the meaning specified in the introductory paragraph of
this Agreement.
Section 1.02. References, Etc. The words "hereof," "herein" and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
All terms defined in this Agreement in the singular shall have the same
meanings in the plural and vice versa. All pronouns, nouns and other terms
used in this Agreement shall include the masculine, feminine and neuter forms
thereof, wherever appropriate to the context. All references herein to
Articles and Sections shall, unless the context requires a different
construction, be deemed to be references to the Articles and Sections of this
Agreement. In this Agreement, unless a clear contrary intention appears, the
word "including" (and with correlative meaning "include") means including,
without limiting the generality of any description preceding such term.
ARTICLE II
REGISTRATION OF ROUSE COMMON STOCK
Section 2.01. Shelf Registration. (a) The Company shall use its best efforts
to (i) within 300 days after the Effective Date, file a shelf registration
statement pursuant to Rule 415 of the Securities Act on Form S-3 or such other
form as may be required by applicable Law (a "Shelf Registration Statement")
covering 2,000,000 Registrable Shares and (ii) on or before the first
anniversary of the Effective Date, have the Shelf Registration Statement
declared effective by the SEC and the securities covered thereunder qualified
under all "Blue Sky" or other securities Laws. If at any time during the Shelf
Period, the number of Registrable Shares which remain eligible for sale
pursuant to such Shelf Registration Statement is less than 500,000, the
Company shall, upon request of the Requisite Participating Holders, use its
best efforts to (i) as soon as practicable following receipt of such request,
file an additional Shelf Registration Statement covering an additional
1,500,000 Registrable Shares and (ii) as promptly as practicable thereafter,
have such additional Shelf Registration Statement declared effective by the
SEC and the securities covered thereunder qualified under all "Blue Sky" or
other securities Laws. Each of the numerical standards set forth in this
Section 2.01 shall be adjusted in connection with any stock split, combination
of shares, recapitalization, merger, consolidation or other reorganization to
provide the Holders with rights substantially equivalent to those held by the
Holders immediately prior to such event.
(b) If, on the date which is the first anniversary of the Effective Date,
(i) the effectiveness of the Shelf Registration Statement has been suspended
or the Shelf Registration Statement is otherwise not effective or (ii) the
securities covered under the Shelf Registration Statement shall not qualify
under all "Blue Sky" or other securities Laws, the Company shall use its best
efforts to cause such Shelf Registration Statement to be effective, and to
qualify such securities under all "Blue Sky" and other securities Laws, as
soon thereafter as practicable.
Section 2.02. Maintenance of Effectiveness During Shelf Period. Once the
Shelf Registration Statement is declared effective pursuant to Section 2.01,
the Company shall use its best efforts to cause the Shelf Registration
Statement to remain continuously effective until the earliest to occur of the
following (the "Shelf Period"):
(a) the later to occur of (i) the second anniversary of the Effective
Date and (ii) the date on which THC Partners shall have received an opinion
of counsel from (A) Fried, Frank, Harris, Shriver & Jacobson or Piper &
Marbury L.L.P., counsel to the Company or (B) Andrews & Kurth L.L.P.,
counsel to THC Partners, to the effect that THC Partners and all Eligible
Assignees may
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sell all of the Registrable Shares then held by such Holders (1) without
compliance with the requirements of Rule 145 (and shall not be deemed to be
an underwriter thereby) or the registration requirements of the Securities
Act and (2) without delivering a prospectus meeting the requirements of
Section 10(a)(3) of the Securities Act in connection with further sales by
such Holder of such securities; and
(b) the date on which all of the securities covered by such Shelf
Registration Statement have been sold, but in no event prior to the
expiration of the applicable period referred to in Section 4(3) of the
Securities Act and Rule 174 thereunder;
provided, however, that the Company may suspend use of the Shelf Registration
Statement (i) at any time (but no more than once in any 12 month period and
for a period not to exceed 90 days) if the continued effectiveness thereof
would require the Company to disclose a material financing, acquisition or
other corporate transaction, which disclosure the Board of Directors of the
Company shall have determined in good faith to not be in the best interests of
the Company and its stockholders, and (ii) during the period starting with the
date 30 days prior to the Company's good faith estimate of the date of filing
of (provided that the Company is actively employing its best efforts to cause
such registration statement to become effective), and ending on a date 90 days
after the effective date of, the registration by the Company of an
underwritten public offering of its equity securities for its own account in
which all Registrable Shares (subject to the right of the Company under
Section 2.03 to limit the number of Registrable Shares to be included therein)
requested to be included shall have been included thereon in accordance with
the provisions of Section 2.03 hereof (each, a "Suspension Period"); and,
provided further, that if, at any time during the period commencing with the
termination of the Shelf Period and ending on the Termination Date, the offer
and/or sale of Registrable Shares by THC Partners or any Eligible Assignee
becomes subject to the registration requirements of the Securities Act or the
requirements of Rule 145 (or if any such offer or sale without registration
would result in such Holder being deemed an underwriter pursuant to Rule 145),
solely due to the receipt by THC Partners and/or any Eligible Assignees of
Contingent Shares subsequent to the termination of the Shelf Period, then the
Shelf Period and the obligations of the Company under this Agreement shall be
revived and reinstated with respect to a number of Registrable Shares equal to
(i) the amount of Registrable Shares required to be covered by the Shelf
Registration Statement pursuant to Section 2.01 during the Shelf Period (as
adjusted pursuant to Section 2.01) minus (ii) the number of Registrable Shares
previously sold pursuant to a Shelf Registration Statement filed by the
Company pursuant to Section 2.01 (as adjusted pursuant to Section 2.01) until
the Shelf Period (as so revived and reinstated) is terminated pursuant to
Section 2.02(a) or (b).
Section 2.03. Piggyback Registration. In the event that the Company proposes
to register any of its equity securities under the Securities Act and to
suspend the use of the Shelf Registration Statement in connection therewith,
the Company will provide notice at least 15 days prior to the proposed date of
filing the registration statement relating thereto to each Holder (a
"Piggyback Registration Notice"), such Piggyback Registration Notice to
include a statement of the intention of the Company to register such
securities and of the Holders' rights under this Section 2.03. Each Holder
shall have 10 days after receipt of such Piggyback Registration Notice within
which to elect to be included in the registration contemplated by such
Piggyback Registration Notice, such election to be made by providing the
Company with a Participation Notice. The Company will use its best efforts to
effect the registration under the Securities Act of all Registrable Shares
which the Participating Holders have requested the Company to register
pursuant to the Participation Notices, to the extent required to permit the
distribution (in accordance with the intended method or methods thereof) of
the Registrable Shares to be registered; provided, however, that the Company
may, in its sole discretion, determine to not file such registration statement
or withdraw such registration statement (if filed) and abandon any proposed
offering by giving notice of such determination to each Participating Holder,
in which event the Company shall be relieved of its obligation to register any
Registrable Shares pursuant to the Participation Notices (but not from its
obligation to pay Registration Expenses in connection
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therewith); and provided further that, to the extent that marketing factors
require a reduction in the number of Registrable Shares to be included in such
Piggyback Registration Notice, the Company may limit the number of Registrable
Shares to be included in a Piggyback Registration on behalf of the
Participating Holders to an amount not less than 500,000 Registrable Shares.
In the event the Company determines so to limit the number of Registrable
Shares to be included in the registration and underwriting, the Company shall
so advise all Participating Holders, and the amount of Registrable Shares that
are entitled to be included in the registration and underwriting shall be
allocated among the Participating Holders pro rata on the basis of the number
of securities constituting Registrable Shares held by such Participating
Holders. The Registrable Shares proposed to be registered under any
registration statement pursuant to the Participation Notices shall be offered
for sale upon the same terms as any similar securities offered for sale by the
Company in such registration. No registration effected under this Section 2.03
shall be deemed to be a Shelf Registration or shall relieve the Company of its
obligation to effect any Shelf Registration.
Section 2.04. Registration Procedures. Whenever required under this Article
II to use its best efforts to effect the registration of any Registrable
Shares, the Company shall use its best efforts to, as expeditiously as
reasonably possible:
(a) prepare and file with the SEC a registration statement with respect
to such Registrable Shares and cause such registration statement to become
and remain effective for the Shelf Period (in the case of a Shelf
Registration) and the period necessary for the distribution of such
Registrable Shares in accordance with the intended plan of distribution
thereof (in the case of a Piggyback Registration);
(b) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as
may be necessary to (i) keep such registration statement effective for the
Shelf Period (in the case of a Shelf Registration) and the period necessary
for the distribution of such Registrable Shares in accordance with the
intended plan of distribution thereof (in the case of a Piggyback
Registration) and (ii) comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement;
(c) furnish to each Participating Holder and each underwriter or agent
participating in the disposition of securities under such registration
statement, such numbers of copies of the registration statement and the
prospectus, including any preliminary or summary prospectus, and each
amendment or supplement thereto, in conformity with the requirements of the
Securities Act, and such other documents as any Participating Holder or any
such underwriter or agent may reasonably request to facilitate the
disposition of Registrable Shares owned by the Participating Holders;
(d) register and qualify the securities covered by such registration
statement under such other securities or "Blue Sky" Laws of such
jurisdictions as shall be reasonably requested by the Requisite
Participating Holders; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such
jurisdiction or otherwise subject itself to general taxation in any state;
(e) furnish to each Participating Holder a signed counterpart, addressed
to such Participating Holder (and each underwriter and agent, if any), of:
(i) an opinion of counsel to the Company, dated the effective date of
such registration statement (and, if such Registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), and
(ii) unless otherwise precluded under applicable accounting rules, a
"comfort" letter, dated the effective date of such registration
statement (and, if such Registration includes an
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underwritten public offering, dated the date of the closing under the
underwriting agreement), signed by the independent public accountants
who have certified the Company's financial statements included in such
registration statement,
in each case, in form and substance reasonably satisfactory to the
Requisite Participating Holders (and to the underwriter or agent and their
respective counsel) and covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of the accountants' letter, with respect to
events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to the underwriter or agent in underwritten public
offerings of securities.
(f) promptly notify each Participating Holder and each underwriter and
agent participating in the disposition of Registrable Shares covered by
such registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, upon discovery that,
or upon the happening of any event known to the Company as a result of
which, the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made (a "Suspension Event"), and promptly prepare and furnish to
each Participating Holder (and each underwriter and agent, if any) a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made (a
"Curative Prospectus");
(g) provide and cause to be maintained a transfer agent and registrar for
all Registrable Shares covered by such registration statement from and
after a date not later than the effective date of such registration
statement;
(h) list, on or prior to the effective date of such registration
statement, all Registrable Shares covered by such registration statement on
the principal national securities exchange on which securities of the
Company are then listed or, if not listed on a national securities
exchange, on The Nasdaq Stock Market.
(i) cooperate with each Participating Holder and each underwriter and
agent participating in the distribution of such Registrable Shares to
facilitate the timely preparation and delivery of certificates (which shall
not bear any restrictive legends, other than as required by applicable Law)
representing securities sold under the registration statement, and enable
such securities to be in
such denominations and registered in such names as each Participating
Holder, underwriter or agent may reasonably request and keep available and
make available to the Company's transfer agent, prior to the effectiveness
of such registration statement, an adequate supply of such certificates;
(j) not later than the effective date of such registration statement,
provide a CUSIP number for all Registrable Shares covered by a registration
statement hereunder; and
(k) in connection with an underwritten offering, participate, to the
extent reasonably requested by the Requisite Participating Holders or the
managing underwriter for the offering, in customary efforts to sell the
securities under the offering, including road shows and similar activities.
Section 2.05. Registration Expenses. The Company shall pay all Registration
Expenses incurred in connection with a Registration, irrespective of whether
such Registration is ever effected or deemed
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effected. Each Participating Holder shall pay the underwriters' discounts and
commissions and any transfer taxes applicable to the Registrable Shares sold
by such Participating Holder in any such offering and, with respect to an
underwritten offering pursuant to a Shelf Registration Statement, underwriting
expenses, if any.
Section 2.06. Withdrawal. Each Participating Holder shall be permitted to
withdraw all or part of his or its Registrable Shares from any Registration at
any time prior to the effective date of the registration statement covering
such securities.
Section 2.07. Agreements of Certain Holders. Each Participating Holder shall
furnish to the Company such information regarding such Participating Holder,
the Registrable Shares held by such Participating Holder and the intended plan
of distribution of such Registrable Shares as the Company may from time to
time reasonably request in writing in connection with a Registration. If any
registration statement refers to a Holder or any of its Affiliates by name or
otherwise as the holder of any securities of the Company, then such Holder
shall have the right to require (a) that such reference be in form and
substance reasonably satisfactory to such Holder and (b) in the event that
such reference is not required by the Securities Act or any similar federal or
state "Blue Sky" statute and the rules and regulations thereunder then in
force, that such reference be deleted. Each Participating Holder agrees that
upon receipt of a notice (a "Suspension Notice") from the Company of the
happening of any Suspension Event, such Participating Holder will not dispose
of any Registrable Shares pursuant to the registration statement relating to
such Registrable Shares during the period commencing on receipt of such
Suspension Notice and continuing thereafter until receipt by such
Participating Holder of a Curative Prospectus (the "Suspension Period"). The
Company shall take such actions as are necessary to end the Suspension Period
as promptly as practicable.
Section 2.08. Underwritten Registrations. If the Requisite Participating
Holders so elect, the offering of Registrable Shares pursuant a Shelf
Registration shall be in the form of an underwritten offering, and the Company
shall select one or more nationally recognized firms of investment bankers to
act as the book-running managing underwriter(s) in connection with such
offering; provided, however, that such selection shall be subject to the
consent of the Requisite Participating Holders, which consent shall not be
unreasonably withheld or delayed. If, in connection with any Piggyback
Registration, the Company proposes to register any of its equity securities
and such securities are to be distributed by or through one or more
underwriters, the Company will, if requested by the Requisite Participating
Holders, arrange for such underwriters to include all of the Registrable
Shares to be offered and sold by the Participating Holders among the
securities to be distributed by such underwriters. If requested by the
underwriters for any underwritten offerings in connection with any
Registration, the Company will enter into an underwriting agreement with such
underwriters for such offering, such agreement (a) to be in form and substance
reasonably satisfactory to the Company and (b) to contain such representations
and warranties by the Company and such other terms, including
indemnities, as are generally prevailing in agreements of such type. Each
Participating Holder of Registrable Shares to be distributed by underwriters
pursuant to any Registration shall be a party to any underwriting agreement
between the Company and such underwriters; provided, however, that such
agreement is in form and substance reasonably satisfactory to the Requisite
Participating Holders and, provided further, that the Requisite Participating
Holders may, at their option, require that any or all of the representations
and warranties by, and the other agreements on the part of, the Company to and
for the benefit of such underwriters be also made to and for the benefit of
the Participating Holders and that any or all of the conditions precedent to
the obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of the Participating Holders
thereunder.
Section 2.09. Registration Rights of Others. The Company shall not, during
the period commencing on the date hereof and ending on the Termination Date,
without the prior written consent of the Requisite Participating Holders,
enter into any agreement with any holder or prospective holder
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of any securities of the Company (an "Other Holder") which limit or restrict
in any manner the performance of the Company's obligations under this
Agreement. In the event that the Company, at any time during the period
commencing on the date hereof and ending on the Termination Date, grants to
any Other Holder any right to demand or require that the Company undertake to
effect the registration for sale of any debt or equity securities of the
Company, the Company will give prompt notice of such grant to the Holders.
Section 2.10. Relationships and Rights of the Holders. The Holders agree
that, notwithstanding that certain rights of each Holder herein may be
affected by similar rights of other Holders, the Holders shall, in respect of
the ownership of the Registrable Shares, not be related as, or deemed to be, a
partnership, joint venture or other "group" for the purpose of acquiring,
holding, voting or disposing of securities of the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to each Holder as of the date of
this Agreement that:
(a) the Company is a corporation duly organized, validly existing and in
good standing under the Laws of the State of Maryland and has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby;
(b) the execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by the Board of Directors of the Company and no other corporate
proceedings or approvals on the part of the Company are necessary to
authorize this Agreement;
(c) this Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws affecting creditors' rights
generally and general equitable principles;
(d) except as provided herein, no Governmental Approvals and no
notifications, filings or registrations to or with any Governmental
Authority or any other Person is or will be necessary for the valid
execution and delivery by the Company of this Agreement, or the
enforceability hereof, other than those which have been obtained or made
and are in full force and effect;
(e) the execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated hereby do not and shall not,
by the lapse of time, the giving of notice or otherwise, (i) constitute a
violation of any Law, (ii) constitute a breach or violation of any
provision contained in its charter or Bylaws, (iii) constitute a breach of
any provision contained in, or a default under, any Governmental Approval,
any writ, injunction, order, judgment or decree of any Governmental
Authority or any Contract to which the Company is a party or by which the
Company or its assets and properties is bound or affected or (iv) result in
or require the creation of any lien, charge or encumbrance upon any of the
assets and properties of the Company;
(f) there are no Claims pending or, to the knowledge of the Company,
threatened, and the Company has no knowledge of the basis for any Claim,
which either alone or in the aggregate, seeks to restrain or enjoin the
execution and delivery of this Agreement or the consummation of any of the
transactions contemplated hereby;
(g) there are no judgments or outstanding orders, injunctions, decrees,
stipulations or awards (whether rendered by a Governmental Authority or by
an arbitrator) against the Company which
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prohibit or restrict, or could reasonably be expected to result in any
delay of, the consummation of the transactions contemplated by this
Agreement; and
(h) as of the date hereof, there are no Contracts between the Company and
any Person providing for registration rights with respect to any securities
of the Company, except with respect to 480,168 shares of the Company's
Series A Convertible Preferred Stock that are registered pursuant to a Form
S-3 Registration Statement (Registration No. 33-57707).
