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TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS
As filed with the Securities and Exchange Commission on November 3, 2010
Registration No. 333-168111
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3 to
FORM S-11
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES
New GGP, Inc.
(Exact name of registrant as specified in governing instruments)
New GGP, Inc.
110 N. Wacker Drive
Chicago, IL 60606
(312) 960-5000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
Adam Metz
Chief Executive Officer
New GGP Inc.
110 N. Wacker Drive
Chicago, IL 60606
(312) 960-5000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Copies to:
Matthew D. Bloch, Esq.
Heather L. Emmel, Esq. Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York (212) 310-8000 (Phone) (212) 310-8007 (Fax) |
Michael J. Zeidel, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York (212) 735-3000 (Phone) (212) 735-2000 (Fax) |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "accelerated filer," "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer ý | Smaller reporting company o |
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.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion Dated November 3, 2010
Shares
New GGP, Inc.
Common Stock
This is an offering of shares of common stock of New GGP, Inc. All of the shares of common stock are being sold by New GGP, which will be the indirect parent corporation of General Growth Properties, Inc., or Old GGP, following its emergence from bankruptcy. The proceeds of this offering will be used to repurchase shares of New GGP's common stock and certain debt securities issued by New GGP to fund Old GGP's emergence from bankruptcy.
Upon Old GGP's emergence from bankruptcy, which is expected to occur before completion of this offering, we expect that the common stock will be listed on the New York Stock Exchange under the symbol "GGP." There is currently no public market for New GGP's common stock although there has been limited "when-issued" trading in our common stock on the NYSE. On , 2010, the closing price of our common stock on the "when-issued" trading market of the NYSE was $ per share. See "Public Market for Our Common Stock."
New GGP has agreed to elect to be treated as a real estate investment trust, or REIT, for U.S. federal income tax purposes in connection with the filing of its tax return for 2010, subject to satisfying the REIT qualification requirements at such time.
Shares of the common stock will be subject to ownership and transfer limitations in New GGP's charter that are intended to assist New GGP in qualifying and maintaining its qualification as a REIT, including, subject to certain exceptions, a 9.9% ownership limit.
See "Risk Factors" beginning on page 17 to read about factors you should consider before buying shares of the common stock.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
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Per Share
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Total
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Initial price to public |
$ | $ | ||
Underwriting discount |
$ | $ | ||
Proceeds, before expenses, to us |
$ | $ | ||
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To the extent that the underwriters sell more than shares of common stock, the underwriters have the option to purchase up to an additional shares from New GGP at the initial price to the public less the underwriting discount.
The underwriters expect to deliver the shares against payment in New York, New York on , 2010.
Prospectus dated , 2010
You should rely only on the information contained in this prospectus. We have not and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is only accurate as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date. Neither the delivery of this prospectus nor any sale made hereunder will under any circumstances imply that the information herein is correct as of any date subsequent to the date on the front cover of this prospectus.
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New GGP, the issuer of the common stock registered hereby, is a newly-formed, indirect finance subsidiary of General Growth Properties, Inc. ("Old GGP") and prior to Old GGP's emergence from bankruptcy (as described below) will not have any prior operations or material assets or liabilities. Upon Old GGP's emergence from bankruptcy, which is expected to occur prior to the commencement and completion of this offering, and pursuant to a series of restructuring transactions contemplated by the plan of reorganization (the "Plan") in connection with the emergence from bankruptcy of Old GGP and certain of its subsidiaries:
As of September 30, 2010, 262 debtors consisting of Old GGP's domestic subsidiaries, representing approximately $14.9 billion of debt have emerged from bankruptcy and 126 debtors, including Old GGP and certain holding company subsidiaries, representing approximately $6.9 billion of debt remain subject to bankruptcy proceedings. Old GGP's emergence from bankruptcy is expected to be funded with the proceeds from the following transactions:
We expect to use the net proceeds of this offering to repurchase $1.8 billion of the common stock issued to Fairholme, Pershing Square and Texas Teachers on the effective date of the Plan and to prepay the $350.0 million Pershing Square Bridge Notes described below. The investment agreements with Fairholme, Pershing Square and Texas Teachers permit New GGP to use the proceeds of a sale of common stock of New GGP, including the common stock offered hereby, for not less than $10.50 per share (net of all underwriting and other discounts, fees and related consideration), to repurchase the amount of New GGP common stock to be sold to Fairholme, Pershing Square and Texas Teachers, pro rata as between Fairholme and Pershing Square only, by up to 50% (or approximately $2.15 billion in the aggregate) within 45 days after the effective date of the Plan. In connection with our election to reserve Pershing Square's shares for repurchase as described above, 35 million shares (representing $350 million of Pershing Square's equity capital commitment) were designated as "put shares" in accordance with the Investment Agreement for Pershing Square. The payment for these 35 million shares will be fulfilled on the effective date of the Plan by the payment of cash to New GGP at closing in exchange for unsecured notes issued by New GGP to Pershing Square which will be payable six months from closing (the "Pershing Square Bridge Notes"). The Pershing Square Bridge Notes are prepayable at any time without premium or penalty. In addition, we have the right (the "put right") to sell up to 35 million shares of New GGP common stock, subject to reduction as provided in the
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Investment Agreement, to Pershing Square at $10.00 per share (adjusted for dividends) within six months following the effective date of the Plan. One of the ways that New GGP may raise the cash to repay the Pershing Square Bridge Notes is to exercise its right to sell to Pershing Square up to 35 million shares at $10 per share (adjusted for dividends) six months following the Effective Date.
See "Plan of Reorganization" for a description of the Plan, the Plan Sponsors', Texas Teachers' and Blackstone's investments and the proposed restructuring transactions and "Prospectus SummaryCorporate Structure" for our corporate structure following the consummation of the Plan and restructuring transactions.
This registration statement includes the financial statements and other financial data of Old GGP, which is the predecessor to New GGP, the issuer of the common stock being registered hereby.
The Plan has been confirmed and we expect that Old GGP will emerge from bankruptcy in the fourth quarter of 2010. We intend to commence and complete the offering of common stock being registered hereby following Old GGP's emergence from bankruptcy. Accordingly, the information presented in this prospectus is presented, to the extent possible and now known by us, as if the closing of the transactions described above and Old GGP's emergence from bankruptcy pursuant to the Plan described in the prospectus have occurred.
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This section summarizes information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and consolidated financial statements included elsewhere in this prospectus. You should carefully review this entire prospectus, including the risk factors, the consolidated financial statements and the notes thereto, and the other documents to which this prospectus refers before making an investment decision.
The description of our business in this prospectus is presented on a pro forma basis after giving effect to the consummation of the Plan (defined below) as more fully described under "Unaudited Pro Forma Condensed Consolidated Financial Information," including the distribution of THHC, as described below. However, except as otherwise explicitly stated, the historical consolidated financial information and data and accompanying consolidated financial statements and the related notes thereto contained in this prospectus reflect the actual historical consolidated results of operations and financial condition of Old GGP (defined below) for the periods presented and do not give effect to, among other things, the consummation of the Plan, including the distribution of THHC or the other transactions described in this prospectus.
As used herein, "Old GGP" refers to General Growth Properties, Inc., prior to the consummation of the Plan and related restructuring transactions; "New GGP" refers to General Growth Properties, Inc. following Old GGP's emergence from bankruptcy, formerly known as New GGP, Inc.; "GGPLP" or the "Operating Partnership" refers to GGP Limited Partnership, the partnership through which substantially all of our business is conducted; "THHC" or "Spinco" refers to The Howard Hughes Corporation (formerly known as Spinco, Inc.), a newly formed company that will hold certain assets and liabilities currently owned by Old GGP and its subsidiaries, and the stock of which will be distributed to the stockholders of Old GGP and unitholders of GGPLP pursuant to the Plan; "Rouse" or "TRCLP" refers to The Rouse Company L.P.; and except as otherwise provided or unless the context otherwise requires, references in this prospectus to "we," "us," and "our" refer to New GGP and its subsidiaries and joint ventures after giving effect to the consummation of the Plan and related restructuring transactions.
As used herein, "pro forma basis" or "pro forma" refers to the application of the pro forma adjustments set forth under "Unaudited Pro Forma Condensed Consolidated Financial Information." There can be no assurances that the Plan or the other transactions described in this prospectus will be consummated on the terms described or at all. As a result, the actual dollar amounts of equity and debt and the capitalization of New GGP, and the actual financial condition and results of operations following consummation of the Plan and the other transactions, may differ materially from the estimated amounts described in this prospectus. The pro forma financial data presented in this prospectus is presented for illustrative purposes only and is not necessarily indicative of the results of operations or financial position that would actually have been reported or that may be reported following consummation of the Plan and the other transactions described in this prospectus.
We are a leading real estate owner and operator of regional malls with an ownership interest in 185 regional malls in 43 states as of the date of this prospectus, as well as ownership interests in other rental properties. Based on the number of malls in our portfolio, we are the second largest owner of regional malls in the United States, located strategically in major and middle markets nationwide. For the year ended December 31, 2009, on a pro forma basis, our operating income and NOI were $131.6 million and $2,306.7 million, respectively, and for the nine months ended September 30, 2010, on a pro forma basis, our operating income and NOI were $474.8 million and $1,688.0 million, respectively.
In April 2009, Old GGP and certain of its domestic subsidiaries (collectively, the "Debtors") filed voluntary petitions for relief under Chapter 11 of title 11 of the United States Code ("the Bankruptcy Code"), in the United States Bankruptcy Court of the Southern District of New York (the "Bankruptcy Court"). We refer to these filings as the "bankruptcy" or the "Chapter 11 Cases." A total of
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388 Debtors with approximately $21.8 billion of debt filed for protection under Chapter 11 of the Bankruptcy Code. As of September 30, 2010, 262 Debtors representing approximately $14.9 billion of debt have emerged from bankruptcy and 126 Debtors, including Old GGP, GGPLP and other holding company subsidiaries, representing approximately $6.9 billion of debt, remain subject to Chapter 11 proceedings (the "TopCo Debtors"). On August 27, 2010, Old GGP, along with the other TopCo Debtors, filed with the Bankruptcy Court the third amended and restated plan of reorganization, as supplemented on September 30, 2010 (the "Plan") and related third amended and restated disclosure statement (the "Disclosure Statement"). On October 21, 2010, the Bankruptcy Court entered an order confirming the Plan. The Plan became effective and Old GGP emerged from bankruptcy on , 2010 (the "Effective Date"). See "Plan of Reorganization."
Our portfolio of regional malls and other rental properties represents a diverse collection of retail offerings that are targeted to a range of market sizes and consumer tastes. To better understand our portfolio of regional malls, we are presenting our U.S. regional malls in this prospectus in four categories. We believe these categories reflect the tenant sales performance, current retail tenant positioning, consumer preference characteristics, market size and competitive position of our regional malls. The table below summarizes these four categories as well as our other rental properties on a historical basis, excluding properties that we transferred to THHC as well as de minimis properties, including international operations, and other corporate non-property interests.
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Mall and
Freestanding GLA(1) (millions of square feet) |
Year Ended December 31, 2009 | |||||||||||||
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Category
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Number of
Properties |
Average Annual
Tenant Sales per Square Foot(2) ($) |
Mall and Other
Rental NOI(3) ($ millions) |
Occupancy(4) (%) | ||||||||||||
Tier I Malls |
47 | 20.5 | 581 | 999.7 | 95.3 | |||||||||||
Tier II Malls |
57 | 20.9 | 367 | 712.7 | 93.4 | |||||||||||
Other Malls |
68 | 20.9 | 294 | 448.8 | 87.4 | |||||||||||
Special Consideration Properties |
13 | (5) | 3.3 | 267 | 63.4 | 85.8 | ||||||||||
Total Regional Malls |
185 | 65.6 | 410 | 2,224.6 | 91.7 | |||||||||||
Other Rental Properties |
64 | 8.2 | N/A | 110.3 | 86.7 | |||||||||||
Total |
249 | 73.8 | 410 | 2,334.9 | 91.3 | |||||||||||
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of: (a) tenant occupied space under lease, (b) all leases signed, whether or not the space is occupied by a tenant and (c) tenants no longer occupying the space, but still paying rent.
Our Regional Malls
For the year ended December 31, 2009, the geographic concentration of our regional malls as a percentage of our total regional mall NOI presented above was as follows: the east coast (33%), the west coast and Hawaii (33%), the north central United States (21%), and Texas and surrounding states (13%).
On the whole, our Tier I Malls and Tier II Malls have generated consistent Mall and Other Rental NOI over the three-year period ended December 31, 2009 despite a challenging economic environment.
Our Other Rental Properties
In addition to regional malls, we own 34 strip shopping centers totaling 5.5 million square feet in 12 states, as well as 30 stand-alone office buildings totaling 2.7 million square feet concentrated in Columbia, Maryland and Las Vegas, Nevada. We desire to opportunistically sell our strip shopping centers and stand-alone office buildings. However, no such sales are currently probable.
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We also currently hold minority ownership interests in a public Brazilian real estate operating company and a large regional mall in Rio de Janeiro.
We believe that we distinguish ourselves through the following competitive strengths:
Our business strategy is to further improve our financial position and to maximize the relevance of our mall properties to tenants and consumers using a proactive and financially disciplined approach. We intend to improve our performance by capitalizing on our reorganized financial position and combining the appropriate merchandising mix with excellent physical property conditions in attractive locations. We believe that this will, in turn, increase consumer traffic, retailer sales and rents. We intend to pursue the following objectives in order to implement our business strategy:
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We believe that implementing our business strategies described above, as well as an overall recovery in the U.S. economy, will provide opportunities to improve our operating results, including NOI:
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as well as local, regional and national retailers looking to consolidate to high quality, well maintained malls.
Risks Associated with Our Business
You should carefully consider the matters discussed in the "Risk Factors" section beginning on page 17 of this prospectus prior to deciding whether to invest in our common stock. Some of these risks include:
On October 21, 2010, the Bankruptcy Court entered an order confirming the TopCo Debtors' Plan. On , 2010 the Plan became effective and the TopCo Debtors, including Old GGP, emerged from bankruptcy. New GGP, the issuer of the common stock offered hereby, was a newly-formed indirect finance subsidiary of Old GGP prior to Old GGP's emergence from bankruptcy and had no prior operations or material assets or liabilities prior to the Effective Date. Upon Old GGP's emergence from bankruptcy and pursuant to a series of restructuring transactions under the Plan, New GGP became the indirect parent corporation of Old GGP. New GGP will file Exchange Act reports as a successor to Old GGP and will be listed on the NYSE under the symbol GGP. The Plan set forth the manner in which the prepetition creditors' and equity holders' various claims against and interests in the TopCo Debtors were to be treated.
The Plan and Disclosure Statement are not incorporated by reference into this prospectus, should not be relied upon in any way or manner in connection with this offering and should not be regarded as representations or warranties by Old GGP for the purpose of this prospectus. You should be aware
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that the Plan and Disclosure Statement were drafted for purposes different than this prospectus and not for the purpose of forming an investment decision with respect to our common stock.
The TopCo Debtors required approximately $9.0 billion to fund their emergence from bankruptcy using the proceeds of the following transactions as described in more detail below:
These proceeds were used to fund distributions pursuant to the Plan, fees and expenses, general working capital needs after emergence and other general corporate purposes.
The Plan Sponsors and Blackstone also invested $250 million of equity capital in THHC.
Upon the consummation of the Plan and after giving effect to this offering, including the use of proceeds therefrom assuming an offering price of $ , we expect that Old GGP's stockholders will own % (a minority of New GGP common stock), and Brookfield Investor will own %, Fairholme will own %, Pershing Square will own %, Blackstone will own % and Texas Teachers will own % of New GGP's common stock.
Investment AgreementsInvestment Agreements with Plan Sponsors and Blackstone Designation
In order to fund a portion of the Plan, Old GGP entered into investment agreements (collectively, the "Investment Agreements") with the Plan Sponsors. The Investment Agreements committed the Plan Sponsors to fund an aggregate of $6.55 billion, consisting of $6.3 billion of new equity capital at a value of $10.00 per share of New GGP and a $250 million equity capital commitment in the common stock of THHC at a value of $47.619048 per share. The Plan Sponsors entered into agreements with Blackstone whereby Blackstone subscribed for approximately 7.6% of the New GGP common stock and 7.6% of the THHC common stock to be issued to each of the Plan Sponsors on the Effective Date (for the same price to be paid by such Plan Sponsors) and, in connection therewith, Blackstone received an allocation of each Plan Sponsor's Permanent Warrants as described below (the "Blackstone Designation").
Under the Investment Agreements, in lieu of the receipt of any fees that would be customary in similar transactions, the Investment Agreements provided for the issuance of interim warrants to Brookfield Investor and Fairholme to purchase approximately 103 million shares of Old GGP's common stock at $15.00 per share. Upon consummation of the Plan, these warrants were cancelled and warrants to purchase 120 million shares of common stock of New GGP and 8 million shares of common stock of THHC were issued to the Plan Sponsors and Blackstone as described under "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanInvestment Agreements with the Plan Sponsors."
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Investment AgreementTexas Teachers
Old GGP also entered into an investment agreement with Texas Teachers pursuant to which Texas Teachers committed to fund $500.0 million for new equity capital of New GGP at a value of $10.25 per share. See "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the Plan Investment AgreementTexas Teachers."
We have obtained a commitment for, and we expect to enter into, a $300.0 million revolving credit facility, none of which will be used to consummate the Plan. See "Description of Certain IndebtednessRevolving Credit Facility."
On October 11, 2010, New GGP gave a notice to the investors whereby New GGP preserved the right to repurchase within 45 days after the Effective Date up to 155 million shares (representing $1.55 billion of the shares issued to Fairholme and Pershing Square on the Effective Date) at $10.00 per share and up to approximately 24.4 million shares (representing $250.0 million of the shares issued to Texas Teachers on the Effective Date) at $10.25 per share with the proceeds this offering. In order to be entitled to repurchase such shares, the price per share of common stock issued in this offering must be at least $10.50 per share (net of all underwriting and other discounts, fees and related consideration). In connection with our election to reserve shares for repurchase, we paid to Fairholme and Pershing Square, as applicable, in cash on the Effective Date, an amount equal to $0.25 per reserved share (approximately $38.75 million in the aggregate). No fee was required to be paid to Texas Teachers.
In connection with our election to reserve Pershing Square's shares for repurchase as described above, 35 million shares (representing $350.0 million of Pershing Square's equity capital commitment) were designated as "put shares" in accordance with the Investment Agreement for Pershing Square. The payment for these 35 million shares was fulfilled on the Effective Date by the payment of cash to New GGP at closing in exchange for unsecured notes issued by New GGP to Pershing Square which will be payable six months from closing (the "Pershing Square Bridge Notes"). The Pershing Square Bridge Notes are prepayable at any time without premium or penalty. One of the ways that New GGP may raise the cash to repay the Pershing Square Bridge Notes is to exercise its right to sell to Pershing Square up to 35 million shares at $10 per share (adjusted for dividends) six months following the Effective Date. See "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanInvestment Agreements with the Plan Sponsors."
We will use the proceeds of this offering to repurchase the reserved shares and to prepay the Pershing Square Bridge Notes as described above.
Pursuant to the Investment Agreements, under certain circumstances, THHC or one of its subsidiaries may be required to issue a note (the "Spinco Note") in favor of GGPLP and GGPLP will indemnify THHC or one of its subsidiaries with respect to certain tax liabilities. See "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanSpinco Note and Tax Indemnity." Based on currently available information, we do not expect a Spinco Note to be issued on the Effective Date.
Our principal executive offices are located at 110 N. Wacker Drive, Chicago, Illinois 60606. Our main telephone number is (312) 960-5000. Our website address is www.ggp.com. None of the information on our website or any other website identified herein is part of this prospectus.
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Pursuant to a series of restructuring transactions contemplated by the Plan, the Plan Sponsors, Blackstone and Texas Teachers invested, directly or indirectly into New GGP, which following the Effective Date, indirectly owns Old GGP. See "Plan of ReorganizationRestructuring Transactions." Our simplified ownership and corporate structure immediately following the consummation of the Plan, including the distribution of THHC, and after giving effect to this offering and the use of proceeds therefrom are set forth below:
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Common stock we are offering |
shares ( shares if the underwriters exercise their option to purchase additional shares in full). | |
Common stock to be outstanding immediately after this offering |
shares ( shares if the underwriters exercise their option to purchase additional shares in full). |
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Use of proceeds |
We estimate the net proceeds to us from this offering after expenses will be approximately $ , or approximately $ if the underwriters exercise their option to purchase additional shares in full, assuming an offering price of $ per share. We will use the net proceeds of this offering to repurchase shares of New GGP common stock from Fairholme, Pershing Square and Texas Teachers and to prepay the Pershing Square Bridge Notes as contemplated by the Investment Agreements and the investment agreement with Texas Teachers. To the extent there are any remaining proceeds, such proceeds will be used for general corporate purposes. See "Use of Proceeds." |
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Listing |
New GGP's common stock has been approved for listing on the NYSE under the symbol "GGP," subject to official notice of issuance. |
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Risk Factors |
You should carefully consider the information set forth in the section entitled "Risk Factors" beginning on page 17 and the other information included in this prospectus in deciding whether to invest in our common stock. |
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United States Federal Income Tax Considerations |
For U.S. federal income tax consequences of the holding and disposition of shares of our common stock, see "United States Federal Income Tax Considerations." |
Unless otherwise indicated, the number of shares of common stock to be outstanding after this offering:
In addition, unless otherwise indicated, the information in this prospectus assumes no exercise of the underwriters' option to purchase up to additional shares from us.
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Summary Historical and Pro Forma Consolidated Financial Information
The following table sets forth summary historical consolidated operating, balance sheet and other financial data of Old GGP prior to the effectiveness of the Plan and its emergence from bankruptcy, as well as summary unaudited pro forma consolidated operating, balance sheet and other financial data of Old GGP, which gives effect to the pro forma adjustments described below and in "Unaudited Pro Forma Condensed Consolidated Financial Information." Prior to the Effective Date, Old GGP was our indirect parent company, but upon its emergence from bankruptcy, it became our indirect subsidiary. The historical operating data for the fiscal years ended December 31, 2009, 2008 and 2007 and the historical balance sheet data as of December 2009 and 2008 have been derived from Old GGP's audited consolidated financial statements included elsewhere in this prospectus. The historical operating and balance sheet data as of and for the nine months ended September 30, 2010 and 2009 have been derived from Old GGP's unaudited consolidated financial statements included elsewhere in this prospectus, each of which has been prepared on a basis consistent with Old GGP's audited financial statements. In the opinion of management, the historical unaudited operating and balance sheet data set forth below reflect all adjustments, consisting of normal and recurring adjustments, necessary for a fair statement of Old GGP's financial position and results of operations for those periods. The historical results of operations for any period are not necessarily indicative of the results to be expected for any future period.
The pro forma operating and balance sheet data have been derived from our unaudited pro forma financial condensed consolidated statements included in this prospectus under "Unaudited Pro Forma Condensed Consolidated Financial Information." The unaudited pro forma condensed consolidated balance sheet data gives effect to the pro forma adjustments described below as if they had occurred on September 30, 2010. The unaudited pro forma condensed consolidated statement of operations data gives effect to the pro forma adjustments described below as if they had occurred on January 1, 2009 and January 1, 2010, respectively, the first day of the respective annual and interim periods presented.
The summary pro forma consolidated financial data give effect to the following:
The pro forma condensed consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations or financial position that would have
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actually been reported had the transactions reflected in the pro forma adjustments occurred on January 1, 2009, on January 1, 2010 or as of September 30, 2010, respectively, nor is it indicative of our future results of operations or financial position. In addition, Old GGP's historical financial statements will not be comparable to New GGP's financial statements following emergence from bankruptcy due to the effects of the consummation of the Plan as well as adjustments for the effects of the application of the acquisition method of accounting.
The data presented below should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this prospectus, "Plan of Reorganization," "Unaudited Pro Forma Condensed Consolidated Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
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Historical | Pro Forma | |||||||||||||||||||||||||
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Nine Months Ended
September 30, |
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Nine Months Ended
September 30, |
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Years Ended December 31, |
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Year Ended
December 31, 2009 |
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2010 | 2009 | 2009 | 2008 | 2007 | 2010 | 2009 | ||||||||||||||||||||
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(In thousands except per share data)
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Operating Data: |
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Revenues: |
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Minimum rents(1) |
$ | 1,464,650 | $ | 1,487,288 | $ | 1,992,046 | $ | 2,085,758 | $ | 1,933,674 | $ | 1,365,049 | $ | 1,386,794 | $ | 1,867,061 | |||||||||||
Tenant recoveries |
647,744 | 674,750 | 883,595 | 927,332 | 859,801 | 633,854 | 659,923 | 863,953 | |||||||||||||||||||
Overage rents(2) |
28,126 | 26,214 | 52,306 | 72,882 | 89,016 | 26,388 | 24,749 | 49,605 | |||||||||||||||||||
Land and condominium sales |
85,325 | 38,844 | 45,997 | 66,557 | 145,649 | 63,184 | | | |||||||||||||||||||
Management fees and other corporate revenues |
48,063 | 57,569 | 75,851 | 96,495 | 119,941 | 52,850 | 62,333 | 82,210 | |||||||||||||||||||
Other |
62,337 | 57,031 | 86,019 | 112,501 | 113,720 | 58,575 | 56,199 | 83,686 | |||||||||||||||||||
Total revenues |
2,336,245 | 2,341,696 | 3,135,814 | 3,361,525 | 3,261,801 | 2,199,900 | 2,189,998 | 2,946,515 | |||||||||||||||||||
Expenses: |
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Real estate taxes |
214,496 | 210,443 | 280,895 | 274,317 | 246,484 | 204,004 | 201,012 | 267,975 | |||||||||||||||||||
Property maintenance costs |
89,207 | 77,704 | 119,270 | 114,532 | 111,490 | 84,441 | 74,087 | 113,698 | |||||||||||||||||||
Marketing |
22,374 | 21,840 | 34,363 | 43,426 | 54,664 | 21,619 | 21,102 | 33,292 | |||||||||||||||||||
Other property operating costs |
387,713 | 394,414 | 529,686 | 557,259 | 523,341 | 361,857 | 368,977 | 495,697 | |||||||||||||||||||
Land and condominium sales operations |
89,001 | 42,046 | 50,807 | 63,441 | 116,708 | 55,461 | | | |||||||||||||||||||
Provision for doubtful accounts |
15,575 | 25,104 | 30,331 | 17,873 | 5,426 | 14,474 | 23,923 | 27,792 | |||||||||||||||||||
Property management and other costs |
125,007 | 130,485 | 176,876 | 184,738 | 198,610 | 112,994 | 117,911 | 159,831 | |||||||||||||||||||
General and administrative |
22,707 | 22,436 | 28,608 | 39,245 | 37,005 | 22,707 | 22,436 | 28,608 | |||||||||||||||||||
Strategic initiatives |
| 67,341 | 67,341 | 18,727 | | | 61,961 | 61,961 | |||||||||||||||||||
Provisions for impairment |
35,893 | 474,420 | 1,223,810 | 116,611 | 130,533 | 35,315 | 293,147 | 543,127 | |||||||||||||||||||
Litigation (benefit) provision |
| | | (57,145 | ) | 89,225 | | | | ||||||||||||||||||
Depreciation and amortization |
527,956 | 576,103 | 755,161 | 759,930 | 670,454 | 812,239 | 812,239 | 1,082,984 | |||||||||||||||||||
Total expenses |
1,529,929 | 2,042,336 | 3,297,148 | 2,132,954 | 2,183,940 | 1,725,111 | 1,996,795 | 2,814,965 | |||||||||||||||||||
Operating income (loss) |
$ | 806,316 | $ | 299,360 | $ | (161,334 | ) | $ | 1,228,571 | $ | 1,077,861 | $ | 474,789 | $ | 193,203 | $ | 131,550 | ||||||||||
Income (loss) from continuing operations |
$ | (295,410 | ) | $ | (680,179 | ) | $ | (1,303,861 | ) | $ | (36,372 | ) | $ | 347,597 | $ | (431,911 | ) | $ | (679,746 | ) | $ | (1,036,737 | ) | ||||
Basic and diluted earnings (loss) per share |
$ | (0.94 | ) | $ | (2.16 | ) | $ | (4.11 | ) | $ | 0.02 | $ | 1.12 | $ | $ | $ |
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Historical | Pro Forma | ||||||||||||||||||||||||
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Nine Months Ended
September 30, |
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Nine Months Ended
September 30, |
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Years Ended December 31, |
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Year Ended
December 31, 2009 |
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2010 | 2009 | 2009 | 2008 | 2007 | 2010 | 2009 | |||||||||||||||||||
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(In thousands, except for statistical data)
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Other Financial Data: |
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FFO(3): |
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Operating Partnership |
$ | 313,937 | $ | (7,487 | ) | $ | (421,384 | ) | $ | 833,086 | $ | 1,083,439 | $ | 459,446 | $ | 226,831 | $ | 167,880 | ||||||||
Less: Allocation to Operating Partnership limited common unitholders |
(7,037 | ) | 181 | 10,052 | (136,896 | ) | (190,740 | ) | (8,090 | ) | (3,403 | ) | (6,176 | ) | ||||||||||||
Old GGP stockholders |
306,900 | (7,306 | ) | (411,332 | ) | 696,190 | 892,699 | 451,356 | 223,428 | 161,704 | ||||||||||||||||
NOI(4) |
1,765,312 | 1,693,924 | 2,296,747 | 2,565,784 | 2,391,611 | 1,688,013 | 1,721,971 | 2,306,728 | ||||||||||||||||||
Net debt(5) |
23,230,049 | 24,172,742 | 23,801,621 | 24,587,584 | 24,182,605 | 18,032,306 | | |||||||||||||||||||
EBITDA(6) |
1,532,584 | 1,099,722 | 1,015,193 | 2,369,895 | 2,170,517 | 1,924,475 | 1,389,697 | 1,690,844 | ||||||||||||||||||
Adjusted EBITDA(6) |
1,660,180 | 1,692,808 | 2,207,530 | 2,455,954 | 2,299,607 | 1,958,277 | 1,748,606 | 2,312,719 | ||||||||||||||||||
Capital expenditures |
50,931 | 13,312 | 51,991 | 57,133 | 127,699 | 50,416 | 12,926 | 50,562 | ||||||||||||||||||
Number of properties |
202 | 204 | 203 | 204 | 197 | 183 | 184 | 184 | ||||||||||||||||||
GLA (million square feet)(7) |
190 | 190 | 190 | 190 | 189 | 178 | 178 | 178 | ||||||||||||||||||
Occupancy |
91.4 | % | 91.2 | % | 91.6 | % | 92.5 | % | 93.8 | % | 91.4 | % | 91.2 | % | 91.3 | % | ||||||||||
Occupancy cost(8) |
14.1 | % | 14.6 | % | 14.7 | % | 13.3 | % | 12.5 | % | 14.1 | % | 14.4 | % | 14.6 | % | ||||||||||
Tenant sales per square foot(9) |
$ | 428 | $ | 413 | $ | 410 | $ | 442 | $ | 463 | $ | 428 | $ | 413 | $ | 410 | ||||||||||
Ratio of net debt(5) to Adjusted EBITDA(6) |
| | 10.8 | x | 10.0 | x | 10.5 | x | | | |
|
Historical |
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|
|
As of December 31, |
Pro Forma
As of September 30, 2010 |
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|
As of
September 30, 2010 |
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|
2009 | 2008 | |||||||||||
|
(In thousands)
|
||||||||||||
Balance Sheet data: |
|||||||||||||
Cash and cash equivalents |
$ | 630,014 | $ | 654,396 | $ | 168,993 | $ | 771,432 | |||||
Total assets |
27,742,933 | 28,149,774 | 29,557,330 | 31,257,008 | |||||||||
Mortgages, notes and loans payable |
23,860,063 | 24,456,017 | 24,756,577 | 18,803,738 | |||||||||
Total liabilities |
26,920,675 | 27,095,602 | 27,196,998 | 21,000,953 | |||||||||
Total stockholders' equity of Old GGP |
562,413 | 822,963 | 1,836,141 | 9,988,420 |
We consider FFO a useful supplemental measure and a complement to GAAP measures because it facilitates an understanding of the operating performance of our properties. FFO does not include real estate depreciation and amortization required by GAAP because these amounts are computed to allocate the cost of a property over its useful life. Since values for well-maintained real estate assets have historically increased or decreased based upon prevailing market conditions, we believe that FFO provides investors with a clearer view of our operating performance, particularly with respect to our rental properties. FFO is not a measurement of our financial performance under GAAP and should not be considered as an alternative to revenues, operating income (loss), net income (loss) attributable to common stockholders or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity.
FFO does not represent cash flow from operating activities as defined by GAAP, should not be considered as an alternative to GAAP net income (loss) attributable to common stockholders and is not necessarily indicative of cash available to fund cash requirements.
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The following is a reconciliation of FFO to net income (loss) attributable to common stockholders:
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Historical | Pro Forma | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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Nine Months Ended
September 30, |
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Nine Months Ended
September 30, |
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Years Ended December 31, |
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Year Ended
December 31, 2009 |
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2010 | 2009 | 2009 | 2008 | 2007 | 2010 | 2009 | |||||||||||||||||||
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(In thousands)
|
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FFO: |
||||||||||||||||||||||||||
Old GGP stockholders |
$ | 306,900 | $ | (7,306 | ) | $ | (411,332 | ) | $ | 696,190 | $ | 892,699 | $ | 451,356 | $ | 223,428 | $ | 161,704 | ||||||||
Operating Partnership unitholders |
7,037 | (181 | ) | (10,052 | ) | 136,896 | 190,740 | 8,090 | 3,403 | 6,176 | ||||||||||||||||
Operating Partnership |
313,937 | (7,487 | ) | (421,384 | ) | 833,086 | 1,083,439 | 459,446 | 226,831 | 167,880 | ||||||||||||||||
Depreciation and amortization of capitalized real estate costs |
(634,208 | ) | (684,142 | ) | (899,316 | ) | (885,814 | ) | (797,189 | ) | (916,052 | ) | (917,858 | ) | (1,219,790 | ) | ||||||||||
Gains (losses) on sales of investment properties(a) |
12,683 | (26 | ) | 921 | 55,044 | 42,745 | 12,683 | (26 | ) | (18 | ) | |||||||||||||||
Noncontrolling interests in depreciation of Consolidated Properties and other |
3,696 | 2,629 | 3,717 | 3,330 | 3,199 | 3,651 | 2,560 | 3,717 | ||||||||||||||||||
Allocation to noncontrolling interests Operating Partnership unitholders |
6,836 | 16,697 | 31,373 | (927 | ) | (58,552 | ) | 12,670 | 20,919 | 40,895 | ||||||||||||||||
Net income (loss) attributable to common stockholders |
$ | (297,056 | ) | $ | (672,329 | ) | $ | (1,284,689 | ) | $ | 4,719 | $ | 273,642 | $ | (427,602 | ) | $ | (667,574 | ) | $ | (1,007,316 | ) | ||||
Because NOI excludes general and administrative expenses, interest expense, retail investment property impairment or other non-recoverable development costs, depreciation and amortization, gains and losses from property dispositions, allocations to non-controlling interests, reorganization items, and extraordinary items, we believe that it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating commercial real estate properties and the impact on operations from trends in occupancy rates, rental rates, land values and operating costs. This measure thereby provides an operating perspective not immediately apparent from GAAP operating income (loss) or net income (loss) attributable to common stockholders. We use NOI to evaluate our operating performance on a property-by-property basis because NOI allows us to evaluate the impact that factors such as lease structure, lease rates and tenant base, which vary by property, have on our operating results, gross margins and investment returns.
In addition, management believes that NOI provides useful information to the investment community about our operating performance. However, due to the exclusions noted above, NOI should only be used as a supplemental measure of our financial performance and not as an alternative to GAAP operating income (loss) or net income (loss) attributable to common stockholders.
We present information on our Consolidated Properties (described below) and Unconsolidated Properties (described below) separately. Consolidated Properties are those properties in which we own either a majority or controlling interest and, as a result, are consolidated under GAAP. Unconsolidated Properties are those properties owned by joint venture entities in which we own a non-controlling interest (or "Unconsolidated Real Estate Affiliates") and which are unconsolidated under GAAP. As a significant portion of our total operations are structured as joint venture arrangements which are unconsolidated, we believe that operating data with respect to all properties owned provides important insights into the income produced by such investments for our company as a whole. In addition, the individual items of revenue and expense for the Unconsolidated Properties have been presented at our ownership share of such unconsolidated ventures. As substantially all of the management operating philosophies and strategies are the same regardless of ownership structure, we believe that an aggregate presentation of NOI and other operating statistics yields a more accurate representation of the relative size and significance of such elements of our overall operations.
14
The following is a reconciliation of NOI to operating income (loss):
|
Historical | Pro Forma | ||||||||||||||||||||||||
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|
Nine Months Ended
September 30, |
Years Ended December 31, |
Nine Months Ended
September 30, |
Year Ended
December 31, |
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2010 | 2009 | 2009 | 2008 | 2007 | 2010 | 2009 | 2009 | ||||||||||||||||||
|
(In thousands)
|
|||||||||||||||||||||||||
NOI |
$ | 1,765,312 | $ | 1,693,924 | $ | 2,296,747 | $ | 2,565,784 | $ | 2,391,611 | $ | 1,688,013 | $ | 1,721,971 | $ | 2,306,728 | ||||||||||
Unconsolidated Properties |
(304,778 | ) | (298,337 | ) | (401,614 | ) | (423,011 | ) | (446,631 | ) | (291,934 | ) | (290,346 | ) | (392,986 | ) | ||||||||||
Management fees and other corporate revenues |
48,063 | 57,569 | 75,851 | 96,495 | 119,941 | 52,850 | 62,333 | 82,210 | ||||||||||||||||||
Property management and other costs |
(125,007 | ) | (130,485 | ) | (176,876 | ) | (184,738 | ) | (198,610 | ) | (112,994 | ) | (117,911 | ) | (159,831 | ) | ||||||||||
General and administrative |
(22,707 | ) | (22,436 | ) | (28,608 | ) | (39,245 | ) | (37,005 | ) | (22,707 | ) | (22,436 | ) | (28,608 | ) | ||||||||||
Strategic initiatives |
| (67,341 | ) | (67,341 | ) | (18,727 | ) | | | (61,961 | ) | (61,961 | ) | |||||||||||||
Litigation benefit (provision) |
| | | 57,145 | (89,225 | ) | | | | |||||||||||||||||
Provisions for impairment |
(35,893 | ) | (365,729 | ) | (1,115,119 | ) | (76,265 | ) | (2,933 | ) | (35,315 | ) | (293,147 | ) | (543,127 | ) | ||||||||||
Depreciation and amortization |
(527,956 | ) | (576,103 | ) | (755,161 | ) | (759,930 | ) | (670,454 | ) | (812,239 | ) | (812,239 | ) | (1,082,984 | ) | ||||||||||
Noncontrolling interests in NOI of Consolidated Properties and other |
9,282 | 8,298 | 10,787 | 11,063 | 11,167 | 9,115 | 6,939 | 12,109 | ||||||||||||||||||
Operating income (loss) |
$ | 806,316 | $ | 299,360 | $ | (161,334 | ) | $ | 1,228,571 | $ | 1,077,861 | $ | 474,789 | $ | 193,203 | $ | 131,550 | |||||||||
EBITDA and Adjusted EBITDA should not be considered as alternatives to GAAP net income (loss) attributable to common stockholders, have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are that:
15
The following is a reconciliation of EBITDA and Segment Basis Adjusted EBITDA to GAAP net (loss) income attributable to common stockholders:
16
An investment in our common stock involves a high degree of risk and uncertainty. You should carefully consider the following risks, as well as the other information contained in this prospectus, before making an investment in our company. If any of the following risks actually occur, our business, results of operations, financial condition and cash flows may be adversely affected. In such an event, the trading price of our common stock could decline and you could lose part or all of your investment. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business operation, which also could result in the loss of all or part of your investment.
Business Risks
Regional and local economic conditions may adversely affect our business
Our real property investments are influenced by the regional and local economy, which may be negatively impacted by plant closings, industry slowdowns, increased unemployment, lack of availability of consumer credit, increased levels of consumer debt, poor housing market conditions, adverse weather conditions, natural disasters and other factors. Similarly, local real estate conditions, such as an oversupply of, or a reduction in demand for, retail space or retail goods, and the supply and creditworthiness of current and prospective tenants may affect the ability of our properties to generate significant revenue.
Economic conditions, especially in the retail sector, may have an adverse affect on our revenues and available cash
General and retail economic conditions continue to be weak, and we do not expect a near term return to the economic conditions that prevailed in 2007. High unemployment, weak income growth, tight credit and the need to pay down existing debt may continue to negatively impact consumer spending. Given these economic conditions, we believe there is a significant risk that the sales at stores operating in our malls will either not improve, or will improve more slowly than we expect, which will have an adverse impact on our ability to implement our strategy and may have a negative effect on our operations and our ability to attract new tenants.
We may be unable to lease or re-lease space in our properties on favorable terms or at all
Our results of operations depend on our ability to continue to strategically lease space in our properties, including re-leasing space in properties where leases are expiring, optimizing our tenant mix or leasing properties on more economically favorable terms. Because approximately eight to nine percent of our total leases expire annually, we are continually focused on our ability to lease properties and collect rents from tenants. Similarly, we are pursuing a strategy of replacing expiring short-term leases with long-term leases. If the sales at certain stores operating in our regional malls do not improve sufficiently, tenants might be unable to pay their existing minimum rents or expense recovery charges, since these rents and charges would represent a higher percentage of their sales. If our existing tenants' sales do not improve, new tenants would be less likely to be willing to pay minimum rents as high as they would otherwise pay. In addition, some of our leases are fixed-rate leases, and we may not be able to collect rent sufficient to meet our costs. Because substantially all of our income is derived from rentals of real property, our income and available cash would be adversely affected if a significant number of tenants are unable to meet their obligations.
The bankruptcy or store closures of national tenants, which are tenants with chains of stores in many of our properties, may adversely affect our revenues
Our leases generally do not contain provisions designed to ensure the creditworthiness of the tenant, and in recent years a number of companies in the retail industry, including some of our tenants,
17
have declared bankruptcy or voluntarily closed certain of their stores. We may be unable to re-lease such space or to re-lease it on comparable or more favorable terms. As a result, the bankruptcy or closure of a national tenant may adversely affect our revenues.
Certain co-tenancy provisions in our lease agreements may result in reduced rent payments, which may adversely affect our operations and occupancy
Many of our lease agreements include a co-tenancy provision which allows the tenant to pay a reduced rent amount and, in certain instances, terminate the lease, if we fail to maintain certain occupancy levels. Therefore, if occupancy or tenancy falls below certain thresholds, rents we are entitled to receive from our retail tenants could be reduced and may limit our ability to attract new tenants.
It may be difficult to sell real estate quickly, and transfer restrictions apply to some of our properties
Equity real estate investments are relatively illiquid, and this characteristic may limit our ability to vary our portfolio promptly in response to changes in economic or other conditions. In addition, significant expenditures associated with each equity investment, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investment. If income from a property declines while the related expenses do not decline, our income and cash available to us would be adversely affected. If it becomes necessary or desirable for us to dispose of one or more of our mortgaged properties, we might not be able to obtain a release of the lien on the mortgaged property without payment of the associated debt. The foreclosure of a mortgage on a property or inability to sell a property could adversely affect the level of cash available to us.
Our business is dependent on perceptions by retailers and shoppers of the convenience and attractiveness of our retail properties, and our inability to maintain a positive perception may adversely affect our revenues
We are dependent on perceptions by retailers or shoppers of the safety, convenience and attractiveness of our retail properties. If retailers and shoppers perceive competing retail properties and other retailing options such as the internet to be more convenient or of a higher quality, our revenues may be adversely affected.
We redevelop and expand properties, and this activity is subject to risks due to various economic factors that are beyond our control
Although Old GGP significantly reduced its development and expansion activities prior to filing for bankruptcy protection, certain redevelopment, expansion and reinvestment projects are part of our long-term strategy. In connection with such projects, we will be subject to various risks, including the following:
18
If redevelopment, expansion or reinvestment projects are unsuccessful, our investments in those projects may not be fully recoverable from future operations or sales.
We are in a competitive business
There are numerous shopping facilities that compete with our properties in attracting retailers to lease space. Old GGP's bankruptcy has impaired, and following its emergence from bankruptcy, may continue to impair the desirability and competitiveness of our regional malls. In addition, retailers at our properties face continued competition from retailers at other regional malls, outlet malls and other discount shopping centers, discount shopping clubs, catalog companies, and through internet sales and telemarketing. Competition of these types could adversely affect our revenues and cash flows.
We compete with other major real estate investors with significant capital for attractive investment opportunities. These competitors include REITs, investment banking firms and private institutional investors.
Our ability to realize our strategies and capitalize on our competitive strengths are dependent on our ability to effectively operate a large portfolio of high quality malls, maintain good relationships with our tenants and consumers, and remain well-capitalized, and our failure to do any of the foregoing could affect our ability to compete effectively in the markets in which we operate.
Our business strategies may not be effective or may change over time
We may not be able to effectively improve our financial position and maximize the attractiveness of our properties to our tenants and consumers in accordance with our business strategy. For example, we may not be able to effectively reduce our debt and build liquidity at the pace or in such amounts as we believe would be most beneficial to our ability to optimize our portfolio. Further, we may misjudge tenant and consumer needs and desires, and our strategies may not address them adequately or at all. Even if we can appropriately gauge the needs and desires of our tenants and consumers, we may not be able to execute our business strategies on a timely basis, if at all. In addition, we may not be able to attract the best tenants for a particular property or enhance the consumer experience in our malls for several reasons outside of our control, including a lack of adequate funding, unforeseen changes to consumer shopping patterns or internal or branding changes among our tenants. In addition, we may not have sufficient capital or funding sources to fully pursue our business strategies, including the redevelopment and expansion of our properties and the provision of tenant allowances and tenant improvements to attract tenants. As a result, our strategies may not effectively grow our business or revenues as intended. We also may change our strategies over time and there can be no assurance that any new strategies will be effective.
Some of our properties are subject to potential natural or other disasters
A number of our properties are located in areas which are subject to natural or other disasters, including hurricanes, earthquakes and oil spills. For example, our properties in the Gulf of Mexico region could suffer economically from job losses and reduced tourism as result of the oil spill in 2010. In addition, certain of our properties are located in California or in other areas with higher risk of earthquakes. Furthermore, many of our properties are located in coastal regions, and would therefore be affected by any future increases in sea levels, the frequency or severity of hurricanes and tropical
19
storms or environmental disasters such as the oil spill in the Gulf of Mexico, whether such events are caused by global climate changes or other factors.
Possible terrorist activity or other acts of violence could adversely affect our financial condition and results of operations
Future terrorist attacks in the United States or other acts of violence may result in declining economic activity, which could harm the demand for goods and services offered by our tenants and the value of our properties and might adversely affect the value of an investment in our securities. Such a resulting decrease in retail demand could make it difficult for us to renew or re-lease our properties at lease rates equal to or above historical rates. Terrorist activities or violence also could directly affect the value of our properties through damage, destruction or loss, and the availability of insurance for such acts, or of insurance generally, might be lower or cost more, which could increase our operating expenses and adversely affect our financial condition and results of operations. To the extent that our tenants are affected by future attacks, their businesses similarly could be adversely affected, including their ability to continue to meet obligations under their existing leases. These acts might erode business and consumer confidence and spending and might result in increased volatility in national and international financial markets and economies. Any one of these events might decrease demand for real estate, decrease or delay the occupancy of our new or redeveloped properties, and limit our access to capital or increase our cost of raising capital.
We may incur costs to comply with environmental laws
Under various federal, state or local laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property, and may be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by the parties in connection with the contamination. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous or toxic substances. The presence of contamination or the failure to remediate contamination may adversely affect the owner's ability to sell or lease real estate or to borrow using the real estate as collateral. Other federal, state and local laws, ordinances and regulations require abatement or removal of asbestos-containing materials in the event of demolition or certain renovations or remodeling, the cost of which may be substantial for certain redevelopments, and also govern emissions of and exposure to asbestos fibers in the air. Federal and state laws also regulate the operation and removal of underground storage tanks. In connection with the ownership, operation and management of certain properties, we could be held liable for the costs of remedial action with respect to these regulated substances or tanks or related claims.
Our properties have been subjected to varying degrees of environmental assessment at various times. However, the identification of new areas of contamination, a change in the extent or known scope of contamination or changes in cleanup requirements could result in significant costs to us.
Some potential losses are not insured
We carry comprehensive liability, fire, flood, earthquake, terrorism, extended coverage and rental loss insurance on all of our properties. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, some types of losses, including lease and other contract claims, which generally are not insured. If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property. If this happens, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property.
20
Inflation may adversely affect our financial condition and results of operations
Should inflation increase in the future, we may experience any or all of the following:
Inflation also poses a potential risk to us due to the probability of future increases in interest rates. Such increases would adversely impact us due to our outstanding variable-rate debt as well as result in higher interest rates on new fixed-rate debt.
Organizational Risks
We are a holding company with no operations of our own and will depend on our subsidiaries for cash
Our operations are conducted almost entirely through our subsidiaries. Our ability to make dividends or distributions in connection with being a REIT is highly dependent on the earnings of and the receipt of funds from our subsidiaries through dividends or distributions, and our ability to generate cash to meet our debt service obligations is further limited by our subsidiaries' ability to make such dividends, distributions or intercompany loans. Our subsidiaries' ability to pay any dividends or distributions to us are limited by their obligations to satisfy their own obligations to their creditors and preferred stockholders before making any dividends or distributions to us. In addition, Delaware law imposes requirements that may restrict our ability to pay dividends to holders of our common stock.
We share control of some of our properties with other investors and may have conflicts of interest with those investors
While we generally make all operating decisions for the Unconsolidated Properties, we are required to make other decisions with the other investors who have interests in the relevant property or properties. For example, the approval of certain of the other investors is required with respect to operating budgets and refinancing, encumbering, expanding or selling any of these properties, as well as to bankruptcy decisions related to the Unconsolidated Properties and related joint ventures. Also, the assets of Unconsolidated Properties may be used as collateral to secure loans of our joint venture partners, and the indemnity we may be entitled to from our joint venture partners could be worth less than the value of those assets. We might not have the same interests as the other investors in relation to these transactions. Accordingly, we might not be able to favorably resolve any of these issues, or we might have to provide financial or other inducements to the other investors to obtain a favorable resolution.
In addition, various restrictive provisions and rights apply to sales or transfers of interests in our jointly owned properties. As such, we might be required to make decisions about buying or selling interests in a property or properties at a time that is not desirable.
Bankruptcy of our joint venture partners could impose delays and costs on us with respect to the jointly owned retail properties
The bankruptcy of one of the other investors in any of our jointly owned shopping malls could materially and adversely affect the relevant property or properties. Pursuant to the Bankruptcy Code, we would be precluded from taking some actions affecting the estate of the other investor without prior court approval which would, in most cases, entail prior notice to other parties and a hearing. At a minimum, the requirement to obtain court approval may delay the actions we would or might want to
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take. If the relevant joint venture through which we have invested in a property has incurred recourse obligations, the discharge in bankruptcy of one of the other investors might result in our ultimate liability for a greater portion of those obligations than would otherwise be required.
We are impacted by tax-related obligations to some of our partners
We own properties through partnerships which have arrangements in place that protect the deferred tax situation of our existing third party limited partners. Violation of these arrangements could impose costs on us. As a result, we may be restricted with respect to decisions such as financing, encumbering, expanding or selling these properties.
Several of our joint venture partners are tax-exempt. As such, they are taxable to the extent of their share of unrelated business taxable income generated from these jointly owned properties. As the manager of these joint ventures, we have obligations to avoid the creation of unrelated business taxable income at these properties. As a result, we may be restricted with respect to decisions related to the financing of and revenue generation from these properties.
We may not meet the conditions for qualification as a REIT or thereafter maintain our status as a REIT
We have agreed to elect to be treated as a REIT in connection with the filing of our tax return for the year in which Old GGP emerges from bankruptcy, subject to our ability to meet the requirements of a REIT at the time of election. Such election would be retroactive to the beginning of such taxable year. We may not meet the conditions for qualification as a REIT. In addition, once an entity is qualified as a REIT, the Internal Revenue Code (the "Code") generally requires that such entity pay tax on or distribute 100% of its capital gains and distribute its ordinary taxable income to shareholders. To avoid current entity level U.S. federal income taxes, we expect to distribute 100% of our capital gains and ordinary income to shareholders annually. For 2010, we intend to make 90% of this distribution in New GGP common stock and 10% in cash. Beginning in 2011, New GGP anticipates that it will implement a dividend reinvestment plan. The Plan Sponsors have informed New GGP that they would elect to have dividends paid on the shares that they hold reinvested in shares of New GGP common stock and, as a result, New GGP expects to be able to pay cash dividends to its other stockholders. However, there can be no assurances that such a plan will be adopted and, even if such a plan is adopted, New GGP may determine to instead pay dividends in a combination of cash and shares of its common stock. In addition, we may not have sufficient liquidity to meet these distribution standards.
Following Old GGP's emergence from bankruptcy and the implementation of the reorganization pursuant to which New GGP became the indirect parent of Old GGP, Old GGP will be a privately held REIT and New GGP will be a publicly held REIT.
If, with respect to any taxable year, we fail to maintain our qualification as a REIT, we would not be allowed to deduct distributions to shareholders in computing our taxable income and federal income tax. If any of our REIT subsidiaries (including Old GGP) fail to qualify as a REIT, such failure could result in our loss of REIT status. If we lose our REIT status, corporate level income tax, including any applicable alternative minimum tax, would apply to our taxable income at regular corporate rates. As a result, the amount available for distribution to holders of equity securities that would otherwise receive dividends would be reduced for the year or years involved, and we would no longer be required to make distributions. In addition, unless we were entitled to relief under the relevant statutory provisions, we would be disqualified from treatment as a REIT for four subsequent taxable years.
An ownership limit, certain anti-takeover defenses and applicable law may hinder any attempt to acquire us
Our amended and restated certificate of incorporation and amended and restated bylaws contain the following limitations.
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The ownership limit. Generally, for us to qualify as a REIT under the Code for a taxable year, not more than 50% in value of the outstanding shares of our capital stock may be owned, directly or indirectly, by five or fewer "individuals" at any time during the last half of such taxable year. Our charter provides that no one individual may own more than 9.9% of the outstanding shares of capital stock unless our board of directors provides a waiver from the ownership restrictions, which the Investment Agreements contemplate subject to the applicable Plan Sponsor making certain respresentations and covenants. The Code defines "individuals" for purposes of the requirement described above to include some types of entities. However, our certificate of incorporation also permits us to exempt a person from the ownership limit described therein upon the satisfaction of certain conditions which are described in our certificate of incorporation.
Selected provisions of our charter documents. Our charter authorizes the board of directors:
Selected provisions of our bylaws. Our amended and restated bylaws will contain the following limitations:
Selected provisions of Delaware law. We are a Delaware corporation, and Section 203 of the Delaware General Corporation Law applies to us. In general, Section 203 prevents an "interested stockholder" (as defined below), from engaging in a "business combination" (as defined in the statute) with us for three years following the date that person becomes an interested stockholder unless one or more of the following occurs:
The statute defines "interested stockholder" as any person that is the owner of 15% or more of our outstanding voting stock or is an affiliate or associate of us and was the owner of 15% or more of
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our outstanding voting stock at any time within the three-year period immediately before the date of determination.
Each item discussed above may delay, deter or prevent a change in control of our company, even if a proposed transaction is at a premium over the then current market price for our common stock. Further, these provisions may apply in instances where some stockholders consider a transaction beneficial to them. As a result, our stock price may be negatively affected by these provisions.
Old GGP is currently involved in an SEC inquiry
In July 2010, Old GGP received notice that, pursuant to an April 21, 2010 order, the SEC is conducting a formal, non-public investigation into possible violations of proscriptions on insider trading under the federal securities laws by certain current and former officers and directors. The formal investigation is the continuation of an informal inquiry which the SEC initiated in October 2008. Old GGP intends to continue to cooperate fully with the SEC with respect to the investigation. While Old GGP cannot predict the outcome of this investigation with certainty, based on the information currently available to it, Old GGP believes that the outcome of the investigation will not have a material adverse effect on its financial condition or results of operations.
Bankruptcy Risks
We may be subject to litigation as a result of the Plan
We cannot assure you that Old GGP's stakeholders will not contest the Plan through litigation following Old GGP's emergence from bankruptcy. Also, as is typical in bankruptcy cases like ours, the final resolution of all claims against the TopCo Debtors may extend beyond the Effective Date of the Plan and the ultimate resolution of such claims may be different from the treatment we have assumed for purposes of the preparation of the unaudited pro forma condensed consolidated financial information included in this prospectus. The loss of any such claim could have a material adverse effect on us.
Old GGP's historical financial statements state that uncertainties related to its emergence from protection under the Bankruptcy Code raise substantial doubt about its ability to continue as a going concern and we cannot assure you that we may not include similar disclosure in our financial statements in the future
This prospectus includes the audited consolidated financial statements of Old GGP as of December 31, 2009 and 2008 and for each of the years in the three-year period ended December 31, 2009. The audit opinion accompanying these financial statements states that uncertainties related to Old GGP's emergence from bankruptcy raises substantial doubt about its ability to continue as a going concern. Although we believe that as of the Effective Date the bases for uncertainties relating to our ability to continue as a going concern will no longer exist, we cannot assure you that similar disclosure will not be included in our future financial statements.
Because our financial statements will reflect adjustments related to the acquisition method of accounting upon Old GGP's emergence from bankruptcy, information reflecting our results of operations and financial condition will not be comparable to prior periods and may vary significantly from the acquisition accounting adjustments used to calculate the pro forma financial data that is included in this prospectus
Acquisition accounting will be triggered as a result of the structure of the Plan Sponsors' investments, as set forth in the Plan. Following Old GGP's emergence from bankruptcy, it will be difficult to compare certain information reflecting our results of operations and financial condition to those for historical periods prior to emergence from bankruptcy. We have made estimates of our tangible and intangible assets as of September 30, 2010, and the fair value of Old GGP's assets has been allocated to specific assets in accordance with such estimates, as reflected in "Unaudited Pro Forma Condensed Consolidated Financial Information." The actual amounts of net assets on the
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Effective Date may vary from the estimated pro forma amounts, and the final valuation of net assets may be materially different than as reflected in the unaudited pro forma condensed financial data contained in this prospectus. See "Unaudited Pro Forma Condensed Consolidated Financial Information" and the notes thereto.
Our actual financial results may vary significantly from the projections filed with the Bankruptcy Court
The Disclosure Statement, which the TopCo Debtors were required to prepare in connection with the Plan, contains projected financial information and estimates of value that demonstrate the feasibility of the Plan and the TopCo Debtors' and THHC's ability to continue operations upon their emergence from proceedings under the Bankruptcy Code. The information in the Disclosure Statement was prepared for the limited purpose of furnishing recipients of such Disclosure Statement with adequate information to make an informed judgment regarding acceptance of the Plan and was not prepared for the purpose of providing the basis for an investment decision relating to any securities of New GGP or THHC. The projections and estimates of value, as well as the Disclosure Statement, are expressly excluded from this prospectus and should not be relied upon in any way or manner in connection with this offering and should not be regarded for the purpose of this prospectus as representations or warranties by Old GGP, New GGP, THHC or any other person, as to the accuracy of such information or that any such projections or valuations will be realized. Those projections and estimates of value have not been, and will not be, updated on an ongoing basis, and they were not audited or reviewed by independent accountants. They reflect numerous assumptions concerning our anticipated future performance and with respect to prevailing and anticipated market and economic conditions that were, and remain, beyond our control. Projections and estimates of value are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic and competitive risks, and the assumptions underlying the projections and/or valuation estimates may be wrong in any material respect. Actual results may vary and may continue to vary significantly from those contemplated by the projections and/or valuation estimates. As a result, you should not rely on those projections and/or valuation estimates in deciding whether to invest in our common stock.
We cannot be certain that the Chapter 11 Cases will not adversely affect our operations going forward. Old GGP's bankruptcy may have affected our relationship with key employees, tenants, consumers, suppliers and communities, and our future success depends on our ability to maintain these relationships
Although Old GGP will emerge from bankruptcy upon consummation of the Plan, we cannot assure you that Old GGP having been subject to bankruptcy protection will not adversely affect our operations going forward, including our ability to negotiate favorable terms from and maintain relationships with tenants, consumers, suppliers and communities. The failure to obtain such favorable terms and maintain such relationships could adversely affect our financial performance and our ability to realize our strategy.
We are dependent on our long-tenured operational leadership to effectively manage properties across our portfolio, and an inability to retain these key employees following Old GGP's emergence from bankruptcy could adversely affect our operations.
There is a risk of investor influence over our company that may be adverse to our best interests and those of our other shareholders
The proceeds of this offering will be used to repurchase shares of our common stock held by Pershing Square and Fairholme as described in this prospectus. After giving effect to the use of proceeds of this offering, we expect that Brookfield Investor, Pershing Square and Fairholme will beneficially own approximately %, % and %, respectively, of the shares of New GGP common stock (excluding shares issuable upon the exercise of warrants) and approximately %, % and %, respectively, (assuming the exercise of all outstanding warrants). See "Plan of
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ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanInvestment Agreements with the Plan Sponsors."
Although the Plan Sponsors have entered into standstill agreements to limit their influence, the concentration of ownership of our outstanding equity in the Plan Sponsors may make some transactions more difficult or impossible without the support of the Plan Sponsors, or more likely with the support of the Plan Sponsors. The interests of any of the Plan Sponsors, any other substantial stockholder or any of their respective affiliates could conflict with or differ from our interests or the interests of the holders of our common stock. For example, the concentration of ownership held by the Plan Sponsors could delay, defer or prevent a change of control of our company or impede a merger, takeover or other business combination that may otherwise be favorable for us and the other stockholders. A Plan Sponsor, substantial stockholder or affiliate thereof may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. In addition, one or more of the Plan Sponsors may purchase common stock in this offering. We cannot assure you that the standstill agreements can fully protect against these risks. See "Plan of ReorganizationPlan of Reorganization and Disclosure StatementFunding of the PlanStandstill Agreements."
As long as the Plan Sponsors and any other substantial stockholder own, directly or indirectly, a substantial portion of our outstanding shares, subject to the terms of the standstill agreements and were they to act in a coordinated manner, they would be able to exert significant influence over us, including:
For a detailed description of the rights afforded to the Plan Sponsors pursuant to the Investment Agreements, see "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanInvestment Agreements with the Plan Sponsors."
Our new directors and officers from and after the Effective Date may change our current long-range plan
As of the Effective Date, we will have a nine-member board of directors, of which three members will be designated by Brookfield Investor and one member will be designated by Pershing Square. Our executive officers will change following the Effective Date, subject to their appointment by the new board of directors. Following the Effective Date, the new board of directors and management team may make material changes to our business, operations and long-range plans described in this prospectus. It is impossible to predict what these changes will be and the impact they will have on our future results of operations and the price of our common stock. See "ManagementExecutive Officer Information."
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Some of our directors, notably the directors employed by Brookfield Asset Management Inc., are involved in other businesses including, without limitation, real estate activities and public and/or private investments and, therefore, may have or appear to have competing or conflicting interests with us and our relationship agreement with Brookfield Asset Management Inc. contains significant exclusions from Brookfield's obligation to present opportunities to us
Certain of our directors may have or appear to have interests in other businesses including, without limitation, other real estate related businesses, and may serve now or in the future as directors, executives and officers in such businesses. These interests and activities, and any duties to third parties arising from such interests and activities, could divert the attention of such directors from our operations. Our directors may learn of other real estate related and other opportunities in their non-director capacities and have not undertaken to limit such interests and activities or tender or notify such opportunities to us in advance of acting on them in a separate capacity, even if such opportunities are complementary to our business. Additionally, the relationship agreement with Brookfield Asset Management Inc. contains significant exclusions from Brookfield Asset Management Inc.'s obligation to present opportunities to us. Under Section 122(17) of the DGCL, our board of directors is permitted to adopt resolutions or policies to renounce or waive our right to such opportunities. Certain directors have informed us that they will seek written confirmation of the waiver or renunciation of such opportunities in connection with their service on the board.
Liquidity Risks
Our substantial indebtedness adversely affects our financial health and operating flexibility
After giving effect to the Plan and excluding the Special Consideration Properties, we will have approximately $20.9 billion aggregate principal amount of indebtedness outstanding, including $1.041 billion of reinstated Rouse notes, $608.7 million of replacement Rouse notes, approximately $206.2 million of reinstated trust preferred securities, approximately $15.9 billion of consolidated secured mortgage debt and approximately $2.5 billion of our share of unconsolidated debt. Our indebtedness could have important consequences to us and the value of our common stock, including:
Our debt contains restrictions and covenants which may limit our ability to enter into or obtain funding for certain transactions or operate our business
As of September 30, 2010, Old GGP has restructured approximately $14.9 billion of secured mortgage debt since its initial bankruptcy filing. The terms of certain of this debt will require us to
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satisfy certain customary affirmative and negative covenants and to meet financial ratios and tests, including ratios and tests based on leverage, interest coverage and net worth, or to satisfy similar tests as a precondition to incurring additional debt. We also expect to enter into a new $300.0 million revolving credit facility containing similar covenants and restrictions. In addition, certain of our indebtedness that may be reinstated in connection with the Plan contains restrictions. See "Description of Certain Indebtedness." The covenants and other restrictions under our debt agreements affect, among other things, our ability to:
Further, our ability to incur debt under the indentures governing the Rouse notes which are expected to remain outstanding through November 2013 (the latest maturity of the three series of reinstated Rouse notes or the replacement notes being offered to the holders of the Rouse notes pursuant to the Plan), is determined by the calculation of several covenant tests, including ratios of secured debt to gross assets and total debt to gross assets. We do not intend to include a net intercompany receivable currently owed by Old GGP to Rouse as an asset for the purposes of calculating these covenants, but we do intend to include full allocations of certain indebtedness guaranteed by Rouse or its subsidiaries. As a result, our methodology for calculating these ratios would differ from the methodology used prior to the Old GGP bankruptcy filing. We expect that Rouse and its subsidiaries may need to refinance project-level debt prior to 2013, and our ability to refinance such debt may be limited by these ratios which are calculated on an incurrence basis, and any potential non-compliance with the covenants may result in Rouse seeking other sources of capital, including investments from us, or may result in a default on the reinstated Rouse notes.
Due to the current lending environment, Old GGP's bankruptcy proceedings, our financial condition and general economic factors, our refinanced debt contains certain terms which are less attractive than the terms contained in the debt being refinanced. Such terms include more restrictive operational and financial covenants, restrictions on the distribution of cash flows from properties serving as collateral for the debt and, in certain instances, higher interest rates. These fees and cash flow restrictions may affect our ability to fund our on-going operations from our operating cash flows and we may be significantly limited in our operating and financial flexibility and, thus, may be limited in our ability to respond to changes in our business or competitive activities.
We may not be able to refinance, extend or repay our portion of substantial indebtedness of our Unconsolidated Properties
Our Unconsolidated Properties have a substantial amount of debt. As of September 30, 2010, our share of indebtedness secured by our Unconsolidated Properties was approximately $3.02 billion. We cannot assure you that our Unconsolidated Real Estate Affiliates will be able to support, extend, refinance or repay their debt on acceptable terms or otherwise. If we or our joint venture partners cannot service this debt, the joint venture may have to deed property back to the applicable lenders. There can be no assurance that we will be able to refinance or restructure such debt on acceptable terms or otherwise, or that joint venture operations or contributions by us and/or our partners will be
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sufficient to repay such loans. The ability to refinance this debt is negatively affected by the current condition of the credit markets, which have significantly reduced the capacity levels of commercial lending. The ability to successfully refinance or extend this debt may also be negatively affected by Old GGP's bankruptcy proceedings and the restructuring of the TopCo Debtors' debt, as well as the real or perceived decline in the value of our Unconsolidated Properties based on general and retail economic conditions.
We may not achieve our target Adjusted EBITDA and other liquidity goals
In connection with the Plan, management has set target goals for our Adjusted EBITDA and other financial measures over the next several years. These targets are based on current information, are subject to change and may be impacted by factors outside of our control, including general economic factors, interest rates and consumer trends. As a result, we cannot assure you that we will achieve any stated target Adjusted EBITDA and other financial measures in the future.
We may not be able to raise capital through the sale of properties, including the strategic sale of non-core assets at prices we believe are appropriate
We desire to opportunistically sell non-core assets, such as stand-alone office buildings, strip shopping centers and certain regional malls. Our ability to sell our properties to raise capital may be limited. The retail economic climate negatively affects the value of our properties and therefore reduces our ability to sell these properties on acceptable terms. Our ability to sell our properties is also negatively affected by the weakness of the credit markets, which increases the cost and difficulty for potential purchasers to acquire financing, as well as by the illiquid nature of real estate. For example, as part of our strategy to further delever our balance sheet in order to build liquidity and optimize our portfolio, we plan to reposition certain of our underperforming properties, as well as give back our Special Consideration Properties to the applicable lenders. If we cannot reposition these properties on terms that are acceptable to us, we may not be able to delever and realize our strategy of building liquidity and optimizing our portfolio. See "Business Risks" for a further discussion of the effects of the retail economic climate on our properties, as well as the illiquid nature of our investments in our properties.
Risks Related to this Offering
There may not be an active trading market for our common stock
The common stock will be new securities and an active trading market for the common stock may not develop. An application has been made to list our common stock on the NYSE under the symbol "GGP." However, we cannot assure you that our common stock will ever be listed on the NYSE or any other securities exchange or quotation system. Accordingly, we cannot assure you that a liquid trading market will develop for our common stock (or, if developed, that a liquid trading market for our common stock will be maintained), that you will be able to sell your shares of common stock at a particular time or that the prices you receive when you sell will be favorable. In addition, the liquidity of our common stock may be negatively impacted by the concentration of our common stock among the Plan Sponsors. Lack of liquidity of our common stock also may make it more difficult for us to raise additional capital, if necessary, through equity financings.
Old GGP's stock price historically has been, and the trading prices of shares of our common stock are likely to be, volatile
The price of Old GGP's common stock on the NYSE constantly changes and has been subject to significant price fluctuations. For example, between February 24, 2010 (the day Old GGP re-listed on the NYSE) and , 2010, the intra-day price of Old GGP's common stock on the NYSE fluctuated between $12.23 and $ per share. We expect that the market price of our common stock
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also will fluctuate significantly. The trading price of our common stock can fluctuate as a result of a variety of factors, many of which are beyond our control. These factors may include:
In addition, the market in general has recently experienced extreme volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the market price of our common stock.
The market price of our common stock may decline below the price per share of the common stock offered hereby, and as a result, you may not be able to resell your shares of common stock at or above your purchase price and you may lose all or part of your investment
We cannot assure you that the market price of our common stock will not be below the price per share at issuance, or will not decline further below this price per share. If that occurs, you will suffer an immediate unrealized loss on those shares. As a result, you may not be able to resell shares of the common stock at or above your purchase price or the exchange price per share, as applicable, and you may lose all or part of your investment in our common stock. The price per share in this offering should not be considered an indication of the future trading price of our common stock.
Future issuances and sales of our capital stock or securities convertible into or exchangeable for our capital stock by us or by existing stockholders may adversely affect the market price for our common stock and may cause dilution to our stockholders
Additional issuances and sales (including resales by certain of our stockholders who have registration rights, including the Plan Sponsors, Texas Teachers, Blackstone and the Hughes heirs to the extent that we elect to settle such obligations with common stock. See "Plan of Reorganization") of capital stock or securities convertible into or exchangeable for capital stock, or the perception that such issuances and sales could occur, may cause prevailing market prices for our common stock to decline and may adversely affect our ability to raise additional capital in the financial markets at a time and price favorable to us. Our directors, executive officers, and certain significant stockholders will be subject to lockup agreements described in "Underwriting" and "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanInvestment Agreements with the Plan Sponsors." After these lockups have expired, additional shares will be eligible for sale in the public markets. The price of our common stock may drop significantly when the lockup agreements expire. Any additional future issuance of our capital stock will reduce the percentage of our common stock owned by investors purchasing shares in this offering that do not participate in future issuances. However, for so long as such Plan Sponsor beneficially owns at least 5% of our outstanding common stock on a fully diluted basis, each Plan Sponsor will have the right to purchase New GGP common stock as necessary to allow them to maintain their respective proportionate ownership interests in New
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GGP on a fully diluted basis. In most circumstances, stockholders will not be entitled to vote on whether or not we issue additional capital stock. In addition, depending on the terms and pricing of an additional offering of our common stock and the value of our properties, our stockholders may experience dilution in both the book value and the market value of their shares.
We are registering an offering amount that is greater than our designated use of net proceeds and will have broad discretion in applying excess net proceeds of this offering, if any, for general corporate purposes, which may not enhance the market value of our common stock
Our management will retain broad discretion to allocate any net proceeds of this offering in excess of our designated use of proceeds to repurchase common stock issued to Fairholme, Pershing Square and Texas Teachers on the Effective Date and to prepay the Pershing Square Bridge Notes. The excess net proceeds, if any, may be applied in ways with which you and other investors in the offering may not agree or which do not increase the value of your investment. We intend to use any excess net proceeds from this offering for general corporate purposes, which may include repayment of debt, the payment of our settlement of the Hughes heirs obligations or the acquisition of other businesses, products or real estate. We have not allocated these excess net proceeds for any specific purposes. Our management may not be able to yield a significant return, if any, on any investment of these excess net proceeds.
Risks Related to the Distribution of THHC
We may be required to indemnify THHC for certain tax liabilities
Pursuant to the Investment Agreements, New GGP may be liable to indemnify THHC from and against 93.75% of any and all losses, claims, damages, liabilities and reasonable expenses to which THHC and its subsidiaries become subject, in each case solely to the extent directly attributable to certain taxes related to sales in Old GGP's Master Planned Communities segment prior to March 31, 2010, in an amount up to the Indemnity Cap (as subsequently defined). The Indemnity Cap is calculated as the lesser of (a) $303,750,000 and (b) the Excess Surplus Amount. The Excess Surplus Amount is determined using a complex formula described in the investment agreement with Brookfield Investor. See "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanSpinco Note and Tax Indemnity." In addition, if THHC is obligated to pay MPC Taxes (as defined in the Investment Agreements) within 36 months after the Effective Date and New GGP is not then obligated to indemnify THHC as a consequence of the Indemnity Cap, then solely with respect to such payments, New GGP shall make such payments and increase the amount of the Spinco Note or enter into a similar promissory note with THHC.
We may not obtain benefits from or be adversely affected by the distribution of THHC, and the distribution of THHC may occupy a substantial amount of management's time
New GGP and THHC may not achieve some or all of the expected benefits of the distribution of THHC, or may not achieve them in a timely fashion. When the distribution is completed, our operational and financial profile will change as a result of the separation of THHC's assets from our other businesses. As a result, our diversification of revenue sources will diminish. Some of the assets being distributed to THHC may also compete directly with our properties in the future. For example, New GGP intends to enter into a transition services agreement with THHC, pursuant to which members of New GGP's management team will assist with transition services for THHC. In addition to possible disputes, these obligations may occupy a substantial amount of our management's time. It is also possible that the separation of New GGP and THHC may result in disputes regarding the terms of such separation and/or future performance pursuant to agreements entered into in order to effectuate such separation.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus, including statements such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "target," "can," "could," "may," "should," "will," "would" or similar expressions, constitute "forward-looking statements." Forward-looking statements are based on our current plans, expectations and projections about future events. Forward-looking statements should not be unduly relied upon. They give our expectations about the future and are not guarantees. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements to materially differ from any future results, performance and achievements expressed or implied by such forward-looking statements. We caution you therefore against relying on any of these forward-looking statements.
Forward-looking statements include, but are not limited to:
In this prospectus, for example, we make forward-looking statements discussing our expectations about:
Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include but are not limited to:
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These forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Also, these forward-looking statements present estimates and assumptions only as of the date of this prospectus. Except as may be required by law, we undertake no obligation to modify or revise any forward-looking statements to reflect events or circumstances occurring after the date of this prospectus.
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This section provides a description of the TopCo Debtors' reorganization and emergence from the bankruptcy protection of the Chapter 11 Cases and reflects the confirmation of the Plan by the Bankruptcy Court. The description in this section is qualified in its entirety by reference to the Plan, as on file with and confirmed by the Bankruptcy Court as of the date of this prospectus. The terms of the Plan are more detailed than the description provided below. In the event of an inconsistency between this prospectus and the Plan, the terms of the Plan control. The Plan was prepared for the purpose of obtaining approval from the Bankruptcy Court with respect to the treatment of the claims of the TopCo Debtors, and not for the purpose of providing the basis for an investment decision with respect to our common stock. The Plan should not be relied upon in any way or manner in connection with this offering and should not be regarded as representations or warranties by Old GGP for the purpose of this prospectus or be deemed to be incorporated by reference herein.
The Chapter 11 Cases
Old GGP and certain of its domestic subsidiaries filed voluntary petitions for relief under the Bankruptcy Code on April 16, 2009 (the "Petition Date"). On April 22, 2009, certain additional domestic subsidiaries of Old GGP also filed voluntary petitions for relief in the Bankruptcy Court, which the Bankruptcy Court has ruled may be jointly administered. For a discussion of the events leading up to the Chapter 11 Cases, see "Management's Discussion and Analysis of Financial Condition and Results of OperationsOverview."
At the time of Old GGP's filing, the Debtors, all of which are consolidated in Old GGP's consolidated financial statements, owned and operated 166 regional shopping centers in the aggregate. During the bankruptcy the non-Debtors continued their operations and were not subject to the requirements of the Bankruptcy Code. Pursuant to the Bankruptcy Code, a debtor is afforded certain protection against its creditors, and creditors are prohibited from taking certain actions (such as pursuing collection efforts or proceeding to foreclose on secured obligations) related to debts that were owed prior to the commencement of its bankruptcy case. Accordingly, although the commencement of the Chapter 11 Cases triggered defaults on substantially all debt obligations of the Debtors, creditors were stayed from taking any action as a result of such defaults. Absent an order of the Bankruptcy Court, these prepetition liabilities are subject to settlement under a plan of reorganization.
On October 21, 2010, the Bankruptcy Court entered an order confirming the Plan. The Plan was effective and Old GGP emerged from bankruptcy on , 2010. Upon the consummation of the Plan and after giving effect to this offering, including the use of proceeds therefrom assuming an offering price of $ , we expect that Old GGP's stockholders will own % (a minority of New GGP common stock), Brookfield Investor will own %, Fairholme will own %, Pershing Square will own %, Blackstone will own % and Texas Teachers will own % of New GGP's common stock.
The Plan of Reorganization and Disclosure Statement
Filing of the Plan of Reorganization and Disclosure Statement
On August 27, 2010, Old GGP filed the Plan and the Disclosure Statement with the Bankruptcy Court with respect to the Chapter 11 Cases for the TopCo Debtors. The Plan sets forth the structure of New GGP at the Effective Date and outlines the manner in which the prepetition creditors' and equity holders' various claims against and interests in the TopCo Debtors were treated.
Distribution of THHC
In conjunction with Plan, certain assets and liabilities of Old GGP were contributed to THHC. See "Management's Discussion and Analysis of Financial Condition and Results of OperationsDistribution of
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THHC." On or prior to the Effective Date, approximately 32.5 million shares of common stock of THHC were distributed or issued to the common and preferred unit holders of GGPLP, which includes Old GGP, and then Old GGP distributed its portion of such shares to holders of Old GGP common stock under the Plan. The distribution of shares was exempt from registration under the Securities Act pursuant to Section 1145 of the Bankruptcy Code. Neither Old GGP nor New GGP will retain any ownership interest in THHC.
Funding of the Plan
The TopCo Debtors funded their emergence from bankruptcy from the proceeds of the transactions described below. These proceeds were used to fund distributions to be made pursuant to the Plan, fees and expenses, general working capital needs after emergence and other general corporate purposes.
Investment Agreements with the Plan Sponsors
In order to fund a portion of the Plan, Old GGP entered into a Cornerstone Investment Agreement (as amended, the "Brookfield Investor Agreement"), with Brookfield Investor, a Stock Purchase Agreement with Fairholme (as amended, the "Fairholme Agreement") and a Stock Purchase Agreement with Pershing Square (as amended, the "Pershing Square Agreement" and, together with the Brookfield Investor Agreement and the Fairholme Agreement, the "Investment Agreements").
Investment. The Investment Agreements provide that, subject to the conditions set forth in the agreements, the Plan Sponsors were committed to fund an aggregate of $6.55 billion, consisting of commitments to purchase $6.3 billion of common stock of New GGP and $250 million of common stock of THHC. The Plan Sponsors entered into agreements with Blackstone whereby Blackstone subscribed for approximately 7.6% of the New GGP common stock and 7.6% of the THHC common stock issued to each of the Plan Sponsors on the Effective Date (for the same price as to be paid by such Plan Sponsors) and, in connection therewith, Blackstone received an allocation of each Plan Sponsor's Permanent Warrants. Pursuant to the Investment Agreements, Brookfield Investor invested $2,309 million, Fairholme invested approximately $2,507 million, and Pershing Square invested approximately $1,003 million and Blackstone invested approximately $481 million in New GGP through the purchase of New GGP common stock at a price of $10.00 per share. Subject to certain limitations, these purchase commitments were permitted to be satisfied by the application of allowed claims against the TopCo Debtors held by the applicable Plan Sponsor against the aggregate purchase price owed by the applicable Plan Sponsor for shares of New GGP common stock at a valuation of $10.00 per share.
In accordance with the Investment Agreements, up to 155 million shares (representing $1.55 billion of the shares of our common stock issued to Fairholme and Pershing Square on the Effective Date) have been reserved for repurchase within 45 days after the Effective Date with the proceeds of this offering. In order to be entitled to repurchase such shares, the price per share of common stock in this offering must be at least $10.50 per share (net of all underwriting and other discounts, fees and related consideration). In connection with our election to reserve shares for repurchase after the Effective Date, we paid to Fairholme and/or Pershing Square, as applicable, in cash on the Effective Date, an amount equal to $0.25 per reserved share (or approximately $38.75 million in the aggregate).
In connection with our election to reserve Pershing Square's shares for repurchase as described above, $350 million of Pershing Square's equity capital commitment was fulfilled by the payment of cash to New GGP at closing in exchange for unsecured note(s) issued by New GGP to Pershing Square which are payable six months from closing (the "Pershing Square Bridge Notes"). The Pershing Square Bridge Notes will bear interest at a rate of 6% per annum and are prepayable by New GGP (from the proceeds of equity offerings or other sources of cash) at any time without premium or penalty. One of the ways that New GGP may raise the cash to repay the Pershing Square Bridge Notes is to exercise its right to sell to Pershing up to 35 million shares at $10 per share (adjusted for dividends) six months
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following the Effective Date. To the extent that the Pershing Square Bridge Notes are still outstanding 90 days after the Effective Date, interest will accrue on the unpaid amount of the Pershing Square Bridge Notes, including due but unpaid interest, at a default rate equal to the stated interest rate plus 2.00%.
Warrants. In addition, in lieu of the receipt of any fees that would be customary in similar transactions, the Investment Agreements provided for the issuance of approximately 103 million warrants to Brookfield Investor and Fairholme to purchase approximately 103 million shares of Old GGP's common stock at $15.00 per share (the "Interim Warrants"). The Interim Warrants were issued on May 10, 2010 following the Bankruptcy Court's approval of the Investment Agreements. The Interim Warrants vest as follows: 40% upon issuance, 20% on July 12, 2010, and the remaining Interim Warrants will vest in equal daily installments from July 13, 2010 to December 31, 2010. Upon consummation of the Plan contemplated by the Investment Agreements, the Interim Warrants were cancelled and new warrants (the "Permanent Warrants") to purchase common stock of New GGP and THHC were issued to each of the Plan Sponsors and Blackstone. In accordance with the Investment Agreements and the Blackstone Designation, New GGP issued to (a) Brookfield Investor warrants to purchase up to 57.5 million shares of New GGP common stock with an initial exercise price of $10.75 per share, (b) Fairholme warrants to purchase up to 41.07 million shares of New GGP common stock with an initial exercise price of $10.50 per share, (c) Pershing Square warrants to purchase up to 16.43 million shares of New GGP common stock with an initial exercise price of $10.50 per share and (d) Blackstone warrants to purchase up to 5.0 million shares of New GGP common stock with an initial exercise price of $10.50 per share with respect to one-half of the warrants and $10.75 per share with respect to the remaining one-half of the warrants. In addition, pursuant to the Plan and after giving effect to the Blackstone Designation, THHC issued to (1) Brookfield Investor warrants to purchase up to 3.83 million shares of THHC common stock, (2) Fairholme warrants to purchase up to 1.92 million shares of THHC common stock, (3) Pershing Investor warrants to purchase up to 1.92 million shares of THHC common stock and (4) Blackstone warrants to purchase up to 0.33 million shares of THHC common stock, in each case, with an initial exercise price of $50.00 per share. These initial exercise prices and number of shares for which such warrants are exercisable would be subject to adjustment as provided in the related warrant agreements. Each Permanent Warrant has a term of seven years from the closing date of the investments. The number of warrants is not subject to reduction even if the shares New GGP common stock issued to Fairholme and Pershing Investor are repurchased in accordance with Old GGP's clawback rights under the Investment Agreements.
The Permanent Warrants held by each of Fairholme and Pershing Square may only be exercised upon 90 days' prior notice for the first 6.5 years after issuance and exercisable without notice any time thereafter. The Permanent Warrants held by each of Brookfield Investor and Blackstone are immediately exercisable, subject to any lockup restrictions. The Pershing Square and Fairholme Warrants are net share settled, meaning that the exercise price for the warrants will not be paid in cash and will instead be netted against the shares received upon exercise of the warrants, resulting in fewer shares being issued. We will not issue any fractional shares of common stock and warrant holders do not have any voting or other rights as a stockholder of our company. If we (i) pay a dividend in cash or other property or make a distribution on our common stock in shares of common stock, (ii) subdivide our outstanding shares of common stock into a greater number of shares or (iii) combine or reverse split our outstanding shares of common stock into a smaller number of shares, then the per share warrant price and the number of warrant shares will be proportionately decreased and increased, respectively, in the case of a subdivision, distribution or stock dividend, or proportionately increased and decreased, respectively, in the case of a combination or reverse stock split. The warrants are also subject to adjustment upon certain rights offerings, certain tender and exchange offerings, and certain recapitalizations, reorganizations, reclassifications, mergers and sales of all or substantially all of our assets. The aggregate warrant price payable for the then total number of warrant shares available for exercise under the warrant will remain the same. In certain circumstances, upon the occurrence of a
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change of control other than a public stock merger or mixed consideration merger, each as defined in the warrant agreements, holders of the warrants will have the right require us to redeem the warrants at the fair value of such warrants in cash as of the date of the change of control event as determined by an independent financial expert employing a valuation methodology provided for in the terms of the warrants. Upon the occurrence of a public stock merger or a mixed consideration merger, we may elect to redeem the warrants at fair value or, to the extent of stock consideration, have the warrants continue as warrants on the stock of the acquiring parent company as provided in the warrant agreement.
No market exists for the warrants. We cannot ensure that the warrants will be listed on any securities exchange or automated quotation system. On the Effective Date, warrants to purchase 120,000,000 shares of our common stock were outstanding.
Preemptive Rights. For so long as such Plan Sponsor beneficially owns at least 5% of our outstanding common stock on a fully diluted basis, each Plan Sponsor will have the right to purchase New GGP common stock and THHC common stock as necessary to allow them to maintain their respective proportionate ownership interests in New GGP and THHC on a fully diluted basis.
THHC Investment. Pursuant to the Investment Agreements, the Plan Sponsors and Blackstone purchased 5,250,000 shares of common stock of THHC at $47.619048 per share on the Effective Date.
Board Rights. The Investment Agreements provide that the board of directors of New GGP will have nine members, three of whom were nominated by Brookfield Investor and one of whom was nominated by Pershing Square. Pershing Square's right to nominate directors only applies to the initial board of directors. Brookfield Investor's right to nominate three directors will continue so long as Brookfield Investor beneficially owns at least 20% of New GGP's common stock on a fully diluted basis, with such right reducing to two directors if Brookfield Investor beneficially owns between 15% and 20% of the New GGP common stock on a fully diluted basis and one director if Brookfield Investor beneficially owns between 10% and 15% of the New GGP common stock on a fully diluted basis. Brookfield Investor will have no right to designate a director if it beneficially owns less than 10% of the New GGP common stock on a fully diluted basis.
Conditions to Investment Agreements. The Plan Sponsors' obligations to purchase New GGP common stock pursuant to the Investment Agreements were subject to the satisfaction (or waiver by the Plan Sponsors) of certain conditions, including:
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"Liquidity Equity Issuances" is defined as issuances of shares of New GGP common stock in the Plan for cash in an aggregate amount of up to 65,000,000 shares of New GGP common stock;
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Standstill Agreements. The Plan Sponsors also entered into "Standstill Agreements" with respect to New GGP that set forth, among other things (a) the size of, the minimum number of independent directors on, and the composition of the nominating committee of, New GGP's board of directors, (b) voting for directors and certain other matters, (c) required approvals for (1) certain change in control transactions and related-party transactions involving the applicable Plan Sponsor and (2) the applicable Plan Sponsor to increase its percentage ownership in the applicable company above an agreed cap, and (d) transfers of shares of the applicable company by the Plan Sponsor. Specifically, the standstill agreements contemplate the following:
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A standstill agreement will terminate (a) upon mutual agreement, if approved by a majority of the disinterested directors, (b) if stockholders other than the Plan Sponsors own more than 70% of shares of New GGP common stock then outstanding and the applicable Plan Sponsor owns less than 15% of shares of New GGP common stock then outstanding, (c) if the applicable Plan Sponsor owns less than 10% of shares of New GGP common stock then outstanding, (d) upon a change of control not involving the applicable Plan Sponsor, or (e) upon the sale of all or substantially all of the assets or voting securities of New GGP.
Brookfield Relationship Agreement. In connection with the investment by Brookfield Investor, Brookfield Asset Management Inc. ("BAM") entered into an agreement with New GGP (the "Relationship Agreement"). Pursuant to the Relationship Agreement, New GGP acknowledges that BAM and its affiliates carry on a diverse range of businesses in Canada and the United States and worldwide, including the development, ownership and/or management of office properties and other real estate assets, real estate assets, homebuilding operations, and investing and advising on investing in any of the foregoing or loans, debt instruments and other securities with underlying real estate collateral or exposure including regional malls, both as principal and through other public companies that are affiliates of BAM or through private investment vehicles and accounts established or managed by affiliates of BAM.
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The Relationship Agreement provides that, subject to the terms thereof, New GGP serves as the primary vehicle through which opportunities presented to BAM and its affiliates to acquire or develop regional malls or portfolios of regional malls in the United States and Canada will be made by BAM and its affiliates. The Relationship Agreement expressly provides, however, that:
In the event that New GGP declines any opportunities to acquire or develop regional malls or portfolios of regional malls in the United States and Canada that BAM has made available to New GGP and its subsidiaries (or New GGP does not confirm that it wishes to pursue such opportunity within a reasonable period of time after such opportunity has been presented), BAM may pursue such opportunity for its own account, without restriction.
Transfer Restrictions. Brookfield Investor is subject to lock-up restrictions on its ability to sell, transfer or dispose of its shares of New GGP common stock and its Permanent Warrants for 18 months following the Effective Date (the "lock-up period"). In the first six months of the lock-up period, Brookfield Investor may not sell, transfer or dispose of any shares of New GGP common stock or its Permanent Warrants. In the second six months of the lock-up period, Brookfield Investor may sell,
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transfer or dispose of up to an aggregate of 8.25% of its shares of New GGP common stock and up to an aggregate of 8.25% of its Permanent Warrants. In the final six months of the lock-up period, Brookfield Investor may sell, transfer or dispose of up to an aggregate of 16.5% of its shares of New GGP common stock and up to an aggregate of 16.5% of its Permanent Warrants (in each case including any shares transferred or sold during the second six months of the lock-up period). After 18 months following the Effective Date, Brookfield Investor will not be restricted from any transfer of its shares of New GGP common stock and the Permanent Warrants.
Registration Rights Agreements. In addition, each of the Plan Sponsors entered into registration rights agreements with respect to their securities in New GGP and THHC. See "Certain Relationships and Related Party TransactionsPlan of Reorganization AgreementsRegistration Rights Agreements."
Investment AgreementTexas Teachers
Old GGP also entered into an investment agreement with Texas Teachers, pursuant to which Texas Teachers committed to fund $500.0 million for new equity capital of New GGP at a value of $10.25 per share. In accordance with the investment agreement, up to approximately 24.4 million shares (representing $250.0 million of the shares of common stock issued to Texas Teachers on the Effective Date) have been reserved for repurchase within 45 days after the Effective Date. Old GGP will use the proceeds of this offering of common stock to repurchase such shares at a price of $10.25 per share. No fee was required to be paid to Texas Teachers in connection with the repurchase election. Texas Teachers received customary piggyback registration rights pursuant to a registration rights agreement.
Revolving Credit Facility
We expect to enter into a revolving credit facility providing for revolving loans in the amount of $300.0 million, none of which is expected to be used to consummate the Plan. See "Description of Certain IndebtednessRevolving Credit Facility."
Spinco Note and Tax Indemnity
The Spinco Note, which is an ancillary agreement contemplated by the Investment Agreements with the Plan Sponsors, is designed to allocate value between New GGP (and, indirectly, the Plan Sponsors, who will be investing in New GGP) and THHC (and, indirectly, Old GGP's stockholders who, following the distribution of THHC's shares pursuant to the Plan, will be the majority stockholders of THHC), in a manner that is similar to a post-closing purchase price adjustment in the acquisition of a business. The purchase price per share of New GGP common stock which the Plan Sponsors are committed to pay under the Investment Agreements is based on several financial metric assumptions for New GGP, and the Spinco Note is intended to compensate New GGP for certain differences between these assumptions and actual results as New GGP emerges from bankruptcy following the implementation of the Plan. The Spinco Note, if issued, is intended to compensate New GGP (and, indirectly, the Plan Sponsors), for these differences, while not adversely impacting THHC's liquidity by not requiring THHC to settle these differences in cash on the Effective Date.
The financial metrics that will be taken into account (through the operation of a complex formula described in detail below) in determining whether the Spinco Note will be issued and, if issued, the principal amount of the note, include (but are not limited to):
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Based on currently available information, we do not expect that a Spinco Note will be issued on the Effective Date. This belief is based on a number of assumptions, including our ability to reinstate certain indebtedness pursuant to the Plan and our current estimates concerning the amounts that we ultimately will be required to pay in respect of claims by various classes of creditors under the Plan. We estimate that the amounts that we actually pay with respect to such claims could exceed our estimates by up to approximately $85 million in the aggregate before THHC would have to issue a Spinco Note. However, we will not be certain until the components of the calculation of the Spinco Note amount are finally determined in accordance with the Investment Agreements, which may not occur until following the Effective Date, which could lead to a Spinco Note being issued at or after the Effective Date.
A more detailed discussion of the calculation of the Spinco Note and the relationship between the Spinco Note and the tax indemnities follows.
Calculation of the Spinco Note. If issued on the Effective Date, the Spinco Note will be a five year, unsecured promissory note payable by THHC or one of its subsidiaries to New GGP or one of its subsidiaries. The Spinco Note would mature on the fifth anniversary of the Closing Date (or the next succeeding business day). The Spinco Note would bear interest at the lower of 7.5% per annum and the weighted average effective rate of interest payable (after giving effect to the payment of any underwriting and all other discounts, fees and other compensation) on each series of New Debt issued in connection with the Plan. Whether a Spinco Note will be issued on the Effective Date and the amount of the Spinco Note if issued are determined based on
Closing Date Net Debt is calculated as
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the Investment Agreements and through the closing shall be deducted prior to subtracting Proportionally Consolidated Unrestricted Cash.
Target Net Debt is defined in the Investment Agreements as equal to $22,970,800,000.
Proportionally Consolidated Debt means consolidated debt of Old GGP less
The Reinstatement Adjustment Amount is calculated as the total amount of Corporate Level Debt less the total amount of Corporate Level Debt to be reinstated on the Effective Date. Corporate Level Debt consists of the sum of the TopCo Debtors' unsecured debt, the DIP Facility and other debt (in each case, including any existing accrued and unpaid interest thereon). The DIP Facility is that certain Senior Secured Debtor in Possession Credit, Security and Guaranty Agreement among Old GGP, as co-borrower, GGPLP, as co-borrower, certain of their subsidiaries, as guarantors, the agent and the lenders party thereto.
The Permitted Claims Amount is as of the Effective Date, an amount equal to the sum of, without duplication,
Proportionally Consolidated Unrestricted Cash means the consolidated unrestricted cash of Old GGP less
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closing by Brazilian entities to Old GGP or any of its subsidiaries shall be disregarded for purposes of calculating Proportionally Consolidated Unrestricted Cash.
If Closing Date Net Debt is less than Target Net Debt, then a net debt surplus amount will exist, the amount of which will be calculated as Target Net Debt less Closing Date Net Debt. If Closing Date Net Debt is greater than the Target Net Debt, then a net debt excess amount will exist, the amount of which will be calculated as Closing Date Net Debt less Target Net Debt.
The Spinco Note Amount is equal to: (i) if there is a net debt excess amount, then the net debt excess amount plus the amount paid in respect of the Hughes heirs obligations to the extent satisfied with assets of Old GGP (including cash not paid prior to the Effective Date or shares of common stock of New GGP, but excluding assets to be contributed to THHC) or (ii) if there is a net debt surplus amount, then the amount paid in respect of the Hughes heirs obligations (to the extent satisfied in assets described in clause (i)) less 80% of the net debt surplus amount; provided, however, that in no event will the Spinco Note Amount be less than zero.
To the extent that a Spinco Note is issued on the Effective Date, then the principal amount of the note is subject to adjustment under certain circumstances described in the Investment Agreements. These adjustments include a reduction (but not below zero) in the principal amount of the Spinco Note by 80% of the aggregate Offering Premium (as defined below) on the 30th day following the Effective Date and from time to time upon receipt of any offering premium until the last to occur of 45 days after the Effective Date, the settlement date for any shares of our common stock sold to Pershing Square pursuant to the put right described above and the maturity date of the Pershing Square Bridge Note (the "Offering Premium Period"). "Offering Premium" means, with respect to any shares of common stock of New GGP issued for cash on or prior to the Effective Date (and which would include the shares of New GGP common stock offered hereby), together with shares of New GGP common stock issued in certain liquidity issuances completed within the Offering Premium Period, the per share offering price of New GGP common stock in the offering (net of all underwriting and other discounts, fees or other compensation and related expenses) less $10.00; multiplied by the number of shares sold.
As disputed permitted claims are resolved and paid, the New GGP Board may determine that the remaining amount of the reserve (an estimated aggregate amount of certain categories of disputed claims) exceeds amounts necessary to pay remaining disputed claims, and if so, as a result of application of the Reserve Surplus Amount (described further below), the Spinco Note will be reduced by the amount of such excess. Finally, to the extent that THHC is obligated to pay master planned community taxes for tax year 2010 and is not eligible for indemnification from New GGP due to the Indemnity Cap (described below), then New GGP may pay the taxes and the Spinco Note Amount will be increased by the amount New GGP pays. If a Spinco Note was not issued on the Effective Date, but New GGP pays such taxes, then THHC will issue a note at that time on the same terms as the Spinco Note.
The Reserve Surplus Amount, which is calculated on a quarterly basis, is equal to the reserve less (i) the amount of permitted claims originally included in the reserve, but, as of the time of calculation, resolved and paid less (ii) the amount of reserve the New GGP board elects to retain with respect to any remaining disputed permitted claims. Any amounts applied to adjust the Spinco Note Amount in a prior quarter cannot be applied in subsequent quarters to further reduce the note.
Tax Indemnity. Pursuant to the Investment Agreements, New GGP will indemnify THHC from and against 93.75% of any and all losses, claims, damages, liabilities and reasonable expenses to which THHC and its subsidiaries become subject, in each case solely to the extent directly attributable to MPC Taxes (as defined in the Investment Agreements) in an amount up to the Indemnity Cap. The Indemnity Cap is calculated as the lesser of (a) $303,750,000 and (b) the Excess Surplus Amount. The Excess Surplus Amount is determined using a complex formula described in the Investment Agreements that includes varying percentages of any Reserve Surplus Amount, Net Debt Surplus
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Amount and Offering Premium to the extent not used to offset (decrease) the amount of the Spinco Note. The Excess Surplus Amount is designed to provide value to THHC in the form of the tax indemnity (up to a maximum amount of $303,750,000) in the event there is value remaining after the Spinco Note is reduced to zero. Based on currently available information, and after giving effect to this offering, we estimate that the Indemnity Cap will be equal to $303,750,000.
Treatment of Certain Claims under the Plan
The Plan provides for the treatment of administrative expense claims, prepetition claims and equity interests against and in the TopCo Debtors. The following is a summary of the expected treatment under the Plan of certain allowed prepetition and postpetition claims against and interests in the TopCo Debtors, in full and complete satisfaction of the TopCo Debtors' obligations in respect thereto:
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Conditions Precedent to Consummation of the Plan
Certain important conditions precedent to the Plan included:
All such conditions precedent were satisfied prior to the Effective Date.
Impact of Confirmation of the Plan
On the Effective Date, the terms of the Plan confirmed by the Bankruptcy Court will be binding upon the TopCo Debtors and all other parties affected by the Plan. Parties will have a period of time
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following the confirmation of the Plan to file a notice of appeal with respect to such confirmation order. Even if a notice of appeal is timely filed, the TopCo Debtors expect to proceed with the consummation of the Plan in accordance with its terms, unless the party seeking the appeal also obtains a stay of implementation of the Plan pending the appeal of the confirmation order, in which event the TopCo Debtors will not be able to implement the terms of the Plan unless and until the stay is lifted. An appeal of the confirmation order may be initiated even if there is no stay pending appeal of the confirmation order and, in such circumstances, the appeal may be dismissed as moot if the TopCo Debtors have implemented the Plan to the point of "substantial consummation." In determining whether a plan has been "substantially consummated," courts considering bankruptcy appeals under such circumstances have sough to determine whether implementation of the plan has progressed to a point at which fundamental changes in the plan as a result of any appeals being upheld would jeopardize its success.
Restructuring Transactions
A series of restructuring transactions will occur pursuant to the Plan. On the Effective Date, a newly-formed indirect subsidiary of New GGP will merge with and into Old GGP, with Old GGP continuing as the surviving corporation. As consideration for the merger, the common stock of Old GGP will be exchanged for the common stock of New GGP. Old GGP will become an indirect subsidiary of New GGP. New GGP will become the successor registrant to Old GGP and will have its common stock listed on the NYSE in lieu of Old GGP. New GGP will change its name to General Growth Properties, Inc. and Old GGP will change its name to GGP, Inc. See "Prospectus SummaryCorporate Structure" for our corporate structure following the consummation of the Plan.
Bankruptcy Reporting Requirements
As a result of the Chapter 11 Cases, the TopCo Debtors are required to file various documents with, and provide certain information to, the Bankruptcy Court and various third parties, including statements of financial affairs, schedules of assets and liabilities, and monthly operating reports in forms prescribed by federal bankruptcy law, as well as certain financial information on an unconsolidated basis. Such materials are prepared according to requirements of the Bankruptcy Code. Although such materials accurately provide then-current information required under the Bankruptcy Code, they are nonetheless unconsolidated, unaudited and are prepared in a format different from that used in Old GGP's consolidated financial statements filed under the securities laws. Accordingly, we believe that the substance and format do not allow meaningful comparison with Old GGP's regular publicly disclosed consolidated financial statements. Moreover, the materials filed with the Bankruptcy Court are not prepared for the purpose of providing a basis for an investment decision relating to our securities or for comparison with other financial information that Old GGP files with the SEC.
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We estimate that the net proceeds to us from our sale of the common stock in this offering will be $ million ($ million if the underwriters exercise the option to purchase additional shares in full), after deducting underwriting discounts and commissions and estimated expenses payable by us in connection with this offering.
We will use the net proceeds of this offering to repurchase $1.8 billion of our common stock issued to Fairholme, Pershing Square and Texas Teachers on the Effective Date and to prepay the $350.0 million Pershing Square Bridge Notes. We will use the excess net proceeds, if any, for general corporate purposes. See "Risk FactorsRisks Related to this OfferingWe are registering an offering amount that is greater than our designated use of proceeds and will have broad discretion in applying excess net proceeds of this offering, if any, for general corporate purposes, which may not enhance the market value of our common stock."
The Pershing Square Bridge Notes bear interest at a rate of 6% per annum and mature on the six month anniversary of the Effective Date. The proceeds of the Pershing Square Bridge Notes were used to fund a portion of the Plan.
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PUBLIC MARKET FOR OUR COMMON STOCK
There is currently no public market for New GGP's common stock. Although there has been limited "when-issued" trading in our common stock on the NYSE for the period from , 2010 through and including the Effective Date, during which period the high and low sales prices for our shares of common stock were $ and $ , respectively, we do not expect these prices to be indicative of the trading price of our common stock in the future. Under the terms of the Investment Agreements, the Plan Sponsors have agreed to purchase shares of New GGP's common stock at a price of $10.00 per share, and Texas Teachers has agreed to purchase shares of New GGP's common stock at a price of $10.25 per share under an investment agreement, upon Old GGP's emergence from bankruptcy.
The common stock of Old GGP, which will be a subsidiary of New GGP upon the consummation of the Plan and Old GGP's emergence from bankruptcy, is listed on the NYSE under the symbol "GGP." From April 17, 2009 until February 24, 2010, Old GGP's common stock was suspended from trading on and de-listed from the NYSE, and it traded on the Pink sheets under the symbol GGWPQ.
An application has been approved to list New GGP's common stock on the NYSE under the symbol "GGP," and we expect that New GGP's common stock will trade on the NYSE following the Effective Date as a successor to Old GGP.
The following table summarizes the high and low bid quotations prices per share of Old GGP's common stock as reported on the NYSE for the periods prior to April 16, 2009 and following February 24, 2010 and as reported on the Pink Sheets from April 17, 2009 until February 24, 2010. The Pink Sheet quotations reflect interdealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
|
Stock Price | ||||||
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Quarter Ended
|
High | Low | |||||
2010 |
|||||||
September 30 |
$ | 15.67 | $ | 12.36 | |||
June 30 |
16.84 | 13.16 | |||||
March 31 |
17.28 | 8.58 | |||||
2009 |
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December 31 |
$ | 13.24 | $ | 3.57 | |||
September 30 |
4.95 | 1.33 | |||||
June 30 |
3.05 | 0.48 | |||||
March 31 |
2.26 | 0.32 | |||||
2008 |
|||||||
December 31 |
$ | 15.00 | $ | 0.24 | |||
September 30 |
35.17 | 13.37 | |||||
June 30 |
44.23 | 34.75 | |||||
March 31 |
42.31 | 30.20 |
As of , 2010, the closing price of New GGP's common stock was $ , and New GGP had holders of common stock.
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New GGP has not paid any dividends on its common stock. New GGP has agreed to elect to be treated as a REIT in connection with the filing of its tax return for the year in which Old GGP emerges from bankruptcy, subject to New GGP's ability to meet the requirements of a REIT at the time of election. A REIT must distribute 100% of its capital gains and ordinary income to its shareholders in order to maintain its REIT status and avoid entity level U.S. federal income taxes. For 2010, New GGP expects to make 90% of this distribution in New GGP common stock and 10% in cash. Beginning in 2011, New GGP anticipates that it will implement a dividend reinvestment plan. The Plan Sponsors have informed New GGP that they would elect to have dividends paid on the shares that they hold reinvested in shares of New GGP common stock and, as a result, New GGP expects to be able to pay cash dividends to its other stockholders. However, there can be no assurances that such a plan will be adopted and, even if such a plan is adopted, New GGP may determine to instead pay dividends in a combination of cash and shares of its common stock. New GGP intends to pay dividends on its common stock in the future to maintain its REIT status.
Old GGP, which will be a subsidiary of New GGP following the consummation of the Plan and Old GGP's emergence from bankruptcy, declared a dividend of $0.19 per share of common stock (to satisfy REIT distribution requirements for 2009) in the fourth quarter of 2009 payable in a combination of cash and Old GGP common stock, provided that the cash component of the dividend could not exceed 10% in the aggregate. As a result of stockholder elections, on January 28, 2010, Old GGP paid approximately $6.0 million in cash. Old GGP's Board of Directors had suspended its dividend in October 2008 and, accordingly, there were no Old GGP dividends declared or paid from the fourth quarter of 2008 through the third quarter of 2009. There were no repurchases of Old GGP's common stock during 2009 or to date during 2010.
No Old GGP quarterly or other dividends were paid for the nine months ended September 30, 2009 and 2010.
The following table summarizes quarterly distributions per share of Old GGP's common stock.
Declaration Date
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Record Date | Payment Date | Amount | |||||
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2009 | ||||||||
December 18 | December 18 | January 28, 2010(1) | $ | 0.19 | ||||
2008 |
|
|
|
|
|
|
|
|
July 7 | July 17 | July 31 | 0.50 | |||||
April 14 | April 16 | April 30 | 0.50 | |||||
January 7 | January 17 | January 31 | 0.50 |
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The following table sets forth Old GGP's cash and cash equivalents and capitalization as of September 30, 2010:
This table should be read together with "Use of Proceeds," "Selected Historical Consolidated Financial and Other Data," "Unaudited Pro Forma Condensed Consolidated Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Old
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GGP's consolidated financial statements and the related notes, each included elsewhere in this prospectus.
|
As of September 30, 2010 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in thousands)
|
Actual | Pro Forma |
Pro Forma
As Adjusted For Offering |
|||||||||
Cash and cash equivalents |
$ | 630,014 | $ | 771,432 | $ | |||||||
Debt: |
||||||||||||
Collateralized mortgages, notes and loans payable |
17,325,381 | 16,940,003 | ||||||||||
Corporate and other unsecured terms loans(1) |
6,534,682 | 1,863,735 | ||||||||||
Total mortgages, notes and loans payable |
23,860,063 | 18,803,738 | ||||||||||
New Revolving Credit Facility(2) |
| | ||||||||||
Total debt(1) (2) (3) |
23,860,063 | 18,803,738 | ||||||||||
Common stock, (Actual: 875,000,000 shares authorized, par value $0.01 per share, 318,842,071 shares issued as of September 30, 2010; Pro forma: 11,000,000,000 shares authorized, $0.01 per share, shares issued as of September 30, 2010)(4) |
3,188 | | ||||||||||
Total equity(4) |
583,197 | 10,061,507 | ||||||||||
Total capitalization |
$ | 24,446,448 | $ | 28,865,245 | $ | |||||||
57
If you purchase common stock in this offering, your ownership interest in our common stock will be diluted to the extent of the difference between the public offering price of the common stock and the pro forma as adjusted net tangible book value per share of common stock.
As of September 30, 2010, our net tangible book value on a historical and pro forma basis is presented in the table below. Our net tangible book value per share represents our total tangible assets less total liabilities, divided by the total number of shares of common stock outstanding. Pro forma net tangible book value per share gives effect to (i) the issuance of 678.8 million shares of our common stock to the Plan Sponsors and Teachers pursuant to the Investment Agreements and the Texas Teachers investment agreement, (ii) the distribution of the THHC common stock pursuant to the Plan, and (iii) the issuance of 324.7 million shares of our common stock to stockholders of Old GGP pursuant to the Plan.
Old GGP
Net Tangible Book Value
as of September 30, 2010
|
Historical | Pro Forma | |||||||
---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||||
Total assets |
$ | 27,742,933 | $ | 31,257,008 | |||||
Less total liabilities |
(26,920,675 | ) | (21,000,953 | ) | |||||
Less total redeemable noncontrolling interests |
(235,873 | ) | (194,549 | ) | |||||
Total net asset value |
586,385 | 10,061,506 | |||||||
Less intangible assets: |
|||||||||
In-place leases |
(169,059 | ) | (1,417,904 | ) | |||||
Real estate tax stabilization agreement |
(68,664 | ) | (78,255 | ) | |||||
Above-market tenant leases |
(26,584 | ) | (1,593,659 | ) | |||||
Below-market ground leases |
(237,269 | ) | (210,294 | ) | |||||
Goodwill |
(199,664 | ) | | ||||||
Total intangible assets |
(701,240 | ) | (3,300,112 | ) | |||||
Net tangible book value |
$ | (114,855 | ) | $ | 6,761,394 | ||||
Net tangible book value per share |
$ | 0.34 | $ | ||||||
Weighted average numbers of common shares outstanding: |
|||||||||
Basic |
316,849 | ||||||||
Diluted |
316,849 | ||||||||
Dilution in net tangible book value per share represents the difference between the amount per share paid by purchasers of the common stock in this offering and the pro forma net tangible book value per share of our common stock immediately after the consummation of this offering.
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After giving effect to the sale of the common stock at an assumed purchase price of $ , and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2010 would have been approximately $ , or $ per share.
This represents an immediate increase in pro forma net tangible book value of $ per share to the Plan Sponsors and Texas Teachers and an immediate dilution of $ per share to new investors purchasing common stock in this offering at the assumed offering price.
The following table illustrates the dilution to new investors:
Assumed public offering price per share |
$ | |||
Pro forma net tangible book value per share as of September 30, 2010 |
$ | |||
Increase in pro forma net tangible book value per share attributable to the sale of common stock in this offering |
||||
Pro forma as adjusted net tangible book value per share after this offering |
||||
Dilution per share to new investors |
$ | |||
A $1.00 increase (decrease) in the assumed purchase price of $ would increase (decrease) our pro forma net tangible book value after this offering by $ million and increase (decrease) the dilution to new investors by $ per share, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The following table summarizes, as of September 30, 2010 the total number of shares of our common stock we issued and sold, the total consideration we received and the average price per share paid to us by the Plan Sponsors and Texas Teachers and to be paid by new investors purchasing common stock in this offering. The table assumes a purchase price of $ and deducts underwriting discounts and commissions and estimated offering expenses payable by us:
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A $1.00 increase (decrease) in the assumed purchase price of $ would increase (decrease) the total consideration per share paid by new investors by $ .
The foregoing discussion and tables assume no exercise of outstanding warrants and stock options. On the Effective Date, New GGP will issue an aggregate of 120.0 million warrants to acquire New GGP common stock to the Plan Sponsors and Blackstone. See "Description of Common StockWarrants." As of September 30, 2010, there were options outstanding to purchase 5,121,990 shares of Old GGP's common stock at a weighted average exercise price of $36.01 per share. On the Effective Date, New GGP will assume Old GGP's option agreements and following the Effective Date, expects to grant options to purchase additional shares of common stock pursuant to the 2010 Equity Plan. To the extent that any of these warrants or options are exercised, there may be further dilution to new investors. Also, as described under "ManagementExecutive Officer Information" with respect to dilution of new investors, New GGP has entered into an employment agreement with Mr. Sandeep Mathrani, pursuant to which Mr. Mathrani has agreed to serve as Chief Executive Officer of New GGP, commencing on January 17, 2011. In connection with entering into this employment agreement, New GGP agreed to grant to Mr. Mathrani, among other things 1,500,000 shares of New GGP common restricted stock on the Effective Date vesting over three years and granted as of the date of the employment agreement options to acquire 2,000,000 shares (vesting annually on the grant anniversary date in four equal installments) of New GGP common stock at an exercise price of $10.25 per share.
In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in further dilution to our stockholders.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial information and other data for Old GGP for the periods presented. New GGP was a newly formed indirect finance subsidiary of Old GGP prior to Old GGP's emergence from bankruptcy and had no prior operations or material assets or liabilities prior to the Effective Date. Upon Old GGP's emergence from bankruptcy and pursuant to a series of restructuring transactions contemplated by the Plan, New GGP became the indirect parent corporation of Old GGP and will file Exchange Act reports in lieu of Old GGP. The selected financial information as of December 31, 2009 and 2008 and for each of the three years in the period ended December 31, 2009 has been derived from Old GGP's audited consolidated financial statements included elsewhere in this prospectus, and the selected financial information as of December 31, 2007, 2006 and 2005 and for each of the years ended December 31, 2006 and 2005 have been derived from Old GGP's audited consolidated financial statements not included in this prospectus. The selected historical consolidated financial data as of September 30, 2010 and 2009 and for the nine months ended September 30, 2010 have been derived from Old GGP's unaudited consolidated financial statements included elsewhere in this prospectus, and the selected financial information for the nine months ended September 30, 2009 has been derived from Old GGP's unaudited consolidated financial statements not included in this prospectus, each of which has been prepared on a basis consistent with Old GGP's audited financial statements. In the opinion of management, the historical unaudited operating and balance sheet data set forth below reflect all adjustments, consisting of normal and recurring adjustments, necessary for a fair statement of Old GGP's financial position and results of operations for those periods. The results of operations for any interim period are not necessarily indicative of results for the full year or any other interim period. This financial information and other data should be read in conjunction with Old GGP's audited and unaudited consolidated financial statements and notes thereto included in this prospectus.
The data below is presented on a historical basis and does not take into account the impact of the Plan or the other transactions described in this prospectus, including the distribution of THHC as discussed in "Plan of Reorganization," and as a result, may not be comparable to our results following the consummation of the Plan. See "Unaudited Pro Forma Condensed Consolidated Financial Information."
The results indicated below and elsewhere in this prospectus are not necessarily indicative of our future performance. You should read this information together with "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Old GGP's consolidated financial statements and related notes included elsewhere in this prospectus.
|
Nine Months
Ended September 30, |
Years Ended December 31, | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||
|
(In thousands, except per share data))
|
|||||||||||||||||||||||
Operating Data: |
||||||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Minimum rents |
$ | 1,464,650 | $ | 1,487,288 | $ | 1,992,046 | $ | 2,085,758 | $ | 1,933,674 | $ | 1,753,508 | $ | 1,670,387 | ||||||||||
Tenant recoveries |
647,744 | 674,750 | 883,595 | 927,332 | 859,801 | 773,034 | 754,836 | |||||||||||||||||
Overage rents |
28,126 | 26,214 | 52,306 | 72,882 | 89,016 | 75,945 | 69,628 | |||||||||||||||||
Land and condominium sales |
85,325 | 38,844 | 45,997 | 66,557 | 145,649 | 423,183 | 385,205 | |||||||||||||||||
Management fees and other corporate revenues |
48,063 | 57,569 | 75,851 | 96,495 | 119,941 | 131,423 | 106,002 | |||||||||||||||||
Other |
62,337 | 57,031 | 86,019 | 112,501 | 113,720 | 99,190 | 86,646 | |||||||||||||||||
Total revenues |
2,336,245 | 2,341,696 | 3,135,814 | 3,361,525 | 3,261,801 | 3,256,283 | 3,072,704 | |||||||||||||||||
Expenses: |
||||||||||||||||||||||||
Real estate taxes |
214,496 | 210,443 | 280,895 | 274,317 | 246,484 | 218,549 | 206,193 | |||||||||||||||||
Property maintenance costs |
89,207 | 77,704 | 119,270 | 114,532 | 111,490 | 104,147 | 96,581 | |||||||||||||||||
Marketing |
22,374 | 21,840 | 34,363 | 43,426 | 54,664 | 48,626 | 63,522 | |||||||||||||||||
Other property operating costs |
387,713 | 394,414 | 529,686 | 557,259 | 523,341 | 463,637 | 483,617 |
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|
Nine Months
Ended September 30, |
Years Ended December 31, | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||
|
(In thousands, except per share data))
|
|||||||||||||||||||||||
Land and condominium sales operations |
89,001 | 42,046 | 50,807 | 63,441 | 116,708 | 316,453 | 311,815 | |||||||||||||||||
Provision for doubtful accounts |
15,575 | 25,104 | 30,331 | 17,873 | 5,426 | 22,078 | 13,868 | |||||||||||||||||
Property management and other costs |
125,007 | 130,485 | 176,876 | 184,738 | 198,610 | 181,033 | 144,526 | |||||||||||||||||
General and administrative |
22,707 | 22,436 | 28,608 | 39,245 | 37,005 | 18,800 | 15,539 | |||||||||||||||||
Strategic initiatives |
| 67,341 | 67,341 | 18,727 | | | | |||||||||||||||||
Provisions for impairment |
35,893 | 474,420 | 1,223,810 | 116,611 | 130,533 | 4,314 | 5,145 | |||||||||||||||||
Litigation (benefit) provision |
| | | (57,145 | ) | 89,225 | | | ||||||||||||||||
Depreciation and amortization |
527,956 | 576,103 | 755,161 | 759,930 | 670,454 | 690,194 | 672,914 | |||||||||||||||||
Total expenses |
1,529,929 | 2,042,336 | 3,297,148 | 2,132,954 | 2,183,940 | 2,067,831 | 2,013,720 | |||||||||||||||||
Operating income (loss) |
806,316 | 299,360 | $ | (161,334 | ) | $ | 1,228,571 | $ | 1,077,861 | $ | 1,188,452 | $ | 1,058,984 | |||||||||||
Income (loss) from continuing operations |
(295,410 | ) | (680,179 | ) | $ | (1,303,861 | ) | $ | (36,372 | ) | $ | 347,597 | $ | 97,857 | $ | 107,856 | ||||||||
Net income (loss) attributable to common shareholders of GGP |
$ | (297,056 | ) | $ | (672,329 | ) | $ | (1,284,689 | ) | $ | 4,719 | $ | 273,642 | $ | 59,273 | $ | 75,553 | |||||||
Basic earnings (loss) per share: |
||||||||||||||||||||||||
Continuing operations |
$ | (0.94 | ) | $ | (2.16 | ) | $ | (4.11 | ) | $ | (0.16 | ) | $ | 1.12 | $ | 0.25 | $ | 0.27 | ||||||
Discontinued operations |
| | | 0.18 | | | 0.05 | |||||||||||||||||
Total basic earnings (loss) per share |
$ | (0.94 | ) | $ | (2.16 | ) | $ | (4.11 | ) | $ | 0.02 | $ | 1.12 | $ | 0.25 | $ | 0.32 | |||||||
Diluted earnings (loss) per share: |
||||||||||||||||||||||||
Continuing operations |
$ | (0.94 | ) | $ | (2.16 | ) | $ | (4.11 | ) | $ | (0.16 | ) | $ | 1.12 | $ | 0.24 | $ | 0.27 | ||||||
Discontinued operations |
| | | 0.18 | | | 0.05 | |||||||||||||||||
Total diluted earnings (loss) per share |
$ | (0.94 | ) | $ | (2.16 | ) | $ | (4.11 | ) | $ | 0.02 | $ | 1.12 | $ | 0.24 | $ | 0.32 | |||||||
Dividends declared per share(1) |
$ | | $ | | $ | 0.19 | $ | 1.50 | $ | 1.85 | $ | 1.68 | $ | 1.49 | ||||||||||
|
As of September 30, | As of December 31, | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
|
(In thousands)
|
||||||||||||||||||||||
Balance Sheet Data |
|||||||||||||||||||||||
Investment in real estate assets |
$ | 30,400,571 | $ | 31,378,857 | $ | 30,329,415 | $ | 31,733,578 | $ | 30,449,086 | $ | 26,160,637 | $ | 25,404,891 | |||||||||
Total assets |
27,742,933 | 29,042,157 | 28,149,774 | 29,557,330 | 28,814,319 | 25,241,445 | 25,307,019 | ||||||||||||||||
Total debt |
23,860,063 | 24,864,507 | 24,456,017 | 24,756,577 | 24,282,139 | 20,521,967 | 20,418,875 | ||||||||||||||||
Redeemable preferred noncontrolling interests |
120,756 | 120,756 | 120,756 | 120,756 | 223,677 | 345,574 | 372,955 | ||||||||||||||||
Redeemable common noncontrolling interests |
115,117 | 36,038 | 86,077 | 379,169 | 2,135,224 | 2,762,476 | 2,493,378 | ||||||||||||||||
Stockholders' equity |
562,413 | 1,549,629 | 822,963 | 1,836,141 | (314,305 | ) | (921,473 | ) | (248,483 | ) | |||||||||||||
Cash Flow Data(2) |
|||||||||||||||||||||||
Operating activities |
$ | 545,833 | $ | 671,367 | $ | 871,266 | $ | 556,441 | $ | 707,416 | $ | 816,351 | $ | 841,978 | |||||||||
Investing activities |
(119,846 | ) | (237,924 | ) | (334,554 | ) | (1,208,990 | ) | (1,780,932 | ) | (210,400 | ) | (154,197 | ) | |||||||||
Financing activities |
(450,369 | ) | 89,329 | (51,309 | ) | 722,008 | 1,075,911 | (611,603 | ) | (624,571 | ) | ||||||||||||
Other Financial Data |
|||||||||||||||||||||||
NOI(3) |
$ | 1,765,312 | $ | 1,693,924 | $ | 2,296,747 | $ | 2,565,784 | $ | 2,391,611 | $ | 2,405,327 | $ | 2,229,601 | |||||||||
FFO(4): |
|||||||||||||||||||||||
Operating Partnership |
$ | 313,937 | $ | (7,487 | ) | $ | (421,384 | ) | $ | 833,086 | $ | 1,083,439 | $ | 902,361 | $ | 891,696 | |||||||
Less: Allocation to Operating Partnership limited common unitholders |
(7,037 | ) | 181 | 10,052 | (136,896 | ) | (190,740 | ) | (161,795 | ) | (165,205 | ) | |||||||||||
Old GGP stockholders |
$ | 306,900 | $ | (7,306 | ) | $ | (411,332 | ) | $ | 696,190 | $ | 892,699 | $ | 740,566 | $ | 726,491 | |||||||
62
The following is a reconciliation of NOI to operating income (loss):
The following is a reconciliation of FFO to net income (loss) attributable to common stockholders:
63
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial information has been developed by applying pro forma adjustments to the historical consolidated financial information of Old GGP appearing elsewhere in this prospectus. The unaudited pro forma condensed consolidated balance sheet gives effect to the transactions described below as if they had occurred on September 30, 2010. The unaudited pro forma condensed consolidated statements of operations give effect to the transactions described below as if they had occurred on January 1, 2009. All significant pro forma adjustments and their underlying assumptions are described more fully in the notes to the unaudited pro forma condensed consolidated financial information which should be read in conjunction with such pro forma condensed consolidated financial information.
The unaudited pro forma condensed consolidated financial information gives effect to the following:
The unaudited pro forma condensed consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations or financial position that would have actually been reported had the transactions reflected in the pro forma adjustments occurred on January 1, 2009 or as of September 30, 2010, respectively, nor is it indicative of our future results of operations or financial position. In addition, Old GGP's historical financial statements will not be comparable to New GGP's financial statements following emergence from bankruptcy due to the effects of the consummation of the Plan as well as adjustments for the effects of the application of the acquisition method of accounting.
The structure of the Plan Sponsors' investments will trigger the application of the acquisition method of accounting, as the Plan and the consummation of the Investment Agreements and the Texas Teachers investment agreement constitutes a "transaction or event in which an acquirer obtains control of one or more "businesses" or a "business combination" (ASC 805-10-05-1) requiring such application. New GGP is the acquirer that obtains control as it obtains all of the common stock of Old GGP (a business for purposes of applying ASC 805) in exchange for issuing its stock to the Old GGP common stockholders on a one-for-one basis (excluding fractional shares).
64
After the Effective Date, the Plan Sponsors and Texas Teachers (or, if the ownership of the Plan Sponsors and Texas Teachers are reduced by 50%, by the holders of New GGP common stock pursuant to Old GGP's rights to make such reductions as a result of the sale of common stock offered by this prospectus) will own a majority of the outstanding common stock of New GGP. The Old GGP common stockholders are expected to hold approximately 317 million shares of New GGP common stock at the Effective Date; whereas, the Plan Sponsors, Texas Teachers and the holders of New GGP common stock as a result of this offering, if any, are expected to hold approximately 679 million shares of New GGP common stock on such date.
"Fresh Start" accounting does not apply to New GGP because although Old GGP common stockholders will acquire less than 50% of the voting shares of New GGP, the reorganization value of New GGP's assets exceeds the total of all post-petition liabilities and allowed claims (ASC 852-10-45-19). The pro forma condensed consolidated financial information presented, including allocations of the purchase price, is based on available information and assumptions that are factually supportable and that we believe are reasonable under the circumstances, including the estimated timing of the consummation of the Plan (including liabilities disposed or settled), and preliminary estimates of the fair values of assets acquired and liabilities assumed. These estimates and assumptions will be revised as additional information becomes available.
The estimated purchase price for purposes of the application of the acquisition method of accounting was calculated using the equity contributions of the Plan Sponsors and Texas Teachers and a $10.00 per share assumed value of the common stock of New GGP issued to the equity holders of Old GGP (based on such offered per share price by the Plan Sponsors) plus the assumed liabilities of New GGP (at fair value). Such calculation yields an estimated purchase price of approximately $31.7 billion. A $1.00 per share increase in the assumed value per share for the Old GGP shareholder shares would result in an approximately $317 million increase in such purchase price. The aggregate fair value of the assets and liabilities of New GGP, after the distribution of THHC pursuant to the Plan, were computed using estimates of future cash flows and other valuation techniques, including estimated discount and capitalization rates, and such estimates and techniques were also used to allocate the purchase price of acquired property between land, buildings and improvements, equipment and identifiable intangible assets and liabilities such as amounts related to in-place at-market tenant leases, acquired above and below-market tenant and ground leases and tenant relationships.
The fair values of tangible assets are determined on an "if vacant" basis. The "if vacant" fair value is allocated to land, where applicable, buildings and tenant improvements based on comparable sales and other relevant information with respect to the property. Specifically, the "if vacant" value of the building improvements was calculated using a cost approach utilizing published guidelines for current replacement cost or actual construction costs for similar, recently developed properties; and an income approach. Assumptions used in the income approach to the value of buildings include: capitalization and discount rates, lease-up time, market rents, make ready costs, land value, and site improvement value. We believe that the most influential assumption in the estimation of value based on the income approach is the assumed discount rate and an average one half of one percent change in the aggregate discount rates applied to our estimates of future cash flows would result in an approximate 3.5 percent change in the aggregate estimated of value of our real estate investments.
The estimated fair value of in-place tenant leases includes lease origination costs (the costs we would have incurred to lease the property to the current occupancy level of the property) and the lost revenues during the period necessary to lease-up from vacant to the current occupancy level. Such estimate includes the fair value of leasing commissions, legal costs and tenant coordination costs that would be incurred to lease the property to this occupancy level. Additionally, we evaluate the time period over which such occupancy level would be achieved and include an estimate of the net operating costs (primarily real estate taxes, insurance and utilities) incurred during the lease-up period, which generally ranges up to one year. The fair value of acquired in-place tenant leases is included in the
65
balance of buildings, tenant improvements and equipments and amortized over the remaining lease term for each tenant.
Intangible assets and liabilities were calculated for above-market and below-market tenant and ground leases where we are either the lessor or the lessee. Above-market and below-market tenant and ground lease values were valued (using an interest rate which reflects the risks associated with the leases acquired) based on the difference between the contractual amounts to be received or paid pursuant to the leases and our estimate of fair market lease rates for the corresponding leases, measured over a period equal to the remaining non-cancelable term of the leases, including below market renewal options. The variance between contract rent versus prevailing market rent is projected to expiration for each particular tenant and discounted back to the date of acquisition. Significant assumptions used in determining the fair value of leasehold assets and liabilities include: (1) the market rental rate, (2) market reimbursements, and (3) the market rent growth rate. Above and below-market lease values are amortized over the remaining non-cancelable terms of the respective leases (approximately five years for tenant leases and approximately 50 years for ground leases). The remaining term of leases with lease renewal options with terms significantly below (25% or more discount to the assumed market rate of the tenant's space at the time the renewal option is to apply) market reflect the assumed exercise of such renewal options and assume the amortization period would coincide with the extended lease term. Due to existing contacts and relationships with tenants at our currently owned properties and that there was no significant perceived difference in the renewal probability of a tenant based on such relationship, no significant value has been ascribed to the tenant relationships at the properties.
With respect to our investments in the Unconsolidated Real Estate Affiliates, our fair value reflects the fair value of the property held by such affiliate, as computed in a similar fashion to our majority owned properties. Such fair values have been adjusted for the consideration of our ownership and distribution preferences and limitations and rights to sell and repurchase our ownership interests.
The fair values of our financial instruments approximate their carrying amount in our financial statements except for debt. Notwithstanding that we do not believe that a fully-functioning market for real property financing exists currently, the acquisition method of accounting requires that management estimate the fair value of our debt. We estimated the fair value of this debt based on quoted market prices for publicly-traded debt, recent financing transactions (which may not be comparable), estimates of the fair value of the property that serves as collateral for such debt, historical risk premiums for loans of comparable quality, the current London Interbank Offered Rate ("LIBOR"), a widely quoted market interest rate which is frequently the index used to determine the rate at which we borrow funds and U.S. treasury obligation interest rates, and on the discounted estimated future cash payments to be made on such debt. The discount rates estimated reflect our judgment as to what the approximate current lending rates for loans or groups of loans with similar maturities and credit quality would be if credit markets were operating efficiently and assume that the debt is outstanding through maturity. We have utilized market information as available or present value techniques to estimate such amounts. Since such amounts are estimates that are based on limited available market information for similar transactions and do not acknowledge transfer or other repayment restrictions that may exist in specific loans, it is unlikely that the estimated fair value of any of such debt could be realized by immediate settlement of the obligation.
Any excess of the purchase price of New GGP as computed above over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed would be, under the acquisition method of accounting, considered to be goodwill. Goodwill is not amortized but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Similarly, a deficit in the purchase price to the net of the amounts assigned to assets acquired and liabilities assumed would be considered a bargain purchase and be reflected in the equity of New GGP as of the Effective Date. The accompanying unaudited pro
66
forma condensed consolidated financial information does not reflect an allocation of any such excess purchase price to goodwill, or bargain purchase to equity, as the purchase price, and the fair values of the assets and liabilities, that would determine that such an allocation should be made, are subject to significant estimation uncertainty.
Once the Plan is consummated, we will be able to determine the final purchase price inherent in the investments made by the Plan Sponsors and we will finalize the accounting for these transactions. The final application of the acquisition method of accounting could differ from the amounts reflected in the unaudited pro forma condensed consolidated financial information and could result in goodwill or gain being reflected in our balance sheet on the Effective Date. In addition, such differences will likely result in operating results and financial condition different than that reflected in the unaudited pro forma condensed consolidated financial information.
The unaudited pro forma statements of operations also assume that New GGP will qualify and elect to be taxed as a REIT for U.S. federal income tax purposes and assume that it distributes all of its taxable income as provided by the Code; and therefore, no New GGP income taxes have been provided for the periods presented. In addition, the pro forma condensed consolidated financial information presented is based on estimates and assumptions of claims that will be satisfied pursuant to the Plan; however, the amount of such claims and their treatment may change significantly from the amounts assumed below. The actual adjustments to Old GGP's consolidated financial statements upon the consummation of the Plan will depend on a number of factors, including additional information available and the actual balance of Old GGP's net assets on the date of the consummation of the Plan and the actual amount of claims reflected in the Plan on the Effective Date. Therefore, the actual adjustments will differ from the pro forma adjustments, and the differences may be material.
The unaudited pro forma condensed consolidated financial information should be read in conjunction with the information contained in "Plan of Reorganization," "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes thereto appearing elsewhere in this prospectus.
67
Old GGP
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of September 30, 2010
|
Historical |
Less
Distribution of THHC(A) |
Offering(B) | Plan(C) |
Acquisition
Accounting(J) |
Total | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||||||||||||||||||
Assets: |
|||||||||||||||||||||||
Investment in real estate: |
|||||||||||||||||||||||
Land |
$ | 3,326,422 | $ | 194,181 | $ | | $ | | $ | 2,135,624 | (K) | $ | 5,267,865 | ||||||||||
Buildings and equipment |
22,827,890 | 451,371 | | | (2,054,053 | )(K) | 20,322,466 | ||||||||||||||||
Less accumulated depreciation |
(4,882,862 | ) | (94,697 | ) | | | 4,788,165 | (K) | | ||||||||||||||
Developments in progress |
424,616 | 298,094 | | | | (K) | 126,522 | ||||||||||||||||
Net property and equipment |
21,696,066 | 848,949 | | | 4,869,736 | (K) | 25,716,853 | ||||||||||||||||
Investment in and loans to/from
|
1,915,480 | 146,962 | | | 708,546 | (L) | 2,477,064 | ||||||||||||||||
Investment property and property held for development and sale |
1,906,163 | 1,893,779 | | | (12,384 | )(M) | | ||||||||||||||||
Net investment in real estate |
25,517,709 | 2,889,690 | | | 5,565,898 | 28,193,917 | |||||||||||||||||
Cash and cash equivalents |
630,014 | 2,811 | | 144,229 | (D) | | 771,432 | ||||||||||||||||
Accounts and notes receivable, net |
373,001 | 8,860 | | | (279,396 | )(N) | 84,745 | ||||||||||||||||
Goodwill |
199,664 | | | | (199,664 | )(O) | | ||||||||||||||||
Deferred expenses, net |
260,978 | 6,894 | | | (254,084 | )(P) | | ||||||||||||||||
Prepaid expenses and other assets |
761,567 | 146,786 | | 35,744 | (E) | 1,556,389 | (Q) | 2,206,914 | |||||||||||||||
Total assets |
$ | 27,742,933 | $ | 3,055,041 | $ | | $ | 179,973 | $ | 6,389,143 | $ | 31,257,008 | |||||||||||
Liabilities and Equity: |
|||||||||||||||||||||||
Liabilities not subject to compromise: |
|||||||||||||||||||||||
Mortgages, notes and loans payable |
$ | 16,927,928 | $ | 272,825 | $ | | $ | 1,603,184 | (F) | $ | 545,451 | (R) | 18,803,738 | ||||||||||
Investment in and loans to/from
|
46,099 | | | | (46,099 | )(L) | | ||||||||||||||||
Deferred tax liabilities |
792,170 | 751,910 | | | (1,457 | )(S) | 38,803 | ||||||||||||||||
Accounts payable and accrued expenses |
1,317,622 | 318,580 | | (36,468 | )(G) | 1,195,838 | (T) | 2,158,412 | |||||||||||||||
Liabilities not subject to compromise |
19,083,819 | 1,343,315 | | 1,566,716 | 1,693,733 | 21,000,953 | |||||||||||||||||
Liabilities subject to compromise: |
|||||||||||||||||||||||
Mortgages, notes and loans payable |
6,932,135 | 63,951 | | (6,868,184 | )(H) | | | ||||||||||||||||
Accounts payable and accrued expenses |
904,721 | 74,142 | | (830,579 | )(H) | | | ||||||||||||||||
Liabilities subject to compromise |
7,836,856 | 138,093 | | (7,698,763 | )(H) | | | ||||||||||||||||
Total liabilities |
26,920,675 | 1,481,408 | | (6,132,047 | ) | 1,693,733 | 21,000,953 | ||||||||||||||||
Redeemable noncontrolling interests: |
|||||||||||||||||||||||
Preferred |
120,756 | | | | | 120,756 | |||||||||||||||||
Common |
115,117 | | | | (41,324 | )(U) | 73,793 | ||||||||||||||||
Total redeemable noncontrolling interests |
235,873 | | | | (41,324 | ) | 194,549 | ||||||||||||||||
Commitments and Contingencies |
| | | | | | |||||||||||||||||
Equity: |
|||||||||||||||||||||||
Common stockholders equity |
562,413 | 1,572,830 | | 6,312,020 | (I) | 4,686,817 | (V) | 9,988,420 | |||||||||||||||
Noncontrolling interests in consolidated real estate affiliates |
23,972 | 803 | | | 49,917 | (W) | 73,086 | ||||||||||||||||
Total equity |
586,385 | 1,573,633 | | 6,312,020 | 4,736,734 | 10,061,506 | |||||||||||||||||
Total liabilities and equity |
$ | 27,742,933 | $ | 3,055,041 | $ | | $ | 179,973 | $ | 6,389,143 | $ | 31,257,008 | |||||||||||
68
Notes to Pro Forma Condensed Consolidated Balance Sheet
Reflects the carrying value of assets and liabilities to be transferred to THHC pursuant to the Plan. In particular, as described in "Management's Discussion and Analysis of Financial Condition and Results of OperationsDistribution of THHC," the assets and liabilities to be transferred to THHC, are expected to consist of all of Old GGP's master-planned communities, nine mixed-use development opportunities, four potential mall development projects, seven redevelopment properties and other miscellaneous real estate interests. THHC will be capitalized with $250 million of initial equity from the Plan Sponsors pursuant to their investment agreements and Old GGP equity owners are expected to own a majority equity interest in THHC as of the Effective Date. Intercompany balances and transactions between entities to be owned by New GGP and THHC after the Effective Date that were previously eliminated within the historical financial statements of Old GGP, to the extent not specifically addressed by the provisions of the Plan, have been restored. In addition, the guidance in ASC 360-10-40-4 with respect to spin-off transactions requires that Old GGP record an impairment provision for the difference between the carrying amount and the fair value of the disposal group when the spin-off transaction is consummated. Accordingly, an impairment provision, currently estimated at approximately $175 million as described below, will be recorded by Old GGP as discontinued operations at the date of the spin-off. The estimated impairment provision is based on an assumed fair value of the disposal group calculated using the per share value of the carve-out group of net assets to be distributed to THHC of $47.619048 per share as provided by the Investment Agreements. When the distribution actually occurs, the fair value of the disposal group based on the trading price of THHC common stock will be known and the actual impairment provision recorded by Old GGP may vary significantly from this estimate.
The pro forma adjustments for the distribution of THHC do not reflect the new ownership structure or taxable status contemplated for THHC, the incremental costs that THHC will incur as a stand-alone public company or the costs associated with the transition services agreement that Old GGP expects to enter into with THHC on our behalf on or prior to the Effective Date. Accordingly, such pro forma adjustments for the THHC distribution will not agree to other financial information filed by THHC with respect to its assets and liabilities.
The cash and cash equivalents and common stockholder equity amounts as a result of the issuance of the common stock offered hereby have been offset by the assumed costs and expenses of the offering and the repurchase of million shares sold to Fairholme, Pershing Square and Texas Teachers and the repayment of the Pershing Square Bridge Notes and therefore nets to a zero amount for both items.
69
Notes to Pro Forma Condensed Consolidated Balance Sheet (Continued)
The pro forma adjustments for the Plan reflect the transactions called for by the Plan, which provide for the following Sources and Uses:
|
(dollars in thousands)
|
||||
---|---|---|---|---|---|
Sources of Funds: |
|||||
Brookfield Equity Investment |
$ | 2,309,000 | |||
Fairholme Equity Investment |
2,506,000 | (a),(b) | |||
Pershing Square Equity Investment |
1,004,000 | (a),(b) | |||
Texas Teachers Equity Investment |
500,000 | (a),(b) | |||
Blackstone Equity Investment |
481,000 | (b) | |||
Cash on hand |
630,000 | (c) | |||
Total sources of funds |
$ | 7,430,000 | |||
|
(dollars in thousands)
|
||||||
---|---|---|---|---|---|---|---|
Uses of Funds: |
|||||||
Payments related to creditor and loan restructuring |
|||||||
2006 credit facility claims |
$ | 2,711,000 | |||||
Rouse noteholder claims |
875,000 | (d) | |||||
GGPLP Exchangeable note claims |
1,675,000 | (d) | |||||
DIP loan claims, including principal |
402,000 | ||||||
Other secured and unsecured claims |
442,000 | ||||||
Loan payments and other escrows related to restructuring |
178,000 | ||||||
THHC set up costs |
15,000 | ||||||
Transaction fees and expenses |
358,000 | ||||||
Total uses of funds |
6,656,000 | ||||||
Net funds available as a result of the Plan |
$ | 774,000 |
70
Notes to Pro Forma Condensed Consolidated Balance Sheet (Continued)
The pro forma net adjustment to cash and cash equivalents as of September 30, 2010, is estimated as follows:
|
(In Thousands) | |||||
---|---|---|---|---|---|---|
Equity contribution from Plan Sponsors, Blackstone and Texas Teachers pursuant to the Plan, less |
$ | 6,800,000 | ||||
2006 credit facility claims |
2,711,000 | |||||
Rouse noteholder claims |
875,000 | (d) | ||||
GGPLP Exchangeable note claims |
1,675,000 | (d) | ||||
DIP loan claims, including principal |
402,000 | |||||
Other secured and unsecured claims |
442,000 | |||||
Loan payments and other escrows related to restructuring |
178,000 | |||||
THHC set up costs |
15,000 | |||||
Transaction fees and expenses |
358,000 | |||||
Net Cash and cash equivalents adjustment |
$ | 144,000 | ||||
The pro forma net change to prepaid expenses and other assets as of September 30, 2010 is estimated at $36 million related to projected vacant tenant and other property loan escrows which are required to be funded on the Effective Date based on certain property level loan agreements.
The pro forma net change to mortgages, notes and loans payable as of September 30, 2010 is estimated at $1.6 billion. This includes a pro forma increase to reclassify mortgages, notes and notes payable formerly classified as liabilities subject to compromise, in accordance with the Plan, in the amount of $6.9 billion. The reclassification adjustment related to liabilities subject to compromise is partially offset by a pro forma adjustment to reflect payment of $4.7 billion of pre-petition debt, repayment of $400 million of Old GGP's DIP facility, and $143 million related to property level and mezzanine loans, including the Ala Moana secured loan and Burlington Town Center Mezzanine facility described above.
The pro forma net decrease to accounts payable and accrued expenses as of September 30, 2010 is estimated at $36.5 million. This includes $830.6 million of accounts payable and accrued expenses reflected as liabilities subject to compromise. This reduction in accounts payable and accrued expenses includes a pro forma adjustment to decrease the September 30, 2010 balance of accounts payable and accrued expenses for $190 million of transaction fees and expenses that are estimated to be paid in accordance with the Plan. A pro forma adjustment is also provided to decrease accounts payable and accrued expenses as of September 30, 2010 for claims distributions in accordance with the Plan. The total amount of claims distributions are estimated at $751.2 million, of which $581.6 million is related to accrued interest and $169.6 million is related to claim distributions, including accrued Operating Partnership preferred distribution payments. These adjustments are partially offset by a pro forma
71
Notes to Pro Forma Condensed Consolidated Balance Sheet (Continued)
adjustment to reflect the THHC tax indemnity. The THHC tax indemnity is estimated to be $303.8 million. See "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanSpinco Note and Tax IndemnityTax Indemnity."
The pro forma adjustment is to reclassify certain amounts to accounts payable and accrued expenses or mortgages, notes and loans payable from the liabilities subject to compromise reported as of September 30, 2010 by $7.7 billion to reflect Old GGP's emergence from bankruptcy.
The pro forma adjustment to common stockholders' equity as of September 30, 2010 is estimated at $6.3 billion. The pro forma amount also assumes the elimination of all treasury stock ($76.8 million) as a result of Old GGP's emergence from bankruptcy.
Equity contribution pursuant to the Plan and Offering |
$ | 6,800,000 | ||
THHC tax indemnification |
(303,750 | ) | ||
Reorganization and transaction fees |
(184,230 | ) | ||
Net Common stockholders equity adjustment |
$ | 6,312,020 | ||
The Plan also provides for the issuance of 103 million interim warrants (issued May 10, 2010) to Brookfield Investor and Fairholme, to purchase shares of Old GGP common stock, at an exercise price of $15.00 per share. The interim warrants may only be exercised if the Investment Agreements are not consummated, and, accordingly, no historical or pro forma expense has been recognized. Upon consummation of the Plan, all interim warrants will be cancelled and warrants to purchase New GGP common stock and THHC common stock will be issued to each of the Plan Sponsors and Blackstone. See "Description of Common StockWarrants." The estimated $338.5 million value of the 120 million permanent warrants for New GGP common stock issued to the Plan Sponsors, has been reflected as an adjustment to the equity contribution of the Plan Sponsors.
Pursuant to the Plan, New GGP has the right to settle the Hughes heirs obligations, at its option, in cash and/or common stock of New GGP within 20 days after the Effective Date. We currently expect to settle these obligations in cash. In the event that we elect to settle these obligations in common stock, we may issue up to an additional $220.0 million of common stock (based on the 10 day trading average beginning 20 days after the Effective Date) from the amounts reflected in our pro forma financial statements.
As described above, the acquisition method of accounting has been applied to the assets and liabilities of New GGP reflective of the Plan, the THHC distribution and the offering of the common stock in this prospectus. The acquisition method of accounting adjustments described below reflects allocation of the estimated purchase price. As described earlier, upon the Effective Date, the ultimate purchase price and fair value of assets and liabilities can be computed and the amounts estimated below will change. Elements of Old GGP's working capital have been reflected at current carrying amounts as such short-term items are assumed to be settled in cash within 12 months at such values.
72
Notes to Pro Forma Condensed Consolidated Balance Sheet (Continued)
Estimated Purchase Allocation
(in thousands)
Sources of Funds |
$ | 7,430,000 | |||
Less: cash on hand |
(630,000 | ) | |||
Plus: Old GGP common equity* |
3,188,420 | ||||
Plus: Assumed liabilities |
|||||
Fair value of debt |
18,803,738 | ||||
Below-market tenant leases |
1,078,864 | ||||
Above-market ground leases |
9,261 | ||||
Deferred tax liabilities |
38,803 | ||||
Other |
1,070,287 | ||||
Total assumed liabilities |
21,000,953 | ||||
Plus: Total redeemable noncontrolling interests |
194,549 | ||||
Plus: Noncontrolling interests in consolidated real estate affiliates |
73,086 | ||||
Total purchase price |
$ | 31,257,008 | |||
Land |
$ |
5,267,865 |
|||
Buildings and equipment |
18,752,929 | ||||
In-place leases |
1,417,904 | ||||
Lease commissions |
151,633 | ||||
Developments in progress |
126,522 | ||||
Investment in and loans to/from Unconsolidated Real Estate Affiliates |
2,477,064 | ||||
Cash and cash equivalents |
771,432 | ||||
Accounts and notes receivable, net |
84,745 | ||||
Prepaid expenses and other assets: |
|||||
Above-market tenant leases |
1,593,659 | ||||
Below-market ground leases |
210,294 | ||||
Deferred tax assets |
16,378 | ||||
Tax stabilization agreement |
78,255 | ||||
Other |
308,328 | ||||
Total prepaid expenses and other assets |
2,206,914 | ||||
Total fair value of assets |
$ | 31,257,008 | |||
Reflects an acquisition method of accounting adjustment of $4.8 billion to reset the carrying value of the respective property assets to fair value. Land has an indefinite useful life and is not depreciated. Buildings and equipment generally have a useful life of 15 to 45 years. Buildings and equipment includes the in-place value of tenant leases. In-place tenant leases are amortized over periods that approximate the related non-cancelable remaining lease terms. Depreciable assets were marked to fair value. These fair values reflect Old GGP's previously existing accumulated depreciation balance being marked to $0.
73
Notes to Pro Forma Condensed Consolidated Balance Sheet (Continued)
Old GGP accounts for its Unconsolidated Real Estate Affiliates under the equity method. Equity method investments in the joint ventures underlying the Investment in and loans to/from Unconsolidated Real Estate Affiliates are also subject to acquisition method of accounting adjustments whereby the accounting basis in the assets and liabilities of the unconsolidated joint ventures are recorded at fair value, and accumulated depreciation of such assets are recorded at $0. Adjustments to Investment in and loans to/from Unconsolidated Real Estate Affiliates were also made to reflect the specific asset disposition and venture liquidation provisions of the joint venture agreements if our ultimate liquidation proceeds pursuant to the joint venture agreements would not be equal to our ratable share of a deemed liquidation of the joint venture at fair value. Investments in Unconsolidated Real Estate Affiliates reflected as a liability have been set to fair value, in all cases an asset amount as such liabilities were previously a function of the equity method of accounting where distributions have exceeded our capital investments, adjusted by our share of earnings, from such joint ventures.
The remaining amounts at Old GGP properties that are not distributed to THHC, previously reflected at a historical cost of $12.4 million, have been combined with the fair value of the underlying properties as the increase in property value inherent in such projects, reflecting estimated costs to complete and estimated incremental cash flow from such projects, was used to calculate such fair values.
Reflects the elimination of previously recorded straight-line rents receivable as of the Effective Date.
Includes adjustment of $200 million to reflect goodwill at $0 due to the fact that New GGP's fair value has been allocated to all of its tangible and identifiable intangible assets and liabilities.
Old GGP's deferred expenses consisted principally of financing fees and leasing costs and commissions. Includes an adjustment of $254 million to reflect a fair value of $0 for such deferred expenses because Old GGP reflects the future benefit of these finance fees and leasing costs in the estimated fair values of Mortgages, notes and loans payable and Investments in real estate, respectively.
Reflects acquisition method of accounting adjustments that reflect tangible and identified intangible assets and liabilities at fair value. The intangible assets we have recognized pursuant to the acquisition method of accounting consist of above and below market leases where we are either the lessor (generally, leases to our retail and other tenants) or lessee (generally, where we own real estate subject to a ground lease), a real estate tax stabilization agreement (an agreement with a local municipality with respect to future real estate tax obligations) and certain other contractual arrangements. The adjustments are depreciated or amortized over the estimated useful life or contractual term of the underlying asset or liability (generally ranging from 3 to 11 years for tenant leases and up to 85 years for ground leases). Intangible assets recorded as a result of the acquisition method of accounting have been reflected as a component of prepaid and other assets while intangible liabilities are reported within accounts payable and accrued expenses. The value of tenant relationships has been considered in the re-leasing assumptions made in reflecting the value of in-place leases.
74
Notes to Pro Forma Condensed Consolidated Balance Sheet (Continued)
The acquisition method of accounting provides debt be fair valued using contractual cash flows and current estimated market interest rates, including the rates for the mortgages, notes and loans payable as modified, extended and approved by the previously confirmed plans of reorganization of Old GGP's subsidiaries or as specified in the Plan. The resulting discount or premium is a non-cash item which will be amortized or accreted over the remaining loan term on the effective yield method and reflected as a component of pro forma interest expense as described below. The weighted average interest rate utilized to estimate the fair value of debt was 4.82% and a 0.25% increase in such estimated rate would yield an approximate $200 million decrease in the estimated fair value of such debt.
Old GGP's deferred tax assets (reflected in prepaid and other assets) and liabilities have been re-measured utilizing the adjusted pro forma carrying amounts of New GGP's assets and liabilities and the current taxable and non-taxable entities to be held by New GGP after the distribution of the THHC assets and liabilities.
Reflects elements of Old GGP's working capital that have been reflected at current carrying amounts as such short-term items are assumed to be settled in cash within 12 months at such values.
The common and preferred units in GGPLP have been classified in the accompanying historical and pro forma balance sheet at September 30, 2010 outside of permanent equity as provided by ASC 480-10-S99-3 as redemption of such units are not solely within the control of the Company. ASC 805-10 and 810-10 further provide that such units be reported at the greater of the carrying amount (adjusted for income and dividends) or fair value. Accordingly, redeemable noncontrolling interests are carried at fair value as of September 30, 2010 in the historical consolidated financial statements as provided by GAAP and the pro forma statements are reflective of the revised conversion rates and book values per unit as a result of the Plan. Treasury stock has been reduced to $0 as Old GGP stock is cancelled per the Plan and only current stockholders of Old GGP are issued New GGP stock.
The acquisition method of accounting yields numerous adjustments to assets and liabilities as described above. The net effect of such adjustments is presented as an increase in common stockholders' equity, including the acquisition of Old GGP stockholder common stock with New GGP, Inc. common stock at an assumed value of $10 per share based upon the price per share of New GGP common stock to be paid by the Plan Sponsors (after the distribution of THHC), which value was accepted by Old GGP's management and Board of Directors and which is included in the Plan.
Noncontrolling interests in our consolidated real estate affiliates reflect the increase in the value of the consolidated venture's net assets attributable to such noncontrolling joint venture partners.
75
Old GGP
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 2009
|
Historical | Less Distribution of THHC(A) | Offering | Plan | Acquisition Accounting | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||||||||||||||||
Revenues: |
|||||||||||||||||||||
Minimum rents |
$ | 1,992,046 | $ | 65,653 | $ | | $ | | $ | (59,332 | )(G) | $ | 1,867,061 | ||||||||
Tenant recoveries |
883,595 | 19,642 | | | | 863,953 | |||||||||||||||
Overage rents |
52,306 | 2,701 | | | | 49,605 | |||||||||||||||
Land sales |
45,997 | 45,997 | | | | | |||||||||||||||
Management fees and other corporate revenues |
75,851 | 23 | | 6,382 | (B) | | 82,210 | ||||||||||||||
Other |
86,019 | 2,333 | | | | 83,686 | |||||||||||||||
Total revenues |
3,135,814 | 136,349 | | 6,382 | (59,332 | ) | 2,946,515 | ||||||||||||||
Expenses: |
|||||||||||||||||||||
Real estate taxes |
280,895 | 13,827 | | | 907 | (H) | 267,975 | ||||||||||||||
Property maintenance costs |
119,270 | 5,572 | | | | 113,698 | |||||||||||||||
Marketing |
34,363 | 1,071 | | | | 33,292 | |||||||||||||||
Other property operating costs |
529,686 | 32,573 | | | (1,416 | )(I) | 495,697 | ||||||||||||||
Land sales operations |
50,807 | 50,807 | | | | | |||||||||||||||
Provision for doubtful accounts |
30,331 | 2,539 | | | | 27,792 | |||||||||||||||
Property management and other costs |
176,876 | 17,645 | | 600 | (C) | | 159,831 | ||||||||||||||
General and administrative |
28,608 | | | | | 28,608 | |||||||||||||||
Strategic initiatives |
67,341 | 5,380 | | | | 61,961 | |||||||||||||||
Provisions for impairment |
1,223,810 | 680,683 | | | | 543,127 | |||||||||||||||
Depreciation and amortization |
755,161 | 19,841 | | | 347,664 | (J) | 1,082,984 | ||||||||||||||
Total expenses |
3,297,148 | 829,938 | | 600 | 347,155 | 2,814,965 | |||||||||||||||
Operating income (loss) |
(161,334 | ) | (693,589 | ) | | 5,782 | (406,487 | ) | 131,550 | ||||||||||||
Interest income |
3,321 | 1,689 | | | | 1,632 | |||||||||||||||
Interest expense |
(1,311,283 | ) | (1,337 | ) | | 159,470 | (D) | (25,129 | )(K) | (1,175,605 | ) | ||||||||||
Loss before income taxes, noncontrolling interests, equity in income of Unconsolidated Real Estate Affiliates and reorganization items |
(1,469,296 | ) | (693,237 | ) | | 165,252 | (431,616 | ) | (1,042,423 | ) | |||||||||||
(Provision for) benefit from income taxes |
14,610 | 22,585 | | 2,073 | (E) | | (5,902 | ) | |||||||||||||
Equity in income of Unconsolidated Real Estate Affiliates |
4,635 | (28,209 | ) | | | (21,256 | )(L) | 11,588 | |||||||||||||
Reorganization items |
146,190 | (6,963 | ) | | (153,153 | )(F) | | | |||||||||||||
Income (loss) from continuing operations |
$ | (1,303,861 | ) | $ | (705,824 | ) | $ | | $ | 14,172 | $ | (452,872 | ) | $ | (1,036,737 | ) | |||||
Basic and diluted (loss) earnings per share: |
|||||||||||||||||||||
Basic |
$ | (4.11 | ) | $ | (M) | ||||||||||||||||
Diluted |
$ | (4.11 | ) | $ | (M) | ||||||||||||||||
Weighted average numbers of common shares outstanding: |
|||||||||||||||||||||
Basic |
311,993 | (M) | |||||||||||||||||||
Diluted |
311,993 | (M) | |||||||||||||||||||
76
Old GGP
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Nine Months Ended September 30, 2010
|
Historical |
Less
Distribution of THHC(A) |
Offering | Plan |
Acquisition
Accounting |
Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||||||||||||||||
Revenues: |
|||||||||||||||||||||
Minimum rents |
$ | 1,464,650 | $ | 50,349 | $ | | $ | | $ | (49,252 | )(G) | $ | 1,365,049 | ||||||||
Tenant recoveries |
647,744 | 13,890 | | | | 633,854 | |||||||||||||||
Overage rents |
28,126 | 1,738 | | | | 26,388 | |||||||||||||||
Land sales |
85,325 | 22,141 | | | | 63,184 | |||||||||||||||
Management fees and other corporate revenues |
48,063 | | | 4,787 | (B) | | 52,850 | ||||||||||||||
Other |
62,337 | 3,762 | | | | 58,575 | |||||||||||||||
Total revenues |
2,336,245 | 91,880 | | 4,787 | (49,252 | ) | 2,199,900 | ||||||||||||||
Expenses: |
|||||||||||||||||||||
Real estate taxes |
214,496 | 11,172 | | | 680 | (H) | 204,004 | ||||||||||||||
Property maintenance costs |
89,207 | 4,766 | | | | 84,441 | |||||||||||||||
Marketing |
22,374 | 755 | | | | 21,619 | |||||||||||||||
Other property operating costs |
387,713 | 24,828 | | | (1,028 | )(I) | 361,857 | ||||||||||||||
Land sales operations |
89,001 | 33,540 | | | | 55,461 | |||||||||||||||
Provision for doubtful accounts |
15,575 | 1,101 | | | | 14,474 | |||||||||||||||
Property management and other costs |
125,007 | 12,463 | | 450 | (C) | | 112,994 | ||||||||||||||
General and administrative |
22,707 | | | | | 22,707 | |||||||||||||||
Strategic initiatives |
| | | | | | |||||||||||||||
Provisions for impairment |
35,893 | 578 | | | | 35,315 | |||||||||||||||
Depreciation and amortization |
527,956 | 12,535 | | | 296,818 | (J) | 812,239 | ||||||||||||||
Total expenses |
1,529,929 | 101,738 | | 450 | 296,470 | 1,725,111 | |||||||||||||||
Operating income (loss) |
806,316 | (9,858 | ) | | 4,337 | (345,722 | ) | 474,789 | |||||||||||||
Interest income |
1,087 | 118 | | | | 969 | |||||||||||||||
Interest expense |
(1,050,241 | ) | (2,690 | ) | | 129,215 | (D) | (20,993 | )(K) | (939,329 | ) | ||||||||||
Loss before income taxes, noncontrolling interests, equity in income of Unconsolidated Real Estate Affiliates and reorganization items |
(242,838 | ) | (12,430 | ) | | 133,552 | (366,715 | ) | (463,571 | ) | |||||||||||
(Provision for) benefit from income taxes |
(19,797 | ) | (13,352 | ) | | | (E) | | (6,445 | ) | |||||||||||
Equity in income of Unconsolidated Real Estate Affiliates |
60,441 | 6,394 | | | (15,942 | )(L) | 38,105 | ||||||||||||||
Reorganization items |
(93,216 | ) | (42,476 | ) | | 50,740 | (F) | | | ||||||||||||
Income (loss) from continuing operations |
$ | (295,410 | ) | $ | (61,864 | ) | $ | | $ | 184,292 | $ | (382,657 | ) | $ | (431,911 | ) | |||||
Basic and diluted (loss) earnings per share: |
|||||||||||||||||||||
Basic |
$ | (0.94 | ) | $ | (M) | ||||||||||||||||
Diluted |
$ | (0.94 | ) | $ | (M) | ||||||||||||||||
Weighted average numbers of common shares outstanding: |
|||||||||||||||||||||
Basic |
316,849 | (M) | |||||||||||||||||||
Diluted |
316,849 | (M) | |||||||||||||||||||
77
Old GGP
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Nine Months Ended September 30, 2009
|
Historical |
Less Distribution
of THHC(A) |
Offering | Plan |
Acquisition
Accounting |
Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||||||||||||||||
Revenues: |
|||||||||||||||||||||
Minimum rents |
$ | 1,487,288 | $ | 49,390 | $ | | $ | | $ | (51,104 | )(G) | $ | 1,386,794 | ||||||||
Tenant recoveries |
674,750 | 14,827 | | | | 659,923 | |||||||||||||||
Overage rents |
26,214 | 1,465 | | | | 24,749 | |||||||||||||||
Land sales |
38,844 | 38,844 | | | | | |||||||||||||||
Management fees and other corporate revenues |
57,569 | 23 | | 4,787 | (B) | | 62,333 | ||||||||||||||
Other |
57,031 | 832 | | | | 56,199 | |||||||||||||||
Total revenues |
2,341,696 | 105,381 | | 4,787 | (51,104 | ) | 2,189,998 | ||||||||||||||
Expenses: |
|||||||||||||||||||||
Real estate taxes |
210,443 | 10,111 | | | 680 | (H) | 201,012 | ||||||||||||||
Property maintenance costs |
77,704 | 3,617 | | | | 74,087 | |||||||||||||||
Marketing |
21,840 | 738 | | | | 21,102 | |||||||||||||||
Other property operating costs |
394,414 | 24,372 | | | (1,065 | )(I) | 368,977 | ||||||||||||||
Land sales operations |
42,046 | 42,046 | | | | | |||||||||||||||
Provision for doubtful accounts |
25,104 | 1,181 | | | | 23,923 | |||||||||||||||
Property management and other costs |
130,485 | 13,024 | | 450 | (C) | | 117,911 | ||||||||||||||
General and administrative |
22,436 | | | | | 22,436 | |||||||||||||||
Strategic initiatives |
67,341 | 5,380 | | | | 61,961 | |||||||||||||||
Provisions for impairment |
474,420 | 181,273 | | | | 293,147 | |||||||||||||||
Depreciation and amortization |
576,103 | 15,221 | | | 251,357 | (J) | 812,239 | ||||||||||||||
Total expenses |
2,042,336 | 296,963 | | 450 | 250,972 | 1,996,795 | |||||||||||||||
Operating income (loss) |
299,360 | (191,582 | ) | | 4,337 | (302,076 | ) | 193,203 | |||||||||||||
Interest income |
1,754 |
487 |
|
|
|
1,267 |
|||||||||||||||
Interest expense |
(983,198 | ) | 811 | | 114,772 | (D) | (21,591) | (K) | (890,828 | ) | |||||||||||
Loss before income taxes, noncontrolling interests, equity in income of Unconsolidated Real Estate Affiliates and reorganization items |
(682,084 | ) | (190,284 | ) | | 119,109 | (323,667 | ) | (696,358 | ) | |||||||||||
(Provision for) benefit from income taxes |
10,202 | 15,849 | | 2,073 | (E) | | (3,574 | ) | |||||||||||||
Equity in income of Unconsolidated Real Estate Affiliates |
39,218 | 3,090 | | | (15,942 | )(L) | 20,186 | ||||||||||||||
Reorganization items |
(47,515 | ) | (3,832 | ) | | 43,683 | (F) | | | ||||||||||||
Income (loss) from continuing operations |
$ | (680,179 | ) | $ | (175,177 | ) | $ | | $ | 164,865 | $ | (339,609 | ) | $ | (679,746 | ) | |||||
Basic and diluted (loss) earnings per share: |
|||||||||||||||||||||
Basic |
$ | (2.16 | ) | $ | (M) | ||||||||||||||||
Diluted |
$ | (2.16 | ) | $ | (M) | ||||||||||||||||
Weighted average numbers of common shares outstanding: |
|||||||||||||||||||||
Basic |
311,861 | (M) | |||||||||||||||||||
Diluted |
311,861 | (M) | |||||||||||||||||||
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Old GGP
Notes to Pro Forma Condensed Consolidated Statements of Operations
Reflects the revenues and expenses transferred to THHC pursuant to the Plan. In particular, as described in "Management's Discussion and Analysis of Financial Condition and Results of OperationsDistribution of THHC," the assets and liabilities to be transferred to THHC pursuant to a tax-free exchange, are expected to consist of all of Old GGP's master-planned communities, nine mixed-use development opportunities, four potential mall development projects, seven redevelopment properties and other miscellaneous real estate interests. THHC will be capitalized with $250 million of initial equity from the Plan Sponsors pursuant to their investment agreements and Old GGP equity owners are expected to own a majority equity interest in THHC as of the Effective Date. Intercompany balances and transactions between entities to be owned by New GGP and THHC after the Effective Date that were previously eliminated within the historical financial statements of Old GGP, to the extent not specifically addressed by the provisions of the Plan, have been restored. The pro forma adjustments for the distribution of THHC do not reflect the new ownership structure or taxable status contemplated for THHC, the incremental costs that THHC will incur as a stand-alone public company or the costs associated with the transition services agreement that Old GGP expects to enter into with THHC on our behalf on or prior to the Effective Date. Accordingly, such pro forma adjustments for the THHC distribution will not agree to other financial information filed by THHC with respect to its results of operations.