ARTICLE IV
COVENANTS
Section 4.01. Lock-up Agreement. In connection with any underwritten
registration of equity securities by the Company for its own account or any
underwritten Registration, upon the reasonable request of the Company or the
underwriters managing any underwritten offering of equity securities of the
Company, each Holder agrees to not sell, make any short sale of, loan, grant
any option for the purchase of or otherwise dispose of any Registrable Shares
(other than those included in the Registration) without the prior written
consent of the Company or such underwriters, as the case may be, which consent
shall not be unreasonably withheld or delayed, for such period of time as the
Company or the underwriters may specify (such period to begin no more than 30
days prior to the Company's good faith estimate of the date of filing of
(provided that the Company is actively employing its best efforts to cause
such registration statement to become effective), and to end no more than 90
days after the effective date of, such Registration). Notwithstanding the
foregoing agreement, in the event of an underwritten registration of equity
securities by the Company for its own account, the Holders shall be entitled
to sell or otherwise dispose of (under a Shelf Registration Statement and/or
Piggyback Registration Statement) an aggregate of 500,000 Registrable Shares
during such period, except, with respect to shares sold under a Shelf
Registration Statement, during the portion of such period commencing with the
effective date of such registration and ending 45 days thereafter. The
allocation of such 500,000 Registrable Shares which may be sold by the Holders
among a Shelf Registration Statement and/or a Piggyback Registration shall be
determined by the Company, in its sole discretion.
Section 4.02. Reports Under the Exchange Act. The Company shall, for the
period commencing on the date hereof and ending on the Termination Date, use
its best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to any Holder, upon request, a written statement by the
Company that it has complied with the reporting requirements of Rule 144,
the Securities Act and the Exchange Act, a copy of the most recent annual
or quarterly report of the Company and such other reports and documents
filed by the Company as may be reasonably requested by such Holder.
ARTICLE V
INDEMNIFICATION
Section 5.01. Indemnification by the Company. Subject to the terms and
conditions of this Article V, the Company agrees to indemnify, defend and hold
harmless, to the fullest extent permitted by Law, each Participating Holder,
his or its Affiliates, their respective directors, officers, shareholders,
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employees, investment advisers and agents and their respective heirs,
executors, personal representatives, administrators, successors and assigns
(the "Holder Indemnified Persons"), from and against any and all Claims,
Liabilities and Losses which may be imposed on, incurred by or asserted
against any Holder Indemnified Person, under the Securities Act or otherwise,
arising out of or resulting from, directly or indirectly:
(a) any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act (including all documents incorporated
therein by reference), any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement
thereto; or
(b) any omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading;
provided, however, that the Company shall not be liable to any particular
Holder Indemnified Person for any portion of any Claims, Liabilities or Losses
to the extent that it is finally determined by a court of competent
jurisdiction that such Claims, Liabilities and Losses arose out of or resulted
from (i) any untrue statement or alleged untrue statement of any material fact
contained in such registration statement, prospectus, amendment or supplement,
or (ii) any omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
which statement or omission was contained in or omitted from such registration
statement, prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Holder
Indemnified Person specifically for inclusion therein.
Section 5.02. Indemnification by the Holders. Subject to the terms and
conditions of this Article V, each Participating Holder, severally and not
jointly, agrees to indemnify, defend and hold harmless, to the fullest extent
permitted by Law, any other Participating Holder or the Company, its
Affiliates, their respective directors, officers, shareholders, employees,
investment advisers and agents and their respective heirs, executors, personal
representatives, administrators, successors and assigns (the "Company
Indemnified Persons"), from and against any and all Claims, Liabilities and
Losses which may be imposed on, incurred by or asserted against any other
Participating Holder or any Company Indemnified Person, under the Securities
Act or otherwise, to the extent that it is finally determined by a court of
competent jurisdiction that such Claims, Liabilities and Losses arose out of
or resulted from, directly or indirectly:
(a) any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act (including all documents incorporated
therein by reference), any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement
thereto; or
(b) any omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading,
which statement or omission was contained in or omitted from such registration
statement, prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such
Participating Holder specifically for inclusion therein; provided, however,
that such Participating Holder shall not be liable to, and shall not be
obligated to provide such indemnity to, any other Participating Holder or any
Company Indemnified Person for any portion of any Claims, Liabilities or
Losses to the extent that such Claims, Liabilities and Losses arose out of or
resulted from the failure of the Company to promptly amend or take action to
correct or supplement any such registration statement, prospectus, amendment
or supplement based on corrected or supplemental information provided in
writing by such Participating Holder to the Company expressly for such
purpose. The
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Liability of each Participating Holder pursuant to this Section 5.02 shall be
several, and not joint and several, among all indemnifying parties.
Notwithstanding anything contained in this Agreement to the contrary, in no
event shall the aggregate Liability of any Participating Holder under this
Section 5.02 exceed an amount equal to the amount of the proceeds received by
such Participating Holder upon the sale of his or its Registrable Shares in
the offering to which the Claims, Liabilities or Losses relate.
Section 5.03. Indemnification Procedures. The Liabilities of any party to
indemnify any other party pursuant to this Article V shall be subject to the
following terms and conditions:
(a) Notice and Defense. Within a reasonable period of time after a party
or parties to be indemnified (whether one or more, the "Indemnified
Party'') receives actual notice of any Claim covered by Section 5.01 or
5.02, as the case may be, the Indemnified Party shall, if a Claim in
respect thereof is to be made pursuant to Section 5.01 or 5.02, as the case
may be, notify the party from whom indemnification is sought (the
"Indemnifying Party'') in writing of such Claim; provided however, that the
failure to so notify the Indemnifying Party shall not relieve the
Indemnifying Party from any Liability which it may have to the Indemnified
Party, except to the extent of material detriment suffered by the
Indemnifying Party as a result of such failure. In the event that a Claim,
Liability or Loss arises out of or results from matters with respect to
third parties, the Indemnifying Party will undertake the defense thereof by
representatives chosen by it which are reasonably acceptable to the
Indemnified Party; provided, however, that if, in the Indemnified Party's
reasonable judgment, a conflict of interest exists between such Indemnified
Party and such Indemnifying Party in respect of such Claim, such
Indemnified Party shall be entitled to separate counsel at the expense of
the Indemnifying Party. So long as the Indemnifying Party is defending any
such Claim actively and in good faith, the Indemnified Party shall not
settle such Claim. Each of the Indemnifying Party and the Indemnified Party
shall be entitled to consult with each other, to the extent he or it
reasonably requests, in respect of the defense of such Claim and shall
cooperate in the defense of any such Claim, including making his or its
officers, directors, employees and books and records available for use in
such Claim, and shall take those actions reasonably within his or its power
which are reasonably necessary to preserve any legal defenses to such
matters.
(b) Failure to Defend. If the Indemnifying Party, within a reasonable
time after notice of any such Claim, fails to defend such Claim actively
and in good faith, the Indemnified Party will (upon further notice) have
the right to undertake the defense, compromise or settlement of such Claim
or consent to the entry of a judgment with respect to such Claim, on behalf
of and for the account and risk of the Indemnifying Party, and the
Indemnifying Party shall thereafter have no right to challenge the
Indemnified Party's defense, compromise, settlement or consent to judgment;
provided that the provisions of this Section 5.03(b) shall not be deemed to
restrict the ability of the Indemnifying Party to contest any such
Indemnified Party's right to indemnification from the Indemnifying Party
under this Article V.
(c) Indemnified Party's Rights. Notwithstanding anything contained in
this Article V to the contrary: (i) if there is a reasonable probability
that a Claim will materially and adversely affect any Indemnified Party
other than as a result of money damages or other money payments, such
Indemnified Party shall have the right to defend, compromise or settle such
Claim to the extent such Claim relates to the Indemnified Party; and (ii)
no consent order shall be entered into or Claim settled with respect to an
Indemnified Party unless the Indemnified Party has given its prior written
consent thereto; provided, however, that the Indemnified Party shall
consent to any settlement, compromise or discharge of such Claim that the
Indemnifying Party may recommend that by its terms unconditionally and
fully releases the Indemnified Party from all Claims, Liabilities and
Losses with respect to the matters giving rise to such Claim and which does
not impose any form of injunctive relief on such Indemnified Party.
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(d) Expenses of Counsel. In the event that any Indemnified Party is
entitled to assume the defense of any Claim, the Indemnifying Party shall
not be obligated to pay the fees and expenses of more than one counsel or
firm of counsel for all parties indemnified by such Indemnifying Party in
respect of such Claim, unless in the reasonable judgment of any Indemnified
Party a conflict of interest exists between such Indemnified Party and any
other Indemnified Party in respect of such Claim, in which event the
Indemnifying Party shall be obligated to pay the fees and expenses of one
additional counsel or firm of counsel for such Indemnified Parties.
Section 5.04. Payment. The Indemnifying Party shall promptly pay the
Indemnified Party any amount due under this Article V. In addition, the
Company shall reimburse each Holder Indemnified Person for all reasonable
expenses (including reasonable counsel fees) for which such Holder Indemnified
Person is entitled to be indemnified hereunder as they are incurred by such
Holder Indemnified Person. Upon judgment, determination, settlement or
compromise of any third party Claim, the Indemnifying Party shall promptly pay
on behalf of the Indemnified Party, and/or to the Indemnified Party in
reimbursement of any amount theretofore required to be paid by him or it, the
amount of the Indemnified Party's Liability so determined by such judgment,
determination, settlement or compromise and all other Losses and Claims of the
Indemnified Party with respect thereto for which the Indemnified Party is
entitled to indemnification pursuant to this Agreement, unless in the case of
a judgment or determination an appeal is made from such judgment or
determination; provided, however, that if the Indemnifying Party desires to
appeal from an adverse judgment or determination, then the Indemnifying Party
shall post and pay the cost of the security or bond to stay execution of the
judgment or determination pending appeal. Upon the payment in full by the
Indemnifying Party of all of such amounts, the Indemnifying Party shall
succeed to the rights of the Indemnified Party, to the extent such rights are
not waived in settlement, against the third party who made such third party
Claim.
Section 5.05. Survival of Representations, Warranties and Covenants. Except
as otherwise provided herein, all representations, warranties, covenants and
agreements made by the Company and the Holders in this Agreement or in any
certificate, document or other instrument delivered by the Company or any
Holder pursuant to this Agreement shall survive the execution and delivery of
this Agreement and any transfer of any Registrable Shares, regardless of any
investigation made by or on behalf of any party.
Section 5.06. Other Indemnification. The provisions of this Article V shall
be in addition to any other rights to indemnification or contribution which an
Indemnified Party may have pursuant to any Contract, at law or in equity or
otherwise.
ARTICLE VI
TERM AND TERMINATION
Section 6.01. Termination. The rights and obligations under this Agreement
of each Holder shall terminate with respect to such Holder (but not with
respect to an Eligible Assignee of such Holder) at such time as (i) such
Holder ceases to hold any Registrable Shares and (ii) the Company's obligation
to issue Contingent Shares pursuant to the Contingent Stock Agreement has
terminated. The rights and obligations of the Company under this Agreement
shall terminate at such time as the rights of all Holders have terminated (the
"Termination Date").
Section 6.02. Effect of Termination. Upon the termination of a party's
rights and obligations under this Agreement pursuant to Section 6.01, this
Agreement shall terminate and have no further effect with respect to such
party; provided, however, that the provisions of Article V, the rights and
obligations of the parties with respect to the breach of any provision hereof
prior to such termination and any and all accrued rights and obligations as of
the date of such termination shall survive the termination of this Agreement
with respect to any party.
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ARTICLE VII
MISCELLANEOUS
Section 7.01. Notices. Any and all notices, requests or other communications
hereunder shall be given in writing and delivered by: (a) regular, overnight
or registered or certified mail (return receipt requested), with first class
postage prepaid; (b) hand delivery; (c) facsimile transmission; or (d)
overnight courier service, to the parties at the following addresses or
facsimile numbers: (i) if to the Company, to: The Rouse Company, 10275 Little
Patuxent Parkway, Columbia, Maryland 21044-3456, Attention: General Counsel,
Facsimile Number: (410) 992-6392, and (ii) if to any Holders, to the address
set forth below such Holder's name on the signature pages hereto, or at such
other address or number as shall be designated in a notice by the Company to
the Holders or by any Holder to the Company, in each case, given in accordance
with this Section 7.01. Except as otherwise provided in this Agreement, all
such communications shall be deemed to have been duly given: (A) in the case
of a notice sent by regular mail, three business days after it is duly
deposited in the mails; (B) in the case of a notice sent by registered or
certified mail, on the date receipted for (or refused) on the return receipt;
(C) in the case of a notice delivered by hand, when personally delivered; (D)
in the case of a notice sent by facsimile, upon transmission subject to
telephone confirmation of receipt; and (E) in the case of a notice sent by
overnight mail or overnight courier service, the date delivered at the
designated address, in each case given or addressed as aforesaid.
Section 7.02. Benefit and Burden. This Agreement shall inure to the benefit
of, and shall be binding upon, the parties hereto and their respective heirs,
executors, personal representatives, administrators, successors and permitted
assigns.
Section 7.03. No Third Party Rights. Nothing in this Agreement shall be
deemed to create any right in any creditor or other Person other than the
Company, the Holders and the Indemnified Parties, and this Agreement shall not
be construed in any respect to be a Contract in whole or in part for the
benefit of any third party (other than the Eligible Assignees and the
Indemnified Parties).
Section 7.04. Amendments and Waiver. No amendment, modification, restatement
or supplement of this Agreement shall be valid unless the same is in writing
and signed by the Company and the Requisite Holders; provided, however, that
no amendment, modification, restatement or supplement providing one or more
Holders priority in registering Registrable Shares or providing for the
elimination of registration rights shall be valid unless the same is signed by
all Holders. No waiver of any provision of this Agreement shall be valid
unless in writing and signed by the party against whom that waiver is sought
to be enforced. No failure or delay on the part of any party hereto in
exercising any right, power or privilege hereunder and no course of dealing
between or among any of the parties hereto shall operate as a waiver of any
right, power or privilege hereunder. No single or partial exercise of any
right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder. No notice to or demand on any party in any case shall entitle such
party to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of any party to any other
or further action in any circumstances without notice or demand.
Section 7.05. Assignments. Any Holder may assign, in whole or in part, his
or its rights under this Agreement in connection with the transfer by such
Holder of any Registrable Shares covered hereby; provided, however, that the
Company is given written notice by the Holder at the time of such assignment
or within a reasonable time thereafter, such notice to include the name and
address of such assignee and identify the Registrable Shares with respect to
which the rights under this Agreement have been assigned. The rights so
assigned shall apply only to the Registrable Shares received from a Holder and
only upon execution of an agreement by the assignee binding such assignee to
the obligations of a Holder hereunder. Except as otherwise provided in this
Section 7.05,
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neither this Agreement nor any right, interest or obligation hereunder may be
assigned by any party hereto and any attempt to do so shall be null and void.
Section 7.06. Counterparts. This Agreement may be executed in counterparts
and by the different parties in separate counterparts, each of which when so
executed shall be deemed an original and all of which taken together shall
constitute one and the same agreement. It shall not be necessary in making
proof of this Agreement to produce or account for more than one counterpart
signed by the party to be charged thereby.
Section 7.07. Captions and Headings. The captions and headings contained in
this Agreement are inserted and included solely for convenience and shall not
be considered or given any effect in construing the provisions hereof if any
question of intent should arise.
Section 7.08. Construction. The parties acknowledge that each of them has
had the benefit of legal counsel of its own choice and has been afforded an
opportunity to review this Agreement with its legal counsel and that this
Agreement shall be construed as if jointly drafted by the parties hereto.
Section 7.09. Severability. Should any clause, sentence, paragraph,
subsection, Section or Article of this Agreement be judicially declared to be
invalid, unenforceable or void, such decision will not have the effect of
invalidating or voiding the remainder of this Agreement, and the parties agree
that the part or parts of this Agreement so held to be invalid, unenforceable
or void will be deemed to have been stricken herefrom by the parties, and the
remainder will have the same force and effectiveness as if such stricken part
or parts had never been included herein, and, in lieu of such invalid,
unenforceable or void clause, sentence, paragraph, subsection, Section or
Article, there will be added automatically as a part of this Agreement a valid
and enforceable provision as similar in terms to such invalid, unenforceable
or void clause, sentence, paragraph, subsection, Section or Article as may be
possible which preserves the economic benefits to the parties hereto.
Section 7.10. Remedies. The parties agree that the covenants and obligations
contained in this Agreement relate to special, unique and extraordinary
matters and that a violation of any of
the terms hereof or thereof would cause irreparable injury in an amount which
would be impossible to estimate or determine and for which any remedy at law
would be inadequate. As such, the parties agree that if any party fails or
refuses to fulfill any of his or its obligations under this Agreement or to
make any payment or deliver any instrument required hereunder or thereunder,
then any other party shall have the remedy of specific performance, which
remedy shall be cumulative and nonexclusive and shall be in addition to any
other rights and remedies otherwise available under any other Contract or at
law or in equity and to which such party might be entitled.
Section 7.11. Applicable Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF.
Section 7.12. Submission to Jurisdiction. The Company hereby: (a)
irrevocably submits to the non-exclusive personal jurisdiction of any Delaware
state or federal court over any Claim arising out of
or relating to this Agreement and irrevocably agrees that all such Claims may
be heard and determined in such Delaware state or federal court; and (b)
irrevocably waives, to the fullest extent permitted by applicable Law, any
objection it may now or hereafter have to the laying of venue in any
proceeding brought in a Delaware state or federal court and any Claim that any
such proceeding brought in a Delaware state or federal court has been brought
in an inconvenient forum; provided, however, that nothing in this Section 7.12
is intended to waive the right of the Company or any Holder to remove any such
action or proceeding commenced in any such Delaware state court to an
appropriate Delaware federal court to the extent the basis for such removal
exists under applicable Law. The
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Company hereby irrevocably (i) appoints The Corporation Trust Company (the
"Process Agent"), with an office on the date hereof at 1209 Orange Street,
Wilmington, Delaware 19801, as its agent to receive on behalf of it and its
properties service of copies of the summons and complaint and any other
process which may be served in any such action or proceeding, (ii) agrees that
service of process may be made on the Company by mailing, by certified mail, a
copy of such process to the Company in care of the Process Agent at the
Process Agent's above address, with a copy to the Company at its address for
notices specified herein, and (iii) authorizes and directs the Process Agent
to accept such service on its behalf. Each of the Holders hereby irrevocably
agrees that service of process may be made on him or it by mailing, by
certified mail, a copy of such process to him or it at his or its address for
notices specified herein. As an alternative method of service, each of the
parties also irrevocably consents to the service of any and all process in any
such action or proceeding by the mailing by certified mail of copies of such
process to him or it at his or its address for notices specified herein. Each
of the parties agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by Law. Nothing in this Section 7.12
shall affect the right of any of the parties to serve legal process in any
other manner permitted by Law or affect the right of any of the parties to
bring any action or proceeding in the courts of any other jurisdictions,
domestic or foreign.
Section 7.13. Expenses. Except as otherwise expressly provided for in this
Agreement, each of the parties shall pay his or its own expenses incident to
this Agreement and the transactions contemplated hereby, including legal and
accounting fees and disbursements.
Section 7.14. Prevailing Party Costs. Notwithstanding anything contained
herein or therein to the contrary, if any party commences an action against
another party to enforce any of the terms, covenants, conditions or provisions
of this Agreement, or because of a breach by a party of its obligations under
this Agreement, the prevailing party in any such action shall be entitled to
recover its Losses, including reasonable attorneys' fees, incurred in
connection with the prosecution or defense of such action, from the losing
party.
Section 7.15. Entire Agreement. This Agreement sets forth all of the
promises, agreements, conditions, understandings, warranties and
representations among the parties with respect to the transactions
contemplated hereby, and supersedes all prior agreements, arrangements and
understandings between the parties, whether written, oral or otherwise. There
are no promises, agreements, conditions, understandings, warranties or
representations, oral or written, express or implied, among the parties
concerning the subject matter hereof or thereof except as set forth herein.
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In Witness Whereof, the parties have duly executed this Agreement as of the
day and year first above written.
The Rouse Company
By: _________________________________
Name: _______________________________
Title: ______________________________
THC PARTNERS
By: _________________________________
Milton H. West, Jr., Managing
Partner
By: _________________________________
Platt W. Davis, III, Managing
Partner
By: _________________________________
Frederick R. Lummis, Jr.,
Managing Partner
Address:
4200 Texas Commerce Tower
600 Travis
Houston, Texas 77002
Attn: Milton H. West, Jr.
Telephone Number: (713) 220-4200
Facsimile Number: (713) 220-4285
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APPENDIX F
DELAWARE GENERAL CORPORATION LAW SECTION 262
262 APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to Section 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock corporation; the words
"stock" and "share" mean and include what is ordinarily meant by those words
and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to Section 251, 252, 254, 257, 258, 263 or 264 of this
title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsections (f) or (g) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or
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consolidation and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days after this written
request for such a statement is received by the surviving or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at last 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
F-3
<PAGE>
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
F-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article IX of the Bylaws of Rouse provides that directors and officers of
Rouse shall be indemnified by Rouse to the fullest extent permitted by
Maryland law as now or hereafter in force, including the advance of related
expenses. If any determination is required under applicable law as to whether
a director or officer is entitled to indemnification, such determination shall
be made by independent legal counsel retained by Rouse and appointed by either
the Board of Directors or the Chief Executive Officer. Paragraph (f) of
Article Seventh of the Amended and Restated Articles of Incorporation of Rouse
provides that to the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, no director or officer of Rouse
shall be personally liable to Rouse or its stockholders for money damages. A
copy of Section 2-418 of the Corporations and Associations Article of the
Annotated Code of Maryland is included as an Exhibit to this Registration
Statement.
Rouse maintains directors and officers insurance on behalf of its directors,
officers and certain other persons against any liability asserted against them
in any such capacity.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Set forth below is a list of the exhibits included as part of this
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
**2.1 Composite Agreement and Plan of Merger, dated as of February
22, 1996, as amended May 1, 1996 and May 13, 1996, by and among
The Hughes Corporation, Rouse and TRC Acquisition Company I
(included as Appendix A to the Proxy Statement/Prospectus)
**2.2 Composite Agreement and Plan of Merger, dated as of February
22, 1996, as amended May 1, 1996 and May 13, 1996, by and among
Howard Hughes Properties, Limited Partnership, Rouse and TRC
Acquisition Company II (included as Appendix B to the Proxy
Statement/Prospectus)
**2.3 Form of Contingent Stock Agreement, effective as of January 1,
1996, by The Rouse Company in favor of and for the benefit of
the Holders and the Representatives named therein (included as
Appendix D to the Proxy Statement/Prospectus)
4.1 Charter of Rouse, as amended and restated effective May 27,
1988 (which is incorporated by reference from the Exhibits to
Rouse's Form 10-K Annual Report for the fiscal year ended
December 31, 1988 (see Commission File No. 0-1743))
4.2 Articles of Amendment to the Charter of Rouse, effective
January 10, 1991 (which are incorporated by reference from the
Exhibits to Rouse's Form 10-K Annual Report for the fiscal year
ended December 31, 1990 (see Commission File No. 0-1743))
4.3 The Articles Supplementary to the Charter of Rouse, dated
February 17, 1993 (which are incorporated by reference from the
Exhibits to Rouse's Form 10-K Annual Report for the fiscal year
ended December 31, 1992 (see Commission File No. 0-1743))
4.4 The Articles Supplementary to the Charter of Rouse, dated
September 26, 1994, are incorporated by reference from the
Exhibits to Rouse's Form S-3 Registration Statement (No. 33-
57707)
4.5 The Articles Supplementary to the Charter of Rouse, dated
December 27, 1994 are incorporated by reference from the
Exhibits to Rouse's Form S-3 Registration Statement (No. 33-
57707)
*4.6 Form of the Articles Supplementary to the Charter of Rouse
relating to the Rouse Increasing Rate Cumulative Preferred
Stock
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
*4.7 Form of the Articles Supplementary to the Charter of Rouse
relating to the % Junior Preferred Stock, 1996 Series
4.8 The Bylaws of Rouse, as amended September 22, 1994, are
incorporated by reference from the Exhibits to Rouse's Form 10-
Q Quarterly Report for the quarter ended September 30, 1994
(see Commission File No. 0-1743)
*5.1 Opinion of Piper & Marbury L.L.P.
**8.1 Form of Opinion of Andrews & Kurth L.L.P. re: tax matters
*12.1 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividend Requirements
**23.1 Consent of KPMG Peat Marwick LLP
**23.2 Consent of Landauer Associates, Inc., independent real estate
consultants
**23.3 Consent of Deloitte & Touche LLP
**23.4 Consent of Morgan Stanley Realty Incorporated (included in
Appendix C to the Proxy Statement/Prospectus)
*23.5 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.1
above)
*23.6 Consent of Fried, Frank, Harris, Shriver & Jacobson
**23.7 Consent of Andrews & Kurth L.L.P.
*24.1 Power of Attorney, effective February 22, 1996
*24.2 Power of Attorney, effective February 22, 1996
*99.1 The Rouse Company and Subsidiaries, Valuation and Qualifying
Accounts for the years ended December 31, 1995, 1994 and 1993
*99.2 The Rouse Company and Subsidiaries, Real Estate and Accumulated
Depreciation, December 31, 1995
*99.3 The Hughes Corporation and Subsidiaries, Real Estate and
Accumulated Depreciation, December 31,1995
99.4 Section 2-418 of the Corporations and Associations Article of
the Annotated Code of Maryland (which is incorporated by
reference from the Exhibits to Rouse's Form S-3 Registration
Statement (No. 33-56646))
*99.5 Consent of William R. Lummis
**99.6 Proxy Card
**99.7 Form of Voting Agreement
**99.8 Form of Consent and Agreement (THC Partners)
**99.9 Form of Lock-Up Agreement (THC Partners)
**99.10 Form of Tax Representation Letter (THC Partners)
**99.11 Form of Consent and Agreement (R.D. & C. Voting Trust)
**99.12 Form of Lock-Up Agreement (R.D. & C. Voting Trust)
**99.13 Form of Tax Representation Letter (R.D. & C. Voting Trust)
**99.14 Form of Consent and Agreement (Trustees of Paul E. Harris
Grantor's Trust, Steven B. Harris Trust and Paul E. Harris
Retained Interest Trust II)
**99.15 Form of Consent and Agreement (Beneficiaries of Paul E. Harris
Grantor's Trust, Steven B. Harris Trust and Paul E. Harris
Retained Interest Trust II)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
**99.16 Form of Lock-Up Agreement (Paul E. Harris Grantor's Trust, Steven B.
Harris Trust and Paul E. Harris Retained Interest Trust II)
**99.17 Form of Tax Representation Letter (Paul E. Harris Grantor's Trust,
Steven B. Harris Trust and Paul E. Harris Retained Interest Trust II)
**99.18 Form of Consent and Agreement (9.5% Voting Trust)
**99.19 Form of Lock-Up Agreement (9.5% Voting Trust)
**99.20 Form of Tax Representation Letter (9.5% Voting Trust)
</TABLE>
- --------
* Previously filed with Form S-4 Registration Statement.
** Filed herewith.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) under the Securities Act of
1933 if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement;
provided, however, that the undertakings set forth in paragraphs (1)(i) and
(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed by the registrants pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in
this registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form;
II-3
<PAGE>
(5) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof; and
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE ROUSE
COMPANY HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
COUNTY OF HOWARD, STATE OF MARYLAND, ON THE 14TH DAY OF MAY, 1996.
The Rouse Company
/s/ Anthony W. Deering
By: _________________________________
ANTHONY W. DEERING PRESIDENT,
CHIEF EXECUTIVE OFFICER AND
DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
Principal Executive Officer:
/s/ Anthony W. Deering President, Chief
- ------------------------------------- Executive Officer May 14, 1996
ANTHONY W. DEERING and Director
Principal Financial Officer:
/s/ Jeffrey H. Donahue Senior Vice
- ------------------------------------- President and Chief May 14, 1996
JEFFREY H. DONAHUE Financial Officer
Principal Accounting Officer:
/s/ George L. Yungmann Senior Vice
- ------------------------------------- President and May 14, 1996
GEORGE L. YUNGMANN Controller
II-5
<PAGE>
THE BOARD OF DIRECTORS
David H. Benson, Jeremiah E. Casey, Anthony W. Deering, Rohit M. Desai,
Mathias J. DeVito, Juanita T. James, Thomas J. McHugh, Hanne M. Merriman,
Roger W. Schipke and Alexander B. Trowbridge.
SIGNATURE
DATE
/s/ Anthony W. Deering For himself and as
- ------------------------------------- Attorney-in-Fact May 14, 1996
ANTHONY W. DEERING for the above-named
members of the
Board of Directors
II-6
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
**2.1 Composite Agreement and Plan of Merger, dated as of February 22, 1996,
as amended May 1, 1996 and May 13, 1996, by and among The Hughes
Corporation, Rouse and TRC Acquisition Company I (included as Appendix
A to the Proxy Statement/Prospectus)
**2.2 Composite Agreement and Plan of Merger, dated as of February 22, 1996,
as amended May 1, 1996 and May 13, 1996, by and among Howard Hughes
Properties, Limited Partnership, Rouse and TRC Acquisition Company II
(included as Appendix B to the Proxy Statement/Prospectus)
**2.3 Form of Contingent Stock Agreement, effective as of January 1, 1996,
by The Rouse Company in favor of and for the benefit of the Holders
and the Representatives named therein (included as Appendix D to the
Proxy Statement/Prospectus)
4.1 Charter of Rouse, as amended and restated effective May 27, 1988
(which is incorporated by reference from the Exhibits to Rouse's Form
10-K Annual Report for the fiscal year ended December 31, 1988 (see
Commission File No. 0-1743))
4.2 Articles of Amendment to the Charter of Rouse, effective January 10,
1991 (which are incorporated by reference from the Exhibits to Rouse's
Form 10-K Annual Report for the fiscal year ended December 31, 1990
(see Commission File No. 0-1743))
4.3 The Articles Supplementary to the Charter of Rouse, dated February 17,
1993 (which are incorporated by reference from the Exhibits to Rouse's
Form 10-K Annual Report for the fiscal year ended December 31, 1992
(see Commission File No. 0-1743))
4.4 The Articles Supplementary to the Charter of Rouse, dated September
26, 1994, are incorporated by reference from the Exhibits to Rouse's
Form S-3 Registration Statement (No. 33-57707)
4.5 The Articles Supplementary to the Charter of Rouse, dated December 27,
1994, are incorporated by reference from the Exhibits to Rouse's Form
S-3 Registration Statement (No. 33-57707)
*4.6 Form of the Articles Supplementary to the Charter of Rouse relating to
the Rouse Increasing Rate Cumulative Preferred Stock
*4.7 Form of the Articles Supplementary to the Charter of Rouse relating to
the % Junior Preferred Stock, 1996 Series
4.8 The Bylaws of Rouse, as amended September 22, 1994, are incorporated
by reference from the Exhibits to Rouse's Form 10-Q Quarterly Report
for the quarter ended September 30, 1994 (see Commission File No. 0-
1743)
*5.1 Opinion of Piper & Marbury L.L.P.
**8.1 Form of Opinion of Andrews & Kurth L.L.P. re: tax matters
*12.1 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividend Requirements
**23.1 Consent of KPMG Peat Marwick LLP
**23.2 Consent of Landauer Associates, Inc., independent real estate
consultants
**23.3 Consent of Deloitte & Touche LLP
**23.4 Consent of Morgan Stanley Realty Incorporated (included in Appendix C
to the Proxy Statement/Prospectus)
*23.5 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.1 above)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*23.6 Consent of Fried, Frank, Harris, Shriver & Jacobson
**23.7 Consent of Andrews & Kurth L.L.P.
*24.1 Power of Attorney, effective February 22, 1996
*24.2 Power of Attorney, effective February 22, 1996
*99.1 The Rouse Company and Subsidiaries, Valuation and Qualifying Accounts
for the years ended December 31, 1995, 1994 and 1993
*99.2 The Rouse Company and Subsidiaries, Real Estate and Accumulated
Depreciation, December 31, 1995
*99.3 The Hughes Corporation and Subsidiaries, Real Estate and Accumulated
Depreciation, December 31,1995
99.4 Section 2-418 of the Corporations and Associations Article of the
Annotated Code of Maryland (which is incorporated by reference from
the Exhibits to Rouse's Form S-3 Registration Statement (No. 33-
56646))
*99.5 Consent of William R. Lummis
**99.6 Proxy Card
**99.7 Form of Voting Agreement
**99.8 Form of Consent and Agreement (THC Partners)
**99.9 Form of Lock-Up Agreement (THC Partners)
**99.10 Form of Tax Representation Letter (THC Partners)
**99.11 Form of Consent and Agreement (R.D. & C. Voting Trust)
**99.12 Form of Lock-Up Agreement (R.D. & C. Voting Trust)
**99.13 Form of Tax Representation Letter (R.D. & C. Voting Trust)
**99.14 Form of Consent and Agreement (Trustees of Paul E. Harris Grantor's
Trust, Steven B. Harris Trust and Paul E. Harris Retained Interest
Trust II)
**99.15 Form of Consent and Agreement (Beneficiaries of Paul E. Harris
Grantor's Trust, Steven B. Harris Trust and Paul E. Harris Retained
Interest Trust II)
**99.16 Form of Lock-Up Agreement (Paul E. Harris Grantor's Trust, Steven B.
Harris Trust and Paul E. Harris Retained Interest Trust II)
**99.17 Form of Tax Representation Letter (Paul E. Harris Grantor's Trust,
Steven B. Harris Trust and Paul E. Harris Retained Interest Trust II)
**99.18 Form of Consent and Agreement (9.5% Voting Trust)
**99.19 Form of Lock-Up Agreement (9.5% Voting Trust)
**99.20 Form of Tax Representation Letter (9.5% Voting Trust)
</TABLE>
- --------
*Previously filed with Form S-4 Registration Statement.