Reflects certain Transition Services Agreement revenues of $6 million annually as well as certain rents (approximately $0.3 million) pursuant to a six month lease expected to commence with THHC on the Effective Date.
Reflects rental expense for certain corporate office space owned by THHC of $0.6 million annually.
Reflects the reduction in interest expense due to the repayment or replacement of certain of Old GGP's debt as provided by the Plan. In addition, $1.650 billion of unmatured Rouse notes are expected to be reinstated pursuant to the Plan.
Reflects the pro forma adjustments to income tax effected at an average tax rate of approximately 39.09%.
Expenses for all reorganization items have been reversed as the Plan is assumed to be effective and all Old GGP Debtors are deemed to have emerged from bankruptcy as of the first day of the periods presented and, accordingly, such expenses or items would not be incurred.
Minimum rent receipts are recognized on a straight-line basis over periods that reflect the related lease terms. Acquisition accounting adjustments reflect a change in the periods over which such items are recognized, as compared to Old GGP. The adjustment related to straight-line rent was an increase
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Old GGP
Notes to Pro Forma Condensed Consolidated Statements of Operations (Continued)
in revenues of $45.0 million for the year ended December 31, 2009; $27.0 million for the nine months ended September 30, 2010 and $26.9 million for the nine months ended September 30, 2009.
Minimum rent revenues also include accretion and amortization related to above and below-market portions of tenant leases. Acquisition accounting adjustments reflect adjusted amortization due to the revaluation of the above described intangibles and, as compared to Old GGP, the shortened periods over which such items are recognized. The adjustment related to accretion and amortization of these intangible assets was a decrease in revenues of $104.3 million for the year ended December 31, 2009, $76.2 million for the nine months ended September 30, 2010 and $78.0 million for the nine months ended September 30, 2009.
Real estate taxes have been adjusted to reflect acquisition method of accounting intangible assets and liabilities for ground leases where Old GGP is the lessee and for certain other contractual arrangements. Acquisition accounting adjustments reflect adjusted amortization due to the revaluation of the above described intangibles and, as compared to Old GGP, the shortened periods over which such items are recognized.
Other property operating costs have been adjusted to reflect acquisition method of accounting intangible assets and liabilities for ground leases where Old GGP is the lessee and for certain other contractual arrangements. Acquisition accounting adjustments reflect adjusted amortization due to the revaluation of the above described intangibles and, as compared to Old GGP, the shortened periods over which such items are recognized.
Adjusts depreciation and amortization expense related to the adjustments of estimated useful lives and contractual terms as well as the fair valuation of the underlying assets and liabilities, resulting in changes to the rate and amount of depreciation and amortization.
Reflects a non-cash adjustment to interest expense due to the fair valuing of debt and deferred expenses and other amounts in historical interest expense as a result of the acquisition method of accounting. Mortgages, notes and loans payable have been fair valued using contractual cash flows as current estimate interest rates, including such debt as modified, extended and approved by the respective plans of reorganization of Old GGP's subsidiaries or as specified in the Plan. The resulting discounts or premiums (which are non-cash items) have been amortized or accreted over the remaining loan term on the effective yield method and reported as a component of interest expense.
A 0.25% increase or decrease in the effective interest rate for our variable rate loans would increase or decrease the pro forma interest expense by $6.8 million for the year ended December 31, 2009 and $3.4 million for the nine months ended September 30, 2010.
Reflects the allocation of the total of all respective pro forma adjustments, substantially all of which are related to depreciation. Depreciation adjustments reflect the adjusted fair value of the property owned by the Unconsolidated Rest Estate Affiliates pursuant to the acquisition method of accounting, depreciated over the estimated useful life of the property for the applicable period, and adjusted for GGP's allocable sharing percentage under the applicable joint venture agreements.
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Old GGP
Notes to Pro Forma Condensed Consolidated Statements of Operations (Continued)
Included in pro forma earnings for the periods presented, after giving effect to the distribution of THHC and the acquisition adjustments listed immediately above, are aggregate straight line rent, net above and below market rent and acquisition accounting real estate tax and ground rent adjustment amounts of $27.0, ($76.3), ($0.7) and $1.0; $26.9, ($78.0), ($0.7) and $1.1; and $45.0, ($104.3), ($1.0) and $1.4 (all amounts in millions), for the nine months ended September 30, 2010 and September 30, 2009 and for the twelve months ended December 31, 2009, respectively.
Reflects the earnings per share effect of approximately 643.8 million shares of common stock issued offered by this prospectus, which assumes $ per share and reflects the earnings per share effect of approximately shares of common stock issued to the Plan Sponsors, Blackstone and Texas Teachers pursuant to the Plan.
The pro forma condensed consolidated statements of operations do not include any expense related to the conversion of Old GGP options to acquire Old GGP common stock into options to acquire New GGP and THHC common stock as such options are fully vested at the Effective Date and no service period expense or compensation expense is therefore recognizable under ASC 718-20. In addition, as all pro forma periods reflect losses, no dilutive effect of these options is presented as all options outstanding are anti-dilutive. Finally, the acceleration of the expense associated with the existing options has not been reflected in the pro forma statements of operations as it is not material.
Excludes the impact of any dilution resulting from the terms of the employment agreement with Mr. Sandeep Mathrani to be effective as of January 17, 2010, which provides for the issuance of restricted stock and options and is not a transaction pursuant to the Plan.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read this discussion in conjunction with Old GGP's consolidated financial statements, the notes thereto and other financial information included elsewhere in this prospectus. Old GGP's financial statements are prepared in accordance with GAAP. The description of our business in this prospectus is presented on a pro forma basis after giving effect to the consummation of the Plan as more fully described under "Unaudited Pro Forma Condensed Consolidated Financial and Other DataNotes to Unaudited Pro Forma Condensed Consolidated Financial Statements," including the distribution of THHC. However, except as otherwise explicitly stated, the historical consolidated financial information and data and accompanying consolidated financial statements and the related notes thereto contained in this prospectus reflect the actual historical consolidated results of operations and financial condition of Old GGP for the periods presented and do not give effect to, among other things, the consummation of the Plan, including the distribution of THHC.
In addition, we have identified thirteen properties with $744.5 million of secured mortgage debt at September 30, 2010 as underperforming retail assets (the "Special Consideration Properties"). Two of these thirteen properties with an aggregate of $97.5 million of secured mortgage debt at September 30, 2010 were transferred to the applicable lenders on November 1, 2010. The Special Consideration Properties are held by entities that have emerged from bankruptcy. Pursuant to the terms of the agreements with the lenders for these properties, the entities holding such properties have until two days following the emergence of the remaining Debtors in bankruptcy to determine whether the collateral property for these loans should be deeded to the respected lender in full satisfaction of the related debt or whether the property should be retained with further modified loan terms. Prior to the emergence of the remaining Debtors, all cash produced by these properties is under the control of the respective lenders, and we are required to pay any operating expense shortfall. No determination has been made as to whether to retain or deed back the Special Consideration upon Old GGP's and the other remaining Debtors' emergence from bankruptcy, and they are included in the discussion below.
This section contains forward-looking statements that involve risks and uncertainties. Our actual results may vary materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set forth in "Risk Factors" and the matters set forth in this prospectus. See "Cautionary Statement Regarding Forward-Looking Statements."
All references to numbered Notes are to specific footnotes to our consolidated historical financial statements included elsewhere in this prospectus and which descriptions are incorporated into the applicable response by reference. Capitalized terms used, but not defined, in this Management's Discussion and Analysis of Financial Condition and Results of Operations have the same meanings as in such Notes.
In this section, references to "we," "us" and "our" refer to Old GGP and its consolidated subsidiaries and joint ventures prior to giving effect to the Plan.
Overview
We are a leading real estate owner and operator of regional malls with an ownership interest in 185 regional malls in 43 states as of the date of this prospectus, as well as ownership interests in other rental properties. Based on the number of malls in our portfolio, we are the second largest owner of regional malls in the United States, located strategically in major and middle markets nationwide. For the year ended December 31, 2009, on a pro forma basis, our operating income and NOI were $131.6 million and $2,306.7 million, respectively, and for the nine months ended September 30, 2010, on a pro forma basis our operating income and NOI were $474.8 million and $1,688.0 million, respectively.
From the third quarter of 2008 through the filing of the Chapter 11 Cases and first half of 2009, liquidity was our primary issue. Unable to refinance, extend or otherwise restructure our past due debt due to the collapse of the credit markets, we voluntarily chose to restructure our debt under court
82
supervision. In April 2009, we and certain of our subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code, which we refer to as the bankruptcy. The Chapter 11 Cases were filed in the Bankruptcy Court of the Southern District of New York and are currently being jointly administered. A total of 388 Debtors with approximately $21.8 billion of debt filed for Chapter 11 protection under the Bankruptcy Code. The Chapter 11 cases created the protections necessary for us to develop and execute plans of reorganization to restructure our company and extend mortgage maturities, reduce corporate debt and overall leverage and establish a sustainable long-term capital structure. We have a long-term business plan necessary to effect the objectives it sought to achieve through the Chapter 11 process. The business plan contemplates the continued operation of retail shopping centers, divestiture of non-core assets and businesses and certain non-performing retail assets, and select development projects. We have pursued a deliberate two-stage strategy for our reorganization. The first stage of the Chapter 11 process, which is substantially completed, entailed the restructuring of our property-level secured mortgage debt. The second stage is the restructuring of the debt of the remaining Debtors and our public equity.
As of September 30, 2010, 262 Debtors representing approximately $14.9 billion of debt have emerged from bankruptcy and 126 TopCo Debtors, representing approximately $6.9 billion of debt, remain subject to Chapter 11 proceedings. The consensual plans of reorganization for such emerged Debtors provided for, in exchange for payment of certain extension fees and cure of previously unpaid amounts due on the applicable mortgage loans (primarily, principal amortization otherwise scheduled to have been paid since the date the Chapter 11 Cases were filed) received an extension of the secured mortgage loans at previously existing non-default interest rates. As a result of the extensions, none of these loans will have a maturity prior to January 1, 2014. In addition, the consensual plans of reorganization provide for the payment in full of all undisputed claims of creditors of such Debtors.
We developed the second stage of our strategy for the TopCo Debtors' emergence from bankruptcy. This strategy included our entry into the Investment Agreements with the Plan Sponsors, the distribution of THHC (described below), the investment by Texas Teachers and entry into a revolving credit facility. On August 27, 2010, Old GGP, along with the other TopCo Debtors, filed with the Bankruptcy Court the Disclosure Statement and the Plan. On October 21, 2010, the Bankruptcy Court entered an order confirming the Plan. The Plan became effective and Old GGP emerged from bankruptcy on , 2010. For more detailed information, see "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the Plan."
Distribution of THHC
As part of the Plan, Old GGP distributed to its existing stockholders equity ownership in a newly formed company, THHC, which will own a diverse portfolio of real estate assets, including the master planned communities and properties such as Ward Centers in Honolulu, Hawaii and South Street Seaport in New York City. The distribution was exempt from registration under the Securities Act pursuant to Section 1145 of the Bankruptcy Code. The THHC properties are a group of assets that we believe have considerable long term value potential. These assets are expected to consist of all of our master planned communities, nine mixed-use development opportunities, four mall development projects, seven redevelopment opportunities and eleven other miscellaneous interests. See "Unaudited Pro Forma Condensed Consolidated Financial Information."
In order to provide for an orderly transition of THHC as an independent company, we entered into certain agreements with THHC as described below:
83
contracts to be performed by each of us and THHC as part of the separation, and it provides for when and how these transfers, assumptions and assignments will occur. The THHC assets and THHC liabilities will be transferred on an "as is," "where is" basis as of the distribution date without pro-ration and regardless of whether they relate to the period before or after the distribution date. The Separation Agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of THHC's business with THHC. Other matters governed by the Separation Agreement include access to financial and other records and information, intellectual property, legal privilege, confidentiality, access to and provision of records and treatment of outstanding guarantees. The Separation Agreement may be terminated, and the distribution abandoned at any time prior to the distribution, by us in our sole discretion, without THHC's approval.
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may continue to participate in our welfare benefit plans, including our healthcare plan, until December 31, 2010. THHC will reimburse us for the cost continuing to provide such coverage.
Pursuant to the Investment Agreements, under certain circumstances, THHC or one of its subsidiaries may be required to issue the Spinco Note. Based on currently available information, we do not expect that a Spinco Note will be issued on the Effective Date.
Following the distribution to THHC, New GGP will not operate the Master Planned Communities segment. On a pro forma basis, for the year ended December 31, 2009, total revenues would have declined by approximately $136.3 million and total expenses would have declined by approximately $830.0 million. In addition, the total assets owned by THHC at September 30, 2010 would have been approximately $3.1 billion. As a result, we expect the distribution to THHC to have a positive impact on operating income and net income attributable to common stockholders of New GGP.
The accompanying discussion and analysis of operations relates to historical Old GGP, without giving effect to the distribution to THHC. For a presentation of the impact of the THHC distribution, see "Unaudited Pro Forma Condensed Consolidated Financial Information."
Impact of Implementation of the Plan
In addition to the THHC distribution, the Plan contemplates the payment and/or possible reinstatement of TopCo Debtor indebtedness and other liabilities, which will result in a reduction of cash interest expense from historical levels. Also, due to the structure of the Plan Sponsors' investment, as of the Effective Date, New GGP will be required to apply the acquisition method of accounting. Acquisition method of accounting yields numerous adjustments to assets and liabilities, including requiring that Old GGP's debt be fair valued using contractual cash flows and current estimated market interested rates, including the rates for the mortgages, notes, and loans payable as modified, extended and approved by the previously confirmed first stage plans. The resulting discount or premium is a non-cash item which will be amortized or accreted over the remaining loan term on the effective yield method and reflected as a component interest expense. As a result, we expect that much of the reduction of interest expense that we will realize as a result of the reduction of our liabilities under the Plan will be offset by an increase in non-cash interest expense resulting from this aspect of the adoption of the acquisition method of accounting. For a more detailed description of the pro forma impact of the implementation of the Plan and the adoption of the acquisition method of accounting, see the "Unaudited Pro Forma Condensed Consolidated Financial Information" included elsewhere in this prospectus.
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Operations
As a result of the automatic stay of most actions against a Debtor's estate, the resulting suspension of our obligation to pay certain pre-petition liabilities and proceeds from the DIP Facility, as of September 30, 2010, we had approximately $630.0 million of cash. Our liquidity is dependent upon cash flow from operations, which were affected by the severe weakening of the economy in 2009. Retail sales hit their low point in the first quarter of 2009 but have gradually improved. However, retail market conditions have not returned to the levels of 2007 and, while we believe that they have stabilized and begun to show improvement, they continue to impact our ability to generate and increase Retail and Other revenues. In addition, the continued weak housing market has negatively affected our ability to generate income through the sale of residential land in our master planned communities.
As part of our business planning process we reviewed our development and redevelopment projects. At this time we currently plan to complete projects that are already substantially complete and joint venture projects. As a result, we currently expect to complete our expansion and redevelopment projects at Christiana Mall, Fashion Place and Saint Louis Galleria.
For the nine months ended September 30, 2010, we generated NOI of $1.8 billion in our retail and other segment. Included in this amount is income from our Unconsolidated Properties at our ownership share. We also reported NOI of $1.8 billion for the nine months ended September 30, 2009. Based on the results of our evaluations for impairment ("Note 1Reorganization" to the consolidated financial statements contained elsewhere in the prospectus), we recognized total impairment charges of $35.9 million for the nine months ended September 30, 2010 and $474.4 million for the nine months ended September 30, 2009.
For the nine months ended September 30, 2010, total property revenues declined $52.7 million, or 1.96%, to $2.63 billion from the same period in 2009, primarily due to declines in specialty leasing occupancy and sales volumes. Included in this amount are revenues from Unconsolidated Properties at our ownership share of $440.1 million for the nine months ended September 30, 2010, which was slightly less than the $449.4 million for the nine months ended September 30, 2009.
Land and condominium sales, as well as land and condominium sales operations, increased for the nine months ended September 30, 2010 primarily resulting from $63.2 million of revenue and $58.2 million of associated costs of sales related to 24 condominium sales at Nouvelle at Natick during the period. Comparable unit sales were deferred until the three months ended June 30, 2010 since we had not surpassed the threshold of sold units required for recognition of revenue on the project as a whole. In addition, The Woodlands community experienced greater sales volumes of commercial land sales for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009.
Our ability to continue as a going concern is dependent upon our ability to successfully consummate the Plan, and emerge from bankruptcy protection and there can be no assurance that we will be able to do so. We have described such concerns in Note 1 and our independent registered public accounting firm has included an explanatory paragraph in its report on the audit of our consolidated financial statements as of December 31, 2009 and for the year then ended expressing substantial doubt as to our ability to continue as a going concern.
Historical Reportable Segments
We have historically operated our business in two reportable segments: Retail and Other and Master Planned Communities. All of the master planned communities and portions of the Rental and Other segment were transferred to THHC on the Effective Date. The historical information provided below has not been restated to give effect to the distribution of THHC or other components of the Plan.
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Retail and Other Segment
Our primary business is owning, managing, leasing and developing retail rental property, primarily shopping centers. The substantial majority of our properties are located in the United States, but we also have certain retail rental property operations and property management activities (through unconsolidated joint ventures) in Brazil.
We provide on-site management and other services to substantially all of our properties, including properties which we own through joint venture arrangements and which are unconsolidated for GAAP purposes. Our management operating philosophies and strategies are generally the same whether the properties are consolidated or unconsolidated. As a result, we believe that financial information and operating statistics with respect to all properties, both consolidated and unconsolidated, provide important insights into our operating results.
We believe that the most significant operating factor affecting incremental cash flow and NOI is increased rents earned from tenants at our properties. These rental revenue increases are primarily achieved by:
The following tables summarize selected operating statistics. Unless noted, all information is as of December 31, 2009.
|
Consolidated
Properties(b) |
Unconsolidated
Properties(b) |
Company
Portfolio(b)(e) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Operating Statistics (a) |
||||||||||
Space leased at centers not under redevelopment (as a %) |
91.0 | % | 93.8 | % | 91.6 | % | ||||
Trailing 12 month total tenant sales per square feet(c) |
$ | 393 | $ | 447 | $ | 406 | ||||
% change in total sales |
(7.0 | )% | (7.9 | )% | (7.2 | )% | ||||
% change in comparable sales |
(7.4 | )% | (7.8 | )% | (7.4 | )% | ||||
Mall and Freestanding GLA excluding space under redevelopment (in square feet) |
50,727,954 | 4,634,148 | 65,362,102 | |||||||
Certain Financial Information (d) |
||||||||||
Average annualized in place sum of rent and recoverable common area costs per square foot(f) |
$ | 47.09 | $ | 54.98 | ||||||
Average sum of rent and recoverable common area costs per square foot for new/renewal leases (excludes current year acquisitions)(f) |
$ | 32.02 | $ | 43.31 | ||||||
Average sum of rent and recoverable common area costs per square foot for leases expiring in current year (excludes current year acquisitions)(f) |
$ | 35.43 | $ | 47.05 |
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have been owned and operated for the entire time during the twelve month period and exclude properties at which significant physical or merchandising changes have been made.
Master Planned Communities Segment
Our Master Planned Communities business was transferred to THHC on the Effective Date. It consists of the development and sale of residential and commercial land, primarily in large-scale projects in and around Columbia, Maryland; Houston, Texas; and Summerlin, Nevada. Residential sales include standard, custom and high density ( i.e. , condominium, town homes and apartments) parcels. Standard residential lots are designated for detached and attached single- and multi-family homes, ranging from entry-level to luxury homes. At our Summerlin project, we have further designated certain residential parcels as custom lots as their premium price reflects their larger size and other distinguishing features including gated communities, golf course access and higher elevations. Commercial sales include parcels designated for retail, office, services and other for-profit activities, as well as those parcels designated for use by government, schools and other not-for-profit entities.
Revenues are derived primarily from the sale of finished lots, including infrastructure and amenities, and undeveloped property to both residential and commercial developers. Additional revenues are earned through participations with builders in their sales of finished homes to homebuyers. Revenues and net operating income are affected by such factors as the availability to purchasers of construction and permanent mortgage financing at acceptable interest rates, consumer and business confidences, regional economic conditions in the areas surrounding the projects, levels of homebuilder inventory, other factors affecting the homebuilder business and sales of residential properties generally, availability of saleable land for particular uses and our decisions to sell, develop or retain land. For our more mature commitments such as in Columbia, Maryland, we are also creating new design plans to increase density and additional communities.
The pace of land sales for standard residential lots has declined in recent periods in correlation to the decline in the housing market.
As of December 31, 2009, there have been 84 unit sales at our 215 unit Nouvelle at Natick residential condominium project. As the threshold for profit recognition on such sales has not yet been achieved, the $36.4 million of sales proceeds received to date has been deferred and has been reflected within accounts payable, accrued expenses and other liabilities (See "Note 11Other Assets and Liabilities" to the consolidated financial statements contained elsewhere in this prospectus). When such thresholds are achieved, the deferred revenue, and the related costs of units sold, will be reflected on the percentage of completion method within our master planned community segment.
Based on the results of our evaluations for impairment (See "Note 2Summary of Significant Accounting Policies" to the consolidated financial statements contained elsewhere in this prospectus), we recognized aggregate impairment charges related to our Master Planned Communities of $108.7 million in 2009, $40.3 million in 2008 and $127.6 million in 2007.
88
Results of Operations
Our revenues are primarily received from tenants in the form of fixed minimum rents, Overage Rent and recoveries of operating expenses. We have presented the following discussion of our results of operations on a segment basis under the proportionate share method. Under the proportionate share method, our share of the revenues and expenses of the Unconsolidated Properties are combined with the revenues and expenses of the Consolidated Properties. Other revenues are reduced by the NOI attributable to our noncontrolling interests in consolidated joint ventures. See "Note 16Segments" to the consolidated financial statements contained elsewhere in this prospectus for additional information including reconciliations of our segment basis results to GAAP basis results.
Three months ended September 30, 2010 and 2009
Retail and Other Segment
|
Three Months Ended
September 30, |
|
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
$ Increase
(Decrease) |
% Increase
(Decrease) |
|||||||||||||
(In thousands)
|
2010 | 2009 | |||||||||||||
Property revenues: |
|||||||||||||||
Minimum rents |
$ | 581,433 | $ | 583,736 | $ | (2,303 | ) | (0.4 | )% | ||||||
Tenant recoveries |
256,270 | 256,758 | (488 | ) | (0.2 | ) | |||||||||
Overage rents |
11,398 | 11,850 | (452 | ) | (3.8 | ) | |||||||||
Other, including non controlling interests |
27,307 | 29,297 | (1,990 | ) | (6.8 | ) | |||||||||
Total property revenues |
876,408 | 881,641 | (5,233 | ) | (0.6 | ) | |||||||||
Property operating expenses: |
|||||||||||||||
Real estate taxes |
82,386 | 81,700 | 686 | 0.8 | |||||||||||
Property maintenance costs |
32,016 | 33,270 | (1,254 | ) | (3.8 | ) | |||||||||
Marketing |
11,052 | 8,842 | 2,210 | 25.0 | |||||||||||
Other property operating costs |
162,559 | 167,513 | (4,954 | ) | (3.0 | ) | |||||||||
Provision for doubtful accounts |
6,566 | 7,464 | (898 | ) | (12.0 | ) | |||||||||
Total property operating expenses |
294,579 | 298,789 | (4,210 | ) | (1.4 | ) | |||||||||
Retail and other net operating income |
$ | 581,829 | $ | 582,852 | $ | (1,023 | ) | (0.2 | )% | ||||||
Minimum rents decreased $2.3 million for the three months ended September 30, 2010 primarily due to a $2.2 million decrease in temporary rental revenues resulting from a decrease in temporary tenant occupancy and sales volume for the three months ended September 30, 2010. Partially offsetting these decreases, termination income increased $0.4 million to $4.3 million for the three months ended September 30, 2010 compared to $3.9 million for the three months ended September 30, 2009. As a result of deteriorating economic conditions, we have entered into percent in lieu leases with tenants who may have difficulty in making their fixed rent payments. We generally prefer to enter into percent in lieu leases rather than agreeing to reductions in or abatements of fixed rent amounts because by temporarily accepting a reduced rent calculated based on a percentage of a tenant's sales, our rental revenues will increase as the tenant's business improves. In addition, we believe that these concessions help to prevent tenants from vacating a lease, thereby maintaining occupancy levels and avoiding triggering co-tenancy clauses in our leases for the applicable mall. Such lease modifications were made to less than 1% of our leases. As the economy and retail sales improve, we expect to enter into fewer percent in lieu leases and other rent relief agreements.
Certain of our leases include both a base rent component and a component which requires tenants to pay amounts related to all, or substantially all, of their share of real estate taxes and certain property operating expenses, including common area maintenance and insurance. The portion of the tenant rent
89
from these leases attributable to real estate tax and operating expense recoveries are recorded as tenant recoveries. There were no significant variances in tenant recoveries for the three months ended September 30, 2010 as compared to the three months ended September 30, 2009.
Other revenue, including non controlling interest, decreased $2.0 million for the three months ended September 30, 2010 primarily due to a decrease in operating results from Aliansce, our Unconsolidated Real Estate Affiliate located in Brazil, as a result of the Aliansce IPO in January 2010 ("Note 3Unconsolidated Real Estate Affiliates" to the consolidated financial statements contained elsewhere in this prospectus), compared to the three months ended September 30, 2009.
Marketing expenses increased $2.2 million for the three months ended September 30, 2010 primarily due to increases in national projects such as our "Shop 'til You Rock, Emarketing and Shopper Rewards" programs.
Other property operating costs decreased for the three months ended September 30, 2010 by $5.0 million primarily due to the final settlements in 2010 related to the termination of utility contracts that were subject to compromise and therefore such settlements were classified as reorganization items in the current period. Partially offsetting this decrease is increased electric expense due to comparatively warmer weather conditions, and increases in landscaping and cleaning contracts.
Master Planned Communities Segment
|
Three Months Ended
September 30, |
|
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
$ Increase
(Decrease) |
% Increase
(Decrease) |
||||||||||||
(In thousands)
|
2010 | 2009 | ||||||||||||
Land and condominium sales |
$ | 31,114 | $ | 15,209 | $ | 15,905 | 104.6 | % | ||||||
Land and condominium sales operations |
(27,850 | ) | (18,229 | ) | 9,621 | 52.8 | ||||||||
Master Planned Communities net operating income (loss) |
$ | 3,264 | $ | (3,020 | ) | $ | 6,284 | (208.1 | )% | |||||
Land and condominium sales, as well as land and condominium sales operations, increased for the three months ended September 30, 2010 primarily resulting from $10.3 million of revenue and $9.6 million of associated costs of sales related to 24 unit condominium sales at Nouvelle at Natick during the period. Comparable unit sales through September 30, 2009 were deferred since we had not surpassed the threshold of sold units required for recognition of revenue on the project as a whole until June 30, 2010. In addition, net operating income increased at The Woodlands community resulting from greater sales volumes of commercial land sales for the three months ended September 30, 2010 compared to the three months ended September 30, 2009.
For all of our master planned communities, we sold a total of 47.5 residential acres for the three months ended September 30, 2010 compared to a total of 51.5 acres for the three months ended September 30, 2009, and a total of 11.3 acres of commercial lots for the three months ended September 30, 2010 compared to 0.6 acres for the three months ended September 30, 2009.
As of September 30, 2010, the master planned communities have approximately 14,700 remaining salable acres and Nouvelle at Natick has 63 available condominium units for sale.
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Certain Significant Consolidated Revenues and Expenses
|
Three Months Ended
September 30, |
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
$ Increase
(Decrease) |
% Increase
(Decrease) |
|||||||||||
(In thousands)
|
2010 | 2009 | |||||||||||
Tenant rents |
$ | 715,672 | $ | 716,920 | $ | (1,248 | ) | (0.2 | )% | ||||
Land and condominium sales |
20,290 | 7,409 | 12,881 | 173.9 | |||||||||
Property operating expense |
245,627 | 247,689 | (2,062 | ) | (0.8 | ) | |||||||
Land and condominium sales operations |
19,770 | 9,582 | 10,188 | 106.3 | |||||||||
Management fees and other corporate revenues |
14,075 | 16,851 | (2,776 | ) | (16.5 | ) | |||||||
Property management and other costs |
41,057 | 44,876 | (3,819 | ) | (8.5 | ) | |||||||
General and administrative |
9,401 | 8,324 | 1,077 | 12.9 | |||||||||
Strategic initiatives |
| 3,328 | (3,328 | ) | (100.0 | ) | |||||||
Provisions for impairment |
4,620 | 60,940 | (56,320 | ) | (92.4 | ) | |||||||
Depreciation and amortization |
175,336 | 185,016 | (9,680 | ) | (5.2 | ) | |||||||
Interest expense |
413,237 | 326,357 | 86,880 | 26.6 | |||||||||
Provision for (benefit from) income taxes |
1,913 | (14,430 | ) | 16,343 | (113.3 | ) | |||||||
Equity in income of Unconsolidated Real Estate Affiliates |
9,789 | 15,341 | (5,552 | ) | (36.2 | ) | |||||||
Reorganization items |
(102,517 | ) | (22,597 | ) | (79,920 | ) | 353.7 | ||||||
Discontinued operationsgain on dispositions |
| 29 | (29 | ) | (100.0 | ) |
Changes in consolidated tenant rents (which includes minimum rents, tenant recoveries and overage rents), land and condominium sales, property operating expenses (which includes real estate taxes, property maintenance costs, marketing, other property operating costs and provision for doubtful accounts) and land and condominium sales operations were attributable to the same items discussed above in our segment basis results, excluding those items related to our Unconsolidated Properties. Management fees and other corporate revenues, property management and other costs and general and administrative in the aggregate represent our costs of doing business and are generally not direct property-related costs.
Management fees and other corporate revenues decreased $2.8 million for the three months ended September 30, 2010 primarily due to a $1.0 million decrease in lease fees, a $0.8 million decrease in development fees and a $0.8 million decrease in management fees. Of the total decrease, $1.3 million resulted from the sale of our third-party management business in July 2010 ("Note 1Organization" to the consolidated financial statements contained elsewhere in this prospectus).
Property management and other costs decreased $3.8 million for the three months ended September 30, 2010 primarily due to an $11.2 million decrease in compensation expense primarily resulting from a reduction in force in 2009 and the sale of our third party management business in July 2010 ("Note 1Organization" to the consolidated financial statements contained elsewhere in this prospectus). Such decrease was partially offset by a $3.7 million increase in professional services primarily due to an increase in leasing brokerage fees and a $1.5 million increase in information technology.
Strategic initiatives for the three months ended September 30, 2009 is primarily due to the recognition of professional fees for restructuring that were incurred prior to filing for Chapter 11. Similar fees incurred after filing for Chapter 11 are recorded as reorganization items.
Based on the results of our evaluations for impairment ("Note 1Organization" to the consolidated financial statements contained elsewhere in this prospectus), we recognized impairment charges of $4.6 million for the three months ended September 30, 2010 and $60.9 million for the three months ended September 30, 2009. Although all of the properties in our Master Planned Communities segment and 23 of our operating properties in our Retail and Other segment had impairment indicators
91
and carrying values in excess of estimated Fair Value at September 30, 2010, aggregate undiscounted cash flows for such master planned community properties and the 23 operating properties exceeded their respective aggregate book values by over 340.7% and 203.9%, respectively. The impairment charges recognized were as follows:
2010
2009
The decrease in depreciation and amortization for the three months ended September 30, 2010 primarily resulted from the decrease in the carrying amount of buildings and equipment due to the impairment charges recorded in 2009.
Interest expense increased $86.9 million for the three months ended September 30, 2010 compared to September 30, 2009 primarily due to the following:
Such increases in interest expense were partially offset by decreases in interest expense due to the following:
The increase in the provision for (benefit from) income taxes for the three months ended September 30, 2010 compared to the three months ended September 30, 2009 was primarily due to the
92
provision benefit from resulting from the provision for impairment related to the West Kendall development property for the three months ended September 30, 2009.
The decrease in equity in income of Unconsolidated Real Estate Affiliates for the three months ended September 30, 2010 was primarily due to the following:
Reorganization items under the bankruptcy filings are expense or income items that were incurred or realized by the Debtors as a result of the Chapter 11 Cases. These items include professional fees and similar types of expenses incurred directly related to the bankruptcy filings, gains or losses resulting from activities of the reorganization process, including gains related to recording the mortgage debt at Fair Value upon emergence from bankruptcy and interest earned on cash accumulated by the Debtors. See "Note 1OrganizationReorganization" to the consolidated financial statements contained elsewhere in this prospectus for additional detail.
Nine months ended September 30, 2010 and 2009
Retail and Other Segment
|
Nine Months Ended
September 30, |
|
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
$ Increase
(Decrease) |
% Increase
(Decrease) |
|||||||||||||
(In thousands)
|
2010 | 2009 | |||||||||||||
Property revenues: |
|||||||||||||||
Minimum rents |
$ | 1,753,256 | $ | 1,775,986 | $ | (22,730 | ) | (1.3 | )% | ||||||
Tenant recoveries |
762,879 | 794,009 | (31,130 | ) | (3.9 | ) | |||||||||
Overage rents |
31,377 | 29,846 | 1,531 | 5.1 | |||||||||||
Other, including non controlling interest |
86,198 | 86,546 | (348 | ) | (0.4 | ) | |||||||||
Total property revenues |
2,633,710 | 2,686,387 | (52,677 | ) | (2.0 | ) | |||||||||
Property operating expenses: |
|||||||||||||||
Real estate taxes |
250,207 | 247,063 | 3,144 | 1.3 | |||||||||||
Property maintenance costs |
103,928 | 91,728 | 12,200 | 13.3 | |||||||||||
Marketing |
27,011 | 26,074 | 937 | 3.6 | |||||||||||
Other property operating costs |
474,911 | 490,181 | (15,270 | ) | (3.1 | ) | |||||||||
Provision for doubtful accounts |
18,640 | 29,696 | (11,056 | ) | (37.2 | ) | |||||||||
Total property operating expenses |
874,697 | 884,742 | (10,045 | ) | (1.1 | ) | |||||||||
Retail and other net operating income |
$ | 1,759,013 | $ | 1,801,645 | $ | (42,632 | ) | (2.4 | )% | ||||||
Minimum rents decreased $22.7 million for the nine months ended September 30, 2010 primarily due to a $15.1 million decrease in base rents from our permanent tenants. These decreases in minimum rents were most significant at Fashion Show, The Woodlands properties, The Shoppes at The Palazzo, Coastland Mall, The Boulevard Mall and Saint Louis Galleria. Temporary rental revenues decreased $9.4 million as a result of a decrease in temporary tenant occupancy and tenant sales volume for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. In addition, straight line rent decreased $6.8 million for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. Partially offsetting these decreases in base rents was an increase of $7.7 million in percent in lieu rents, which are rents based on a percentage of
93
a tenant's sales for a period instead of being based on a fixed charge based on the space occupied. In addition, termination income increased $0.9 million from $25.3 million for the nine months ended September 30, 2010 compared to $24.4 million for the nine months ended September 30, 2009. As a result of deteriorating economic conditions, we have entered into percent in lieu leases with tenants who may have difficulty in making their fixed rent payments. We generally prefer to enter into percent in lieu of leases rather than agreeing to reductions in or abatements of fixed rent amounts because by temporarily accepting a reduced rent calculated based on a percentage of a tenant's sales, our rental revenues will increase as the tenant's business improves. In addition, we believe that these concessions help to prevent tenants from vacating a lease, thereby maintaining occupancy levels and avoiding triggering co-tenancy clauses in our leases for the applicable mall. Such lease modifications were made to less than 1% of our leases. As the economy and retail sales improve, we expect to enter into fewer percent in lieu leases and other rent relief agreements.
Certain of our leases include both a base rent component and a component which requires tenants to pay amounts related to all, or substantially all, of their share of real estate taxes and certain property operating expenses, including common area maintenance and insurance. The portion of the tenant rent from these leases attributable to real estate tax and operating expense recoveries are recorded as tenant recoveries. The $31.1 million decrease in tenant recoveries for the nine months ended September 30, 2010 is primarily attributable to a $16.2 million decrease in occupancy and the conversion of tenants to gross leases compared to the nine months ended September 30, 2009. The decrease for the nine months ended September 30, 2010 also includes an $8.5 million decrease in recoveries related to common area maintenance, real estate taxes and electric utility expenses as a result of tenant settlements for prior years that were delayed due to the Debtors bankruptcy. In addition, recoveries related to marketing and promotional revenue decreased $4.5 million for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009.
Overage rents increased slightly for the nine months ended September 30, 2010 primarily due to increased sales volume from our temporary specialty leasing tenants.
Property maintenance costs increased $12.2 million for the nine months ended September 30, 2010 primarily due to increased spending across the Company Portfolio in 2010 on repairs related to parking, contract services, lighting, building repairs, plumbing, roof and HVAC.
Other property operating costs decreased $15.3 million for the nine months ended September 30, 2010 primarily due to the final settlements in 2010 related to the termination of utility contracts that were subject to compromise and such settlements were classified in reorganization items in the current period. In addition, there was a decrease in miscellaneous property operating expense at the Woodlands properties and a decrease related to our Aliansce joint venture.
The provision for doubtful accounts decreased $11.1 million for the nine months ended September 30, 2010 primarily due to higher allowances in 2009 related to tenant bankruptcies and weak economic conditions.
94
Master Planned Communities Segment
|
Nine Months Ended
September 30, |
|
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
$ Increase
(Decrease) |
% Increase
(Decrease) |
||||||||||||
(In thousands)
|
2010 | 2009 | ||||||||||||
Land and condominium sales |
$ | 122,121 | $ | 65,164 | $ | 56,957 | 87.4 | % | ||||||
Land and condominium sales operations |
(115,822 | ) | (64,194 | ) | 51,628 | 80.4 | ||||||||
Master Planned Communities net operating income before provision for impairment |
6,299 | 970 | 5,329 | 549.4 | ||||||||||
Provision for impairment |
| (108,691 | ) | 108,691 | 100.0 | |||||||||
Master Planned Communities net operating income (loss) |
$ | 6,299 | $ | (107,721 | ) | $ | 114,020 | 105.8 | % | |||||
Land and condominium sales, as well as land and condominium sales operations, increased primarily as a result of the recognition of $63.2 million of revenue and $58.2 million of associated costs of sales related to condominium unit sales at the Nouvelle at Natick in 2010. All revenue from condominium sales through June 30, 2010 was deferred as the threshold of sold units required to recognize revenue had not been met. As such, $52.9 million of previously deferred revenue from condominium sales and $48.6 million of associated costs of sales were recorded during the three months ended June 30, 2010 as the result of the recognition of all deferred unit sales through June 30, 2010. For the three months ended September 30, 2010, Nouvelle at Natick recognized $10.3 million of revenue and $9.6 million of associated costs of sales related to 24 unit condominium sales during the third quarter of 2010. In addition, net operating income increased at The Woodlands community resulting from increased residential and commercial lot sales activity for the nine months ended September 30, 2010.
These increases were partially offset by lower margins related to the bulk sale of remaining single family lots at the Fairwood community in Maryland in 2009. There were no land sales for the nine months ended September 30, 2010 in our Fairwood community and there were minimal land sales in our Summerlin community in Las Vegas, Nevada, our Columbia community in Maryland and our Bridgeland Community in Houston, Texas. In addition, during the nine months ended September 30, 2009, we recorded a $52.8 million provision for impairment at our Fairwood community and a $55.9 million provision for impairment at Nouvelle at Natick.
For all of our master planned communities, we sold a total of 186.4 residential acres for the nine months ended September 30, 2010 compared to a total of 373.8 residential acres for the nine months ended September 30, 2009, and a total of 36.0 acres of commercial lots for the nine months ended September 30, 2010 compared to 35.1 commercial acres for the nine months ended September 30, 2009.
As of September 30, 2010, the master planned communities have approximately 14,700 remaining salable acres and Nouvelle at Natick has 63 available condominium units for sale.
95
Certain Significant Consolidated Revenues and Expenses
|
Nine Months Ended
September 30, |
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
$ Increase
(Decrease) |
% Increase
(Decrease) |
|||||||||||
(In thousands)
|
2010 | 2009 | |||||||||||
Tenant rents |
$ | 2,140,520 | $ | 2,188,252 | $ | (47,732 | ) | (2.2 | )% | ||||
Land and condominium sales |
85,325 | 38,844 | 46,481 | 119.7 | |||||||||
Property operating expense |
729,365 | 729,505 | (140 | ) | (0.0 | ) | |||||||
Land and condominium sales operations |
89,001 | 42,046 | 46,955 | 111.7 | |||||||||
Management fees and other corporate revenues |
48,063 | 57,569 | (9,506 | ) | (16.5 | ) | |||||||
Property management and other costs |
125,007 | 130,485 | (5,478 | ) | (4.2 | ) | |||||||
General and administrative |
22,707 | 22,436 | 271 | 1.2 | |||||||||
Strategic initiatives |
| 67,341 | (67,341 | ) | (100.0 | ) | |||||||
Provisions for impairment |
35,893 | 474,420 | (438,527 | ) | (92.4 | ) | |||||||
Depreciation and amortization |
527,956 | 576,103 | (48,147 | ) | (8.4 | ) | |||||||
Interest expense |
1,050,241 | 983,198 | 67,043 | 6.8 | |||||||||
Provision for (benefit from) income taxes |
19,797 | (10,202 | ) | 29,999 | (294.1 | ) | |||||||
Equity in income of Unconsolidated Real Estate Affiliates |
60,441 | 39,218 | 21,223 | 54.1 | |||||||||
Reorganization items |
(93,216 | ) | (47,515 | ) | (45,701 | ) | 96.2 | ||||||
Discontinued operationsloss on dispositions |
| (26 | ) | 26 | (100.0 | ) |
Changes in consolidated tenant rents (which includes minimum rents, tenant recoveries and overage rents), land and condominium sales, property operating expenses (which includes real estate taxes, property maintenance costs, marketing, other property operating costs and provision for doubtful accounts) and land and condominium sales operations were attributable to the same items discussed above in our segment basis results, excluding those items related to our Unconsolidated Properties. Management fees and other corporate revenues, property management and other costs and general and administrative in the aggregate represent our costs of doing business and are generally not direct property-related costs.
Management fees and other corporate revenues decreased $9.5 million for the nine months ended September 30, 2010 primarily due to a $3.5 million decrease in development fees, a $2.6 million decrease in lease fees and a $2.1 million decrease in management fees. Of the total decrease, $3.7 million resulted from the sale of our third-party management business in July 2010 ("Note 1Organization" to the consolidated financial statements contained elsewhere in this prospectus).
Property management and other costs decreased $5.5 million for the nine months ended September 30, 2010 primarily due to a $13.9 million decrease in compensation expense primarily resulting from a reduction in force in 2009 and the sale of our third party management business in July 2010 ("Note 1Organization" to the consolidated financial statements contained elsewhere in this prospectus). Such decrease was partially offset by a $1.7 million decrease in conference fees, which were offset by an $8.0 million increase in professional services and a $3.4 million increase in information technology.
Strategic initiatives for the nine months ended September 30, 2009 is primarily due to professional fees for restructuring that were incurred prior to filing for Chapter 11 protection. Similar fees incurred after filing for Chapter 11 protection are recorded as reorganization items.
Based on the results of our evaluations for impairment ("Note 1Organization" to the consolidated financial statements contained elsewhere in this prospectus), we recognized impairment charges of $35.9 million for the nine months ended September 30, 2010 and $474.4 million for the nine months ended September 30, 2009. Although all of the properties in our Master Planned Communities segment and 23 of our operating properties in our Retail and Other segment had impairment indicators
96
and carrying values in excess of estimated Fair Value at September 30, 2010, aggregate undiscounted cash flows for such master planned community properties and the 23 operating properties exceeded their respective aggregate book values by over 340.7% and 203.9%, respectively and therefore no impairment charges were recognized on such communities and properties. The impairment charges that were recognized were as follows:
2010
2009
The decrease in depreciation and amortization for the nine months ended September 30, 2010 primarily resulted from the decrease in the carrying amount of buildings and equipment due to the impairment charges recorded in 2009 as well as write-offs of tenant allowances and assets becoming fully amortized in 2009.
97
Interest expense increased $67.0 million for the nine months ended September 30, 2010 compared to September 30, 2009 primarily due to the following:
Such increases in interest expense were partially offset by decreases in interest expense due to the following:
The increase in the provision for (benefit from) income taxes for the nine months ended September 30, 2010 was primarily attributable to an increase in taxable income related to our taxable entities for the nine months ended September 30, 2010 and a tax benefit related to provisions for impairments at our Fairwood and Nouvelle at Natick master planned communities, as well as a provision for impairment related to the West Kendall development property, in 2009. These benefits are partially offset by a significant reduction in valuation allowances compared to the nine months ended September 30, 2009.
The increase in equity in income of Unconsolidated Real Estate Affiliates for the nine months ended September 30, 2010 was primarily due to the following:
98
Reorganization items under the bankruptcy filings are expense or income items that were incurred or realized by the Debtors as a result of the Chapter 11 Cases. These items include professional fees and similar types of expenses incurred directly related to the bankruptcy filings, gains or losses resulting from activities of the reorganization process, including gains related to recording the mortgage debt at Fair Value upon emergence from bankruptcy and interest earned on cash accumulated by the Debtors. See "Note 1OrganizationReorganization" to the consolidated financial statements contained elsewhere in this prospectus for additional detail.
Year Ended December 31, 2009 and 2008
Retail and Other Segment
The following table compares major revenue and expense items:
(in thousands)
|
2009 | 2008 |
$ Increase
(Decrease) |
% Increase
(Decrease) |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property revenues: |
||||||||||||||
Minimum rents |
$ | 2,381,043 | $ | 2,468,761 | $ | (87,718 | ) | (3.6 | )% | |||||
Tenant recoveries |
1,041,755 | 1,086,831 | (45,076 | ) | (4.1 | ) | ||||||||
Overage rents |
60,085 | 82,343 | (22,258 | ) | (27.0 | ) | ||||||||
Other, including non controlling interest |
142,135 | 174,241 | (32,106 | ) | (18.4 | ) | ||||||||
Total property revenues |
3,625,018 | 3,812,176 | (187,158 | ) | (4.9 | ) | ||||||||
Property operating expenses: |
||||||||||||||
Real estate taxes |
328,556 | 319,251 | 9,305 | 2.9 | ||||||||||
Property maintenance costs |
269,899 | 271,787 | (1,888 | ) | (0.7 | ) | ||||||||
Marketing |
41,588 | 51,927 | (10,339 | ) | (19.9 | ) | ||||||||
Other property operating costs |
531,991 | 560,038 | (28,047 | ) | (5.0 | ) | ||||||||
Provision for doubtful accounts |
36,462 | 21,315 | 15,147 | 71.1 | ||||||||||
Total property operating expenses |
1,208,496 | 1,224,318 | (15,822 | ) | (1.3 | )% | ||||||||
The $87.7 million decrease in minimum rents in 2009 compared to 2008 was due to a decline in occupancy during the year that resulted in a decrease of approximately $16 million. Also contributing to the decrease is a reduction of temporary tenant base rent revenue of $35.7 million in 2009 compared to 2008 and a reduction of straight-line rent of $11.5 million in 2009 compared to 2008. In addition, minimum rents decreased due to a $12.7 million decrease in termination income, which was $29.1 million in 2009 compared to $41.8 million in 2008. The remaining decreases are primarily the result of a decrease of $4.9 million due to the sale of three office buildings and two office parks in 2008.
Certain of our leases include both a base rent component and a component which requires tenants to pay amounts related to all, or substantially all, of their share of real estate taxes and certain property operating expenses, including common area maintenance and insurance. The portion of the tenant rent from these leases attributable to real estate tax and operating expense recoveries is recorded as tenant recoveries. The decrease in tenant recoveries is primarily attributable to the decrease in certain property operating expenses. In addition, the decrease was due to an allowance of $15.0 million for tenant audit claims recorded in the fourth quarter of 2009. Also contributing to the decrease is the decline in occupancy and tenants converting to gross leases in 2009.
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The decrease in Overage Rent is primarily due to a decrease in comparable tenant sales as a result of the challenging economic environment during 2009 impacting many of our tenants throughout the Company Portfolio, particularly at The Grand Canal Shoppes, Fashion Show and Ala Moana Center.
Other revenues include all other property revenues including vending, parking, gains or losses on dispositions of certain property transactions, sponsorship and advertising revenues, less NOI of non-controlling interests. The decrease in other revenues is primarily attributable to dispositions of land parcels at Kendall Town Center that resulted in a $3.9 million loss on sale of land in 2009 and as compared to a $4.3 million gain on sale of land in 2008 as well as a $6.4 million gain on sale of a Woodlands office property in 2008. In addition, the decrease in other revenues is also attributable to reduced occupancy and activity in food and beverage revenue at the Woodlands Hotel and Conference Center in 2009. Finally, the decrease was attributable to lower sponsorship, show and display revenue in 2009.
Real estate taxes increased in 2009 across the Company Portfolio, a portion of which is recoverable from tenants. A portion of the increase is attributable to a decrease in the amount of capitalized real estate taxes due to decreased development activity.
Property maintenance costs decreased due to decreases in controllable common area and contracted costs, substantially offset by increases related to property preservation and upkeep in 2009.
Marketing expenses decreased in 2009 across the Company Portfolio as the result of continued company-wide efforts to consolidate marketing functions and reduce advertising spending. The largest savings were the result of reductions in advertising costs, contracted services and payroll.
Other property operating costs decreased primarily due to reductions in property specific payroll costs, professional fees, decreased security expense, lower insurance costs, and lower office expenses due to our 2009 implementation of certain cost savings programs.
The provision for doubtful accounts increased across the Company Portfolio in 2009 primarily due to an increase in tenant bankruptcies and increased aging of tenant receivables resulting from the current economic conditions.
Master Planned Communities Segment
(in thousands)
|
2009 | 2008 |
$ Increase
(Decrease) |
% Increase
(Decrease) |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Land sales |
$ | 83,990 | $ | 138,746 | $ | (54,756 | ) | (39.5 | )% | |||||
Land sales operations |
(84,491 |
) |
(109,752 |
) |
(25,261 |
) |
(23.0 |
) |
||||||
Master Planned Communities net operating income before provision for impairment |
(501 | ) | 28,994 | (29,495 | ) | (101.7 | ) | |||||||
Provision for impairment |
(108,691 |
) |
(40,346 |
) |
68,345 |
169.4 |
||||||||
Master Planned Communities net operating loss |
$ |
(109,192 |
) |
$ |
(11,352 |
) |
$ |
(97,840 |
) |
(861.9 |
)% |
|||
The decrease in land sales, land sales operations and NOI in 2009 was the result of a significant reduction in sales volume and lower margins at our Summerlin, Bridgeland and The Woodlands residential communities. These volume decreases were partially offset by the bulk sale in 2009 of the majority of the remaining single family lots in our Fairwood community in Maryland for considerably lower margins than previous Fairwood sales, for which we recorded a $52.8 million provision for impairment in 2009 and the sale of a residential parcel for use in the development of luxury apartments and town homes in our Columbia, Maryland community.
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In 2009, we sold 426.4 residential acres compared to 272.5 acres in 2008. We sold 94.8 acres of commercial lots in 2009, compared to 84.6 acres in 2008. Average prices for lots have declined as compared to 2008. As of December 31, 2009, the master planned communities have approximately 17,300 remaining saleable acres.
Finally, we recorded a provision for impairment of $55.9 million in 2009 and $40.3 million in 2008 related to our Nouvelle at Natick condominium project which reflects the change in management's intent and business strategy with respect to marketing and pricing, reduced potential of future price increases and the likelihood that the period to complete unit sales will extend beyond the original project term.
Certain Significant Consolidated Revenues and Expenses
(in thousands)
|
2009 | 2008 |
$ Increase
(Decrease) |
% Increase
(Decrease) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Tenant rents |
$ | 2,927,947 | $ | 3,085,972 | $ | (158,025 | ) | (5.1 | )% | ||||
Land sales |
45,997 | 66,557 | (20,560 | ) | (30.9 | ) | |||||||
Property operating expense |
994,545 | 1,007,407 | (12,862 | ) | (1.3 | ) | |||||||
Land sales operations |
50,807 | 63,441 | (12,634 | ) | (19.9 | ) | |||||||
Management fees and other corporate revenues |
86,019 | 112,501 | (26,482 | ) | (23.5 | ) | |||||||
Property management and other costs |
176,876 | 184,738 | (7,862 | ) | (4.3 | ) | |||||||
General and administrative |
28,608 | 39,245 | (10,637 | ) | (27.1 | ) | |||||||
Strategic Initiatives |
67,341 | 18,727 | 48,614 | 259.6 | |||||||||
Provisions for impairment |
1,223,810 | 116,611 | 1,107,199 | 949.5 | |||||||||
Litigation (benefit) |
| (57,145 | ) | 57,145 | (100.0 | ) | |||||||
Depreciation and amortization |
755,161 | 759,930 | (4,769 | ) | (0.6 | ) | |||||||
Interest expense |
1,311,283 | 1,325,273 | (13,990 | ) | (1.1 | ) | |||||||
(Benefit from) provision for income taxes |
(14,610 | ) | 23,461 | (38,071 | ) | (162.3 | ) | ||||||
Equity in income of Unconsolidated Real Estate Affiliates |
4,635 | 80,594 | (75,959 | ) | (94.2 | ) | |||||||
Reorganization items |
146,190 | | 146,190 | (100.0 | ) | ||||||||
Discontinued operations(loss) gain on dispositions |
(966 | ) | 55,044 | (56,010 | ) | (101.8 | ) |
Changes in consolidated tenant rents (which includes minimum rents, tenant recoveries and Overage Rent), land sales, property operating expenses (which includes real estate taxes, repairs and maintenance, marketing, other property operating costs and provision for doubtful accounts) and land sales operations were attributable to the same items discussed above in our segment basis results, excluding those items related to our Unconsolidated Properties. Management and other fees revenues, property management and other costs and general and administrative in the aggregate represent our costs of doing business and are generally not direct property-related costs.
The decrease in management and other fees in 2009 is primarily due to a $15.3 million decrease in development fee income resulting from a significant decline in development activity. In addition, lease fee and specialty lease fee income decreased $4.8 million in 2009.
The decrease in property management and other costs in 2009 is primarily due to a decrease in wages and benefits of $38.5 million. In addition, professional fees, personnel, travel, marketing, office and occupancy costs decreased $18.2 million as the result of cost reduction efforts. These decreases were offset by a $42.4 million reduction in capitalized overhead, which resulted in higher net expenses in 2009, and increased bonuses of $3.7 million.
The decrease in general and administrative expense in 2009 is primarily due to the $15.4 million of additional deemed, non-cash executive compensation expense related to certain senior officer loans (see "Note 2Summary of Significant Accounting Policies" to the consolidated financial statements
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contained in this prospectus) that was incurred in 2008 as well as reductions in employment levels in 2009. This decrease was partially offset by increased executive compensation of $4.8 million.
The increase in strategic initiatives in 2009 is primarily due to a $43.1 million of professional fees for restructuring and strategic initiatives incurred through the date of our bankruptcy filing, or the Petition Date. Such costs are classified as reorganization items subsequent to the Petition Date. In addition, we incurred $24.2 million of additional expense related to the write off of various financing costs on proposed transactions which were not completed in 2009.
See "Note 1Organizations" to the consolidated financial statements contained elsewhere in this prospectus for a detail description of the provisions for impairment that we recognized in 2009 and 2008.
The decrease in interest expense is primarily due to a decrease in the credit facility interest expense compared to 2008 due to a decrease in interest rates. The decrease in interest expense was partially offset by a decrease in the amount of capitalized interest as a result of decreased development spending in 2009.
The benefit from income taxes in 2009 was primarily attributable to tax benefit related to the provisions for impairment of $35.5 million related to our West Kendall development, $52.8 million related to our Fairwood master planned community and $55.9 million related to our Nouvelle at Natick condominium project. The benefit from income taxes was partially offset by an increase in the valuation allowances on our deferred tax assets as a result of the bankruptcy.
The decrease in equity in income of Unconsolidated Real Estate Affiliates is primarily due to a significant decrease in land sales at our Woodlands Partnership joint venture in 2009 compared to 2008. The decrease is also attributable to our share of the impairment provisions recognized in 2009 on certain operating properties and development projects (see "Note 5Unconsolidated Real Estate Affiliates" to the consolidated financial statements contained elsewhere in this prospectus) and to the currency conversion related to our international joint ventures in Turkey and Brazil as well as to the overall decline in real estate net operating income from the remaining joint venture interests.
Reorganization items are expense or income items that were incurred or realized by the Debtors as a result of the Chapter 11 Cases. These items include professional fees and similar types of expenses incurred directly related to the bankruptcy filings, loss accruals or gains or losses resulting from activities of the reorganization process and interest earned on cash accumulated by the Debtors. See "Note 2Summary of Significant Accounting PoliciesReorganization Items" to the consolidated financial statements contained elsewhere in this prospectus for additional detail.
Year Ended December 31, 2008 and 2007
The Homart I acquisition (see "Note 3Acquisitions and Intangibles" to the consolidated financial statements contained elsewhere in this prospectus for additional detail) in July 2007 impacted the consolidated revenue and expense items in our consolidated financial statements, as the acquisition resulted in the consolidation of the operations of the properties acquired. Historically, Old GGP's share of such operations was reflected as equity in income of Unconsolidated Real Estate Affiliates. Under the proportionate share method, segment operations also were significantly impacted by the Homart I acquisition, as an additional 50% share of the operations of the properties is included in the Retail and Other segment results after the purchase date of July 2007. Accordingly, discussion of the operational results below for the year ended December 31, 2008 as compared to the year ended December 31, 2007 has been limited to only those elements of operating trends that were not a function of the 2007 Homart I acquisition.
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Retail and Other Segment
The following table compares major revenue and expense items:
(in thousands)
|
2008 | 2007 |
$ Increase
(Decrease) |
% Increase
(Decrease) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property revenues: |
|||||||||||||||
Minimum rents |
$ | 2,468,761 | $ | 2,339,915 | $ | 128,846 | 5.5 | % | |||||||
Tenant recoveries |
1,086,831 | 1,033,287 | 53,544 | 5.2 | |||||||||||
Overage rents |
82,343 | 101,229 | (18,886 | ) | (18.7 | ) | |||||||||
Other, including non controlling interest |
174,241 | 198,794 | (24,553 | ) | (12.4 | ) | |||||||||
Total property revenues |
3,812,176 | 3,673,225 | 138,951 | 3.8 | |||||||||||
Property operating expenses: |
|||||||||||||||
Real estate taxes |
319,251 | 296,962 | 22,289 | 7.5 | |||||||||||
Property maintenance costs |
271,787 | 257,095 | 14,692 | 5.7 | |||||||||||
Marketing |
51,927 | 66,897 | (14,970 | ) | (22.4 | ) | |||||||||
Other property operating costs |
560,038 | 568,444 | (8,406 | ) | (1.5 | ) | |||||||||
Provision for doubtful accounts |
21,315 | 7,404 | 13,911 | 187.9 | |||||||||||
Total property operating expenses |
1,224,318 | 1,196,802 | 27,516 | 2.3 | |||||||||||
Retail and other net operating income |
2,587,858 | 2,476,423 | 111,435 | 4.5 | % | ||||||||||
Higher effective rents contributed to the increase in minimum rents in 2008, as a result of significant increases at Ala Moana Center, Otay Ranch Town Center, West Oaks Mall, Tysons Galleria and The Grand Canal Shoppes. Minimum rents also increased as a result of the acquisition of The Shoppes at The Palazzo and the completion of the development at The Shops at Fallen Timbers and the redevelopment at Natick Collection. In addition, termination income increased, which was $41.8 million for 2008 compared to $35.4 million for 2007. Additionally, the increase was partially offset by the reduction in rent due to the sale of three office buildings and two office parks in 2008.
The increase in tenant recoveries in 2008 is primarily attributable to the increased Gross Leasable Area ("GLA") in 2008 as a result of the acquisition of The Shoppes at The Palazzo, the completion of the development at The Shops at Fallen Timbers and the redevelopment at Natick Collection.
The decrease in Overage Rent is primarily due to a decrease in comparable tenant sales as a result of the challenging economic environment that began impacting many of our tenants throughout our portfolio of properties in late 2008, including The Grand Canal Shoppes, South Street Seaport, Oakbrook Mall and Tysons Galleria. These decreases were partially offset by increases resulting from the acquisition of The Shoppes at The Palazzo and the completion of the redevelopment at Natick Collection.
Other revenues include all other property revenues including vending, parking, sponsorship and advertising revenues, less NOI of non controlling interests. The decrease in other revenues is primarily attributable to The Woodlands Partnership which sold various office buildings and other properties during 2007 resulting in lower recorded amounts of other revenues in 2008 compared to 2007.
Real estate taxes increased in 2008 partially due to increases resulting from the acquisition of The Shoppes at The Palazzo and the completion of the redevelopment at Natick Collection.
Property maintenance costs increased in 2008 primarily due to increased hurricane related repair expenses (a portion of which were recoverable under the terms of our insurance policies) at various properties as well as higher costs for contracted cleaning services, resulting from higher costs of benefits. The acquisition of The Shoppes at The Palazzo, and the completion of the development of
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The Shops at Fallen Timbers and the completion of the redevelopment at Natick Collection also contributed to the increase.
Marketing expenses decreased in 2008 across the Company Portfolio as a result of continued company-wide efforts to consolidate marketing functions and reduce advertising spending. This decrease was partially offset by increased marketing expenditures at The Shoppes at The Palazzo.
The increase in provision for doubtful accounts is primarily due to a reduction of the provision in 2007 related to the collection of a portion of the hurricane insurance settlement for Oakwood Center in 2007.
Master Planned Communities Segment
(in thousands)
|
2008 | 2007 |
$ Increase
(Decrease) |
% Increase
(Decrease) |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Land sales |
$ | 138,746 | $ | 230,666 | $ | (91,920 | ) | (39.8 | )% | |||||
Land sales operations |
(109,752 | ) | (174,521 | ) | (64,769 | ) | (37.1 | ) | ||||||
Master Planned Communities net operating income before provision for impairment |
28,994 | 56,145 | (27,151 | ) | (48.4 | ) | ||||||||
Provision for impairment |
(40,346 | ) | (127,600 | ) | (87,254 | ) | (68.4 | ) | ||||||
Master Planned Communities net operating (loss) income |
$ | (11,352 | ) | $ | (71,455 | ) | $ | 60,103 | $ | 84.1 | % | |||
The decrease in land sales and land sales operations and NOI in 2008 was the result of a significant reduction in sales volume and lower achieved margins at our Summerlin, Maryland, Bridgeland and The Woodlands residential communities. In 2008, we sold 272.5 residential acres compared to 409.1 acres in 2007. We sold 84.6 acres of commercial lots in 2008 compared to 163.2 acres in 2007. As of December 31, 2008, the master planned communities had 18,040 remaining saleable acres.
The provisions for impairment recorded at Nouvelle at Natick in 2008 and 2007 reflects the continued weak demand and the likely extension of the period required to complete all unit sales at this residential condominium project. Sales of condominium units commenced in the fourth quarter 2008.
Certain Significant Consolidated Revenues and Expenses
(in thousands)
|
2008 | 2007 |
$ Increase
(Decrease) |
% Increase
(Decrease) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Tenant rents |
$ | 3,085,972 | $ | 2,882,491 | $ | 203,481 | 7.1 | % | |||||
Land sales |
66,557 | 145,649 | (79,092 | ) | (54.3 | ) | |||||||
Property operating expenses |
1,007,407 | 941,405 | 66,002 | 7.0 | |||||||||
Land sales operations |
63,441 | 116,708 | (53,267 | ) | (45.6 | ) | |||||||
Management fees and other corporate revenues |
112,501 | 113,720 | (1,219 | ) | (1.1 | ) | |||||||
Property management and other costs |
184,738 | 198,610 | (13,872 | ) | (7.0 | ) | |||||||
General and administrative |
39,245 | 37,005 | 2,240 | 6.1 | |||||||||
Strategic initiatives |
18,727 | | 18,727 | 100.0 | |||||||||
Provisions for impairment |
116,611 | 130,533 | (13,922 | ) | (10.7 | ) | |||||||
Litigation (benefit) provision |
(57,145 | ) | 89,225 | (146,370 | ) | (164.0 | ) | ||||||
Depreciation and amortization |
759,930 | 670,454 | 89,476 | 13.3 | |||||||||
Interest expense |
1,325,273 | 1,191,466 | 133,807 | 11.2 | |||||||||
Provision for (benefit from) income taxes |
23,461 | (294,160 | ) | 317,621 | (108.0 | ) | |||||||
Equity in income of Unconsolidated Real Estate Affiliates |
80,594 | 158,401 | (77,807 | ) | (49.1 | ) | |||||||
Discontinued operationsgain on dispositions |
55,044 | | 55,044 | 100.0 |
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Changes in consolidated tenant rents (which includes minimum rents, tenant recoveries and Overage Rent), land sales, property operating expenses (which includes real estate taxes, property maintenance costs, marketing, other property operating costs and provision for doubtful accounts) and land sales operations were attributable to the same items discussed above in our segment basis results, excluding those items related to our Unconsolidated Properties.
Management and other fees, property management and other costs and general and administrative in the aggregate represent our costs of doing business and are generally not direct property-related costs. The decrease in management and other fees in 2008 was primarily due to lower development fees as projects were completed, leasing commissions resulting from market conditions and the 2007 cessation of management fees on the 19 GGP/Homart I Properties due to the acquisition of our partner's interest in these properties in July 2007.
The decrease in property management and other costs in 2008 was primarily due to lower overall management costs, including bonus expense, stock compensation expense and travel expense primarily related to a reduction in personnel and other cost reduction efforts.
The increase in general and administrative in 2008 was primarily due to the $15.4 million of additional deemed, non-cash executive compensation expense related to certain senior officer loans (see "Note 2Summary of Significant Accounting Policies" to the consolidated financial statements contained in this prospectus). These increases in general and administrative were partially offset by the decrease in our allocated share of legal fees related to the Homart IIGlendale Matter settlement (see below and "Note 2Summary of Significant Accounting Policies" to the consolidated financial statements contained in this prospectus).
Strategic initiatives of $18.7 million include professional fees for restructuring and advisory services.
In addition to the provisions for impairment recognized in our Master Planned Communities segment described above, based on the results of our evaluations for impairment (see "Note 2Summary of Significant Accounting Policies" to the consolidated financial statements contained in this prospectus), we recognized impairment charges of $7.8 million in the third quarter of 2008 related to our Century Plaza (Birmingham, Alabama) operating property and $4.0 million in the fourth quarter of 2008 related to our Southshore Mall (Aberdeen, Washington) operating property. We also recognized impairment charges of $31.7 million throughout 2008 related to the write down of various pre-development costs that were determined to be non-recoverable due to the related projects being terminated which is the result of the current depressed retail real estate market and our liquidity situation. We recognized similar impairment charges for pre-development projects in the amount of $2.9 million in 2007. In addition, in the fourth quarter 2008, we recognized an impairment charge related to allocated goodwill of $32.8 million.
The decrease in litigation provision is due to the settlement and mutual release agreement with Caruso Affiliated Holdings LLC in December 2008 ("Note 1Organizations" to the consolidated financial statements contained elsewhere in this prospectus) that released the defendants from all past, present and future claims related to the Homart IIGlendale Matter in exchange for a settlement payment of $48.0 million, which was paid from the appellate bond cash collateral amounts in January 2009. GGP has not been reimbursed for any portion of this payment by its 50% joint venture partner in GGP/Homart II, and we reimbursed $5.5 million of costs to such joint venture partner in connection with the settlement. Accordingly, in December 2008, we adjusted our liability for the full judgment amount of $89.4 million to $48 million and reversed legal fees incurred by GGP/Homart II of $14.2 million that were previously recorded at 100% by GGP and post-judgment related interest expense of $7.0 million. The net impact of these items related to the settlement is a credit of $57.1 million reflected in litigation provision in our consolidated financial statements.
105
The increase in depreciation and amortization is primarily due to a cumulative adjustment to the useful lives of certain assets in 2007.
The increase in interest expense is primarily due to higher debt balances at of December 31, 2008 compared to December 31, 2007, that were primarily the result of the new multi property financing and/or re-financings in 2008 as well as increased rates at Fashion Show, The Shoppes at the Palazzo and Tucson in the fourth quarter of 2008. The financing activity in the fourth quarter of 2008 resulted in significant increases in interest rates and loan fees. In addition, the financing of the secured portfolio facility also increased interest expense in 2008. Lastly, the increase in interest expense was also due to a decrease in the amount of capitalized interest as a result of decreased development spending in 2008 compared to 2007. See Liquidity and Capital Resources for information regarding 2008 financing activity for additional information regarding the potential impact of future interest rate increases.
The increase in provision for (benefit from) income taxes in 2008 was primarily attributable to tax benefits received in 2007 related to an internal restructuring of certain of our operating properties that were previously owned by a taxable REIT subsidiary ("TRS") and the tax benefit related to the provision for impairment at our master planned communities in 2007.
The decrease in equity in income of Unconsolidated Real Estate Affiliates is primarily due to a significant decrease in our share of income related to GGP/Homart II in 2008. In addition, as a result of the settlement of the Glendale matter in 2008, we reflect our 50% share of legal costs ($7.1 million) as a reduction of 2008 income in unconsolidated real estate affiliates that had previously been recorded at 100% as general and administrative in our consolidated financial statements. In addition, our share of income related to The Woodlands joint ventures decreased due to the gain on sale of the Marriott Hotel in 2007. Lastly, a change in estimate of the useful life for certain intangible assets resulted in lower depreciation expense across the Rouse joint ventures in 2007.
The discontinued operations, net of minority interestgains on dispositions represents the gains from the sale of three office buildings and two office parks, as discussed above, in 2008.
Liquidity and Capital Resources
New GGP's primary uses of cash will include payment of operating expenses, working capital, debt repayment, including principal and interest, reinvestment in its properties, redevelopment of its properties, tenant allowances, dividends and restructuring costs. New GGP's primary sources of cash will include operating cash flow, including distributions of our share of cash flow produced by our Unconsolidated Real Estate Affiliates, and borrowings under our revolving credit facility.
On Old GGP's emergence from bankruptcy and excluding the Special Consideration Properties, New GGP's aggregate principal amount of debt is expected to be $20.9 billion, consisting of approximately $18.4 billion of consolidated debt and approximately $2.5 billion of its share of debt of our Unconsolidated Real Estate Affiliates. New GGP's consolidated debt will consist of:
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Approximately $19.1 million, $65.2 million and $1.3 billion of New GGP's consolidated debt will mature in 2010 (excluding the Special Consideration Properties), 2011 and 2012, respectively. Almost all of New GGP's other consolidated debt matures between 2014 and 2019 with a balanced distribution of maturity dates.
With respect to our share of the debt of our Unconsolidated Real Estate Affiliates (excluding Aliansce, our joint venture in Brazil where we own a common stock investment and have no shared obligation for joint venture indebtedness), $225.5 million matures in 2010, $849.6 billion matures in 2011 and $753.8 million matures in 2012. We currently believe we will be able to refinance or restructure the debt that matures in 2010; however, there can be no assurance that we will be able to refinance or restructure such debt on acceptable terms or otherwise, or that joint venture operations or contributions by us and/or our partners will be sufficient to repay such loans.
Principal amortization on New GGP's consolidated secured loans is estimated to be $211.0 million in the fourth quarter 2010 and approximately $308.9 million during 2011. Our share of the principal amortization on the secured mortgage debt of the Unconsolidated Real Estate Affiliates is estimated to be approximately $6.4 million in the fourth quarter of 2010 and approximately $22.6 million during 2011. New GGP currently believes we will have sufficient cash provided by operations to make these amortization payments.
New GGP's multi-year plan for operating capital expenditures projects estimated expenditures of $96.3 million and $113.8 million in 2010 and 2011, respectively. In addition, Old GGP is currently redeveloping certain properties, including Saint Louis Galleria and Christiana Mall, and expect to spend $59.5 million and $15.0 million in 2010 and 2011, respectively, on these and other redevelopment projects.
New GGP expects to have at least $350 million of unrestricted cash and $300.0 million available under its revolving credit facility upon Old GGP's emergence from bankruptcy. We intend to pursue discussions with our lenders under the revolving credit facility following the Effective Date to seek to improve the terms of the facility and to potentially increase the size of the facility to provide us with further financial flexibility. As a result, New GGP believes it will have adequate sources of funds to operate our business and strategically reinvest and redevelop our properties.
New GGP intends to reduce its outstanding debt through a combination of selling non-core assets and certain joint venture interests, entering into joint ventures with respect to certain of its existing properties, refinancings, equity issuances (including convertible indebtedness) and debt paydowns pursuant to our restructured amortization schedule. With respect to asset sales, New GGP intends to seek opportunities to dispose of assets that are not core to our business in order to optimize our portfolio and reduce leverage, including the opportunistic sale of our strip shopping centers, stand-alone office buildings and certain regional malls. In addition, New GGP expects to restructure some of our less profitable, more highly levered properties, consisting of our special consideration properties, which accounted for approximately $756 million of our consolidated debt as of December 31, 2009.
New GGP anticipates that all of its debt will be repaid, extended or refinanced on a timely basis, except for the debts of the Special Consideration Properties and the debts of two of the properties owned by its Unconsolidated Real Estate Affiliates, Silver City and Montclair. However, there can be no assurance that New GGP will able to reduce its debt or that New GGP can obtain financing on satisfactory terms or at all.
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Summary of Cash Flows
Nine Months Ended September 30, 2010 and 2009
Cash Flows from Operating Activities
Net cash provided by operating activities was $545.8 million for the nine months ended September 30, 2010 and $671.4 million for the nine months ended September 30, 2009.
Cash used for Land/residential development and acquisitions expenditures was $53.5 million for the nine months ended September 30, 2010, an increase from $46.8 million for the nine months ended September 30, 2009.
Net cash provided by certain assets and liabilities, including accounts and notes receivable, prepaid expense and other assets, deferred expenses, and accounts payable and accrued expenses and deferred tax liabilities totaled $222.9 million in 2010 and $199.2 million in 2009. Accounts payable and accrued expenses and deferred tax liabilities increased $177.8 million primarily as a result of an increase in accrued interest for unsecured debt since payments of interest were stayed as a result of bankruptcy. Although liabilities not subject to compromise and certain liabilities subject to compromise have been approved for payment by the Bankruptcy Court, a significant portion of our liabilities subject to compromise are subject to settlement under the Plan and have not been paid to date. In addition, accounts and notes receivable decreased $43.2 million for the nine months ended September 30, 2010, whereas, such accounts increased $1.1 million for the nine months ended September 30, 2009. Also, restricted cash increased $48.7 million for the nine months ended September 30, 2010, whereas such accounts decreased $1.1 million for the nine months ended September 30, 2009. The nine months ended September 30, 2010 also include the impact of reorganization items of $11.1 million, net.
Cash Flows from Investing Activities
Net cash used in investing activities was $119.8 million for the nine months ended September 30, 2010 and $237.9 million for the nine months ended September 30, 2009.
Cash used for acquisition/development of real estate and property additions/improvements was $204.6 million for the nine months ended September 30, 2010, an increase from $158.2 million for the nine months ended September 30, 2009.
Net investing cash provided by (used in) our Unconsolidated Real Estate Affiliates was $97.7 million in 2010 and $(91.6) million in 2009. This increase is primarily due to distributions received from Unconsolidated Real Estate Affiliates of $107.4 million in 2010 and $7.5 million of proceeds from the sale of our investment in Costa Rica ("Note 3Unconsolidated Real Estate Affiliates" to the consolidated financial statements contained elsewhere in this prospectus) in the first quarter of 2010, as well as increases in investments and loans to Unconsolidated Real Estate Affiliates during the first nine months of 2009.
Cash Flows from Financing Activities
Net cash (used in) provided by financing activities was $(450.4) million for the nine months ended September 30, 2010 and $89.3 million for the nine months ended September 30, 2009.
Principal payments on mortgages, notes and loan payables were $704.2 million for the nine months ended September 30, 2010 and $309.4 million for the nine months ended September 30, 2009. In addition, we paid $138.5 million of finance costs related to the Debtors that emerged from bankruptcy during the nine months ended September 30, 2010.
In the fourth quarter of 2009, we declared a dividend of $0.19 per share of common stock (to satisfy REIT distribution requirements for 2009) payable in a combination of cash and common stock,
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and issued approximately 4.9 million shares of common stock. On January 28, 2010, we paid approximately $6.0 million in cash. No dividends were paid during the nine months ended September 30, 2009. There were no distributions to holders of common units during the nine months ended September 30, 2010 while $1.0 million was paid during the nine months ended September 30, 2009.
Year Ended December 31, 2009 and 2008
Cash Flows from Operating Activities
Net cash provided by operating activities was $871.3 million for the year ended December 31, 2009 and $556.4 million for the year ended December 31, 2008.
Cash used for land/residential development and acquisitions expenditures was $78.2 million for the year ended December 31, 2009 a decrease from $166.1 million for the year ended December 31, 2008 as we have slowed the pace of residential land development in 2009 in light of sales pace declines.
As a result of the settlement of the Glendale Matter (see "Note 1Organizations" to the consolidated financial statements contained elsewhere in this prospectus), $67.1 million that was previously paid as cash collateral for the appellate bond was refunded to Old GGP resulting in an increase in net cash provided by operating activities of $134.1 million.
Net cash provided by (used in) certain assets and liabilities, including accounts and notes receivable, prepaid expense and other assets, deferred expenses, and accounts payable and accrued expenses totaled $357.0 million in 2009 and $(117.6) million in 2008. Accounts payable and accrued expenses increased $424.8 million primarily as a result of an increase in accrued interest and liabilities stayed by our bankruptcy filings. Although liabilities not subject to compromise and certain liabilities subject to compromise have been approved for payment by the Bankruptcy Court, a significant portion of our liabilities subject to compromise are subject to settlement under a plan of reorganization and have not been paid. In addition, accounts and notes receivable increased $22.6 million from December 31, 2008 to December 31, 2009, whereas, such accounts decreased $12.7 million from December 31, 2007 to December 31, 2008.
Cash Flows from Investing Activities
Net cash used in investing activities was $334.6 million for the year ended December 31, 2009 and $1.21 billion for the year ended December 31, 2008.
Cash used for acquisition/development of real estate and property additions/improvements was $252.8 million for the year ended December 31, 2009 a decline from $1.19 billion for the year ended December 31, 2008 primarily due to the completion, suspension or termination of a number of development projects in late 2008 and early 2009.
Net investing cash used in our Unconsolidated Real Estate Affiliates was $89.7 million in 2009 and $102.3 million in 2008.
Cash Flows from Financing Activities
Net cash (used in) provided by financing activities was $(51.3) million for the year ended December 31, 2009 and $722.0 million for the year ended December 31, 2008
New financings exceeded principal payments by $20.4 million for the year ended December 31, 2009 and $418.7 million for the year ended December 31, 2008.
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Distributions to common stockholders, holders of Common Units and holders of perpetual and convertible preferred units totaled $1.3 million for the year ended December 31, 2009 and $476.6 million for the year ended December 31, 2008.
Contractual Cash Obligations and Commitments
Historical
The following table aggregates our subsequent contractual cash obligations and commitments as of December 31, 2009 on a historical basis:
|
2010 | 2011 | 2012 | 2013 | 2014 |
Subsequent /
Other(6) |
Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||||||||||||||
Long-term debt-principal(1) |
$ | 1,114,925 | $ | 191,366 | $ | 1,006,706 | $ | 481,140 | $ | 1,626,788 | $ | 3,194,262 | $ | 7,615,187 | ||||||||
Long-term debt subject to compromise at December 31, 2009(2) |
17,155,255 | | | | | | 17,155,255 | |||||||||||||||
Interest payments(3) |
377,137 | 362,951 | 335,668 | 290,183 | 211,221 | 246,762 | 1,823,922 | |||||||||||||||
Retained debt-principal |
119,694 | 775 | 37,742 | | | | 158,211 | |||||||||||||||
Ground lease payments(4) |
9,181 | 8,999 | 8,970 | 9,015 | 9,078 | 344,405 | 389,648 | |||||||||||||||
Purchase obligations(5) |
150,746 | | | | | | 150,746 | |||||||||||||||
Uncertainty in income taxes, including interest |
| | | | | 129,413 | 129,413 | |||||||||||||||
Other long-term liabilities(6) |
| | | | | | | |||||||||||||||
Total |
$ | 18,926,938 | $ | 564,091 | $ | 1,389,086 | $ | 780,338 | $ | 1,847,087 | $ | 3,914,842 | $ | 27,422,382 | ||||||||
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Estimated Contractual Cash Obligations and Commitments as of the Effective Date
The following table aggregates our estimated subsequent contractual cash obligations and commitments as of the Effective Date:
|
2010 | 2011 | 2012 | 2013 | 2014 |
Subsequent /
Other |
Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||||||||||||||
Long-term debt-principal |
$ | 230,173,995 | $ | 372,333,070 | $ | 1,621,989,282 | $ | 1,656,750,608 | $ | 3,065,295,520 | $ | 11,242,535,456 | $ | 18,189,077,931 | ||||||||
Interest payments |
239,192,766 | 959,892,702 | 928,977,698 | 830,029,048 | 691,643,212 | 1,455,546,174 | 5,105,281,601 | |||||||||||||||
Retained debt-principal |
117,651 | 775 | 37,742 | | | | 156,168 | |||||||||||||||
Ground lease payments |
1,595 | 6,199 | 6,162 | 6,191 | 6,254 | 238,484 | 264,885 | |||||||||||||||
Purchase obligations |
19,568 | | | | | | 19,568 | |||||||||||||||
Uncertainty in income taxes, including interest |
| | | | | 65,617 | 65,617 | |||||||||||||||
Total |
$ | 469,505,575 | $ | 1,332,232,746 | $ | 2,551,065,884 | $ | 2,486,785,847 | $ | 3,756,944,986 | $ | 12,698,385,731 | $ | 23,294,865,770 | ||||||||
In the normal course of business, from time to time, we are involved in legal proceedings relating to the ownership and operations of our properties (reference is made to Item 3 above, which description is incorporated into this response).