**Filed herewith.
<PAGE>
EXHIBIT 8.1
, 1996
The Hughes Corporation
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
Attention: Mr. Michael C. Niarchos
Senior Vice President and General Counsel
Gentlemen:
You have requested our opinion as to certain federal income tax consequences
under the Internal Revenue Code of 1986, as amended (the "Code"), resulting
from the merger (the "Merger") of The Hughes Corporation, a Delaware
corporation ("Company"), with and into TRC Acquisition Company I, a Delaware
corporation ("Subsidiary"), a wholly-owned corporate subsidiary of The Rouse
Company, a Maryland Corporation ("Parent") pursuant to the Agreement and Plan
of Merger dated as of February 22, 1996, among Parent, Subsidiary and Company
(the "Merger Agreement"). This opinion is being delivered pursuant to Section
8.2(c) of the Merger Agreement. Terms not otherwise defined herein shall have
the meanings ascribed to them in the Merger Agreement and the Proxy Statement/
Prospectus dated , 1996, relating to the Mergers ("Proxy
Statement/Prospectus").
As of the date of the Merger, (i) 37,362 of the issued and outstanding
shares of Company Common Stock are owned by THHC and (ii) all the remaining
issued and outstanding shares of Company Common Stock (such remaining shares
being hereinafter referred to as the "Target Common Stock") are owned by
certain other persons and entities (collectively, the "Hughes Owners"). In
connection with the Merger, the Hughes Owners will receive shares of Parent
Common Stock, rights to receive additional shares of Parent Common Stock, or
in certain circumstances Contingent Preferred Shares, pursuant to the
Contingent Stock Agreement and, in certain circumstances, cash, and THHC will
receive shares of Junior Preferred Stock.
In rendering our opinion, we have assumed the Merger will occur in
accordance with the Merger Agreement, including any exhibits thereto, and that
no other arrangements between Parent, Subsidiary, the Company or any
stockholders thereof exist other than those described in the Merger Agreement
or the Proxy Statement/Prospectus; and we have relied on and assumed to be
accurate, as of the Effective Time and, without further inquiry, the following
matters to be set forth in representations that will be made by and on behalf
of Parent, Subsidiary and the Company, as of the Effective Time.
1. The fair market value of Parent Common Stock received by each Company
Stockholder (including those shares expected to be received pursuant to the
Contingent Stock Agreement) will be approximately equal to the fair market
value of THC Common Stock exchanged for such Parent Common Stock in the
Merger. The fair market value of Junior Preferred Stock (and together with
Parent Common Stock, "Rouse Stock") received by THHC will be approximately
equal to the fair market value of Company Common Stock exchanged for Junior
Preferred Stock by THHC in the Merger.
2. There are no persons or entities owning of record, directly or
indirectly, 5% or more, or, to the best knowledge of the management of
Company, owning beneficially 1% or more, of the Company Common Stock, other
than those Stockholders listed on the Company Disclosure Schedule to the
Merger Agreement. There is no plan or intention by the record or beneficial
holders of Company Common Stock who own one percent (1%) or more of the
Company Common Stock, and, to the best knowledge of the management of Company,
there is no plan or intention on the part of the remaining
<PAGE>
Stockholders of Company to sell, exchange, or otherwise dispose of a number of
shares of Parent Common Stock received in the Merger (excluding Contingent
Shares or Contingent Preferred Shares received pursuant to the Contingent
Stock Agreement) that would reduce the Company Stockholders' ownership of
Parent Common Stock (excluding those Contingent Shares or Contingent Preferred
Shares received pursuant to the Contingent Stock Agreement) to a number of
shares having a value, as of the date of the Merger, of less than 50 percent
of the value of all of the formerly outstanding stock of Company as of the
same date (excluding the shares of Company Common Stock held by THHC). For
purposes of this representation, shares of Company Common Stock exchanged for
cash or other property, surrendered by dissenters or exchanged for cash in
lieu of fractional shares of Parent Common Stock will be treated as
outstanding Company Common Stock on the date of the Merger. Moreover shares of
Company Common Stock and shares of Parent Common Stock held by Company
Stockholders and otherwise sold, redeemed, or disposed of prior or subsequent
to the Merger will be considered in making this representation.
3. In the Merger, Subsidiary acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair market value of
the gross assets held by Company immediately prior to the Merger. For purposes
of this representation, Company assets used to pay its reorganization
expenses, and all redemptions and distributions (except for regular, normal
dividends) made by Company immediately preceding the Merger will be included
as assets of Company held immediately prior to the Merger.
4. Except as listed on Schedule A hereto, none of Company, THHC or HHPLP
have made any redemptions or distributions since January 1, 1995.
5. Parent, Subsidiary, Company and the Stockholders of Company will pay
their respective expenses, if any, incurred in connection with the Merger.
6. With respect to each of Parent, Subsidiary and Company, less than 50
percent of the value of their total assets are invested in stocks and
securities within the meaning of Section 368(a)(2)(F)(iii) and (iv)/1/ of the
Code.
7. On the date of the Merger, the fair market value of the assets of Company
transferred to Subsidiary will equal or exceed the sum of the liabilities
assumed by Subsidiary, plus the amount of liabilities, if any, to which the
transferred assets are subject.
8. On the date of the Merger, the adjusted basis for tax purposes of the
assets of Company transferred to Subsidiary will exceed the sum of the
liabilities assumed by Subsidiary, plus the amount of liabilities, if any, to
which the transferred assets are subject.
9. The liabilities of Company assumed by Subsidiary and the liabilities, if
any, to which the transferred assets of Company are subject were incurred by
Company in the ordinary course of its business.
10. There is no intercorporate indebtedness existing between Parent and
Company or between Subsidiary and Company that was issued, acquired, or will
be settled at a discount.
11. Cash payments by Parent or Subsidiary to Company Stockholders in lieu of
fractional shares of Parent Common Stock are solely for the purpose of
avoiding the expense and inconvenience to Parent of issuing fractional shares
and does not represent separately bargained for consideration. The total cash
consideration that will be paid in the transaction to the Company Stockholders
instead of issuing fractional shares of Parent Common Stock will not exceed
one percent of the total
- --------
/1/ All references to "Section" or "Sections" hereinafter are to sections of
the Internal Revenue Code of 1986, as amended (the "Code").
2
<PAGE>
consideration that will be issued in the transaction to the Company
Stockholders (other than THHC) in exchange for their shares of Company Common
Stock. The fractional shares of each Company Stockholder will be aggregated,
and no Company Stockholder will receive cash in an amount greater than the
value of one full share of Company Common Stock.
12. The business reasons for consummating the Merger are as set forth on
pages of the Proxy Statement/Prospectus.
13. Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A).
14. Certain of the shares of Parent Common Stock to be issued to the Company
Stockholders are being issued under the Contingent Stock Agreement because of
the uncertainty as to the value of certain of Company's assets at the time of
the Merger.
15. The fair market value of the rights to be received by the Company
Stockholders pursuant to the Contingent Stock Agreement is approximately
$162,000,000 as of the Closing Date.
16. Prior to the Merger, Parent will own 100 percent of the stock of
Subsidiary and therefore will be in control of Subsidiary within the meaning
of Section 368(c).
17. Parent has no plan or intention to reacquire any of the stock issued in
the Merger, including the stock issued pursuant to the Contingent Stock
Agreement.
18. Parent has no plan or intention to liquidate Subsidiary, to merge
Subsidiary with and into another corporation, to sell or otherwise dispose of
the stock of Subsidiary (except for transfers of stock to corporations
controlled by Parent (within the meaning of Section 368(c)), or to cause
Subsidiary to sell or otherwise dispose of any of the assets of Company
acquired in the Merger, except for dispositions made in the ordinary course of
business or transfers of assets to corporations controlled by Parent within
the meaning of Section 368(c).
19. Parent has no plan or intention to cause Subsidiary to issue and
Subsidiary has no plan or intention to issue after the Effective Time
additional shares of its stock that would result in Parent losing "control" of
Subsidiary within the meaning of Section 368(c) or to issue any warrants,
options, convertible securities, or any other type of right which, if
exercised or converted, would enable the holder thereof to acquire an amount
of stock in Subsidiary that would affect Parent's retention of "control" of
Subsidiary, as defined in Section 368(c).
20. Following the Merger, Parent will cause Subsidiary to continue, and
Subsidiary will continue, the historic business of Company or use a
significant portion of Company's historic business assets in a business.
21. No stock of Subsidiary will be issued in the Merger.
22. All shares of Parent Common Stock, Contingent Shares and Contingent
Preferred Shares to be transferred to Company Stockholders in the Merger
(including those shares received pursuant to the Contingent Stock Agreement)
will be either newly issued shares or treasury shares and will be transferred
directly by Subsidiary to such Stockholders in the Merger.
We are of the opinion, based on existing provisions of the Code, existing
Treasury regulations, existing court decisions, and existing public rulings
and other administrative interpretations, and based on our review of such
documents as we have deemed necessary, on our discussions with management of
the Company, the assumed accuracy of the matters set forth in the foregoing
representations and any representations contained in the Merger Agreement, or
any exhibits thereto, all assumed to be accurate as of the date hereof and as
of the Closing Date, that:
(i) The Merger of Company with and into Subsidiary pursuant to the Merger
Agreement and in accordance with applicable state law will be treated for
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code;
3
<PAGE>
(ii) Parent, Subsidiary and Company will each be a "party to the
reorganization" as such phrase is defined in Section 368(b) of the Code;
and
(iii) Subject to the discussion of the receipt of cash or other "boot"
described in the Proxy Statement/Prospectus, "Certain Federal Income Tax
Consequences--The THC Merger--Stockholders" and "--The THC Merger--
Treatment of Contractual Rights" the Hughes Owners will recognize no gain
or loss as a result of the Merger by reason of the conversion of their
shares of THC Stock into the shares of Rouse Common Stock and the
Contingent Stock Rights to be received at the Effective Time of the Merger.
In addition, all statements of legal conclusions contained in the discussion
under the caption "Certain Federal Income Tax Consequences" in the Proxy
Statement/Prospectus, unless otherwise noted, reflect our opinion with respect
to the matters set forth therein as of the closing of the transactions
described in the Proxy Statement/Prospectus after giving effect to those
transactions.
In addition, we are of the opinion that the federal income tax discussion in
the Proxy Statement/Prospectus with respect to those matters as to which no
legal conclusions are provided is an accurate discussion of such federal
income tax matters (except for the representations and statements of fact
included in such discussion, as to which we express no opinion).
The opinions herein are based upon our interpretations of current law, and
administrative interpretations thereof, which are subject to change both
prospectively and retroactively. Furthermore, should any of the
representations or assumptions set forth above prove to be inaccurate, as of
the Closing Date, our opinions may change. This opinion letter is limited to
the matters set forth herein, and no opinions are intended to be implied or
may be inferred beyond those expressly stated herein. Our opinions are
rendered as of the date hereof and we assume no obligation to update or
supplement these opinions or any matter related to these opinions to reflect
any change of fact, circumstances, or law after the date hereof. In addition,
our opinions are based on the assumption that the matter will be properly
presented to the applicable court. Furthermore, our opinions are not binding
on the Internal Revenue Service or a court. In addition, we must note that our
opinions represent merely our best legal judgment on the matters presented and
that others may disagree with our conclusions. There can be no assurance that
the Internal Revenue Service will not take contrary positions or that a court
would agree with our opinions if litigated.
We have rendered the foregoing opinions at your request and solely for your
benefit, and such opinions may not be utilized or relied upon in any manner by
any other person or entity without our written consent. Furthermore, you have
agreed that if you disclose this opinion to any other person or entity, you
will advise, in writing, any person or entity that examines or reviews this
opinion of the inability of such person or entity to utilize or rely upon the
opinions herein expressed.
Very truly yours,
4
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors of The Rouse Company:
We consent to the use of our reports included herein and to the reference to
our firm under the headings "Selected Financial Data of Rouse" and "Experts"
in the Proxy Statement/Prospectus.
/s/KPMG Peat Marwick LLP
_____________________________________
KPMG PEAT MARWICK LLP
Baltimore, Maryland
May 14, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT REAL ESTATE CONSULTANTS
The Board of Directors of The Rouse Company:
We consent to the inclusion in Amendment No. 3 to the Registration Statement
of The Rouse Company (the "Company") on Form S-4 (Registration No. 333-01693)
of our report dated February 22, 1996, on our concurrence with the Company's
estimates of the market value of its equity and other interests in certain
real property owned and/or managed by the Company and its subsidiaries as of
December 31, 1995 and 1994, and to the reference to our firm under the heading
"Experts" in the Proxy Statement/Prospectus that is a part of such
Registration Statement.
/s/ Deborah A. Jackson
_____________________________________
LANDAUER ASSOCIATES, INC.
New York, New York
May 14, 1996
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Amendment No. 3 to the Registration Statement of
The Rouse Company on Form S-4 of our report on the consolidated financial
statements for The Hughes Corporation and Subsidiaries dated February 23,
1996, appearing in the Prospectus, which is a part of this Registration
Statement, and to the reference to us under the headings, "Summary Historical
Consolidated Financial Data of THC", "Selected Historical Consolidated
Financial Data of THC", and "Experts" in the Prospectus, which is part of this
Registration Statement.
Deloitte & Touche llp
Las Vegas, Nevada
May 14, 1996
<PAGE>
EXHIBIT 23.7
CONSENT OF TAX COUNSEL
We consent to the references in the Registration Statement on Form S-4 of
The Rouse Company (Reg. No. 333-1693) to our firm and to the opinion
referenced under the caption "Certain Federal Income Tax Consequences" to be
delivered by our firm (in the form attached as Exhibit 8.1 to the Registration
Statement) at the closing of the Mergers (as defined in the Registration
Statement).
Andrews & Kurth L.L.P.
Houston, Texas
May 14, 1996
<PAGE>
THE HUGHES CORPORATION EXHIBIT 99.6
HOWARD HUGHES PROPERTIES, LIMITED PARTNERSHIP
JOINT SPECIAL MEETING OF STOCKHOLDERS AND UNITHOLDERS
JUNE 12, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE HUGHES CORPORATION AND THE BOARD OF DIRECTORS OF THE
HOWARD HUGHES CORPORATION, IN ITS CAPACITY AS SOLE GENERAL PARTNER
OF HOWARD HUGHES PROPERTIES, LIMITED PARTNERSHIP
The undersigned holder of common stock ("THC Common Stock"), par value $1.00
per share, of The Hughes Corporation, a Delaware corporation ("THC"), and
Class 1 LP Units ("Class 1 Units") of Howard Hughes Properties, Limited
Partnership, a Delaware limited partnership ("HHPLP"), hereby appoints William
R. Lummis and Platt W. Davis, III, and each of them acting individually, with
full power of substitution and revocation, as proxies for the undersigned to
act and vote at the Joint Special Meeting of stockholders of THC and
unitholders of HHPLP, to be held on June 12, 1996 at 9:00 a.m., local time, at
McDade Auditorium, Texas Commerce Center, 601 Travis, Houston, Texas (the
"Special Meeting"), and any adjournments and postponements thereof, and
thereat to cast all votes of all shares of THC Common Stock and Class 1 Units
of HHPLP that the undersigned would be entitled to cast if then personally
present for the purposes listed on the reverse side hereof.
HOLDERS OF SHARES OF THC COMMON STOCK ARE ENTITLED TO DISSENTERS' APPRAISAL
RIGHTS UNDER THE DELAWARE GENERAL CORPORATION LAW IN CONNECTION WITH THE
PROPOSED MERGER OF THC TO BE CONSIDERED AND VOTED UPON AS SET FORTH IN ITEM 1
ON THE REVERSE SIDE HEREOF. HOLDERS OF CLASS 1 UNITS OF HHPLP ARE NOT ENTITLED
TO DISSENTERS' APPRAISAL RIGHTS UNDER THE DELAWARE GENERAL CORPORATION LAW OR
THE DELAWARE REVISED UNIFORM LIMITED PARTNERSHIP ACT IN CONNECTION WITH THE
PROPOSED MERGER OF HHPLP TO BE CONSIDERED AND VOTED UPON AS SET FORTH IN ITEM
2 ON THE REVERSE SIDE HEREOF.
This Proxy, when properly executed, will be voted in the manner directed on
the reverse side by the undersigned stockholder(s) and unitholders(s). IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSALS SET FORTH IN
ITEMS 1 AND 2 ON THE REVERSE SIDE OF THIS PROXY. THIS PROXY ALSO DELEGATES
DISCRETIONARY AUTHORITY TO VOTE WITH RESPECT TO ANY OTHER MATTERS WHICH MAY
PROPERLY BE BROUGHT BEFORE THE SPECIAL MEETING AND ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF. This Proxy may be revoked at any time before it is
voted at the Special Meeting by either (i) (a) executing and returning a proxy
bearing a later date or (b) filing written notice of such revocation with THC
or HHPLP, as the case may be, at 3800 Howard Hughes Parkway, Las Vegas, Nevada
89109, fax number (702) 791-4385, Attention: Michael C. Niarchos or (ii)
attending the Special Meeting and voting in person.
(Continued and to be signed on the reverse side)
<PAGE>
ITEM 1: (continued from the reverse side)
THE BOARD OF DIRECTORS OF THE HUGHES CORPORATION RECOMMENDS A VOTE FOR ITEM 1.
To consider and vote upon a proposal to (i) adopt the Agreement and Plan of
Merger dated as of February 22, 1996, as amended (including the attachments
thereto, the "THC Merger Agreement"), by and among THC, The Rouse Company, a
Maryland corporation ("Rouse"), and TRC Acquisition Company I, a Delaware
corporation ("TRC I"), and (ii) approve the transactions contemplated by the
THC Merger Agreement, including, but not limited to, the merger of THC with
and into TRC I.
For Against Abstain
[_] [_] [_]
Date ___________________________, 1996
--------------------------------------
Signature
--------------------------------------
ITEM 2: Signature if held jointly
THE BOARD OF DIRECTORS OF THE HOWARD HUGHES CORPORATION RECOMMENDS A VOTE FOR
ITEM 2.
To consider and vote upon a proposal to (i) adopt the Agreement and Plan of
Merger dated as of February 22, 1996, as amended (including the attachments
thereto, the "HHPLP Merger Agreement"), by and among HHPLP, Rouse and TRC
Acquisition Company II, a Delaware corporation ("TRC II"), and (ii) approve
the transactions contemplated by the HHPLP Merger Agreement, including, but
not limited to, the merger of TRC II with and into HHPLP.
For Against Abstain
[_] [_] [_]
Date ___________________________, 1996
--------------------------------------
Signature
--------------------------------------
ITEM 3: Signature if held jointly
In their discretion on such other matters as may properly come before the
Special Meeting.
PLEASE MARK, DATE AND SIGN EXACTLY AS
YOUR NAME(S) APPEAR(S) ABOVE ON THE
FACE SIDE HEREOF AND RETURN IN THE
ENCLOSED ENVELOPE. IF ACTING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE, GUARDIAN, ETC., PLEASE GIVE
FULL TITLE. IF THE SIGNER IS A
CORPORATION, PLEASE SIGN THE FULL
CORPORATE NAME, BY FULLY AUTHORIZED
OFFICER. IF SHARES ARE HELD JOINTLY,
EACH STOCKHOLDER NAMED SHOULD SIGN.
<PAGE>
EXHIBIT 99.7
Universal
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement "), dated as of , 1996, is
executed by the undersigned for the benefit of THE ROUSE COMPANY, a Maryland
corporation (the "Company ").
PRELIMINARY STATEMENTS
A. The Company, TRC Acquisition Company I and The Hughes Corporation, a
Delaware corporation ("THC "), are parties to that certain Agreement and
Plan of Merger dated as of February 22, 1996 (as amended, the "Merger
Agreement "), which provides, among other things, for the merger of THC
with and into TRC Acquisition Company I (the "Merger ").
B. At the closing of the Merger, the Company will enter into a Contingent
Stock Agreement in the form attached as Exhibit H to the Merger
Agreement (the "Contingent Stock Agreement ").
C. Pursuant to the Merger, each outstanding share of common stock of THC
(other than any such shares held by THC or any of its subsidiaries) will
be converted into the right to receive (i) upon the effectiveness of the
Merger, shares of the common stock, par value $0.01 per share, of the
Company ("Common Stock ") and, if required pursuant to the terms of the
Merger Agreement, cash and (ii) subsequent to the effectiveness of the
Merger, additional shares of Common Stock or, in certain circumstances,
shares of the preferred stock, par value $0.01 per share, of the
Company, in accordance with the terms of the Contingent Stock Agreement.
D. Pursuant to the terms of the Contingent Stock Agreement, the Company
will be obligated to use its reasonable best efforts to obtain approval
of the Contingent Stock Agreement and the transactions contemplated
thereby from its shareholders on or before June 15, 1997.
E. The undersigned is the beneficial holder of certain shares of the common
stock of THC and, upon consummation of the Merger, will be a "Holder"
under the terms of the Contingent Stock Agreement.
F. The undersigned is entering into this Agreement in order to facilitate
the closing of the Merger and the other transactions contemplated by the
Merger Agreement.
NOW, THEREFORE, in consideration of the premises and the covenants contained
herein and in the Merger Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the undersigned, intending to be legally bound, hereby agrees as follows:
1. If the Company convenes a meeting (annual or special) of its
shareholders on or before June 15, 1997 for the purpose of obtaining
shareholder approval of the transactions contemplated by the Contingent
Stock Agreement and if the undersigned is the holder of any shares of
Common Stock which are entitled to be voted at such meeting, then the
undersigned, to the extent it has the power and authority to vote such
shares of Common Stock, will vote or cause to be voted at such meeting all
such shares of Common Stock in favor of a proposal to approve the
transactions contemplated by the Contingent Stock Agreement.
2. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without giving effect to the provisions
thereof relating to conflicts of law.
3. This Agreement shall automatically terminate on the earlier of (a) the
day following the shareholders' meeting referred to in paragraph 1 above
and (b) June 16, 1997.
<PAGE>
4. The undersigned acknowledges and agrees that performance of the
undersigned's obligations hereunder will confer a unique benefit on the
Company and that a failure of performance will result in irreparable harm
to the Company and will not be compensable by money damages. The
undersigned therefore agrees that this Agreement shall be specifically
enforceable and that specific enforcement and injunctive relief shall be a
remedy properly available to the Company for any breach of any agreement,
covenant or representation of the undersigned hereunder.
5. If any term, provision, covenant or restriction of this Agreement, or
the application thereof to any circumstance, shall, to any extent, be held
by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement or the application thereof to any other circumstance, shall
remain in full force and effect, shall not in any way be affected, impaired
or invalidated and shall be enforced to the fullest extent permitted by
law.
6. This Agreement contains the entire agreement between the undersigned
and the Company with respect to the subject matter hereof and supersedes
all prior and contemporaneous agreements and understandings, oral or
written, between the undersigned and the Company with respect to the
subject matter hereof.
7. This Agreement may not be changed, amended or modified orally, but
only by an agreement in writing signed by the undersigned and the Company.
IN WITNESS WHEREOF, the undersigned has duly executed this Agreement as of
the date first above written.
Signature: _______________________________
Printed Name: ____________________________
2
<PAGE>
EXHIBIT 99.8
THC Partners
CONSENT AND AGREEMENT
THIS CONSENT AND AGREEMENT (this "Agreement ") is executed and delivered by
the individual or entity whose name appears in the signature block at the end
of this Agreement (the "Undersigned ").
PRELIMINARY STATEMENTS
A. THC Partners, a Texas general partnership (the "Partnership "), is the
record holder of (i) 47,090.81 shares of common stock ("THC Common
Stock "), par value $1.00 per share, of The Hughes Corporation, a
Delaware corporation ("THC "), and (ii) 7,084,947 Class 1 LP Units
("Class 1 Units ") of Howard Hughes Properties, Limited Partnership, a
Delaware limited partnership ("HHPLP ").
B. The Undersigned is a partner of the Partnership with the percentage
interest in the Partnership set forth opposite the Undersigned's name
on Exhibit A hereto (the "Percentage Interest ").
C. The Undersigned has heretofore received a copy of the Proxy
Statement/Prospectus, dated May , 1996 (the "Proxy
Statement/Prospectus "), relating (among other things) to a joint
special meeting of the stockholders of THC and the holders of Class 1
Units of HHPLP to be held in Houston, Texas on June 12, 1996 (the
"Joint Special Meeting ").
D. At the Joint Special Meeting, the record holders of the outstanding
shares of THC Stock will consider and vote upon the merger ("Merger
1 ") of THC with and into TRC Acquisition Company I, a Delaware
corporation and a wholly-owned subsidiary of The Rouse Company, a
Maryland corporation ("Rouse "), pursuant to the terms of the
Agreement and Plan of Merger attached as Appendix A to the Proxy
Statement/Prospectus (as amended, the "Merger 1 Agreement ").
E. Also at the Joint Special Meeting, the record holders of the
outstanding Class 1 Units of HHPLP will consider and vote upon the
merger ("Merger 2 ") of TRC Acquisition Company II, a Delaware
corporation and a wholly-owned subsidiary of Rouse, with and into
HHPLP pursuant to the terms of the Agreement and Plan of Merger
attached as Appendix B to the Proxy Statement/Prospectus (as amended,
the "Merger 2 Agreement ").
F. Pursuant to the terms of the Merger 1 Agreement, THC is required to
use its reasonable best efforts to cause the Partnership to execute
and deliver an agreement (the "THC Partners Lock-up Agreement ")
pursuant to which the Partnership would agree to not, prior to the
first anniversary of the closing of the Mergers, sell more than 50% of
the shares of Rouse Common Stock received by the Partnership in
connection with Merger 1 (excluding any shares acquired pursuant to
the Contingent Stock Agreement referred to below).
G. At the closing of Merger 1, Rouse will execute and deliver a
Contingent Stock Agreement in the form attached as Appendix D to the
Proxy Statement/Prospectus (the "Contingent Stock Agreement ").
H. HHPLP will make a special distribution (as more particularly described
in the Proxy Statement/Prospectus, the "Special Distribution") to the
holders of the Class 1 Units of HHPLP immediately prior to, but
conditioned upon the closing of, Merger 1 and Merger 2 (collectively,
the "Mergers ").
<PAGE>
I. The Undersigned is entering into this Agreement in order to facilitate
the implementation and consummation of Mergers and the other
transactions described in the Proxy Statement/Prospectus.
NOW, THEREFORE, in consideration of the matters set forth in the foregoing
recitals and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and for the purposes stated in
this Agreement and the Proxy Statement/Prospectus, the Undersigned, intending
to be legally bound, hereby agrees as follows:
Section 1. Consents, Approvals, etc. The Undersigned irrevocably and
unconditionally:
(a) authorizes and empowers the Managing Partners of the Partnership (or
any of them) to represent the Partnership at the Joint Special Meeting and
to vote all shares of THC Common Stock and all Class 1 Units of HHPLP held
of record by the Partnership in favor of the approval and adoption of the
Merger 1 Agreement and the Merger 2 Agreement (collectively, the "Merger
Agreements ");
(b) approves the Mergers and all other transactions contemplated by the
Merger Agreements, including, but not limited to, the Special Distribution;
(c) approves, ratifies and confirms all actions taken by or on behalf of
the Partnership, THC, HHPLP and/or The Howard Hughes Corporation, a
Delaware corporation, in connection with the Merger Agreements and the
Contingent Stock Agreement and the transactions contemplated thereby;
(d) consents and agrees that the Managing Partners of the Partnership (or
any of them) may enter into the THC Partners Lock-up Agreement in such form
and containing such terms, conditions and provisions as the Managing
Partner(s) executing the same on behalf of the Partnership may approve, the
execution by such Managing Partner(s) of the THC Partners Lock-up Agreement
to conclusively evidence such approval;
(e) authorizes and empowers the Managing Partners of the Partnership to
make such representations on behalf of the Partnership as Rouse may request
regarding the absence of any plan or intention on the part of the
Partnership to sell or otherwise dispose of any shares of Rouse Common
Stock received by the Partnership in the Mergers;
(f) adopts and approves the Contingent Stock Agreement in all respects;
(g) approves, ratifies and confirms the appointment of the
Representatives (as defined in the Contingent Stock Agreement) and all
actions taken or omitted (whether before, on or after the date hereof) by
or on behalf of the Representatives to the terms of the Contingent Stock
Agreement, including, but not limited to, (i) the establishment of the
Escrow Account (as defined in the Contingent Stock Agreement) and the
withdrawal and disbursement of funds on deposit therein and (ii) the
exercise by the Representatives of all of the powers, rights, privileges
and remedies conferred, or purported to be conferred, upon them under the
Contingent Stock Agreement; and
(h) waives compliance with any provision of the Amended and Restated
Agreement of Partnership of THC Partners dated as of June 1, 1989, as
amended, which is contrary to or inconsistent with any of the actions
described or referred to in the foregoing clauses (a) through (g).
Section 2. Acknowledgments. The Undersigned acknowledges receipt of (i) true
and complete copies of the Proxy Statement/Prospectus (including the
attachments thereto) and (ii) such other information as the Undersigned has
requested in connection with this Agreement and the matters referred to
herein, including the Mergers.
2
<PAGE>
Section 3. Binding Effect; Benefit and Burden. This Agreement shall survive
the death, disability, incompetency or bankruptcy of the Undersigned and the
transfer or assignment of the Undersigned's interest in the Partnership and
shall extend to, and be binding upon, the Undersigned's heirs, legal
representatives, personal representatives, successors and assigns. This
Agreement is intended for the benefit of the Managing Partners of the
Partnership and the Representatives and their respective heirs, legal
representatives, personal representatives, successors and assigns.
IN WITNESS WHEREOF, the Undersigned has executed this Agreement this day
of , 1996.
Signature: __________________________
Printed Name: _______________________
3
<PAGE>
EXHIBIT 99.9
THC Partners
LOCK-UP AGREEMENT
THIS LOCK-UP AGREEMENT (this "Agreement ") is executed and delivered by the
individual or entity whose name appears in the signature block at the end of
this Agreement (the "Undersigned ") for the benefit of The Rouse Company, a
Maryland corporation ("Rouse ").
PRELIMINARY STATEMENTS
A. THC Partners, a Texas general partnership (the "Partnership "), is the
record holder of 47,090.81 shares of common stock ("THC Common
Stock "), par value $1.00 per share, of The Hughes Corporation, a
Delaware corporation ("THC ").
B. The Undersigned is a partner of the Partnership with the percentage
interest in the Partnership set forth opposite the Undersigned's name
on Exhibit A hereto (the "Percentage Interest ").
C. The Undersigned has heretofore received a copy of the Proxy
Statement/Prospectus, dated May , 1996 (the "Proxy
Statement/Prospectus "), relating to a joint special meeting of the
stockholders of THC and the holders of Class 1 LP Units ("Class 1
Units ") of Howard Hughes Properties, Limited Partnership, a Delaware
limited partnership ("HHPLP "), to be held in Houston, Texas on June
, 1996 (the "Joint Special Meeting ").
D. At the Joint Special Meeting, (i) the record holders of the
outstanding shares of THC Stock will consider and vote upon the merger
("Merger 1 ") of THC with and into TRC Acquisition Company I, a
Delaware corporation and a wholly-owned subsidiary of Rouse, and (ii)
the record holders of the outstanding Class 1 Units of HHPLP will
consider and vote upon the merger of TRC Acquisition Company II, a
Delaware corporation and a wholly-owned subsidiary of Rouse, with and
into HHPLP.
E. Consummation of Merger 1 is subject to the condition, among others,
that certain record and beneficial owners of shares of the common
stock, par value $0.01 per share, of Rouse ("Rouse Common Stock ") to
be received in Merger 1 be subject to certain restrictions with
respect to the number of outstanding shares of Rouse Common Stock
which can be sold or otherwise disposed of during specified intervals
of time following the closing of Merger 1 (the "Closing ").
F. At the Closing, Rouse will enter into a Contingent Stock Agreement in
the form attached as Appendix D to the Proxy Statement/Prospectus (the
"Contingent Stock Agreement ").
G. The Undersigned is entering into this Agreement in order to facilitate
the implementation and consummation of Merger 1 and the other
transactions described in the Proxy Statement/Prospectus.
NOW, THEREFORE, in consideration of the matters set forth in the foregoing
preliminary statements and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and for the purposes
stated in this Agreement and the Proxy Statement/Prospectus, the Undersigned
hereby agrees as follows:
1. In the event that any of the shares of Rouse Common Stock into which
the shares of THC Common Stock are converted pursuant to Merger 1 are
distributed to the Undersigned (whether
<PAGE>
contemporaneously with or after consummation of Merger 1 and whether made
directly to the Undersigned by Rouse or pursuant to a distribution from the
Partnership), the Undersigned agrees that it will not (directly or
indirectly) sell or otherwise dispose of (or offer or agree to sell or
otherwise dispose of) any of such shares during the one-year period
following the Closing without, in each case, the prior written consent of
Rouse; provided, however, that the foregoing restriction shall not apply
to:
(a) any disposition by operation of law (including, without
limitation, laws and court orders relating to divorce, descent and
distribution and bankruptcy or insolvency proceedings); provided,
however, that the transferee agrees to be bound by the provisions of
this Agreement;
(b) any offer or sale made pursuant to a Public Offering (defined
below) or pursuant to any tender or exchange offer or a merger,
consolidation or other similar transaction open to all holders of Rouse
Common Stock;
(c) any gift or charitable contribution; provided, however, that the
transferee agrees to be bound by the provisions of this Agreement;
(d) any transfer to (i) a guardian of the estate of the Undersigned
or (ii) an inter vivos trust primarily for the benefit of the
Undersigned and/or the Undersigned's immediate family; provided,
however, that the transferee agrees to be bound by the provisions of
this Agreement;
(e) purchase of Rouse Common Stock from the Undersigned by Rouse or
any of its affiliates; or
(f) any securities of Rouse distributed by Rouse pursuant to the
Contingent Stock Agreement.