We lease land or buildings at certain properties from third parties. The leases generally provide us with a right of first refusal in the event of a proposed sale of the property by the landlord. Rental payments are expensed as incurred and have, to the extent applicable, been straight-lined over the term of the lease. Contractual rental expense, including participation rent, was $19.0 million in 2009, $19.3 million in 2008 and $19.5 million in 2007, while the same rent expense excluding amortization of above and below-market ground leases and straight-line rents, as presented in our consolidated financial statements, was $12.7 million in 2009, $12.4 million in 2008 and $12.0 million in 2007.
Off-Balance Sheet Financing Arrangements
We do not have any off-balance sheet financing arrangements.
REIT Requirements
In order to remain qualified as a real estate investment trust for federal income tax purposes, we must distribute or pay tax on 100% of our capital gains and distribute at least 90% of our ordinary taxable income to stockholders. To avoid current entity level U.S. federal income taxes, we plan to distribute 100% of our capital gains and ordinary income to our stockholders annually. We may not have sufficient liquidity to meet these distribution requirements. In determining distributions, the Board of Directors considers operating cash flow. For the next several years, we currently intend to pay a portion of any required dividend in stock.
Seasonality
Although we have a year-long temporary leasing program, occupancies for short-term tenants and, therefore, rental income recognized, are higher during the second half of the year. In addition, the majority of our tenants have December or January lease years for purposes of calculating annual Overage Rent amounts. Accordingly, Overage Rent thresholds are most commonly achieved in the fourth quarter. As a result, revenue production is generally highest in the fourth quarter of each year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements
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and the reported amounts of revenues and expenses during the reporting period. For example, significant estimates and assumptions have been made with respect to: Fair Value (as defined below) of assets for measuring impairment of operating properties, development properties, joint ventures and goodwill; valuation of debt of emerged entities, useful lives of assets; capitalization of development and leasing costs; provision for income taxes; recoverable amounts of receivables and deferred taxes; initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions; and cost ratios and completion percentages used for land sales. Actual results could differ from those estimates.
Critical Accounting Policies
Critical accounting policies are those that are both significant to the overall presentation of our financial condition and results of operations and require management to make difficult, complex or subjective judgments. Our critical accounting policies are those applicable to the following:
Accounting for Reorganization
The accompanying consolidated financial statements and the combined condensed financial statements of the Debtors presented below have been prepared in accordance with the generally accepted accounting principles related to financial reporting by entities whose cases are pending under the Bankruptcy Code. Such consolidated financial statements are also prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the ordinary course of business. Such accounting guidance also provides that if a debtor, or group of debtors, has significant combined assets and liabilities of entities which are not operating under bankruptcy protection, the debtors and non-debtors should continue to be combined. However, separate disclosure of financial statement information solely relating to the debtor entities should be presented. Additionally, due to the various effective dates in December 2009 of the plans of reorganization for the 113 Debtors that had emerged from bankruptcy as of December 31, 2009 (the "Track 1A Debtors"), a convenience date of December 31, 2009 was elected for the accounting for the emergence from bankruptcy of the Track 1A Debtors.
Classification of Liabilities Not Subject to Compromise
Liabilities not subject to compromise include: (1) liabilities held by non-Debtor and Track 1A Debtor entities; (2) liabilities incurred after the Petition Date; (3) pre-petition liabilities of the Debtors holding $1.7 billion of secured mortgage debt that have emerged from backruptcy in 2010 or that expect to emerge from backruptcy in 2010 (the "Track 1B Debtors") and the Debtors that filed the Plan and Disclosure Statement with the bankruptcy court on July 13, 2010 (the "2010 Track Debtors") expect to pay in full; and (4) liabilities related to pre-petition contracts that have not been rejected pursuant to section 365 of the Bankruptcy Code. Unsecured liabilities not subject to compromise at December 31, 2009 with respect to the first stage Debtors are reflected at the current estimate of the probable amounts to be paid even though the amounts of such unsecured liabilities ultimately to be allowed by the Bankruptcy Court (and therefore paid at 100% pursuant to the plans of reorganization for the Track 1A Debtors and Track 1B Debtors) have not yet been determined. With respect to secured liabilities, GAAP bankruptcy guidance provides that Track 1A Debtor mortgage loans should be recorded at their estimated Fair Value.
Reorganization Items
Reorganization items under the Chapter 11 Cases are expense or income items that were incurred or realized by the Debtors as a result of the Chapter 11 Cases and are presented separately in the Consolidated Statements of Income and Comprehensive Income and in the condensed combined statements of operations of the Debtors presented above. These items include professional fees and
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similar types of expenses and gains directly related to the Chapter 11 Cases, resulting from activities of the reorganization process, and interest earned on cash accumulated by the Debtors as a result of the Chapter 11 Cases.
ImpairmentOperating properties, land held for development and sale and developments in progress
We review our consolidated and unconsolidated real estate assets, including operating properties, land held for development and sale and developments in progress, for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Impairment indicators for our retail and other segment are assessed separately for each property and include, but are not limited to, significant decreases in real estate property net operating income, significant occupancy percentage changes and strategic determinations as reflected in certain bankruptcy plans of reorganization, either prospective, or filed and confirmed.
Impairment indicators for our Master Planned Communities segment are assessed separately for each community and include, but are not limited to, significant decreases in sales pace or average selling prices, significant increases in expected land development and construction costs or cancellation rates, and projected losses on expected future sales.
Impairment indicators for pre-development costs, which are typically costs incurred during the beginning stages of a potential development, and developments in progress are assessed by project and include, but are not limited to, significant changes in projected completion dates, revenues or cash flows, development costs, market factors and sustainability of development projects.
If an indicator of potential impairment exists, the asset is tested for recoverability by comparing its carrying amount to the estimated future undiscounted operating cash flow. A real estate asset is considered to be impaired when its carrying amount cannot be recovered through estimated future undiscounted cash flows. To the extent an impairment provision is necessary, the excess of the carrying amount of the asset over its estimated Fair Value is expensed to operations. In addition, the impairment is allocated proportionately to adjust the carrying amount of the asset. The adjusted carrying amount, which represents the new cost basis of the asset, is depreciated over the remaining useful life of the asset.
ImpairmentInvestment in Unconsolidated Real Estate Affiliates
We review our investment in the Unconsolidated Real Estate Affiliates for a series of operating losses of an investee or other factors (including those discussed above) that may indicate that a decrease in value of our investment in the Unconsolidated Real Estate Affiliates has occurred which is other-than-temporary. The investment in each of the Unconsolidated Real Estate Affiliates is evaluated periodically and as deemed necessary for recoverability and valuation declines that are other than temporary. Accordingly, in addition to the property-specific impairment analysis that we perform on the investment properties owned by such joint ventures (as part of our investment properties and developments in progress impairment process described above), we also consider the ownership and distribution preferences and limitations and rights to sell and repurchase of our ownership interests. If we determine that the decline in value of our investment is other than temporary, it is written down to its estimated Fair Value.
ImpairmentGoodwill
We review our goodwill for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Since each individual rental property or each operating property is an operating segment and considered a reporting unit, we perform this test by first comparing the estimated Fair Value of each property with our book value of the property,
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including, if applicable, its allocated portion of aggregate goodwill. We assess Fair Value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions. If the book value of a property, including its goodwill, exceeds its estimated Fair Value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. In this second step, if the implied Fair Value of goodwill is less than the book value of goodwill, then an impairment charge would be recorded.
Recoverable amounts of receivables and deferred tax assets
We make periodic assessments of the collectibility of receivables (including those resulting from the difference between rental revenue recognized and rents currently due from tenants) and the recoverability of deferred taxes based on a specific review of the risk of loss on specific accounts or amounts. The receivable analysis places particular emphasis on past-due accounts and considers the nature and age of the receivables, the payment history and financial condition of the payee, the basis for any disputes or negotiations with the payee and other information which may impact collectibility. For straight-line rents receivable, the analysis considers the probability of collection of the unbilled deferred rent receivable given our experience regarding such amounts. For deferred tax assets, an assessment of the recoverability of the tax asset considers the current expiration periods of the prior net operating loss carryforwards or other asset and the estimated future taxable income of our taxable REIT subsidiaries. The resulting estimates of any allowance or reserve related to the recovery of these items is subject to revision as these factors change and is sensitive to the effects of economic and market conditions on such payees and our taxable REIT subsidiaries.
Capitalization of development and leasing costs
We capitalize the costs of development and leasing activities of our properties. These costs are incurred both at the property location and at the regional and corporate office levels. The amount of capitalization depends, in part, on the identification and justifiable allocation of certain activities to specific projects and leases. Differences in methodologies of cost identification and documentation, as well as differing assumptions as to the time incurred on projects, can yield significant differences in the amounts capitalized and, as a result, the amount of depreciation recognized.
Revenue recognition and related matters
Minimum rent revenues are recognized on a straight-lined basis over the terms of the related leases. Minimum rent revenues also include amounts collected from tenants to allow the termination of their leases prior to their scheduled termination dates and accretion related to above and below-market tenant leases on acquired properties. Straight-line rents receivable represents the current net cumulative rents recognized prior to when billed and collectible as provided by the terms of the leases. Overage Rent is recognized on an accrual basis once tenant sales exceed contractual tenant lease thresholds. Recoveries from tenants are established in the leases or computed based upon a formula related to real estate taxes, insurance and other shopping center operating expenses and are generally recognized as revenues in the period the related costs are incurred.
Revenues from land sales are recognized using the full accrual method provided that various criteria relating to the terms of the transactions and our subsequent involvement with the land sold are met. Revenues relating to transactions that 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. For land sale transactions in which we are required to perform additional services and incur significant costs after title has passed, revenues and cost of sales are recognized on a percentage of completion basis.
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Cost ratios for land sales are determined as a specified percentage of land sales revenues recognized for each master planned community project. The cost ratios used are based on actual costs incurred and estimates of development costs and sales revenues for completion of each project. The ratios are reviewed regularly and revised for changes in sales and cost estimates or development plans. Significant changes in these estimates or development plans, whether due to changes in market conditions or other factors, could result in changes to the cost ratio used for a specific project. The specific identification method is used to determine cost of sales for certain parcels of land, including acquired parcels we do not intend to develop or for which development is complete at the date of acquisition.
Recently Issued Accounting Pronouncements and Developments
As described in "Note 9Recently Issued Accounting Pronouncements" to the consolidated financial statements contained elsewhere in this prospectus, new accounting pronouncements have been issued which impact or could impact the prior, current, or subsequent years.
Inflation
Substantially all of our tenant leases contain provisions designed to partially mitigate the negative impact of inflation. Such provisions include clauses enabling us to receive Overage Rent based on tenants' gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. In addition, many of the leases expire each year which may enable us to replace or renew such expiring leases with new leases at higher rents. Finally, many of the existing leases require the tenants to pay amounts related to all, or substantially all, of their share of certain operating expenses, including common area maintenance, real estate taxes and insurance, thereby partially reducing our exposure to increases in costs and operating expenses resulting from inflation. In general, these amounts either vary annually based on actual expenditures or are set on an initial share of costs with provisions for annual increases. Only if inflation exceeds the rate set in the leases for annual increases (typically 4% to 5%) would increases in expenses due to inflation be a risk.
Inflation also poses a risk to us due to the probability of future increases in interest rates. Such increases would adversely impact us due to our outstanding variable-rate debt. In certain cases, we have previously limited our exposure to interest rate fluctuations related to a portion of our variable-rate debt by the use of interest rate cap and swap agreements. Such agreements, subject to current market conditions, allow us to replace variable-rate debt with fixed-rate debt in order to achieve our desired ratio of variable-rate to fixed rate date. However, in an increasing interest rate environment the fixed rates we can obtain with such replacement fixed-rate cap and swap agreements or the fixed-rate on new debt will also continue to increase.
Quantitative and Qualitative Disclosures about Market Risk
We are subject to market risk associated with changes in interest rates both in terms of variable-rate debt and the price of new fixed-rate debt upon maturity of existing debt and for acquisitions. As of December 31, 2009, Old GGP had consolidated debt of $24.46 billion, including $5.28 billion of variable-rate debt. Although the majority of the remaining variable-rate debt is subject to interest rate cap agreements, such interest rate caps generally limit interest rate exposure only if LIBOR exceeds a rate per annum significantly higher (generally above 8% per annum) than current LIBOR rates (0.23% at December 31, 2009). A 25 basis point movement in the interest rate on the $5.28 billion of variable-rate debt would result in a $13.2 million annualized increase or decrease in consolidated interest expense and operating cash flows.
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In addition, we are subject to interest rate exposure as a result of variable-rate debt collateralized by the Unconsolidated Properties for which similar interest rate swap agreements have not been obtained. Old GGP's share (based on its respective equity ownership interests in the Unconsolidated Real Estate Affiliates) of such remaining variable-rate debt was $390.1 million at December 31, 2009. A similar 25 basis point annualized movement in the interest rate on the variable-rate debt of the Unconsolidated Real Estate Affiliates would result in an approximately $1.0 million annualized increase or decrease in Old GGP equity in the income and operating cash flows from Unconsolidated Real Estate Affiliates.
We are further subject to interest rate risk with respect to Old GGP's fixed-rate financing in that changes in interest rates will impact the Fair Value (as defined below) of Old GGP's fixed-rate financing. "Fair Value" refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Old GGP has not entered into any transactions using derivative commodity instruments.
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Economic conditions in 2009 were challenging, with negative GDP growth, rising unemployment, continued problems in the housing market and declining consumer confidence. Our core regional mall business is impacted by these factors, with the main drivers being GDP growth, employment levels, consumer confidence and retail sales. Despite the challenging conditions of 2009, improvements in growth and employment in the first half of 2010 point towards an emerging economic recovery. GDP is calculated as the total market value of all final goods and services produced in the United States in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. Based on economic projections from the Congressional Budget Office, or CBO, and the U.S. Census Bureau, the U.S. economy is expected to reach its cyclical low point in 2010 with growth expected thereafter.
Demand Drivers
Retail sales performance has historically been highly correlated to a number of factors including real GDP growth, employment, household wealth, personal savings and consumption, consumer access to credit and consumer confidence. During the current recession, consumer spending fell significantly, resulting in downward pressure on retail sales. Consumers slowed their spending due to lower household wealth, reduced access to consumer credit, rising unemployment and lower consumer confidence. These factors drove the decline in financial and operational performance of regional mall REITs. However, these trends have begun to moderate and retail sales have posted quarter-over-quarter increases starting in the fourth quarter of 2009.
Real GDP Growth. Since December 2007, real GDP growth has declined, culminating in a 2.4% decrease in 2009, well above the historical average decline of 0.7% for recessions in the U.S. since 1950. However, GDP growth returned positive in the third quarter of 2009. In August 2010 the CBO indicated that it expects a recovery, with real GDP growth of 3.0%, 2.1% and 3.4% in calendar years 2010, 2011 and 2012, respectively.
Source: Congressional Budget OfficeThe Budget and Economic Outlook: An Update, August 2010
Employment. According to the Bureau of Labor Statistics, the U.S. unemployment rate rose to 10.1% in October 2009, the highest level since June 1983. Since then, unemployment has declined to the current rate of 9.6%, as of September 2010. Although September data showed a decline of 95,000 nonfarm payroll jobs, 77,000 temporary government workers hired for the 2010 Census completed their work, while an additional 76,000 local government jobs were eliminated. Private sector payrolls edged up in September by 64,000, continuing the positive upward trend of private sector employment growth in every month of 2010 so far. Furthermore, recent data in the manufacturing sector suggests improving industrial conditions. The Institute for Supply Management, or ISM, reported that its manufacturing index, a composite index made up of new orders, production, employment, inventories and supplier
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deliveries, registered 54.4% in September 2010, marking the fourteenth consecutive monthly reading above 50%. ISM's manufacturing index is an indicator of the economic health of the manufacturing sector and of trends in the overall economy. According to ISM, a reading above 50% indicates that the manufacturing economy is generally expanding. Improvements in the manufacturing sector should lead to further increases in employment. The chart below shows the actual and forecasted U.S. unemployment rates for calendar years 2000 through 2015, as reported by the CBO.
Source: Congressional Budget OfficeThe Budget and Economic Outlook: An Update, August 2010
Household Net Worth. From 2007 to the first quarter 2009, consumers experienced a substantial negative wealth effect as household net worth, or the difference between household assets and liabilities, declined by approximately $15.5 trillion, or 24.0%, according to the Federal Reserve Board. Household net worth growth has returned, however, with net worth increasing approximately $4.7 trillion, or 9.6%, from the first quarter 2009 to the second quarter 2010.
As indicated by the S&P/Case-Shiller Home Price Index, a leading measure for the U.S. residential housing market that tracks changes in the value of residential real estate both nationally as well as in 20 metropolitan regions, single-family home values fell 31.8% from the peak in May 2006 to the low in May 2009, while the S&P 500 Index fell 56.8% from an all-time high of 1,565 at closing in October 2007 to 677 in March 2009. Since reaching cyclical low points, the S&P/Case-Shiller Home Price Index posted gains in eight consecutive months from June 2009 to January 2010 before slightly decreasing in February and March and returning to positive growth since April 2010. The S&P 500 has increased 71.2% from the low of March 2009 to early October 2010.
Source: Standard & Poor's
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S&P / CaseShiller Home Price Index: Composite 20
Source: Standard & Poor's
Personal Savings and Consumption. In response to weak economic fundamentals and the credit crisis, U.S. consumer spending declined. The U.S. personal savings rate reached a 17-year high in May 2009 of 8.2%, up from 1.7% in August 2007, and it has since fluctuated between approximately 5.1% and 6.7%. Personal savings as a percentage of disposable personal income was 5.8% in August 2010, compared with 5.7% in July 2010. U.S. consumer spending recently began to increase. In August, personal consumption growth was flat, increasing by $41.3 billion, compared to July's $41.4 billion increase. Since January 2010, year-to-date, personal consumption has increased by $189 billion, or nearly 2%, even as U.S. customers in 2010 have increased savings rates well above the historical average. The rate of savings directly affects the amount of disposable income set aside for consumption and spending in the broader retail market.
Personal Savings Rate (Short-Term)
Source: Bureau of Economic Analysis
Consumer Credit. Consumer balance sheets are strengthening, but continue to be overleveraged. According to the Federal Reserve Board, the total consumer credit outstanding peaked at $2.56 trillion in 2008 and has since fallen by more than 5.7% to $2.41 trillion. The Financial Obligation Ratio which (1) combines mortgage and consumer debt payments, automobile payments, rental payments, homeowners insurance and property taxes, and (2) divides that sum by disposable personal income,
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reached a high of 18.86 in the third quarter of 2007 and has gradually improved to 17.02 in the second quarter of 2010.
Source: Federal Reserve Board
Consumer Confidence. The University of Michigan Consumer Sentiment Index, or ICS, a consumer confidence index based on a survey of telephonic household interviews, which was at 90.4 in July 2007, reached a low of 55.3 in November 2008. It has since rebounded to 68.2 as of September 2010. Although the August reading is below the post-crisis high of 76 in June, the index remains substantially above the level of the recession lows of early 2009. The ICS is broken into two components: the Consumer Expectations Index and the Current Economic Conditions Index. We believe positive changes in the ICS may follow increased job growth. As the private sector continues to add jobs in 2010, we believe consumer expectations will follow suit and resume the positive trend they have been on since reaching the cyclical lows of early 2009. The chart below shows the Index of Consumer Sentiment from 2000 through August 2010, which has featured a long-term average of 85.1 since 2000.
Source: Surveys of Consumers, Thomsen Reuters and University of Michigan
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New Mall Supply
Historically, the mall industry has had limited new supply, given the difficulty in constructing a site and attracting the right anchor stores. The current challenging economic conditions have resulted in suspensions and cancellations of many new mall projects, reducing an already small pipeline. Traditional anchor stores have not demonstrated much willingness to expand during the past few years, and the sizable projected gap between replacement costs and market rents serve as a further deterrent to increased mall supply. We believe there has been limited supply of mall space in the last five years. We believe the lack of new development should help better-positioned malls improve their occupancy levels in coming years.
Market Outlook
Despite recent slowing of certain macroeconomic indicators, the overall direction of the economy since the second half of 2009 suggests that the outlook for consumer spending and the retail sector continues to improve. Although GDP growth was negative for 2009 overall (due to the steep declines during the first and second quarters), growth has been positive since the third quarter of 2009, with a 1.7% annualized rate for the second quarter of 2010 according to the Bureau of Economic Analysis. With real GDP forecasted to grow at a pace of 3.0% in 2010, 2.1% in 2011 and 3.4% in 2012, we believe retail sales performance will improve. In fact, U.S. retail sales are already on the rebound, having grown 6.5% in the first eight months of 2010 compared to the first eight months of 2009. We believe the economic recovery should attract new tenants and promote improvement in the future of the regional mall business.
Source: Bureau of the Census
Summary
While the retail sector was particularly hard-hit during the most recent economic downturn, we believe the potential economic recovery should help increase retail sales and improve retailer performance, which in turn should drive improved results for regional malls. Although the rebound from this recession is expected to be slower than in periods following previous recessions (especially if unemployment remains at an elevated rate), we believe positive sales growth in 2010 and 2011 should nonetheless help drive retailer expansions and new lease signings, which should help reduce retail vacancies and contribute to growth. The potential limited supply of regional mall space and the lack of new development over the past few years should also help owners and malls that are in well-positioned locations to improve their occupancy levels in coming years and support the potential increased rental growth.
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Overview
We are a leading real estate owner and operator of regional malls with an ownership interest in 185 regional malls in 43 states as of the date of this prospectus, as well as ownership interests in other rental properties. Based on the number of malls in our portfolio, we are the second largest owner of regional malls in the United States, located strategically in major and middle markets nationwide.
Our company began as a single property in Cedar Rapids, Iowa and has expanded significantly, both through organic growth and strategic acquisitions, to include some of the highest quality retail assets in the United States. Many of our properties are located in the fastest growing regions of the country as measured by household income and population growth, respectively. As a result of our history in building a national real estate platform and portfolio, our management team has extensive experience in managing, operating, leasing and redeveloping our portfolio of properties.
Our portfolio includes more than 68.9 million square feet of regional mall retail space and approximately 21,000 leases nationwide. We also own stand-alone office properties, strip shopping centers and hybrid mixed-use properties. A summary of our asset portfolio is presented in "Properties."
New GGP was incorporated as a Delaware corporation on July 1, 2010.
Our Business
Our portfolio of regional malls and other rental properties represents a diverse collection of retail offerings that are targeted to a range of market sizes and consumer tastes. To better understand our portfolio of regional malls, we are presenting our U.S. regional malls in this prospectus in four categories. We believe these categories reflect the tenant sales performance, current retail tenant positioning, consumer preference characteristics, market size and competitive position of our regional malls. The table below summarizes these four categories as well as our other rental properties on a historical basis, excluding properties that we transferred to THHC as well as de minimis properties, including international operations, and other corporate non-property interests:
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Year Ended December 31, 2009 | |||||||||||||
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Category
|
Number of
Properties |
Mall and
Freestanding GLA(1) (millions of square feet) |
Average Annual
Tenant Sales per Square Foot(2) ($) |
Mall and
Other Rental NOI(3) ($ millions) |
Occupancy(4)
(%) |
|||||||||||
Tier I Malls |
47 | 20.5 | 581 | 999.7 | 95.3 | |||||||||||
Tier II Malls |
57 | 20.9 | 367 | 712.7 | 93.4 | |||||||||||
Other Malls |
68 | 20.9 | 294 | 448.8 | 87.4 | |||||||||||
Special Consideration Properties |
13 | (5) | 3.3 | 267 | 63.4 | 85.8 | ||||||||||
Total Regional Malls |
185 | 65.6 | 410 | 2,224.6 | 91.7 | |||||||||||
Other Rental Properties |
64 | 8.2 | N/A | 110.3 | 86.7 | |||||||||||
Total |
249 | 73.8 | 410 | 2,334.9 | 91.3 | |||||||||||
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Our Regional Malls
Our regional malls are located in major and middle markets throughout the United States. For the year ended December 31, 2009, the geographic concentration of our regional malls as a percentage of our total regional mall NOI presented above was as follows: the east coast (33%), the west coast and Hawaii (33%), the north central United States (21%), and Texas and surrounding states (13%). We believe that the concentration of our regional malls in the coastal regions of the United States results in our operations being focused on regions that generally feature favorable demographic and economic trends. At the same time, we believe that the geographic diversity of our regional mall portfolio mitigates the impact on our operating results of regional economic conditions and local factors. Many of our properties are located in major metropolitan centers that are generally distinguished by household incomes and income growth above the national average and population and household formation growth rates above the U.S. mean. Approximately 54% of our Mall and Other Rental NOI for the year ended December 31, 2009 was generated by malls located in the 50 largest metropolitan statistical areas, or MSAs, in the United States. We believe that the location of our properties in these favorable demographic regions positions us well for potential future growth.
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Tier I Malls. We believe that these regional malls are the premier malls in their market areas and among the leading malls in the United States. These high quality malls typically have average annual tenant sales per square foot of $450 or higher and several are iconic in nature. Examples include Ala Moana in Honolulu, Tysons Galleria in Washington D.C. and Oakbrook Center in Chicago, as well as well-known festival marketplace assets such as Faneuil Hall in Boston. We believe the strong shopping and entertainment component in these malls caters to their respective market areas, which are often destination draws for tourists, and also appeal to the local populations. Our Tier I Malls are well-known by consumers in the local market and we believe are in highly desirable locations for tenants. On the whole, our Tier I Malls have generated consistent NOI over the three-year period ended December 31, 2009 despite the challenging economic environment. For example, Tysons Galleria is anchored by Neiman Marcus, Saks Fifth Avenue and Macy's. In 2009, the center was producing nearly $700 per square foot. Tysons Galleria is comprised of a significant number of luxury tenants including Chanel, Bottega Veneta, Salvatore Ferragamo and Versace. The center is located in the greater Washington, D.C. market, which has a population of 5.3 million residents and, while it faces heavy competition for the broader mall shopper, we believe that Tyson's Galleria is the premier destination for luxury retail consumers. On average, five retailers occupy 10% or more of the rentable square footage in Tier I Malls.
Tier II Malls. We believe that these regional malls are either the only malls in their market areas, or as part of a cluster of malls, may receive relatively high consumer traffic in their market areas. These malls typically have average annual tenant sales per square foot of $300 to $450. Deerbrook Mall, one of five high quality malls that we own in the Houston area, is an example of a mall in this category. Deerbrook Mall is located in a favorable trade area featuring high population density and convenient access to Interstate 59 and includes retailers such as Coldwater Creek, Ann Taylor Loft and Chicos. Another example is Maine Mall in Portland, Maine. The Maine Mall is anchored by Macy's,
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JCPenney and Sears with its in-line tenant offering comprised of moderately priced mainstream retailers. The Maine Mall is the only regional mall in Portland, ME. On average, six retailers occupy 10% or more of the rentable square footage in Tier II Malls.
On the whole, our Tier I Malls and Tier II Malls have generated consistent Mall and Other Rental NOI over the three-year period ended December 31, 2009 despite a challenging economic environment.
Other Malls. These malls represent the remainder of our regional mall properties and include three general subcategories. On average, seven retailers occupy 10% or more of the rentable square footage in these malls.
Special Consideration Properties. Absent additional concessions from the applicable lenders, we expect that this group of 13 regional malls will be given back to the applicable lenders or alternatively, we may work with lenders to market such properties for sale because we believe that the value of these regional malls as compared to the outstanding amount of indebtedness for these properties does not justify retaining them.
Our Other Rental Properties
In addition to regional malls, we own 34 strip shopping centers totaling 5.5 million square feet in 12 states, as well as 30 stand-alone office buildings totaling 2.7 million square feet, concentrated in Columbia, Maryland and Las Vegas, Nevada. Many of our strip shopping centers are anchored by national grocery chains and drug stores such as Albertsons, Safeway, Rite Aid and Long's Drugs. Other tenants include leading retailers such as Target, Best Buy and Lowe's. The majority of the strip shopping centers are located in the growth markets of the Western regions of the country (generating approximately 70% of total 2009 strip shopping center NOI). In 2009, the strip shopping centers had an overall occupancy of 87% and generated $45.4 million of NOI. On average, two retailers occupy 10% or more of the rentable square footage in our other rental properties.
We currently desire to opportunistically sell our strip shopping centers and stand-alone office buildings, however, no such sales are currently probable. Our stand-alone office buildings are primarily a legacy of The Rouse Company acquisition in 2004. The properties are located in two main areas: Summerlin, Nevada, near Las Vegas, and Columbia Maryland, near Baltimore and Washington D.C.
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Both locations are office hubs in their respective MSAs. In 2009, the office buildings had an overall occupancy of 80% and generated $27.6 million of NOI. The Summerlin, Nevada assets had an overall occupancy of 84% and contributed 60% of overall office buildings NOI. The Columbia, Maryland assets had an overall occupancy of 67% and contributed 31% of overall office buildings NOI. Until then, we will continue to implement a proactive leasing strategy focused on creditworthy national branded retailers in order to maximize value at the time of divestiture.
We also currently hold non-controlling ownership interests in a public Brazilian real estate operating company, Aliansce Shopping Centers, and a large regional mall in Rio de Janeiro called Shopping Leblon.
Substantially all of our business is conducted through GGPLP. We generally make all key strategic decisions for our Consolidated Properties. However, in connection with the Unconsolidated Properties, such strategic decisions are made with the respective stockholders, members or joint venture partners. We are also the asset manager for most of the Company Portfolio, executing the strategic decisions and overseeing the day-to-day property management functions, including operations, leasing, construction management, maintenance, accounting, marketing and promotional services. With respect to jointly owned properties, we generally conduct the management activities through General Growth Management, Inc. ("GGMI"), one of our taxable REIT subsidiaries ("TRS") which manages, leases, and performs various services for the majority of the properties owned by our Unconsolidated Real Estate Affiliates, and also performs marketing and strategic partnership services at 20 of the operating retail properties owned by our Unconsolidated Real Estate Affiliates. All of the 13 operating retail properties owned either through our Brazilian joint venture are unconsolidated and are managed by our joint venture partners.
Competitive Strengths
We believe that we distinguish ourselves through the following competitive strengths:
High Quality Properties. More than half of our properties are Tier I Malls and Tier II Malls. Our Tier I Malls and Tier II Malls provide shopping venues that generated approximately 77% of our Mall and Other Rental NOI for the year ended December 31, 2009, and had average annual tenant sales per square foot of approximately $468 for the same period. These malls are located in core markets defined by large population density, strong population growth and household formation, and high-income consumers. Approximately one of every three U.S. households with an income of greater than $100,000 a year is located within 10 miles of one of our malls. We frequently are able to offer "first-to-market" stores (the first location of a store in a particular region or city) in these core markets that enhance the reputation of our regional malls as premier shopping destinations. For example, in 2010, the first Diane von Furstenberg and Tory Burch stores are expected to open in our Ala Moana Center in Honolulu, Hawaii.
Second Largest Regional Mall Owner in the United States. Based on the number of malls in our portfolio, we are the second largest owner of regional malls in the United States, located in major and middle markets nationwide. Our malls receive an average of approximately 1.9 billion consumer visits each year, and we are the #1 or #2 largest landlord to 40 of what we believe are many of America's premier retailers by number of locations. For the year ended December 31, 2009, our malls generated $2.2 billion, or 95.3% of our Mall and Other Rental NOI. We believe there has been a limited supply of new mall space in the last five years. We believe that the lack of new development should help us improve occupancy levels in coming years. We believe the size and strength of our portfolio is attractive to tenants.
Strategic Relationships and Scale with Tenants and Vendors. We believe that the size, quality and geographical breadth of our regional mall portfolio provide competitive advantages to our tenants and
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vendors, which strengthens our relationship with them. We believe that our national tenants benefit from the high traffic at our malls as well as the efficiency of being able to negotiate leases at multiple locations with just one landlord. Also, we will continue to utilize processes such as our high volume leasing department's annual portfolio review process with retailers, which provides some visibility into our tenants' growth plans, including future leasing opportunities. We also maintain national contracts with certain vendors and suppliers for goods and services, such as security and maintenance, at generally more favorable terms than individual contracts.
Restructured, Flexible Capital Structure. We believe that upon Old GGP's emergence from bankruptcy, we will benefit from a capital structure sheet with substantially reduced consolidated near-term debt maturities. As of the Effective Date, we expect 8.8% (excluding the Special Consideration Properties) of consolidated debt to be due prior to 2013. In addition, as of the Effective Date, we expect our share of the debt of our unconsolidated joint ventures due prior to 2013 to be approximately $1.9 billion. As of September 30, 2010, we had approximately $23.6 billion aggregate principal amount of our consolidated debt (excluding the Special Consideration Properties) and as of the Effective Date, we expect to have $18.4 billion aggregate principal amount of consolidated debt (excluding the Special Consideration Properties) and approximately $2.5 billion aggregate principal amount of our share of unconsolidated debt. We believe that most of our joint venture partners are generally well-capitalized and can support their portion of the indebtedness. On the Effective Date, the weighted average interest rate on our consolidated debt is expected to be approximately 5.3% and the average maturity of our consolidated debt is expected to be 4.9 years. In addition, we have renegotiated more flexible terms on our property-level debt, allowing us, for example, to prepay certain recently restructured mortgage debt, which constitutes a majority of our consolidated debt, without incurring any prepayment penalties. Following our emergence from bankruptcy a portion of our property-level debt will be non-recourse to us as well. Significantly, as a condition to the consummation of the transactions contemplated by the Investment Agreements described in "Plan of Reorganization," we were required to have unrestricted cash of at least $350.0 million upon consummation of the Plan, unless this condition is amended or waived by the Plan Sponsors.
Experienced Long-Tenured Operational Leadership Team. Although we have recently made some changes in our executive management team, we have maintained a strong retention rate among our operational leadership teams, which have developed knowledge of local, regional and national real estate markets, enabling them to more effectively manage properties across our portfolio. More than 70% of the members of our operational leadership have been with us for at least five years, and more than 40% of the members of our operational leadership have been with us for more than 10 years. We have maintained low levels of voluntary attrition across all key operational disciplines despite the uncertainty created by the predecessor entity's bankruptcy filing and an overall reduction in work force.
Business Strategy
Our business strategy is to further improve our financial position and to maximize the relevance of our mall properties to tenants and consumers using a proactive and financially disciplined approach. We intend to improve our performance by capitalizing on our reorganized financial position and combining the appropriate merchandising mix with excellent physical property conditions in attractive locations. We believe that this will, in turn, increase consumer traffic, retailer sales and rents. We intend to pursue the following objectives in order to implement our business strategy:
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Further Delever our Balance Sheet, Build Liquidity and Optimize our Portfolio. We have already achieved significant progress on several key financial objectives during the bankruptcy process. Upon consummation of the Plan, we expect that we will have reduced our overall leverage and extended our secured debt maturity schedule so that only 8.9% (excluding the Special Consideration Properties) of our consolidated debt will mature prior to 2013, and developed a liquidity and operating plan intended to protect our leading position in the regional mall sector. We are committed to further improving our balance sheet and under current conditions, intend to reduce our debt to a target ratio of net debt (i.e., debt less cash and cash equivalents) to Adjusted EBITDA of 7.0 to 1.0, subject to our business and liquidity needs remaining consistent. As of December 31, 2009, our ratio of net debt to Adjusted EBITDA was 10.8 to 1.0. We desire to reduce our outstanding debt and eliminate cross-collateralizations and credit enhancements through a combination of opportunistically selling non-core assets and certain joint venture interests, entering into joint ventures in certain of our existing properties, refinancings, equity issuances (including convertible indebtedness) and debt paydowns pursuant to our restructured amortization schedule.
In addition, we believe that we can eliminate a substantial amount of indebtedness and further improve our credit profile by either restructuring or deeding back to lenders in lieu of renegotiating the respective debt our Special Consideration Properties, which represent some of our less profitable, more highly levered properties and accounted for $756.1 million of our indebtedness as of December 31, 2009, and two other regional mall properties, which accounted for $198.0 million of our indebtedness as of December 31, 2009, after consummation of the Plan.
Optimize Tenant Mix and Enhance Consumer Experience. We believe in a "virtuous cycle" of mall management, as illustrated below. This cycle is based on our belief that better malls lead to the best tenant mix for each market, which leads to a better shopping experience for the consumer, thereby increasing consumer traffic and consumer loyalty.
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our peers. Based on our experience running mall properties, we believe that increased rents lead to increased NOI, which not only strengthens our competitive position but also enables us to reinvest capital into our properties, which completes our "virtuous cycle" of mall management.
Maximize Operational Efficiency. As part of our reorganization, we began re-engineering our operations, streamlining management and decision-making, and prioritizing capital investments by creating strategic plans for each property, and we intend to continue these efforts following our emergence from bankruptcy. We believe that corporate overhead and operational issues are closely intertwined, and this belief has guided our operating philosophy to invest in items that maximize the consumer experience, while streamlining our costs in areas that we do not believe will negatively impact the consumer or mall experience. To date, we have achieved several other key restructurings of our operations, including the following:
We have also been proactive in maintaining optimal staffing levels, as our current headcount is more than a quarter below its pre-bankruptcy peak. Over the coming months, we intend to introduce many other innovations to improve our efficiency and effectiveness, such as restructuring and simplifying our financial accounting systems. By redirecting and restructuring the allocation of our resources and capital investment towards those properties that offer the best risk-adjusted returns and reducing our total overhead expenses and operating infrastructure in a manner that does not negatively impact the consumer experience, we believe that we can improve our profitability.
Growth Opportunities
We believe that implementing our business strategies described above, as well as an overall recovery in the U.S. economy, will provide opportunities to improve our operating results, including NOI:
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Other Policies
The following is a discussion of our investment policies, financing policies, conflict of interest policies and policies with respect to certain other activities. One or more of these policies may be amended or rescinded from time to time without a stockholder vote.
Investment Policies
Our business is to own and invest in real estate assets. Old GGP is a REIT, and New GGP has agreed to elect to be treated as a REIT in connection with the filing of its tax return for the year in which Old GGP emerges from bankruptcy, subject to New GGP's ability to meet the requirements of a REIT at the time of election. REIT limitations restrict us from making an investment that would cause our real estate assets to be less than 75% of our total assets. In addition, at least 75% of our gross income must be derived directly or indirectly from investments relating to real property or mortgages on real property, including "rents from real property," dividends from other REITs and, in certain circumstances, interest from certain types of temporary investments. At least 95% of our income must
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be derived from such real property investments, and from dividends, interest and gains from the sale or dispositions of stock or securities or from other combinations of the foregoing.
Subject to REIT limitations, we may invest in the securities of other issuers in connection with acquisitions of indirect interests in real estate. Such an investment would normally be in the form of general or limited partnership or membership interests in special purpose partnerships and limited liability companies that own one or more properties. We may, in the future, acquire all or substantially all of the securities or assets of other REITs, management companies or similar entities where such investments would be consistent with our investment policies.
Financing Policies
We must comply with the covenants contained in our financing agreements. We expect to enter into a new revolving credit facility providing for revolving loans in the amount of $300.0 million, which will require us to satisfy certain affirmative and negative covenants and to meet financial ratios and tests, which may include ratios and tests based on leverage, interest coverage and net worth.
If our Board of Directors determines to seek additional capital, we may raise such capital through additional equity offerings, debt financing, creating joint ventures with existing ownership interests in properties, retention of cash flows or a combination of these methods. Our ability to retain cash flows is limited by the requirement for REITs to pay tax on or distribute 100% of their capital gains income and distribute at least 90% of their taxable income and our desire to avoid entity level U.S. federal income tax by distributing 100% of our capital gains and ordinary taxable income. For 2010, New GGP expects to make 90% of this distribution in New GGP common stock and 10% in cash. Beginning in 2011, New GGP anticipates that it will implement a dividend reinvestment plan. The Plan Sponsors have informed New GGP that they would elect to have dividends paid on the shares that they hold reinvested in shares of New GGP common stock and, as a result, New GGP expects to be able to pay cash dividends to its other stockholders. However, there can be no assurances that such a plan will be adopted and, even if such a plan is adopted, New GGP may determine to instead pay dividends in a combination of cash and shares of its common stock. We must also take into account taxes that would be imposed on undistributed taxable income. If our Board of Directors determines to raise additional equity capital, it may, without stockholder approval, issue additional shares of common stock or other capital stock. Our Board of Directors may issue a number of shares up to the amount of our authorized capital in any manner and on such terms and for such consideration as it deems appropriate. Such securities may be senior to the outstanding classes of common stock. Such securities also may include additional classes of preferred stock, which may be convertible into common stock. Existing stockholders have no preemptive right to purchase shares in any subsequent offering of our securities. Under the Investment Agreements, the Plan Sponsors will be provided with preemptive rights to purchase New GGP common stock as necessary to allow it to maintain its proportional ownership interest in New GGP on a fully diluted basis. Any such offering could dilute a stockholder's investment in us and may make it more difficult to raise equity capital.
We do not have a policy limiting the number or amount of mortgages that may be placed on any particular property. Mortgage financing instruments, however, usually limit additional indebtedness on such properties. Typically, we invest in or form special purpose entities to assist us in obtaining permanent financing at attractive terms. Permanent financing may be structured as a mortgage loan on a single property, or on a group of properties, and generally requires us to provide a mortgage interest on the property in favor of an institutional third party, as a joint venture with a third party, or as a securitized financing. For securitized financings, we create special purpose entities to own the properties. These special purpose entities are structured so that they would not be consolidated with us in the event we would ever become subject to a bankruptcy proceeding or liquidation. We decide upon the structure of the financing based upon the best terms then available to us and whether the proposed financing is consistent with our other business objectives. For accounting purposes, we include the
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outstanding securitized debt of special purpose entities owning consolidated properties as part of our consolidated indebtedness.
Conflict of Interest Policies
We maintain policies and have entered into agreements designed to reduce or eliminate potential conflicts of interest. We have adopted governance principles governing our affairs and the Board of Directors, as well as written charters for each of the standing committees of the Board of Directors. In addition, we have a Code of Business Conduct and Ethics, which applies to all of our officers, directors, and employees. At least a majority of the members of our Board of Directors must qualify as independent under the listing standards for NYSE companies. Any transaction between us and any director, officer or 5% stockholder must be approved pursuant to our Related Party Transaction Policy.
Policies With Respect To Certain Other Activities
We intend to make investments which are consistent with our qualification as a REIT, unless the Board of Directors determines that it is no longer in our best interests to so qualify as a REIT. The Board of Directors may make such a determination because of changing circumstances or changes in the REIT requirements. We have authority to offer shares of our capital stock or other securities in exchange for property. We also have authority to repurchase or otherwise reacquire our shares or any other securities. We may issue shares of our common stock, or cash at our option, to holders of units of limited partnership interest in the Operating Partnership in future periods upon exercise of such holders' rights under the Operating Partnership agreement. Our policy prohibits us from making any loans to our directors or executive officers for any purpose. We may make loans to the joint ventures in which we participate.
We intend to borrow money as part of our business, and we also may issue senior securities, purchase and sell investments, offer securities in exchange for property and repurchase or reacquire shares or other securities in the future. To the extent we engage in these activities, we will comply with applicable law. In addition, Old GGP has a $200 million per fiscal year common stock repurchase program which was approved by its board of directors. The program gives Old GGP the ability to acquire some or all of the shares of common stock to be issued upon the exercise of its threshold vesting stock options or the Contingent Stock Agreement. During 2008 and in 2009 prior to the bankruptcy filing, no shares were repurchased and, during the pendency of the Chapter 11 Cases, no stock repurchases are expected. New GGP currently does not intend to have a common stock repurchase program.
Old GGP has, and New GGP will, make reports to its security holders in accordance with the NYSE rules and containing such information, including financial statements certified by independent public accountants, as required by the NYSE.
We do not have policies in place with respect to making loans to other persons (other than our conflict of interest policies described above), investing in the securities of other issuers for the purpose of exercising control and underwriting the securities of other issuers, and we do not currently, and do not intend to, engage in these activities.
Competition
The nature and extent of the competition we face varies from property to property and among each type of property. For our retail properties, our direct competitors include other publicly-traded retail mall development and operating companies, retail real estate companies, commercial property developers and other owners of retail real estate that engage in similar businesses.
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Within our portfolio of retail properties, we compete for retail tenants. We believe the principal factors that retailers consider in making their leasing decision include:
Based on these criteria, we believe that the size and scope of our property portfolio, as well as the overall quality and attractiveness of our individual properties, enable us to compete effectively for retail tenants in our local markets. Because our revenue potential is linked to the success of our retailers, we indirectly share exposure to the same competitive factors that our retail tenants experience in their respective markets when trying to attract individual shoppers. These dynamics include general competition from other regional shopping centers, outlet malls and other discount shopping centers, as well as competition with discount shopping clubs, catalog companies, internet sales and telemarketing. We believe that we have a competitive advantage with respect to our operational retail property management, which have developed knowledge of local, regional and national real estate markets, enabling us to evaluate existing retail properties for their increased profit potential through expansion, remodeling, re-merchandising and more efficient management of the property.
With respect to specific alternative retail property types, we compete with other retail channels, including discount department stores, lifestyle centers and the internet, in addition to other regional malls. We believe, however, that the lifestyle concept is facing substantial challenges and presents opportunities for us to grow our business for several reasons. For example, lifestyle centers do not have anchor stores and depend on a core group of in-line stores and restaurants to drive business. Once these centers lose key tenants, it becomes easier to attract other in-line retailers, especially when co-tenancy becomes an issue. We have had success luring lifestyle center tenants back to the malls, given the lack of traffic at some of these centers.
Retailers are looking to expand in the highest traffic centers, and we believe malls with the optimal mix of retailers, dining and entertainment options typically have high traffic. Power centers have also presented competition and we have embraced traditional power center tenants in our malls where it is feasible. For example, in recent years we have added Target stores to two malls and Kohl's stores to two malls.
With respect to our office and other properties, we experience competition in the development and management of our properties similar to that of our retail properties. Prospective tenants generally consider quality and appearance, amenities, location relative to other commercial activity and price in determining the attractiveness of our properties. Based on the quality and location of our properties, which are generally in urban markets or are concentrated in the commercial centers of master planned communities, we believe that our properties are viewed favorably among prospective tenants.
Environmental
Under various Federal, state and local laws and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on such real estate. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to promptly
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remediate such substances, may adversely affect the owner's ability to sell such real estate or to borrow using such real estate as collateral. In connection with our ownership and operation of our properties, we, or the relevant joint venture through which the property is owned, may be potentially liable for such costs.
Substantially all of our properties have been subject to Phase I environmental assessments, which are intended to evaluate the environmental condition of the surveyed and surrounding properties. Phase I environmental assessments typically include a historical review, a public records review, a site visit and interviews, but do not include soil sampling or subsurface investigations. To date, the assessments have not revealed any known environmental liability that we believe would have a material adverse effect on our overall business, financial condition or results of operations. Nevertheless, it is possible that these assessments do not reveal all environmental liabilities or that conditions have changed since the assessments were prepared (typically at the time the property was purchased or developed). Moreover, no assurances can be given that future laws, ordinances or regulations will not impose any material environmental liability on us, or that the current environmental condition of our properties will not be adversely affected by tenants and occupants of the properties, by the condition of properties in the vicinity of our properties (such as the presence on such properties of underground storage tanks) or by third parties unrelated to us.
Future development opportunities may require additional capital and other expenditures in order to comply with federal, state and local statutes and regulations relating to the protection of the environment. However, we may not have sufficient liquidity to comply with such statutes and regulations and may be required to halt or defer such development projects. We cannot predict with any certainty the magnitude of any such expenditures or the long-range effect, if any, on our operations. Compliance with such laws has not had a material adverse effect on our operating results or competitive position in the past but could have such an effect in the future.
Employees
As of September 30, 2010, Old GGP had approximately 3,100 employees.
Insurance
We have comprehensive liability, fire, flood, extended coverage and rental loss insurance with respect to our portfolio of retail properties. Our management believes that such insurance provides adequate coverage.
Qualification as a Real Estate Investment Trust and Taxability of Distributions
Old GGP currently qualifies, and New GGP has agreed to elect to be qualified as a REIT pursuant to the requirements contained in Sections 856-858 of the Code. If, as we contemplate, such qualification continues and we distribute at least 100% of our capital gains and ordinary taxable income annually in a combination of cash and stock, Old GGP and, following New GGP's qualification as a REIT, New GGP, will not be subject to Federal income tax on its real estate investment trust taxable income. During 2009, Old GGP met its distribution requirements to its common stockholders as provided for in Section 857 of the Code.
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Properties
The following is a list of our material properties in the United States by property category as of September 30, 2010, and excludes the properties that we transferred to THHC on the Effective Date:
TIER I MALLS
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GLA |
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Anchor
Stores/ Significant Tenant Vacancies |
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Property
Count |
Name of Center | Location(1) |
Ownership
Interest |
Total |
Mall and
Freestanding |
Anchor Stores/
Significant Tenants |
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1. | Ala Moana Center(2) | Honolulu, HI | 100 | % | 2,072,288 | 925,680 | Barnes & Noble, Macy's, Neiman Marcus, Old Navy, Sears, Shirokiya, Nordstrom | | ||||||||||||
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2. |
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Alderwood |
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Lynnwood (Seattle), WA |
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50.5 |
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1,267,580 |
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497,029 |
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JCPenney, Loews Cineplex, Macy's, Nordstrom, Sears |
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3. |
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Arrowhead Towne Center |
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Glendale, AZ |
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33.33 |
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1,197,342 |
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342,805 |
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AMC Theatres, Dicks Sporting Goods, Dillards, Forever 21, JCPenney, Macy's |
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4. |
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Baybrook Mall |
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Friendswood (Houston), TX |
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100 |
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1,242,887 |
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342,278 |
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Dillard's, Forever 21, JCPenney, Macy's, Sears |
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5. |
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Bayside Marketplace(2) |
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Miami, FL |
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100 |
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219,115 |
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|
219,115 |
|
Hard Rock Café |
|
|
|
|
|
6. |
|
Beachwood Place |
|
Beachwood, OH |
|
|
100 |
|
|
913,443 |
|
|
333,863 |
|
Dillard's, Nordstrom, Saks Fifth Avenue |
|
|
|
|
|
7. |
|
Bridgewater Commons |
|
Bridgewater, NJ |
|
|
35 |
|
|
983,959 |
|
|
448,070 |
|
|
|
|
|
|
|
8. |
|
Christiana Mall |
|
Newark, DE |
|
|
50 |
|
|
1,127,810 |
|
|
389,603 |
|
Barnes & Noble, JCPenney, Macy's, Target, Nordstroms |
|
|
|
|
|
9. |
|
Faneuil Hall Marketplace(2) |
|
Boston, MA |
|
|
100 |
|
|
195,863 |
|
|
195,863 |
|
McCormick & Schmicks, Ned Devines & Parris, Urban Outfitters, Plaza III |
|
|
|
|
|
10. |
|
Fashion Place(2) |
|
Murray, UT |
|
|
100 |
|
|
1,037,250 |
|
|
333,677 |
|
Dillard's, Nordstrom, Sears, Macy's |
|
|
1 |
|
|
11. |
|
Fashion Show |
|
Las Vegas, NV |
|
|
100 |
|
|
1,877,665 |
|
|
524,957 |
|
Bloomingdale's Home, Dillard's, Forever 21, Macy's, Neiman Marcus, Nordstrom, Saks Fifth Avenue |
|
|
1 |
|
|
12. |
|
Glendale Galleria(2) |
|
Glendale, CA |
|
|
50 |
|
|
1,319,775 |
|
|
514,775 |
|
JCPenney, Macy's, Nordstrom, Target |
|
|
1 |
|
136
|
|
|
|
GLA |
|
Anchor
Stores/ Significant Tenant Vacancies |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property
Count |
Name of Center | Location(1) |
Ownership
Interest |
Total |
Mall and
Freestanding |
Anchor Stores/
Significant Tenants |
||||||||||||||
13. | Harborplace(2) | Baltimore, MD | 100 | 145,406 | 145,406 | Phillips Harborplace, Urban Outfitters | | |||||||||||||
|
14. |
|
Jordan Creek Town Center |
|
West Des Moines, IA |
|
|
100 |
|
|
1,289,885 |
|
|
748,186 |
|
Century Theatres, Dillard's, Scheels, Younkers, Barnes & Noble |
|
|
|
|
|
15. |
|
Kenwood Towne Centre(2) |
|
Cincinnati, OH |
|
|
50 |
|
|
1,148,168 |
|
|
506,847 |
|
Dillard's, Macy's, Nordstrom |
|
|
|
|
|
16. |
|
Mall of Louisiana |
|
Baton Rouge, LA |
|
|
100 |
|
|
1,551,057 |
|
|
743,575 |
|
Borders Books & Music, Dillard's, JCPenney, Macy's, Pottery Barn, Sears, Rave Motion Pictures, Dicks Sporting Goods, DSW Shoe Warehouse |
|
|
|
|
|
17. |
|
Mayfair |
|
Wauwatosa (Milwaukee), WI |
|
|
100 |
|
|
1,116,130 |
|
|
496,746 |
|
AMC Theatres, Barnes & Noble, Boston Store, Macy's, Crate & Barrel |
|
|
|
|
|
18. |
|
Mizner Park(2) |
|
Boca Raton, FL |
|
|
50 |
|
|
247,071 |
|
|
136,249 |
|
Mizner Park Cinema, Zed 451, Robb & Stucky |
|
|
1 |
|
|
19. |
|
Natick Collection |
|
Natick (Boston), MA |
|
|
50 |
|
|
1,667,723 |
|
|
686,925 |
|
Crate & Barrel, JCPenney, Lord & Taylor, Macy's, Sears, Neiman Marcus, Nordstrom, American Girl Place |
|
|
|
|
|
20. |
|
North Star Mall |
|
San Antonio, TX |
|
|
100 |
|
|
1,242,570 |
|
|
428,402 |
|
Dillard's, Macy's, Saks Fifth Avenue, Forever 21, JCPenney |
|
|
|
|
|
21. |
|
Northbrook Court |
|
Northbrook (Chicago), IL |
|
|
50.5 |
|
|
1,004,120 |
|
|
388,201 |
|
AMC Theatres, Lord & Taylor, Macy's, Neiman Marcus |
|
|
|
|
|
22. |
|
Northridge Fashion Center |
|
Northridge (Los Angeles), CA |
|
|
100 |
|
|
1,479,211 |
|
|
558,399 |
|
JCPenney, Macy's, Pacific Theatres, Sears |
|
|
1 |
|
|
23. |
|
Oakbrook Center |
|
Oak Brook (Chicago), IL |
|
|
47.46 |
|
|
2,104,735 |
|
|
821,723 |
|
Barnes & Noble, Bloomingdale's Home, Crate & Barrel, Lord & Taylor, Macy's, Neiman Marcus, Nordstrom, Sears |
|
|
|
|
137
|
|
|
|
GLA |
|
Anchor
Stores/ Significant Tenant Vacancies |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property
Count |
Name of Center | Location(1) |
Ownership
Interest |
Total |
Mall and
Freestanding |
Anchor Stores/
Significant Tenants |
||||||||||||||
24. | Oxmoor Center(2) | Louisville, KY | 100 | 917,381 | 270,171 | Dick's Sporting Goods, Macy's, Sears, Von Maur | | |||||||||||||
|
25. |
|
Park Meadows |
|
Lone Tree, CO |
|
|
35 |
|
|
1,571,354 |
|
|
637,384 |
|
Arhaus Furniture, Crate & Barrel, Dick's Sporting Goods, Dillard's, JCPenney, Macy's, Nordstrom |
|
|
|
|
|
26. |
|
Park Place |
|
Tucson, AZ |
|
|
100 |
|
|
1,055,763 |
|
|
401,026 |
|
Century Theatres, Dillard's, Macy's, Sears |
|
|
|
|
|
27. |
|
Pembroke Lakes Mall |
|
Pembroke Pines (Fort Lauderdale), FL |
|
|
100 |
|
|
1,133,998 |
|
|
352,723 |
|
Dillard's, Dillard's Men's & Home, JCPenney, Macy's, Macy's Home Store, Sears |
|
|
|
|
|
28. |
|
Perimeter Mall |
|
Atlanta, GA |
|
|
50 |
|
|
1,568,563 |
|
|
515,289 |
|
Bloomingdale's, Dillard's, Macy's, Nordstrom |
|
|
|
|
|
29. |
|
Pioneer Place(2) |
|
Portland, OR |
|
|
100 |
|
|
362,883 |
|
|
249,883 |
|
Regal Cinemas, Saks Fifth Avenue |
|
|
|
|
|
30. |
|
Providence Place(2) |
|
Providence, RI |
|
|
100 |
|
|
1,265,191 |
|
|
506,086 |
|
Bed Bath & Beyond, Dave & Buster's, JCPenney, Macy's, Nordstrom, Old Navy, Providence Place Cinemas 16 |
|
|
|
|
|
31. |
|
Saint Louis Galleria |
|
St. Louis, MO |
|
|
100 |
|
|
1,033,343 |
|
|
457,291 |
|
Dillard's, Macy's |
|
|
1 |
|
|
32. |
|
Staten Island Mall |
|
Staten Island, NY |
|
|
100 |
|
|
1,275,222 |
|
|
604,133 |
|
Macy's, Sears, JCPenney, Babies R Us |
|
|
|
|
|
33. |
|
Stonestown Galleria |
|
San Francisco, CA |
|
|
100 |
|
|
851,815 |
|
|
423,522 |
|
Macy's, Nordstrom |
|
|
|
|
|
34. |
|
The Grand Canal Shoppes |
|
Las Vegas, NV |
|
|
100 |
|
|
497,151 |
|
|
462,737 |
|
Sephora, Grand Lux Café, Aquaknox, Delmonico, Madame' Tussaud Las Vegas Tao, Banana Republic, Postrio-Las Vegas |
|
|
|
|
|
35. |
|
The Mall in Columbia |
|
Columbia, MD |
|
|
100 |
|
|
1,420,780 |
|
|
620,612 |
|
JCPenney, Lord & Taylor, Macy's, Nordstrom, Sears |
|
|
|
|
138
|
|
|
|
GLA |
|
Anchor
Stores/ Significant Tenant Vacancies |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property
Count |
Name of Center | Location(1) |
Ownership
Interest |
Total |
Mall and
Freestanding |
Anchor Stores/
Significant Tenants |
||||||||||||||
36. | The Shoppes at The Palazzo | Las Vegas, NV | 100 | 335,157 | 250,414 | Barneys New York, CUT, Victoria's Secret, Sushi Samba, Table 10 | | |||||||||||||
|
37. |
|
The Shops at La Cantera(3) |
|
San Antonio, TX |
|
|
100 |
|
|
1,177,070 |
|
|
510,254 |
|
Dillard's, Macy's, Neiman Marcus, Nordstrom |
|
|
|
|
|
38. |
|
The Woodlands Mall |
|
Woodlands (Houston), TX |
|
|
100 |
|
|
1,355,530 |
|
|
470,830 |
|
Dillard's, JCPenney, Macy's, Macy's Children Store, Sears, Forever 21 |
|
|
|
|
|
39. |
|
Towson Town Center |
|
Towson, MD |
|
|
35 |
|
|
996,424 |
|
|
542,354 |
|
Crate & Barrel, Macy's, Nordstrom |
|
|
|
|
|
40. |
|
Tysons Galleria |
|
Mclean (Washington, D.C.), VA |
|
|
100 |
|
|
815,424 |
|
|
303,491 |
|
Macy's, Neiman Marcus, Saks Fifth Avenue |
|
|
|
|
|
41. |
|
Valley Plaza Mall |
|
Bakersfield, CA |
|
|
100 |
|
|
1,032,247 |
|
|
425,760 |
|
Forever 21, JCPenney, Macy's, Sears |
|
|
|
|
|
42. |
|
Village of Merrick Park(2) |
|
Coral Gables, FL |
|
|
40 |
|
|
722,692 |
|
|
392,692 |
|
Neiman Marcus, Nordstrom, Borders |
|
|
|
|
|
43. |
|
Water Tower Place |
|
Chicago, IL |
|
|
51.65 |
|
|
674,478 |
|
|
290,294 |
|
American Girl Place, Forever 21, Macy's |
|
|
|
|
|
44. |
|
Westlake Center |
|
Seattle, WA |
|
|
100 |
|
|
96,553 |
|
|
96,553 |
|
|
|
|
|
|
|
45. |
|
Whaler's Village |
|
Lahaina, HI |
|
|
50 |
|
|
110,836 |
|
|
110,836 |
|
Hulla Grill |
|
|
|
|
|
46. |
|
Willowbrook |
|
Wayne, NJ |
|
|
100 |
|
|
1,510,435 |
|
|
482,435 |
|
Bloomingdale's, Lord & Taylor, Macy's, Sears |
|
|
|
|
|
47. |
|
Willowbrook Mall |
|
Houston, TX |
|
|
50 |
|
|
1,384,857 |
|
|
400,485 |
|
Dillard's, JCPenney, Macy's, Sears |
|
|
|
|
139
TIER II MALLS
|
|
|
|
GLA |
|
Anchor
Stores/ Significant Tenant Vacancies |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property
Count |
Name of Center | Location(1) |
Ownership
Interest |
Total |
Mall and
Freestanding |
Anchor Stores/
Significant Tenants |
||||||||||||||
1. | Altamonte Mall | Altamonte Springs (Orlando), FL | 50 | 1,153,188 | 474,640 | AMC Theatres, Dillard's, JCPenney, Macy's, Sears | | |||||||||||||
|
2. |
|
Apache Mall(2) |
|
Rochester, MN |
|
|
100 |
|
|
752,795 |
|
|
269,803 |
|
Herberger's, JCPenney, Macy's, Sears |
|
|
|
|
|
3. |
|
Arizona Center(2) |
|
Phoenix, AZ |
|
|
100 |
|
|
165,452 |
|
|
72,698 |
|
AMC Theatres |
|
|
|
|
|
4. |
|
Augusta Mall(2) |
|
Augusta, GA |
|
|
100 |
|
|
1,063,162 |
|
|
402,939 |
|
Dillard's, JCPenney, Macy's, Sears, Dick's Sporting Goods |
|
|
|
|
|
5. |
|
Bellis Fair |
|
Bellingham (Seattle), WA |
|
|
100 |
|
|
773,895 |
|
|
335,571 |
|
JCPenney, Kohl's, Macy's, Macy's Home Store, Sears, Target |
|
|
|
|
|
6. |
|
Carolina Place |
|
Pineville (Charlotte), NC |
|
|
50.5 |
|
|
1,158,555 |
|
|
353,639 |
|
Barnes & Noble, Belk, Dillard's, JCPenney, Macy's, Sears, REI |
|
|
|
|
|
7. |
|
Clackamas Town Center |
|
Happy Valley, OR |
|
|
50 |
|
|
1,352,932 |
|
|
475,387 |
|
Barnes & Noble, Century Theatres, JCPenney, Macy's, Macy's Home Store, Nordstrom, Sears |
|
|
1 |
|
|
8. |
|
Coastland Center |
|
Naples, FL |
|
|
100 |
|
|
922,206 |
|
|
331,816 |
|
Dillard's, JCPenney, Macy's, Sears, Old Navy |
|
|
|
|
|
9. |
|
Columbia Mall |
|
Columbia, MO |
|
|
100 |
|
|
735,814 |
|
|
314,754 |
|
Dillard's, JCPenney, Sears, Target |
|
|
|
|
|
10. |
|
Columbiana Centre |
|
Columbia, SC |
|
|
100 |
|
|
824,990 |
|
|
266,013 |
|
Belk, Dillard's, JCPenney, Sears |
|
|
|
|
|
11. |
|
Coral Ridge Mall |
|
Coralville (Iowa City), IA |
|
|
100 |
|
|
1,076,206 |
|
|
421,041 |
|
Dillard's, JCPenney, Scheels, Sears, Target, Younkers, Best Buy, Coral Ridge 10 |
|
|
|
|
|
12. |
|
Crossroads Center |
|
St. Cloud, MN |
|
|
100 |
|
|
891,208 |
|
|
285,528 |
|
JCPenney, Macy's, Scheels, Sears, Target |
|
|
|
|
|
13. |
|
Cumberland Mall |
|
Atlanta, GA |
|
|
100 |
|
|
1,046,050 |
|
|
398,066 |
|
Costco, Macy's, Sears, DSW Shoe Warehouse, Forever 21 |
|
|
|
|
140
|
|
|
|
GLA |
|
Anchor
Stores/ Significant Tenant Vacancies |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property
Count |
Name of Center | Location(1) |
Ownership
Interest |
Total |
Mall and
Freestanding |
Anchor Stores/
Significant Tenants |
||||||||||||||
14. | Deerbrook Mall | Humble (Houston), TX | 100 | 1,191,974 | 393,996 | AMC Theatres, Dillard's, JCPenney, Macy's, Sears | | |||||||||||||
|
15. |
|
First Colony Mall |
|
Sugar Land, TX |
|
|
50 |
|
|
1,114,554 |
|
|
495,506 |
|
Barnes & Noble, Dillard's, Dillard's Men's & Home, JCPenney, Macy's |
|
|
|
|
|
16. |
|
Florence Mall |
|
Florence (Cincinnati, OH), KY |
|
|
50 |
|
|
958,219 |
|
|
405,812 |
|
JCPenney, Macy's, Macy's Home Store, Sears, Cinema DeLux |
|
|
|
|
|
17. |
|
Four Seasons Town Centre |
|
Greensboro, NC |
|
|
100 |
|
|
1,116,343 |
|
|
474,327 |
|
Belk, Dillard's, JCPenney |
|
|
|
|
|
18. |
|
Fox River Mall |
|
Appleton, WI |
|
|
100 |
|
|
1,206,847 |
|
|
518,210 |
|
Cost Plus World Market, David's Bridal, DSW Shoe Warehouse, JCPenney, Macy's, Scheels, Sears, Target |
|
|
|
|
|
19. |
|
Galleria at Tyler(2) |
|
Riverside, CA |
|
|
50 |
|
|
1,178,922 |
|
|
557,214 |
|
AMC Theatres, JCPenney, Macy's, Nordstrom, Yard House |
|
|
1 |
|
|
20. |
|
Glenbrook Square |
|
Fort Wayne, IN |
|
|
100 |
|
|
1,225,231 |
|
|
448,361 |
|
JCPenney, Macy's, Sears |
|
|
1 |
|
|
21. |
|
Governor's Square(2) |
|
Tallahassee, FL |
|
|
100 |
|
|
1,021,788 |
|
|
330,183 |
|
Dillard's, JCPenney, Macy's, Sears |
|
|
|
|
|
22. |
|
Greenwood Mall |
|
Bowling Green, KY |
|
|
100 |
|
|
842,462 |
|
|
413,409 |
|
Dillard's, JCPenney, Macy's, Sears |
|
|
|
|
|
23. |
|
Hulen Mall |
|
Ft. Worth, TX |
|
|
100 |
|
|
949,042 |
|
|
352,472 |
|
Dillard's, Macy's, Sears |
|
|
|
|
|
24. |
|
Lakeside Mall |
|
Sterling Heights, MI |
|
|
100 |
|
|
1,518,117 |
|
|
497,399 |
|
JCPenney, Lord & Taylor, Macy's, Macy's Mens & Home, Sears |
|
|
|
|
|
25. |
|
Lynnhaven Mall |
|
Virginia Beach, VA |
|
|
100 |
|
|
1,284,972 |
|
|
449,525 |
|
AMC Theatres, Dick's Sporting Goods, Dillard's, Furniture Mart, JCPenney, Macy's |
|
|
1 |
|
|
26. |
|
Mall St. Matthews(2) |
|
Louisville, KY |
|
|
100 |
|
|
1,085,894 |
|
|
350,189 |
|
Dillard's, Dillard's Men's & Home, Forever 21, JCPenney |
|
|
1 |
|
141
|
|
|
|
GLA |
|
Anchor
Stores/ Significant Tenant Vacancies |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property
Count |
Name of Center | Location(1) |
Ownership
Interest |
Total |
Mall and
Freestanding |
Anchor Stores/
Significant Tenants |
||||||||||||||
27. | Market Place Shopping Center | Champaign, IL | 100 | 1,044,899 | 509,153 | Bergner's, JCPenney, Macy's, Sears | | |||||||||||||
|
28. |
|
Meadows Mall |
|
Las Vegas, NV |
|
|
100 |
|
|
945,026 |
|
|
308,173 |
|
Dillard's, JCPenney, Macy's, Sears |
|
|
|
|
|
29. |
|
Mondawmin Mall |
|
Baltimore, MD |
|
|
100 |
|
|
364,437 |
|
|
297,737 |
|
Shoppers Food Warehouse, Target, Rite Aid Pharmacy |
|
|
|
|
|
30. |
|
Newgate Mall |
|
Ogden (Salt Lake City), UT |
|
|
100 |
|
|
724,873 |
|
|
252,739 |
|
Cinemark Tinseltown 14, Dillard's, Macerich(4), Sears, Sports Authority |
|
|
|
|
|
31. |
|
North Point Mall |
|
Alpharetta (Atlanta), GA |
|
|
100 |
|
|
1,375,101 |
|
|
408,814 |
|
Dillard's, JCPenney, Macy's, Sears, American Girl Place |
|
|
2 |
|
|
32. |
|
NorthTown Mall |
|
Spokane, WA |
|
|
100 |
|
|
1,042,954 |
|
|
411,460 |
|
Bumpers, Inc., JCPenney, Kohl's, Macy's, Regal Cinemas, Sears, Nordstrom Rack |
|
|
1 |
|
|
33. |
|
Oak View Mall |
|
Omaha, NE |
|
|
100 |
|
|
861,089 |
|
|
256,829 |
|
Dillard's, JCPenney, Sears, Younkers |
|
|
|
|
|
34. |
|
Oglethorpe Mall |
|
Savannah, GA |
|
|
100 |
|
|
943,659 |
|
|
363,511 |
|
Belk, JCPenney, Macy's, Macy's Junior, Sears, Stein Mart |
|
|
|
|
|
35. |
|
Paramus Park |
|
Paramus, NJ |
|
|
100 |
|
|
768,592 |
|
|
309,535 |
|
Macy's, Sears, Old Navy |
|
|
|
|
|
36. |
|
Park City Center |
|
Lancaster (Philadelphia), PA |
|
|
100 |
|
|
1,442,680 |
|
|
542,783 |
|
The Bon-Ton, Boscov's, JCPenney, Kohl's, Sears |
|
|
|
|
|
37. |
|
Peachtree Mall |
|
Columbus, GA |
|
|
100 |
|
|
816,546 |
|
|
307,931 |
|
Dillard's, JCPenney, Macy's, Peachtree Cinema |
|
|
1 |
|
|
38. |
|
Prince Kuhio Plaza(2) |
|
Hilo, HI |
|
|
100 |
|
|
503,490 |
|
|
267,370 |
|
Macy's, Sears |
|
|
1 |
|
|
39. |
|
Quail Springs Mall |
|
Oklahoma City, OK |
|
|
50 |
|
|
1,139,040 |
|
|
354,240 |
|
AMC Theatres, Dillard's, JCPenney, Macy's, Sears |
|
|
|
|
|
40. |
|
River Hills Mall |
|
Mankato, MN |
|
|
100 |
|
|
716,877 |
|
|
274,790 |
|
Herberger's, JCPenney, Scheels, Sears, Target, Barnes & Noble |
|
|
|
|
142
|
|
|
|
GLA |
|
Anchor
Stores/ Significant Tenant Vacancies |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property
Count |
Name of Center | Location(1) |
Ownership
Interest |
Total |
Mall and
Freestanding |
Anchor Stores/
Significant Tenants |
||||||||||||||
41. | Salem Center(2) | Salem, OR | 100 | 631,837 | 193,837 | JCPenney, Kohl's, Macy's, Nordstrom | | |||||||||||||
|
42. |
|
Sikes Senter |
|
Wichita Falls, TX |
|
|
100 |
|
|
667,440 |
|
|
261,916 |
|
Dillard's, JCPenney, Sears, Sikes Ten Theatres |
|
|
|
|
|
43. |
|
Sooner Mall |
|
Norman, OK |
|
|
100 |
|
|
508,751 |
|
|
168,679 |
|
Dillard's, JCPenney, Old Navy, Sears |
|
|
1 |
|
|
44. |
|
Spokane Valley Mall(3) |
|
Spokane, WA |
|
|
100 |
|
|
724,740 |
|
|
305,656 |
|
JCPenney, Macy's, Regal Act III, Sears |
|
|
|
|
|
45. |
|
Stonebriar Centre |
|
Frisco (Dallas), TX |
|
|
50 |
|
|
1,650,465 |
|
|
529,246 |
|
AMC Theatres, Barnes & Noble, Dave & Buster's, Dick's Sporting Goods, Dillard's, JCPenney, Macy's, Nordstrom, Sears |
|
|
|
|
|
46. |
|
Superstition Springs Center(2) |
|
East Mesa (Phoenix), AZ |
|
|
33.3 |
|
|
1,083,086 |
|
|
320,754 |
|
Developers Diversified, Dillards, JCPenney, JCPenney Home Store, Macy's, Picture Store |
|
|
|
|
|
47. |
|
The Crossroads |
|
Portage (Kalamazoo), MI |
|
|
100 |
|
|
770,539 |
|
|
267,579 |
|
Burlington Coat Factory(4), JCPenney, Macy's, Sears |
|
|
|
|
|
48. |
|
The Gallery at Harborplace |
|
Baltimore, MD |
|
|
100 |
|
|
132,379 |
|
|
132,379 |
|
GAP |
|
|
|
|
|
49. |
|
The Maine Mall |
|
South Portland, ME |
|
|
100 |
|
|
1,017,436 |
|
|
385,375 |
|
Best Buy, Chuck E Cheese, JCPenney, Macy's, Sears, Sports Authority |
|
|
2 |
|
|
50. |
|
The Oaks Mall |
|
Gainesville, FL |
|
|
51 |
|
|
897,630 |
|
|
339,763 |
|
Belk, Dillard's, JCPenney, Macy's, Sears |
|
|
|
|
|
51. |
|
The Parks at Arlington |
|
Arlington (Dallas), TX |
|
|
100 |
|
|
1,517,093 |
|
|
432,097 |
|
AMC Theatres, Barnes & Noble, Dick's Sporting Goods, Dillard's, Forever 21, JCPenney, Macy's, Sears |
|
|
1 |
|
|
52. |
|
The Shoppes at Buckland Hills |
|
Manchester, CT |
|
|
100 |
|
|
1,045,621 |
|
|
453,010 |
|
Dick's Sporting Goods, JCPenney, Macy's, Macy's Mens & Home, Sears, Barnes & Noble |
|
|
|
|
143
|
|
|
|
GLA |
|
Anchor
Stores/ Significant Tenant Vacancies |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property
Count |
Name of Center | Location(1) |
Ownership
Interest |
Total |
Mall and
Freestanding |
Anchor Stores/
Significant Tenants |
||||||||||||||
53. | The Streets at Southpoint | Durham, NC | 100 | 1,304,453 | 578,106 | Barnes & Noble, Hudson Belk, JCPenney, Macy's, Maggiano's Little Italy, Nordstrom, Pottery Barn, Sears, Urban Outfitters | | |||||||||||||
|
54. |
|
Town East Mall |
|
Mesquite (Dallas), TX |
|
|
100 |
|
|
1,240,530 |
|
|
431,144 |
|
Dillard's, JCPenney, Macy's, Sears |
|
|
|
|
|
55. |
|
Tucson Mall(2) |
|
Tucson, AZ |
|
|
100 |
|
|
1,228,202 |
|
|
504,938 |
|
Dillard's, Forever 21(4), JCPenney, Macy's, Sears |
|
|
|
|
|
56. |
|
Westroads Mall |
|
Omaha, NE |
|
|
51 |
|
|
1,069,379 |
|
|
382,725 |
|
Dick's Sporting Goods, JCPenney, Rave Digital Media, Von Maur, Younkers |
|
|
|
|
|
57. |
|
White Marsh Mall |
|
Baltimore, MD |
|
|
100 |
|
|
1,165,791 |
|
|
386,147 |
|
JCPenney, Macy's, Macy's Home Store, Sears, Sports Authority |
|
|
1 |
|
144
OTHER MALLS
|
|
|
|
GLA |
|
Anchor
Stores/ Significant Tenant Vacancies |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property
Count |
Name of Center | Location(1) |
Ownership
Interest |
Total |
Mall and
Freestanding |
Anchor Stores/
Significant Tenants |
||||||||||||||
1. | Animas Valley Mall | Farmington, NM | 100 | 462,834 | 213,369 | Allen Theatres, Dillard's, JCPenney, Ross Dress For Less, Sears | | |||||||||||||
|
2. |
|
Bayshore Mall(2) |
|
Eureka, CA |
|
|
100 |
|
|
612,950 |
|
|
392,692 |
|
Bed Bath & Beyond, Kohl's(4), Sears |
|
|
1 |
|
|
3. |
|
Birchwood Mall |
|
Port Huron (Detroit), MI |
|
|
100 |
|
|
725,047 |
|
|
268,818 |
|
GKC Theaters, JCPenney, Macy's, Sears, Target, Younkers |
|
|
|
|
|
4. |
|
Boise Towne Square(2) |
|
Boise, ID |
|
|
100 |
|
|
1,093,108 |
|
|
423,079 |
|
Dillard's, JCPenney, Macy's, Sears |
|
|
1 |
|
|
5. |
|
Brass Mill Center |
|
Waterbury, CT |
|
|
100 |
|
|
984,099 |
|
|
326,760 |
|
Burlington Coat Factory, JCPenney, Macy's, Regal Cinemas, Sears |
|
|
1 |
|
|
6. |
|
Brass Mill Commons |
|
Waterbury, CT |
|
|
100 |
|
|
197,033 |
|
|
197,033 |
|
Barnes & Noble, Hometown Buffet, Michael's, OfficeMax, Toys R Us |
|
|
1 |
|
|
7. |
|
Burlington Town Center(2) |
|
Burlington, VT |
|
|
100 |
|
|
299,793 |
|
|
153,040 |
|
Macy's |
|
|
|
|
|
8. |
|
Cache Valley Mall |
|
Logan, UT |
|
|
100 |
|
|
319,225 |
|
|
173,393 |
|
Dillard's, Dillard's Men's & Home, JCPenney |
|
|
|
|
|
9. |
|
Cache Valley Marketplace |
|
Logan, UT |
|
|
100 |
|
|
180,956 |
|
|
180,956 |
|
Home Depot, Olive Garden, T.J. Maxx |
|
|
|
|
|
10. |
|
Capital Mall |
|
Jefferson City, MO |
|
|
100 |
|
|
565,106 |
|
|
332,029 |
|
Dillard's, JCPenney, Sears, Hy-Vee, Capital 8 Theatre |
|
|
|
|
|
11. |
|
Chula Vista Center |
|
Chula Vista (San Diego), CA |
|
|
100 |
|
|
874,299 |
|
|
286,162 |
|
JCPenney, Macerich(4), Macy's, Sears, Burlington Coat Factory, Ultrastar Cinemas |
|
|
1 |
|
|
12. |
|
Collin Creek |
|
Plano, TX |
|
|
100 |
|
|
1,118,077 |
|
|
327,994 |
|
Amazing Jakes, Dillard's, JCPenney, Macy's, Sears |
|
|
|
|
|
13. |
|
Colony Square Mall |
|
Zanesville, OH |
|
|
100 |
|
|
491,905 |
|
|
245,123 |
|
Cinemark, Elder-Beerman, JCPenney, Sears |
|
|
|
|
145
|
|
|
|
GLA |
|
Anchor
Stores/ Significant Tenant Vacancies |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property
Count |
Name of Center | Location(1) |
Ownership
Interest |
Total |
Mall and
Freestanding |
Anchor Stores/
Significant Tenants |
||||||||||||||
14. | Coronado Center(2) | Albuquerque, NM | 100 | 1,151,734 | 375,709 | Barnes & Noble, JCPenney, Macy's, Sears, Target, Kohl's | | |||||||||||||
|
15. |
|
Eastridge Mall |
|
San Jose, CA |
|
|
100 |
|
|
1,303,717 |
|
|
469,323 |
|
AMC 15, Bed Bath & Beyond, JCPenney, Macy's, Sears, Sport Chalet |
|
|
|
|
|
16. |
|
Eastridge Mall |
|
Casper, WY |
|
|
100 |
|
|
571,587 |
|
|
281,791 |
|
JCPenney, Macy's, Sears, Target |
|
|
|
|
|
17. |
|
Eden Prairie Center |
|
Eden Prairie (Minneapolis), MN |
|
|
100 |
|
|
1,134,414 |
|
|
325,411 |
|
AMC Theatres, Kohl's, Sears, Target, Von Maur, JCPenney, Scheels, Barnes & Noble |
|
|
|
|
|
18. |
|
Foothills Mall |
|
Fort Collins, CO |
|
|
100 |
|
|
805,715 |
|
|
465,618 |
|
Macy's, Sears |
|
|
2 |
|
|
19. |
|
Gateway Mall |
|
Springfield, OR |
|
|
100 |
|
|
818,545 |
|
|
256,726 |
|
Ashley Furniture Homestore, Cinemark 17, Kohl's, Movies 12, Oz Fitness, Ross Dress For Less, Sears, Target |
|
|
|
|
|
20. |
|
Grand Teton Mall |
|
Idaho Falls, ID |
|
|
100 |
|
|
535,631 |
|
|
211,706 |
|
Dillard's, JCPenney, Macy's, Sears |
|
|
|
|
|
21. |
|
Grand Teton Plaza |
|
Idaho Falls, ID |
|
|
100 |
|
|
93,274 |
|
|
93,274 |
|
Best Buy, Petsmart, Ross Dress For Less |
|
|
1 |
|
|
22. |
|
Knollwood Mall |
|
St. Louis Park (Minneapolis), MN |
|
|
100 |
|
|
462,582 |
|
|
166,460 |
|
Cub Foods, Keith's Furniture Outlet, Kohl's, T.J. Maxx |
|
|
|
|
|
23. |
|
Lakeland Square |
|
Lakeland (Orlando), FL |
|
|
100 |
|
|
884,484 |
|
|
274,446 |
|
Burlington Coat Factory(4), Dillard's, Dillard's Men's & Home, JCPenney, Macy's, Sears |
|
|
|
|
|
24. |
|
Lansing Mall(2) |
|
Lansing, MI |
|
|
100 |
|
|
835,264 |
|
|
412,094 |
|
JCPenney, Macy's, T.J. Maxx, Younkers, Best Buy, Barnes & Noble |
|
|
1 |
|
|
25. |
|
Mall at Sierra Vista |
|
Sierra Vista, AZ |
|
|
100 |
|
|
365,853 |
|
|
134,583 |
|
Cinemark, Dillard's, Sears |
|
|
|
|
|
26. |
|
Mall of the Bluffs |
|
Council Bluffs (Omaha, NE), IA |
|
|
100 |
|
|
701,355 |
|
|
375,133 |
|
Dillard's, Hy-Vee, Sears |
|
|
2 |
|
146
|
|
|
|
GLA |
|
Anchor
Stores/ Significant Tenant Vacancies |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property
Count |
Name of Center | Location(1) |
Ownership
Interest |
Total |
Mall and
Freestanding |
Anchor Stores/
Significant Tenants |
||||||||||||||
27. | Montclair Plaza | Montclair (San Bernadino), CA | 50.5 | 1,345,268 | 547,691 | JCPenney, Macy's, Nordstrom, Sears, Ninety Nine Cent Only Store | 4 | |||||||||||||
|
28. |
|
Neshaminy Mall |
|
Bensalem, PA |
|
|
50 |
|
|
1,019,431 |
|
|
291,371 |
|
AMC Theatres, Barnes & Noble, Boscov's, Macy's, Sears |
|
|
|
|
|
29. |
|
NewPark Mall |
|
Newark (San Francisco), CA |
|
|
100 |
|
|
1,116,965 |
|
|
373,359 |
|
JCPenney, Macy's, Sears, Target |
|
|
1 |
|
|
30. |
|
North Plains Mall |
|
Clovis, NM |
|
|
100 |
|
|
303,197 |
|
|
109,116 |
|
Beall's, Dillard's, JCPenney, Sears |
|
|
|
|
|
31. |
|
Oakwood Center |
|
Gretna, LA |
|
|
100 |
|
|
757,987 |
|
|
240,593 |
|
Dillard's, JCPenney, Sears |
|
|
|
|
|
32. |
|
Oakwood Mall |
|
Eau Claire, WI |
|
|
100 |
|
|
812,503 |
|
|
327,427 |
|
JCPenney, Macy's, Scheels, Sears, Younkers, Carmike Theaters |
|
|
|
|
|
33. |
|
Otay Ranch Town Center |
|
Chula Vista (San Diego), CA |
|
|
50 |
|
|
636,471 |
|
|
496,471 |
|
Macy's, REI, AMC Theatres, Best Buy |
|
|
|
|
|
34. |
|
Owings Mills Mall |
|
Owings Mills, MD |
|
|
100 |
|
|
1,083,613 |
|
|
436,576 |
|
JCPenney, Macy's |
|
|
2 |
|
|
35. |
|
Pecanland Mall |
|
Monroe, LA |
|
|
100 |
|
|
944,367 |
|
|
328,931 |
|
Belk, Dillard's, JCPenney, Sears, Burlington Coat Factory |
|
|
|
|
|
36. |
|
Pierre Bossier Mall |
|
Bossier City (Shreveport), LA |
|
|
100 |
|
|
606,274 |
|
|
212,976 |
|
Dillard's, JCPenney, Sears, Stage |
|
|
1 |
|
|
37. |
|
Pine Ridge Mall(2) |
|
Pocatello, ID |
|
|
100 |
|
|
638,078 |
|
|
200,091 |
|
JCPenney, Party Palace, Sears, Shopko |
|
|
1 |
|
|
38. |
|
Pinnacle Hills Promenade |
|
Rogers, AR |
|
|
50 |
|
|
942,764 |
|
|
635,863 |
|
Bed Bath & Beyond, Gordmans, Petsmart, TJ Maxx, Dillard's, JCPenney, Malco Theatre, Target |
|
|
3 |
|
|
39. |
|
Provo Towne Centre(3) |
|
Provo, UT |
|
|
100 |
|
|
792,560 |
|
|
222,491 |
|
Cinemark, Dillard's, JCPenney, Sears |
|
|
|
|
|
40. |
|
Red Cliffs Mall |
|
St. George, UT |
|
|
100 |
|
|
385,487 |
|
|
119,650 |
|
Barnes & Noble, Dillard's, JCPenney, Sears |
|
|
|
|
|
41. |
|
Regency Square Mall |
|
Jacksonville, FL |
|
|
100 |
|
|
1,439,812 |
|
|
523,306 |
|
Belk, Champs Sports/World Foot Locker, Dillard's, JCPenney, Sears |
|
|
1 |
|
147
|
|
|
|
GLA |
|
Anchor
Stores/ Significant Tenant Vacancies |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property
Count |
Name of Center | Location(1) |
Ownership
Interest |
Total |
Mall and
Freestanding |
Anchor Stores/
Significant Tenants |
||||||||||||||
42. | Ridgedale Center | Minnetonka, MN | 100 | 1,029,559 | 327,179 | JCPenney, Macy's, Sears | | |||||||||||||
|
43. |
|
Riverchase Galleria |
|
Hoover (Birmingham), AL |
|
|
50 |
|
|
1,561,924 |
|
|
513,017 |
|
Forever 21, Belk, Belk Home Store, JCPenney, Macy's, Sears |
|
|
2 |
|
|
44. |
|
Rivertown Crossings |
|
Grandville (Grand Rapids), MI |
|
|
100 |
|
|
1,270,959 |
|
|
421,901 |
|
Celebration Cinemas, Dick's Sporting Goods, JCPenney, Kohl's, Macy's, Old Navy, Sears, Younkers |
|
|
|
|
|
45. |
|
Rogue Valley Mall |
|
Medford (Portland), OR |
|
|
100 |
|
|
639,097 |
|
|
251,659 |
|
JCPenney, Kohl's, Macy's, Macy's Home Store |
|
|
1 |
|
|
46. |
|
Silver City Galleria |
|
Taunton (Boston), MA |
|
|
50 |
|
|
1,005,799 |
|
|
351,762 |
|
Best Buy, Dick's Sporting Goods, JCPenney, Macy's, Sears, Silver City Cinemas |
|
|
1 |
|
|
47. |
|
Silver Lake Mall |
|
Coeur D'Alene, ID |
|
|
100 |
|
|
325,046 |
|
|
108,682 |
|
JCPenney, Macy's(4), Sears, Timberline Trading Company |
|
|
|
|
|
48. |
|
Southlake Mall |
|
Morrow (Atlanta), GA |
|
|
100 |
|
|
1,014,245 |
|
|
273,993 |
|
JCPenney, Macy's, Sears |
|
|
1 |
|
|
49. |
|
Southland Mall |
|
Hayward, CA |
|
|
100 |
|
|
1,265,396 |
|
|
525,132 |
|
JCPenney, Kohl's(4), Macy's, Sears |
|
|
1 |
|
|
50. |
|
Southshore Mall(2) |
|
Aberdeen, WA |
|
|
100 |
|
|
273,289 |
|
|
139,514 |
|
JCPenney, Sears |
|
|
|
|
|
51. |
|
Southwest Plaza(2) |
|
Littleton (Denver), CO |
|
|
100 |
|
|
1,336,229 |
|
|
636,868 |
|
Dick's Sporting Goods, Dillard's, JCPenney, Macy's, Sears |
|
|
1 |
|
|
52. |
|
Spring Hill Mall |
|
West Dundee (Chicago), IL |
|
|
100 |
|
|
1,166,234 |
|
|
433,439 |
|
Carson Pirie Scott, Home Furniture Mart, JCPenney, Kohl's, Macy's, Sears |
|
|
|
|
|
53. |
|
Steeplegate Mall |
|
Concord, NH |
|
|
100 |
|
|
479,675 |
|
|
223,328 |
|
The Bon-Ton, JCPenney, Sears |
|
|
|
|
|
54. |
|
The Boulevard Mall |
|
Las Vegas, NV |
|
|
100 |
|
|
1,175,774 |
|
|
387,738 |
|
JCPenney, Macy's, Sears |
|
|
1 |
|
|
55. |
|
The Pines |
|
Pine Bluff, AR |
|
|
100 |
|
|
625,421 |
|
|
243,001 |
|
Dillard's, Holiday Inn Express, JCPenney, Sears |
|
|
1 |
|
148
|
|
|
|
GLA |
|
Anchor
Stores/ Significant Tenant Vacancies |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property
Count |
Name of Center | Location(1) |
Ownership
Interest |
Total |
Mall and
Freestanding |
Anchor Stores/
Significant Tenants |
||||||||||||||
56. | The Shops at Fallen Timbers | Maumee, OH | 100 | 573,516 | 312,014 | Dillard's, JCPenney, Staybridge Suites, Showcase, Barnes & Noble | | |||||||||||||
|
57. |
|
The Shoppes at River Crossing |
|
Macon, GA |
|
|
50 |
|
|
659,048 |
|
|
325,829 |
|
Belk, Dick's Sporting Goods, Dillard's, DSW Shoe Warehouse, Jo-Ann Fabrics & Crafts, Ulta |
|
|
|
|
|
58. |
|
The Village of Cross Keys |
|
Baltimore, MD |
|
|
100 |
|
|
74,172 |
|
|
74,172 |
|
Talbots |
|
|
|
|
|
59. |
|
Three Rivers Mall |
|
Kelso, WA |
|
|
100 |
|
|
419,461 |
|
|
226,228 |
|
JCPenney, Macy's, Sears |
|
|
1 |
|
|
60. |
|
Valley Hills Mall |
|
Hickory, NC |
|
|
100 |
|
|
933,545 |
|
|
322,029 |
|
Belk, Dillard's, JCPenney, Sears |
|
|
|
|
|
61. |
|
Visalia Mall |
|
Visalia, CA |
|
|
100 |
|
|
436,852 |
|
|
179,852 |
|
JCPenney, Macy's |
|
|
|
|
|
62. |
|
Vista Ridge Mall |
|
Lewisville (Dallas), TX |
|
|
100 |
|
|
1,063,860 |
|
|
334,395 |
|
Cinemark, Dillard's, JCPenney, Macy's, Sears |
|
|
|
|
|
63. |
|
Washington Park Mall |
|
Bartlesville, OK |
|
|
100 |
|
|
357,221 |
|
|
162,925 |
|
Dillard's, JCPenney, Sears |
|
|
|
|
|
64. |
|
West Oaks Mall |
|
Ocoee (Orlando), FL |
|
|
100 |
|
|
1,056,086 |
|
|
355,330 |
|
AMC Theatres, Dillard's, JCPenney, Sears |
|
|
1 |
|
|
65. |
|
West Valley Mall |
|
Tracy (San Francisco), CA |
|
|
100 |
|
|
883,629 |
|
|
486,720 |
|
JCPenney, Movies 14, Sears, Target |
|
|
1 |
|
|
66. |
|
Westwood Mall |
|
Jackson, MI |
|
|
100 |
|
|
507,859 |
|
|
136,171 |
|
Elder-Beerman, JCPenney, Wal-Mart |
|
|
|
|
|
67. |
|
White Mountain Mall |
|
Rock Springs, WY |
|
|
100 |
|
|
302,119 |
|
|
124,991 |
|
Flaming Gorge Harley Davidson, Herberger's, JCPenney, State Of Wyoming |
|
|
|
|
|
68. |
|
Woodbridge Center |
|
Woodbridge, NJ |
|
|
100 |
|
|
1,646,468 |
|
|
561,433 |
|
Dick's Sporting Goods, JCPenney, Lord & Taylor, Macy's, Sears |
|
|
1 |
|
149
SPECIAL CONSIDERATION PROPERTIES
|
|
|
|
GLA |
|
Anchor
Stores/ Significant Tenant Vacancies |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property
Count |
Name of Center | Location(1) |
Ownership
Interest |
Total |
Mall and
Freestanding |
Anchor Stores/
Significant Tenants |
||||||||||||||
1. | Bay City Mall | Bay City, MI | 100 | 522,652 | 207,001 | JCPenney, Sears, Target, Younkers, Dunham Sports | | |||||||||||||
|
2. |
|
Chapel Hills Mall |
|
Colorado Springs, CO |
|
|
100 |
|
|
1,202,361 |
|
|
406,922 |
|
Burlington Coat Factory(4), Borders, Dick's Sporting Goods, Dillard's, JCPenney, Macy's, Sears |
|
|
1 |
|
|
3. |
|
Chico Mall |
|
Chico, CA |
|
|
100 |
|
|
495,237 |
|
|
173,103 |
|
Forever 21, JCPenney, Sears |
|
|
1 |
|
|
4. |
|
Country Hills Plaza |
|
Ogden, UT |
|
|
100 |
|
|
137,897 |
|
|
137,897 |
|
Smith's Food King |
|
|
1 |
|
|
5. |
|
Eagle Ridge Mall(5) |
|
Lake Wales (Orlando), FL |
|
|
100 |
|
|
622,917 |
|
|
227,462 |
|
Dillard's, JCPenney, Recreation Station, Regal Cinemas, Sears |
|
|
|
|
|
6. |
|
Grand Traverse Mall |
|
Traverse City, MI |
|
|
100 |
|
|
589,488 |
|
|
276,097 |
|
GKC Theaters, JCPenney, Macy's, Target, T.J. Maxx |
|
|
|
|
|
7. |
|
Lakeview Square |
|
Battle Creek, MI |
|
|
100 |
|
|
554,334 |
|
|
262,741 |
|
JCPenney, Macy's, Sears, Barnes & Noble |
|
|
|
|
|
8. |
|
Mall St. Vincent(2) |
|
Shreveport, LA |
|
|
100 |
|
|
532,600 |
|
|
184,600 |
|
Dillard's, Sears |
|
|
1 |
|
|
9. |
|
Moreno Valley Mall |
|
Moreno Valley (Riverside), CA |
|
|
100 |
|
|
1,064,318 |
|
|
338,084 |
|
Harkins Theatre, JCPenney, Macy's, Sears |
|
|
2 |
|
|
10. |
|
Northgate Mall |
|
Chattanooga, TN |
|
|
100 |
|
|
798,029 |
|
|
332,709 |
|
Belk, Belk Home Store, JCPenney, Sears, T.J. Maxx |
|
|
|
|
|
11. |
|
Oviedo Marketplace(5) |
|
Oviedo, FL |
|
|
100 |
|
|
940,504 |
|
|
275,575 |
|
Dillard's, Macy's, Regal Cinemas, Sears |
|
|
|
|
|
12. |
|
Piedmont Mall |
|
Danville, VA |
|
|
100 |
|
|
708,519 |
|
|
156,781 |
|
Belk, Belk Men's, JCPenney, Sears |
|
|
1 |
|
|
13. |
|
Southland Center |
|
Taylor, MI |
|
|
100 |
|
|
903,941 |
|
|
275,904 |
|
Best Buy, JCPenney, Macy's |
|
|
1 |
|
150
Mortgage and Other Debt
Our ownership interests in real property are materially important as a whole, however, we do not own any individual materially important property and therefore do not present a description of our title to, or other interest in, our properties and the nature and amount of our mortgages in such properties.