2. Notwithstanding the restrictions set forth in Paragraph 1 above, the
Undersigned shall be permitted (a) at any time following the Closing, to
sell or otherwise dispose of shares of Rouse Common Stock if such shares do
not exceed 33 1/3% of the Allocable Shares and (b) at any time following
the date that is 180 days after the Closing, to sell or otherwise dispose
of any shares of Rouse Common Stock if such shares, when added to the total
number of shares of Rouse Common Stock sold or otherwise disposed of by the
Undersigned since the Closing, do not exceed 66 2/3% of the Allocable
Shares.
3. As used herein:
(a) "Allocable Shares" means the number of shares of Rouse Common
Stock determined by multiplying (i) the Percentage Interest of the
Undersigned by (ii) the total number of shares of Rouse Common Stock
into which the shares of THC Common Stock currently held by the
Partnership are converted pursuant to Merger 1; and
(b) "Public Offering" means any sale of securities pursuant to a
public distribution registered under the Securities Act of 1933, as
amended (other than by a registration on Form S-4 or S-8), or effected
pursuant to Rule 144 promulgated thereunder or other exemption
therefrom.
4. The Undersigned acknowledges receipt of (a) a true and complete copy
of the Proxy Statement/Prospectus (including the attachments thereto) and
(b) such other information as the Undersigned has requested in connection
with this Agreement and the matters referred to herein.
5. This Agreement may not be revoked, rescinded, terminated or amended in
any respect without the prior written consent of Rouse. This Agreement
shall survive the death, disability, incompetency or bankruptcy of the
Undersigned and the transfer or assignment of the Undersigned's interest in
the Partnership and shall extend to, and be binding upon, the Undersigned's
heirs, legal representatives, personal representatives, successors and
assigns.
2
<PAGE>
IN WITNESS WHEREOF, the Undersigned has executed this Agreement this day
of , 1996.
Signature: __________________________
Printed Name: _______________________
Address:
_____________________________________
_____________________________________
_____________________________________
3
<PAGE>
EXHIBIT 99.10
THC Partners
, 1996
The Hughes Corporation
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
Attention:Mr. Michael C. Niarchos
Senior Vice President and General Counsel
Gentlemen:
The undersigned, being a prospective holder of stock in The Rouse Company, a
Maryland corporation ("Rouse "), by reason of the merger (the "Merger ") of
The Hughes Corporation, a Delaware corporation ("THC "), with and into TRC
Acquisition Company I, a Delaware corporation and wholly-owned subsidiary of
Rouse, does hereby represent to you and the other stockholders of THC as
follows:
Except as disclosed in the Exception Schedule to this letter, the
undersigned has, and at the time of the closing of the Merger the undersigned
will have, no plan or intention to sell, exchange or otherwise dispose of
(including by gift) any shares of the common stock, par value $0.01 per share,
of Rouse ("Rouse Common Stock ") received by the undersigned, directly or
indirectly, in the Merger, including any such shares received pursuant to the
Contingent Stock Agreement to be executed by Rouse at the closing of the
Merger. The foregoing representations extend to any plan or intention to sell,
exchange or otherwise dispose of (including by gift) any shares of Rouse
Common Stock subsequently withdrawn by the undersigned from THC Partners, a
Texas general partnership.
The undersigned agrees that should the facts or circumstances on which any
of the foregoing representations are based change between the date of this
letter and the closing of the Merger, the undersigned will immediately notify
THC, at the above address, of the changed facts and circumstances.
The undersigned agrees that the foregoing representations may be relied on
(i) by THC and Rouse, and their respective legal counsel, in connection with
opinions as to the tax consequences of the Merger to be rendered by such
counsel, and as more fully described in the Proxy Statement/Prospectus
distributed by THC in connection with the approval of the Merger, and (ii) by
the boards of directors of THC and Rouse in proceeding with the Merger.
Very truly yours,
Signature: __________________________
Printed Name: _______________________
<PAGE>
EXHIBIT 99.11
RD&C Trust
CONSENT AND AGREEMENT
THIS CONSENT AND AGREEMENT (this "Agreement ") is executed and delivered by
the individual or entity whose name appears in the signature block at the end
of this Agreement (the "Undersigned ").
PRELIMINARY STATEMENTS
A. The R. D. & C. Voting Trust (the "Trust "), a Delaware voting trust,
was formed in 1989 pursuant to a Voting Trust Agreement dated as of
June 1, 1989 (the "Trust Agreement ").
B. First Interstate Bank of Nevada, N.A. is the duly appointed and acting
trustee under the Trust Agreement (in such capacity, the "Trustee ").
C. The Trustee (i) is the record holder of 12,628 shares of common stock
("THC Common Stock "), par value $1.00 per share, of The Hughes
Corporation, a Delaware corporation ("THC "), and (ii) holds an
irrevocable proxy (the "Proxy ") with respect to 1,900,000 Class 1 LP
Units ("Class 1 Units ") of Howard Hughes Properties, Limited
Partnership, a Delaware limited partnership ("HHPLP ").
D. The Undersigned is the owner and holder of (i) a Voting Trust
Certificate heretofore issued under the Trust Agreement (the "Trust
Certificate ") with respect to a portion of the shares of THC Common
Stock referred to above and (ii) a portion of the Class 1 Units of
HHPLP referred to above.
E. The Undersigned has heretofore received a copy of the Proxy
Statement/Prospectus, dated May , 1996 (the "Proxy
Statement/Prospectus "), relating (among other things) to a joint
special meeting of the stockholders of THC and the holders of Class 1
Units of HHPLP to be held in Houston, Texas on June 12, 1996 (the
"Joint Special Meeting ").
F. At the Joint Special Meeting, the record holders of the outstanding
shares of THC Stock will consider and vote upon the merger ("Merger
1 ") of THC with and into TRC Acquisition Company I, a Delaware
corporation and a wholly-owned subsidiary of The Rouse Company, a
Maryland corporation ("Rouse "), pursuant to the terms of the
Agreement and Plan of Merger attached as Appendix A to the Proxy
Statement/Prospectus (as amended, the "Merger 1 Agreement ").
G. Also at the Joint Special Meeting, the record holders of the
outstanding Class 1 Units of HHPLP will consider and vote upon the
merger ("Merger 2 ") of TRC Acquisition Company II, a Delaware
corporation and a wholly-owned subsidiary of Rouse, with and into
HHPLP pursuant to the terms of the Agreement and Plan of Merger
attached as Appendix B to the Proxy Statement/Prospectus (as amended,
the "Merger 2 Agreement ").
H. At the closing of Merger 1, Rouse will execute and deliver a
Contingent Stock Agreement in the form attached as Appendix D to the
Proxy Statement/Prospectus (the "Contingent Stock Agreement ").
I. HHPLP will make a special distribution (as more particularly described
in the Proxy Statement/Prospectus, the "Special Distribution ") to the
holders of the Class 1 Units of
<PAGE>
EXHIBIT 99.12
RD&C Trust
LOCK-UP AGREEMENT
THIS LOCK-UP AGREEMENT (this "Agreement ") is executed and delivered by the
individual or entity whose name appears in the signature block at the end of
this Agreement (the "Undersigned ") for the benefit of The Rouse Company, a
Maryland corporation ("Rouse ").
PRELIMINARY STATEMENTS
A. The R. D. & C. Voting Trust (the "Trust "), a Delaware voting trust,
was formed in 1989 pursuant to a Voting Trust Agreement dated as of
June 1, 1989 (the "Trust Agreement ").
B. First Interstate Bank of Nevada, N.A. is the duly appointed and acting
trustee under the Trust Agreement (in such capacity, the "Trustee ").
C. The Trustee is the record holder of 12,628 shares of common stock
("THC Common Stock "), par value $1.00 per share, of The Hughes
Corporation, a Delaware corporation ("THC ").
D. The Undersigned is the owner and holder of a Voting Trust Certificate
heretofore issued under the Trust Agreement (the "Trust Certificate ")
representing the percentage interest in the Trust set forth opposite
the Undersigned's name on Exhibit A hereto (the "Percentage
Interest ").
E. The Undersigned has heretofore received a copy of the Proxy
Statement/Prospectus, dated May , 1996 (the "Proxy
Statement/Prospectus "), relating to a joint special meeting of the
stockholders of THC and the holders of Class 1 LP Units ("Class 1
Units ") of Howard Hughes Properties, Limited Partnership, a Delaware
limited partnership ("HHPLP "), to be held in Houston, Texas on June
, 1996 (the "Joint Special Meeting ").
F. At the Joint Special Meeting, (i) the record holders of the
outstanding shares of THC Stock will consider and vote upon the merger
("Merger 1 ") of THC with and into TRC Acquisition Company I, a
Delaware corporation and a wholly-owned subsidiary of Rouse, and (ii)
the record holders of the outstanding Class 1 Units of HHPLP will
consider and vote upon the merger of TRC Acquisition Company II, a
Delaware corporation and a wholly-owned subsidiary of Rouse, with and
into HHPLP.
G. Consummation of Merger 1 is subject to the condition, among others,
that certain record and beneficial owners of shares of the common
stock, par value $0.01 per share, of Rouse ("Rouse Common Stock ") to
be received in Merger 1 be subject to certain restrictions with
respect to the number of outstanding shares of Rouse Common Stock
which can be sold or otherwise disposed of during specified intervals
of time following the closing of Merger 1 (the "Closing ").
H. At the Closing, Rouse will enter into a Contingent Stock Agreement in
the form attached as Appendix D to the Proxy Statement/Prospectus (the
"Contingent Stock Agreement ").
I. The Undersigned is entering into this Agreement in order to facilitate
the implementation and consummation of Merger 1 and the other
transactions described in the Proxy Statement/Prospectus.
<PAGE>
NOW, THEREFORE, in consideration of the matters set forth in the foregoing
preliminary statements and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and for the purposes
stated in this Agreement and the Proxy Statement/Prospectus, the Undersigned
hereby agrees as follows:
1. In the event that any of the shares of Rouse Common Stock into which
the shares of THC Common Stock are converted pursuant to Merger 1 are
distributed to the Undersigned (whether contemporaneously with or after
consummation of Merger 1 and whether made directly to the Undersigned by
Rouse or pursuant to a distribution from the Trust), the Undersigned agrees
that it will not (directly or indirectly) sell or otherwise dispose of (or
offer or agree to sell or otherwise dispose of) any of such shares during
the one-year period following the Closing without, in each case, the prior
written consent of Rouse; provided, however, that the foregoing restriction
shall not apply to:
(a) any disposition by operation of law (including, without
limitation, laws and court orders relating to divorce, descent and
distribution and bankruptcy or insolvency proceedings); provided,
however, that the transferee agrees to be bound by the provisions of
this Agreement;
(b) any offer or sale made pursuant to a Public Offering (defined
below) or pursuant to any tender or exchange offer or a merger,
consolidation or other similar transaction open to all holders of Rouse
Common Stock;
(c) any gift or charitable contribution; provided, however, that the
transferee agrees to be bound by the provisions of this Agreement;
(d) any transfer to (i) a guardian of the estate of the Undersigned
or (ii) an inter vivos trust primarily for the benefit of the
Undersigned and/or the Undersigned's immediate family; provided,
however, that the transferee agrees to be bound by the provisions of
this Agreement;
(e) purchase of Rouse Common Stock from the Undersigned by Rouse or
any of its affiliates; or
(f) any securities of Rouse distributed by Rouse pursuant to the
Contingent Stock Agreement.
2. Notwithstanding the restrictions set forth in Paragraph 1 above, the
Undersigned shall be permitted (a) at any time following the Closing, to
sell or otherwise dispose of shares of Rouse Common Stock if such shares do
not exceed 33 1/3% of the Allocable Shares and (b) at any time following
the date that is 180 days after the Closing, to sell or otherwise dispose
of any shares of Rouse Common Stock if such shares, when added to the total
number of shares of Rouse Common Stock sold or otherwise disposed of by the
Undersigned since the Closing, do not exceed 66 2/3% of the Allocable
Shares.
3. As used herein:
(a) "Allocable Shares" means the number of shares of Rouse Common
Stock determined by multiplying (i) the Percentage Interest of the
Undersigned by (ii) the total number of shares of Rouse Common Stock
into which the shares of THC Common Stock currently held by the Trust
are converted pursuant to Merger 1; and
(b) "Public Offering" means any sale of securities pursuant to a
public distribution registered under the Securities Act of 1933, as
amended (other than by a registration on Form S-4 or S-8), or effected
pursuant to Rule 144 promulgated thereunder or other exemption
therefrom.
4. The Undersigned acknowledges receipt of (a) a true and complete copy
of the Proxy Statement/Prospectus (including the attachments thereto) and
(b) such other information as the Undersigned has requested in connection
with this Agreement and the matters referred to herein.
2
<PAGE>
5. This Agreement may not be revoked, rescinded, terminated or amended in
any respect without the prior written consent of Rouse. This Agreement
shall survive the death, disability, incompetency or bankruptcy of the
Undersigned and the transfer or assignment of the Undersigned's interest in
the Trust and the termination of the Trust and shall extend to, and be
binding upon, the Undersigned's heirs, legal representatives, personal
representatives, successors and assigns.
IN WITNESS WHEREOF, the Undersigned has executed this Agreement this day
of , 1996.
Signature: __________________________
Printed Name: _______________________
Address:
_____________________________________
_____________________________________
_____________________________________
3
<PAGE>
EXHIBIT 99.13
RD&C Trust
, 1996
The Hughes Corporation
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
Attention:
Mr. Michael C. Niarchos
Senior Vice President and General Counsel
Gentlemen:
The undersigned, being a prospective holder of stock in The Rouse Company, a
Maryland corporation ("Rouse "), by reason of the merger (the "Merger ") of
The Hughes Corporation, a Delaware corporation ("THC "), with and into TRC
Acquisition Company I, a Delaware corporation and wholly-owned subsidiary of
Rouse, does hereby represent to you and the other stockholders of THC as
follows:
Except as disclosed in the Exception Schedule to this letter, the
undersigned has, and at the time of the closing of the Merger the undersigned
will have, no plan or intention to sell, exchange or otherwise dispose of
(including by gift) any shares of the common stock, par value $0.01 per share,
of Rouse ("Rouse Common Stock ") received by the undersigned, directly or
indirectly, in the Merger, including any such shares received pursuant to the
Contingent Stock Agreement to be executed by Rouse at the closing of the
Merger. The foregoing representations extend to any plan or intention to sell,
exchange or otherwise dispose of (including by gift) any shares of Rouse
Common Stock subsequently withdrawn by the undersigned from the R. D. & C.
Voting Trust, a Delaware voting trust, or distributed to the undersigned on
the termination thereof.
The undersigned agrees that should the facts or circumstances on which any
of the foregoing representations are based change between the date of this
letter and the closing of the Merger, the undersigned will immediately notify
THC, at the above address, of the changed facts and circumstances.
The undersigned agrees that the foregoing representations may be relied on
(i) by THC and Rouse, and their respective legal counsel, in connection with
opinions as to the tax consequences of the Merger to be rendered by such
counsel, and as more fully described in the Proxy Statement/Prospectus
distributed by THC in connection with the approval of the Merger, and (ii) by
the boards of directors of THC and Rouse in proceeding with the Merger.
Very truly yours,
Signature: __________________________
Printed Name: _______________________
<PAGE>
EXHIBIT 99.14
Harris Trusts--Trustees
CONSENT AND AGREEMENT
THIS CONSENT AND AGREEMENT (this "Agreement ") is executed and delivered by
STEVEN B. HARRIS, as trustee of the Paul E. Harris Grantor's Trust, the Steven
B. Harris Trust and the Paul E. Harris Retained Interest Trust II, and PAUL E.
HARRIS, as trustee of the Paul E. Harris Grantor's Trust (Steven B. Harris and
Paul E. Harris, in such capacities, individually a "Trustee " and
collectively, the "Trustees "), for the benefit of The Rouse Company, a
Maryland corporation ("Rouse ").
PRELIMINARY STATEMENTS
A. Steven B. Harris and Paul E. Harris are the duly appointed and acting
trustees of the Paul E. Harris Grantor's Trust and Steven B. Harris is
the duly appointed and acting trustee of each of the Steven B. Harris
Trust and the Paul E. Harris Trust (each of the Paul E. Harris
Grantor's Trust, the Steven B. Harris Trust and the Paul E. Harris
Retained Interest Trust II, individually, a "Trust " and collectively,
the "Trusts ").
B. The Trustees are the record holders of (i) shares of common stock
("THC Common Stock "), par value $1.00 per share, of The Hughes
Corporation, a Delaware corporation ("THC "), and (ii) Class 1 LP
Units ("Class 1 Units ") of Howard Hughes Properties, Limited
Partnership, a Delaware limited partnership ("HHPLP ").
C. Each of the Trustees has heretofore received a copy of the Proxy
Statement/Prospectus, dated May , 1996 (the "Proxy
Statement/Prospectus "), relating (among other things) to a joint
special meeting of the stockholders of THC and the holders of Class 1
Units of HHPLP to be held in Houston, Texas on June 12, 1996 (the
"Joint Special Meeting ").
D. At the Joint Special Meeting, the record holders of the outstanding
shares of THC Stock will consider and vote upon the merger ("Merger
1 ") of THC with and into TRC Acquisition Company I, a Delaware
corporation and a wholly-owned subsidiary of Rouse, pursuant to the
terms of the Agreement and Plan of Merger attached as Appendix A to
the Proxy Statement/Prospectus (as amended, the "Merger 1
Agreement ").