Operating Data
The following table sets forth for each of our property categories the occupancy rate expressed as a percentage for each of the last five years and the average effective annual rental per square foot for each of the last five years.
|
Tier I Malls | Tier II Malls | Other Malls |
Special
Consideration Properties |
Other
Rental Properties |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Occupancy Rate(a) |
|||||||||||||||||
2005 |
94.65 | % | 92.75 | % | 90.00 | % | 86.86 | % | 87.40 | % | |||||||
2006 |
95.81 | % | 94.13 | % | 91.33 | % | 90.05 | % | 89.24 | % | |||||||
2007 |
95.72 | % | 94.79 | % | 91.40 | % | 90.09 | % | 91.37 | % | |||||||
2008 |
95.43 | % | 93.88 | % | 90.01 | % | 87.88 | % | 88.92 | % | |||||||
2009 |
95.34 | % | 93.44 | % | 87.36 | % | 85.80 | % | 86.73 | % | |||||||
Average Effective Annual Rental Rate per Square Foot(b) |
|||||||||||||||||
2005 |
$ | 47.09 | $ | 31.06 | $ | 26.32 | $ | 23.16 | N/A | ||||||||
2006 |
$ | 48.96 | $ | 32.12 | $ | 26.68 | $ | 23.84 | N/A | ||||||||
2007 |
$ | 65.32 | $ | 42.96 | $ | 35.64 | $ | 30.87 | N/A | ||||||||
2008 |
$ | 68.49 | $ | 44.04 | $ | 35.79 | $ | 30.56 | N/A | ||||||||
2009 |
$ | 69.61 | $ | 44.20 | $ | 34.58 | $ | 29.99 | N/A |
Lease Expirations
The GLA of freestanding retail stores in locations that are not attached to the primary complex of buildings that comprise a shopping center is defined as ("Freestanding GLA") and "Mall GLA" is the gross leaseable retail space, excluding space not currently marketed for lease, anchor stores and Freestanding GLA, measured in square feet. At December 31, 2009, our Mall GLA and our Freestanding GLA aggregated 55.6 million square feet for our consolidated retail properties and 15.5 million square feet for our unconsolidated retail properties. The following table indicates various lease expiration information related to the consolidated minimum rent for our currently existing retail leases at December 31, 2009. See "Note 2Summary of Significant Accounting Policies" to the consolidated financial statements contained in this prospectus for our accounting policies for revenue recognition from
151
our tenant leases and "Note 8Rentals under Operating Leases" to the consolidated financial statements contained elsewhere in this prospectus for the future minimum rentals of our operating leases.
Year
|
Total Minimum
Rent |
Total Minimum
Rent Expiring |
% of Total
Minimum Rent Expiring |
Number of
Leases Expiring |
Total Square
Feet Expiring |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands)
|
(in thousands)
|
|
|
(in thousands)
|
|||||||||||
2010 |
$ | 1,936,644 | $ | 66,774 | 3.4 | % | 3,255 | 10,986 | ||||||||
2011 |
1,820,197 | 62,342 | 3.4 | % | 2,556 | 10,090 | ||||||||||
2012 |
1,643,214 | 69,226 | 4.2 | % | 2,119 | 8,671 | ||||||||||
2013 |
1,464,086 | 55,660 | 3.8 | % | 1,603 | 6,850 | ||||||||||
2014 |
1,291,239 | 65,689 | 5.1 | % | 1,591 | 7,769 | ||||||||||
2015 |
1,062,404 | 59,496 | 5.6 | % | 1,404 | 6,680 | ||||||||||
2016 |
885,297 | 77,031 | 8.7 | % | 1,356 | 6,842 | ||||||||||
2017 |
684,614 | 79,479 | 11.6 | % | 1,341 | 7,048 | ||||||||||
2018 |
455,481 | 68,932 | 15.1 | % | 1,173 | 5,879 | ||||||||||
2019 |
272,486 | 47,905 | 17.6 | % | 878 | 5,859 |
Legal Proceedings
Other than our current Chapter 11 Cases described in this prospectus, neither we nor any of the Unconsolidated Real Estate Affiliates is currently involved in any material pending legal proceedings nor, to our knowledge, is any material legal proceeding currently threatened against us or any of the Unconsolidated Real Estate Affiliates.
Urban Litigation
In October 2004, certain limited partners (the "Urban Plaintiffs") of Urban Shopping Centers, L.P. ("Urban") filed a lawsuit against Urban's general partner, Head Acquisition, L.P. ("Head"), as well as TRCLP, Simon Property Group, Inc., Westfield America, Inc., and various of their affiliates, including Head's general partners (collectively, the "Urban Defendants"), in Circuit Court in Cook County, Illinois. Old GGP, GGPLP and other affiliates were later included as Urban Defendants. The lawsuit alleges, among other things, that the Urban Defendants breached the Urban partnership agreement, unjustly enriched themselves through misappropriation of partnership opportunities, failed to grow the partnership, breached their fiduciary duties, and tortiously interfered with several contractual relationships. The plaintiffs seek relief in the form of unspecified monetary damages, equitable relief and injunctive relief, the last of which would require the Urban Defendants, including Old GGP and its affiliates, to engage in certain future transactions through the Urban Partnership. The case is currently in discovery, and the Urban Plaintiffs filed proofs of claims in an unspecified amount with the Bankruptcy Court in connection with the Chapter 11 Cases. John Schreiber, a New GGP director, serves on the board of directors of, and is an investor in, an entity that is a principal investor in the Urban Plaintiffs, and is himself an investor in the Urban Plaintiffs and, therefore, has a financial interest in the outcome of the litigation that is adverse to us. While we do not believe that this litigation will have a material adverse effect on us, we are disclosing its existence due to Mr. Schreiber's interest in the case.
152
Our Board of Directors is responsible for the management of our business.
Board of Directors
Our Board of Directors currently consists of five members. Upon consummation of the Plan, under the terms of the Investment Agreements, our Board of Directors will consist of nine members, three of whom will be nominated by Brookfield Investor and one of whom will be designated by Pershing Square. See "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanBoard Rights."
Our current members of the Board of Directors and their positions are as follows:
Name
|
Age |
Director
Since |
Position | |||
---|---|---|---|---|---|---|
Adam Metz |
49 | 2010 | Director, Chief Executive Officer | |||
Thomas Nolan, Jr. |
53 | 2010 | Director, Chief Operating Officer and President | |||
Cyrus Madon |
45 | 2010 | Director | |||
Sheli Z. Rosenberg |
68 | 2010 | Director | |||
John G. Schreiber |
63 | 2010 | Director |
Adam Metz , 49, has served as Chief Executive Officer of Old GGP since October 2008, director of Old GGP since November 2005, Lead Director of Old GGP from June 2007 through October 2008 and director and Chief Executive Officer of New GGP since its formation in 2010. From late 2002 through October 2008, Mr. Metz was an active partner of Polaris Capital LLC, which is in the business of owning retail real estate assets throughout the United States. Prior to the formation of Polaris Capital, Mr. Metz was Executive Vice President of Rodamco, N.A. from November 2000 through May 2002 when the assets of Rodamco, N.A. were sold. From 1993 to 2000, before it was acquired by Rodamco, Mr. Metz held various positions with Urban Shopping Centers, including Vice President, Chief Financial Officer and President. Mr. Metz's leadership role with us as well as his prior leadership roles at real estate companies provided him with key experience in business and in the real estate industry and contribute to his ability to make strategic decisions with respect to our business. In addition, his in-depth knowledge of our business strategy and operations due to his role as our Chief Executive Officer enable him to provide valuable contributions and facilitate effective communication between management and the board of directors.
Thomas Nolan, Jr. , 53, has served as Chief Operating Officer of Old GGP since March 2009, President of Old GGP since October 2008, director of Old GGP since April 2005 and director, Chief Operating Officer and President of New GGP since its formation in 2010. Prior to becoming President, Mr. Nolan was a private real estate investor since February 2008. From July 2004 through February 2008, Mr. Nolan served as a Principal and as Chief Financial Officer of Loreto Bay Company, the developer of the Loreto Bay master planned community in Baja, California. From October 1984 through July 2004, Mr. Nolan held various financial positions with AEW Capital Management, L.P., a national real estate investment advisor, and from 1998 through 2004 he served as Head of Equity Investing and as President and Senior Portfolio Manager of The AEW Partners Funds. Mr. Nolan's leadership roles with us and with Old GGP as Chief Operating Officer, President and director, as well as his prior leadership roles and real estate experience allow him to make key contributions in the operation of our business. In addition, Mr. Nolan's extensive financial experience in various segments of the real estate industry enable him to make valuable and strategic contributions to our business. His in-depth knowledge of our business also helps to facilitate effective communication between management and the board of directors.
153
Cyrus Madon , 45, has served as a director of New GGP since October 2010. Mr. Madon is the Senior Managing Partner of Brookfield Asset Management Inc. responsible for restructuring and lending activities and has been a member of the Brookfield Asset Management Inc. team since 1998. Mr. Madon has extensive experience in restructuring, corporate finance, and merchant banking across a broad range of industries, including real estate, real estate services and manufacturing. Mr. Madon holds a business degree from Queen's University. As a senior member of Brookfield Asset Management Inc., an affiliate of one of our large stockholders, Mr. Madon represents stockholder interests on our board of directors. His experience in restructuring, corporate finance and banking, particularly in the real estate industry allow him to make valuable contributions to the board of directors on such matters. Mr. Madon is a director designated by Brookfield Investor pursuant to the terms of the Investment Agreement with Brookfield described under "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanInvestment Agreements with the Plan Sponsors."
Sheli Z. Rosenberg , 68, has served as a director of Old GGP since April 2010 and has served as a director of New GGP since October 2010. Ms. Rosenberg has been an Adjunct Professor at Northwestern University's J.L. Kellogg Graduate School of Business since 2003, and is the former President, Chief Executive Officer and Vice Chairwoman of Equity Group Investments, L.L.C., a privately held real estate investment firm, having held those titles at various times from 1999 through 2003. Ms. Rosenberg is currently a director of CVS Caremark, a health care services and drugstore chain company, Equity Lifestyle Properties, Inc., a manufactured home community real estate investment trust, Ventas, Inc., a health care real estate investment trust, and Nanosphere, Inc., a molecular diagnostics products company, and is a trustee of Equity Residential, a real estate investment trust. She was formerly a director of Avis Budget Group, Inc., a vehicle rental company, until April 2008. Ms. Rosenberg is a recognized leader in the real estate industry, with experience in the legal and real estate fields, including operational and REIT industry experience, as well as many years of service on multiple public company boards and committees.
John G. Schreiber , 63, has served as a director of New GGP since October 2010. Mr. Schreiber is the President of Centaur Capital Partners, Inc. and a Partner and Co-Founder of Blackstone Real Estate Advisors. Mr. Schreiber has overseen all Blackstone real estate investments since 1992. During the last eighteen years, Blackstone has invested over $14 billion of equity in a wide variety of real estate transactions and has over $11 billion of committed capital available today. Previously, Mr. Schreiber served as Chairman and CEO of JMB Urban Development Co. and Executive Vice President of JMB Realty Corp. During his twenty-year career at JMB, Mr. Schreiber was responsible for over $10 billion of firm and client real estate investments and had overall responsibility for the firm's shopping center development activities. Mr. Schreiber is a past board member of Urban Shopping Centers, Inc., Host Hotels & Resorts, Inc., The Rouse Company and AMLI Residential Properties Trust and he currently serves on the board of JMB Realty Corp. and a number of mutual funds managed by T. Rowe Price Associates. Mr. Schreiber graduated from Loyola University of Chicago and received an M.B.A. from Harvard Business School. Mr. Schreiber has extensive experience in overseeing financial investments in the real estate industry, and he has held leadership roles focused on shopping centers development and strategy. His investment and operational experience contribute to our board of directors. Mr. Schreiber is a director designated by Pershing Square pursuant to the terms of the Investment Agreement with Pershing Square described under "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanInvestment Agreements with the Plan Sponsors."
The following table sets forth the names, ages and positions of the persons we expect to serve as New GGP's directors as of the Effective Date. New GGP's board will not be classified and each director will be elected annually by a majority of votes cast for the election of directors (unless such
154
election is contested, in which case directors shall be elected by a plurality of votes cast for the election of directors).
Name
|
Age | Position | ||
---|---|---|---|---|
Adam Metz* |
49 | Director, Chief Executive Officer | ||
Ric Clark |
52 | Director Nominee | ||
Mary Lou Fiala |
59 | Director Nominee | ||
Bruce Flatt |
45 | Director Nominee | ||
John K. Haley |
59 | Director Nominee | ||
Cyrus Madon* |
45 | Director | ||
David J. Neithercut |
54 | Director Nominee | ||
Sheli Z. Rosenberg* |
68 | Director | ||
John G. Schreiber* |
63 | Director |
* Please see above for biographical information concerning Messrs. Metz, Madon and Schreiber and Ms. Rosenberg.
Rick Clark , 52, is the Senior Managing Partner, Property Operations of Brookfield Asset Management Inc. Mr. Clark joined Brookfield Asset Management Inc. in 1996, and is responsible for the company's real estate operations. Mr. Clark is the CEO of Brookfield Properties, and formerly was the President of the company's U.S. Commercial Operations. Mr. Clark has been employed with the company's predecessors since 1984 in various executive roles. Mr. Clark holds a Business degree from the Indiana University of Pennsylvania. As a senior member of Brookfield Asset Management Inc., an affiliate of one of our large stockholders, Mr. Clark represents stockholder interests on our board of directors. His extensive experience in private equity, particularly in the real estate industry, allows him to make key contributions on investment and other strategy to our board of directors. Mr. Clark is a director nominee designated by Brookfield Investor pursuant to the terms of the Investment Agreement with Brookfield Investor described under "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanInvestment Agreements with the Plan Sponsors."
Mary Lou Fiala , 59, is the Co-Chairman of LOFT Unlimited, a personal financial and business consulting firm in Jacksonville, Florida. Ms. Fiala served as President and Chief Operating Officer of Regency Centers Corporation, a real estate investment trust specializing in the ownership and operation of grocery anchored shopping centers from 1998 to February 2009, when she was named Vice Chairman and Chief Operating Officer. In her role as Vice Chairman and Chief Operating Officer, Ms. Fiala was responsible for the operational management of Regency's retail centers nationwide. Prior to working with Regency, Ms. Fiala served as Managing Director of Security Capital Global Strategic Group Incorporated, where she was responsible for the development of operating systems for the firm's retail-related initiatives. Previously, she also served as Senior Vice President and Director of Stores for Macy's East/Federated Department Stores, where she was responsible for 19 Macy's stores in five states, generating more than $1 billion in sales volume. Before her tenure at Macy's, Ms. Fiala was Senior Vice President of Henri Bendel and Senior Vice President and Regional Director of stores for Federated's Burdine's Division. Ms. Fiala earned a bachelor's degree in science from Miami University. She is a current member of the Board of Directors for Regency Centers Corporation, a member of the board for Build-A-Bear Workshop, Inc. and a board member of Stir Crazy, Inc. Ms. Fiala also served as the 2008-2009 Chairman of the International Council of Shopping Centers. Ms. Fiala has extensive operational experience in the retail industry, which brings the perspective of our tenants to our board of directors. In addition, her prior leadership roles allow her to provide insight on management and operational initiative to our board of directors.
Bruce Flatt , 45, is the Senior Managing Partner and Chief Executive Officer of Brookfield Asset Management Inc. Mr. Flatt has been with Brookfield Asset Management Inc. for over 20 years joining
155
in 1990 and has been instrumental in the global expansion of the asset management business over this period. Mr. Flatt has been CEO of the company since February 2002, following eight years in various senior executive positions in Brookfield Asset Management Inc.'s property operations, as well as other positions in the company. Mr. Flatt has sat on over 15 public company boards, acted as Chairman of a number, and been instrumental in the launch of a number of public companies across the global capital markets. Mr. Flatt holds a business degree from the University of Manitoba. As a senior member of Brookfield Asset Management Inc., an affiliate of one of our large stockholders, Mr. Flatt represents stockholder interests on our board of directors. Mr. Flatt's extensive experience in serving on the boards of several public companies, including as chairman of the board, give him valuable insight in the operations of public companies, and his long-time experience at Brookfield Asset Management, particularly in property operations, provides him with knowledge in financial investments and strategy in our industry that benefit our board of directors. Mr. Flatt is a director nominee designated by Brookfleld Investor pursuant to the terms of the Investment Agreement with Brookfield described under "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanInvestment Agreements with the Plan Sponsors."
John K. Haley , 59, was a partner at Ernst & Young LLP in Transaction Advisory Services from 1998 until 2009 where he founded and led the Transaction Advisory Services practice in Boston, Massachusetts. Prior to that, he was an Audit Partner at Ernst & Young LLP from 1988 until 1997, where he served as audit partner on a variety of public and private companies. Prior to joining Ernst & Young LLP in 1978, Mr. Haley was a corporate accounting manager and cost accountant at Ludlow Corporation. Mr. Haley has financial expertise and significant experience in SEC registrations, restructurings, special investigations, forensic investigations, has given expert testimony on financial and accounting matters has experience in the real estate and retail industries. Mr. Haley is a member of the American Society of Certified Public Accountants and serves on the Town of Wellesley Advisory Committee. Mr. Haley holds a degree in accounting from Northeastern University and has completed executive programs at Harvard Business School, Northwestern University and Babson College. Mr. Haley's extensive professional accounting and financial experience, including with respect to public company requirements and SEC registrations, allow him to provide key contributions to the board of directors on financial, accounting and corporate governance matters. Mr. Haley qualifies as a financial expert and is financially literate.
David J. Neithercut , 54, is the President and Chief Executive Officer and a member of the Board of Trustees of Equity Residential, a real estate investment trust focused on the acquisition, development and management of apartment properties in various U.S. markets. Mr. Neithercut has been the President of Equity Residential since May 2005 and became Chief Executive Officer and a trustee of Equity Residential in January 2006. Mr. Neithercut joined Equity Residential in 1994 as the company's Chief Financial Officer and served in that capacity until August 2004 when he was named Executive Vice PresidentCorporate Strategy. Prior to joining Equity Residential, Mr. Neithercut was Senior Vice President of Finance for Equity Group Investments, an affiliate of Equity Residential's predecessor company. Mr. Neithercut is a member of the Executive Committee of the National Multi Housing Council, a member of the Urban Land Institute and a member of the Executive Committee of the National Association of Real Estate Investment Trusts. Mr. Neithercut holds a bachelor's degree from St. Lawrence University and an M.B.A. from the Columbia University Graduate School of Business. Mr. Neithercut's leadership experience in working with residential REITs, as well as his membership in industry committees, provides our board with valuable insight and knowledge into REIT operational, strategy and the REIT industry in general.
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Committees of the Board of Directors
Our board of directors has the authority to appoint committees to perform certain management and administration functions. Upon the consummation of the Plan, our board of directors will have three committees: the audit committee, the compensation committee and the nominating and governance committee.
Audit Committee
The primary purpose of the audit committee is to assist the board's oversight of:
Upon the consummation of the Plan, Messrs. Haley and Neithercut and Ms. Fiala will serve on the audit committee. Mr. Haley will serve as chairman of the audit committee and also qualifies as an "audit committee financial expert" as such term has been defined by the SEC in Item 401(h)(2) of Regulation S-K. Our board of directors has affirmatively determined that Messrs. Haley and Neithercut and Ms. Fiala meet the requirements of independence and expertise, including financial literacy for the purposes of serving on the audit committee under applicable SEC and the NYSE rules, and we intend to comply with these independence requirements within the time periods specified.
Compensation Committee
The primary purpose of our compensation committee is to:
In October 2010, Messrs. Madon and Schreiber and Ms. Rosenberg were appointed to the compensation committee, and Mr. Schreiber was named the chairman.
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Nominating and Governance Committee
The primary purpose of the governance and nominating committee is to:
Upon the consummation of the Plan, Ms. Rosenberg and Messrs. Clark and Haley will serve on the nominating and governance committee, and Ms. Rosenberg will serve as the chair. The standstill agreements provide that as long as Brookfield Investor, Fairholme or Pershing Square beneficially owns more than 10% of the outstanding New GGP common stock, each of such Plan Sponsors will support the composition of the nominating and governance committee to consist of a majority of members who are not affiliated with or nominated by the Plan Sponsors. See "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanStandstill Agreements."
Compensation Committee Interlocks and Insider Participation
Upon the completion of the Plan, none of our executive officers will serve on the compensation committee or board of directors of any other company of which any of the members of our compensation committee or any of our directors is an executive officer.
Code of Business Conduct and Ethics
Upon consummation of the Plan, we will have a Code of Business Conduct and Ethics which will apply to all of our employees, officers and directors, including our Chairman, Chief Executive Officer and Chief Financial Officer. Our Code of Business Conduct and Ethics will prohibit conflicts of interest, which are broadly defined to include any situation where a person's private interest interferes in any way with the interests of the company. In addition, this code prohibits direct or indirect personal loans to executive officers and directors to the extent required by law and stock exchange regulation. The code does not attempt to cover every issue that may arise, but instead sets out basic principles to guide all of our employees, officers, and directors. Any waivers of the code for any executive officer, principal accounting officer, or director may be made only by the Board or a Board committee and will be promptly disclosed to stockholders. The code will include a process and a toll-free telephone number for anonymous reports of potentially inappropriate conduct or potential violations of the code.
Executive Officer Information
Our executive officers are generally elected by the Board annually and are currently as listed below, including their principal positions. On September 7, 2010, we announced that Chief Executive Officer Adam Metz and Chief Operating Officer Thomas Nolan have agreed to remain in their roles at New GGP for up to one year following completion of our restructuring, expected during the fourth quarter of 2010. During that period, Messrs. Metz and Nolan will continue to manage the final phases of our restructuringincluding the offering contemplated by this prospectusand will continue to lead our financial and operational strategy. Although it is possible that Messrs. Metz and Nolan could be eligible for reelection by the post-emergence board of directors, it is not anticipated that they would be re-elected. On October 27, 2010, New GGP entered into an employment agreement with Mr. Sandeep Mathrani, pursuant to which Mr. Mathrani has agreed to serve as Chief Executive Officer of New GGP and GGPLP commencing on January 17, 2011. Prior to that, Mr. Mathrani will serve as a consultant to
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New GGP and GGPLP. Except for the foregoing, we currently expect the following executive officers to continue in their positions as of the Effective Date.
Name
|
Age | Position | ||
---|---|---|---|---|
Adam Metz* |
49 | Chief Executive Officer | ||
Steven Douglas |
43 | Executive Vice President and Chief Financial Officer | ||
Thomas Nolan, Jr.* |
53 | President & Chief Operating Officer | ||
Joel Bayer |
46 | Senior Vice President, Chief Investment Officer | ||
Ronald Gern |
52 | Senior Vice President, General Counsel and Secretary | ||
Catherine Hollowell |
49 | Senior Vice President, Human Resources | ||
Edmund Hoyt |
58 | Senior Vice President & Chief Accounting Officer | ||
Michael McNaughton |
43 | Executive Vice President, Asset Management | ||
Robert Michaels |
66 | Vice Chairman | ||
Hugh Zwieg |
50 | Executive Vice President, Finance |
* Please see above for biographical information concerning Messrs. Metz and Nolan. Biographical information concerning our other executive officers is set forth below.
Steven Douglas , 43, was named as New GGP's Executive Vice President and Chief Financial Officer in July 2010. Mr. Douglas served most recently as president of Brookfield Properties Corporation. Mr. Douglas was a key member of the Brookfield Properties Corporation team for more than 16 years, serving in a variety of senior positions. Prior to his role as president of Brookfield Properties Corporation, which he assumed in 2009, Mr. Douglas was a senior managing partner at Brookfield Asset Management, where he focused on the company's operations and international portfolio. From 2003 to 2006, he was chief financial officer of Falconbridge Limited. From 1996 until 2003, Mr. Douglas served as chief financial officer of Brookfield Properties, a period that saw the company's re-launch as a public company and the completion of three major acquisitions. Mr. Douglas joined Brookfield from Ernst & Young. Mr. Douglas received his Bachelor of Commerce degree from Laurentian University and holds a Chartered Accountant designation.
Joel Bayer , 46, joined Old GGP in September 1993 and has served as New GGP's Senior Vice President and Chief Investment Officer since its formation in 2010 and Old GGP's Senior Vice President and Chief Investment Officer since 2001, and Senior Vice President, Acquisitions from 1998 to 2001.
Ronald Gern , 52, joined Old GGP in December 1997 and has served as New GGP's Senior Vice President, General Counsel and Secretary since its formation in 2010 and Old GGP's Senior Vice President and General Counsel and has served as Secretary since October 2008. Mr. Gern served as Assistant Secretary of Old GGP from December 1997 to October 2008. In addition, Mr. Gern has served and continues to serve as an officer of various of Old GGP's subsidiaries and joint ventures.
Catherine Hollowell , 49, joined Old GGP in 1998 and has served as New GGP's Senior Vice President, Human Resources since its formation in 2010 and Old GGP's Senior Vice President since 2009, Vice President of Human Resources from 2004 to 2009, Director of Human Resources, Information Systems and Compensation from 2002 to 2004, Senior Human Resources and Information Systems Manager from 2000 to 2002 and Human Resources and Information Systems Manager from 1998 to 2000.
Edmund Hoyt , 58, joined Old GGP in November 1986 and has served as New GGP's Interim Chief Financial Officer, Senior Vice President and Chief Accounting Officer since its formation in 2010 and Old GGP's Interim Chief Financial Officer from October 2008 until July 2010, and Senior Vice President and Chief Accounting Officer since 2000. During his time with at Old GGP, Mr. Hoyt has held several positions in the financial planning, accounting and controllership areas. In addition,
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Mr. Hoyt has served and continues to serve as a director and/or officer of various of Old GGP's subsidiaries.
Michael McNaughton , 43, joined Old GGP in 2001, has served New GGP's Executive Vice President of Asset Management since its formation in 2010 and Old GGP's Executive Vice President of Asset Management since May 2010. He previously served as senior vice president with oversight of department stores, Big Box retailing, land, hotel and restaurant functions for Old GGP's portfolio. Previously, he served as senior vice president of asset management, with responsibility for 17 properties totaling 20 million square feet. Prior to joining Old GGP, Mr. McNaughton was a founding partner and senior vice president of CORO Realty Advisors, an Atlanta-based investment advisory brokerage and redevelopment firm. He served as a founding member of the NAIOP Mixed-Use Development national forum and is an active member of the Urban Land Institute. Mr. McNaughton received a BA in management from Framingham State College.
Robert Michaels , 66, joined Old GGP in September 1972 and has served as New GGP's Vice Chairman since its formation in 2010 and Old GGP's Vice Chairman since May 2010 and was formerly Old GGP Vice Chairman from March 2009 to May 2010. Prior to being named Vice Chairman, Mr. Michaels served as Chief Operating Officer of Old GGP since 1995. Mr. Michaels also served as a director and President of Old GGP from 1995 to October 2008. In addition, Mr. Michaels has served and continues to serve as a director and/or officer of various of Old GGP's subsidiaries and joint ventures. Mr. Michaels is an ex-officio trustee of the ICSC and a director of the Center for Urban Land Economics Research at the School of Business of the University of Wisconsin-Madison.
Hugh Zwieg , 50, joined Old GGP in March 2010 and has served as New GGP's Executive Vice President of Finance since its formation in 2010 and Old GGP's Executive Vice President of Finance. Prior to joining Old GGP, Mr. Zwieg had been Chief Executive Officer of Wind Realty Partners since January 2007. Wind Realty Partners provides advisory, operating and disposition services in connection with the marketing and sale of office property portfolios. From 1989 to December 2006, Mr. Zwieg held various positions with CMD Realty Investors, L.P., including President and Chief Financial Officer since 2004. CMD Realty Investors was a privately held real estate operating company focused on the acquisition and development of office and industrial properties throughout the United States, with average assets under management of approximately $1 billion.
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Compensation of Directors
Prior to the consummation of the Plan, New GGP has not and does not intend to pay to its directors any compensation for their board service. Upon consummation of the Plan, our non-employee directors will be compensated as follows:
In addition to receiving fees for their services as directors, we expect that our non-employee directors receive annual equity awards of $90,000 and a new director award of $75,000 under our Incentive Stock Plan (the "Incentive Stock Plan"). Each annual award of restricted stock valued at $90,000 shall vest on the first anniversary of such award. One-third of the new director award will vest on each of the grant date and the first and second anniversaries of the grant date.
Compensation Discussion and Analysis
Introduction
This Compensation Discussion and Analysis ("CD&A") describes Old GGP's compensation philosophy and policies for executive officers, and how this philosophy is applied to the compensation of the named executive officers, those officers required to be discussed in this CD&A ("NEOs "). For 2009, NEOs received base salary and (except for NEOs with employment agreements) short term incentive compensation pursuant to Old GGP's incentive plan for all full-time employees, the Cash Value Added Incentive Compensation Plan (the "CVA Plan"). In addition, 46 employees, including the NEOs, became eligible to receive long term incentive compensation in accordance with the terms of Old GGP's new key employee incentive plan (the "KEIP"). The overall goal of the Compensation Committee is to assure that compensation paid to the NEOs is fair, reasonable and competitive, and is linked to increasing long-term enterprise value. Old GGP's 2009 NEOs were:
Compensation Philosophy and Policies
The primary objective of Old GGP's executive compensation philosophy is to attract, motivate and retain executives who possess the high quality skills and talent necessary to lead and, where appropriate, transform Old GGP's business. Old GGP's policy also seeks to foster a performance-
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oriented environment by directly linking a significant part of each executive officer's total compensation to short-term operating performance, long-term enterprise value, and, during 2009 and 2010, Old GGP's successful reorganization under the Bankruptcy Code. The following compensation policies have been developed and implemented in order to ensure that the objectives of the compensation philosophy are attained.
Total Compensation Should Be Competitive. Competitiveness of Old GGP's compensation is a significant factor considered in establishing compensation. The compensation of the executive officers was benchmarked against the Benchmark Companies and the Survey Benchmarks (each as described below). The Compensation Committee specified the market median of the Benchmark Companies as Old GGP's competitive pay objective when establishing total compensation for the executive officers.
Alignment of Interests with Old GGP Stakeholders. Executive officers should act in the interests of all Old GGP stakeholders, including Old GGP's creditors and stockholders. Old GGP believes that incentives aligning the interests of executive officers and GGP stakeholders provide proper motivation for enhancing value to all stakeholders.
Compensation Must Be Commensurate With the Employee's Value to the Company. Total compensation is higher for individuals with greater responsibility and greater ability to influence Old GGP's achievement of targeted results and stakeholder recoveries.
Compensation Must Be Transparent. Old GGP's compensation program is intended to be transparent and easily identifiable.
Compensation Committee Process
Overview. In early 2009, the Compensation Committee and management began to consider changing Old GGP's compensation structure to incentivize employees and align employee goals with those of Old GGP's reorganization efforts. As a result of Old GGP's entry into bankruptcy, the decision was made to modify the existing CVA Plan and, given the uncertainty related to equity incentives in a bankruptcy environment, modify the form of Old GGP's long-term incentive compensation from equity to cash.
Engagement of Hewitt. Old GGP engaged Hewitt Associates, LLC ("Hewitt"), a compensation committee advisory firm, in May 2009 to assist with four principal tasks:
Benchmark Analysis. Compensation paid by the Benchmark Companies was a significant factor considered by the Compensation Committee in establishing compensation of the executive officers for 2009 and designing incentive compensation plans for 2009 and 2010. The compensation practices of the Benchmark Companies were reviewed to assess whether Old GGP's compensation practices were competitive in, and reasonable as compared to, the marketplace.
In 2009, the Benchmark Companies were 18 publicly-traded companies in the real estate industry, including ten which were used as Benchmark Companies in prior years and eight additional companies included in the group recommended by Hewitt. The Compensation Committee agreed that the 2009 Benchmark Companies represent an appropriate peer group for benchmarking Old GGP's pay levels
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and pay practices because the component companies are in the same industries as us. The "Benchmark Companies" are:
The Compensation Committee also reviewed executive compensation data from real estate and general industry surveys from the following sources (the "Survey Benchmarks"): Hewitt Total Compensation Measurement (TCM) Survey; NAREIT Compensation Survey; Mercer Real Estate Compensation Survey; US Mercer Benchmark DatabaseExecutive Survey; and Watson Wyatt Data Services: Survey Report on Top Management Compensation.
The actual and target salary, total cash compensation (base salary and short-term incentive compensation) and total direct compensation (total cash compensation and long-term incentive compensation) for Old GGP's executive officers were compared to the compensation paid by the Benchmark Companies, as well as companies included in the Survey Benchmarks.
In addition, the Compensation Committee reviewed benchmarking data prepared by Hewitt regarding incentive compensation plans from companies involved in recent bankruptcy proceedings. These companies were used to confirm the appropriate metrics and structures of incentive plans in restructuring organizations.
Modifications to Incentive Compensation Programs for 2009 and 2010. Hewitt reviewed the incentive compensation practices of Old GGP and the Benchmark Companies. Hewitt concluded that, from a market perspective, the Benchmark Companies had both short and long term incentive programs for their key employees. Hewitt also concluded, based on its review of the Benchmark Companies and in light of Old GGP's bankruptcy, that total compensation to the executive officers should be targeted at the market median. Therefore, Hewitt recommended continuation of some form of the CVA Plan, the short term incentive plan, as it was an essential part of employee compensation.
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Specifically, without the CVA Plan, Old GGP would fall well below the market median for compensation paid to its executive officers. In addition, to remain competitive and ensure the alignment of key employees and stakeholders in the restructuring, Hewitt recommended that Old GGP implement the KEIP to provide eligible employees long-term performance cash incentive opportunities in lieu of Old GGP's prior equity award practices.
After receiving Hewitt's recommendations and proposals on modifying the CVA Plan and implementing the KEIP, management presented these recommendations to the Compensation Committee, which authorized management to continue to develop the plans in consultation with various stakeholders in the Chapter 11 Cases, including the official unsecured creditors' committee, the official equity committee and the United States Trustee.
The Compensation Committee determined that implementing these employee incentive programs was important to create incentives based on meaningful defined financial goals to motivate employees and executives to work hard and to undertake and deliver on important tasks to enhance Old GGP's value. These incentive programs are designed to tie an employee's incentive award with operating and financial performance, as well as, where applicable, value creation based on stakeholder recoveries. If none of the minimum performance goals are satisfied under the modified CVA Plan (the "Modified CVA Plan") or the KEIP, then there is no payout under the applicable employee incentive program.
After significant dialogue and negotiation with the various constituencies, the Compensation Committee and the full Board approved the Modified CVA Plan and the KEIP. The plans were approved by the Bankruptcy Court in October 2009 based on the support and recommendation of the official unsecured creditors' committee, the official equity committee and the United States Trustee.
Role of Messrs. Metz and Nolan in Establishing Compensation. Messrs. Metz and Nolan play a significant role in the compensation setting process. The most significant aspects of their role include: recommending performance targets for the CVA Plan, advising the Compensation Committee with respect to attainment of such performance targets, evaluating the performance of the other executive officers and recommending the base salary and individual CVA and KEIP target incentive awards of the other executive officers. Messrs. Metz and Nolan regularly participate in Compensation Committee meetings to provide this information.
Conclusion. The Compensation Committee concluded that the payments of cash and grants of incentive awards to the NEOs discussed below under "Elements of Compensation" and the payments of cash and grants of incentive awards made to the other executive officers were reasonable and consistent with Old GGP's philosophy and policies for 2009.
Elements of Compensation
The Compensation Committee designed each of the elements of compensation for executive officers to further the philosophy and policies set forth above and to support and enhance Old GGP's business strategy. Base salary is designed to provide a minimum level of guaranteed pay. Short-term incentives reward short-term operating and financial performance, and long-term incentives align management interests with the interests of Old GGP's stakeholders.
The Compensation Committee does not have a formula for establishing a specified percentage of total compensation that each of Old GGP's elements of compensation should represent. In addition, there is no formula for allocating between currently paid-out compensation and long-term compensation. However, when considering any individual element of an executive officer's total compensation, the Compensation Committee took into consideration the aggregate amounts and mix of the executive officer's compensation as compared to the Benchmark Companies. The aggregate compensation paid to each of our NEOs in 2009 fell below the market median.
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Base Salary. The base salaries for Messrs. Metz and Nolan were established pursuant to their October 2008 employment agreements. These base salaries are applicable until December 31, 2010, the expiration of the current term of the employment agreements.
In light of Old GGP's financial situation in early 2009, Old GGP did not conduct its annual base wage adjustment process for all employees, nor did the Compensation Committee perform its typical annual review of executive officer salaries. However, in July 2009, based on a review of the Benchmark Companies, Survey Benchmarks, and the recommendations of Messrs. Metz and Nolan, it was determined that certain executive officer salaries should be adjusted in light of the desired total compensation result. Mr. Bayer was the only NEO affected by the adjustment and his salary was revised from $500,000 to $600,000.
In March 2010, Mr. Hoyt's salary was adjusted to $535,000 (from $710,000) when a new Executive Vice PresidentFinance was hired to undertake responsibilities which include some that Mr. Hoyt, as interim Chief Financial Officer, previously undertook.
Cash Bonus Awards. Pursuant to their employment agreements, for service through October 25, 2009, Messrs. Metz and Nolan were entitled to fixed cash bonuses of $2,000,000 and $1,600,000, respectively, payable quarterly in equal installments on each of February 2, 2009, May 2, 2009, August 2, 2009 and October 25, 2009. Messrs. Metz and Nolan both elected to reduce their February 2, 2009 fixed cash bonus to one-half of the amount payable pursuant to their respective employment agreements in light of Old GGP's financial circumstances at the time. Pursuant to their employment agreements, Messrs. Metz and Nolan were also entitled to discretionary cash bonuses of up to $1,000,000 and $800,000, respectively, payable in October 2009, which the Compensation Committee determined to pay Messrs. Metz and Nolan in full based on the success of Messrs. Metz and Nolan in leading Old GGP through the restructuring process while maintaining sound operations and performance. The Compensation Committee considered specific accomplishments of Messrs. Metz and Nolan, including assembling a first-class restructuring team, commencing a successful bankruptcy restructuring process for Old GGP while concurrently maintaining stakeholder, tenant and retail customer relations, commencing the restructuring of over 100 secured mortgage loans, obtaining debtor-in-possession financing and reducing headcount while concurrently increasing employee productivity.
From and after October 26, 2009, pursuant to their employment agreements, Messrs Metz and Nolan were to participate in Old GGP's then applicable bonus plans in a manner commensurate with their respective positions. However, under Old GGP's annual bonus plan, Messrs. Metz and Nolan could not participate in such plan until January 1, 2010. As a result, following negotiations with the various stakeholders and approval of the Bankruptcy Court, in lieu of such participation, Messrs. Metz and Nolan received an additional prorated quarterly bonus payment of $364,130 and $291,304, respectively, for the period from October 26, 2009 through December 31, 2009.
Modified CVA Plan. The annual cash incentive has been and continues to be paid pursuant to the CVA Plan, which is designed to reward participants for their contribution to the achievement of annual corporate performance goals. Annual equity awards in connection with the CVA Plan were made for performance through 2007; however, such awards were eliminated with respect to 2008 and later performance periods for all employees, including the NEOs.
The Compensation Committee is authorized to designate participants in the CVA Plan and, in addition to Old GGP's executive officers (other than Messrs. Metz and Nolan), approximately 2,700 employees participated in the Modified CVA Plan in 2009. The establishment of the target incentive awards for the participating executive officers was broadly designed to achieve aggregate market median compensation assuming 100% CVA Plan payout, based on a review of total compensation at the Benchmark Companies and Survey Benchmarks. The Compensation Committee and the other stakeholders believe this is appropriate in light of Old GGP's bankruptcy circumstances. The targets for
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Messrs. Metz and Nolan for 2010 and Messrs. Hoyt, Bayer and Michaels for 2009 and 2010 are as follows:
Executive
|
Modified CVA Plan
Target Incentive Awards (as a percent of base salary) |
|||
---|---|---|---|---|
Metz* |
133 | % | ||
Nolan* |
128 | % | ||
Hoyt |
50 | % | ||
Bayer |
75 | % | ||
Michaels |
25 | % |
The Modified CVA Plan award for executive officers is equal to base salary times their target incentive award times the applicable payout percentage (see schedule below), subject to discretionary adjustment by Messrs. Metz and Nolan based on individual executive officer performance. The payout percentage under the Modified CVA Plan is determined based on achievement of the EBITDA target and using the payout curve illustrated below:
|
Modified CVA Plan Payouts | |||
---|---|---|---|---|
|
Performance
Level (EBITDA) |
Payout Percentage
of CVA Target Opportunity |
||
Maximum |
109% and above | 200% of Target | ||
Target |
100% | 100% of Target | ||
Low Performance |
92% | 11.1% of Target | ||
Threshold |
91% or below | No Payout |
For NEOs (inclusive of, beginning in 2010, Messrs. Metz and Nolan), the performance target under the Modified CVA Plan is based on EBITDA, which for purposes of the Modified CVA Plan is defined as NOI plus property management revenue less corporate overhead (excluding restructuring costs) and capitalized costs. For purposes of the Modified CVA Plan, "NOI" means the aggregate operating revenues of Old GGP's and its subsidiaries' real estate properties and master planned communities less the aggregate property and related expenses of such properties and communities (excluding interest, depreciation, amortization, reorganization and extraordinary expenses, and impairment charges).
The performance targets for 2009 were recommended by management, approved by the Compensation Committee, agreed to by the various stakeholders in the Chapter 11 Cases and approved by the Bankruptcy Court. For 2009, target EBITDA was $2.116 billion, which was designed to reflect Old GGP's estimated performance so that the goal of providing market median compensation would be achieved if performance met expectations. Establishment of a target that would achieve market median compensation created a total compensation package that was competitive in accordance with Old GGP's compensation philosophy and policies. In 2009, Old GGP achieved EBITDA performance of 100.726% of target, resulting in an applicable payout percentage of 108.06%.
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The calculated awards under the Modified CVA Plan for 2009 were reviewed and modified based on each executive officer's relative individual performance at the recommendation of Messrs. Metz and Nolan as follows:
Executive
|
CVA Award
Based upon 2009 EBITDA Performance Level |
Modified Award
Based upon CEO/COO Adjustment |
|||||
---|---|---|---|---|---|---|---|
Hoyt |
$ | 383,613 | $ | 300,000 | |||
Bayer |
$ | 486,270 | $ | 475,000 | |||
Michaels |
$ | 324,180 | $ | 300,000 |
KEIP. The KEIP was designed to provide long-term incentive compensation for the duration of the Chapter 11 Cases. The NEOs, including Messrs. Metz and Nolan, are included in the 46 employees eligible to participate in the KEIP. These 46 participants were chosen either because they are essential to Old GGP's operations or integral to the bankruptcy reorganization process and/or creating long-term enterprise value.
KEIP target opportunities were broadly designed to provide median aggregate market compensation on a two-year annualized basis, assuming Plan recoveries are at the "Objective 1" level in the "KEIP Payouts" chart below. The KEIP target opportunities for the NEOs are:
Executive
|
KEIP Target Incentive Awards
(as a percent of base salary) |
|||
---|---|---|---|---|
Metz |
225 | % | ||
Nolan |
200 | % | ||
Hoyt* |
99.35 | % | ||
Bayer |
125 | % | ||
Michaels |
40 | % |
The KEIP target opportunities for all participants in the KEIP established the target pool of dollars to be paid pursuant to the KEIP. This pool can increase or decrease and is not capped under the terms of the KEIP.
The KEIP payout formula is based on plan recoveries in the Chapter 11 Cases to all unsecured creditors and third party equity holders of Old GGP, GGPLP, GGPLP L.L.C., and Rouse (collectively, the "Parent Level Debt and Equity"). The payout opportunity increases as recoveries increase and, therefore, maximizes enterprise value creation. The KEIP performance metrics are the recovery value to the Parent Level Debt and Equity based on the value in the plan of reorganization calculated on emergence from bankruptcy (the "Plan Recovery Value"), and based on the market value of the consideration distributed to the Parent Level Debt and Equity 90 days after emergence from bankruptcy (the "Market Recovery Value"). Each of these recovery values is then applied to the executive officers' KEIP target opportunities using a payout curve to calculate their payouts under the KEIP. The executive officers' payouts will be based 40% on the Plan Recovery Value and 60% on the Market Recovery Value. Payout levels under the KEIP are determined based on the Plan Recovery
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Value and the Market Recovery Value using a payout curve with a threshhold level, and no maximum, as illustrated in the chart below.
|
KEIP Payouts | |||
---|---|---|---|---|
|
Percentage of
Plan Recovery Value & Market Recovery Value |
Payout Percentage
of KEIP Target Opportunity |
||
Threshold |
45% or below | No Payout | ||
Low Performance |
46% | 5% of Target | ||
Objective 1 |
65% | Target | ||
Objective 2 |
85% | 2 times Target | ||
Objective 3 |
95% | 3 times Target | ||
Objective 4 |
105% | 4 times Target | ||
Uncapped |
Payout levels will be interpolated between the illustrated threshold and objective levels and above based upon the payout curve. If, pursuant to the plan of reorganization, the Parent Level Debt is satisfied in full and the Parent Level Equity receives no distribution, the recovery would be 100%. A percentage above 100% would be the result of a distribution pursuant to the plan of reorganization to the Parent Level Equity. Each one dollar per share distribution to the Parent Level Equity results in a 4.87% increase in the percentage of Plan Recovery Value and Market Recovery Value weighted 40% based on the Plan Recovery Value and 60% based on the Market Recovery Value. The plan recovery of the KEIP was left without a maximum to incentivize management to maximize the recovery to the Parent Level Debt and Equity.
As of September 30, 2010, we estimate that the percentage of Plan Recovery Value will be 178%, based on a number of assumptions, including that Parent Level Debt is satisfied in full and the New GGP stock and THHC stock issued to holders of Old GGP common stock is valued at $14.76. Based on this estimate, payments to the NEOs, based on Plan Recovery Value, will be equal to 40% of 11.28 times each officer's KEIP Target opportunity, since the payout percentages continue to increase beyond the highest objective level if the achieved percentage of Plan Recovery Value is greater than 105%. If Market Recovery Value, which is based on the value of New GGP and THHC's stock subsequent to Old GGP's emergence from bankruptcy and which is not determinable at this time, is also assumed to be $14.76, payments to the NEOs, based on Market Recovery Value, also would be 60% of 11.28 times each officer's KEIP Target opportunity.
Using the assumptions stated above, we estimate that the aggregate payout under the KEIP to all participants would be approximately $150 million and that Messrs. Metz, Nolan, Hoyt, Bayer and Michaels would each receive $37.1 million, $27.4 million, $6.0 million, $8.5 million and $5.4 million, respectively. For every $1.00 change in the $14.76 per share assumed value, the aggregate payout to all participants under the KEIP would increase (or decrease) by approximately $6.6 million and the payments to Messrs. Metz, Nolan, Hoyt, Bayer and Michaels would increase (or decrease) by approximately $1.7 million, $1.2 million, $261,000, $368,000 and $235,000, respectively. Differences in the Plan Recovery Value from those estimated as discussed above also would change the amount of the payments under the KEIP. The actual amounts payable under the KEIP may be materially different from the estimates set forth above and maximum payout levels under the KEIP are not determinable at this time.
In addition to the payments based on Plan Recovery Value and Market Recovery Value, there is an emergence incentive pool specifically designed to incentivize executive officers and other KEIP participants to expeditiously emerge from bankruptcy as set forth in the table below. This pool will be
168
allocated by the Compensation Committee, if applicable. All KEIP participants are eligible for a distribution from the pool, including the NEOs.
Effective Date
|
Pool | |
---|---|---|
June 30, 2010 or earlier |
$10 million | |
July 1, 2010 to September 30, 2010 |
$5 million | |
October 1, 2010 or later |
$0 |
Neither management nor the Compensation Committee may, at their discretion, revise the terms of the emergence pools, including the effective dates, as the KEIP was approved by the Bankruptcy Court and cannot be revised without additional Bankruptcy Court approval. All payments under the KEIP are to be made in cash promptly upon satisfaction of the relevant payment conditions.
Equity Awards. Periodic discretionary grants of stock, stock options and restricted stock under the 2003 Incentive Plan were previously an important element of Old GGP's executive compensation program; however, no discretionary equity awards were made in 2009. As discussed above, the KEIP is intended to replace Old GGP's historic equity grants for 2009 and 2010.
Stock Ownership Guidelines
We do not have an executive officer stock ownership policy or guideline specifying any targeted ownership levels for executive officers. Old GGP's insider trading policy prohibits aggressive or speculative transactions with respect to Old GGP's securities, including short sales and the purchase or writing of put or call options. In addition, under the policy employees may not pledge or otherwise use Old GGP's securities as collateral for a margin loan or any other loan where the obligation to repay such loan is affected by the value of Old GGP's securities.
Retirement Benefits
Old GGP does not provide any defined benefit pension benefits or supplemental pension benefits to executive officers.
Perquisites
Except in very limited circumstances, Old GGP's executive officers do not receive perquisites or other benefits that are not available to all of Old GGP's employees.
Termination Compensation
If Old GGP terminates either Mr. Metz's or Mr. Nolan's employment without "cause" during the term of the employment agreements, then the terminated executive is eligible (subject to execution of a release in favor of Old GGP) to receive a lump sum severance payment equal to the executive's base salary through the end of the term and continuation of medical and dental benefits for the remainder of the term. The employment agreements also provide for a gross-up payment for certain excise taxes under Section 4999 of the Internal Revenue Code, subject to stated limits in the agreements.
Old GGP does not have any employment contracts, severance agreements, or change-in-control agreements with any other NEOs.
Impact of Regulatory Requirements on Compensation
Section 162(m). The Compensation Committee has considered the anticipated tax treatment to Old GGP and its executive officers of various payments and benefits.
The Committee has determined not to limit executive compensation to that deductible under Section 162(m) of the Internal Revenue Code. The Compensation Committee will monitor the impact
169
to Old GGP and consider whether any changes in the programs are warranted. However, the Compensation Committee may continue to approve compensation that does not meet the requirements of Section 162(m) if necessary to ensure competitive levels of total compensation for the executive officers.
Summary of Cash and Certain Other Compensation
The following tables set forth information regarding the compensation of the NEOs, who are Old GGP's Chief Executive Officer, Chief Financial Officer and Old GGP's three other most highly compensated officers, during the year ended December 31, 2009.
Summary Compensation Table
Name and Principal Position
|
Year |
Salary
($)(1) |
Bonus
($) |
Stock
Awards ($)(2) |
Option
Awards ($)(2) |
Non-Equity
Incentive Plan Compensation ($)(3) |
All Other
Compensation ($) |
Total
($) |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Adam Metz |
2009 | $ | 1,557,692 | $ | 3,114,130 | (4) | | | | $ | 43,622 | (5) | $ | 4,715,444 | ||||||||||||
Chief Executive Officer |
2008 | $ | 230,769 | | $ | 63,870 | (5) | $ | 1,938,000 | | $ | 213,147 | (5) | $ | 2,445,786 | |||||||||||
|
2007 | | | $ | 90,345 | (5) | | | $ | 77,000 | (5) | $ | 167,345 | |||||||||||||
Edmund Hoyt |
2009 |
$ |
741,346 |
|
|
|
$ |
300,000 |
$ |
12,250 |
(7) |
$ |
1,053,596 |
|||||||||||||
Interim Chief Financial |
2008 | $ | 485,000 | | $ | 149,622 | | $ | 105,010 | $ | 15,478 | (7) | $ | 755,110 | ||||||||||||
Officer |
2007 | $ | 390,000 | $ | 50,000 | (6) | | $ | 466,089 | $ | 198,508 | $ | 11,250 | (7) | $ | 1,115,847 | ||||||||||
Joel Bayer |
2009 |
$ |
578,846 |
|
|
|
$ |
475,000 |
$ |
12,250 |
(8) |
$ |
1,066,096 |
|||||||||||||
Senior Vice President and |
2008 | $ | 500,000 | | $ | 161,850 | | $ | 94,830 | $ | 16,071 | (8) | $ | 772,751 | ||||||||||||
Chief Investment Officer |
2007 | $ | 486,000 | | | $ | 164,983 | $ | 247,372 | $ | 11,250 | (8) | $ | 909,605 | ||||||||||||
Robert Michaels |
2009 |
$ |
1,269,231 |
|
|
|
$ |
300,000 |
$ |
12,250 |
(9) |
$ |
1,581,481 |
|||||||||||||
Vice Chairman |
2008 | $ | 1,200,000 | | $ | 127,235 | | $ | 125,000 | $ | 32,578 | (9) | $ | 1,484,813 | ||||||||||||
|
2007 | $ | 1,000,000 | $ | 1,000,000 | (6) | | $ | 1,391,802 | $ | 508,996 | $ | 51,893 | (9) | $ | 3,952,691 | ||||||||||
Thomas Nolan, Jr. |
2009 |
$ |
1,298,077 |
$ |
2,491,304 |
(4) |
|
|
|
$ |
113,080 |
(10) |
$ |
3,902,461 |
||||||||||||
President and Chief |
2008 | $ | 192,308 | | $ | 63,870 | (10) | $ | 1,550,400 | | $ | 135,547 | (10) | $ | 1,942,125 | |||||||||||
Operating Officer |
2007 | | | $ | 90,345 | (10) | | | $ | 77,500 | (10) | $ | 167,845 |
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Plan Based Awards
The following table provides information on incentive awards made to the NEOs in 2009. These incentive awards were made pursuant to the Modified CVA Plan and the KEIP, which are both described above under "Compensation Discussion and Analysis." No equity awards were made to the NEOs in 2009.
In the following table, threshold, target and maximum estimated possible payouts are provided. Under the terms of the Modified CVA Plan, no payments will be made if the performance target achievement level is 91% or below. As a result, the threshold payout under the Modified CVA Plan in the following table is estimated assuming a 92% performance level, the lowest whole percentage at which payment would be made under the plan. The target payout is estimated assuming a 100% performance level, while the maximum payout is estimated assuming a performance level of 109% or above (resulting in a payment of 200% of the executive's target award, which is the cap on potential awards under the Modified CVA Plan). All three payout scenarios assume that no discretion is exercised to increase or decrease the executive's payout.
For potential payouts under the KEIP in the following table, threshold awards are estimated assuming a 46% plan recovery percentage, the lowest whole percentage at which payments will be made under the KEIP. Target award estimates assume a 65% plan recovery percentage, which is the performance level at which 100% of the target payouts are due. Because payments under the KEIP are not capped, no estimates of maximum payout amounts are included.
2009 Grants of Plan-Based Awards
|
Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Grant Date | Threshold ($) | Target ($) | Maximum ($) | |||||||
Adam Metz |
7/28/2009 | (1) | $ | 168,750 | $ | 3,375,000 | uncapped | ||||
Edmund Hoyt |
7/28/2009 |
(2) |
$ |
39,405 |
$ |
355,000 |
$710,000 |
||||
|
7/28/2009 | (1) | $ | 26,576 | $ | 531,523 | uncapped | ||||
Joel Bayer |
7/28/2009 |
(2) |
$ |
49,950 |
$ |
450,000 |
$900,000 |
||||
|
7/28/2009 | (1) | $ | 37,500 | $ | 750,000 | uncapped | ||||
Robert Michaels |
7/28/2009 |
(2) |
$ |
33,300 |
$ |
300,000 |
$600,000 |
||||
|
7/28/2009 | (1) | $ | 24,000 | $ | 480,000 | uncapped | ||||
Thomas Nolan, Jr. |
7/28/2009 |
(1) |
$ |
125,000 |
$ |
2,500,000 |
uncapped |
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Outstanding Equity Awards at Fiscal Year-End
The following table provides information on outstanding stock options and restricted stock held by the NEOs at December 31, 2009. For treatment of options under the Plan, see "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementTreatment of Certain Claims under the Plan."
Outstanding Equity Awards at 2009 Fiscal Year-End Table
|
Option Awards | Stock Awards | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Number of
Securities Underlying Unexercised Options (#) Exercisable |
Number of
Securities Underlying Unexercised Options (#) Unexercisable |
Option
Exercise Price ($) |
Option
Expiration Date |
Number
of Shares of Stock That Have Not Vested (#) |
Market Value
of Shares of Stock That Have Not Vested ($)(1) |
|||||||||||||
Adam Metz |
| | | | 500 | (2) | $ | 5,780 | |||||||||||
|
1,000,000 | | $ | 3.73 | 11/3/2013 | (3) | | | |||||||||||
Edmund Hoyt |
|
|
|
|
3,171 |
$ |
36,657 |
||||||||||||
|
75,000 | | $ | 35.41 | 02/9/2010 | (4) | | | |||||||||||
|
20,000 | 5,000 | $ | 50.47 | 02/6/2011 | (4) | | | |||||||||||
|
| 15,014 | $ | 50.47 | 02/6/2011 | (5) | | | |||||||||||
|
18,000 | 12,000 | $ | 65.81 | 2/22/2012 | (4) | | | |||||||||||
|
| 13,819 | $ | 65.81 | 2/22/2012 | (6) | | | |||||||||||
Joel Bayer |
|
|
|
|
3,429 |
$ |
39,639 |
||||||||||||
|
10,000 | | $ | 35.41 | 02/9/2010 | ||||||||||||||
|
| 18,917 | $ | 50.47 | 02/6/2011 | (5) | |||||||||||||
|
| 17,292 | $ | 65.81 | 2/22/2012 | (6) | |||||||||||||
Robert Michaels |
|
|
|
|
2,677 |
$ |
30,946 |
||||||||||||
|
120,000 | | $ | 35.41 | 2/09/2010 | (4) | | | |||||||||||
|
300,000 | | $ | 50.47 | 2/06/2011 | (4) | | | |||||||||||
|
| 34,317 | $ | 50.47 | 2/06/2011 | (5) | | | |||||||||||
|
100,000 | | $ | 65.81 | 2/22/2012 | ||||||||||||||
|
| 33,613 | $ | 65.81 | 2/22/2012 | (6) | | | |||||||||||
Thomas Nolan, Jr. |
|
|
|
|
500 |
$ |
5,780 |
||||||||||||
|
7,500 | | $ | 34.75 | 4/1/2010 | (2) | |||||||||||||
|
2,500 | | $ | 47.26 | 1/3/2011 | (2) | |||||||||||||
|
800,000 | | $ | 3.73 | 11/3/2013 | (3) |
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Option Exercises and Stock Vested
The following table provides information on restricted stock that vested under all plans during 2009 by each of the NEOs during 2009. There were no option exercises by any of the NEOs during 2009.
2009 Option Exercises and Stock Vested Table
|
Stock Awards | ||||||
---|---|---|---|---|---|---|---|
Name
|
Number of Shares
Acquired on Vesting (#) |
Value Realized on
Vesting ($)(1) |
|||||
Adam Metz |
1,000 | (2) | $ | 1,045 | |||
Edmund Hoyt |
1,057 | $ | 447 | ||||
Joel Bayer |
1,142 | $ | 490 | ||||
Robert Michaels |
892 | $ | 455 | ||||
Thomas Nolan, Jr. |
1,000 | (2) | $ | 1,045 |
Change in Control Payments
None of Old GGP's NEOs are entitled to payment of any benefits upon a change in control of Old GGP, except that Old GGP's 1993 Incentive Plan, 1998 Incentive Plan and 2003 Incentive Plan each provide that upon a change in control all unvested restricted stock and unvested options shall immediately become vested (unless the Compensation Committee determines otherwise).
As of December 31, 2009, the NEOs hold the following shares of unvested restricted stock and unvested options that would become vested upon a change in control. The unrealized value of the shares of unvested restricted stock and the unvested options was calculated by multiplying the closing price per share of Old GGP's common stock on December 31, 2009 ($11.56) times the number of shares of unvested restricted stock. No value was ascribed to unvested options because the applicable exercise prices exceeded the closing price per share of Old GGP's common stock on December 31, 2009.
The consummation of the Investment Agreements will constitute a change of control and will result in all unvested restricted stock and unvested options becoming fully vested.
Unvested Restricted Stock and Options Table
Name
|
Number of
Shares Underlying Unvested Restricted Stock (#) |
Number of
Shares Underlying Unvested Options (#) |
Unrealized Value
of Unvested Stock and Options ($) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Adam Metz |
500 | (1) | | $ | 5,780 | |||||
Edmund Hoyt |
3,171 | 45,833 | $ | 36,657 | ||||||
Joel Bayer |
3,429 | 36,209 | $ | 39,639 | ||||||
Robert Michaels |
2,677 | 67,930 | $ | 30,946 | ||||||
Thomas Nolan, Jr. |
500 | (1) | | $ | 5,780 |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plans
The following table sets forth certain information with respect to shares of Old GGP's common stock that may be issued under Old GGP's equity compensation plans as of December 31, 2009.
Plan Category
|
(a)
Number of securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights |
(b)
Weighted Average Exercise Price of Outstanding Options, Warrants and Rights |
(c)
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a)) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Equity compensation plans approved by security holders(1) |
4,407,025 | $ | 53.82 | 4,309,195 | (2) | |||||
Equity compensation plans not approved by security holders(3) |
1,800,000 |
$ |
3.73 |
n/a |
||||||
|
6,207,025 | $ | 39.29 | 4,309,195 |
Subsequent Employment Arrangements
Employment Arrangements
Steven Douglas. Steven Douglas was named as Old GGP's and New GGP's Executive Vice President and Chief Financial Officer in July 2010. Had he been employed in these positions in 2009, he would be an NEO. Mr. Douglas's annual base salary is $650,000. Mr. Douglas is eligible for the Modified CVA Plan in 2010, with a target payment of 75% of his base salary, and a potential payment of 150% of his base salary. Following Old GGP's emergence from bankruptcy, Mr. Douglas will be entitled to participate in New GGP's then applicable equity plans in a manner commensurate with his position, as determined by the Compensation Committee. Mr. Douglas will be eligible to participate in the benefit plans available to Old GGP employees on the first of the month following one full month of employment.
Adam Metz and Thomas Nolan, Jr. On September 8, 2010, Old GGP entered into Amended and Restated employment agreements with Mr. Metz, the Chief Executive Officer, and Mr. Nolan the Company's President and Chief Operating Officer. The amended and restated employment agreements will be effective as of the earlier of Effective Date and January 1, 2011 and amend and restate the existing employment agreements dated November 2, 2008 as amended March 6, 2009. The new agreements have a fixed one-year term and provide for a base salary of $1,500,000 for Mr. Metz and $1,250,000 for Mr. Nolan. In addition, the new agreements provide that Messrs. Metz and Nolan shall continue to participate in the 2010 Cash Value Added Incentive Compensation Plan and commencing with the first fiscal year on or after the date the new agreements are effective, are eligible to
174
participate in the our annual bonus plan in effect with a target bonus opportunity of $3,000,000 and $2,400,000, respectively (the "Target Annual Bonus").
Pursuant to the new agreements, Messrs. Metz and Nolan will be granted 125,000 and 100,000 shares of restricted common stock, respectively, as of the effective date of the new agreements. The restricted stock will vest in its entirety on the first anniversary of the grant date.
If we terminate either Mr. Metz's or Mr. Nolan's employment without "cause" during the term of the new agreements, then the terminated executive is eligible (subject to execution of a release in favor of us) to receive base salary through the termination date, a lump sum payment of a pro-rata amount of such executive's Target Annual Bonus, a lump sum payment equal to seventy five percent of the sum of executive's base salary through the end of the term of the agreement and the Target Annual Bonus, vesting of the restricted stock, and continuation of medical benefits through the eighteen month anniversary of the termination date.
The new agreements also provide for a gross-up payment for certain excise taxes under Section 4999 of the Internal Revenue Code, subject to stated limits in the agreements.
Sandeep Mathrani. On October 27, 2010, New GGP entered into an employment agreement with Sandeep Mathrani, pursuant to which Mr. Mathrani has agreed to serve, commencing on January 17, 2011, as Chief Executive Officer of New GGP and of GGPLP, which will become a party to the employment agreement by joinder upon New GGP's emergence from bankruptcy, for an initial five-year term commencing on January 17, 2011. This term automatically renews for one-year terms thereafter. Prior to that time, Mr. Mathrani will serve as our consultant. New GGP has agreed to nominate Mr. Mathrani to New GGP's board of directors for so long as Mr. Mathrani serves as Chief Executive Officer of New GGP. The employment agreement further provides for a $1,000,000 signing bonus, reimbursement of reasonable relocation expenses up to $350,000, an annual base salary of $1,200,000 and a target annual bonus of $1,500,000, including a guaranteed minimum annual bonus of $1,000,000 for the 2011 and 2012 calendar years.
In accordance with the terms and conditions of the employment agreement, (i) New GGP will grant to Mr. Mathrani, at New GGP's emergence from bankruptcy, 1,500,000 shares of common stock (the "Restricted Stock"), which will vest in three equal installments on each of the first three anniversaries of the grant date and (ii) pursuant to a nonqualified stock option award agreement, on October 27, 2010, New GGP granted to Mr. Mathrani options to acquire 2,000,000 shares of common stock (the "Options"), which will vest in four equal installments on each of the first four anniversaries of the grant date. The Options have an exercise price of $10.25 per share. The Restricted Stock and Options were awarded pursuant to, and subject to the terms and conditions of, the Equity Plan (as defined below). Commencing in 2012, Mr. Mathrani will be entitled to receive, on an annual basis, at his election, either options to purchase an additional number of shares of common stock equal to five times his previous year's annual base salary divided by the then current trading price of common stock, or shares of restricted stock of equivalent value (based on the Black-Scholes pricing model).
If New GGP terminates Mr. Mathrani's employment without "cause" or does not renew the employment agreement following the initial term, or if Mr. Mathrani terminates his employment for "good reason," then Mr. Mathrani is eligible to receive two years of salary continuation, two times his annual bonus for the previous year, pro rata annual bonus for the year of termination (based on his annual bonus for the previous year), full vesting of the Restricted Stock and Options, vesting of the portion of the annual equity awards that would otherwise vest during the two year period following termination and two years of welfare benefit continuation. If Mr. Mathrani's employment is terminated due to death or disability, then Mr. Mathrani is eligible to receive pro rata annual bonus for the year of termination (based on his annual bonus for the previous year) and full vesting of the Restricted Stock, the Options and the annual equity awards.
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2010 Equity Incentive Plan
On October 27, 2010, New GGP adopted the General Growth Properties, Inc. 2010 Equity Plan (the "Equity Plan"). The number of shares of New GGP common stock reserved for issuance under the Equity Plan is equal to 4% of New GGP's outstanding shares on a fully diluted basis as of the Effective Date. The Equity Plan provides for grants of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, other stock-based awards and performance-based compensation (collectively, "the Awards"). Directors, officers and other employees of New GGP and its subsidiaries and affiliates are be eligible for Awards. The Equity Plan is not subject to the Employee Retirement Income Security Act of 1974, as amended.
The purpose of the Equity Plan is to provide incentives that will attract, retain and motivate our directors, officers and employees by providing them with either a proprietary interest in our long-term success or compensation based on their performance. The following is a summary of the material terms of the Equity Plan, but does not include all of the provisions of the Equity Plan.
Administration
The Equity Plan is administered by the compensation committee of New GGP's Board of Directors or any committee designated by New GGP's Board of Directors to administer the Equity Plan. The administrator is empowered to determine the form, amount and other terms and conditions of Awards, clarify, construe or resolve any ambiguity in any provision of the Equity Plan or any Award agreement and adopt such rules and guidelines for administering the Equity Plan as it deems necessary or proper. All actions, interpretations and determinations by the administrator are final and binding.
Shares Available
The Equity Plan reserves for issuance the number of shares of New GGP's common stock described above, subject to adjustments. In the event that any outstanding Award expires or terminates without the issuance of shares or is otherwise settled for cash, the shares allocable to such Award, to the extent of such expiration, termination or settlement for cash, will again be available for issuance. No participant may be granted more than 4,000,000 shares, or the equivalent dollar value of such shares, in any year.
Eligibility for Participation
Members of New GGP's Board of Directors, as well as officers and employees of New GGP and its subsidiaries and affiliates are eligible to participate in the Equity Plan. The selection of participants is within the sole discretion of the administrator.
Types of Awards
The Equity Plan provides for the grant of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, other stock-based awards and performance-based compensation. The administrator will determine the terms and conditions of each Award, including the number of shares subject to each Award, the vesting terms, and the purchase price. Awards may be made in assumption of or in substitution for outstanding Awards previously granted by New GGP or its affiliates, or a company acquired by New GGP or with which it combines.
Award Agreement
Awards granted under the Equity Plan will be evidenced by Award agreements that provide additional terms and conditions associated with the Awards, as determined by the administrator in its discretion. In the event of any conflict between the provisions of the Equity Plan and any such Award agreement, the provisions of the Equity Plan will control.
176
Options
An option granted under the Equity Plan permits a participant to purchase from New GGP a stated number of shares at an exercise price established by the administrator. Subject to the terms of the Equity Plan, the terms and conditions of any option will be determined by the administrator. Options will be designated as either nonqualified stock options or incentive stock options. An option granted as an incentive stock option will, to the extent it fails to qualify as an incentive stock option, be treated as a nonqualified option. The exercise price of an option may not be less than the fair market value of a share of New GGP's common stock on the date of grant. The term of each option will be determined prior to the date of grant, but may not exceed ten years.
Stock Appreciation Rights
A stock appreciation right granted under the Equity Plan entitles the holder to receive, upon its exercise, the excess of the fair market value of a specified number of shares of New GGP's common stock on the date of exercise over the grant price of the stock appreciation right. Payment may be in the form of cash, shares of New GGP's common stock, other property or any combination thereof. Subject to the terms of the Equity Plan, the terms and conditions of any stock appreciation right will be determined by the administrator.
Restricted Stock
An Award of restricted stock granted under the Equity Plan is a grant of a specified number of shares of New GGP's common stock, which are subject to forfeiture upon the occurrence of specified events. Each Award agreement evidencing a restricted stock grant will specify the period of restriction, the conditions under which the restricted stock may be forfeited to us and such other provisions as the administrator may determine, subject to the terms of the Equity Plan.
Other Stock-Based Awards
The administrator may grant Awards of shares of New GGP's common stock and Awards that are valued, in whole or in part, by reference to New GGP's common stock. Such Awards will be in such form and subject to such terms and conditions as the administrator may determine, including, the right to receive one or more shares of New GGP's common stock (or the equivalent cash value of such stock) upon the completion of a specified period of service, the occurrence of an event and/or the attainment of performance objectives. Subject to the provisions of the Equity Plan, the administrator will determine whether such other stock-based awards will be settled in cash, shares of New GGP's common stock or a combination of cash and such shares, and all other terms and conditions of such Awards.
Performance-Based Compensation
To the extent permitted by Section 162(m) of the Internal Revenue Code, or the Code, the administrator may design any Award so that the amounts or shares payable thereunder are treated as "qualified performance-based compensation" within the meaning of Section 162(m) of the Code. The grant, vesting, crediting and/or payment of performance-based compensation will be based or conditioned on the achievement of objective performance goals established in writing by the compensation committee of New GGP's Board of Directors. Performance goals may be based on one or more of the following measures:
177
Transferability
Unless otherwise determined by the administrator, Awards may not be transferred by a participant except in the event of death. Any permitted transfer of the Awards to heirs or legatees of a participant will not be effective unless the administrator has been furnished with written notice thereof and a copy of such evidence as the administrator may deem necessary to establish the validity of the transfer.
The administrator may impose such transfer restrictions on any shares received in connection with an Award as it may deem advisable or desirable. These restrictions may include a requirement that the participant hold the shares received for a specified period of time or a requirement that a participant represent and warrant in writing that the participant is acquiring the shares for investment and without any present intention to sell or distribute such shares.
Stockholder Rights
Except as otherwise provided in the applicable Award agreement or with respect to Awards of restricted stock, a participant will have no rights as a stockholder with respect to shares of New GGP's common stock covered by any Award until the participant becomes the record holder of such shares. Participants holding Awards or restricted stock will have the right to vote and receive dividends with respect to the restricted stock, unless otherwise provided in the applicable Award Agreement.
Adjustment of Awards
In the event of a corporate event or transaction such as a recapitalization, in order to prevent dilution or enlargement of participants' rights under the Equity Plan, the administrator will make certain adjustments to Awards, including, in its sole discretion, substitution or adjustment of the number and kind of shares that may be issued under the Equity Plan or under particular Awards, the exercise price or purchase price applicable to outstanding Awards, and other value determinations applicable to the Equity Plan or outstanding Awards.
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In the event we experience a change in control, the administrator may make adjustments to the terms and conditions of outstanding Awards, including, acceleration of vesting and exercisability of Awards, substitution of Awards with substantially similar Awards and cancellation of Awards for fair value.
Amendment and Termination
The administrator may amend or terminate the Equity Plan or any Award agreement at any time. However, no amendment or termination is permitted without shareholder approval if such approval is necessary to comply with any tax or regulatory requirement and no amendment or termination is permitted without the consent of the participants if such amendment or termination would materially diminish the participants' rights under the Equity Plan or any Award.
No Awards will be granted after October 27, 2020.
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As of the Effective Date, after giving effect to the issuance and distribution of our common stock pursuant to the Plan, we expect to have shares of common stock issued and outstanding. In addition, after giving effect to the issuance of warrants to purchase our common stock to the Plan Sponsors and Blackstone pursuant to the Investment Agreements, the Blackstone Designation and the Plan, there will be warrants to purchase 120,000,000 shares of our common stock outstanding. Other than the warrants issued to Pershing Square and Fairholme, which may only be exercised upon 90 days prior notice, the warrants will vest immediately upon issuance and are included in the table below.
The following table sets forth estimated information regarding the beneficial ownership of our common stock immediately following the effectiveness of the Plan but does not give effect to the offering of common stock hereby and the use of proceeds therefrom. See "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanInvestment Agreements with the Plan Sponsors." The table below sets forth such estimated beneficial ownership for:
Beneficial ownership of shares is determined under rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Shares of common stock subject to warrants or options currently exercisable or exercisable within 60 days of the date of this prospectus are deemed to be outstanding and beneficially owned by the person and any group of which that person is a member, but are not deemed outstanding for the purpose of computing the percentage of beneficial ownership for any other person. Except as noted by footnote, and subject to community property laws where applicable, we believe based on the information provided to us that the persons and entities named in the table below have sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by them.
|
Beneficial Ownership | ||||||
---|---|---|---|---|---|---|---|
Name of Beneficial Owner
|
Number of
Shares |
Percent of
Total |
|||||
Brookfield Investor(1) |
|||||||
Fairholme(2) |
|||||||
Pershing Square(3) |
|||||||
General Trust Company, as trustee(4)
|
|||||||
Adam Metz, Chief Executive Officer and Director |
|||||||
Steven Douglas, Executive Vice President and Chief Financial Officer |
|||||||
Thomas Nolan, Jr., President and Chief Operating Officer |
|||||||
Joel Bayer, Senior Vice President, Chief Investment Officer |
|||||||
Edmund Hoyt, Senior Vice President & Chief Accounting Officer |
|||||||
Robert Michaels, Vice Chairman |
|||||||
Ric Clark, Director Nominee |
|||||||
Bruce Flatt, Director Nominee |
|||||||
Cyrus Madon, Director |
|||||||
Mary Lou Fiala, Director Nominee |
|||||||
John Haley, Director Nominee |
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|
Beneficial Ownership | ||||||
---|---|---|---|---|---|---|---|
Name of Beneficial Owner
|
Number of
Shares |
Percent of
Total |
|||||
David Neithercut, Director Nominee |
|||||||
Sheli Rosenberg, Director |
|||||||
John G. Schreiber, Director |
|||||||
All directors, director nominees and executive officers as a group (15 persons) |
After giving effect to the offering hereby and the use of proceeds therefrom at a price of $ per share, Brookfield Investor, Fairholme and Pershing Square will beneficially own %, %, and % of New GGP common stock, respectively.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Plan of Reorganization Agreements
Investment Agreements
In connection with the Plan, Old GGP entered into the Investment Agreements with the Plan Sponsors and an investment agreement with Texas Teachers. For a description of the Investment Agreements, see "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the Plan."
Warrants
In connection with the Investment Agreements, the Plan Sponsors received warrants to acquire common stock of New GGP. For a description of the warrants, see "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanWarrants."
Standstill Agreements
In connection with the Investment Agreements, the Plan Sponsors entered into Non-Control Agreements. For a description of the Standstill Agreements, see "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanStandstill Agreements."
Registration Rights Agreements
In connection with the Investment Agreements, New GGP entered into registration rights agreements with each of the Plan Sponsors with respect to all registrable securities issued to or held by such Plan Sponsor. The registration rights agreements provide for:
In addition, New GGP granted customary piggyback registration rights to Texas Teachers and Blackstone.
Brookfield Relationship Agreement
In connection with the investment by Brookfield Investors, BAM entered into the Relationship Agreement with New GGP. For a description of the Relationship Agreement, see "Plan of ReorganizationThe Plan of Reorganization and Disclosure StatementFunding of the PlanBrookfield Relationship Agrement."
Director Independence
Our board of directors has affirmatively determined that each of our directors on the Effective Date other than Mr. Metz are independent directors under the applicable rules of the NYSE and as such term is defined in Rule 10A-3(b)(1) under the Exchange Act.
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Related Party Transactions Policy
Our Related Party Transactions Policy is designed to assist with the proper identification, review and disclosure of related party transactions. Under this policy, our management is required to disclose to the Audit Committee any transaction between us and related parties, and the Audit Committee is responsible for reviewing and approving them. The Audit Committee may only approve a transaction between us and a related party if the transaction is on terms that are comparable to terms we could obtain in an arm's length transaction with an unrelated third party, and either the term of the transaction does not exceed one year or we can terminate the agreement evidencing the transaction upon reasonable notice to the related party. A related party for purposes of this policy means:
This policy does not apply to transactions of a type in which all of our employees may participate, a transaction that involves compensation for services rendered to us as an employee or director, or a transaction that involves the conversion or redemption of outstanding interests in GGPLP.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Revolving Credit Facility
In connection with the consummation of the Plan, we obtained a commitment for a revolving credit facility providing for revolving loans of up to $300.0 million, none of which is expected to be used to consummate the Plan, credit facilities with Deutsche Bank Trust Company Americas, as administrative agent and collateral agent, various lenders, and Deutsche Bank Securities Inc., Wells Fargo Securities, LLC and RBC Capital Markets Corporation as Joint Lead Arrangers. Set forth below is a summary of the anticipated terms of the revolving credit facility. As the final terms of the revolving credit facility have not been agreed upon, the final terms may differ from those set forth herein. We intend to pursue discussions with our lenders under the revolving credit facility following the Effective Date to seek to improve the terms we have and to potentially increase the size of the facility to provide us with further financial flexibility.
The revolving credit facility will mature three years from the Effective Date. The revolving credit facility will be senior secured obligations of New GGP, as a guarantor, and the two operating entities through which our company conducts substantially all of its business, as co-borrowers (GGPLP and GGPLP L.L.C.). In addition, the revolving credit facility will be guaranteed by certain of our subsidiaries and secured by (i) first lien mortgages on certain properties, (ii) first-lien pledges of equity interests in certain of our subsidiaries which directly or indirectly own properties that are encumbered by existing third-party mortgage debt and (iii) various additional collateral.
Borrowings under the revolving credit facility will bear interest at a floating rate, which can be either a Eurodollar rate plus an applicable margin or, at the borrower's option, an alternative base rate (defined as the higher of (x) the Deutsche Bank Trust Company Americas prime rate and (y) the federal funds effective rate, plus one half percent (.50%) per annum. The interest rate payable in respect of any overdue principal and interest under the revolving credit facility will increase by 2.00% per annum during the continuance of any payment event of default with respect to such principal or interest. All rates described above are subject to final pricing.
For Eurodollar loans, we may select interest periods of one, two, three, six months or, with the consent of all lenders, nine months. Interest will be payable at the end of the selected interest period, but no less frequently than every three months within the selected interest period.
The revolving credit facility also requires payment of a commitment fee on the difference between committed amounts and amounts actually borrowed under the revolving credit facility and customary letter of credit fees. Prior to the maturity date of the revolving credit facility, funds borrowed under the revolving credit facility may be borrowed, repaid and reborrowed, without premium or penalty.
Voluntary prepayments of principal amounts outstanding under the revolving credit facility will be permitted at any time, however, if a prepayment of principal is made with respect to a Eurodollar loan on a date other than the last day of the applicable interest period, the lenders will require compensation for any funding losses and expenses incurred as a result of the prepayment.
The revolving credit facility will contain certain restrictive covenants applicable to New GGP and its subsidiaries which will, among other things, limit material changes in nature of business conducted, amalgamations, mergers, consolidations, dissolutions or liquidations, dispositions of assets, liens, incurrence of additional indebtedness, investments and acquisitions, dividends, amendments to organizational documents, hedging for speculative purposes, transactions with affiliates, prepayment of subordinated debt, negative pledges, changes in fiscal periods and limitations on subsidiary distributions. In addition, New GGP will be required to maintain a maximum net debt to value ratio, a maximum leverage ratio and a minimum net cast interest coverage ratio.
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The revolving credit facility will contain customary events of default, including without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to certain other indebtedness in excess of specified amounts, certain events of bankruptcy and insolvency, judgment defaults in excess of specified amounts, failure of any material provision of any guaranty or security document supporting the revolving credit facility to be in full force and effect, failure to maintain REIT status and a change of control.
Existing Rouse Notes and New Rouse Notes
Rouse, a subsidiary of ours, issued, pursuant to an indenture dated as of February 24, 1995, as amended from time to time, between Rouse and Bank of New York Mellon (as successor to The First National Bank of Chicago), as trustee, the following series of notes:
Rouse and TRC Co-Issuer, Inc., a wholly owned subsidiary of Rouse (the "Co-Issuer"), also issued, pursuant to an indenture dated as of May 5, 2006, as amended from time to time, among Rouse, the Co-Issuer and Wilmington Trust FSB (as successor to LaSalle Bank National Association), as trustee, $800.0 million aggregate principal amount of 6 3 / 4 % notes due 2013, or the 6 3 / 4 % notes.
The Co-Issuer served as co-issuer of the 6 3 / 4 % notes in order to facilitate the initial offering and subsequent resales of the 6 3 / 4 % notes, as we believed some prospective purchases of notes may have been restricted from purchasing debt securities of limited partnerships, such as Rouse, unless the debt securities are jointly issued by a corporation.
The 7.20% notes, the 5.375% notes and the 6 3 / 4 % notes are referred to collectively as the Rouse notes. Any Rouse notes held by Plan Sponsors may, at the option of the Plan Sponsors, be exchanged for equity in satisfaction of their commitments. We expect approximately $349.0 million of the 7.20% notes, $92.0 million of the 5.375% notes and $600.0 million of the 6.750% notes to remain outstanding. Pursuant to the Plan, $1.041 billion of the Rouse notes will be reinstated and holders of $608.7 million Rouse notes elected to receive $1,000 in principal amount of new five-year notes bearing an interest rate of 6 3 / 4 % for each $1,000 principal amount of Rouse notes held by such holder. We refer to such new notes as new Rouse notes. See "Plan of ReorganizationTreatment of Certain Claims Under the Plan."
Security. The Rouse notes are and the new Rouse notes will be unsecured.
Maturity. The 7.20% notes, the 5.375% notes and the 6 3 / 4 % notes mature on September 15, 2012, November 26, 2013 and May 1, 2013, respectively. The new Rouse notes will mature five years from the Effective Date.
Guarantee. The Rouse notes are not and the new Rouse notes will not be guaranteed.
Ranking. The 7.20% notes and the 5.375% notes are and the new Rouse notes will be senior unsecured obligations of Rouse. The 6 3 / 4 % notes are the senior unsecured obligations of Rouse and the Co-Issuer. Accordingly, they:
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Optional Redemption. Rouse may redeem all or part of the Rouse notes or new Rouse notes at its option at any time at a redemption price equal to the greater of:
In addition, the new Rouse notes will be redeemable at Rouse's option as follows: on or after two and a half years after the date the Rouse notes are issued at 103.375% and on or after three and a half years after the date the Rouse notes are issued at 100.00%.
Covenants. The indentures governing the Rouse notes and the new Rouse notes contain certain covenants limiting:
Events of Default. Each of the following would be an event of default with respect to any series of the Rouse notes and new Rouse notes:
Trust Preferred Securities
GGP Capital Trust I, a statutory trust established by GGPLP, issued $206.2 million aggregate principal amount of trust preferred securities due 2036, pursuant to a note purchase agreement dated as of February 24, 2006 among GGPLP and the trustees party thereto. GGPLP, a subsidiary of Old GGP, issued, pursuant to an indenture dated as of February 24, 2006 between GGPLP and Wilmington Trust FSB (as successor to LaSalle Bank National Association), as trustee, to GGP Capital Trust I, $206.2 million aggregate principal amount of junior subordinated debentures supporting the trust preferred securities.
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The trust preferred securities were reinstated upon Old GGP's emergence from bankruptcy pursuant to the Plan.
Security. The trust preferred securities are unsecured.
Maturity. The trust preferred securities will mature on April 30, 2036.
Guarantee. The trust preferred securities are not guaranteed.
Ranking. The trust preferred securities are the unsecured obligations of GGP Capital Trust I. The junior subordinated debentures are the unsecured subordinated obligations of GGPLP. Accordingly they:
Redemption at the Option of Issuer. The issuer of the trust preferred securities may, at its option, on any interest payment date on or after April 30, 2011, redeem the trust preferred securities, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus any accrued and unpaid interest up to, but not including, the redemption date. Prior to April 30, 2011, under certain circumstances, such as if the issuer is to be considered an investment company pursuant to the Investment Company Act of 1940 or certain changes to tax laws, the issuer may redeem the trust preferred securities, in whole but not in part, at a redemption price equal to 103% of the principal amount thereof, plus any accrued interest up to but not including the redemption date.
Events of Default. Each of the following would constitute an event of default:
Property-Level Debt
On Old GGP's emergence from bankruptcy and excluding the Special Consideration Properties, New GGP will have $16.2 billion aggregate principal amount of consolidated secured property level debt. Typically, our property-level debt may restrict our ability to:
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Substantially all of the $16.2 billion of our consolidated secured property level debt is non-recourse; however payment of $2.3 billion of such debt is guaranteed by us and certain of our subsidiaries. Approximately $13.2 billion of our property-level debt is freely payable with no prepayment penalty. Our property-level debt has a weighted average interest rate of 5.05% and an average maturity of 5.6 years.
We do not believe any individual mortgage on property-level debt instrument to be material.
Unconsolidated Real Estate Affiliates
On Old GGP's emergence from bankruptcy, New GGP's share of debt of its unconsolidated Real Estate Affiliates is expected to be approximately $2.5 billion.
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General
New GGP was incorporated as a Delaware corporation on July 1, 2010.
Prior to the consummation of the Plan, we will amend and restate our certificate of incorporation and bylaws. Our authorized capital stock will consist of 11,000,000,000 shares of common stock and 500,000,000 shares of preferred stock, $0.01 par value per share.
Holders of outstanding shares of our common stock shall have the right to vote on all questions to the exclusion of all other stockholders, each holder of record of our common stock being entitled to one vote for each share of common stock standing in the name of the stockholder on the books of New GGP, except as otherwise required by law, provided in our certificate of incorporation, as it may be amended from time to time, or provided in our certificates of designations and any resolution adopted by the our board of directors with respect to any series of capital stock subsequently established. Under the Brookfield Investor Agreement, Brookfield Investor will be provided with preemptive rights to purchase our common stock and THHC common stock as necessary to allow it to maintain its proportional ownership interest in us and THHC on a fully diluted basis, even though other holders of outstanding shares of our common stock will not have such preemptive rights. Any such offering could dilute the holders of outstanding shares of our common stock's investment in us.
The following summary description of our common stock does not purport to be complete and is qualified in its entirety by reference to the actual terms and provisions of our amended and restated certificate of incorporation and amended and restated bylaws, copies of which will be filed as exhibits to the registration statement of which this prospectus is part.
As of , 2010 shares of New GGP's common stock are outstanding and warrants to purchase 120 million shares are outstanding. In addition, we intend to designate 71,320 shares of Class C preferred stock, described below.
Restrictions on Ownership and Transfer
Generally, for us to qualify as a REIT under the Code for a taxable year, the following conditions (among others) must be satisfied:
Accordingly, our certificate of incorporation contains provisions which limit the value of our outstanding capital stock that may be owned by any stockholder. We refer to this limit as the "Ownership Limit."
Subject to certain exceptions, the Ownership Limit provides that no stockholder may own, or be deemed to own by virtue of the applicable attribution provisions of the Code, more than the Ownership Limit. The Ownership Limit is set at 9.9% of the value of the outstanding capital stock. The board of directors may waive the 9.9% Ownership Limit in certain circumstances, including pursuant to the Investment Agreements, which provides that the board of directors may waive such restriction subject to the applicable Plan Sponsor making certain representations and covenants.
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Our board of directors may waive the Ownership Limit if presented with satisfactory evidence that such ownership will not jeopardize our status as a REIT. As a condition of such waiver, our board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving our REIT status. The Ownership Limit will not apply if the board of directors and the holders of capital stock determine that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT. If shares of capital stock in excess of the Ownership Limit, or shares which would cause us to be beneficially owned by fewer than 100 persons, are issued or transferred to any person, such issuance or transfer shall be null and void and the intended transferee will acquire no rights to such shares.
Our certificate of incorporation further provides that upon a transfer or other event that results in a person owning (either directly or by virtue of the applicable attribution rules) capital stock in excess of the applicable Ownership Limit (referred to as "Excess Shares"), such person (known as a "Prohibited Owner") will not acquire or retain any rights or beneficial economic interest in such Excess Shares. Rather, the Excess Shares will be automatically transferred to a person or entity unaffiliated with and designated by us to serve as trustee of a trust for the exclusive benefit of a charitable beneficiary to be designated by us within five days after the discovery of the transaction which created the Excess Shares. The trustee shall have the exclusive right to designate a person who may acquire the Excess Shares without violating the applicable ownership restrictions (a "Permitted Transferee") to acquire any and all of the shares held by the trust. The Permitted Transferee must pay the trustee valuable consideration (whether in a public or private sale) for the Excess Shares. The trustee shall pay to the Prohibited Owner the lesser of (a) the value of the shares at the time they became Excess Shares and (b) the price received by the trustee from the sale of the Excess Shares to the Permitted Transferee. The beneficiary will receive the excess of (a) the sale proceeds from the transfer to the Permitted Transferee over (b) the amount paid to the Prohibited Owner, if any, in addition to any dividends paid with respect to the Excess Shares.
The Ownership Limit will not be automatically removed even if the REIT provisions of the Code are changed so as to no longer contain any ownership concentration limitation or if the ownership concentration limitation is increased. Except as otherwise described above, any change in the Ownership Limit would require an amendment to our certificate of incorporation. In addition to preserving our status as a REIT, the Ownership Limit may preclude an acquisition of control of New GGP without the approval of our board of directors.
All shares of capital stock issued by the Company will be subject to legends and stop-transfer restrictions as described above.
Limitation of Liability of Directors
Our certificate of incorporation provides that no director will be personally liable for monetary damages to New GGP or to our stockholders for breach of fiduciary duty as a director, except for liability to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Law as the same exists or hereafter be amended. Any amendment, modification or repeal of any provision of our amended and restated certificate of incorporation that is inconsistent with the foregoing will not adversely affect any right or protection of a director in respect of any act or omission occurring prior to the time of such amendment, modification or repeal.
Indemnification
Our amended and restated certificate of incorporation will provide that we will indemnify and hold harmless each of our officers and directors. The indemnification provisions provide that we indemnify our officers and directors to the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended, and advance to our officers and directors all related
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expenses, subject to reimbursement if it is subsequently determined that indemnification is not permitted. In addition, we may, by action of our Board of Directors, provide indemnification to our employees and agents with the same (or lesser) scope and effect as the foregoing indemnification of directors and officers and we will enter into indemnification agreements with members of our board of directors.
Delaware Anti-Takeover Statute
We are a Delaware corporation and will continue to be subject to Section 203 of the Delaware General Corporation Law. In general, Section 203 prevents an "interested stockholder" (defined generally as a person owning 15% or more of our outstanding voting stock) from engaging in a "business combination" (as defined in Section 203) with us for three years following the date that person becomes an interested stockholder unless:
Under Section 203, these restrictions do not apply to certain business combinations proposed by an interested stockholder following the announcement or notification of one of certain extraordinary transactions involving New GGP and a person who was not an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of our directors, if that extraordinary transaction is approved or not opposed by a majority of the directors who were directors before any person became an interested stockholder in the previous three years or who were recommended for election or elected to succeed such directors by a majority of such directors then in office.
Rights Plan
Upon Old GGP's emergence from bankruptcy, New GGP will not have a shareholder rights plan (or "poison pill"). Old GGP's shareholder rights plan will expire on November 18, 2010.
Preferred Stock
Our amended and restated certificate of incorporation provides that our Board of Directors is authorized to provide for the issuance of shares of preferred stock in one or more series and, by filing a certificate of designations pursuant to the applicable law of the State of Delaware (hereinafter referred to as a "Preferred Stock Designation"), to establish from time to time for each such series the number of shares to be included in each such series and to fix the designations, powers, rights and preferences of the shares of each such series, and the qualifications, limitations and restrictions thereof.
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The authority of the Board of Directors with respect to each series of Preferred Stock includes, but is not limited to, determination of the following:
Series C Preferred Stock. Upon the consummation of the Plan, we intend to designate 71,320 of the authorized shares of New GGP Preferred Stock as Series C Preferred Stock. The Series C Preferred Stock will have a liquidation value of $1,000 per share, and it is expected that no shares will be outstanding on the Effective Date of the Plan.
Each share of Series C Preferred Stock will be entitled to quarterly cumulative cash dividends equal to the greater of (i) of $21.25 and (ii) the amount of the regular quarterly cash dividends for such dividend period upon the number of shares of Common Stock (or portion thereof) into which such Series C Preferred Stock is then convertible; provided, that no payment will be made on account of clause (ii) after June 10, 2017.
The Series C Preferred Stock will be convertible at a holder's option into shares of New GGP Common Stock until June 10, 2017. The initial conversion ratio will be 20 shares of New GGP Common Stock per share of Series C Preferred Stock and will be subject to customary adjustments for certain share splits and dividends. The liquidation value of the Series C Preferred Stock will be $1,000 plus accrued and unpaid dividends. The Series C Preferred Stock, if issued and outstanding, will rank senior to the New GGP Common Stock. Except as required by law and with certain exceptions, the Series C Preferred Stock will not have voting rights.
Warrants
Pursuant to the Investment Agreements, upon the closing of the investments by each of the Plan Sponsors and after giving effect to the Blackstone Designation, New GGP issued:
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These exercise prices of these warrants will be subject to adjustment as provided in the related warrant agreements. Each such warrant will have a term of seven years from the closing date of the investments. The Brookfield Investor warrants and the Blackstone warrants will be immediately exercisable (subject to any lockup restrictions), while the Fairholme warrants and the Pershing Investor warrants will be exercisable only upon 90 days prior notice.
Rights of Holders of GGPLP Common Units
Certain holders of GGPLP common units may continue to have certain redemption, conversion or registration rights in respect of the common units following Old GGP's emergence from bankruptcy. Any such exchange or conversion rights will be satisfied with the common stock of New GGP rather than the common stock of Old GGP following Old GGP's emergence from bankrupcty, and any such registration rights will apply to the common stock of New GGP rather than to the common stock of Old GGP.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is BNY Mellon, New York, New York.
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We are offering the shares of our common stock described in this prospectus through the underwriters named below. are the book-running managers of this offering and the representatives of the underwriters. We have entered into an underwriting agreement with the representatives. Subject to the terms and conditions of the underwriting agreement, each of the underwriters has severally agreed to purchase the number of shares of common stock listed next to its name in the following table.
Underwriters
|
Shares | |
---|---|---|
Total |
||
The underwriting agreement provides that the underwriters must buy all of the shares if they buy any of them. However, the underwriters are not required to take or pay for the shares covered by the underwriters' option to purchase additional shares described below.
Our common stock is offered subject to a number of conditions, including:
We have been advised by the representatives that the underwriters intend to make a market in our common stock but that they are not obligated to do so and may discontinue making a market at any time without notice.
In connection with this offering, certain of the underwriters or securities dealers may distribute prospectuses electronically.
Prior to this offering, there has been no public market for the New GGP common stock although there has been limited "when-issued" trading on the NYSE. The offering price will be determined by negotiations among us and the underwriters. The principal factors to be considered in determining the offering price will include the following:
The offering price may not correspond to the price at which the New GGP common stock will trade in the public market subsequent to this offering, and an active trading market may not develop and continue after this offering.
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OPTION TO PURCHASE ADDITIONAL SHARES
We have granted the underwriters an option to buy up to an aggregate of additional shares of our common stock. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with this offering. The underwriters may exercise this option within 30 days from the date of this prospectus. If the underwriters exercise this option, they will each purchase additional shares approximately in proportion to the number of shares specified in the table above.
Shares sold by the underwriters to the public will initially be offered at the public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount from the public offering price of up to $ per share from the public offering price. Any of these securities dealers may resell any shares purchased from the underwriters to other brokers or dealers at a discount of up to $ per share from the public offering price. Sales of shares made outside the United States may be made by affiliates of the underwriters. If all the shares are not sold at the public offering price, the representative may change the offering price and the other selling terms. Upon execution of the underwriting agreement, the underwriters will be obligated to purchase the shares at the prices and upon the terms stated therein.
The following table shows the per share and total underwriting discounts and commissions we will pay to the underwriters assuming both no exercise and full exercise of the underwriters' option to purchase up to an additional shares.
|
No
exercise |
Full
exercise |
|||||
---|---|---|---|---|---|---|---|
Per share |
$ | $ |
We estimate that the total expenses of this offering payable by us, not including the underwriting discounts and commissions, will be approximately $ .
NO SALES OF SIMILAR SECURITIES
Old GGP, New GGP and each of their executive officers, directors and certain significant stockholders have entered into lock-up agreements with the underwriters. Under these agreements, subject to certain exceptions, we and each of these persons may not, without the prior written approval of the representatives, offer, sell, contract to sell or otherwise dispose of, directly or indirectly, or hedge our common stock or securities convertible into or exchangeable or exercisable for our common stock. These restrictions will be in effect for a period of days after the date of this prospectus. At any time and without public notice, , may, in its sole discretion, release some or all of the securities from these lock-up agreements.
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We have agreed to indemnify the several underwriters against certain liabilities, including certain liabilities under the Securities Act. If we are unable to provide this indemnification, we have agreed to contribute to payments the underwriters may be required to make in respect of those liabilities.
New GGP's common stock is not listed on any national securities exchange. Upon the Effective Date, we expect that the common stock will be listed on the NYSE. New GGP's common stock has been approved for listing on the NYSE under the symbol "GGP," subject to official notice of issuance.
PRICE STABILIZATION, SHORT POSITIONS
In connection with this offering, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our common stock, including:
Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of our common stock while this offering is in progress. These transactions may also include making short sales of our common stock, which involve the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of common stock on the open market to cover positions created by short sales. Short sales may be "covered short sales," which are short positions in an amount not greater than the underwriters' option to purchase additional shares referred to above, or may be "naked short sales," which are short positions in excess of that amount.
The underwriters may close out any covered short position by either exercising their option to purchase additional shares in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the option to purchase additional shares.
Naked short sales are short sales made in excess of the option to purchase additional shares. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchased in this offering.
The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representative has repurchased shares sold by or for the account of that underwriter in stabilizing or short covering transactions.
As a result of these activities, the price of our common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. The underwriters may carry out these transactions on The NASDAQ Stock Market, in the over-the-counter market or otherwise.
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The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their affiliates have in the past provided, are currently providing and may in the future from time to time provide, investment banking and other financing, trading, banking, research, transfer agent and trustee services to the Company or its subsidiaries for which they have in the past received, and may currently or in the future receive, customary fees and expenses. Certain of the underwriters have previously been and may become our lenders in connection with our new revolving credit facility.
In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of the issuer. The underwriters and their respective affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
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Notice to Prospective Investors in the European Economic Area
In relation to each Member State of the European Economic Area, or EEA, which has implemented the Prospectus Directive (each, a "Relevant Member State"), with effect from, and including, the date on which the Prospectus Directive is implemented in that Relevant Member State (the "Relevant Implementation Date"), an offer to the public of the securities which are the subject of the offering contemplated by this prospectus may not be made in that Relevant Member State, except that, with effect from, and including, the Relevant Implementation Date, an offer to the public in that Relevant Member State of the securities may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
As used above, the expression "offered to the public" in relation to any of the securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression "Prospectus Directive" means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
The EEA selling restriction is in addition to any other selling restrictions set out in this prospectus.
Notice to Prospective Investors in the United Kingdom
This prospectus is only being distributed to and is only directed at: (1) persons who are outside the United Kingdom; (2) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order"); or (3) high net worth companies, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons falling within (1)-(3) together being referred to as "relevant persons"). The securities are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this prospectus or any of its contents.
Notice to Prospective Investors in Switzerland
The Prospectus does not constitute an issue prospectus pursuant to Article 652a or Article 1156 of the Swiss Code of Obligations ("CO") and the securities will not be listed on the SIX Swiss Exchange. Therefore, the Prospectus may not comply with the disclosure standards of the CO and/or the listing rules (including any prospectus schemes) of the SIX Swiss Exchange. Accordingly, the securities may
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not be offered to the public in or from Switzerland, but only to a selected and limited circle of investors, which do not subscribe to the securities with a view to distribution.
Notice to Prospective Investors in Australia
This prospectus is not a formal disclosure document and has not been, nor will be, lodged with the Australian Securities and Investments Commission. It does not purport to contain all information that an investor or their professional advisers would expect to find in a prospectus or other disclosure document (as defined in the Corporations Act 2001 (Australia)) for the purposes of Part 6D.2 of the Corporations Act 2001 (Australia) or in a product disclosure statement for the purposes of Part 7.9 of the Corporations Act 2001 (Australia), in either case, in relation to the securities.
The securities are not being offered in Australia to "retail clients" as defined in sections 761G and 761GA of the Corporations Act 2001 (Australia). This offering is being made in Australia solely to "wholesale clients" for the purposes of section 761G of the Corporations Act 2001 (Australia) and, as such, no prospectus, product disclosure statement or other disclosure document in relation to the securities has been, or will be, prepared.
This prospectus does not constitute an offer in Australia other than to wholesale clients. By submitting an application for the securities, you represent and warrant to us that you are a wholesale client for the purposes of section 761G of the Corporations Act 2001 (Australia). If any recipient of this prospectus is not a wholesale client, no offer of, or invitation to apply for, the securities shall be deemed to be made to such recipient and no applications for the securities will be accepted from such recipient. Any offer to a recipient in Australia, and any agreement arising from acceptance of such offer, is personal and may only be accepted by the recipient. In addition, by applying for the securities you undertake to us that, for a period of 12 months from the date of issue of the securities, you will not transfer any interest in the securities to any person in Australia other than to a wholesale client.
Notice to Prospective Investors in Hong Kong
The securities may not be offered or sold in Hong Kong, by means of this prospectus or any document other than (i) to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (ii) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (iii) in other circumstances which do not result in the document being a "prospectus" within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong). No advertisement, invitation or document relating to the securities may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere) which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the securities which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Notice to Prospective Investors in Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and the securities will not be offered or sold, directly or indirectly, in Japan, or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan, or to a resident of Japan, except pursuant to an exemption from the registration requirements
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of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
Notice to Prospective Investors in Singapore
This document has not been registered as a prospectus with the Monetary Authority of Singapore and in Singapore, the offer and sale of the securities is made pursuant to exemptions provided in sections 274 and 275 of the Securities and Futures Act, Chapter 289 of Singapore ("SFA"). Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the securities may not be circulated or distributed, nor may the securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor as defined in Section 4A of the SFA pursuant to Section 274 of the SFA, (ii) to a relevant person as defined in section 275(2) of the SFA pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with the conditions (if any) set forth in the SFA. Moreover, this document is not a prospectus as defined in the SFA. Accordingly, statutory liability under the SFA in relation to the content of prospectuses would not apply. Prospective investors in Singapore should consider carefully whether an investment in the securities is suitable for them.
Where the securities are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
In addition, investors in Singapore should note that the securities acquired by them are subject to resale and transfer restrictions specified under Section 276 of the SFA, and they, therefore, should seek their own legal advice before effecting any resale or transfer of their securities.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax consequences of the purchase, ownership and disposition of our common stock. Except where noted, this summary deals only with common stock held as a capital asset. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended, (the "Code"), regulations promulgated thereunder and judicial and administrative rulings and decisions now in effect, all of which are subject to change or differing interpretations, possibly with retroactive effect. This summary does not purport to address all aspects of U.S. federal income taxation that may affect particular investors in light of their individual circumstances, or certain types of investors subject to special treatment under the U.S. federal income tax laws, such as persons that mark to market their securities, financial institutions (including banks), individual retirement and other tax-deferred accounts, tax-exempt organizations, regulated investment companies, REITs, "controlled foreign corporations", "passive foreign investment companies", broker-dealers, former U.S. citizens or long-term residents, life insurance companies, persons that hold common stock as part of a hedge against currency or interest rate risks or that hold common stock as part of a straddle, conversion transaction or other integrated investment, or U.S. holders that have a functional currency other than the U.S. dollar. This discussion does not address any tax consequences arising under the laws of any state, local or non-U.S. jurisdiction or any estate, gift or alternative minimum tax consequences.
For purposes of this summary, a "U.S. holder" is a beneficial owner of common stock that is, for U.S. federal income tax purposes:
For purposes of this summary, a "non-U.S. holder" is a beneficial owner of common stock that is not a U.S. holder or a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes).
If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. A beneficial owner that is a partnership and partners in such a partnership should consult their tax advisors about the U.S. federal income tax considerations of the purchase, ownership and disposition of our common stock.
Taxation of New GGP
General
This section is a summary of certain federal income tax matters of general application pertaining to New GGP under the Code. The provisions of the Code pertaining to REITs are highly technical and complex and sometimes involve mixed questions of fact and law. This summary is qualified in its
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entirety by the applicable Code provisions, regulations, and administrative and judicial interpretations thereof, all of which are subject to change, possibly retroactively.
We intend to make an election to be treated as a REIT under the Code for our taxable year ending December 31, 2010. We believe that, commencing with such taxable year, we will be organized and operating in a manner so as to qualify as a REIT for U.S. federal income tax purposes. In connection with this offering, Arnold & Porter LLP, our special REIT tax counsel, has delivered an opinion to us that, commencing with our taxable year ending on December 31, 2010, we will be organized in conformity with the requirements for qualification as a REIT under the Code, and our proposed method of operation will enable us to meet the requirements for qualification and taxation as a REIT.
It must be emphasized that the opinion of Arnold & Porter LLP is based on various assumptions relating to our organization and operation, and is conditioned upon representations and covenants made by us regarding our organization, assets and the past, present and future conduct of our business operations. While we intend to operate so that we will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in our circumstances, no assurance can be given by Arnold & Porter LLP or by us that we will so qualify for any particular year. Arnold & Porter LLP will have no obligation to advise us or our stockholders of any subsequent change in the matters stated, represented or assumed in the opinion, or of any subsequent change in the applicable law. You should be aware that opinions of counsel are not binding on the Internal Revenue Service or any court, and no assurance can be given that the Internal Revenue Service will not challenge the conclusions set forth in such opinions.
Qualification and taxation as a REIT depends on our ability to meet on a continuing basis, through actual operating results, distribution levels, diversity of share ownership and various qualification requirements imposed upon REITs by the Code, the compliance with which will not be reviewed by Arnold & Porter LLP. Our ability to qualify as a REIT also requires that we satisfy certain asset tests (discussed below), some of which depend upon the fair market values of assets directly or indirectly owned by us. Such values may not be susceptible to a precise determination. While we intend to continue to operate in a manner that will allow us to qualify as a REIT, no assurance can be given that the actual results of our operations for any taxable year will satisfy such requirements for qualification and taxation as a REIT.
If we qualify as a REIT, we generally will not be subject to federal corporate income tax on our net income that is currently distributed to our stockholders. This treatment substantially eliminates the "double taxation" (at the corporate and stockholder levels) that generally results from investment in a corporation. However, notwithstanding our qualification as a REIT, we will be subject to federal income tax as follows:
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Furthermore, notwithstanding our status as a REIT, we may have to pay certain state and local income taxes because not all states and localities treat REITs the same as they are treated for federal income tax purposes. We could also be subject to foreign taxes on investments and activities in foreign jurisdictions. In addition, certain of our subsidiaries are subchapter C corporations, the earnings of which are subject to federal corporate income tax. Finally, we could also be subject to tax in certain situations and on certain transactions not presently contemplated.
Requirements for qualification as a REIT.
The Code defines a REIT as a corporation, trust or association:
The Code provides that the first four conditions must be met during the entire taxable year, and that the fifth condition must be met during at least 335 days of a taxable year of twelve months, or during a proportionate part of a taxable year of less than twelve months. The fifth and sixth conditions do not apply until after the first taxable year for which an election is made to be taxed as a REIT. For purposes of the sixth condition, specified tax-exempt entities (but generally excluding trusts described in Section 401(a) and exempt under Section 501(a) of the Code) generally are treated as individuals and other entities, including pension funds, are subject to "look-through" attribution rules to determine the individuals who constructively own the stock held by the entity.
We intend to operate in a manner so as to satisfy each of the above conditions. In addition, with regard to the fifth and sixth conditions described above, our certificate of incorporation provides certain restrictions regarding transfers of our shares, which provisions are intended to assist us in satisfying these share ownership requirements. These restrictions, however, may not ensure that we will, in all cases, be able to satisfy these share ownership requirements. If we fail to satisfy these share ownership requirements or otherwise fails to meet the conditions described above, we will fail to qualify as a REIT. See our discussion under "Distribution RequirementsFailure to Qualify as a REIT" for a discussion of the implications of such failure to qualify as a REIT. However, if we comply with certain rules contained in applicable Treasury Regulations that require us to ascertain the actual ownership of our shares, and we do not know, or would not have known through the exercise of
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reasonable diligence, that we failed to meet the requirement described in the sixth condition described above, we will be treated as having met this requirement.
To monitor compliance with the share ownership requirements, we are required to maintain records regarding the actual ownership of our shares. To do so, we must demand written statements each year from the record holders of certain percentages of our stock in which the record holders are to disclose the persons required to include in gross income the REIT dividend. A stockholder who fails or refuses to comply with the demand must submit a statement with our tax return disclosing the actual ownership of the shares and certain other information.
In addition, we must use a calendar year for federal income tax purposes, satisfy all relevant filing and other administrative requirements established by the IRS that must be met to elect and maintain REIT status, and comply with the recordkeeping requirements of the Code and regulations promulgated thereunder. We have had and will continue to have a calendar year, and intend to satisfy the relevant filing, administrative, recordkeeping, and other requirements established by the IRS, the Code, and regulations promulgated thereunder that must be met to elect and maintain REIT status.
Gross income tests
In order to maintain qualification as a REIT, we must satisfy two gross income requirements on an annual basis. First, at least 75% of our gross income, excluding gross income from prohibited transactions and certain hedging transactions, for each taxable year must be derived directly or indirectly from certain investments relating to real property or mortgages on real property, including "rents from real property," dividends from other REITs and, in certain circumstances, interest or income from certain types of temporary investments. Second, at least 95% of our gross income, excluding gross income from prohibited transactions and certain hedging transactions, for each taxable year must be derived from such real property investments, and from dividends, interest and gain from the sale or disposition of stock or securities or from any combination of the foregoing.
For these purposes, the term "interest" generally does not include any amount received or accrued, directly or indirectly, if the determination of all or some of the amount depends in any way on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term "interest" solely by reason of being based on a fixed percentage or percentages of receipts or sales. Furthermore, an amount that depends in whole or in part on the income or profits of a debtor is not excluded from the term "interest" to the extent the amount is attributable to qualified rents received by the debtor if the debtor derives substantially all of its income from the real property securing the debt from leasing substantially all of its interest in the property.
Rents that we receive will qualify as "rents from real property" in satisfying the gross income requirements described above only if certain conditions, including the following, are met. First, the amount of rent generally must not depend in whole or in part on the income or profits of any person. However, an amount received or accrued generally will not be excluded from qualifying as "rents from real property" solely by reason of being based on a fixed percentage or percentages of receipts or sales. Second, except for certain rents received from a taxable REIT subsidiary, rents received from a tenant will not qualify as "rents from real property" if the REIT (or an actual or constructive owner of 10% or more of the REIT) actually or constructively owns 10% or more of the tenant. Amounts received from the rental of up to 10% of a property to a taxable REIT subsidiary will qualify as "rents from real property" so long as at least 90% of the leased space of the property is rented to third parties and the rents received are substantially comparable to rents received from other tenants of the property for comparable space. Third parties for this purpose means persons other than taxable REIT subsidiaries or related parties. Third, if rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as "rents from real property."
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In addition, for rents received to qualify as "rents from real property," a REIT generally must not operate or manage the property or furnish or render services to the tenants of such property, other than through an independent contractor from which the REIT derives no revenue or through a taxable REIT subsidiary. A REIT is permitted to directly perform services that are "usually or customarily rendered" in connection with the rental of space for occupancy only and are not otherwise considered rendered to the occupant of the property. Moreover, a REIT may provide non-customary services to tenants of, or operate or manage, a property without disqualifying all of the rent from the property if the payment for such services or operation or management of the property does not exceed 1% of the total gross income from the property. For purposes of this test, the income received from such non-customary services or operation or management is deemed to be at least 150% of the direct cost of providing the services or providing the operation or management.
Although our affiliates may perform development, construction and leasing services for, and may operate and manage, certain properties directly without using an "independent contractor," we believe that, in almost all instances, the only services to be provided to lessees of these properties will be those usually or customarily rendered in connection with the rental of space for occupancy only. To the extent any noncustomary services or operation or management are provided, such services, operation or management will generally (although not necessarily in all cases) be performed by a taxable REIT subsidiary. In any event, we intend that the amounts we receive for noncustomary services or operation or management that may constitute "impermissible tenant service income" from any one property will not exceed 1% of the total amount collected from such property during the taxable year.
Our share of any dividends received from our non-REIT corporate subsidiaries and from other corporations in which we own an interest, will generally qualify under the 95% gross income test but not under the 75% gross income test. We do not anticipate that we will receive sufficient dividends from such persons to cause us to exceed the limit on nonqualifying income under the 75% gross income test.
If the IRS successfully asserts that any amount of interest, rent, or other deduction of a taxable REIT subsidiary for amounts paid to us exceeds amounts determined at arm's length, the IRS's adjustment of such an item could trigger a 100% excise tax which would be imposed on the portion that is excessive. See "Distibution RequirementsPenalty Tax" below.
Taking into account our anticipated sources of nonqualifying income, we believe that our aggregate gross income from all sources will satisfy the income tests applicable to us. However, we may not always be able to maintain compliance with the gross income tests for REIT qualification despite periodic monitoring of our income. If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for such year if we are entitled to relief under certain provisions of the Code. These relief provisions generally will be available if our failure to meet such tests was due to reasonable cause and not due to willful neglect, we attached a schedule of the sources of our income to our tax return, and any incorrect information on the schedule was not due to fraud with intent to evade tax. It is not possible, however, to state whether in all circumstances we would be entitled to the benefit of these relief provisions. If these relief provisions are inapplicable to a particular set of circumstances involving us, we will not qualify as a REIT. See "Distribution RequirementsFailure to Qualify as a REIT" in this section for a discussion of the implications of such failure to qualify as a REIT. As discussed above in "Taxation of New GGPGeneral" in this section, even where these relief provisions apply, we would be subject to a penalty tax based upon the amount of our non-qualifying income.
Asset tests
At the close of each quarter of our taxable year, we also must satisfy four tests relating to the nature and diversification of our assets. First, at least 75% of the value of our total assets at the end of
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each quarter must consist of real estate assets, cash, cash items and U.S. government securities. For purposes of this test, the term "real estate assets" generally means real property (including interests in real property and interests in mortgages on real property) and shares (or transferable certificates of beneficial interest) in other REITs, as well as any stock or debt instrument attributable to the investment of the proceeds of a stock offering by us or a public debt offering by us with a term of at least five years, but the stock or debt instrument qualifies as a "real estate asset" only for the one-year period beginning on the date that we receive the proceeds of the offering.
Second, not more than 25% of the value of our total assets may be represented by securities (other than those securities that qualify for purposes of the 75% asset test).
Third, not more than 25% of the value of our total assets may be represented by the securities of one or more taxable REIT subsidiaries.
Fourth, except for securities that qualify for purposes of the 75% asset test and investments in our qualified REIT subsidiaries and our taxable REIT subsidiaries (each as described below), the value of any one issuer's securities may not exceed 5% of the value of our total assets, and we may not own more than 10% of the total vote or value of the outstanding securities of any one issuer, except, in the case of the 10% value test, certain "straight debt" securities. Certain types of securities are disregarded as securities solely for purposes of the 10% value test, including, but not limited to, any loan to an individual or an estate, any obligation to pay rents from real property and any security issued by a REIT. In addition, solely for purposes of the 10% value test, the determination of our interest in the assets of a partnership or other entity classified as a partnership for U.S. federal income tax purposes in which we own an interest will be based on our proportionate interest in any securities issued by the partnership or other entity (rather than solely our interest in the capital of the partnership or other entity), excluding for this purposes certain securities described in the Code.
The asset tests described above must be satisfied at the close of each quarter of our taxable year in which we (directly or through our partnerships, other entities classified as partnerships or qualified REIT subsidiaries) acquire securities in the applicable issuer, increase our ownership of securities of the issuer (including as a result of increasing our interest in a partnership or other entity which owns the securities), or acquire other assets. For example, our indirect ownership of securities of an issuer through a partnership or other entity classified as a partnership for U.S. federal income tax purposes may increase as a result of our capital contributions to the partnership or other entity. After initially meeting the asset tests at the close of any quarter as a REIT, we will not lose our status as a REIT for failure to satisfy the asset tests at the end of a later quarter solely by reason of changes in asset values. If we fail to satisfy an asset test because we acquire securities or other property during a quarter (including as a result of an increase in our interests in a partnership or other entity), we may cure this failure by disposing of sufficient nonqualifying assets within 30 days after the close of that quarter. We intend to maintain adequate records of the values of our assets to ensure compliance with the asset tests. In addition, we intend to take any actions within 30 days after the close of any quarter as may be required to cure any noncompliance.
Certain relief provisions may be available to us if we discover a failure to satisfy the asset tests described above after the 30-day cure period. Under these provisions, we are deemed to have met the 5% and 10% asset tests if (1) the value of our nonqualifying assets does not exceed the lesser of (a) 1% of the total value of our assets at the end of the applicable quarter or (b) $10 million and (2) we dispose of the nonqualifying assets or otherwise satisfy these tests within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) a different period of time prescribed by Treasury Regulations to be issued. For violations of any of the asset tests due to reasonable cause and not due to willful neglect and that are, in the case of the 5% and 10% asset tests, in excess of the de minimis exception described above, we may avoid disqualification as a REIT after the 30-day cure period by taking certain required steps, including (1) the disposition of
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sufficient nonqualifying assets, or the taking of other actions, which allow us to meet the asset test within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) a different period of time prescribed by Treasury Regulations to be issued, (2) paying a tax equal to the greater of (a) $50,000 or (b) the highest corporate tax rate multiplied by the net income generated by the nonqualifying assets, and (3) disclosing certain information to the IRS.
Although we expect to satisfy the asset tests described above and plan to take steps to ensure that we satisfy these tests for each quarter with respect to which we are required to apply the tests, there can be no assurance that we will always be successful or will not require a reduction in our overall interest in an issuer (including in a taxable REIT subsidiary). If we fail to cure any noncompliance with an asset test in a timely manner and the relief provisions described above do not apply, we will cease to qualify as a REIT.
Ownership of interests in partnerships and other entities classified as partnerships
We may own and operate one or more properties through partnerships and other entities classified as partnerships. Treasury Regulations provide that if we are a partner in a partnership, we are deemed to own our proportionate share of the assets of the partnership based on our interest in partnership capital, subject to special rules relating to the 10% REIT asset test described above. Also, we are deemed to be entitled to our proportionate share of the income of the partnership. The assets and gross income of the partnership retain the same character in our hands for purposes of Section 856 of the Code, including satisfying the gross income tests and the asset tests. In addition, for these purposes, the assets and items of income of any partnership in which we own a direct or indirect interest include the partnership's share of assets and items of income of any partnership in which it owns an interest. The treatment described above also applies with respect to the ownership of interests in limited liability companies or other entities that are classified as partnerships for U.S. federal income tax purposes.
We may have direct or indirect control of certain partnerships and other entities classified as partnerships and intend to continue to operate them in a manner consistent with the requirements for qualification as a REIT. From time to time we may be a limited partner or non-managing member in certain partnerships and other entities classified as partnerships. If a partnership or other entity in which we own an interest takes or expects to take actions that could jeopardize our status as a REIT or require us to pay tax, we may be forced to dispose of our interest in the entity. In addition, a partnership or other entity could take an action which could cause us to fail a REIT income or asset test, and we might not become aware of the action in time to dispose of our interest in the applicable entity or take other corrective action on a timely basis. In this case, unless we are entitled to relief, as described above, we will fail to qualify as a REIT.
Ownership of interests in qualified REIT subsidiaries
We may from time to time own and operate certain properties through wholly owned corporate subsidiaries (including entities which, absent the application of the provisions in this paragraph, would be treated as associations classified as corporations for U.S. federal income tax purposes) that we intend to be treated as "qualified REIT subsidiaries" under the Code. A corporation will qualify as our qualified REIT subsidiary if we own 100% of the corporation's outstanding stock, and if we do not elect with the subsidiary to treat it as a "taxable REIT subsidiary," as described below. A qualified REIT subsidiary is not treated as a separate corporation for U.S. federal income tax purposes. All assets, liabilities and items of income, deduction and credit of a qualified REIT subsidiary are treated as assets, liabilities and items of income, deduction and credit (as the case may be) of the parent REIT for all purposes under the Code, including the REIT qualification tests. Thus, in applying the federal tax requirements described herein, any corporations in which we own a 100% interest (other than any taxable REIT subsidiaries) are disregarded, and all assets, liabilities and items of income, deduction and credit of these corporations are treated as our assets, liabilities and items of income, deduction and
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credit. A qualified REIT subsidiary is not required to pay federal income tax, and our ownership of the stock of a qualified REIT subsidiary does not violate the restrictions against ownership of securities of any one issuer which constitute more than 10% of the voting power or value of the issuer's securities or more than 5% of the value of our total assets.
Ownership of interests in taxable REIT subsidiaries
A taxable REIT subsidiary is a corporation other than another REIT or a qualified REIT subsidiary in which a REIT directly or indirectly holds stock, and that has made a joint election with the REIT to be treated as a taxable REIT subsidiary. A taxable REIT subsidiary also includes any corporation other than a REIT with respect to which a taxable REIT subsidiary owns, directly or indirectly, securities possessing more than 35% of the total voting power or value of the securities of the corporation. A taxable REIT subsidiary generally may engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT, except that a taxable REIT subsidiary may not directly or indirectly operate or manage a lodging or healthcare facility or directly or indirectly provide to any other person (under a franchise, license or otherwise) rights to any brand name under which any lodging or healthcare facility is operated, except in certain limited circumstances permitted by the Code. A taxable REIT subsidiary is subject to federal income tax as a regular C corporation. In addition, a taxable REIT subsidiary may be prevented from deducting interest on debt funded directly or indirectly by its parent REIT if certain tests regarding the taxable REIT subsidiary's debt-to-equity ratio and interest expense are not satisfied. Our ownership of securities of taxable REIT subsidiaries will not be subject to the 5% or 10% asset tests described above. See "Asset Tests" above.
Unlike a qualified REIT subsidiary, the income and assets of a taxable REIT subsidiary are not attributed to us for purposes of the conditions that we must satisfy to maintain our REIT status. Accordingly, the separate existence of a taxable REIT subsidiary is not ignored for U.S. federal income tax purposes. Rather, for REIT asset and income testing purposes, we take into account our interest in a taxable REIT subsidiary's securities and the income and gain we derive therefrom. A taxable REIT subsidiary or other taxable corporation generally is subject to corporate income tax on its earnings, which may reduce the cash flow that we and our subsidiaries generate in the aggregate, and may reduce our ability to make distributions to our stockholders. A taxable REIT subsidiary may engage in activities or hold assets that are not permitted to be performed or held directly by us or a partnership in which we are a partner without affecting REIT compliance, such as providing certain services to tenants or others (other than in connection with the operation or management of a lodging or healthcare facility). However, certain restrictions are imposed on our ability to own, and our dealings with, taxable REIT subsidiaries. These restrictions are intended to ensure that taxable REIT subsidiaries comprise a limited amount of our business (the securities of our taxable REIT subsidiaries cannot comprise more than 25% of the value of our total assets) and that taxable REIT subsidiaries remain subject to an appropriate level of federal income taxation.
Ownership of interests in subsidiary REITs
Substantially all of our directly held assets will be interests in one or more subsidiary REITs, including Old GGP. Our interests in subsidiary REITs are treated as qualifying real estate assets for purposes of the REIT asset requirements, and any dividend income or gains derived from such interests will generally be treated as income that qualifies for purposes of the REIT 75% and 95% income requirements, provided, in each case, that our subsidiary REITs continue to qualify as REITs. We and our subsidiary REITs are separate entities, each of which intends to qualify as a REIT, and each of which must independently satisfy the various REIT qualification requirements as described herein. We believe that Old GGP has continually satisfied the requirements to maintain its REIT status
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as of the date hereof. The failure of one or more of our subsidiary REITs to qualify as a REIT, however, could result in our inability to qualify as a REIT as well.
Distribution requirements
In order to qualify as a REIT, we must distribute dividends, other than capital gain dividends, to our stockholders in an amount at least equal to the sum of:
For these purposes, our "REIT taxable income" is computed without regard to the dividends paid deduction and excluding our net capital gain. In addition, for purposes of this test, non-cash income means income attributable to leveled stepped rents, original issue discount, cancellation of indebtedness, and any like-kind exchanges that are later determined to be taxable.
Such dividend distributions generally must be made in the taxable year to which they relate or in the following taxable year if declared before we timely file our tax return for the year and if paid with or before the first regular dividend payment after such declaration. To the extent that we do not distribute all of our net capital gain or distribute at least 90%, but less than 100%, of our "REIT taxable income," as adjusted, we will be required to pay tax on the undistributed amount at regular ordinary or capital gain (as applicable) corporate tax rates.
We intend to make timely distributions sufficient to satisfy these annual distribution requirements. It is possible, however, that from time to time we may not have sufficient cash to meet the 90% distribution requirement due to timing differences between (a) the actual receipt of cash, and (b) the inclusion of certain items in income by us for federal income tax purposes. In the event that such timing differences occur, in order to meet the 90% distribution requirement, we may find it necessary to arrange for short-term, or possibly long-term, borrowings, or to pay dividends in the form of taxable distributions of property. A recent IRS revenue procedure allows us to satisfy the distribution requirements for the 2010 and 2011 tax years by distributing up to 90% of our distributions on our common stock in the form of shares of our common stock in lieu of paying dividends entirely in cash. As stated above, we intend to pay dividends on our common stock in the future to maintain our REIT status in a combination of cash and common stock.
Under certain circumstances, we may be permitted to rectify a failure to meet the distribution requirement for a year by paying "deficiency dividends" to our stockholders in a later year, which may be included in our deduction for dividends paid for the earlier year. Thus, we may be able to avoid losing our REIT qualification or being taxed on amounts distributed as deficiency dividends. We will be required, however, to pay interest to the IRS based upon the amount of any deduction taken for deficiency dividends.
Furthermore, we will be required to pay a 4% excise tax to the extent that the amounts we actually distribute during each calendar year (or in the case of distributions with declaration and record dates falling in the last three months of the calendar year, by the end of January immediately following such year) are less than the sum of 85% of our REIT ordinary income for the year, 95% of our REIT capital gain net income for the year and any undistributed taxable income from prior periods. Any REIT ordinary income and capital gain net income on which an income tax is imposed for any year is treated as an amount distributed during that year for purposes of calculating the amount of this tax. We intend to make timely distributions sufficient to satisfy this annual distribution requirement.
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Prohibited transaction income
Any gain that we realize on the sale of property held as inventory or other property held primarily for sale to customers in the ordinary course of business (but excluding foreclosure property), either directly or through our partnership or disregarded subsidiary entities, generally is treated as income from a prohibited transaction that is subject to a 100% penalty tax. This prohibited transaction income may also adversely affect our ability to satisfy the income tests for qualification as a REIT. Under existing law, whether property is held as inventory or primarily for sale to customers in the ordinary course of a trade or business is a question of fact that depends on all of the facts and circumstances surrounding the particular transaction. The Code includes a safe-harbor provision that treats a sale as not constituting a prohibited transaction, the income from which is subject to the 100% penalty tax, if the following requirements are met:
We intend to hold our properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing and owning our properties and to make occasional sales of the properties consistent with our investment objectives. We do not intend to enter into any sales that are prohibited transactions. However, the IRS may contend that one or more of these sales is subject to the 100% penalty tax or income from prohibited transactions.
Penalty tax
Any redetermined rents, redetermined deductions or excess interest we generate are subject to a 100% penalty tax. In general, redetermined rents are rents from real property that are overstated as a result of any services furnished to any of our tenants by one of our taxable REIT subsidiaries, and redetermined deductions and excess interest represent any amounts that are deducted by a taxable REIT subsidiary for amounts paid to us that are in excess of the amounts that would have been
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deducted based on arm's length negotiations. Rents we receive do not constitute redetermined rents if they qualify for certain safe harbor provisions contained in the Code.
We intend that, in all instances in which our taxable REIT subsidiaries will provide services to our tenants, the fees paid to our taxable REIT subsidiaries for these services will be at arm's length rates, although the fees paid may not satisfy the safe harbor provisions referenced above. These determinations are inherently factual, and the IRS has broad discretion to assert that amounts paid between related parties should be reallocated to reflect their respective incomes clearly. If the IRS successfully makes such an assertion, we will be required to pay a 100% penalty tax on the excess of an arm's length fee for tenant services over the amount actually paid.
Failure to qualify as a REIT
Specified cure provisions may be available to us in the event that we discover a violation of a provision of the Code that would otherwise result in our failure to qualify as a REIT. Except with respect to violations of the REIT income tests and assets tests (for which the cure provisions are described above), and provided the violation is due to reasonable cause and not due to willful neglect, these cure provisions generally impose a $50,000 penalty for each violation in lieu of a loss of REIT status. If we fail to qualify for taxation as a REIT in any taxable year, and the relief provisions do not apply, we will be required to pay tax, including any applicable alternative minimum tax, on our taxable income at the applicable regular corporate rates. Distributions to stockholders in any year in which we fail to qualify as a REIT are not deductible by us, and we will not be required to distribute any amounts to our stockholders. As a result, we anticipate that our failure to qualify as a REIT would reduce the cash available for distribution by us to our stockholders. In addition, if we fail to qualify as a REIT, all distributions to stockholders will be taxable as regular corporate dividends to the extent of our current and accumulated earnings and profits. In this event, stockholders taxed as individuals currently will be taxed on these dividends at a maximum rate of 15% (the same as the maximum rate applicable to long-term capital gains) for tax years through 2010 (for tax years beginning after 2010, the maximum rate applicable to dividends (other than capital gain dividends) are scheduled to increase to the maximum rate then applicable to ordinary income), and corporate distributees may be eligible for the dividends-received deduction. Unless entitled to relief under specific statutory provisions, we also will be disqualified from taxation as a REIT for the four taxable years following the year during which we lost our qualification. We cannot determine whether, under all circumstances in which we discover a violation of any of these provisions of the Code, we will be entitled to this statutory relief.
Taxation of U.S. holders
Distributions on common stock
If we make a distribution of cash or other property (other than certain pro rata distributions of our common stock) in respect of our common stock, the distribution will be treated as a dividend to the extent it is paid from our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Dividends, other than capital gain dividends, and certain amounts that have been previously subject to corporate level tax, discussed below, will be taxable to U.S. holders as ordinary income. As long as we qualify as a REIT, these distributions will not be eligible for the dividends-received deduction in the case of U.S. holders that are corporations.
To the extent that we make distributions on shares of our common stock in excess of our current and accumulated earnings and profits, the amount of these distributions will be treated first as a tax-free return of capital to a U.S. holder. This treatment will reduce the U.S. holder's adjusted tax basis in the U.S. holder's shares of our common stock by the amount of the distribution, but not below zero. The amount of any distributions in excess of our current and accumulated earnings and profits and in excess of a U.S. holder's adjusted tax basis in the holder's shares will be taxable as capital gain.
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The gain will be taxable as long-term capital gain if the shares have been held for more than one year at the time of the distribution. Distributions that we declare in October, November, or December of any year and that are payable to a holder of record on a specified date in any of these months will be treated as both paid by us and received by the holder on December 31 of that year, provided we actually pay the distribution on or before January 31 of the following calendar year. U.S. holders may not include in their own income tax returns any of our net operating losses or capital losses.
As stated above, we intend to pay dividends on our common stock in the future in order to maintain our REIT status, and not be subject to corporate level federal income tax, using a combination of cash and common stock. To the extent that we pay a portion of a dividend in shares of our common stock, U.S. holders may be required to pay tax on the entire amount distributed, including the portion paid in shares of our common stock, in which case the holders might be required to pay the tax using cash from sources other than our company. If a U.S. holder sells the shares of our common stock that the holder receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the distribution, depending on the market price of our shares of common stock at the time of the sale.
Capital gain dividends.
Dividends that we properly designate as capital gain dividends will be taxable to our U.S. holders as a gain from the sale or disposition of a capital asset held for more than one year, to the extent that the gain does not exceed our actual net capital gain for the taxable year, without regard to the period for which the U.S. holder has held our common stock. We are required to designate which maximum rate bracket is applicable to each category of capital gain dividends, which currently (for tax years through 2010) are taxable to non-corporate U.S. holders at a 15% or 25% rate. If we fail to designate the applicable bracket, all capital gain dividends will be taxable to non-corporate U.S. holders at the 25% rate. Corporate stockholders, however, may be required to treat up to 20% of capital gain dividends as ordinary income.
Retention of net capital gains.
We may elect to retain, rather than distribute as a capital gain dividend, all or a portion of our net capital gain. If we make this election, we will pay tax on our retained net capital gains. In addition, to the extent we so elect, a U.S. holder generally will:
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Qualified dividend income
A portion of distributions out of our current or accumulated earnings and profits may constitute "qualified dividend income" to the extent that the amount is attributable to amounts described below, and we properly designate the amount as "qualified dividend income." The maximum amount of our distributions eligible to be designated as qualified dividend income for a taxable year is equal to the sum of:
Sale or other disposition of common stock
You will generally recognize capital gain or loss on a sale or other disposition of common stock. Your gain or loss will equal the difference between the proceeds you received and your adjusted tax basis in the common stock. The proceeds received will include the amount of any cash and the fair market value of any other property received for the common stock. If you are a non-corporate U.S. holder and your holding period for the common stock at the time of the sale or other disposition exceeds one year, such capital gain generally will, under current law, be subject to a reduced federal income tax rate. Your ability to offset ordinary income with capital losses is subject to limitations.
Taxation of non-U.S. holders
Sale or other disposition of our common stock
You generally will not be subject to U.S. federal income tax on gain realized upon a sale or other disposition of common stock unless the shares constitute a United States Real Property Interest, or "USRPI" (which determination generally includes a five-year look-back period), within the meaning of the Foreign Investment in Real Property Tax Act of 1980, or FIRPTA. An interest in shares of any U.S. corporation is presumed to be a USRPI unless an exception from such status under the FIRPTA rules applies. One such exception is for shares of a "domestically controlled qualified investment entity." Shares of our common stock will not constitute a USRPI if we are a "domestically controlled qualified investment entity." A "domestically controlled qualified investment entity" includes a REIT in which, at all times during a specified testing period, less than 50% in value of the shares of its stock is held directly or indirectly by Non-United States stockholders. We expect that we will be a "domestically controlled qualified investment entity," but we cannot guarantee such status in part due to the fact that our stock will be publicly traded.
Even if we are not a "domestically controlled qualified investment entity" at the time a non-U.S. holder sells or exchanges the holder's shares of our common stock, gain arising from a sale or exchange of a non-U.S. holder's shares of our common stock will generally not be subject to taxation under FIRPTA as a sale of a USRPI if:
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We expect the shares of our common stock to be regularly traded on an established securities market. Thus, even if we are not a "domestically controlled qualified investment entity" at the time a non-U.S. holder sells or exchanges the holder's shares of our common stock, as long as our shares are regularly traded on an established securities market at that time and the non-U.S. holder does not own, or has not owned during the five-year period ending on the date of the sale or exchange, more than 5% of the shares of our common stock, gain arising from the sale of the holder's shares of our common stock generally will not be subject to taxation under FIRPTA as a sale of a USRPI. If gain on the sale or exchange of a non-U.S. holder's shares of our common stock is subject to taxation under FIRPTA, the non-U.S. holder will be subject to regular U.S. federal income tax with respect to the gain in the same manner as a U.S. holder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). In addition, if at the time of the sale or exchange of shares of our common stock, the shares are not regularly traded on an established securities market, then the purchaser of the shares of our common stock will be required to withhold and remit an amount equal to 10% of the purchase price to the IRS.
Notwithstanding the foregoing, gain from the sale or exchange of shares of our common stock not otherwise subject to taxation under FIRPTA will be taxable to a non-U.S. holder if either (1) the investment in shares of our common stock is treated as effectively connected with the non-U.S. holder's United States trade or business (and, if a tax treaty applies, is attributable to a U.S. permanent establishment maintained by the non-U.S. holder) or (2) the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and certain other conditions are met. In addition, even if we are a "domestically controlled qualified investment entity," upon disposition of shares of our common stock (subject to the 5% exception applicable to "regularly traded" stock described above), a non-U.S. holder may be treated as having gain from the sale or exchange of USRPIs if the non-U.S. holder (1) disposes of the holder's shares of our common stock within a 30-day period preceding the ex-dividend date of a distribution, any portion of which, but for the disposition, would have been treated as gain from the sale or exchange of a USRPI and (2) acquires, or enters into a contract or option to acquire, other shares of our common stock within a 61-day period beginning with the first day of the 30-day period described in the immediately preceding clause (1).
Distributions
If you receive a distribution with respect to common stock that is neither attributable to gain from the sale or exchange of USRPIs nor designated by us as capital gain dividends, the distributions will be generally taxed as ordinary income to the extent that the distributions are made out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). You generally will be subject to U.S. federal withholding tax at a 30% rate on the gross amount of such taxable dividend unless:
Under certain tax treaties, however, lower withholding rates generally applicable to dividends do not apply to dividends from a REIT.
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Except to the extent provided by an applicable tax treaty, a dividend that is effectively connected with the conduct of a U.S. trade or business will be subject to U.S. federal income tax on a net basis at the rates applicable to United States persons generally (and, if you are a corporation, may also be subject to a 30% branch profits tax unless reduced by an applicable tax treaty).
Capital gain dividends and distributions attributable to a sale or exchange of USRPIs.
Pursuant to FIRPTA, income from distributions paid by us to a non-U.S. holder of our common stock that is attributable to gain from the sale or exchange of USRPIs (whether or not designated as capital gain dividends) will be treated as income effectively connected with a United States trade or business. Non-U.S. holders generally will be taxed on the amount of this income at the same rates applicable to U.S. holders, subject to a special alternative minimum tax in the case of nonresident alien individuals. We will also be required to withhold and to remit to the IRS 35% of the amount of any distributions paid by us to a non-U.S. holder that is designated as a capital gain dividend, or, if greater, 35% of the amount of any distributions paid by us to the non-U.S. holder that is permitted to be designated as a capital gain dividend. If we designate a prior distribution as a capital gain dividend, we may be required to do "catch-up" on subsequent distributions to achieve the correct withholding. The amount withheld will be creditable against the non-U.S. holder's U.S. federal income tax liability. Income from a distribution paid by a REIT to a non-U.S. holder with respect to any class of stock which is regularly traded on an established securities market located in the United States, however, generally should not be subject to taxation under FIRPTA, and therefore, will not be subject to the 35% U.S. withholding tax described above, but only if the non-United States stockholder does not own more than 5% of the class of stock at any time during the one-year period ending on the date of the distribution. Instead, this income will be treated as ordinary dividend distributions, generally subject to withholding at the 30% rate or lower treaty rate discussed above. We expect the shares of our common stock to be regularly traded on a market that we believe qualifies as an established securities market located in the United States. Thus, income from distributions paid by us to non-U.S. holders who do not own more that 5% of the shares of our common stock generally should not be subject to taxation under FIRPTA, or the corresponding 35% withholding tax, but rather, income from distributions paid by us to such a non-U.S. holder that is attributable to gain from the sale or exchange of USRPIs will be treated as ordinary dividend distributions.
The treatment of income from distributions paid by us to a non-U.S. holder that we designate as capital gain dividends, other than distributions attributable to income arising from the disposition of a USRPI, is not clear. One example of such a scenario would be a distribution attributable to income from a disposition of non-U.S. real property. Such income may be (i) generally exempt from U.S. federal taxation or tax withholding, (ii) treated as a distribution that is neither attributable to gain from the sale or exchange of USRPIs nor designated by us as capital gain dividends (described above), or (iii) under one interpretation of the FIRPTA Treasury Regulations, subject to withholding at a 35% rate.
If capital gain dividends, other than those arising from the disposition of a USRPI, were to be exempt from U.S. federal taxation or tax withholding, a non-U.S. holder should generally not be subject to U.S. federal taxation on such distributions unless:
(1) the investment in the non-U.S. holder's shares of our common stock is treated as effectively connected with the holder's United States trade or business (and, if a tax treaty applies, is attributable to a U.S. permanent establishment maintained by the non-U.S. holder), in which case the holder will be subject to the same treatment as U.S. holders with respect to the gain, except that a non-U.S. holder that is a foreign corporation also may be subject to the 30% branch profits tax, as discussed under "Taxation of non-U.S. HoldersDistributions" above; or
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(2) the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and certain other conditions are met, in which case the nonresident alien individual will be subject to a 30% tax on the individual's capital gains.
It is possible that a distribution paid by us to a non-U.S. holder that is attributable to gain from the sale or exchange of property (i.e., a capital gain dividend) that is not a USRPI may be subject to withholding under Treasury Regulations §1.1445-8, subjecting such distribution to a 35% withholding tax. In addition, it is possible that a distribution attributable to such a disposition could be treated as a dividend subject to 30% withholding on ordinary dividend distributions. Currently we do not believe that either of these characterizations is the correct interpretation of the Treasury Regulations and we may take the position that such distributions are generally exempt from U.S. federal taxation and tax withholding. However, even if we ultimately decide to take such a position, there can be no assurance that the IRS will agree with us. Even if we withhold amounts from such a distribution, the recipient of the distribution may be entitled to a refund from the Internal Revenue Service or other taxing authority with respect to some or all of the amount withheld. Non-U.S. holders of the notes should discuss the consequences of any withholding on capital gains distributions not attributable to a disposition of a USRPI with their tax advisors.
Retention of net capital gains.
Although the law is not clear on the matter, we believe that amounts designated by us as retained capital gains in respect of the shares of our common stock held by U.S. holders generally should be treated with respect to non-U.S. holders in the same manner as the treatment of actual distributions by us of capital gain dividends. Under this approach, a non-U.S. holder will be permitted to offset as a credit against the holder's U.S. federal income tax liability resulting from the holder's proportionate share of the tax we pay on retained capital gains, and to receive from the IRS a refund to the extent that the holder's proportionate share of the tax paid by us exceeds the holder's actual U.S. federal income tax liability.
Information reporting and backup withholding
Information returns may be filed with the IRS in connection with dividends on common stock and the proceeds of a sale or other disposition of common stock. A non-exempt U.S. holder may be subject to U.S. backup withholding on these payments if it fails to provide its taxpayer identification number to the withholding agent and comply with certification procedures or otherwise establish an exemption from backup withholding.
A non-U.S. holder may be subject to the U.S. information reporting and backup withholding on these payments unless the non-U.S. holder complies with certification procedures to establish that it is not a United States person. The certification requirements generally will be satisfied if the non-U.S. holder provides the applicable withholding agent with a statement on IRS Form W-8BEN (or suitable substitute or successor form), together with all appropriate attachments, signed under penalties of perjury, stating, among other things, that such non-U.S. holder is not a United States person (within the meaning of the Code). Applicable Treasury regulations provide alternative methods for satisfying this requirement. In addition, the amount of dividends on common stock paid to a non-U.S. holder, and the amount of any U.S. federal tax withheld there from, must be annually reported to the IRS and the holder. This information may be made available by the IRS under the provisions of an applicable tax treaty or agreement to the tax authorities of the country in which the non-U.S. holder resides.
Payment of the proceeds of the sale or other disposition of common stock to or through a non-U.S. office of a U.S. broker or of a non-U.S. broker with certain specified U.S. connections generally will be subject to information reporting requirements, but not backup withholding, unless the non-U.S. holder certifies under penalties of perjury that it is not a United States person or an
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exemption otherwise applies. Payments of the proceeds of a sale or other disposition of common stock to or through a U.S. office of a broker generally will be subject to information reporting and backup withholding, unless the non-U.S. holder certifies under penalties of perjury that it is not a United States person or otherwise establishes an exemption.
Backup withholding is not an additional tax. The amount of any backup withholding from a payment generally will be allowed as a credit against the holder's U.S. federal income tax liability and may entitle the holder to a refund, provided that the required information is timely furnished to the IRS.
Recently enacted legislation will require, after December 31, 2012, withholding at a rate of 30% on dividends in respect of, and gross proceeds from the sale of, our common stock held by or through certain foreign financial institutions (including investment funds), unless such institution enters into an agreement with the Secretary of the Treasury to report, on an annual basis, information with respect to interests in the institution held by certain United States persons and by certain non-U.S. entities that are wholly or partially owned by United States persons. Accordingly, the entity through which our common stock is held will affect the determination of whether such withholding is required. Similarly, dividends in respect of, and gross proceeds from the sale of, our common stock held by an investor that is a non-financial non-U.S. entity will be subject to withholding at a rate of 30%, unless such entity either (i) certifies to us that such entity does not have any "substantial United States owners" or (ii) provides certain information regarding the entity's "substantial United States owners," which we will in turn provide to the Secretary of the Treasury. Non-U.S. holders are encouraged to consult with their tax advisors regarding the possible implications of the legislation on their investment in our common stock.
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Weil, Gotshal & Manges LLP has passed upon the validity of the common stock offered hereby on behalf of us. Arnold & Porter LLP passed upon certain legal matters relating to New GGP's classification as a REIT for federal income tax purposes on behalf of us. Certain legal matters will be passed upon on behalf of the underwriters represented by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
The consolidated financial statements of General Growth Properties, Inc. (the "Company"), except for the financial statements of GGP/Homart II L.L.C. and GGP-TRS L.L.C. (which are accounted for by use of the equity method), as of December 31, 2009 and 2008, and for each of the three years in the period ended December 31, 2009, included in the Prospectus and the related consolidated financial statement schedule included elsewhere in this Registration Statement have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports appearing herein (which reports express an unqualified opinion on the consolidated financial statements and consolidated financial statement schedule and for the consolidated financial statements includes explanatory paragraphs regarding the Company's bankruptcy proceedings, the Company's ability to continue as a going concern, and the Company's change in methods of accounting for noncontrolling interests and convertible debt instruments). The consolidated financial statements of GGP/Homart II L.L.C. and GGP-TRS L.L.C., (which are accounted for by use of the equity method), as of December 31, 2009 and 2008, and for each of the three years in the period ended December 31, 2009, not presented separately herein, have been audited by KPMG LLP, an independent registered public accounting firm, as stated in their reports included herein. Such consolidated financial statements and consolidated financial statement schedule of the Company are included herein in reliance upon the respective reports of such firms given upon their authority as experts in accounting and auditing.
The balance sheet of New GGP, Inc. as of July 2, 2010 (capitalization) included in this Registration Statement has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such balance sheet is included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
New GGP has filed with the Securities and Exchange Commission a registration statement on Form S-11 under the Securities Act with respect to the notes and the common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to New GGP and the notes and common stock offered hereby, you should refer to the registration statement and to the exhibits and schedules filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits and schedules thereto may be inspected without charge at the public reference room maintained by the SEC located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of all or any portion of the registration statements and the filings may be obtained from such offices upon payment of prescribed fees. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330 or (202) 551-8090. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.
You may obtain a copy of any of our filings, at no cost, by writing or telephoning us at:
New
GGP
110 N. Wacker Drive
Chicago, IL 60606
(312) 960-5000.
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F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholder of
New GGP, Inc.
Chicago, Illinois
We have audited the accompanying balance sheet of New GGP, Inc. (the "Company") as of July 2, 2010 (capitalization). This balance sheet is the responsibility of the Company's management. Our responsibility is to express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material respects, the financial position of New GGP, Inc. as of July 2, 2010 (capitalization), in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Chicago,
Illinois
July 15, 2010
F-2
NEW GGP, INC.
BALANCE SHEET AS OF JULY 2, 2010 (capitalization)
ASSETS |
||||
Cash |
$ | 1,000 | ||
STOCKHOLDER'S EQUITY |
||||
Common stock (no par value, 1,000 shares authorized, 100 issued and outstanding) |
$ |
1,000 |
||
See notes to balance sheet.
F-3
NEW GGP, INC.
NOTES TO BALANCE SHEET
AS OF JULY 2, 2010 (capitalization)
1. ORGANIZATION
New GGP, Inc. (the "Company") was incorporated as a Delaware corporation on July 1, 2010, and has no material assets or any operations. The Company's sole stockholder is GGP Limited Partnership, a subsidiary of General Growth Properties, Inc., a self-administered and self managed, publicly registered, real estate trust, formed in Delaware and headquartered in Chicago, Illinois.
2. BASIS OF PRESENTATION
The Company's Balance Sheet has been prepared in accordance with accounting principles generally accepted in the United States of America. Separate Statements of Income, Changes in Stockholder's Equity and of Cash Flows have not been presented because this entity has had no activity. The Company has evaluated subsequent events through July 15, 2010, which is the date the balance sheet was issued. The Company has had no activity through such date.
3. STOCKHOLDER'S EQUITY
The Company has been capitalized with the issuance of 100 shares of Common Stock (with no par value) for a total of $1,000.
F-4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
General Growth Properties, Inc.