E. Also at the Joint Special Meeting, the record holders of the
outstanding Class 1 Units of HHPLP will consider and vote upon the
merger ("Merger 2 ") of TRC Acquisition Company II, a Delaware
corporation and a wholly-owned subsidiary of Rouse, with and into
HHPLP pursuant to the terms of the Agreement and Plan of Merger
attached as Appendix B to the Proxy Statement/Prospectus (as amended,
the "Merger 2 Agreement ").
F. At the closing of Merger 1, Rouse will execute and deliver a
Contingent Stock Agreement in the form attached as Appendix D to the
Proxy Statement/Prospectus (the "Contingent Stock Agreement ").
G. HHPLP will make a special distribution (as more particularly described
in the Proxy Statement/Prospectus, the "Special Distribution ") to the
holders of the Class 1 Units of HHPLP immediately prior to, but
conditioned upon the closing of, Merger 1 and Merger 2 (collectively,
the "Mergers ").
H. Each of the Trustees is entering into this Agreement in order to
facilitate the implementation and consummation of Mergers and the
other transactions described in the Proxy Statement/Prospectus.
<PAGE>
NOW, THEREFORE, in consideration of the matters set forth in the foregoing
recitals and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and for the purposes stated in
this Agreement and the Proxy Statement/Prospectus, each of the Trustees,
intending to be legally bound, hereby agrees as follows:
Section 1. Consents, Approvals, etc. Each of the Trustees irrevocably and
unconditionally:
(a) approves the Mergers and all other transactions contemplated by
the Merger 1 Agreement and the Merger 2 Agreement (collectively, the
"Merger Agreements"), including, but not limited to, the Special
Distribution;
(b) approves, ratifies and confirms all actions taken by or on behalf
of THC, HHPLP and/or The Howard Hughes Corporation, a Delaware
corporation ("THHC"), in connection with the Merger Agreements and the
Contingent Stock Agreement and the transactions contemplated thereby;
(c) adopts and approves the Contingent Stock Agreement in all
respects; and
(d) approves, ratifies and confirms appointment of the
Representatives (as defined in the Contingent Stock Agreement) and all
actions taken or omitted (whether before, on or after the date hereof)
by or on behalf of the Representatives pursuant to the terms of the
Contingent Stock Agreement, including, but not limited to, (i) the
establishment of the Escrow Account (as defined in the Contingent Stock
Agreement) and the withdrawal and disbursement of funds on deposit
therein and (ii) the exercise by the Representatives of all of the
powers, rights, privileges and remedies conferred, or purported to be
conferred, upon them under the Contingent Stock Agreement.
Section 2. Acknowledgments. Each of the Trustees acknowledges receipt of
(i) true and complete copies of the Proxy Statement/Prospectus (including
the attachments thereto) and (ii) such other information as such Trustee
has requested in connection with this Agreement and the matters referred to
herein, including the Mergers.
Section 3. Binding Effect; Benefit and Burden. This Agreement shall
survive the death, disability, incompetency or bankruptcy any Trustee and
the termination of any Trust and shall extend to, and be binding upon, each
of the Trustee's successors and assigns. This Agreement is intended for the
benefit of THC, THHC, HHPLP, the Representatives and their respective
heirs, legal representatives, personal representatives, successors and
assigns.
IN WITNESS WHEREOF, the Trustees have executed this Agreement this day of
, 1996.
_____________________________________
Steven B. Harris, as Trustee of the
Paul E. Harris Grantor's Trust the
Steven B. Harris Trust and the Paul
E. Harris Retained Interest Trust II
_____________________________________
Paul E. Harris, as Trustee of the
Paul E. Harris Grantor's Trust
2
<PAGE>
EXHIBIT 99.15
Harris Trusts--Beneficiaries
CONSENT AND AGREEMENT
THIS CONSENT AND AGREEMENT (this "Agreement ") is executed and delivered by
the individual or entity whose name appears in the signature block at the end
of this Agreement (the "Undersigned ").
PRELIMINARY STATEMENTS
A. Steven B. Harris and Paul E. Harris are the duly appointed and acting
trustees of the Paul E. Harris Grantor's Trust and Steven B. Harris is
the duly appointed and acting trustee of each of the Steven B. Harris
Trust and the Paul E. Harris Retained Interest Trust II (each of
Steven B. Harris and Paul E. Harris in such capacities, a "Trustee "
and collectively the "Trustees ", and each of the Paul E. Harris
Grantor's Trust, the Steven B. Harris Trust and the Paul E. Harris
Retained Interest Trust II, individually, a "Trust " and collectively,
the "Trusts ").
B. The Trustees are the record holders of (i) shares of common stock
("THC Common Stock "), par value $1.00 per share, of The Hughes
Corporation, a Delaware corporation ("THC "), and (ii) Class 1 LP
Units ("Class 1 Units ") of Howard Hughes Properties, Limited
Partnership, a Delaware limited partnership ("HHPLP ").
C. The Undersigned is a beneficiary under one or more of the Trusts.
D. The Undersigned has heretofore received a copy of the Proxy
Statement/Prospectus, dated May , 1996 (the "Proxy
Statement/Prospectus "), relating (among other things) to a joint
special meeting of the stockholders of THC and the holders of Class 1
Units of HHPLP to be held in Houston, Texas on June 12, 1996 (the
"Joint Special Meeting ").
E. At the Joint Special Meeting, the record holders of the outstanding
shares of THC Stock will consider and vote upon the merger ("Merger
1 ") of THC with and into TRC Acquisition Company I, a Delaware
corporation and a wholly-owned subsidiary of Rouse, pursuant to the
terms of the Agreement and Plan of Merger attached as Appendix A to
the Proxy Statement/ Prospectus (as amended, the "Merger 1
Agreement ").
F. Also at the Joint Special Meeting, the record holders of the
outstanding Class 1 Units of HHPLP will consider and vote upon the
merger ("Merger 2 ") of TRC Acquisition Company II, a Delaware
corporation and a wholly-owned subsidiary of Rouse, with and into
HHPLP pursuant to the terms of the Agreement and Plan of Merger
attached as Appendix B to the Proxy Statement/Prospectus (as amended,
the "Merger 2 Agreement ").
G. At the closing of Merger 1, Rouse will execute and deliver a
Contingent Stock Agreement in the form attached as Appendix D to the
Proxy Statement/Prospectus (the "Contingent Stock Agreement ").
H. HHPLP will make a special distribution (as more particularly described
in the Proxy Statement/Prospectus, the "Special Distribution ") to the
holders of the Class 1 Units of HHPLP immediately prior to, but
conditioned upon the closing of, Merger 1 and Merger 2 (collectively,
the "Mergers ").
<PAGE>
I. The Undersigned is entering into this Agreement in order to facilitate
the implementation and consummation of Mergers and the other
transactions described in the Proxy Statement/Prospectus.
NOW, THEREFORE, in consideration of the matters set forth in the foregoing
recitals and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and for the purposes stated in
this Agreement and the Proxy Statement/Prospectus, the Undersigned, intending
to be legally bound, hereby agrees as follows:
Section 1. Consents, Approvals, etc. The Undersigned, with respect to
each Trust under which the Undersigned is a beneficiary, irrevocably and
unconditionally:
(a) authorizes, empowers and directs each Trustee of such Trust to
(i) represent such Trust at the Joint Special Meeting and (ii) with
respect to all shares of THC Common Stock and Class 1 Units of HHPLP
held of record by such Trustee, in which the Undersigned owns or claims
a beneficial interest under such Trust, to vote such shares of THC
Common Stock and Class 1 Units of HHPLP in favor of the approval and
adoption of the Merger 1 Agreement and the Merger 2 Agreement
(collectively, the "Merger Agreements");
(b) approves the Mergers and all other transactions contemplated by
the Merger Agreements, including, but not limited to, the Special
Distribution;
(c) approves, ratifies and confirms all actions taken by or on behalf
of such Trust, any Trustee of such Trust, THC, HHPLP and/or The Howard
Hughes Corporation, a Delaware corporation, in connection with the
Merger Agreements and the Contingent Stock Agreement and the
transactions contemplated thereby;
(d) authorizes, empowers and directs any Trustee of such Trust to
make such representations as Rouse may request regarding the absence of
any plan or intention on the part of such Trustee to sell or otherwise
dispose of any shares of common stock, par value $0.01 per share, of
Rouse received by such Trustee in the Mergers;
(e) adopts and approves the Contingent Stock Agreement in all
respects;
(f) approves, ratifies and confirms appointment of the
Representatives (as defined in the Contingent Stock Agreement) and all
actions taken or omitted (whether before, on or after the date hereof)
by or on behalf of the Representatives pursuant to the terms of the
Contingent Stock Agreement, including, but not limited to, (i) the
establishment of the Escrow Account (as defined in the Contingent Stock
Agreement) and the withdrawal and disbursement of funds on deposit
therein and (ii) the exercise by the Representatives of all of the
powers, rights, privileges and remedies conferred, or purported to be
conferred, upon them under the Contingent Stock Agreement; and
(g) waives compliance with any provision of any document governing
the administration of such Trust which is contrary to or inconsistent
with any of the actions described or referred to in the foregoing
clauses (a) through (f).
Section 2. Acknowledgments. The Undersigned acknowledges receipt of (i)
true and complete copies of the Proxy Statement/Prospectus (including the
attachments thereto) and (ii) such other information as the Undersigned has
requested in connection with this Agreement and the matters referred to
herein, including the Mergers.
Section 3. Binding Effect; Benefit and Burden. This Agreement shall
survive the death, disability, incompetency or bankruptcy of the
Undersigned and the termination of any Trust and shall extend to, and be
binding upon, the Undersigned's heirs, legal representatives, personal
representatives, successors and assigns. This Agreement is intended for the
benefit of the Trustees and the Representatives and their respective heirs,
legal representatives, personal representatives, successors and assigns.
2
<PAGE>
IN WITNESS WHEREOF, the Undersigned has executed this Agreement this day
of , 1996.
Signature: __________________________
Printed Name: _______________________
3
<PAGE>
EXHIBIT 99.16
Harris Trusts
LOCK-UP AGREEMENT
THIS LOCK-UP AGREEMENT (this "Agreement ") is executed and delivered by the
individual or entity whose name appears in the signature block at the end of
this Agreement (the "Undersigned ") for the benefit of The Rouse Company, a
Maryland corporation ("Rouse ").
PRELIMINARY STATEMENTS
A. The Undersigned is a beneficiary of the Paul E. Harris Grantor's
Trust, the Steven B. Harris Trust and/or the Paul E. Harris Retained
Interest Trust II (collectively, the "Trusts " and each, a "Trust ")
having a percentage interest in each of the Trusts as set forth
opposite the Undersigned's name on Exhibit A hereto (as to each Trust,
a "Percentage Interest ").
B. Steven B. Harris and Paul E. Harris are the trustees of the Paul E.
Harris Grantor's Trust and Steven B. Harris is the trustee of each of
the Steven B. Harris Trust and the Paul E. HarrisRetained Interest
Trust II (each of Steven B. Harris and Paul E. Harris in any such
capacity, a "Trustee " and collectively, the "Trustees ").
C. The Trustees are the record holder of shares of common stock ("THC
Common Stock "), par value $1.00 per share, of The Hughes Corporation,
a Delaware corporation ("THC ").
D. The Undersigned has heretofore received a copy of the Proxy
Statement/Prospectus, dated May , 1996 (the "Proxy
Statement/Prospectus "), relating to a joint special meeting of the
stockholders of THC and the holders of Class 1 LP Units ("Class 1
Units ") of Howard Hughes Properties, Limited Partnership, a Delaware
limited partnership ("HHPLP "), to be held in Houston, Texas on June
, 1996 (the "Joint Special Meeting ").
E. At the Joint Special Meeting, (i) the record holders of the
outstanding shares of THC Stock will consider and vote upon the merger
("Merger 1 ") of THC with and into TRC Acquisition Company I, a
Delaware corporation and a wholly-owned subsidiary of Rouse, and (ii)
the record holders of the outstanding Class 1 Units of HHPLP will
consider and vote upon the merger of TRC Acquisition Company II, a
Delaware corporation and a wholly-owned subsidiary of Rouse, with and
into HHPLP.
F. Consummation of Merger 1 is subject to the condition, among others,
that certain record and beneficial owners of shares of the common
stock, par value $0.01 per share, of Rouse ("Rouse Common Stock ") to
be received in Merger 1 be subject to certain restrictions with
respect to the number of outstanding shares of Rouse Common Stock
which can be sold or otherwise disposed of during specified intervals
of time following the closing of Merger 1 (the "Closing ").
G. At the Closing, Rouse will enter into a Contingent Stock Agreement in
the form attached as Appendix D to the Proxy Statement/Prospectus (the
"Contingent Stock Agreement ").
H. The Undersigned is entering into this Agreement in order to facilitate
the implementation and consummation of Merger 1 and the other
transactions described in the Proxy Statement/Prospectus.
<PAGE>
NOW, THEREFORE, in consideration of the matters set forth in the foregoing
preliminary statements and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and for the purposes
stated in this Agreement and the Proxy Statement/Prospectus, the Undersigned
hereby agrees as follows:
1. In the event that any of the shares of Rouse Common Stock into which
the shares of THC Common Stock are converted pursuant to Merger 1 are
distributed to the Undersigned (whether contemporaneously with or after
consummation of Merger 1 and whether made directly to the Undersigned by
Rouse or pursuant to a distribution from a Trust), the Undersigned agrees
that it will not (directly or indirectly) sell or otherwise dispose of (or
offer or agree to sell or otherwise dispose of) any of such shares during
the one-year period following the Closing without, in each case, the prior
written consent of Rouse; provided, however, that the foregoing restriction
shall not apply to:
(a) any disposition by operation of law (including, without
limitation, laws and court orders relating to divorce, descent and
distribution and bankruptcy or insolvency proceedings); provided,
however, that the transferee agrees to be bound by the provisions of
this Agreement;
(b) any offer or sale made pursuant to a Public Offering (defined
below) or pursuant to any tender or exchange offer or a merger,
consolidation or other similar transaction open to all holders of Rouse
Common Stock;
(c) any gift or charitable contribution; provided, however, that the
transferee agrees to be bound by the provisions of this Agreement;
(d) any transfer to (i) a guardian of the estate of the Undersigned
or (ii) an inter vivos trust primarily for the benefit of the
Undersigned and/or the Undersigned's immediate family; provided,
however, that the transferee agrees to be bound by the provisions of
this Agreement;
(e) purchase of Rouse Common Stock from the Undersigned by Rouse or
any of its affiliates; or
(f) any securities of Rouse distributed by Rouse pursuant to the
Contingent Stock Agreement.
2. Notwithstanding the restrictions set forth in Paragraph 1 above, the
Undersigned shall be permitted (a) at any time following the Closing, to
sell or otherwise dispose of shares of Rouse Common Stock if such shares do
not exceed 33 1/3% of the aggregate Allocable Shares for all of the Trusts
and (b) at any time following the date that is 180 days after the Closing,
to sell or otherwise dispose of any shares of Rouse Common Stock if such
shares, when added to the total number of shares of Rouse Common Stock sold
or otherwise disposed of by the Undersigned since the Closing, do not
exceed 66 2/3% of the aggregate Allocable Shares for all of the Trusts.
3. As used herein:
(a) "Allocable Shares " means, with respect to each Trust, a number
of shares of Rouse Common Stock determined by multiplying (i) the
Percentage Interest of the Undersigned in such Trust by (ii) the total
number of shares of Rouse Common Stock into which the shares of THC
Common Stock currently held by such Trust are converted pursuant to
Merger 1; and
(b) "Public Offering " means any sale of securities pursuant to a
public distribution registered under the Securities Act of 1933, as
amended (other than by a registration on Form S-4 or S-8), or effected
pursuant to Rule 144 promulgated thereunder or other exemption
therefrom.
4. The Undersigned acknowledges receipt of (a) a true and complete copy
of the Proxy Statement/Prospectus (including the attachments thereto) and
(b) such other information as the Undersigned has requested in connection
with this Agreement and the matters referred to herein.
2
<PAGE>
5. This Agreement may not be revoked, rescinded, terminated or amended in
any respect without the prior written consent of Rouse. This Agreement
shall survive the death, disability, incompetency or bankruptcy of the
Undersigned and the transfer or assignment of the Undersigned's interest in
any Trust and the termination of any or all of the Trusts and shall extend
to, and be binding upon, the Undersigned's heirs, legal representatives,
personal representatives, successors and assigns.
IN WITNESS WHEREOF, the Undersigned has executed this Agreement this day
of , 1996.