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of General Growth Properties, Inc. (Debtor-in-Possession) and subsidiaries (the "Company") as of December 31, 2009 and 2008, and the related consolidated statements of income and comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2009. 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 did not audit the consolidated financial statements of GGP/Homart II L.L.C. and GGP-TRS L.L.C., the Company's investments in which are accounted for by use of the equity method. The Company's equity of $219,618,000 and $235,845,000 in GGP/Homart II L.L.C.'s net assets as of December 31, 2009 and 2008, respectively, and of $(307,000), $9,703,000, and $17,163,000 in GGP/Homart II L.L.C's net (loss) income for each of the three years in the respective period ended December 31, 2009 are included in the accompanying financial statements. The Company's (deficit) equity of $(5,284,000) and $1,388,000 in GGP-TRS L.L.C.'s net assets as of December 31, 2009 and 2008, respectively, and of $(8,624,000), $8,564,000, and $13,800,000 in GGP-TRS L.L.C.'s net (loss) income for each of the three years in the respective period ended December 31, 2009 are included in the accompanying financial statements. The financial statements of GGP/Homart II L.L.C. and GGP-TRS L.L.C. were audited by other auditors related to the periods listed above whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for such companies, is based solely on the reports of the other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 and the reports of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of General Growth Properties, Inc. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the consolidated financial statements, on January 1, 2009, the Company changed its methods of accounting for noncontrolling interests and convertible debt instruments and retrospectively adjusted all periods presented in the consolidated financial statements.
As discussed in Note 1 to the consolidated financial statements, the Company has filed for reorganization under Chapter 11 of the United States Bankruptcy Code. The accompanying financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings. In particular, such financial statements do not purport to show (a) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (b) as to prepetition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (c) as to equity accounts, the effect of any changes that may be made in the capitalization of the Company; or (d) as to operations, the effect of any changes that may be made in its business.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company's potential inability to negotiate and obtain confirmation of a
F-5
mutually agreeable plan of reorganization and to address their remaining future debt maturities raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also discussed in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2010 expressed an unqualified opinion on the Company's internal control over financial reporting based on our audit.
/s/
Deloitte & Touche LLP
Chicago, Illinois
March 1, 2010 (July 15, 2010 as to the effects of the income statement reclassifications as described in Note 2)
F-6
Report of Independent Registered Public Accounting Firm
The
Members
GGP/Homart II, L.L.C.:
We have audited the consolidated balance sheets of GGP/Homart II, L.L.C. (a Delaware Limited Liability Company) and subsidiaries (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of income and comprehensive income, changes in capital, and cash flows for each of the years in the three-year period ended December 31, 2009 (not presented separately herein). 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 the standards of the Public Company Accounting Oversight Board (United States). 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, 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 financial statements referred to above present fairly, in all material respects, the financial position of GGP/Homart II, L.L.C. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Chicago,
Illinois
February 24, 2010
F-7
Report of Independent Registered Public Accounting Firm
The
Members
GGP-TRS, L.L.C.:
We have audited the consolidated balance sheets of GGP-TRS, L.L.C. (a Delaware Limited Liability Company) and subsidiaries (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of income and comprehensive income, changes in members' capital, and cash flows for each of the years in the three-year period ended December 31, 2009 (not presented separately herein). 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 the standards of the Public Company Accounting Oversight Board (United States). 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, 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 financial statements referred to above present fairly, in all material respects, the financial position of GGP-TRS, L.L.C. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Chicago,
Illinois
February 24, 2010
F-8
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
CONSOLIDATED BALANCE SHEETS
|
December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | ||||||||
|
(Dollars in thousands)
|
|||||||||
Assets: |
||||||||||
Investment in real estate: |
||||||||||
Land |
$ | 3,327,447 | $ | 3,354,480 | ||||||
Buildings and equipment |
22,851,511 | 23,609,132 | ||||||||
Less accumulated depreciation |
(4,494,297 | ) | (4,240,222 | ) | ||||||
Developments in progress |
417,969 | 1,076,675 | ||||||||
Net property and equipment |
22,102,630 | 23,800,065 | ||||||||
Investment in and loans to/from Unconsolidated Real Estate Affiliates |
1,979,313 | 1,869,929 | ||||||||
Investment property and property held for development and sale |
1,753,175 | 1,823,362 | ||||||||
Net investment in real estate |
25,835,118 | 27,493,356 | ||||||||
Cash and cash equivalents |
654,396 | 168,993 | ||||||||
Accounts and notes receivable, net |
404,041 | 385,334 | ||||||||
Goodwill |
199,664 | 340,291 | ||||||||
Deferred expenses, net |
301,808 | 333,901 | ||||||||
Prepaid expenses and other assets |
754,747 | 835,455 | ||||||||
Total assets |
$ | 28,149,774 | $ | 29,557,330 | ||||||
Liabilities and Equity: |
||||||||||
Liabilities not subject to compromise: |
||||||||||
Mortgages, notes and loans payable |
$ | 7,300,772 | $ | 24,756,577 | ||||||
Investment in and loans to/from Unconsolidated Real Estate Affiliates |
38,289 | 32,294 | ||||||||
Deferred tax liabilities |
866,400 | 868,978 | ||||||||
Accounts payable and accrued expenses |
1,122,888 | 1,539,149 | ||||||||
Liabilities not subject to compromise |
9,328,349 | 27,196,998 | ||||||||
Liabilities subject to compromise |
17,767,253 | | ||||||||
Total liabilities |
27,095,602 | 27,196,998 | ||||||||
Redeemable noncontrolling interests: |
||||||||||
Preferred |
120,756 | 120,756 | ||||||||
Common |
86,077 | 379,169 | ||||||||
Total redeemable noncontrolling interests |
206,833 | 499,925 | ||||||||
Commitments and Contingencies |
| | ||||||||
Redeemable Preferred Stock: $100 par value; 5,000,000 shares authorized; none issued and outstanding |
| | ||||||||
Equity: |
||||||||||
Common stock: $.01 par value; 875,000,000 shares authorized, 313,831,411 shares issued as of December 31, 2009 and 270,353,677 shares issued as of December 31, 2008 |
3,138 | 2,704 | ||||||||
Additional paid-in capital |
3,729,453 | 3,454,903 | ||||||||
Retained earnings (accumulated deficit) |
(2,832,627 | ) | (1,488,586 | ) | ||||||
Accumulated other comprehensive loss |
(249 | ) | (56,128 | ) | ||||||
Less common stock in treasury, at cost, 1,449,939 shares as of December 31, 2009 and 2008 |
(76,752 | ) | (76,752 | ) | ||||||
Total stockholders' equity |
822,963 | 1,836,141 | ||||||||
Noncontrolling interests in consolidated real estate affiliates |
24,376 | 24,266 | ||||||||
Total equity |
847,339 | 1,860,407 | ||||||||
Total liabilities and equity |
$ | 28,149,774 | $ | 29,557,330 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-9
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
Years Ended December 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2007 | |||||||||
|
(Dollars in thousands, except for per
share amounts) |
|||||||||||
Revenues: |
||||||||||||
Minimum rents |
$ | 1,992,046 | $ | 2,085,758 | $ | 1,933,674 | ||||||
Tenant recoveries |
883,595 | 927,332 | 859,801 | |||||||||
Overage rents |
52,306 | 72,882 | 89,016 | |||||||||
Land sales |
45,997 | 66,557 | 145,649 | |||||||||
Management fees and other corporate revenues |
75,851 | 96,495 | 119,941 | |||||||||
Other |
86,019 | 112,501 | 113,720 | |||||||||
Total revenues |
3,135,814 | 3,361,525 | 3,261,801 | |||||||||
Expenses: |
||||||||||||
Real estate taxes |
280,895 | 274,317 | 246,484 | |||||||||
Property maintenance costs |
119,270 | 114,532 | 111,490 | |||||||||
Marketing |
34,363 | 43,426 | 54,664 | |||||||||
Other property operating costs |
529,686 | 557,259 | 523,341 | |||||||||
Land sales operations |
50,807 | 63,441 | 116,708 | |||||||||
Provision for doubtful accounts |
30,331 | 17,873 | 5,426 | |||||||||
Property management and other costs |
176,876 | 184,738 | 198,610 | |||||||||
General and administrative |
28,608 | 39,245 | 37,005 | |||||||||
Strategic Initiatives |
67,341 | 18,727 | | |||||||||
Provisions for impairment |
1,223,810 | 116,611 | 130,533 | |||||||||
Litigation (benefit) provision |
| (57,145 | ) | 89,225 | ||||||||
Depreciation and amortization |
755,161 | 759,930 | 670,454 | |||||||||
Total expenses |
3,297,148 | 2,132,954 | 2,183,940 | |||||||||
Operating (loss) income |
(161,334 | ) | 1,228,571 | 1,077,861 | ||||||||
Interest income |
3,321 |
3,197 |
8,641 |
|||||||||
Interest expense |
(1,311,283 | ) | (1,325,273 | ) | (1,191,466 | ) | ||||||
Loss before income taxes, noncontrolling interests, equity in income of Unconsolidated Real Estate Affiliates and reorganization items |
(1,469,296 | ) | (93,505 | ) | (104,964 | ) | ||||||
Benefit from (provision for) income taxes |
14,610 | (23,461 | ) | 294,160 | ||||||||
Equity in income of Unconsolidated Real Estate Affiliates |
4,635 | 80,594 | 158,401 | |||||||||
Reorganization items |
146,190 | | | |||||||||
(Loss) income from continuing operations |
(1,303,861 | ) | (36,372 | ) | 347,597 | |||||||
Discontinued operations(loss) gain on dispositions |
(966 | ) | 55,044 | | ||||||||
Net (loss) income |
(1,304,827 | ) | 18,672 | 347,597 | ||||||||
Allocation to noncontrolling interests |
20,138 | (13,953 | ) | (73,955 | ) | |||||||
Net (loss) income attributable to common stockholders |
$ | (1,284,689 | ) | $ | 4,719 | $ | 273,642 | |||||
Basic and Diluted (Loss) Earnings Per Share: |
||||||||||||
Continuing operations |
$ | (4.11 | ) | $ | (0.16 | ) | $ | 1.12 | ||||
Discontinued operations |
| 0.18 | | |||||||||
Total basic and diluted (loss) earnings per share |
$ | (4.11 | ) | $ | 0.02 | $ | 1.12 | |||||
Dividends declared per share |
$ |
0.19 |
$ |
1.50 |
$ |
1.85 |
||||||
Comprehensive Income (loss), Net: |
||||||||||||
Net (loss) income |
$ | (1,304,827 | ) | $ | 18,672 | $ | 347,597 | |||||
Other comprehensive income (loss): |
||||||||||||
Net unrealized gains (losses) on financial instruments |
18,148 | (32,060 | ) | (2,792 | ) | |||||||
Accrued pension adjustment |
763 | (1,947 | ) | 298 | ||||||||
Foreign currency translation |
47,008 | (75,779 | ) | 34,057 | ||||||||
Unrealized gains (losses) on available-for-sale securities |
533 | (159 | ) | (1 | ) | |||||||
Other comprehensive income (loss) |
66,452 | (109,945 | ) | 31,562 | ||||||||
Comprehensive (loss) income allocated to noncontrolling interests |
(10,573 | ) | 18,160 | (5,486 | ) | |||||||
Comprehensive (loss) income, net, attributable to common stockholders |
$ | (1,248,948 | ) | $ | (73,113 | ) | $ | 373,673 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
F-10
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF EQUITY
|
Common
Stock |
Additional
Paid-In Capital |
Retained
Earnings (Accumulated Deficit) |
Accumulated Other
Comprehensive Income (Loss) |
Treasury
Stock |
Noncontrolling
Interests in Consolidated Real Estate Affiliates |
Total
Equity |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(Dollars in thousands)
|
|||||||||||||||||||||
Balance, December 31, 2006 (as previously reported) |
$ | 2,424 | $ | 2,533,898 | $ | (922,519 | ) | $ | 9,582 | $ | (13,434 | ) | $ | | $ | 1,609,951 | ||||||
Cumulative effect of change in accounting principles |
(2,585,552 | ) | 8,084 | (2,577,468 | ) | |||||||||||||||||
Adjusted balance, January 1, 2007 |
$ | 2,424 | $ | (51,654 | ) | $ | (922,519 | ) | $ | 9,582 | $ | (13,434 | ) | $ | 8,084 | $ | (967,517 | ) | ||||
Net income |
273,642 |
1,564 |
275,206 |
|||||||||||||||||||
Cash distributions declared ($1.85 per share) |
(450,854 | ) | (450,854 | ) | ||||||||||||||||||
Distributions to noncontrolling interests in consolidated Real Estate Affiliates |
(2,191 | ) | (2,191 | ) | ||||||||||||||||||
Conversion of operating partnership units to common stock (1,086,961 common shares) |
11 | 7,684 | 7,695 | |||||||||||||||||||
Conversion of convertible preferred units to common stock (29,269 common shares) |
488 | 488 | ||||||||||||||||||||
Issuance of common stock (1,582,968 common shares and 144,068 treasury shares) |
15 | 64,022 | (1,661 | ) | 6,657 | 69,033 | ||||||||||||||||
Shares issued pursuant to CSA (551,632 common shares and 146,969 treasury shares) |
6 | 29,875 | 6,790 | 36,671 | ||||||||||||||||||
Restricted stock grant, net of forfeitures and compensation expense (96,500 common shares) |
1 | 2,695 | 2,696 | |||||||||||||||||||
Purchase of treasury stock (1,806,900 treasury shares) |
(95,648 | ) | (95,648 | ) | ||||||||||||||||||
Tax benefit from stock option exercises |
3,531 | 3,531 | ||||||||||||||||||||
Other comprehensive income |
26,076 | 26,076 | ||||||||||||||||||||
Adjustment for equity component of exchangeable senior notes |
139,882 | 139,882 | ||||||||||||||||||||
Adjustment for noncontrolling interest in operating partnership |
(65,431 | ) | (65,431 | ) | ||||||||||||||||||
Adjust noncontrolling interest in OP Units |
713,515 | 713,515 | ||||||||||||||||||||
Balance, December 31, 2007 |
$ | 2,457 | $ | 844,607 | $ | (1,101,392 | ) | $ | 35,658 | $ | (95,635 | ) | $ | 7,457 | $ | (306,848 | ) | |||||
F-11
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF EQUITY (Continued)
|
Common
Stock |
Additional
Paid-In Capital |
Retained
Earnings (Accumulated Deficit) |
Accumulated Other
Comprehensive Income (Loss) |
Treasury
Stock |
Noncontrolling
Interests in Consolidated Real Estate Affiliates |
Total
Equity |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(Dollars in thousands)
|
|||||||||||||||||||||
Net income |
4,719 | 2,453 | 7,172 | |||||||||||||||||||
Cash distributions declared ($1.50 per share) |
(389,481 | ) | (389,481 | ) | ||||||||||||||||||
Contributions from noncontrolling interests in consolidated Real Estate Affiliates |
14,356 | 14,356 | ||||||||||||||||||||
Conversion of operating partnership units to common stock (1,178,142 common shares) |
12 | 9,135 | 9,147 | |||||||||||||||||||
Conversion of convertible preferred units to common stock (15,000 common shares) |
250 | 250 | ||||||||||||||||||||
Issuance of common stock (23,128,356 common shares and 50 treasury shares) |
232 | 830,053 | 3 | 830,288 | ||||||||||||||||||
Shares issued pursuant to CSA (356,661 treasury shares) |
(914 | ) | (2,432 | ) | 18,880 | 15,534 | ||||||||||||||||
Restricted stock grant, net of forfeitures and compensation expense (327,433 common shares) |
3 | 4,485 | 4,488 | |||||||||||||||||||
Tax provision from stock option exercises |
(2,675 | ) | (2,675 | ) | ||||||||||||||||||
Officer loan compensation expense |
15,372 | 15,372 | ||||||||||||||||||||
Other comprehensive loss |
(91,786 | ) | (91,786 | ) | ||||||||||||||||||
Adjustment for noncontrolling interest in operating partnership |
(117,447 | ) | (117,447 | ) | ||||||||||||||||||
Adjust noncontrolling interest in OP Units |
1,872,037 | 1,872,037 | ||||||||||||||||||||
Balance, December 31, 2008 |
$ | 2,704 | $ | 3,454,903 | $ | (1,488,586 | ) | $ | (56,128 | ) | $ | (76,752 | ) | $ | 24,266 | $ | 1,860,407 | |||||
Net (loss) income |
(1,284,689 |
) |
1,822 |
(1,282,867 |
) |
|||||||||||||||||
Distributions declared ($0.19 per share) |
(59,352 | ) | (59,352 | ) | ||||||||||||||||||
Distributions to noncontrolling interests in consolidated Real Estate Affiliates |
(1,712 | ) | (1,712 | ) | ||||||||||||||||||
Conversion of operating partnership units to common stock (43,408,053 common shares) |
434 | 324,055 | 324,489 | |||||||||||||||||||
Issuance of common stock (69,309 common shares) |
1 | 42 | 43 | |||||||||||||||||||
Restricted stock grant, net of forfeitures and compensation expense (372 common shares) |
(1 | ) | 2,669 | 2,668 | ||||||||||||||||||
Other comprehensive income |
55,879 | 55,879 | ||||||||||||||||||||
Adjustment for noncontrolling interest in operating partnership |
13,200 | 13,200 | ||||||||||||||||||||
Adjust noncontrolling interest in OP Units |
(65,416 | ) | (65,416 | ) | ||||||||||||||||||
Balance, December 31, 2009 |
$ | 3,138 | $ | 3,729,453 | $ | (2,832,627 | ) | $ | (249 | ) | $ | (76,752 | ) | $ | 24,376 | $ | 847,339 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
F-12
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Years Ended December 31, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2007 | |||||||||||
|
(In thousands)
|
|||||||||||||
Cash Flows from Operating Activities: |
||||||||||||||
Net (loss) income |
$ | (1,304,827 | ) | $ | 18,672 | $ | 347,597 | |||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
||||||||||||||
Equity in income of Unconsolidated Real Estate Affiliates |
(49,146 | ) | (80,594 | ) | (158,401 | ) | ||||||||
Provisions for impairment from Unconsolidated Real Estate Affiliates |
44,511 | | | |||||||||||
Provision for doubtful accounts |
30,331 | 17,873 | 5,426 | |||||||||||
Distributions received from Unconsolidated Real Estate Affiliates |
37,403 | 68,240 | 124,481 | |||||||||||
Depreciation |
707,183 | 712,522 | 635,873 | |||||||||||
Amortization |
47,978 | 47,408 | 34,581 | |||||||||||
Amortization of deferred finance costs and debt market rate adjustments |
34,621 | 28,410 | (11,073 | ) | ||||||||||
Amortization of intangibles other than in-place leases |
833 | (5,691 | ) | (20,945 | ) | |||||||||
Straight-line rent amortization |
(26,582 | ) | (27,827 | ) | (24,334 | ) | ||||||||
Deferred income taxes including tax restructuring benefit |
833 | (4,144 | ) | (368,136 | ) | |||||||||
Non-cash interest expense on Exchangeable Senior Notes |
27,388 | 25,777 | 17,369 | |||||||||||
Non-cash interest expense resulting from termination of interest rate swaps |
(9,635 | ) | | | ||||||||||
Loss (gain) on dispositions |
966 | (55,044 | ) | | ||||||||||
Provisions for impairment |
1,223,810 | 116,611 | 130,533 | |||||||||||
Participation expense pursuant to Contingent Stock Agreement |
(4,947 | ) | 2,849 | 31,884 | ||||||||||
Land/residential development and acquisitions expenditures |
(78,240 | ) | (166,141 | ) | (243,323 | ) | ||||||||
Cost of land sales |
22,019 | 24,516 | 48,794 | |||||||||||
Reorganization itemsfinance costs related to emerged entities |
69,802 | | | |||||||||||
Non-cash reorganization items |
(266,916 | ) | | | ||||||||||
Glendale Matter deposit |
67,054 | (67,054 | ) | | ||||||||||
Net changes: |
||||||||||||||
Accounts and notes receivable |
(22,601 | ) | 12,702 | (21,868 | ) | |||||||||
Prepaid expenses and other assets |
(11,123 | ) | 26,845 | 53,819 | ||||||||||
Deferred expenses |
(34,064 | ) | (62,945 | ) | (37,878 | ) | ||||||||
Accounts payable and accrued expenses |
355,025 | (94,188 | ) | 135,980 | ||||||||||
Other, net |
9,590 | 17,644 | 27,037 | |||||||||||
Net cash provided by operating activities |
871,266 | 556,441 | 707,416 | |||||||||||
Cash Flows from Investing Activities: |
||||||||||||||
Acquisition/development of real estate and property additions/improvements |
(252,844 | ) | (1,187,551 | ) | (1,495,334 | ) | ||||||||
Proceeds from sales of investment properties |
6,416 | 72,958 | 3,252 | |||||||||||
Increase in investments in Unconsolidated Real Estate Affiliates |
(154,327 | ) | (227,821 | ) | (441,438 | ) | ||||||||
Distributions received from Unconsolidated Real Estate Affiliates in excess of income |
74,330 | 110,533 | 303,265 | |||||||||||
Loans (to) from Unconsolidated Real Estate Affiliates, net |
(9,666 | ) | 15,028 | (161,892 | ) | |||||||||
Decrease (increase) in restricted cash |
6,260 | (12,419 | ) | (11,590 | ) | |||||||||
Other, net |
(4,723 | ) | 20,282 | 22,805 | ||||||||||
Net cash used in investing activities |
(334,554 | ) | (1,208,990 | ) | (1,780,932 | ) | ||||||||
F-13
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
|
Years Ended December 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2007 | |||||||||
|
(In thousands)
|
|||||||||||
Cash Flows from Financing Activities: |
||||||||||||
Proceeds from issuance of mortgages, notes and loans payable |
| 3,732,716 | 4,456,863 | |||||||||
Proceeds from issuance of the DIP Facility |
400,000 | | | |||||||||
Principal payments on mortgages, notes and loans payable |
(379,559 | ) | (3,314,039 | ) | (2,692,907 | ) | ||||||
Deferred financing costs |
(2,614 | ) | (63,236 | ) | (28,422 | ) | ||||||
Finance costs related to emerged entities |
(69,802 | ) | | | ||||||||
Cash distributions paid to common stockholders |
| (389,528 | ) | (450,854 | ) | |||||||
Cash distributions paid to holders of Common Units |
(1,327 | ) | (78,255 | ) | (96,978 | ) | ||||||
Cash distributions paid to holders of perpetual and convertible preferred units |
| (8,812 | ) | (13,873 | ) | |||||||
Proceeds from issuance of common stock, including from common stock plans |
43 | 829,291 | 60,625 | |||||||||
Redemption of preferred minority interests |
| | (60,000 | ) | ||||||||
Purchase of treasury stock |
| | (95,648 | ) | ||||||||
Other, net |
1,950 | 13,871 | (2,895 | ) | ||||||||
Net cash (used in) provided by financing activities |
(51,309 | ) | 722,008 | 1,075,911 | ||||||||
Net change in cash and cash equivalents |
485,403 | 69,459 | 2,395 | |||||||||
Cash and cash equivalents at beginning of period |
168,993 | 99,534 | 97,139 | |||||||||
Cash and cash equivalents at end of period |
$ | 654,396 | $ | 168,993 | $ | 99,534 | ||||||
Supplemental Disclosure of Cash Flow Information: |
||||||||||||
Interest paid |
$ | 1,061,512 | $ | 1,342,659 | $ | 1,272,823 | ||||||
Interest capitalized |
53,641 | 66,244 | 86,606 | |||||||||
Income taxes paid |
19,826 | 43,835 | 96,133 | |||||||||
Reorganization items paid |
120,726 | | | |||||||||
Non-Cash Transactions: |
||||||||||||
Common stock issued in exchange for Operating Partnership Units |
$ | 324,489 | $ | 9,147 | $ | 7,695 | ||||||
Common stock issued pursuant to Contingent Stock Agreement |
| 15,533 | 36,671 | |||||||||
Common stock issued in exchange for convertible preferred units |
| 250 | 488 | |||||||||
Change in accrued capital expenditures included in accounts payable and accrued expenses |
(86,367 | ) | 67,339 | 24,914 | ||||||||
Change in deferred contingent property acquisition liabilities |
(174,229 | ) | 178,815 | | ||||||||
Deferred financing costs payable in conjunction with the DIP Facility |
19,000 | | | |||||||||
Debt market rate adjustment related to emerged entities |
342,165 | | | |||||||||
Recognition of note payable in conjunction with land held for development and sale |
6,520 | | | |||||||||
Assumption of debt by purchaser in conjunction with sale of office buildings |
| 84,000 | | |||||||||
Acquisition of joint venture partner share of GGP/Homart, Inc.: |
||||||||||||
Total assets |
| | 3,331,032 | |||||||||
Total liabilities |
| | 2,381,942 |
The accompanying notes are an integral part of these consolidated financial statements.
F-14
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION
General
General Growth Properties, Inc. ("GGP"), a Delaware corporation, is a self-administered and self-managed real estate investment trust, referred to as a "REIT" which, as described in "Debtors in Possession" below, filed for bankruptcy protection under Chapter 11 of Title 11 of the United States Code ("Chapter 11") in the Southern District of New York (the "Bankruptcy Court") on April 16, 2009 (the "Petition Date"). GGP was organized in 1986 and through its subsidiaries and affiliates operates, manages, develops and acquires retail and other rental properties, primarily shopping centers, which are located primarily throughout the United States. GGP also holds assets through its international Unconsolidated Real Estate Affiliates (defined below) in Brazil, Turkey and Costa Rica (Note 5). Additionally, GGP develops and sells land for residential, commercial and other uses primarily in large-scale, long-term master planned community projects in and around Columbia, Maryland; Summerlin, Nevada; and Houston, Texas, as well as one residential condominium project located in Natick (Boston), Massachusetts. In these notes, the terms "we," "us" and "our" refer to GGP and its subsidiaries (the "Company").
Substantially all of our business is conducted through GGP Limited Partnership (the "Operating Partnership" or "GGPLP"). As of December 31, 2009, common equity ownership (without giving effect to the potential conversion of the Preferred Units as defined below) of the Operating Partnership was as follows:
98 | % | GGP, as sole general partner | |
|
1 |
|
Limited partners that indirectly include family members of the original stockholders of the Company. Represented by common units of limited partnership interest (the "Common Units") |
|
1 |
|
Limited partners that include subsequent contributors of properties to the Operating Partnership which are also represented by Common Units. |
100 | % | ||
The Operating Partnership also has preferred units of limited partnership interest (the "Preferred Units") outstanding. The terms of the Preferred Units provide that the Preferred Units are convertible into Common Units which then are redeemable for cash or, at our option, shares of GGP common stock on a one-for-one basis (Note 11).
In addition to holding ownership interests in various joint ventures, the Operating Partnership generally conducts its operations through the following subsidiaries:
F-15
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 ORGANIZATION (Continued)
In this report, we refer to our ownership interests in properties in which we own a majority or controlling interest and, as a result, are consolidated under generally accepted accounting principles ("GAAP") as the "Consolidated Properties." Some properties are held through joint venture entities in which we own a non-controlling interest ("Unconsolidated Real Estate Affiliates") and we refer to those properties as the "Unconsolidated Properties." Collectively, we refer to the Consolidated Properties and Unconsolidated Properties as our "Company Portfolio."
Debtors in Possession
In the fourth quarter of 2008 we suspended our cash dividend and halted or slowed nearly all development and redevelopment projects other than those that were substantially complete, could not be deferred as a result of contractual commitments, and joint venture projects. As we had significant past due, or imminently due, and cross-collateralized or cross-defaulted debt on the Petition Date, the Company, the Operating Partnership and certain of the Company's domestic subsidiaries filed voluntary petitions for relief under Chapter 11. On April 22, 2009, certain additional domestic subsidiaries (collectively with the subsidiaries filing on the Petition Date, the Company and the Operating Partnership, the "Debtors") of the Company also filed voluntary petitions for relief in the Bankruptcy Court (collectively, the "Chapter 11 Cases") which the Bankruptcy Court has ruled may be jointly administered. However, neither GGMI, certain of our wholly-owned subsidiaries, nor any of our joint ventures, (collectively, the "Non-Debtors") either consolidated or unconsolidated, have sought such protection.
In the aggregate, the Debtors, all of which are consolidated in the accompanying consolidated financial statements, own and operate 166 of the more than 200 regional shopping centers that we own and manage. The Non-Debtors are continuing their operations and are not subject to the requirements of Chapter 11. Pursuant to Chapter 11, a debtor is afforded certain protection against its creditors and creditors are prohibited from taking certain actions (such as pursuing collection efforts or proceeding to foreclose on secured obligations) related to debts that were owed prior to the commencement of the Chapter 11 Cases. Accordingly, although the commencement of the Chapter 11 Cases triggered defaults on substantially all debt obligations of the Debtors, creditors are stayed from taking any action as a result of such defaults. Absent an order of the Bankruptcy Court, these pre-petition liabilities are subject to settlement under a plan of reorganization.
Since the Petition Date, the Bankruptcy Court has granted a variety of Debtors motions that allow the Company to continue to operate its business in the ordinary course without interruption; and covering, among other things, employee obligations, critical service providers, tax matters, insurance matters, tenant and contractor obligations, claim settlements, ordinary course property sales, cash management, cash collateral, alternative dispute resolution, settlement of pre-petition mechanics liens and department store transactions. The Bankruptcy Court has also approved the Debtors' request to enter into a post-petition financing arrangement (the "DIP Facility"), as further discussed in Note 6.
F-16
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 ORGANIZATION (Continued)
During December 2009, January and February 2010, 231 Debtors (the "Track 1 Debtors") owning 119 properties with $12.33 billion of secured mortgage loans filed consensual plans of reorganization (the "Track 1 Plans"). As of December 31, 2009, 113 Debtors owning 50 properties with $4.65 billion secured debt emerged from bankruptcy (the "Track 1A Debtors"). Effectiveness of the plans of reorganization and emergence from bankruptcy of the remaining Track 1 Debtors (the "Track 1B Debtors") continued through February 2010 and is expected to be completed in the first quarter of 2010. In such regard, through March 1, 2010, an additional 92 Debtors owning 57 properties with $5.98 billion of secured mortgage debt emerged from bankruptcy. The Chapter 11 Cases for the remaining Debtors (generally, GGP, GGPLP and other holding company or investment subsidiaries (the "TopCo Debtors") which own certain individual or groups of properties but also certain operating property Debtors, (collectively, the "2010 Track Debtors")) will continue until their respective plans of reorganization are filed with the Bankruptcy Court, approved by the applicable classes of creditors and confirmed by the Bankruptcy Court.
GGP is continuing to pursue consensual restructurings for 31 Debtors (the "Remaining Secured Debtors") with secured loans aggregating $2.50 billion.
On December 18, 2009, the Bankruptcy Court approved the payment of a $0.19 per share dividend to holders of record of GGP common stock on December 28, 2009 as declared by the GGP Board of Directors to allow GGP to satisfy the REIT dividend distribution requirements (Note 7) for 2009. The dividend was paid on January 28, 2010 in a combination of approximately $5.9 million in cash and approximately 4.9 million shares of common stock (with a valuation of $10.8455 calculated based on the volume weighted average trading prices of GGP's common stock on January 20, 21 and 22, 2010).
As described above, we have received legal protection from our creditors pursuant to the Chapter 11 Cases. This protection is limited in duration and the 2010 Track Debtors are currently negotiating the terms of a reorganization plan with our lenders and other stakeholders which is expected to require significant additional equity capital. The Track 1 Plans are a key component of the plan of reorganization currently being developed. We have filed a motion to extend the exclusivity period for us to file a plan until August 26, 2010 and to solicit acceptances of such plan to October 26, 2010. Our motion is currently scheduled to be heard by the Bankruptcy Court on March 3, 2010. Pending entry on order on our motion, the Bankruptcy Court has entered a bridge order extending the exclusivity period until the date that is 7 days following the date on which an order on our extension motion is entered. If an order is entered by the Bankruptcy Court granting our extension motion, it will supersede the bridge order. If the Bankruptcy Court denies our extension motion, the Company will have 7 days following the entry of an order related to the March 3 hearing before exclusivity expires. If we do not file a plan of reorganization for the 2010 Track Debtors prior to the lapse of the exclusivity period, any party in interest would be able to file a plan of reorganization for any of the 2010 Track Debtors.
Our potential inability to negotiate and obtain confirmation of a mutually agreeable plan of reorganization for the 2010 Track Debtors and to address our remaining future debt maturities raise substantial doubts as to our ability to continue as a going concern. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, as a result of the
F-17
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 ORGANIZATION (Continued)
Chapter 11 Cases, such realization of assets and satisfaction of liabilities are subject to a significant number of uncertainties. Our consolidated financial statements do not reflect any adjustments related to the recoverability of assets and satisfaction of liabilities that might be necessary should we be unable to continue as a going concern.
Shareholder Rights Plan
We have a shareholder rights plan (with an expiration date, as amended, of the plan on November 18, 2010) which will impact a potential acquirer unless the acquirer negotiates with our Board of Directors and the Board of Directors approves the transaction. Pursuant to this plan, as amended, one preferred share purchase right (a "Right") is attached to each currently outstanding or subsequently issued share of our common stock. Prior to becoming exercisable, the Rights trade together with our common stock. In general, the Rights will become exercisable if a person or group acquires or announces a tender or exchange offer for 15% or more of our common stock. Each Right entitles the holder to purchase from GGP one-third of one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $100 per share (the "Preferred Stock"), at an exercise price of $105 per one one-thousandth of a share, subject to adjustment. If a person or group acquires 15% or more of our common stock, each Right will entitle the holder (other than the acquirer) to purchase shares of our common stock (or, in certain circumstances, cash or other securities) having a market value of twice the exercise price of a Right at such time. Under certain circumstances, each Right will entitle the holder (other than the acquirer) to purchase the common stock held by the acquirer having a market value of twice the exercise price of a Right at such time. In addition, under certain circumstances, our Board of Directors may exchange each Right (other than those held by the acquirer) for one share of our common stock, subject to adjustment. If the Rights become exercisable, holders of common units of partnership interest in the Operating Partnership, other than GGP, will receive the number of Rights they would have received if their units had been redeemed and the purchase price paid in our common stock.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of GGP, our subsidiaries and joint ventures in which we have a controlling interest. For consolidated joint ventures, the noncontrolling partner's share of the assets, liabilities and operations of the joint ventures (generally computed as the joint venture partner's ownership percentage) is included in noncontrolling interests in Consolidated Real Estate Affiliates as permanent equity of the Company. All significant intercompany balances and transactions have been eliminated.
Reclassifications and Adoption of New Accounting Pronouncements
In 2009, certain amounts in the 2008 and 2007 consolidated financial statements were reclassified to conform to the current period presentation. In 2010, additional reclassifications, within the categories of revenues and expenses, were made to the 2009, 2008 and 2007 consolidated statements of income and comprehensive income to conform to the 2010 presentation. Specifically, in order to improve our internal and external reporting, we reclassified $10.6, $10.7 and $13.4 million, respectively, of 2009,
F-18
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2008 and 2007 asset management and other corporate revenues (such as sponsorship income, photo income and vending income) from other revenue to management fees and other corporate revenues. In addition, we reclassified $113.4, $120.5 and $105.0 million, respectively, of 2009, 2008 and 2007 cleaning, landscaping and trash expenses from property maintenance costs to other property operating costs. Total revenues, total expenses and operating income (loss) for such periods were unchanged by such reclassifications. Finally, as of January 1, 2009 we adopted the following two accounting pronouncements that required retrospective application, in which all periods presented reflect the necessary changes.
As of January 1, 2009, we retrospectively adopted a new generally accepted accounting principle related to convertible debt instruments that may be settled in cash upon conversion, which required us to separately account for the liability and equity components of our Exchangeable Senior Notes (the "Exchangeable Notes") in a manner that reflects the nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The impact of the required retrospective application of this pronouncement on our consolidated financial statements is that the Exchangeable Notes have been reflected as originally being issued at a discount, with such discount being reflected through April, 2012 as a non-cash increase in interest expense. Below is a summary of the effects of the retrospective application of this pronouncement on the consolidated financial statements and the Exchangeable Notes.
|
December 31, 2009 | December 31, 2008 | |||||
---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||
Balance Sheet: |
|||||||
Principal amount of liability |
$ | 1,550,000 | $ | 1,550,000 | |||
Unamortized discount |
(69,348 | ) | (96,736 | ) | |||
Carrying amount of liability component |
$ | 1,480,652 | $ | 1,453,264 | |||
Carrying amount of equity component |
$ | 139,882 | $ | 139,882 | |||
|
December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2007 | |||||||
|
(Dollars in thousands)
|
|||||||||
Income Statement: |
||||||||||
Coupon interest |
$ | 61,690 | $ | 61,690 | $ | 41,127 | ||||
Discount amortization |
27,388 | 25,777 | 17,369 | |||||||
Total interest |
$ | 89,078 | $ | 87,467 | $ | 58,496 | ||||
Effective interest rate |
5.62 | % | 5.62 | % | 5.62 | % | ||||
F-19
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
As Previously Reported
December 31, 2008 |
Impact of
Retrospective Application |
Current Presentation
December 31, 2008 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||
Balance Sheet |
||||||||||
Mortgages, notes and loans payable |
$ | 24,853,313 | $ | (96,736 | ) | $ | 24,756,577 |
|
As Previously Reported
December 31, 2008 |
Impact of
Retrospective Application |
Current Presentation
December 31, 2008 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(Dollars in thousands)
|
|||||||||
Income Statement |
||||||||||
Interest expense |
$ | (1,299,496 | ) | $ | (25,777 | ) | $ | (1,325,273 | ) | |
Allocation to noncontrolling interests |
(18,189 | )* | 4,236 | (13,953 | ) | |||||
Net income attributable to common stockholders |
26,260 | (21,541 | ) | 4,719 | ||||||
Basic and Diluted Earnings Per Share |
$ | 0.10 | $ | (0.08 | ) | $ | 0.02 |
|
As Previously Reported
December 31, 2007 |
Impact of
Retrospective Application |
Current Presentation
December 31, 2007 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(Dollars in thousands)
|
|||||||||
Income Statement |
||||||||||
Interest expense |
$ | (1,174,097 | ) | $ | (17,369 | ) | $ | (1,191,466 | ) | |
Allocation to noncontrolling interests |
(77,012 | ) | 3,057 | (73,955 | ) | |||||
Net income attributable to common stockholders |
287,954 | (14,312 | ) | 273,642 | ||||||
Basic and Diluted Earnings Per Share |
$ | 1.18 | $ | (0.06 | ) | $ | 1.12 |
As of January 1, 2009, we retrospectively adopted a new generally accepted accounting principle related to noncontrolling interests in consolidated financial statements, which changed the reporting for minority interests in our consolidated joint ventures by re-characterizing them as noncontrolling interests and re-classifying certain of such minority interests as a component of permanent equity in our Consolidated Balance Sheets. The minority interests related to our common and preferred Operating Partnership units have been re-characterized as redeemable noncontrolling interests and will remain as temporary equity at a mezzanine level in our Consolidated Balance Sheets presented at the greater of the carrying amount adjusted for the noncontrolling interest's share of the allocation of income or loss (and its share of other comprehensive income or loss) and dividends or the Fair Value (as defined
F-20
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
below) as of each measurement date subsequent to the measurement date. Fair Value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date ("Fair Value"). The excess of the Fair Value over the carrying amount from period to period is charged to Additional paid-in capital in our Consolidated Balance Sheets. This also changed the presentation of the income allocated to minority interests by re-characterizing it as allocations to noncontrolling interests and re-classifying such income as an adjustment to net income to arrive at net income attributable to common stockholders.
As of June 30, 2009, we adopted a new generally accepted accounting principle related to subsequent events which provides guidance on our assessment of subsequent events. The new standard clarifies that we must evaluate, as of each reporting period, events or transactions that occur after the balance sheet date through the date that the financial statements are issued. We performed our assessment of subsequent events and all material events or transactions since December 31, 2009 have been integrated into our disclosures in the accompanying consolidated financial statements.
Accounting for Reorganization
The accompanying consolidated financial statements and the combined condensed financial statements of the Debtors presented below have been prepared in accordance with the generally accepted accounting principles related to financial reporting by entities in reorganization under the Bankruptcy Code, and on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Such accounting guidance also provides that if a debtor, or group of debtors, has significant combined assets and liabilities of entities which have not sought Chapter 11 bankruptcy protection, the debtors and non-debtors should continue to be combined. However, separate disclosure of financial statement information solely relating to the debtor entities should be presented. Therefore, the combined condensed financial statements presented below solely reflect the results for the Track 1B Debtors and the 2010 Track Debtors.
F-21
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Combined Condensed Balance Sheet
|
December 31, 2009 | ||||
---|---|---|---|---|---|
|
(In thousands)
|
||||
Net investment in real estate |
$ | 17,601,372 | |||
Cash and cash equivalents |
592,448 | ||||
Accounts and notes receivable, net |
230,138 | ||||
Other |
860,206 | ||||
Total Assets |
$ | 19,284,164 | |||
Liabilities not subject to compromise: |
|||||
Mortgages, notes and loans payable |
$ | 400,000 | |||
Deferred tax liabilities |
910,847 | ||||
Investment in and loans to/from Unconsolidated Real Estate Affiliates |
33,005 | ||||
Accounts payable and accrued expenses |
766,121 | ||||
Liabilities subject to compromise |
17,767,253 | ||||
Total redeemable non-controlling interest |
206,833 | ||||
Equity |
(799,895 | ) | |||
Total Liabilities and Equity |
$ | 19,284,164 | |||
As described above, since the Track 1B Debtors and the 2010 Track Debtors commenced their respective Chapter 11 Cases on two different dates in April 2009, combined condensed statements of operations and the combined condensed statement of cash flows is presented from May 1, 2009 to December 31, 2009.
Combined Condensed Statement of Operations
|
May 1, 2009 to
December 31, 2009 |
||||
---|---|---|---|---|---|
|
(In thousands)
|
||||
Operating Revenues |
$ | 1,140,063 | |||
Operating Expenses |
(1,591,501 | ) | |||
Operating Income |
(451,438 | ) | |||
Interest expense, net |
(611,061 | ) | |||
Provision for income taxes |
(4,302 | ) | |||
Equity in income of Real Estate Affiliates |
52,832 | ||||
Reorganization items |
(189,390 | ) | |||
Net loss |
(1,203,359 | ) | |||
Allocation to noncontrolling interests |
11,028 | ||||
Net loss attributable to common stockholders |
$ | (1,192,331 | ) | ||
F-22
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Combined Condensed Statement of Cash Flows
|
May 1, 2009 to
December 31, 2009 |
|||||
---|---|---|---|---|---|---|
|
(In thousands)
|
|||||
Net cash provided by: |
||||||
Operating activities |
$ | 623,808 | ||||
Investing activities |
(278,362 | ) | ||||
Financing activities |
188,225 | |||||
Net increase in cash and cash equivalents |
533,671 | |||||
Cash and cash equivalents, beginning of period |
58,777 | |||||
Cash and cash equivalents, end of period |
$ | 592,448 | ||||
Cash paid for reorganization items |
$ | (41,020 | ) |
Pre-Petition Date claims and Classification of Liabilities Subject to Compromise
During September 2009, the Debtors filed with the Bankruptcy Court their schedules of the assets and liabilities existing on the Petition Date. In addition, November 12, 2009 was established by the Bankruptcy Court as the general bar date (the date by which most entities that wished to assert a pre-petition claim against a Debtor had to file a proof of claim in writing). The Debtors have made subsequent amendments to those schedules and, as the bar date has passed, are now in the process of evaluating, reconciling and resolving all claims that were timely submitted. The substantial majority of the claims submitted were erroneous, duplicative or protective and the Debtors have filed, and will continue to file, claim objections with the Bankruptcy Court. Claim objections, that is, differences between liability amounts estimated by the Debtors and claims submitted by creditors that cannot be resolved, will be submitted to the Bankruptcy Court which will make a final determination of the allowable claim. The Track 1 Plans provide that all allowed claims, that is, undisputed or Bankruptcy Court affirmed claims of creditors against the Track 1 Debtors, are to be paid in full. Our aggregate liabilities (consisting of Liabilities Subject to Compromise ("LSTC") and not subject to compromise as further described below) include provisions for claims against both the Track 1 Debtors and the 2010 Track Debtors that were timely submitted to the Bankruptcy Court and have been recorded, as appropriate, based upon the GAAP guidance for the recognition of contingent liabilities and on our evaluations of such claims. Accordingly, although submitted proofs of claims against all Debtors exceed the amounts recorded for such claims, we currently believe that the aggregate amount of claims recorded by the Debtors will not vary materially from the amount of claims that will ultimately be allowed or resolved by the Bankruptcy Court.
Liabilities not subject to compromise include: (1) liabilities held by Non-Debtor and Track 1A Debtor entities; (2) liabilities incurred after the Petition Date; (3) pre-petition liabilities that the Track 1B Debtors and the 2010 Track Debtors expect to pay in full, even though certain of these amounts may not be paid until after the applicable Debtor's plan of reorganization is effective; and (4) liabilities related to pre-petition contracts that affirmatively have not been rejected. Unsecured liabilities not subject to compromise as of December 31, 2009 with respect to the Track 1A Debtors are reflected at the current estimate of the probable amounts to be paid. However, the amounts of such unsecured
F-23
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
liabilities related to the associated liabilities not subject to compromise resolved or allowed by the Bankruptcy Court (and therefore paid at 100% pursuant to the Track 1 Plans) has not yet been determined. In such regard, during February 2010, payments commenced on the Track 1 Debtor claims, a process expected to continue for several months as the amounts to be allowed are confirmed by the Bankruptcy Court. With respect to secured liabilities, GAAP bankruptcy guidance provides that Track 1A Debtor mortgage loans should be recorded at their estimated Fair Value upon emergence. A discount of approximately $342.2 million was recorded on such $4.65 billion of secured debt, with the resulting gain classified as a reorganization item. This discount will be accreted on an effective yield basis into interest expense in future periods as a non-cash item until maturity of the related debt obligation. In certain cases, either due to loan modifications which provide, with respect to the Special Consideration Properties (as defined in Note 6), the right to satisfy our obligations to the applicable mortgage lender by assigning title to the property to such lender or due to the non-recourse nature of the loans, the estimated Fair Value of the debt was set to the estimated Fair Value of the property. Similar gains will be recorded in the first quarter of 2010 with respect to the $7.69 billion of mortgage loans related to the Track 1B Debtors that have emerged or will emerge from bankruptcy in 2010.
All liabilities incurred prior to the Petition Date other than those specified immediately above are considered LSTC. The amounts of the various categories of liabilities that are subject to compromise are set forth below. As described above, these amounts represent the Company's estimates of known or potential pre-petition claims that are likely to be resolved in connection with the Chapter 11 Cases. Such claims remain subject to future adjustments which may result from 2010 Track Debtor/creditor negotiations, actions of the Bankruptcy Court, rejection of executory contracts and unexpired leases, the determination as to the value of any collateral securing claims, amended proofs of claim, or other events. There can be no assurance that the liabilities represented by claims against a particular 2010 Track Debtor will not be found to exceed the Fair Value of its respective assets. This could result in claims being paid at less than 100% of their face value and the equity of the applicable 2010 Track Debtor being diluted or eliminated entirely. The amounts subject to compromise consisted of the following items:
|
December 31, 2009 | ||||
---|---|---|---|---|---|
|
(In thousands)
|
||||
Mortgages and secured notes |
$ | 11,148,467 | |||
Unsecured notes |
6,006,778 | ||||
Accounts payable and accrued liabilities |
612,008 | ||||
Total liabilities subject to compromise |
$ | 17,767,253 | |||
The classification of liabilities as LSTC or as liabilities not subject to compromise is based on currently available information and analysis. As the Chapter 11 Cases proceed and additional information is received and analysis is completed, or as the Bankruptcy Court rules on relevant matters, the classification of amounts between LSTC and liabilities not subject to compromise may change. The amount of any such changes could be material.
F-24
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reorganization Items
Reorganization items under the Chapter 11 Cases are expense or income items that were incurred or realized by the Debtors as a result of the Chapter 11 Cases and are presented separately in the Consolidated Statements of Income and Comprehensive Income and in the condensed combined statements of operations of the Debtors presented above. These items include professional fees and similar types of expenses and gains directly related to the Chapter 11 Cases, resulting from activities of the reorganization process, and interest earned on cash accumulated by the Debtors as a result of the Chapter 11 Cases. Unless property-specific or expressly allocated, reorganization items have been considered to be exclusively TopCo Debtor items.
With respect to certain retained professionals, the terms of engagement and the timing of payment for services rendered are subject to approval by the Bankruptcy Court. In addition, certain of these retained professionals have agreements that provide for success or completion fees that are payable upon the consummation of specified restructuring or sale transactions. A portion of these success or completion fees, currently estimated at approximately $28.4 million in the aggregate, have been deemed probable of being paid and therefore we accrued $7.2 million related to the period from the date the retention of those professionals was approved by the Bankruptcy Court to our estimated date of successful emergence from bankruptcy.
In addition, the key employee incentive program (the "KEIP") was subject to approval by the Bankruptcy Court. The KEIP is intended to retain certain key employees and provides for payment to these employees upon successful emergence from bankruptcy. A portion of the KEIP, currently estimated at approximately $131 million in the aggregate, has been deemed probable of being paid and therefore, as of December 31, 2009, we have accrued $27.5 million related to the period from the date approved by the Bankruptcy Court to our estimated date of successful emergence from bankruptcy. Although the amount of the KEIP payment is technically uncapped, we estimate the cost to be in the range from zero to approximately $160 million.
Reorganization items are as follows:
Reorganization Items
|
Post-Petition
Period Ended December 31, 2009 |
||||
---|---|---|---|---|---|
|
(In thousands)
|
||||
Gains on liabilities subject to compromise(1) |
$ | (350,692 | ) | ||
Interest income(2) |
(34 | ) | |||
U.S. Trustee fees(3) |
3,993 | ||||
Restructuring costs(4) |
200,543 | ||||
Total reorganization items |
$ | (146,190 | ) | ||
F-25
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
critical vendors (as defined), which were authorized by the Bankruptcy Court and for which payments on an installment basis began in July 2009.
Properties
Real estate assets are stated at cost less any provisions for impairments. Construction and improvement costs incurred in connection with the development of new properties or the redevelopment of existing properties are capitalized to the extent the total carrying amount of the property does not exceed the estimated Fair Value of the completed property. Real estate taxes and interest costs incurred during construction periods are capitalized. Capitalized interest costs are based on qualified expenditures and interest rates in place during the construction period. Capitalized real estate taxes and interest costs are amortized over lives which are consistent with the constructed assets.
Pre-development costs, which generally include legal and professional fees and other directly-related third-party costs, are capitalized as part of the property being developed. In the event a development is no longer deemed to be probable, the costs previously capitalized are expensed (see also our impairment policies in this Note 2 below).
Tenant improvements, either paid directly or in the form of construction allowances paid to tenants, are capitalized and depreciated over the applicable lease term. Maintenance and repairs are charged to expense when incurred. Expenditures for significant betterments and improvements are capitalized.
Depreciation or amortization expense is computed using the straight-line method based upon the following estimated useful lives:
|
Years | |
---|---|---|
Buildings and improvements |
40 - 45 | |
Equipment, tenant improvements and fixtures |
5 - 10 |
Impairment
Operating properties, land held for development and sale and developments in progress
The generally accepted accounting principles related to accounting for the impairment or disposal of long-lived assets require that if impairment indicators exist and the undiscounted cash flows expected to be generated by an asset are less than its carrying amount, an impairment provision should be recorded to write down the carrying amount of such asset to its Fair Value. We review our consolidated
F-26
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
and unconsolidated real estate assets, including operating properties, land held for development and sale and developments in progress, for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Impairment indicators for our retail and other segment are assessed separately for each property and include, but are not limited to, significant decreases in real estate property net operating income and occupancy percentages.
Impairment indicators for our Master Planned Communities segment are assessed separately for each community and include, but are not limited to, significant decreases in sales pace or average selling prices, significant increases in expected land development and construction costs or cancellation rates, and projected losses on expected future sales.
Impairment indicators for pre-development costs, which are typically costs incurred during the beginning stages of a potential development, and developments in progress are assessed by project and include, but are not limited to, significant changes in projected completion dates, revenues or cash flows, development costs, market factors and sustainability of development projects.
If an indicator of potential impairment exists, the asset is tested for recoverability by comparing its carrying amount to the estimated future undiscounted cash flow. The cash flow estimates used both for determining recoverability and estimating Fair Value are inherently judgmental and reflect current and projected trends in rental, occupancy and capitalization rates, and estimated holding periods for the applicable assets. Although the estimated value of certain assets may be exceeded by the carrying amount, a real estate asset is only considered to be impaired when its carrying amount cannot be recovered through estimated future undiscounted cash flows. To the extent an impairment provision is necessary; the excess of the carrying amount of the asset over its estimated Fair Value is expensed to operations. In addition, the impairment provision is allocated proportionately to adjust the carrying amount of the asset. The adjusted carrying amount, which represents the new cost basis of the asset, is depreciated over the remaining useful life of the asset.
In 2009, the holding periods for the Special Consideration Properties were reduced to either reflect our probable transfer of such properties to the lender in satisfaction of the secured debt obligation or a change in the estimated holding period with respect to such property in conjunction with the development of our overall plan of reorganization. We recorded impairment charges related to our operating properties, land held for development and sale, and properties under development of $1.08 billion, $83.8 million and $130.5 million for the years ended December 31, 2009, 2008 and 2007, as presented in the table below. All of these impairment charges are included in provisions for impairment in our consolidated financial statements for the years ended December 31, 2009, 2008 and 2007.
Investment in Unconsolidated Real Estate Affiliates
In accordance with the generally accepted accounting principles related to the equity method of accounting for investments, a series of operating losses of an investee or other factors may indicate that a decrease in value of our investment in the Unconsolidated Real Estate Affiliates has occurred which is other-than-temporary. The investment in each of the Unconsolidated Real Estate Affiliates is evaluated periodically and as deemed necessary for recoverability and valuation declines that are other
F-27
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
than temporary. Accordingly, in addition to the property-specific impairment analysis that we perform on the investment properties, land held for development and sale and developments in progress owned by such joint ventures (as part of our investment property impairment process described above), we also considered the ownership and distribution preferences and limitations and rights to sell and repurchase our ownership interests. We recorded impairment charges related to our investments in Circle T Power Center and The Shops at Circle T Ranch joint venture of $10.6 million for the year ended December 31, 2009 to write these investments down to their estimated Fair Value. Based on such evaluations, no provisions for impairment were recorded for the years ended December 31, 2008 and 2007 related to our investments in Unconsolidated Real Estate Affiliates. See Note 5 for further disclosure of the provisions for impairment related to certain properties within our Unconsolidated Real Estate Affiliates.
Goodwill
The excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed was recorded as goodwill. Goodwill has been recognized and allocated to specific properties in our Retail and Other Segment since each individual rental property or each operating property is an operating segment and considered a reporting unit. The generally accepted accounting principles related to goodwill and other intangible assets states that goodwill should be tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. As of the end of each quarter in 2009, we performed impairment tests on goodwill as changes in current market and economic conditions during each of the quarters in 2009 indicated an impairment of the asset might have occurred. We perform this test by first comparing the estimated Fair Value of each property with our book value of the property, including, if applicable, its allocated portion of aggregate goodwill. We assess Fair Value based on estimated future cash flow projections that utilize discount and capitalization rates which are generally unobservable in the market place (Level 3 inputs) under these principles, but approximate the inputs we believe would be utilized by market participants in assessing fair value. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions. If the carrying amount of a property, including its goodwill, exceeds its estimated Fair Value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. In this second step, if the implied Fair Value of goodwill is less than the carrying amount of goodwill, an impairment charge is recorded. Based on our testing methodology, we recorded provisions for impairment of goodwill for the years
F-28
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ended December 31, 2009 and 2008, as presented in the table below. No provisions for impairment of goodwill were recorded for the year ended December 31, 2007.
|
2009 | 2008 | ||||||
---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||
Balance as of January 1 |
||||||||
Goodwill* |
$ | 373,097 | $ | 385,683 | ||||
Accumulated impairment losses |
(32,806 | ) | | |||||
|
340,291 | 385,683 | ||||||
Adjustments resulting from the subsequent recognition of deferred tax assets during the year* |
| (12,586 | ) | |||||
Impairment losses during the year |
(140,627 | ) | (32,806 | ) | ||||
Balance as of December 31 |
||||||||
Goodwill |
373,097 | 373,097 | ||||||
Accumulated impairment losses |
(173,433 | ) | (32,806 | ) | ||||
|
$ | 199,664 | $ | 340,291 | ||||
Summary of all Impairment Provisions:
|
|
|
Years Ended December 31, | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Method of Determining Fair
Value |
|||||||||||||||
Impaired Asset
|
Location | 2009 | 2008 | 2007 | |||||||||||||
|
|
|
(In thousands)
|
||||||||||||||
Retail and other: |
|||||||||||||||||
Operating properties: |
|||||||||||||||||
Bay City Mall |
Bay City, MI | Discounted cash flow analysis(4) | $ | 830 | $ | | $ | | |||||||||
Cache Valley Mall |
Logan, UT | Discounted cash flow analysis(5) | 3,169 | | | ||||||||||||
Cache Valley Marketplace |
Logan, UT | Discounted cash flow analysis(5) | 938 | | | ||||||||||||
Century Plaza |
Birmingham, AL | Projected sales price analysis(1) | | 7,819 | | ||||||||||||
Chico Mall |
Chico, CA | Discounted cash flow analysis(4) | 4,127 | | | ||||||||||||
Country Hills Plaza |
Ogden, UT | Discounted cash flow analysis(4) | 287 | | | ||||||||||||
Eagle Ridge Mall |
Lake Wales, FL | Discounted cash flow analysis(4) | 22,301 | | | ||||||||||||
Foothills Mall |
Fort Collins, CO | Discounted cash flow analysis(5) | 57,602 | | | ||||||||||||
Lakeview Square |
Battle Creek, MI | Discounted cash flow analysis(4) | 2,764 | | | ||||||||||||
Landmark Mall |
Alexandria, VA | Discounted cash flow analysis(3) | 27,323 | | | ||||||||||||
Moreno Valley Mall |
Moreno Valley, CA | Discounted cash flow analysis(4) | 2,873 | | | ||||||||||||
Northgate Mall |
Chattanooga, TN | Discounted cash flow analysis(4) | 14,904 | | | ||||||||||||
North Plains Mall |
Clovis, NM | Discounted cash flow analysis(5) | 2,496 | | | ||||||||||||
Oviedo Marketplace |
Oviedo, FL | Discounted cash flow analysis(4) | 3,438 | | | ||||||||||||
Owings Mills Mall |
Owings Mills, MD | Discounted cash flow analysis(3) | 51,604 | | | ||||||||||||
Owings Mills-Two Corporate Center |
Owings Mills, MD | Projected sales price analysis(1) | 7,880 | | | ||||||||||||
Plaza 9400 |
Sandy, UT | Projected sales price analysis(1) | 5,409 | | | ||||||||||||
Piedmont Mall |
Danville, VA | Discounted cash flow analysis(4) | 7,232 | | | ||||||||||||
River Falls Mall |
Clarksville, IN | Discounted cash flow analysis(3) | 82,893 | | | ||||||||||||
The Shoppes At The Palazzo |
Las Vegas, NV | Discounted cash flow analysis(5) | 37,914 | | | ||||||||||||
Silver Lake Mall |
Coeur d' Alene, ID | Discounted cash flow analysis(5) | 10,134 | | | ||||||||||||
Spring Hill Mall |
West Dundee, IL | Discounted cash flow analysis(5) | 59,050 | | | ||||||||||||
Southshore Mall |
Aberdeen, WA | Projected sales price analysis(1) | | 3,951 | |
F-29
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
|
Years Ended December 31, | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Method of Determining Fair
Value |
|||||||||||||||
Impaired Asset
|
Location | 2009 | 2008 | 2007 | |||||||||||||
|
|
|
(In thousands)
|
||||||||||||||
The Village At Redlands |
Redlands, CA | Projected sales price analysis(1) | 5,537 | | | ||||||||||||
Total operating properties |
410,705 | 11,770 | | ||||||||||||||
Development: |
|||||||||||||||||
Allen Towne Mall |
Allen, TX | Projected sales price analysis(1) | $ | 29,063 | $ | | $ | | |||||||||
The Bridges At Mint Hill |
Charlotte, NC | Comparable property market analysis(1) | 16,636 | | | ||||||||||||
Cottonwood Mall |
Holladay, UT | Comparable property market analysis(1) | 50,768 | | | ||||||||||||
Elk Grove Promenade |
Elk Grove, CA | Comparable property market analysis(1) | 175,280 | | | ||||||||||||
Kendall Town Center |
Miami, FL | Projected sales price analysis(1) | 35,518 | | | ||||||||||||
Princeton Land East, LLC |
Princeton, NJ | Comparable property market analysis(1) | 8,904 | | | ||||||||||||
Princeton Land LLC |
Princeton, NJ | Comparable property market analysis(1) | 13,356 | | | ||||||||||||
Redlands Promenade |
Redlands, CA | Projected sales price analysis(1) | 6,747 | | | ||||||||||||
The Shops At Summerlin Centre |
Las Vegas, NV | Comparable property market analysis(1) | 176,141 | | | ||||||||||||
Total development |
512,413 | | | ||||||||||||||
Various pre-development costs |
(2) | 51,373 | 31,689 | 2,933 | |||||||||||||
Goodwill |
(3) | 140,627 | 32,806 | | |||||||||||||
Total Retail and other |
1,115,118 | 76,265 | 2,933 | ||||||||||||||
Master Planned Communities: |
|||||||||||||||||
Columbia Master Planned Community |
Columba, MD | Projected sales price analysis(6) | | | 77,200 | ||||||||||||
Fairwood Master Planned Community |
Columbia, MD | Projected sales price analysis(6) | 52,769 | | 50,400 | ||||||||||||
Nouvelle at Natick |
Natick, MA | Discounted cash flow analysis(6) | 55,923 | 40,346 | | ||||||||||||
Total Master Planned Communities |
108,692 | 40,346 | 127,600 | ||||||||||||||
Total Provisions for impairment |
$ | 1,223,810 | $ | 116,611 | $ | 130,533 | |||||||||||
Facts and circumstances leading to impairment:
F-30
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
General
Certain of our properties had estimated Fair Values less than their carrying amounts. However, based on the Company's plans with respect to those properties, we believe that the carrying amounts are recoverable and therefore, under applicable GAAP guidance, no additional impairments were taken. Nonetheless, due to the tight credit markets, the recent and continuing decline in our market capitalization, the uncertain economic environment, as well as other uncertainties, or if our plans regarding our assets change, additional impairment charges in the future could result. Therefore, we can provide no assurance that material impairment charges with respect to operating properties, Unconsolidated Real Estate Affiliates, construction in progress, property held for development and sale or goodwill will not occur in future periods. Accordingly, we will continue to monitor circumstances and events in future periods to determine whether additional impairments are warranted.
Acquisitions of Operating Properties
Acquisitions of properties are accounted for utilizing the purchase method and, accordingly, the results of operations of acquired properties are included in our results of operations from the respective dates of acquisition. Estimates of future cash flows and other valuation techniques are used to allocate the purchase price of acquired property between land, buildings and improvements, equipment, debt liabilities assumed and identifiable intangible assets and liabilities such as amounts related to in-place at-market tenant leases, acquired above and below-market tenant and ground leases and tenant relationships. Due to existing contacts and relationships with tenants at our currently owned properties and at properties currently managed for others, no significant value has been ascribed to the tenant relationships at the acquired properties.
As of January 1, 2009, we adopted a new generally accepted accounting principle related to business combinations, which will change how business acquisitions are accounted for and will impact the financial statements both on the acquisition date and in subsequent periods.
Investments in Unconsolidated Real Estate Affiliates
We account for investments in joint ventures where we own a non-controlling joint interest using the equity method. Under the equity method, the cost of our investment is adjusted for our share of the equity in earnings of such Unconsolidated Real Estate Affiliates from the date of acquisition and reduced by distributions received. Generally, the operating agreements with respect to our Unconsolidated Real Estate Affiliates provide that assets, liabilities and funding obligations are shared in accordance with our ownership percentages. Therefore, we generally also share in the profit and losses, cash flows and other matters relating to our Unconsolidated Real Estate Affiliates in accordance with our respective ownership percentages. Except for Retained Debt (as described in Note 5), differences between the carrying amount of our investment in the Unconsolidated Real Estate Affiliates and our share of the underlying equity of such Unconsolidated Real Estate Affiliates is amortized over lives ranging from five to forty five years. When cumulative distributions exceed our investment in the joint venture, the investment is reported as a liability in our consolidated financial statements. For those joint ventures where we own less than approximately a 5% interest and have virtually no influence on the joint venture's operating and financial policies, we account for our investments using the cost method.
F-31
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
Highly-liquid investments with maturities at dates of purchase of three months or less are classified as cash equivalents.
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 us are considered capital leases and the present values of the minimum lease payments are accounted for as assets and liabilities.
Deferred Expenses
Deferred expenses consist principally of financing fees and leasing costs and commissions. Deferred financing fees are amortized to interest expense using the effective interest method (or other methods which approximate the effective interest method) over the terms of the respective financing agreements. Deferred leasing costs and commissions are amortized using the straight-line method over periods that approximate the related lease terms. Deferred expenses in our Consolidated Balance Sheets are shown at cost, net of accumulated amortization, and were $266.2 million as of December 31, 2009 and $256.8 million as of December 31, 2008.
Noncontrolling interestsCommon (Note 12)
Generally, the holders of the Common Units share equally with our common stockholders on a per share basis in any distributions by the Operating Partnership on the basis that one Common Unit is equivalent to one share of GGP common stock. However, the Operating Partnership agreement permits distributions solely to GGP if such distributions are required to allow GGP to comply with the REIT distribution requirements or to avoid the imposition of excise tax (Note 7). Under certain circumstances, the Common Units (other than Common Units held by the parties to the Rights Agreement dated July 27, 1993, as described below) can be redeemed at the option of the holders for cash or, at our election, shares of GGP common stock on a one-for-one basis. Upon receipt of a request for redemption by a holder of such Common Units, the Company, as general partner of the Operating Partnership, has the option to pay the redemption price for such Common Units with shares of common stock of the Company (subject to certain conditions), or in cash, on a one-for-one basis with a cash redemption price equivalent to the market price of one share of common stock of the Company at the time of redemption. Parties to the Rights Agreement dated July 27, 1993 (the "Rights Agreement") have the right to redeem the Common Units covered by such agreement for shares of GGP Common Stock on a one-for-one basis until they and certain affiliates own 25% of the outstanding shares of GGP Common Stock, at which point such parties have the right, subject to certain limitations, to require the Company to purchase any additional Common Units subject to the agreement. The Company may elect to pay for such Common Units in cash, or in shares of GGP Common Stock at the Company's election subject to certain limitations. All prior requests for redemption of Common Units have been fulfilled with shares of the Company's common stock. Notwithstanding this historical practice, the aggregate amount of cash that would have been paid to the holders of the outstanding Common Units as of December 31, 2009 if such holders had requested
F-32
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
redemption of the Common Units as of December 31, 2009, and all such Common Units were redeemed (or purchased in the case of the Rights Agreement) for cash, would have been $86.1 million. As a result of the Chapter 11 Cases, we currently cannot redeem Common Units for cash or shares of GGP common stock. In addition, the conditions necessary to issue GGP common stock upon redemption of Common Units are not currently satisfied. GAAP provides that the redeemable noncontrolling interests are to be presented in our Consolidated Balance Sheets at the greater of Fair Value (the conversion value of the units based on the stock price) or the carrying amount of the units. The applicable stock price was $11.56 and $1.29 per share at December 31, 2009 and December 31, 2008, respectively. Accordingly, the redeemable noncontrolling interests have been presented at Fair Value at December 31, 2009 and carrying amount at December 31, 2008.
Treasury Stock
We account for repurchases of common stock using the cost method with common stock in treasury classified in the Consolidated Balance Sheets as a reduction of stockholders' equity. Treasury stock is reissued at average cost.
Revenue Recognition and Related Matters
Minimum rent revenues are recognized on a straight-line basis over the terms of the related leases. Minimum rent revenues also include amounts collected from tenants to allow the termination of their leases prior to their scheduled termination dates and accretion related to above and below-market tenant leases on acquired properties. Termination income recognized for the years ended December 31, 2009, 2008 and 2007 was $23.3 million, $34.9 million and $26.0 million, respectively. Net accretion related to above and below-market tenant leases for the years ended December 31, 2009, 2008 and 2007 was $8.5 million, $15.6 million and $31.0 million, respectively.
Straight-line rent receivables, which represent the current net cumulative rents recognized prior to when billed and collectible as provided by the terms of the leases, of $254.7 million as of December 31, 2009 and $228.1 million as of December 31, 2008 are included in Accounts and notes receivable, net in our consolidated financial statements.
Percentage rent in lieu of fixed minimum rent received from tenants for the years ended December 31, 2009, 2008 and 2007 was $61.7 million, $50.3 million and $44.3 million, respectively, and is included in Minimum rents in our consolidated financial statements.
We provide an allowance for doubtful accounts against the portion of accounts receivable, including straight-line rents, which is estimated to be uncollectible. Such allowances are reviewed periodically based upon our recovery experience. We also evaluate the probability of collecting future rent which is recognized currently under a straight-line methodology. This analysis considers the long-term nature of our leases, as a certain portion of the straight-line rent currently recognizable will not be billed to the tenant until future periods. Our experience relative to unbilled deferred rent receivable is that a certain portion of the amounts recorded as straight-line rental revenue are never collected from (or billed to) tenants due to early lease terminations. For that portion of the otherwise recognizable deferred rent that is not deemed to be probable of collection, no revenue is recognized. Accounts receivable in our Consolidated Balance Sheets are shown net of an allowance for doubtful accounts of $69.2 million as of December 31, 2009, $59.8 million as of December 31, 2008 and
F-33
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
$68.6 milion as of December 31, 2007. The following table summarizes the changes in allowance for doubtful accounts:
|
2009 | 2008 | ||||||
---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||
Balance as of January 1 |
$ | 59,784 | $ | 68,596 | ||||
Provisions for doubtful accounts |
30,331 | 17,873 | ||||||
Write-offs |
(20,880 | ) | (26,685 | ) | ||||
Balance as of December 31 |
$ | 69,235 | $ | 59,784 | ||||
Overage Rent ("Overage Rent") is paid by a tenant when its sales exceed an agreed upon minimum amount. Overage Rent is calculated by multiplying the sales in excess of the minimum amount by a percentage defined in the lease. Overage Rent is recognized on an accrual basis once tenant sales exceed contractual tenant lease thresholds. Recoveries from tenants are established in the leases or computed based upon a formula related to real estate taxes, insurance and other shopping center operating expenses and are generally recognized as revenues in the period the related costs are incurred.
Management and other fees primarily represent management and leasing fees, construction fees, financing fees and fees for other ancillary services performed for the benefit of the Unconsolidated Real Estate Affiliates and for properties owned by third parties (Note 9).
Revenues from land sales are recognized using the full accrual method provided that various criteria relating to the terms of the transactions and our subsequent involvement with the land sold are met. Revenues relating to transactions that 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. Revenues and cost of sales are recognized on a percentage of completion basis for land sale transactions in which we are required to perform additional services and incur significant costs after title has passed.
Cost ratios for land sales are determined as a specified percentage of land sales revenues recognized for each community development project. The cost ratios used are based on actual costs incurred and estimates of future development costs and sales revenues to completion of each project. The ratios are reviewed regularly and revised for changes in sales and cost estimates or development plans. Significant changes in these estimates or development plans, whether due to changes in market conditions or other factors, could result in changes to the cost ratio used for a specific project. The specific identification method is used to determine cost of sales for certain parcels of land, including acquired parcels we do not intend to develop or for which development was complete at the date of acquisition.
As of December 31, 2009, there have been 84 unit closings of sales at our 215 unit Nouvelle at Natick residential condominium project. As the threshold for profit recognition on such sales has not yet been achieved, the $36.4 million of sales proceeds received at December 31, 2009 has been deferred and has been reflected within accounts payable, accrued expenses and other liabilities (Note 11). When such thresholds are achieved, the deferred revenue, and the related costs of units sold, will be reflected on the percentage of completion method within our master planned community segment.
F-34
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes (Note 7)
Deferred income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns and are recorded primarily by certain of our taxable REIT subsidiaries. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. An increase or decrease in the deferred tax liability that results from a change in circumstances, and which causes a change in our judgment about expected future tax consequences of events, is included in the current tax provision. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. An increase or decrease in the valuation allowance that results from a change in circumstances, and which causes a change in our judgment about the realizability of the related deferred tax asset, is included in the current tax provision. It is possible that the Company could experience a change in control pursuant to Section 382 that could limit the benefit of deferred tax assets. In addition, we recognize and report interest and penalties, if necessary, related to uncertain tax positions within our provision for income tax expense.
In many of our Master Planned Communities, gains with respect to sales of land for commercial use, condominiums or apartments are reported for tax purposes on the percentage of completion method. Under the percentage of completion method, gain is recognized for tax purposes as costs are incurred in satisfaction of contractual obligations. The method used for determining the percentage complete for income tax purposes is different than that used for financial statement purposes. In addition, gains with respect to sales of land for single family residences are reported for tax purposes under the completed contract method. Under the completed contract method, gain is recognized for tax purposes when 95% of the costs of our contractual obligations are incurred or the contractual obligation is transferred.
Earnings Per Share ("EPS")
Basic earnings per share ("EPS") is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding. Diluted EPS is computed after adjusting the numerator and denominator of the basic EPS computation for the effects of all potentially dilutive common shares. The dilutive effect of convertible securities is computed using the "if-converted" method and the dilutive effect of options, warrants and their equivalents (including fixed awards and nonvested stock issued under stock-based compensation plans) is computed using the "treasury stock" method.
Diluted EPS excludes options where the exercise price was higher than the average market price of our common stock and options for which vesting requirements were not satisfied. Such options totaled 6,207,025 shares as of December 31, 2009, 4,966,829 shares as of December 31, 2008 and 3,754,458 shares as of December 31, 2007. Outstanding Common Units have also been excluded from the diluted earnings per share calculation because including such Common Units would also require that the share of GGPLP income attributable to such Common Units be added back to net income therefore resulting in no effect on EPS. Finally, the Exchangeable Notes that were issued in April 2007 (Note 6) are also
F-35
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
excluded from EPS because the conditions for exchange were not satisfied as of December 31, 2008 and were stayed by our Chapter 11 Cases in 2009.
Information related to our EPS calculations is summarized as follows:
|
Years Ended December 31, | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2007 | |||||||||||||||||
|
Basic | Diluted | Basic | Diluted | Basic | Diluted | ||||||||||||||
|
(In thousands)
|
|||||||||||||||||||
Numerators: |
||||||||||||||||||||
(Loss) income from continuing operations |
$ | (1,303,861 | ) | $ | (1,303,861 | ) | $ | (36,372 | ) | $ | (36,372 | ) | $ | 347,597 | $ | 347,597 | ||||
Allocation to noncontrolling interests |
20,115 | 20,115 | (4,909 | ) | (4,909 | ) | (73,955 | ) | (73,955 | ) | ||||||||||
(Loss) income from continuing operationsnet of noncontrolling interests |
(1,283,746 | ) | (1,283,746 | ) | (41,281 | ) | (41,281 | ) | 273,642 | 273,642 | ||||||||||
Discontinued operations(loss) gain on dispositions |
(966 | ) | (966 | ) | 55,044 | 55,044 | | | ||||||||||||
Allocation to noncontrolling interests |
23 | 23 | (9,044 | ) | (9,044 | ) | | | ||||||||||||
Discontinued operationsnet of noncontrolling interests |
(943 | ) | (943 | ) | 46,000 | 46,000 | | | ||||||||||||
Net (loss) income |
(1,304,827 | ) | (1,304,827 | ) | 18,672 | 18,672 | 347,597 | 347,597 | ||||||||||||
Allocation to noncontrolling interests |
20,138 | 20,138 | (13,953 | ) | (13,953 | ) | (73,955 | ) | (73,955 | ) | ||||||||||
Net (loss) income attributable to common stockholders |
$ | (1,284,689 | ) | $ | (1,284,689 | ) | $ | 4,719 | $ | 4,719 | $ | 273,642 | $ | 273,642 | ||||||
Denominators: |
||||||||||||||||||||
Weighted average number of common shares outstandingbasic and diluted |
311,993 | 311,993 | 262,195 | 262,195 | 243,992 | 243,992 | ||||||||||||||
Effect of dilutive securitiesstock options |
| | | | | 546 | ||||||||||||||
Weighted average number of common shares outstanding |
311,993 | 311,993 | 262,195 | 262,195 | 243,992 | 244,538 | ||||||||||||||
Derivative Financial Instruments
As of January 1, 2009, we adopted the generally accepted accounting principles related to disclosures about derivative instruments and hedging activities which requires qualitative disclosures
F-36
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
about objectives and strategies for using derivatives, quantitative disclosures about the Fair Value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
We use derivative financial instruments to reduce risk associated with movement in interest rates. We may choose or be required by lenders to reduce cash flow and earnings volatility associated with interest rate risk exposure on variable-rate borrowings and/or forecasted fixed-rate borrowings by entering into interest rate swaps or interest rate caps. We do not use derivative financial instruments for speculative purposes.
During the first quarter of 2009, our interest rate swaps no longer qualified as highly effective and therefore no longer qualified for hedge accounting treatment as the Company made the decision not to pay future settlement payments under such swaps. As a result of the terminations of the swaps we incurred termination fees of $34.8 million. Accordingly, we reduced the liability associated with these derivative financial instruments during the first and second quarter of 2009 (included in interest expense in our consolidated financial statements) which resulted in a reduction in interest expense of $27.7 million in 2009. As the interest payments on the hedged debt remain probable, the net balance in the gain or loss in accumulated other comprehensive (loss) income of $(27.7) million that existed as of December 31, 2008 remains in accumulated other comprehensive (loss) income and is amortized to interest expense as the hedged forecasted transactions impact earnings or are deemed probable not to occur. The amortization of the accumulated other comprehensive (loss) income resulted in additional interest expense of $18.1 million for the year ended December 31, 2009.
Under interest rate cap agreements, we make initial premium payments to the counterparties in exchange for the right to receive payments from them if interest rates exceed specified levels 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. We had no interest rate cap derivatives for our Consolidated Properties as of December 31, 2009 while we had three outstanding interest rate cap derivatives that were designated as a cash flow hedge of interest rate risk with a notional value of $1.13 billion as of December 31, 2008.
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. We do not require any collateral under these agreements, but deal only with well known financial institution counterparties (which, in certain cases, are also the lenders on the related debt) and expect that all counterparties will meet their obligations.
We have not recognized any losses as a result of hedge accounting and the expense that we recognized related to changes in the time value of interest rate cap agreements were insignificant for 2009, 2008 and 2007.
Investments in Marketable Securities
Most investments in marketable securities are held in an irrevocable trust for participants (employees of a subsidiary acquired in 2004) in a qualified defined contribution pension plan, are classified as trading securities and are carried at Fair Value with changes in values recognized in earnings. Investments in certain marketable debt securities with maturities at dates of purchase in excess of three months are carried at amortized cost as we intend to hold these investments until
F-37
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
maturity. Other investments in marketable equity securities subject to significant restrictions on sale or transfer are classified as available-for-sale and are carried at Fair Value with unrealized changes in values recognized in other comprehensive income.
|
2009 | 2008 | 2007 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
|
|
(In thousands)
|
|
|||||||
Proceeds from sales of available-for-sale securities |
$ | 7,097 | $ | 3,362 | $ | 3,720 | ||||
Gross realized (losses) gains on available-for-sale securities |
(2,681 | ) | (426 | ) | 643 |
Fair Value Measurements
We adopted the generally accepted accounting principles related to Fair Value measurements as of January 1, 2008 for our financial assets and liabilities and, although our disclosures were increased, such adoption did not change our valuation methods for such assets and liabilities. This initial adoption applied primarily to our derivative financial instruments, which are assets and liabilities carried at Fair Value (primarily based on unobservable market data) on a recurring basis in our consolidated financial statements. As of December 31, 2009, our derivative financial instruments and our investments in marketable securities are immaterial to our consolidated financial statements. In addition, as required, we adopted these principles as of January 1, 2009 for our non-financial assets and liabilities, which, in accordance with the guidance impacts our assets measured at Fair Value due to impairments incurred since adoption.
The accounting principles for Fair Value measurements establish a three-tier Fair Value hierarchy, which prioritizes the inputs used in measuring Fair Value. These tiers include:
The asset or liability Fair Value measurement level within the Fair Value hierarchy is based on the lowest level of any input that is significant to the Fair Value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Any Fair Values utilized or disclosed in our consolidated financial statements were developed for the purpose of complying with the accounting principles established for Fair Value measurements. The Fair Values of our assets or liabilities for enterprise value in our Chapter 11 Cases or as a component of our reorganization plan (see Note 1) will reflect differing assumptions and methodologies. These estimates will be subject to a number of approvals and reviews and therefore may be materially different.