Signature: __________________________
Printed Name: _______________________
Address:
_____________________________________
_____________________________________
_____________________________________
3
<PAGE>
EXHIBIT 99.17
Harris Trusts
, 1996
The Hughes Corporation
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
Attention:Mr. Michael C. Niarchos
Senior Vice President and General Counsel
Gentlemen:
The undersigned, being a prospective holder of stock in The Rouse Company, a
Maryland corporation ("Rouse "), by reason of the merger (the "Merger ") of
The Hughes Corporation, a Delaware corporation ("THC "), with and into TRC
Acquisition Company I, a Delaware corporation and wholly-owned subsidiary of
Rouse, does hereby represent to you and the other stockholders of THC as
follows:
Except as disclosed in the Exception Schedule to this letter, the
undersigned has, and at the time of the closing of the Merger the undersigned
will have, no plan or intention to sell, exchange or otherwise dispose of
(including by gift) any shares of the common stock, par value $0.01 per share,
of Rouse ("Rouse Common Stock ") received by the undersigned, directly or
indirectly, in the Merger, including any such shares received pursuant to the
Contingent Stock Agreement to be executed by Rouse at the closing of the
Merger. The foregoing representations extend to any plan or intention to sell,
exchange or otherwise dispose of (including by gift) any shares of Rouse
Common Stock subsequently withdrawn by the undersigned from (i) the Paul E.
Harris Grantor's Trust, (ii) the Steven B. Harris Trust or (iii) the Paul E.
Harris Retained Interest Trust II, as applicable, or distributed to the
undersigned on the termination thereof.
The undersigned agrees that should the facts or circumstances on which any
of the foregoing representations are based change between the date of this
letter and the closing of the Merger, the undersigned will immediately notify
THC, at the above address, of the changed facts and circumstances.
The undersigned agrees that the foregoing representations may be relied on
(i) by THC and Rouse, and their respective legal counsel, in connection with
opinions as to the tax consequences of the Merger to be rendered by such
counsel, and as more fully described in the Proxy Statement/Prospectus
distributed by THC in connection with the approval of the Merger, and (ii) by
the boards of directors of THC and Rouse in proceeding with the Merger.
Very truly yours,
Signature: __________________________
Printed Name: _______________________
<PAGE>
EXHIBIT 99.18
9.5% Trust
CONSENT AND AGREEMENT
THIS CONSENT AND AGREEMENT (this "Agreement ") is executed and delivered by
the individual or entity whose name appears in the signature block at the end
of this Agreement (the "Undersigned ").
PRELIMINARY STATEMENTS
A. A Delaware voting trust commonly known as the 9.5% Voting Trust (the
"Trust ") was formed in 1989 pursuant to an agreement entitled "July
3, 1989 Voting Trust Agreement" dated as of July 7, 1989 (the "Trust
Agreement ").
B. Wachovia Bank of Georgia, N.A. is the duly appointed and acting
trustee under the Trust Agreement (in such capacity, the "Trustee ").
C. The Trustee is the record holder of (i) 6,314.27 shares of common
stock ("THC Common Stock "), par value $1.00 per share, of The Hughes
Corporation, a Delaware corporation ("THC "), and (ii) 950,000 Class 1
LP Units ("Class 1 Units ") of Howard Hughes Properties, Limited
Partnership, a Delaware limited partnership ("HHPLP ").
D. The Undersigned is the owner and holder of a Voting Trust Certificate
heretofore issued under the Trust Agreement (the "Trust Certificate ")
with respect to a portion of the shares of THC Common Stock and Class
1 Units of HHPLP referred to above.
E. The Undersigned has heretofore received a copy of the Proxy
Statement/Prospectus, dated May , 1996 (the "Proxy
Statement/Prospectus "), relating (among other things) to a joint
special meeting of the stockholders of THC and the holders of Class 1
Units of HHPLP to be held in Houston, Texas on June 12, 1996 (the
"Joint Special Meeting ").
F. At the Joint Special Meeting, the record holders of the outstanding
shares of THC Stock will consider and vote upon the merger ("Merger
1 ") of THC with and into TRC Acquisition Company I, a Delaware
corporation and a wholly-owned subsidiary of The Rouse Company, a
Maryland corporation ("Rouse "), pursuant to the terms of the
Agreement and Plan of Merger attached as Appendix A to the Proxy
Statement/ Prospectus (as amended, the "Merger 1 Agreement ").
G. Also at the Joint Special Meeting, the record holders of the
outstanding Class 1 Units of HHPLP will consider and vote upon the
merger ("Merger 2 ") of TRC Acquisition Company II, a Delaware
corporation and a wholly-owned subsidiary of Rouse, with and into
HHPLP pursuant to the terms of the Agreement and Plan of Merger
attached as Appendix B to the Proxy Statement/Prospectus (as amended,
the "Merger 2 Agreement ").
H. At the closing of Merger 1, Rouse will execute and deliver a
Contingent Stock Agreement in the form attached as Appendix D to the
Proxy Statement/Prospectus (the "Contingent Stock Agreement ").
I. HHPLP will make a special distribution (as more particularly described
in the Proxy Statement/Prospectus, the "Special Distribution ") to the
holders of the Class 1 Units of HHPLP immediately prior to, but
conditioned upon the closing of, Merger 1 and Merger 2 (collectively,
the "Mergers ").
<PAGE>
J. The Undersigned is entering into this Agreement in order to facilitate
the implementation and consummation of Mergers and the other
transactions described in the Proxy Statement/Prospectus.
NOW, THEREFORE, in consideration of the matters set forth in the foregoing
recitals and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and for the purposes stated in
this Agreement and the Proxy Statement/Prospectus, the Undersigned, intending
to be legally bound, hereby agrees as follows:
Section 1. Consents, Approvals, etc. The Undersigned irrevocably and
unconditionally:
(a) authorizes, empowers and directs the Trustee to (i) represent the
Trust at the Joint Special Meeting and (ii) with respect to all shares
of THC Common Stock and Class 1 Units of HHPLP (including those
represented by the Trust Certificate) held of record by the Trustee in
which the Undersigned owns or claims a beneficial interest pursuant to
the Trust Agreement, to vote such shares of THC Common Stock and Class
1 Units of HHPLP in favor of the approval and adoption of the Merger 1
Agreement and the Merger 2 Agreement (collectively, the "Merger
Agreements ");
(b) approves the Mergers and all other transactions contemplated by
Merger Agreements, including, but not limited to, the Special
Distribution;
(c) approves, ratifies and confirms all actions taken by or on behalf
of the Trust, the Trustee, THC, HHPLP and/or The Howard Hughes
Corporation, a Delaware corporation, in connection with the Merger
Agreements and the Contingent Stock Agreement and the transactions
contemplated thereby;
(d) authorizes, empowers and directs the Trustee to give such
instructions to Rouse and/or its transfer agent as the Trustee deems
necessary or appropriate to cause all (i) shares of common stock, par
value $0.01 per share, of Rouse ("Rouse Common Stock "), (ii) other
securities of Rouse and (iii) cash, issuable or payable to the Trustee
pursuant to the Mergers and the Contingent Stock Agreement in exchange
for shares of THC Common Stock and Class 1 Units of HHPLP held of
record by the Trustee, to be issued and registered in the names of, or
paid to, as applicable, the beneficiaries of the Trust in proportion to
their respective interests in the Trust;
(e) authorizes, empowers and directs the Trustee to make such
representations as Rouse may request regarding the absence of any plan
or intention on the part of the Trustee to sell or otherwise dispose of
any shares of Rouse Common Stock received by the Trustee in the Mergers
(other than to the beneficiaries of the Trust);
(f) adopts and approves the Contingent Stock Agreement in all
respects;
(g) approves, ratifies and confirms appointment of the
Representatives (as defined in the Contingent Stock Agreement) and all
actions taken or omitted (whether before, on or after the date hereof)
by or on behalf of the Representatives pursuant to the terms of the
Contingent Stock Agreement, including, but not limited to, (i) the
establishment of the Escrow Account (as defined in the Contingent Stock
Agreement) and the withdrawal and disbursement of funds on deposit
therein and (ii) the exercise by the Representatives of all of the
powers, rights, privileges and remedies conferred, or purported to be
conferred, upon them under the Contingent Stock Agreement; and
(h) waives compliance with any provision of the Trust Agreement which
is contrary to or inconsistent with any of the actions described or
referred to in the foregoing clauses (a) through (g).
2
<PAGE>
Section 2. Acknowledgments. The Undersigned acknowledges receipt of (i)
true and complete copies of the Proxy Statement/Prospectus (including the
attachments thereto) and (ii) such other information as the Undersigned has
requested in connection with this Agreement and the matters referred to
herein, including the Mergers.
Section 3. Binding Effect; Benefit and Burden. This Agreement shall
survive the death, disability, incompetency or bankruptcy of the
Undersigned and the transfer or assignment of the Trust Certificate and the
termination of the Trust and shall extend to, and be binding upon, the
Undersigned's heirs, legal representatives, personal representatives,
successors and assigns. This Agreement is intended for the benefit of the
Trustee and the Representatives and their respective heirs, legal
representatives, personal representatives, successors and assigns.
IN WITNESS WHEREOF, the Undersigned has executed this Agreement this day
of , 1996.
Signature: __________________________
Printed Name: _______________________
3
<PAGE>
EXHIBIT 99.19
9.5% Trust
LOCK-UP AGREEMENT
THIS LOCK-UP AGREEMENT (this "Agreement ") is executed and delivered by the
individual or entity whose name appears in the signature block at the end of
this Agreement (the "Undersigned ") for the benefit of The Rouse Company, a
Maryland corporation ("Rouse ").
PRELIMINARY STATEMENTS
A. A Delaware voting trust commonly known as the 9.5% Voting Trust (the
"Trust ") was formed in 1989 pursuant to an agreement entitled "July
3, 1989 Voting Trust Agreement" dated as of July 7, 1989 (the "Trust
Agreement ").
B. Wachovia Bank of Georgia, N.A. is the duly appointed and acting
trustee under the Trust Agreement (in such capacity, the "Trustee ").
C. The Trustee is the record holder of 6,314.27 shares of common stock
("THC Common Stock "), par value $1.00 per share, of The Hughes
Corporation, a Delaware corporation ("THC ").
D. The Undersigned is the owner and holder of a Voting Trust Certificate
heretofore issued under the Trust Agreement (the "Trust Certificate ")
representing the percentage interest in the Trust set forth opposite
the Undersigned's name on Exhibit A hereto (the "Percentage
Interest ").
E. The Undersigned has heretofore received a copy of the Proxy
Statement/Prospectus, dated May , 1996 (the "Proxy
Statement/Prospectus "), relating to a joint special meeting of the
stockholders of THC and the holders of Class 1 LP Units ("Class 1
Units ") of Howard Hughes Properties, Limited Partnership, a Delaware
limited partnership ("HHPLP "), to be held in Houston, Texas on June
, 1996 (the "Joint Special Meeting ").
F. At the Joint Special Meeting, (i) the record holders of the
outstanding shares of THC Stock will consider and vote upon the merger
("Merger 1 ") of THC with and into TRC Acquisition Company I, a
Delaware corporation and a wholly-owned subsidiary of Rouse, and (ii)
the record holders of the outstanding Class 1 Units of HHPLP will
consider and vote upon the merger of TRC Acquisition Company II, a
Delaware corporation and a wholly-owned subsidiary of Rouse, with and
into HHPLP.
G. Consummation of Merger 1 is subject to the condition, among others,
that certain record and beneficial owners of shares of the common
stock, par value $0.01 per share, of Rouse ("Rouse Common Stock ") to
be received in Merger 1 be subject to certain restrictions with
respect to the number of outstanding shares of Rouse Common Stock
which can be sold or otherwise disposed of during specified intervals
of time following the closing of Merger 1 (the "Closing ").
H. At the Closing, Rouse will enter into a Contingent Stock Agreement in
the form attached as Appendix D to the Proxy Statement/Prospectus (the
"Contingent Stock Agreement ").
I. The Undersigned is entering into this Agreement in order to facilitate
the implementation and consummation of Merger 1 and the other
transactions described in the Proxy Statement/Prospectus.
<PAGE>
NOW, THEREFORE, in consideration of the matters set forth in the foregoing
preliminary statements and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and for the purposes
stated in this Agreement and the Proxy Statement/Prospectus, the Undersigned
hereby agrees as follows:
1. In the event that any of the shares of Rouse Common Stock into which
the shares of THC Common Stock are converted pursuant to Merger 1 are
distributed to the Undersigned (whether contemporaneously with or after
consummation of Merger 1 and whether made directly to the Undersigned by
Rouse or pursuant to a distribution from the Trust), the Undersigned agrees
that it will not (directly or indirectly) sell or otherwise dispose of (or
offer or agree to sell or otherwise dispose of) any of such shares during
the one-year period following the Closing without, in each case, the prior
written consent of Rouse; provided, however, that the foregoing restriction
shall not apply to:
(a) any disposition by operation of law (including, without
limitation, laws and court orders relating to divorce, descent and
distribution and bankruptcy or insolvency proceedings); provided,
however, that the transferee agrees to be bound by the provisions of
this Agreement;
(b) any offer or sale made pursuant to a Public Offering (defined
below) or pursuant to any tender or exchange offer or a merger,
consolidation or other similar transaction open to all holders of Rouse
Common Stock;
(c) any gift or charitable contribution; provided, however, that the
transferee agrees to be bound by the provisions of this Agreement;
(d) any transfer to (i) a guardian of the estate of the Undersigned
or (ii) an inter vivos trust primarily for the benefit of the
Undersigned and/or the Undersigned's immediate family; provided,
however, that the transferee agrees to be bound by the provisions of
this Agreement;
(e) purchase of Rouse Common Stock from the Undersigned by Rouse or
any of its affiliates; or
(f) any securities of Rouse distributed by Rouse pursuant to the
Contingent Stock Agreement.
2. Notwithstanding the restrictions set forth in Paragraph 1 above, the
Undersigned shall be permitted (a) at any time following the Closing, to
sell or otherwise dispose of shares of Rouse Common Stock if such shares do
not exceed 33 1/3% of the Allocable Shares and (b) at any time following
the date that is 180 days after the Closing, to sell or otherwise dispose
of any shares of Rouse Common Stock if such shares, when added to the total
number of shares of Rouse Common Stock sold or otherwise disposed of by the
Undersigned since the Closing, do not exceed 66 2/3% of the Allocable
Shares.
3. As used herein:
(a) "Allocable Shares" means the number of shares of Rouse Common
Stock determined by multiplying (i) the Percentage Interest of the
Undersigned by (ii) the total number of shares of Rouse Common Stock
into which the shares of THC Common Stock currently held by the Trust
are converted pursuant to Merger 1; and
(b) "Public Offering" means any sale of securities pursuant to a
public distribution registered under the Securities Act of 1933, as
amended (other than by a registration on Form S-4 or S-8), or effected
pursuant to Rule 144 promulgated thereunder or other exemption
therefrom.
4. The Undersigned acknowledges receipt of (a) a true and complete copy
of the Proxy Statement/Prospectus (including the attachments thereto) and
(b) such other information as the Undersigned has requested in connection
with this Agreement and the matters referred to herein.
2
<PAGE>
5. This Agreement may not be revoked, rescinded, terminated or amended in
any respect without the prior written consent of Rouse. This Agreement
shall survive the death, disability, incompetency or bankruptcy of the
Undersigned and the transfer or assignment of the Undersigned's interest in
the Trust and the termination of the Trust and shall extend to, and be
binding upon, the Undersigned's heirs, legal representatives, personal
representatives, successors and assigns.
IN WITNESS WHEREOF, the Undersigned has executed this Agreement this day
of , 1996.
Signature: __________________________
Printed Name: _______________________
Address:
_____________________________________
_____________________________________
_____________________________________
3
<PAGE>
EXHIBIT 99.20
9.5% Trust
, 1996
The Hughes Corporation
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
Attention:
Mr. Michael C. Niarchos
Senior Vice President and General Counsel
Gentlemen:
The undersigned, being a prospective holder of stock in The Rouse Company, a
Maryland corporation ("Rouse "), by reason of the merger (the "Merger ") of
The Hughes Corporation, a Delaware corporation ("THC "), with and into TRC
Acquisition Company I, a Delaware corporation and wholly-owned subsidiary of
Rouse, does hereby represent to you and the other stockholders of THC as
follows:
Except as disclosed in the Exception Schedule to this letter, the
undersigned has, and at the time of the closing of the Merger the undersigned
will have, no plan or intention to sell, exchange or otherwise dispose of
(including by gift) any shares of the common stock, par value $0.01 per share,
of Rouse ("Rouse Common Stock ") received by the undersigned, directly or
indirectly, in the Merger, including any such shares received pursuant to the
Contingent Stock Agreement to be executed by Rouse at the closing of the
Merger. The foregoing representations extend to any plan or intention to sell,
exchange or otherwise dispose of (including by gift) any shares of Rouse
Common Stock subsequently withdrawn by the undersigned from that certain
Delaware voting trust commonly known as the "9.5% Group Voting Trust," or
distributed to the undersigned on the termination thereof.
The undersigned agrees that should the facts or circumstances on which any
of the foregoing representations are based change between the date of this
letter and the closing of the Merger, the undersigned will immediately notify
THC, at the above address, of the changed facts and circumstances.
The undersigned agrees that the foregoing representations may be relied on
(i) by THC and Rouse, and their respective legal counsel, in connection with
opinions as to the tax consequences of the Merger to be rendered by such
counsel, and as more fully described in the Proxy Statement/Prospectus
distributed by THC in connection with the approval of the Merger, and (ii) by
the boards of directors of THC and Rouse in proceeding with the Merger.
Very truly yours,
Signature: __________________________
Printed Name: _______________________