F-38
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The following table summarizes our assets and liabilities that are measured at Fair Value on a nonrecurring basis:
|
Total Fair Value
Measurement |
Quoted Prices in
Active Markets for Identical Assets (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total (Loss) Gain
Year Ended December 31, 2009 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||||||||||||
Investments in real estate: |
|||||||||||||||||
Allen Towne Mall |
$ | 25,900 | $ | | $ | 25,900 | $ | | $ | (29,063 | ) | ||||||
Bay City Mall(1) |
26,711 | | | 26,711 | (830 | ) | |||||||||||
The Bridges At Mint Hill |
14,100 | | 14,100 | | (16,636 | ) | |||||||||||
Cache Valley Mall(1) |
26,695 | | | 26,695 | (3,169 | ) | |||||||||||
Cache Valley Marketplace(1) |
8,100 | | | 8,100 | (938 | ) | |||||||||||
Chico Mall(1) |
55,524 | | | 55,524 | (4,127 | ) | |||||||||||
Cottonwood Mall(1) |
21,500 | | | 21,500 | (50,768 | ) | |||||||||||
Country Hills Plaza(1) |
11,626 | | | 11,626 | (287 | ) | |||||||||||
Eagle Ridge Mall(1) |
27,289 | | | 27,289 | (22,301 | ) | |||||||||||
Elk Grove Promenade |
21,900 | | 21,900 | | (175,280 | ) | |||||||||||
Fairwood Master Planned Community |
12,629 | | 12,629 | | (52,769 | ) | |||||||||||
Foothills Mall(1) |
42,296 | | | 42,296 | (57,602 | ) | |||||||||||
Kendall Town Center |
13,931 | | | 13,931 | (35,518 | ) | |||||||||||
Lakeview Square(1) |
33,618 | | | 33,618 | (2,764 | ) | |||||||||||
Landmark Mall(1) |
49,501 | | | 49,501 | (27,323 | ) | |||||||||||
Moreno Valley Mall(1) |
78,477 | | | 78,477 | (2,873 | ) | |||||||||||
Northgate Mall(1) |
27,179 | | | 27,179 | (14,904 | ) | |||||||||||
North Plains Mall(1) |
15,252 | | | 15,252 | (2,496 | ) | |||||||||||
Nouvelle At Natick |
64,661 | | | 64,661 | (55,923 | ) | |||||||||||
Oviedo Marketplace(1) |
34,578 | | | 34,578 | (3,438 | ) | |||||||||||
Owings Mills Mall(1) |
26,695 | | | 26,695 | (51,604 | ) | |||||||||||
Owings Mills-Two Corporate Center |
15,762 | | | 15,762 | (7,880 | ) | |||||||||||
Plaza 9400 |
2,618 | | | 2,618 | (5,409 | ) | |||||||||||
Piedmont Mall(1) |
30,222 | | | 30,222 | (7,232 | ) | |||||||||||
Princeton Land East, LLC |
8,802 | | 8,802 | | (8,904 | ) | |||||||||||
Princeton Land LLC |
11,948 | | 11,948 | | (13,356 | ) | |||||||||||
Redlands Promenade |
6,727 | | | 6,727 | (6,747 | ) | |||||||||||
River Falls Mall(1) |
23,782 | | | 23,782 | (82,893 | ) | |||||||||||
The Shoppes At The Palazzo(1) |
244,680 | | | 244,680 | (37,914 | ) | |||||||||||
The Shops At Summerlin Centre |
46,300 | | 46,300 | | (176,141 | ) | |||||||||||
Silver Lake Mall(1) |
16,038 | | | 16,038 | (10,134 | ) | |||||||||||
Spring Hill Mall(1) |
49,294 | | | 49,294 | (59,050 | ) | |||||||||||
The Village At Redlands |
7,545 | | | 7,545 | (5,537 | ) | |||||||||||
Total investments in real estate |
$ | 1,101,880 | $ | | $ | 141,579 | $ | 960,301 | $ | (1,031,810 | ) | ||||||
Debt: (2) |
F-39
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
Total Fair Value
Measurement |
Quoted Prices in
Active Markets for Identical Assets (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total (Loss) Gain
Year Ended December 31, 2009 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||||||||||||
Fair value of emerged entity mortgage debt |
$ | 4,246,387 | $ | | $ | | $ | 4,246,387 | $ | 342,165 | |||||||
Total liabilities |
$ | 4,246,387 | $ | | $ | | $ | 4,246,387 | $ | 342,165 | |||||||
Fair Value of Financial Instruments
The Fair Values of our financial instruments approximate their carrying amount in our financial statements except for debt. Notwithstanding that we do not believe that a fully-functioning market for real property financing exists currently, GAAP guidance requires that management estimate the Fair Value of our debt. However, as a result of the Company's Chapter 11 filing, the Fair Value for the outstanding debt that is included in liabilities subject to compromise in our Consolidated Balance Sheets cannot be reasonably determined at December 31, 2009 as the timing and amounts to be paid are subject to confirmation by the Bankruptcy Court. For the $7.30 billion of mortgages, notes and loans payable outstanding that are not subject to compromise at December 31, 2009, management's required estimates of Fair Value are presented below. This Fair Value was estimated solely for financial statement reporting purposes and should not be used for any other purposes, including to estimate the value of any of the Company's securities or to estimate the appropriate interest rate for consensual and non-consensual restructuring of secured debt in our Chapter 11 Cases. We estimated the Fair Value of this debt based on quoted market prices for publicly-traded debt, recent financing transactions (which may not be comparable), estimates of the Fair Value of the property that serves as collateral for such debt, historical risk premiums for loans of comparable quality, current London Interbank Offered Rate ("LIBOR"), a widely quoted market interest rate which is frequently the index used to determine the rate at which we borrow funds and U.S. treasury obligation interest rates, and on the discounted estimated future cash payments to be made on such debt. The discount rates estimated reflect our judgment as to what the approximate current lending rates for loans or groups of loans with similar maturities and credit quality would be if credit markets were operating efficiently and assume that the debt is outstanding through maturity. We have utilized market information as available or present value techniques to estimate the amounts required to be disclosed, or, in the case of the debt of the Track 1A Debtors, recorded due to GAAP bankruptcy emergence guidance (as described above and in Note 6). Since such amounts are estimates that are based on limited available market information for similar transactions and do not acknowledge transfer or other repayment restrictions that may exist in
F-40
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
specific loans, it is unlikely that the estimated Fair Value of any of such debt could be realized by immediate settlement of the obligation.
|
2009 | 2008 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Carrying
Amount |
Estimated
Fair Value |
Carrying
Amount |
Estimated
Fair Value |
|||||||||
|
(In millions)
|
||||||||||||
Fixed-rate debt |
$ | 7,301 | $ | 7,207 | $ | 19,241 | $ | 16,601 | |||||
Variable-rate debt |
| | 5,516 | 4,867 | |||||||||
|
$ | 7,301 | $ | 7,207 | $ | 24,757 | $ | 21,468 | |||||
Included in such amounts for 2009 is $4.2 billion of debt that relates to the 50 properties that emerged from bankruptcy in December 2009 where the carrying value of the debt was adjusted by $342.2 million to an estimated Fair Value of such debt (based on significant unobservable Level 3 Inputs).
StockBased Compensation Expense
We evaluate our stock-based compensation expense in accordance with the generally accepted accounting principles related to sharebased payments, which requires companies to estimate the Fair Value of sharebased payment awards on the date of grant using an optionpricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Consolidated Statements of Income and Comprehensive Income.
These accounting principles require forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The cumulative effect of estimating forfeitures for these plans decreased compensation expense by approximately $1.8 million for the year ended December 31, 2009, $1.9 million for the year ended December 31, 2008 and $1.0 million for the year ended December 31, 2007 and have been reflected in our consolidated financial statements.
Officer Loans
In October 2008, the independent members of the Company's Board of Directors learned that between November 2007 and September 2008, an affiliate of certain Bucksbaum family trusts advanced a series of unsecured loans, without the Board's approval, to Mr. Robert Michaels, the Company's former director and president and Mr. Bernard Freibaum, the Company's former director and chief financial officer, for the purpose of repaying personal margin debt relating to Company common stock owned by each of them. The loan to Mr. Michaels, which totaled $10 million, has been repaid in full. The loans to Mr. Freibaum totaled $90 million, of which $80 million was outstanding as of the date of Mr. Freibaum's separation from the Company in 2008. No Company assets or resources were involved in the loans and no laws or United States Securities and Exchange Commission ("SEC") rules were violated as a result of the loans. Under applicable GAAP guidance, as a result of these loans, the Company is deemed to have received a contribution to capital by the lender and to have incurred compensation expense in an equal amount for no incremental equity interest in the Company. We calculated the Fair Value of the loans based on a derivation of the income approach known as the
F-41
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
discounted cash flow method. Specifically, the Fair Values of the loans were calculated as the present value of the estimated future cash flows (consisting of quarterly interest payments, an annual loan commitment fee, and principal repayment upon demand of the loan) attributable to the loan using a market-based discount rate that accounts for the time value of money and the appropriate degree of risk inherent in the loans as of the various valuation dates. Included in our valuation of the Fair Value of the loans is a consideration for the credit risk of the loans on each date of issuance, based upon, among other considerations, Mr. Freibaum's and Mr. Michaels' stockholdings in the Company, outstanding loans and current and past compensation from the Company. For Mr. Freibaum's loans we valued the loans at each respective disbursement date and amendment date and used loan terms varying from six months to two years reflecting our estimation that repayment would require an orderly liquidation of Mr. Freibaum's other assets. For Mr. Michaels' loans, we valued the loan at its disbursement date based on its actual term. Accordingly, the compensation expense is measured as the difference between the Fair Values of the loans as compared to the face amount of the loans. Such calculated expenses are measured and recognizable at the date of such advances and as of the dates of amendments as there were no future service or employment requirements stated in the loan agreements. The total compensation expense is the aggregation of the Fair Value to face amount differences. Accordingly, we recorded the cumulative correction of the compensation expense of $15.4 million in the fourth quarter of 2008 and there was no impact to 2009.
The Glendale Matter
In the fall of 2007, a lawsuit (the "Glendale Matter") involving Caruso Affiliated Holdings, LLC as Plaintiff and GGP and GGP/Homart II, L.L.C. (one of our Unconsolidated Real Estate Affiliates) (collectively, the "Defendants") in the Los Angeles Superior Court (the "Court") alleging violations of the California antitrust and unfair competition laws and tortious interference with prospective economic advantage was concluded. The Court entered judgment with respect to the interference with prospective economic advantage claim against Defendants in the amount of $74.2 million in compensatory damages, $15.0 million in punitive damages, and $0.2 million in court costs (the "Judgment Amount"). Defendants appealed the judgment and posted an appellate bond in April 2008 for $134.1 million, which was equal to 150% of the Judgment Amount. Additionally, in April 2008, GGPLP supplied cash as collateral to secure the appellate bond in the amount equal to 50% of the total bond amount or $67.1 million.
On December 19, 2008, the Defendants agreed to terms of a settlement and mutual release agreement with Caruso Affiliated Holdings LLC which released the Defendants from all past, present and future claims related to the Glendale Matter in exchange for a settlement payment of $48.0 million, which was paid from the appellate bond cash collateral account in January 2009. Concurrently, GGP agreed with its joint venture partner in GGP/Homart II, New York State Common Retirement Fund ("NYSCRF"), that GGP would not be reimbursed for any portion of this payment, and we would reimburse $5.5 million of costs to NYSCRF in connection with the settlement. Accordingly, as of December 2008, the Company adjusted its liability for the Judgment Amount from $89.4 million to $48.0 million and reversed legal fees incurred by GGP/Homart II of $14.2 million that were previously recorded at 100% by GGP and post-judgment related interest expense of $7.0 million. The net impact of these items related to the settlement is a credit of $57.1 million reflected in litigation recovery in our Consolidated Statements of Income and Comprehensive Income for 2008. Also as a
F-42
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
result of the settlement, the Company reflected its 50% share of legal costs that had previously been recorded at 100% as $7.1 million of additional expense reflected in Equity in income of Unconsolidated Real Estate Affiliates in our Consolidated Statements of Income and Comprehensive Income for 2008.
Foreign Currency Translation
The functional currencies for our international joint ventures are their local currencies. Assets and liabilities of these investments are translated at the rate of exchange in effect on the balance sheet date and operations are translated at the weighted average exchange rate for the period. Translation adjustments resulting from the translation of assets and liabilities are accumulated in stockholders' equity as a component of accumulated other comprehensive income (loss). Translation of operations is reflected in equity in income of Unconsolidated Real Estate Affiliates.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. For example, significant estimates and assumptions have been made with respect to useful lives of assets, capitalization of development and leasing costs, provision for income taxes, recoverable amounts of receivables and deferred taxes, initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to acquisitions, impairment of long-lived assets and goodwill, valuation of debt of emerged entities and cost ratios and completion percentages used for land sales. Actual results could differ from these and other estimates.
NOTE 3 ACQUISITIONS AND INTANGIBLES
Acquisitions
On February 29, 2008, we acquired The Shoppes at The Palazzo in Las Vegas, Nevada for an initial purchase price of $290.8 million (Note 14).
On July 6, 2007, we acquired the fifty percent interest owned by NYSCRF in the GGP/Homart I portfolio (the "Homart I acquisition") for a purchase price of approximately $2.3 billion, including approximately $1 billion of assumed debt.
F-43
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3 ACQUISITIONS AND INTANGIBLES (Continued)
Intangible Assets and Liabilities
The following table summarizes our intangible assets and liabilities:
|
Gross Asset
(Liability) |
Accumulated
(Amortization)/ Accretion |
Net Carrying
Amount |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
|
(In thousands)
|
|
||||||||
As of December 31, 2009 |
|||||||||||
Tenant leases: |
|||||||||||
In-place value |
$ | 539,257 | $ | (335,310 | ) | $ | 203,947 | ||||
Above-market |
94,194 | (59,855 | ) | 34,339 | |||||||
Below-market |
(149,978 | ) | 86,688 | (63,290 | ) | ||||||
Ground leases: |
|||||||||||
Above-market |
(16,968 | ) | 2,423 | (14,545 | ) | ||||||
Below-market |
271,602 | (29,926 | ) | 241,676 | |||||||
Real estate tax stabilization agreement |
91,879 | (20,272 | ) | 71,607 | |||||||
As of December 31, 2008 |
|||||||||||
Tenant leases: |
|||||||||||
In-place value |
$ | 637,791 | $ | (381,027 | ) | $ | 256,764 | ||||
Above-market |
117,239 | (65,931 | ) | 51,308 | |||||||
Below-market |
(199,406 | ) | 110,650 | (88,756 | ) | ||||||
Ground leases: |
|||||||||||
Above-market |
(16,968 | ) | 1,951 | (15,017 | ) | ||||||
Below-market |
271,602 | (24,049 | ) | 247,553 | |||||||
Real estate tax stabilization agreement |
91,879 | (16,348 | ) | 75,531 |
Changes in gross asset (liability) balances in 2009 are the result of the allocation of provisions for impairment (Note 2) and our policy of writing off fully amortized intangible assets.
The gross asset balances of the in-place value of tenant leases are included in Buildings and equipment in our Consolidated Balance Sheets. Acquired in-place at-market tenant leases are amortized over periods that approximate the related lease terms. The above-market and below-market tenant and ground leases as well as the real estate tax stabilization agreement intangible asset are included in Prepaid expenses and other assets and Accounts payable and accrued expenses as detailed in Note 11. Above and below-market lease values are amortized over the remaining non-cancelable terms of the respective leases (averaging approximately five years for tenant leases and approximately 45 years for ground leases).
Amortization/accretion of these intangible assets and liabilities, and similar assets and liabilities from our Unconsolidated Real Estate Affiliates at our share, decreased our income (excluding the impact of noncontrolling interest and the provision for income taxes) by $62.6 million in 2009, $70.4 million in 2008 and $62.5 million in 2007.
Future amortization, including our share of such items from Unconsolidated Real Estate Affiliates, is estimated to decrease income (excluding the impact of noncontrolling interest and the provision for income taxes) by $54.8 million in 2010, $44.4 million in 2011, $37.0 million in 2012, $30.6 million in 2013 and $31.3 million in 2014.
F-44
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 DISCONTINUED OPERATIONS AND GAINS (LOSSES) ON DISPOSITIONS OF INTERESTS IN OPERATING PROPERTIES
On December 21, 2009, we sold one office building totaling approximately 38,400 square feet and 4.1995 acres of land located in Woodlands, Texas for a total sales price of $2.0 million, resulting in a total loss of $0.9 million.
On April 4, 2008, we sold one office building totaling approximately 16,500 square feet located in Las Vegas for a total sales price of $3.3 million, resulting in a total gain of $2.0 million (net of $0.5 million of noncontrolling interest).
On April 23, 2008, we sold two office buildings totaling approximately 390,000 square feet located in Maryland for a sales price of $94.7 million (including debt assumed of approximately $84 million), resulting in total gains of $28.8 million (net of $5.7 million of noncontrolling interest).
On August 21, 2008, we sold an office park consisting of three office buildings totaling approximately 73,500 square feet located in Maryland for a total sales price of $4.7 million, resulting in total gains of $0.8 million (net of $0.2 million of noncontrolling interest).
On September 29, 2008, we sold an office park consisting of five office buildings totaling approximately 306,500 square feet located in Maryland for a total sales price of $42.3 million, resulting in total gains of $14.4 million (net of $2.6 million of noncontrolling interest).
All of the 2008 dispositions are included in discontinued operations, (loss) gain on dispositions in our consolidated financial statements. For Federal income tax purposes, the two office buildings and one of the office parks located in Maryland were used as relinquished property in a like-kind exchange involving the acquisition of The Shoppes at The Palazzo.
We evaluated the operations of these properties pursuant to the requirements of the generally accepted accounting principles related to business combinations and concluded that the operations of these office buildings that were sold did not materially impact the prior period results and therefore have not reported any prior operations of these properties as discontinued operations in the accompanying consolidated financial statements.
NOTE 5 UNCONSOLIDATED REAL ESTATE AFFILIATES
The Unconsolidated Real Estate Affiliates include our noncontrolling investments in real estate joint ventures. Generally, we share in the profits and losses, cash flows and other matters relating to our investments in Unconsolidated Real Estate Affiliates in accordance with our respective ownership percentages. We manage most of the properties owned by these joint ventures. As we have joint interest and control of these ventures with our venture partners and they have substantive participating rights in such ventures, we account for these joint ventures using the equity method. Some of the joint ventures have elected to be taxed as REITs. As described in Note 1, at December 31, 2009, we have three joint venture investments located outside the U.S. These investments, with an aggregate carrying amount of $221.0 million and $166.7 million at December 31, 2009 and 2008, respectively, are managed by the respective joint venture partners in each country. Substantially all changes in 2009 and 2008 in the carrying amount of our investments in such international joint ventures have been due to currency fluctuations. As we also have substantial participation rights with respect to these international joint ventures, we account for them on the equity method. Finally, we entered into an agreement to sell our
F-45
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
Costa Rica investment for $7.5 million, yielding a nominal gain that we expect will be recognized in the first quarter of 2010.
In June and July, 2009 we made capital contributions of $28.7 million and $57.5 million, respectively, to fund our portion of $172.2 million of joint venture mortgage debt which had reached maturity and which, due to the non-functioning credit markets, we were unable to satisfactorily extend or refinance. As of December 31, 2009, approximately $6.38 billion of indebtedness was secured by our Unconsolidated Properties, our share of which was approximately $3.12 billion. There can be no assurance that we will be able to refinance or restructure such debt (including the $635.9 million of debt maturing in 2010) on acceptable terms or otherwise, or that joint venture operations or contributions by us and/or our partners will be sufficient to repay such loans.
In certain circumstances, we have debt obligations in excess of our pro rata share of the debt of our Unconsolidated Real Estate Affiliates ("Retained Debt"). This Retained Debt represents distributed debt proceeds of the Unconsolidated Real Estate Affiliates in excess of our pro rata share of the non-recourse mortgage indebtedness of such Unconsolidated Real Estate Affiliates. The proceeds of the Retained Debt which are distributed to us are included as a reduction in our investment in Unconsolidated Real Estate Affiliates. Such Retained Debt totaled $158.2 million as of December 31, 2009 and $160.8 million as of December 31, 2008, and has been reflected as a reduction in our investment in Unconsolidated Real Estate Affiliates. We are obligated, and through March 1, 2010 have fulfilled our obligation, to contribute funds to our Unconsolidated Real Estate Affiliates in amounts sufficient to pay debt service on such Retained Debt. If we do not contribute such funds, our distributions from such Unconsolidated Real Estate Affiliates, or our interest in, will be reduced to the extent of such deficiencies. As of March 1, 2010, we do not anticipate an inability to perform on our obligations with respect to such Retained Debt.
In certain other circumstances, the Company, in connection with the debt obligations of certain Unconsolidated Real Estate Affiliates, has agreed to provide supplemental guarantees or master-lease commitments to provide to the debt holders additional credit-enhancement or security. As of December 31, 2009, we do not expect to be required to perform pursuant to any of such supplemental credit-enhancement provisions for our Unconsolidated Real Estate Affiliates, either due to estimates of the current obligations represented by such provisions or as a result of the protections afforded us through our Chapter 11 Cases.
We recorded provisions for impairment related to our Unconsolidated Real Estate Affiliates for the years ended December 31, 2009, 2008 and 2007, as presented in the table below. In addition, we recorded provisions for impairment related to our investments in The Shops at Circle T Ranch and Circle T Power Center joint ventures of $10.6 million for the year ended December 31, 2009. All of
F-46
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
these impairment charges are included in equity in earnings (loss) from Unconsolidated Real Estate Affiliates in our consolidated financial statements.
Impaired Asset
|
Location | 2009 |
Year Ended December 31,
2008 |
2007 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
(In thousands)
|
|
|||||||||
GGP/Homart II |
|||||||||||||
Montclair Properties(1) |
Montclair, CA | $ | 12,894 | $ | | $ | | ||||||
Various pre-development costs(2) |
3,697 | 446 | (17 | ) | |||||||||
|
16,591 | 446 | (17 | ) | |||||||||
GGP/Teachers |
|||||||||||||
Silver City Galleria(1) |
Taunton, MA | 16,846 | | | |||||||||
Various pre-development costs(2) |
17 | 115 | 45 | ||||||||||
|
16,863 | 115 | 45 | ||||||||||
The Shops at Circle T Ranch(3) |
Dallas, TX |
17,062 |
|
|
|||||||||
Circle T Power Center(3) |
Dallas, TX |
21,020 |
|
|
|||||||||
Other: |
|||||||||||||
Various pre-development costs(2) |
2,749 | 267 | 451 | ||||||||||
|
$ | 74,285 | $ | 828 | $ | 479 | |||||||
Total Provisions for impairment, at our ownership share |
$ | 37,120 | $ | 389 | $ | 232 | |||||||
On January 29, 2010, our Brazilian joint venture, Aliansce Shopping Centers S.A. ("Aliansce"), commenced trading on the Brazilian Stock Exchange, or BM&FBovespa, as a result of an initial public offering of Aliansce's common shares in Brazil. GGP did not sell any of its Aliansce shares in the offering and now has approximately a 31.4% ownership interest in Aliansce, which develops, owns and manages shopping centers in Brazil. In light of Aliansce becoming a public company in Brazil, we will change the manner in which we account for our share of Aliansce's results of operations in our consolidated financial statements. We will continue to apply the equity method to our interest in Aliansce; however, commencing in 2010 we will report our share of Aliansce's results in our financial statements one quarter in arrears due to the timing of the release of Aliansce's publicly available financial statements. As a result of the transition to this accounting treatment, GGP's financial statements for the quarter ended March 31, 2010 will not include any results from Aliansce's business and GGP's financial statements for the fiscal year ended December 31, 2010 will include only nine months of Aliansce's operations. We do not believe that this timing difference will have a material impact on our consolidated financial statements.
The significant accounting policies used by the Unconsolidated Real Estate Affiliates are the same as ours.
F-47
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
Condensed Combined Financial Information of Unconsolidated Real Estate Affiliates
Following is summarized financial information for our Unconsolidated Real Estate Affiliates as of December 31, 2009 and 2008 and for the years ended December 31, 2009, 2008 and 2007. Certain 2008 and 2007 amounts have been reclassified to conform to the 2009 presentation.
|
December 31,
2009 |
December 31,
2008 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||
Condensed Combined Balance SheetsUnconsolidated Real Estate Affiliates |
||||||||||
Assets: |
||||||||||
Land |
$ | 901,387 | $ | 863,965 | ||||||
Buildings and equipment |
7,924,577 | 7,558,344 | ||||||||
Less accumulated depreciation |
(1,691,362 | ) | (1,524,121 | ) | ||||||
Developments in progress |
333,537 | 549,719 | ||||||||
Net property and equipment |
7,468,139 | 7,447,907 | ||||||||
Investment in unconsolidated joint ventures |
385,767 | 241,786 | ||||||||
Investment property and property held for development and sale |
266,253 | 282,636 | ||||||||
Net investment in real estate |
8,120,159 | 7,972,329 | ||||||||
Cash and cash equivalents |
275,018 | 231,500 | ||||||||
Accounts and notes receivable, net |
226,385 | 163,749 | ||||||||
Deferred expenses, net |
197,663 | 173,213 | ||||||||
Prepaid expenses and other assets |
293,069 | 225,809 | ||||||||
Total assets |
$ | 9,112,294 | $ | 8,766,600 | ||||||
Liabilities and Owners' Equity: |
||||||||||
Mortgages, notes and loans payable |
$ | 6,375,798 | $ | 6,411,631 | ||||||
Accounts payable, accrued expenses and other liabilities |
490,814 | 513,538 | ||||||||
Owners' equity |
2,245,682 | 1,841,431 | ||||||||
Total liabilities and owners' equity |
$ | 9,112,294 | $ | 8,766,600 | ||||||
Investment In and Loans To/From Unconsolidated Real Estate Affiliates, Net: |
||||||||||
Owners' equity |
$ | 2,245,682 | $ | 1,841,431 | ||||||
Less joint venture partners' equity |
(1,940,707 | ) | (915,690 | ) | ||||||
Capital or basis differences and loans |
1,636,049 | 911,894 | ||||||||
Investment in and loans to/from |
||||||||||
Unconsolidated Real Estate Affiliates, net |
$ | 1,941,024 | $ | 1,837,635 | ||||||
ReconciliationInvestment In and Loans To/From Unconsolidated Real Estate Affiliates: |
||||||||||
AssetInvestment in and loans to/from |
||||||||||
Unconsolidated Real Estate Affiliates |
$ | 1,979,313 | $ | 1,869,929 | ||||||
LiabilityInvestment in and loans to/from |
||||||||||
Unconsolidated Real Estate Affiliates |
(38,289 | ) | (32,294 | ) | ||||||
Investment in and loans to/from |
||||||||||
Unconsolidated Real Estate Affiliates, net |
$ | 1,941,024 | $ | 1,837,635 | ||||||
F-48
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
|
Years Ended December 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2007 | |||||||||
|
(In thousands)
|
|||||||||||
Condensed Combined Statements of IncomeUnconsolidated Real Estate Affiliates |
||||||||||||
Revenues: |
||||||||||||
Minimum rents |
$ | 763,283 | $ | 761,128 | $ | 805,713 | ||||||
Tenant recoveries |
335,324 | 337,377 | 356,148 | |||||||||
Overage rents |
13,213 | 17,622 | 25,314 | |||||||||
Land sales |
72,367 | 137,504 | 161,938 | |||||||||
Management and other fees |
32,526 | 24,459 | 33,145 | |||||||||
Other |
93,886 | 113,988 | 142,549 | |||||||||
Total revenues |
1,310,599 | 1,392,078 | 1,524,807 | |||||||||
Expenses: |
||||||||||||
Real estate taxes |
99,600 | 93,707 | 100,279 | |||||||||
Repairs and maintenance |
78,965 | 78,222 | 84,840 | |||||||||
Marketing |
15,265 | 18,251 | 25,275 | |||||||||
Other property operating costs |
226,615 | 234,388 | 272,560 | |||||||||
Land sales operations |
60,717 | 81,833 | 91,539 | |||||||||
Provision for doubtful accounts |
12,931 | 7,115 | 4,185 | |||||||||
Property management and other costs |
78,433 | 85,013 | 90,945 | |||||||||
General and administrative |
28,508 | 24,647 | 22,281 | |||||||||
Provisions for impairment |
74,285 | 828 | 479 | |||||||||
Litigation (recovery) provision |
| (89,225 | ) | 89,225 | ||||||||
Depreciation and amortization |
271,246 | 245,794 | 255,827 | |||||||||
Total expenses |
946,565 | 780,573 | 1,037,435 | |||||||||
Operating income |
364,034 | 611,505 | 487,372 | |||||||||
Interest income |
7,220 |
12,467 |
24,725 |
|||||||||
Interest expense |
(337,871 | ) | (338,770 | ) | (358,088 | ) | ||||||
(Provision for) benefit from income taxes |
(995 | ) | 3,773 | (9,263 | ) | |||||||
Equity in income of unconsolidated joint ventures |
61,730 | 30,359 | 27,989 | |||||||||
Income from continuing operations |
94,118 | 319,334 | 172,735 | |||||||||
Discontinued operations, including net gain on dispostions |
| | 106,016 | |||||||||
Net income |
94,118 | 319,334 | 278,751 | |||||||||
Allocation to noncontrolling interests |
(3,453 | ) | 624 | 103 | ||||||||
Net income attributable to joint venture partners |
$ | 90,665 | $ | 319,958 | $ | 278,854 | ||||||
Equity In Income of Unconsolidated Real Estate Affiliates: |
||||||||||||
Net income attributable to joint venture partners |
$ | 90,665 | $ | 319,958 | $ | 278,854 | ||||||
Joint venture partners' share of income |
(26,320 | ) | (119,709 | ) | (187,672 | ) | ||||||
Amortization of capital or basis differences |
(59,710 | ) | (29,117 | ) | (19,019 | ) | ||||||
Special Allocation of litigation provision to GGPLP |
| (89,225 | ) | 89,225 | ||||||||
Elimination of Unconsolidated Real Estate Affiliates loan interest |
| (1,313 | ) | (2,987 | ) | |||||||
Equity in income of Unconsolidated Real Estate Affiliates |
$ | 4,635 | $ | 80,594 | $ | 158,401 | ||||||
F-49
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
Condensed Financial Information of Individually Significant Unconsolidated Real Estate Affiliates
Following is summarized financial information for GGP/Homart II, L.L.C. ("GGP/Homart II"), GGP- TRS, L.L.C. ("GGP/Teachers") and The Woodlands Land Development Holdings, L.P. ("The Woodlands Partnership"). We account for these joint ventures using the equity method because we have joint interest and joint control of these ventures with our venture partners and since they have substantive participating rights in such ventures. For financial reporting purposes, we consider these joint ventures to be individually significant Unconsolidated Real Estate Affiliates. Our investment in such affiliates varies from a strict ownership percentage due to capital or basis differences or loans and related amortization.
GGP/Homart II
We own 50% of the membership interest of GGP/Homart II, L.L.C. ("GGP/Homart II"), a limited liability company. The remaining 50% interest in GGP/Homart II is owned by NYSCRF. GGP Homart II owns 11 retail properties and one office building. Certain 2008 and 2007 amounts have been reclassified to conform to the 2009 presentation.
|
GGP/Homart II | ||||||||
---|---|---|---|---|---|---|---|---|---|
|
December 31,
2009 |
December 31,
2008 |
|||||||
|
(In thousands)
|
||||||||
Assets: |
|||||||||
Land |
$ | 238,164 | $ | 239,481 | |||||
Buildings and equipment |
2,783,869 | 2,761,838 | |||||||
Less accumulated depreciation |
(526,985 | ) | (482,683 | ) | |||||
Developments in progress |
5,129 | 85,676 | |||||||
Net investment in real estate |
2,500,177 | 2,604,312 | |||||||
Cash and cash equivalents |
70,417 | 42,836 | |||||||
Accounts and notes receivable, net |
47,843 | 45,025 | |||||||
Deferred expenses, net |
92,439 | 84,902 | |||||||
Prepaid expenses and other assets |
20,425 | 27,411 | |||||||
Total assets |
$ | 2,731,301 | $ | 2,804,486 | |||||
Liabilities and Capital: |
|||||||||
Mortgages, notes and loans payable |
$ | 2,245,582 | $ | 2,269,989 | |||||
Accounts payable, accrued expenses and other liabilities |
63,923 | 80,803 | |||||||
Capital |
421,796 | 453,694 | |||||||
Total liabilities and capital |
$ | 2,731,301 | $ | 2,804,486 | |||||
F-50
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
|
GGP/Homart II | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Years Ended December 31, | |||||||||||
|
2009 | 2008 | 2007 | |||||||||
|
(In thousands)
|
|||||||||||
Revenues: |
||||||||||||
Minimum rents |
$ | 244,576 | $ | 246,516 | $ | 230,420 | ||||||
Tenant recoveries |
109,779 | 112,142 | 103,265 | |||||||||
Overage rents |
3,546 | 4,429 | 7,008 | |||||||||
Other |
7,841 | 10,502 | 10,028 | |||||||||
Total revenues |
365,742 | 373,589 | 350,721 | |||||||||
Expenses: |
||||||||||||
Real estate taxes |
31,418 | 32,875 | 29,615 | |||||||||
Repairs and maintenance |
24,113 | 25,620 | 23,100 | |||||||||
Marketing |
5,767 | 6,640 | 8,332 | |||||||||
Other property operating costs |
39,434 | 43,219 | 41,116 | |||||||||
Provision for doubtful accounts |
2,404 | 1,833 | 1,315 | |||||||||
Property management and other costs |
22,837 | 23,185 | 22,279 | |||||||||
General and administrative |
380 | 2,872 | 11,777 | |||||||||
Provisions for impairment |
16,591 | 446 | (17 | ) | ||||||||
Litigation (recovery) provision |
| (89,225 | ) | 89,225 | ||||||||
Depreciation and amortization |
95,975 | 90,243 | 81,241 | |||||||||
Total expenses |
238,919 | 137,708 | 307,983 | |||||||||
Operating income |
126,823 | 235,881 | 42,738 | |||||||||
Interest income |
5,212 | 7,276 | 7,871 | |||||||||
Interest expense |
(125,678 | ) | (121,543 | ) | (109,209 | ) | ||||||
(Provision for) benefit from income taxes |
(1,176 | ) | 5,839 | (2,202 | ) | |||||||
Net income (loss) |
5,181 | 127,453 | (60,802 | ) | ||||||||
Allocation to noncontrolling interests |
(5 | ) | (21 | ) | (26 | ) | ||||||
Net income (loss) attributable to joint venture partners |
$ | 5,176 | $ | 127,432 | $ | (60,828 | ) | |||||
F-51
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
|
GGP/Homart II | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Years Ended December 31, | |||||||||||||
|
2009 | 2008 | 2007 | |||||||||||
|
|
(In thousands)
|
|
|||||||||||
Cash Flows from Operating Activities: |
||||||||||||||
Net income (loss) |
$ | 5,181 | $ | 127,453 | $ | (60,802 | ) | |||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||||||||
Provisions for impairment |
16,591 | 446 | (17 | ) | ||||||||||
Depreciation and amortization |
95,975 | 90,243 | 81,241 | |||||||||||
Amortization of deferred financing costs |
1,035 | 970 | 460 | |||||||||||
Straight-line rent amortization |
(4,256 | ) | (4,637 | ) | (4,929 | ) | ||||||||
Amortization of intangibles other than in-place leases |
| | (2,306 | ) | ||||||||||
Net changes: |
||||||||||||||
Accounts and notes receivable and other assets, net |
4,031 | 3,050 | 3,354 | |||||||||||
Deferred expenses |
(15,205 | ) | (5,699 | ) | (22,132 | ) | ||||||||
Accounts payable and accrued expenses |
3,852 | (115,846 | ) | 111,954 | ||||||||||
Other, net |
4,249 | 8,101 | (4,893 | ) | ||||||||||
Net cash provided by operating activities |
111,453 | 104,081 | 101,930 | |||||||||||
Cash Flows from Investing Activities: |
||||||||||||||
Acquisition/development of real estate and property additions/improvements |
(22,283 | ) | (128,271 | ) | (267,882 | ) | ||||||||
Proceeds from sales of investment properties |
| 2,179 | 1,349 | |||||||||||
(Increase) decrease in restricted cash |
(49 | ) | | | ||||||||||
Net cash used in investing activities |
(22,332 | ) | (126,092 | ) | (266,533 | ) | ||||||||
Cash Flows from Financing Activities: |
||||||||||||||
Proceeds from issuance of mortgages, notes and loans payable |
| 290,000 | | |||||||||||
Principal payments on mortgage notes, notes and loans payable |
(24,407 | ) | (130,958 | ) | (24,316 | ) | ||||||||
Notes payable from affiliate |
| | (149,500 | ) | ||||||||||
Deferred financing costs |
(7 | ) | (2,570 | ) | (17 | ) | ||||||||
(Distributions) contributions and receivables from members, net |
(37,126 | ) | (122,476 | ) | 362,998 | |||||||||
Net cash (used in) provided by financing activities |
(61,540 | ) | 33,996 | 189,165 | ||||||||||
Net change in cash and cash equivalents |
27,581 | 11,985 | 24,562 | |||||||||||
Cash and cash equivalents at the beginning of period |
42,836 | 30,851 | 6,289 | |||||||||||
Cash and cash equivalents at the end of period |
$ | 70,417 | $ | 42,836 | $ | 30,851 | ||||||||
Supplemental Disclosure of Cash Flow Information: |
||||||||||||||
Interest paid, net of amounts capitalized |
$ | 120,411 | $ | 126,621 | $ | 122,818 | ||||||||
Non-Cash Investing and Financing Activities: |
||||||||||||||
Capital expenditures incurred but not yet paid |
$ | 6,269 | $ | 26,841 | $ | 67,497 | ||||||||
Write-off of fully amortized below-market leases, net |
| | 2,306 | |||||||||||
Distribution of member loans including accrued interest of $3,532 |
102,578 | | |
F-52
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
GGP/Teachers
We own 50% of the membership interest in GGP-TRS, L.L.C. ("GGP/Teachers"), a limited liability company. The remaining 50% interest in GGP/Teachers is owned by the Teachers' Retirement System of the State of Illinois. GGP/Teachers owns six retail properties. Certain 2008 and 2007 amounts have been reclassified to conform to the 2009 presentation.
|
GGP/Teachers | ||||||||
---|---|---|---|---|---|---|---|---|---|
|
December 31,
2009 |
December 31,
2008 |
|||||||
|
(In thousands)
|
||||||||
Assets: |
|||||||||
Land |
$ | 195,832 | $ | 177,740 | |||||
Buildings and equipment |
1,071,748 | 1,076,748 | |||||||
Less accumulated depreciation |
(153,778 | ) | (145,101 | ) | |||||
Developments in progress |
3,586 | 54,453 | |||||||
Net investment in real estate |
1,117,388 | 1,163,840 | |||||||
Cash and cash equivalents |
6,663 | 7,148 | |||||||
Accounts and notes receivable, net |
17,622 | 16,675 | |||||||
Deferred expenses, net |
42,941 | 20,011 | |||||||
Prepaid expenses and other assets |
7,216 | 17,097 | |||||||
Total assets |
$ | 1,191,830 | $ | 1,224,771 | |||||
Liabilities and Members' Capital: |
|||||||||
Mortgages, notes and loans payable |
$ | 1,011,700 | $ | 1,020,825 | |||||
Accounts payable, accrued expenses and other liabilities |
32,914 | 40,787 | |||||||
Members' Capital |
147,216 | 163,159 | |||||||
Total liabilities and members' capital |
$ | 1,191,830 | $ | 1,224,771 | |||||
F-53
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
|
GGP/Teachers | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Years Ended December 31, | |||||||||||
|
2009 | 2008 | 2007 | |||||||||
|
(In thousands)
|
|||||||||||
Revenues: |
||||||||||||
Minimum rents |
$ | 102,735 | $ | 116,132 | $ | 111,810 | ||||||
Tenant recoveries |
51,804 | 51,093 | 46,370 | |||||||||
Overage rents |
2,108 | 3,692 | 4,732 | |||||||||
Other |
2,361 | 2,850 | 3,737 | |||||||||
Total revenues |
159,008 | 173,767 | 166,649 | |||||||||
Expenses: |
||||||||||||
Real estate taxes |
14,597 | 12,536 | 10,817 | |||||||||
Repairs and maintenance |
10,029 | 10,033 | 9,073 | |||||||||
Marketing |
2,349 | 2,545 | 3,992 | |||||||||
Other property operating costs |
19,404 | 20,587 | 19,609 | |||||||||
Provision for doubtful accounts |
1,695 | 1,487 | 455 | |||||||||
Property management and other costs |
9,258 | 9,829 | 9,718 | |||||||||
General and administrative |
258 | 254 | 239 | |||||||||
Provisions for impairment |
16,863 | 115 | 45 | |||||||||
Depreciation and amortization |
37,549 | 34,901 | 28,806 | |||||||||
Total expenses |
112,002 | 92,287 | 82,754 | |||||||||
Operating income |
47,006 | 81,480 | 83,895 | |||||||||
Interest income |
7 | 229 | 702 | |||||||||
Interest expense |
(55,537 | ) | (55,640 | ) | (47,740 | ) | ||||||
Provision for from income taxes |
(99 | ) | (158 | ) | (181 | ) | ||||||
Net (loss) income |
$ | (8,623 | ) | $ | 25,911 | $ | 36,676 | |||||
F-54
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
|
GGP/Teachers | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Years Ended December 31, | |||||||||||||
|
2009 | 2008 | 2007 | |||||||||||
|
(In thousands)
|
|||||||||||||
Cash Flows from Operating Activities: |
||||||||||||||
Net income |
$ | (8,623 | ) | $ | 25,911 | $ | 36,676 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||||
Provisions for impairment |
16,863 | 115 | 45 | |||||||||||
Depreciation and amortization |
37,549 | 34,901 | 28,806 | |||||||||||
Amortization of deferred financing costs |
1,337 | 1,338 | 1,294 | |||||||||||
Straight-line rent amortization |
(1,781 | ) | (1,578 | ) | (2,797 | ) | ||||||||
Amortization of intangibles other than in-place leases |
(5,900 | ) | (15,565 | ) | (17,595 | ) | ||||||||
Net changes: |
||||||||||||||
Accounts and notes receivable and other assets, net |
(2,783 | ) | (8,163 | ) | 3,132 | |||||||||
Deferred expenses |
(11,013 | ) | (2,253 | ) | (6,668 | ) | ||||||||
Accounts payable and accrued expenses |
4,251 | (4,466 | ) | 12,278 | ||||||||||
Other, including gain on land exchange, net |
(3,830 | ) | (243 | ) | 330 | |||||||||
Net cash provided by operating activities |
26,070 | 29,997 | 55,501 | |||||||||||
Cash Flows from Investing Activities: |
||||||||||||||
Acquisition/development of real estate and property additions/improvements |
(9,899 | ) | (59,543 | ) | (112,333 | ) | ||||||||
(Increase) decrease in restricted cash |
(213 | ) | | | ||||||||||
Net cash used in investing activities |
(10,112 | ) | (59,543 | ) | (112,333 | ) | ||||||||
Cash Flows from Financing Activities: |
||||||||||||||
Proceeds from issuance of mortgages, notes and loans payable |
| | 200,000 | |||||||||||
Principal payments on mortgage notes, notes and loans payable |
(9,125 | ) | (8,963 | ) | (103,587 | ) | ||||||||
Deferred financing costs |
2 | | (2,234 | ) | ||||||||||
Contributions (distributions) and receivables from members, net |
(7,320 | ) | 25,234 | (35,953 | ) | |||||||||
Net cash (used in) provided by financing activities |
(16,443 | ) | 16,271 | 58,226 | ||||||||||
Net change in cash and cash equivalents |
(485 | ) | (13,275 | ) | 1,394 | |||||||||
Cash and cash equivalents at the beginning of period |
7,148 | 20,423 | 19,029 | |||||||||||
Cash and cash equivalents at the end of period |
$ | 6,663 | $ | 7,148 | $ | 20,423 | ||||||||
Supplemental Disclosure of Cash Flow Information: |
||||||||||||||
Interest paid, net of amounts capitalized |
$ | 54,651 | $ | 56,237 | $ | 51,818 | ||||||||
Non-Cash Investing and Financing Activities: |
||||||||||||||
Write-off of fully amortized below-market leases, net |
$ | 46,956 | $ | 23,483 | $ | 2,422 | ||||||||
Write-off of investment in real estate |
1,306 | 222 | 3,227 | |||||||||||
Capital expenditures incurred but not yet paid |
2,032 | 7,481 | 39,251 |
F-55
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
Woodlands Land Development
We own 52.5% of the membership interest of The Woodlands Land Development Company L.P. ("The Woodlands Partnership"), a limited liability partnership which is a venture developing the master planned community known as The Woodlands near Houston, Texas. The remaining 47.5% interest in The Woodlands Partnership is owned by Morgan Stanley Real Estate Fund II, L.P.
|
The Woodlands Partnership | ||||||||
---|---|---|---|---|---|---|---|---|---|
|
December 31,
2009 |
December 31,
2008 |
|||||||
|
(In thousands)
|
||||||||
Assets: |
|||||||||
Land |
$ | 19,841 | $ | 16,573 | |||||
Buildings and equipment |
101,119 | 60,130 | |||||||
Less accumulated depreciation |
(14,105 | ) | (11,665 | ) | |||||
Developments in progress |
31,897 | 71,124 | |||||||
Investment property and property held for development and sale |
266,253 | 282,636 | |||||||
Net investment in real estate |
405,005 | 418,798 | |||||||
Cash and cash equivalents |
30,373 | 45,710 | |||||||
Accounts and notes receivable, net |
4,660 | 20,420 | |||||||
Deferred expenses, net |
593 | 1,268 | |||||||
Prepaid expenses and other assets |
30,275 | 93,538 | |||||||
Total assets |
$ | 470,906 | $ | 579,734 | |||||
Liabilities and Owners' Equity: |
|||||||||
Mortgages, notes and loans payable |
$ | 281,964 | $ | 318,930 | |||||
Accounts payable, accrued expenses and other liabilities |
629 | 74,067 | |||||||
Owners' equity |
188,313 | 186,737 | |||||||
Total liabilities and owners' equity |
$ | 470,906 | $ | 579,734 | |||||
F-56
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
|
The Woodlands Partnership | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Years Ended December 31, | |||||||||||
|
2009 | 2008 | 2007 | |||||||||
|
(In thousands)
|
|||||||||||
Revenues: |
||||||||||||
Minimum rents |
$ | 6,514 | $ | 4,227 | $ | 734 | ||||||
Land sales |
72,367 | 137,504 | 161,938 | |||||||||
Other |
11,658 | 12,957 | 34,750 | |||||||||
Total revenues |
90,539 | 154,688 | 197,422 | |||||||||
Expenses: |
||||||||||||
Real estate taxes |
596 | 634 | 131 | |||||||||
Repairs and maintenance |
2,906 | 1,274 | 257 | |||||||||
Other property operating costs |
16,668 | 19,180 | 39,162 | |||||||||
Land sales operations |
60,717 | 81,833 | 91,539 | |||||||||
Depreciation and amortization |
3,402 | 3,007 | 3,504 | |||||||||
Total expenses |
84,289 | 105,928 | 134,593 | |||||||||
Operating income |
6,250 | 48,760 | 62,829 | |||||||||
Interest income |
592 |
769 |
676 |
|||||||||
Interest expense |
(4,045 | ) | (6,268 | ) | (9,025 | ) | ||||||
Provision for income taxes |
(602 | ) | (978 | ) | (1,918 | ) | ||||||
Income from continuing operations |
2,195 | 42,283 | 52,562 | |||||||||
Discontinued operations, including net gain on dispositions |
| | 94,556 | |||||||||
Net income attributable to joint venture partners |
$ | 2,195 | $ | 42,283 | $ | 147,118 | ||||||
F-57
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
|
The Woodlands Partnership | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Years Ended December 31, | |||||||||||||
|
2009 | 2008 | 2007 | |||||||||||
|
(In thousands)
|
|||||||||||||
Cash Flows from Operating Activities: |
||||||||||||||
Net income |
$ | 2,195 | $ | 42,283 | $ | 147,118 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||||
Depreciation and amortization |
3,402 | 3,007 | 3,504 | |||||||||||
Land development and acquisitions expenditures |
(18,177 | ) | (50,975 | ) | (65,851 | ) | ||||||||
Cost of land sales |
34,560 | 56,301 | 68,162 | |||||||||||
Gain on dispositions |
| (10,260 | ) | (94,556 | ) | |||||||||
Net changes: |
||||||||||||||
Accounts and notes receivable, net |
15,760 | (18,672 | ) | (1,775 | ) | |||||||||
Prepaid expenses and other assets |
63,262 | (9,955 | ) | 14,422 | ||||||||||
Deferred expenses |
675 | 776 | 738 | |||||||||||
Accounts payable and accrued expenses |
(73,437 | ) | (3,452 | ) | 16,745 | |||||||||
Net cash provided by operating activities |
28,240 | 9,053 | 88,507 | |||||||||||
Cash Flows from Investing Activities: |
||||||||||||||
Acquisition/development of real estate and property additions/improvements |
(5,992 | ) | (52,283 | ) | (67,624 | ) | ||||||||
Proceeds from dispositions |
| 30,178 | 146,822 | |||||||||||
Net cash (used in) provided by investing activities |
(5,992 | ) | (22,105 | ) | 79,198 | |||||||||
Cash Flows from Financing Activities: |
||||||||||||||
Proceeds from issuance of mortgages, notes and loans payable |
8,095 | 92,470 | | |||||||||||
Principal payments on mortgages, notes and loans payable |
(45,061 | ) | (60,305 | ) | (34,959 | ) | ||||||||
Distributions and receivables from owners, net |
| | (120,606 | ) | ||||||||||
Other |
(619 | ) | (762 | ) | | |||||||||
Net cash (used in) provided by financing activities |
(37,585 | ) | 31,403 | (155,565 | ) | |||||||||
Net change in cash and cash equivalents |
(15,337 | ) | 18,351 | 12,140 | ||||||||||
Cash and cash equivalents at the beginning of period |
45,710 | 27,359 | 15,219 | |||||||||||
Cash and cash equivalents at the end of period |
$ | 30,373 | $ | 45,710 | $ | 27,359 | ||||||||
F-58
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6 MORTGAGES, NOTES AND LOANS PAYABLE
Mortgages, notes and loans payable are summarized as follows (see Note 14 for the maturities of our long term commitments):
|
December 31,
2009 |
December 31,
2008 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||
Fixed-rate debt: |
||||||||||
Collateralized mortgages, notes and loans payable |
$ | 15,446,962 | $ | 15,538,825 | ||||||
Corporate and other unsecured term loans |
3,724,463 | 3,701,615 | ||||||||
Total fixed-rate debt |
19,171,425 | 19,240,440 | ||||||||
Variable-rate debt: |
||||||||||
Collateralized mortgages, notes and loans payable |
2,500,892 | 2,732,437 | ||||||||
Corporate and other unsecured term loans |
2,783,700 | 2,783,700 | ||||||||
Total variable-rate debt |
5,284,592 | 5,516,137 | ||||||||
Total Mortgages, notes and loans payable |
24,456,017 | 24,756,577 | ||||||||
Less: Mortgages, notes and loans payable subject to compromise |
(17,155,245 | ) | | |||||||
Total mortgages, notes and loans payable not subject to compromise |
$ | 7,300,772 | $ | 24,756,577 | ||||||
As previously discussed, on April 16 and 22, 2009, the Debtors filed voluntary petitions for relief under Chapter 11, which triggered defaults on substantially all debt obligations of the Debtors. However, under section 362 of Chapter 11, the filing of a bankruptcy petition automatically stays most actions against the debtor's estate. Absent an order of the Bankruptcy Court, these pre-petition liabilities are subject to settlement under a plan of reorganization, and therefore are presented as Liabilities subject to compromise on the Consolidated Balance Sheet. Of the total amount of debt presented above, $7.30 billion is not subject to compromise, consisting primarily of the collateralized mortgages of the Non-Debtors and the Track 1A Debtors and the DIP Facility. Also, as discussed in Note 1, the $1.70 billion of mortgages of the Track 1B Debtors were reflected as subject to compromise at December 31, 2009 as the effective dates of their plans of reorganization did not occur as of December 31, 2009. We expect that such mortgage loan amounts will be reflected as not subject to compromise in 2010.
As of December 31, 2009, as described in Note 1, plans of reorganization for the Track 1A Debtors, owning 50 operating properties secured by approximately $4.65 billion of mortgage debt, had been declared effective. The Track 1 Plans for such Track 1A Debtors provided for, in exchange for payment of certain extension fees and cure of previously unpaid amounts due on the applicable mortgage loans (primarily, principal amortization otherwise scheduled to have been paid since the Petition Date), the extension of the secured mortgage loans at previously existing non-default interest rates. As a result of the extensions, none of these loans will have a maturity prior to January 1, 2014 and the weighted average remaining duration of the secured loans associated with these properties is 4.49 years. In conjunction with these extensions, certain financial and operating covenants and guarantees were created or reinstated, all to be effective with the bankruptcy emergence of the 2010
F-59
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6 MORTGAGES, NOTES AND LOANS PAYABLE (Continued)
Track Debtors. Also in conjunction with such extensions, the Debtors for 13 properties (the "Special Consideration Properties") have until two days following emergence of the TopCo Debtors to determine whether the collateral property should be deeded to the respective lender or the property should be retained with further modified loan terms. Prior to emergence of the TopCo Debtors, the lenders related to the Special Consideration Properties control all cash produced by the property and we are required to pay any operating expense shortfall. In addition, prior to emergence of the TopCo Debtors, the respective lender can change the manager of the property or put the property in receivership and GGP has an unrestricted right to deed the property to the lender. Five of the Special Consideration Properties, representing $371.1 million in secured debt, are owned by the Track 1A Debtors.
The weighted-average interest rate including the effects of interest rate swaps, excluding the effects of deferred finance costs and using the contract rate prior to any defaults on such loans, on our mortgages, notes and loans payable was 5.31% at December 31, 2009 and 5.36% at December 31, 2008. The weighted average interest rate, using the contract rate prior to any defaults on such loans, on the remaining corporate unsecured fixed and variable rate debt and the revolving credit facility was 4.24% at December 31, 2009 and 4.29% at December 31, 2008. With respect to those loans and Debtors that remain in bankruptcy at December 31, 2009, we are currently recognizing interest expense on our loans based on contract rates in effect prior to bankruptcy as the Bankruptcy Court has ruled that interest payments based on such contract rates constitutes adequate protection to the secured lenders.
The Track 2010 Debtors, pursuant to their debt obligations, are required to comply with certain customary financial covenants and affirmative representations and warranties including, but not limited to, stipulations relating to leverage, net equity, maintenance of our REIT status, maintenance of our New York Stock Exchange (the 'Exchange") listing, cross-defaults to certain other indebtedness and interest or fixed charge coverage ratios. Such financial covenants are calculated from applicable Company information computed in accordance with GAAP, subject to certain exclusions or adjustments, as defined. As discussed in the Debtors-in-possession section of Note 1, we were unable to repay or refinance certain debt as it became due, and our Chapter 11 cases have stayed the enforcement of the default provisions of such covenants.
Collateralized Mortgages, Notes and Loans Payable
As of December 31, 2009, $23.86 billion of land, buildings and equipment and developments in progress (before accumulated depreciation) have been pledged as collateral for our mortgages, notes and loans payable. Certain of these secured loans are cross-collateralized with other properties. Although substantially all of the $17.95 billion of fixed and variable rate secured mortgage notes and loans payable are non-recourse, $2.66 billion of such mortgages, notes and loans payable are recourse due to guarantees or other security provisions for the benefit of the note holder. Enforcement of substantially all of these security provisions are stayed by our Chapter 11 cases. In addition, certain mortgage loans as of December 31, 2009 contain other credit enhancement provisions (primarily master leases for all or a portion of the property) which have been provided by 2010 Track Debtors upon which we do not expect to perform during the pendency of our Chapter 11 Cases. Certain mortgage notes payable may be prepaid but are generally subject to a prepayment penalty equal to a yield-maintenance premium, defeasance or a percentage of the loan balance.
F-60
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6 MORTGAGES, NOTES AND LOANS PAYABLE (Continued)
Corporate and Other Unsecured Loans
The TopCo Debtors have certain unsecured debt obligations which are described below. Although the contractual terms of such loans are summarized below, as a result of the Chapter 11 Cases, the TopCo Debtors are not paying dividends or interest on such obligations. Satisfaction of these obligations will be addressed in the TopCo Debtors' plan of reorganization.
In April 2007, GGPLP sold $1.55 billion aggregate principal amount of 3.98% Exchangeable Notes. Interest on the Exchangeable Notes is payable semi-annually in arrears on April 15 and October 15 of each year, beginning October 15, 2007. The Exchangeable Notes will mature on April 15, 2027 unless previously redeemed by GGPLP, repurchased by GGPLP or exchanged in accordance with their terms prior to such date. Prior to April 15, 2012, we will not have the right to redeem the Exchangeable Notes, except to preserve our status as a REIT. On or after April 15, 2012, we may redeem for cash all or part of the Exchangeable Notes at any time, at 100% of the principal amount of the Exchangeable Notes, plus accrued and unpaid interest, if any, to the redemption date. On each of April 15, 2012, April 15, 2017 and April 15, 2022, holders of the Exchangeable Notes may require us to repurchase the Exchangeable Notes, in whole or in part, for cash equal to 100% of the principal amount of Exchangeable Notes to be repurchased, plus accrued and unpaid interest.
The Exchangeable Notes are exchangeable for GGP common stock or a combination of cash and common stock, at our option, upon the satisfaction of certain conditions, and any exchange currently is stayed by our Chapter 11 cases. The exchange rate for each $1,000 principal amount of the Exchangeable Notes is 11.27 shares of GGP common stock, which is subject to adjustment under certain circumstances. See Note 2 for information regarding the impact on our 2008 and 2007 comparative consolidated financial statements as the result of the new accounting guidance adopted as of January 1, 2009 relating to certain convertible debt instruments.
The Second Amended and Restated Credit Agreement (the "2006 Credit Facility").
The 2006 Credit Facility provides for a $2.85 billion term loan (the "Term Loan") and a $650 million revolving credit facility. However, as of December 31, 2009, $1.99 billion of the Term Loan and $590.0 million of the revolving credit facility was outstanding under the 2006 credit facility and no further amounts were available to be drawn due to our Chapter 11 cases. The 2006 Credit Facility had a scheduled maturity of February 24, 2010. The interest rate, as of December 31, 2009, was LIBOR plus 1.25%.
In May 2006 TRCLP sold $800.0 million of senior unsecured notes which provide for semi-annual, interest only payments at a rate of 6.75% and payment of the principal in full on May 1, 2013.
Concurrently with the 2006 Credit Facility transaction, GGP Capital Trust I, a Delaware statutory trust (the "Trust") and a wholly-owned subsidiary of GGPLP, completed a private placement of $200 million of trust preferred securities ("TRUPS"). The Trust also issued $6.2 million of Common Securities to GGPLP. The Trust used the proceeds from the sale of the TRUPS and Common Securities to purchase $206.2 million of floating rate Junior Subordinated Notes of GGPLP due 2036. Distributions on the TRUPS are equal to LIBOR plus 1.45%. Distributions are cumulative and accrue from the date of original issuance. The TRUPS mature on April 30, 2036, but may be redeemed beginning on April 30, 2011 if the Trust exercises its right to redeem a like amount of the Junior
F-61
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6 MORTGAGES, NOTES AND LOANS PAYABLE (Continued)
Subordinated Notes. The Junior Subordinated Notes bear interest at LIBOR plus 1.45%. Though the Trust is a wholly-owned subsidiary of GGPLP, we are not the primary beneficiary of the Trust and, accordingly, it is not consolidated for accounting purposes. As a result, we have recorded the Junior Subordinated Notes as Mortgages, Notes and Loans Payable and our common equity interest in the Trust as Prepaid Expenses and Other Assets in our Consolidated Balance Sheets at December 31, 2009 and 2008.
In conjunction with the TRC Merger, we acquired certain publicly-traded unsecured debt which totaled $1.45 billion at December 31, 2009 and 2008.
Debtor-in-Possession Facility
On May 14, 2009, the Bankruptcy Court issued an order authorizing certain of the Debtors to enter into a Senior Secured Debtor in Possession Credit, Security and Guaranty Agreement among the Company, as co-borrower, GGP Limited Partnership, as co-borrower, certain of their subsidiaries, as guarantors, UBS AG, Stamford Branch, as agent, and the lenders party thereto (the "DIP Facility").
The DIP Facility, which closed on May 15, 2009, provides for an aggregate commitment of $400.0 million (the "DIP Term Loan"), which was used to refinance the $215.0 million remaining balance on the short-term secured loan and the remainder of which has been used to provide additional liquidity to the Debtors during the pendency of their Chapter 11 Cases. The DIP Facility provides that principal outstanding on the DIP Term Loan bears interest at an annual rate equal to LIBOR (subject to a minimum LIBOR floor of 1.5%) plus 12% and matures at the earlier of May 16, 2011 or the effective date of a plan of reorganization of the 2010 Track Debtors and has an outstanding balance of $400.0 million at December 31, 2009.
Subject to certain conditions being present, the Company will have the right to elect to repay all or a portion of the outstanding principal amount of the DIP Term Loan, plus accrued and unpaid interest thereon and all exit fees at maturity, by issuing (i) common stock of the Company to the lenders (the "Equity Conversion") or (ii) debt to the lenders, which would be issued for a three-year term, prepayable at any time without penalty or premium, and otherwise on terms substantially similar to those of the DIP Term Loan. Any Equity Conversion will be limited to the lenders' receipt of Company common stock equaling no more than (i) 8.0% of the Company common stock distributed in connection with the Debtors' plan of reorganization, as confirmed by the Bankruptcy Court (the "Plan of Reorganization") on a fully-diluted basis, or (ii) 9.9% of the Company common stock actually distributed in connection with the Plan of Reorganization on its effective date, without giving effect to common stock held back for the payment of contingencies. The DIP Credit Agreement contains customary non-financial covenants, representations and warranties, and events of default. Although the DIP Agreement contains no financial covenants, it does include obligations to periodically provide certain operating information concerning the Debtors directly to the DIP Agent.
Letters of Credit and Surety Bonds
We had outstanding letters of credit and surety bonds of $112.8 million as of December 31, 2009 and $286.2 million as of December 31, 2008. These letters of credit and bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations.
F-62
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 INCOME TAXES
We elected to be taxed as a REIT under sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with our taxable year beginning January 1, 1993. To qualify as a REIT, we must meet a number of organizational and operational requirements, including requirements to distribute at least 90% of our ordinary taxable income and to distribute to stockholders or pay tax on 100% of capital gains and to meet certain asset and income tests. As discussed in Note 1, we obtained Bankruptcy Court approval to distribute $0.19 per share (no more than 10% in cash) to our stockholders (paid on January 28, 2010) to satisfy such GGPI REIT distribution requirements for 2009.
As a REIT, we will generally not be subject to corporate level Federal income tax on taxable income we distribute currently to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to Federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income or property, and to Federal income and excise taxes on our undistributed taxable income. In addition, we are subject to rules which may impose corporate income tax on certain built-in gains recognized upon the disposition of assets owned by our subsidiaries where such subsidiaries (or other predecessors) had formerly been C corporations. These rules apply only where the disposition occurs within certain specified recognition periods. The properties subject to these rules are TRCLP properties that were associated with the private REIT/TRS restructuring described below and our Victoria Ward properties. However, to the extent that any such properties subject to the built-in gain tax are to be sold, we intend to utilize tax strategies when prudent, such as dispositions through like-kind exchanges to limit or offset the amount of such gains and therefore the amount of tax paid, although the market climate and our business needs may not allow for such strategies to be implemented.
We also have subsidiaries which we have elected to be treated as a TRS (also "TRS entities") and which are, therefore, subject to federal and state income taxes. Our primary TRS entities include GGMI and entities which own our master planned community properties as well as some operating properties. Current Federal income taxes of certain of these TRS entities are likely to increase in future years as we exhaust the net loss carryforwards of these entities and as certain master planned community developments are completed. Such increases could be significant.
Effective March 31, 2007, through a series of transactions, a private REIT owned by GGPLP was contributed to TRCLP and one of our TRS entities became a qualified REIT subsidiary of that private REIT ("the Private REIT/TRS Restructuring"). This transaction resulted in a $328.4 million decrease in our net deferred tax liabilities, an approximate $7.4 million increase in our current taxes payable and an approximate $321.0 million income tax benefit related to the properties now owned by that private REIT.
F-63
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 INCOME TAXES (Continued)
The provision for (benefit from) income taxes for the years ended December 31, 2009, 2008 and 2007 was as follows:
|
2009 | 2008 | 2007 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||
Current |
$ | (15,443 | ) | $ | 27,605 | $ | 73,976 | |||
Deferred |
833 | (4,144 | ) | (368,136 | ) | |||||
Total |
$ | (14,610 | ) | $ | 23,461 | $ | (294,160 | ) | ||
Income tax expense computed by applying the Federal corporate tax rate for the years ended December 31, 2009, 2008 and 2007 is reconciled to the provision for income taxes as follows:
|
2009 | 2008 | 2007 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||
Tax at statutory rate on earnings from continuing operations before income taxes |
$ | (454,416 | ) | $ | 1,302 | $ | (2,172 | ) | ||
Increase in valuation allowances, net |
30,487 | 9,027 | 160 | |||||||
State income taxes, net of Federal income tax benefit |
5,905 | 4,484 | 2,290 | |||||||
Tax at statutory rate on REIT earnings not subject to Federal income taxes |
397,533 | 8,227 | 22,973 | |||||||
Tax benefit from change in tax rates, prior period adjustments and other permanent differences |
4,775 | (1,904 | ) | (665 | ) | |||||
Tax benefit from Private REIT/TRS restructuring |
| 359 | (320,956 | ) | ||||||
Uncertain tax position expense, excluding interest |
866 | (1,574 | ) | (2,763 | ) | |||||
Uncertain tax position interest, net of Federal income tax benefit |
240 | 3,540 | 6,973 | |||||||
(Benefit from) Provision for income taxes |
$ | (14,610 | ) | $ | 23,461 | $ | (294,160 | ) | ||
Realization of a deferred tax benefit is dependent upon generating sufficient taxable income in future periods. Our net operating loss carryforwards are currently scheduled to expire in subsequent years through 2030. Some of the net operating loss carryforward amounts are subject to annual limitations under Section 382 of the Code. This annual limitation under Section 382 is subject to modification if a taxpayer recognizes what are called "built-in gain items." It is possible that the Company could, in the future, experience a change in control pursuant to Section 382 that could put additional limits on the benefit of deferred tax assets.
F-64
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 INCOME TAXES (Continued)
The amounts and expiration dates of operating loss and tax credit carryforwards for tax purposes for the TRS's are as follows:
|
Amount | Expiration Dates | |||
---|---|---|---|---|---|
|
(In thousands)
|
||||
Net operating loss carryforwardsFederal |
$ | 114,459 | 2010 - 2030 | ||
Net operating loss carryforwardsState |
89,696 | 2010 - 2030 | |||
Capital loss carryforwards |
223 | 2013 | |||
Tax credit carryforwardsFederal AMT |
847 | N/A |
Each TRS and certain REIT entities subject to state income taxes is a tax paying component for purposes of classifying deferred tax assets and liabilities. As of December 31, 2009, the Company had gross deferred tax assets totaling $273.5 million, of which a valuation allowance of $40.6 million has been established against certain deferred tax assets, and gross deferred tax liabilities of $1.07 billion. Net deferred tax assets (liabilities) are summarized as follows:
|
2009 | 2008 | ||||||
---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||
Total deferred tax assets |
$ | 69,225 | $ | 48,096 | ||||
Valuation allowance |
(40,610 | ) | (10,123 | ) | ||||
Net deferred tax assets |
28,615 | 37,973 | ||||||
Total deferred tax liabilities |
(866,400 | ) | (868,978 | ) | ||||
Net deferred tax liabilities |
$ | (837,785 | ) | $ | (831,005 | ) | ||
Due to the uncertainty of the realization of certain tax carryforwards, we have established valuation allowances on those deferred tax assets that we do not reasonably expect to realize.
The tax effects of temporary differences and carryforwards included in the net deferred tax liabilities at December 31, 2009 and 2008 are summarized as follows:
|
2009 | 2008 | |||||
---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||
Property, primarily differences in depreciation and amortization, the tax basis of land assets and treatment of interest and certain other costs |
$ | (747,086 | ) | $ | (772,761 | ) | |
Other TRS property, primarily differences in basis of assets and liabilities |
(372 | ) | (15,481 | ) | |||
REIT deferred state tax liability |
(9,653 | ) | (7,579 | ) | |||
Deferred income |
(269,933 | ) | (219,666 | ) | |||
Interest deduction carryforwards |
142,073 | 142,073 | |||||
Operating loss and tax credit carryforwards |
65,459 | 37,269 | |||||
Residential property, primarily differences in tax basis |
22,337 | 15,263 | |||||
Valuation allowance |
(40,610 | ) | (10,123 | ) | |||
Net deferred tax liabilities |
$ | (837,785 | ) | $ | (831,005 | ) | |
F-65
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 INCOME TAXES (Continued)
The deferred tax liability associated with the master planned communities is largely attributable to the difference between the basis and value determined as the date of the acquisition of TRC in 2004 adjusted for sales that have occurred since that time. The cash cost related to this deferred tax liability is dependent upon the sales price of future land sales and the method of accounting used for income tax purposes. The deferred tax liability related to deferred income is the difference between the income tax method of accounting and the financial statement method of accounting for prior sales of land in our Master Planned Communities.
Although we believe our tax returns are correct, the final determination of tax examinations and any related litigation could be different than what was reported on the returns. In the opinion of management, we have made adequate tax provisions for years subject to examination. Generally, we are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending December 31, 2005 through 2009 and are open to audit by state taxing authorities for years ending December 31, 2004 through 2009. In the fourth quarter of 2008, we effectively settled with the IRS with respect to the audits for the years 2001 through 2005 for two of our taxable REIT subsidiaries. In February 2009, we were notified that the IRS had commenced examination of the year ended December 31, 2007 with respect to two taxable REIT subsidiaries. We received a letter of Income Tax Examination Changes ("30 Day Letter") for the two taxable REIT subsidiaries with the proposed changes amounting to additional tax of $128.1 million. We timely filed a protest disputing the proposed changes. In December 2009, we were notified that the same two taxable REIT subsidiaries are also under audit for the year ended December 31, 2008. It is the Company's position that the pertinent tax law in question has been properly applied and reflected in the income tax returns for both 2008 and 2007. We are unable to determine when the examinations will be resolved.
On January 1, 2007, we adopted a generally accepted accounting principle related to accounting for uncertainty in income taxes, which prescribes a recognition threshold that a tax position is required to meet before recognition in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues.
At January 1, 2007, we had total unrecognized tax benefits of $135.1 million, excluding accrued interest, of which approximately $69 million would impact our effective tax rate. These unrecognized tax benefits increased our income tax liabilities by $82.1 million, increased goodwill by $28.0 million and cumulatively reduced retained earnings by $54.1 million. As of January 1, 2007, we had accrued interest of $11.9 million related to these unrecognized tax benefits and no penalties. Prior to adoption of the generally accepted accounting principle related to accounting for uncertainty in income taxes, we did not treat either interest or penalties related to tax uncertainties as part of income tax expense. With the adoption of the generally accepted accounting principle related to accounting for uncertainty in income taxes, we have chosen to change this accounting policy. As a result, we will recognize and report interest and penalties, if necessary, within our provision for income tax expense from January 1, 2007 forward. We recognized potential interest expense related to the unrecognized tax benefits of $3.7 million, $2.7 million and $7.0 million for the years ended December 31, 2009, 2008 and 2007, respectively. During the years ended December 31, 2009, 2008 and 2007 we recognized previously unrecognized tax benefits, excluding accrued interest, of ($6.2) million, $7.0 million and $20 million, respectively. The recognition of the previously unrecognized tax benefits resulted in the reduction of interest expense accrued related to these amounts. At December 31, 2009, we had total unrecognized
F-66
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 INCOME TAXES (Continued)
tax benefits of $104.0 million, excluding interest, of which $32.0 million would impact our effective tax rate.
|
2009 | 2008 | 2007 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||
Unrecognized tax benefits, opening balance |
$ | 112,915 | $ | 127,109 | $ | 135,062 | ||||
Gross increasestax positions in prior period |
41 | 3,336 | 1,970 | |||||||
Gross increasestax positions in current period |
6,969 | 3,637 | 10,029 | |||||||
Gross decreasestax positions in prior period |
(15,950 | ) | (3,549 | ) | | |||||
Lapse of statute of limitations |
| (17,618 | ) | (19,952 | ) | |||||
Unrecognized tax benefits, ending balance |
$ | 103,975 | $ | 112,915 | $ | 127,109 | ||||
Based on our assessment of the expected outcome of existing examinations or examinations that may commence, or as a result of the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits, excluding accrued interest, for tax positions taken regarding previously filed tax returns will materially change from those recorded at December 31, 2009. A material change in unrecognized tax benefits could have a material effect on our statements of income and comprehensive income. As of December 31, 2009, there is $94.3 million of unrecognized tax benefits, excluding accrued interest, which due to the reasons above, could significantly increase or decrease during the next twelve months.
Earnings and profits, which determine the taxability of dividends to stockholders, differ from net income reported for financial reporting purposes due to differences for Federal income tax reporting purposes in, among other things, estimated useful lives, depreciable basis of properties and permanent and temporary differences on the inclusion or deductibility of elements of income and deductibility of expense for such purposes.
Distributions paid on our common stock and their tax status, as sent to our shareholders, is presented in the following table. The tax status of GGP distributions in 2009, 2008 and 2007 may not be indicative of future periods.
|
2009 | 2008 | 2007 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Ordinary income |
$ | 0.103 | $ | 1.425 | $ | 0.926 | ||||
Return of capital |
| | | |||||||
Qualified dividends |
| | 0.501 | |||||||
Capital gain distributions |
0.087 | 0.075 | 0.423 | |||||||
Distributions per share |
$ | 0.190 | $ | 1.500 | $ | 1.850 | ||||
F-67
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8 RENTALS UNDER OPERATING LEASES
We receive rental income from the leasing of retail and other space under operating leases. The minimum future rentals based on operating leases of our Consolidated Properties held as of December 31, 2009 are as follows:
Year
|
Amount | |||
---|---|---|---|---|
|
(In thousands)
|
|||
2010 |
$ | 1,574,692 | ||
2011 |
1,455,964 | |||
2012 |
1,291,194 | |||
2013 |
1,137,631 | |||
2014 |
988,367 | |||
Subsequent |
3,183,947 |
Minimum future rentals exclude amounts which are payable by certain tenants based upon a percentage of their gross sales or as reimbursement of operating expenses and amortization of above and below-market tenant leases. Such operating leases are with a variety of tenants, the majority of which are national and regional retail chains and local retailers, and consequently, our credit risk is concentrated in the retail industry.
NOTE 9 TRANSACTIONS WITH AFFILIATES
Management and other fee revenues primarily represent management and leasing fees, development fees, financing fees and fees for other ancillary services performed for the benefit of certain of the Unconsolidated Real Estate Affiliates and for properties owned by third parties. Fees earned from the Unconsolidated Properties totaled $76.6 million in 2009, $74.3 million in 2008 and $83.4 million in 2007. Such fees are recognized as revenue when earned.
NOTE 10 STOCK-BASED COMPENSATION PLANS
Incentive Stock Plans
Prior to the Chapter 11 Cases, we granted qualified and non-qualified stock options and restricted stock to officers and key employees through the 2003 Incentive Stock Plan (the "2003 Incentive Plan"). The 2003 Incentive Plan provides for the issuance of 9,000,000 shares, of which 5,625,232 shares (4,878,500 stock options and 746,732 restricted shares) have been granted as of December 31, 2009, subject to certain customary adjustments to prevent dilution. Additionally, the Compensation Committee of the Board of Directors grants employment inducement awards to senior executives on a discretionary basis, and in the fourth quarter of 2008, granted 1,800,000 stock options to two senior executives. Stock options are granted by the Compensation Committee of the Board of Directors at an exercise price of not less than 100% of the Fair Value of our common stock on the date of the grant. The terms of the options are determined by the Compensation Committee.
F-68
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10 STOCK-BASED COMPENSATION PLANS (Continued)
The following tables summarize stock option activity for the 2003 Incentive Stock Plan as of and for the years ended December 31, 2009, 2008 and 2007.
|
2009 | 2008 | 2007 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Shares |
Weighted
Average Exercise Price |
Shares |
Weighted
Average Exercise Price |
Shares |
Weighted
Average Exercise Price |
|||||||||||||
Stock options outstanding at January 1 |
4,730,000 | $ | 33.01 | 3,053,000 | $ | 51.21 | 3,167,348 | $ | 38.41 | ||||||||||
Granted |
| | 1,800,000 | 3.73 | 1,205,000 | 65.81 | |||||||||||||
Exercised |
| | (23,000 | ) | 15.24 | (1,318,748 | ) | 33.81 | |||||||||||
Forfeited |
(290,000 | ) | 54.66 | (100,000 | ) | 65.81 | | | |||||||||||
Expired |
(198,500 | ) | 30.78 | | | (600 | ) | 9.99 | |||||||||||
Stock options outstanding at December 31 |
4,241,500 | $ | 31.63 | 4,730,000 | $ | 33.01 | 3,053,000 | $ | 51.21 | ||||||||||
|
Stock Options Outstanding |
Stock Options Exercisable |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Prices
|
Shares |
Weighted
Average Remaining Contractual Term (in years) |
Weighted
Average Exercise Price |
Shares |
Weighted
Average Remaining Contractual Term (in years) |
Weighted
Average Exercise Price |
|||||||||||||
$0 - $6.5810 |
1,800,000 | 3.8 | $ | 3.73 | 1,800,000 | 3.8 | $ | 3.73 | |||||||||||
$6.5811 - $13.1620 |
3,000 | 0.3 | 9.99 | 3,000 | 0.3 | 9.99 | |||||||||||||
$13.1621 - $19.7430 |
50,000 | 2.7 | 15.49 | 50,000 | 2.7 | 15.49 | |||||||||||||
$32.9051 - $39.4860 |
531,000 | 0.1 | 35.59 | 531,000 | 0.1 | 35.59 | |||||||||||||
$39.4861 - $46.0670 |
30,000 | 0.2 | 44.59 | 30,000 | 0.2 | 44.59 | |||||||||||||
$46.0671 - $52.6480 |
862,500 | 0.9 | 49.75 | 787,500 | 0.9 | 49.68 | |||||||||||||
$59.2291 - $65.8100 |
965,000 | 1.7 | 65.81 | 703,000 | 1.7 | 65.81 | |||||||||||||
Total |
4,241,500 | 2.3 | $ | 31.63 | 3,904,500 | 2.3 | $ | 28.98 | |||||||||||
Intrinsic value (in thousands) |
$ | 14,099 | $ | 14,099 | |||||||||||||||
The intrinsic value of outstanding and exercisable stock options as of December 31, 2009 represents the excess of our closing stock price on that date, $11.56, over the exercise price multiplied by the applicable number of shares that may be acquired upon exercise of stock options, and is not presented in the table above if the result is a negative value. The intrinsic value of exercised stock options represents the excess of our stock price at the time the option was exercised over the exercise price and was $0.6 million for options exercised during 2008 and $39.3 million for options exercised during 2007. No stock options were exercised during 2009.
The weighted-average Fair Value of stock options as of the grant date was $1.94 for stock options granted during 2008 and $11.07 for stock options granted during 2007. No stock options were granted during 2009.
F-69
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10 STOCK-BASED COMPENSATION PLANS (Continued)
Prior to 2007, stock options generally vested 20% at the time of the grant and in 20% annual increments thereafter. In February 2007, however, in lieu of awarding options similar in size to prior years to two of our senior executives, the Compensation Committee of our Board of Directors accelerated the vesting of options held by these executives so that all such options became immediately vested and exercisable. As a result, the vesting of 705,000 options was accelerated and compensation expense of $4.1 million which would have been recognized in 2007 through 2010 was recognized in the first quarter of 2007.
Restricted Stock
Pursuant to the 2003 Stock Incentive Plan, we make restricted stock grants to certain employees and non-employee directors. The vesting terms of these grants are specific to the individual grant. The vesting terms vary in that a portion of the shares vest either immediately or on the first anniversary and the remainder vest in equal annual amounts over the next two to five years. Participating employees must remain employed for vesting to occur (subject to certain exceptions in the case of retirement). Shares that do not vest are forfeited. Dividends are paid on restricted stock and are not returnable, even if the underlying stock does not ultimately vest.
The following table summarizes restricted stock activity for the respective grant years as of and for the years ended December 31, 2009, 2008, and 2007.
|
2009 | 2008 | 2007 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Shares |
Weighted
Average Grant Date Fair Value |
Shares |
Weighted
Average Grant Date Fair Value |
Shares |
Weighted
Average Grant Date Fair Value |
||||||||||||||
Nonvested restricted stock grants outstanding as of January 1 |
410,767 | $ | 41.29 | 136,498 | $ | 59.75 | 72,666 | $ | 47.62 | |||||||||||
Granted |
70,000 | 2.10 | 360,232 | 35.69 | 96,500 | 65.29 | ||||||||||||||
Vested |
(135,706 | ) | 35.38 | (53,164 | ) | 54.24 | (32,668 | ) | 49.11 | |||||||||||
Canceled |
(69,628 | ) | 46.04 | (32,799 | ) | 35.65 | | | ||||||||||||
Nonvested restricted stock grants outstanding as of December 31 |
275,433 | $ | 33.04 | 410,767 | $ | 41.29 | 136,498 | $ | 59.75 | |||||||||||
The total Fair Value of restricted stock grants which vested during 2009 was $0.1 million, during 2008 was $2.0 million and during 2007 was $2.0 million.
Threshold-Vesting Stock Options
Under the 1998 Incentive Stock Plan (the "1998 Incentive Plan"), stock incentive awards to employees in the form of threshold-vesting stock options ("TSOs") have been granted. The exercise price of the TSO is the Current Market Price ("CMP") as defined in the 1998 Incentive Plan of our common stock on the date the TSO is granted. In order for the TSOs to vest, our common stock must achieve and sustain the applicable threshold price for at least 20 consecutive trading days at any time during the five years following the date of grant. Participating employees must remain employed until
F-70
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10 STOCK-BASED COMPENSATION PLANS (Continued)
vesting occurs in order to exercise the options. The threshold price is determined by multiplying the CMP on the date of grant by an Estimated Annual Growth Rate (7%) and compounding the product over a five-year period. TSOs granted in 2004 and thereafter must be exercised within 30 days of the vesting date. TSOs granted prior to 2004, all of which have vested, have a term of up to 10 years. Under the 1998 Incentive Plan, 8,163,995 options have been granted as of December 31, 2009, subject to certain customary adjustments to prevent dilution. No TSOs were granted in 2008 or 2009 and the 1998 Incentive Plan terminated December 31, 2008.
The following table summarizes TSO activity as of December 31, 2009 by grant year.
|
TSO Grant Year | |||
---|---|---|---|---|
|
2007 | |||
TSOs outstanding at January 1, 2009 |
1,079,194 | |||
Forfeited(1) |
(125,311 | ) | ||
Vested and exercised |
| |||
TSOs outstanding at December 31, 2009(2) |
953,883 | |||
Intrinsic value(3) |
$ |
|
||
Intrinsic valueoptions exercised |
| |||
Fair valueoptions exercised |
| |||
Cash receivedoptions exercised |
| |||
Exercise price(4) |
$ |
65.81 |
||
Threshold price |
92.30 | |||
Fair value of options on grant date |
9.54 | |||
Remaining contractual term (in years) |
2.1 |
The Company has a $200 million per fiscal year common stock repurchase program which gives us the ability to acquire some or all of the shares of common stock to be issued upon the exercise of the TSOs or the Contingent Stock Agreement under which we assumed the obligations of TRC to issue shares of common stock to the beneficiaries thereunder (the "CSA") (Note 14). During 2008 and in 2009, no shares were repurchased and, during the pendency of our Chapter 11 Cases, no stock repurchases are expected.
Other Required Disclosures
Historical data, such as the past performance of our common stock and the length of service by employees, is used to estimate expected life of the stock options, TSOs and our restricted stock and
F-71
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10 STOCK-BASED COMPENSATION PLANS (Continued)
represents the period of time the options or grants are expected to be outstanding. No TSOs were granted during the years ended December 31, 2009 and 2008 and no stock options were granted during 2009. The Fair Values of TSOs granted in 2007 were estimated using the binomial method. The value of restricted stock grants is calculated as the average of the high and low stock prices on the date of the initial grant. The Fair Values of all other stock options were estimated on the date of grant using the Black-Scholes-Merton option pricing model. These Fair Values are affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. Expected volatilities are based on historical volatility of our stock price as well as that of our peer group, implied volatilities and various other factors. The weighted average estimated value of TSOs granted during 2007 and stock options granted during 2007 and 2008 were based on the following assumptions:
|
2008 | 2007 | |||||
---|---|---|---|---|---|---|---|
Risk-free interest rate |
1.68 | % | 4.70 | % | |||
Dividend yield |
4.00 | % | 4.00 | % | |||
Expected volatility |
97.24 | % | 24.72 | % | |||
Expected life (in years) |
3.0 | 5.0 |
Compensation expense related to the Incentive Stock Plans, TSOs and restricted stock was $8.6 million in 2009, $6.8 million in 2008 and $16.9 million in 2007.
As of December 31, 2009, total compensation expense which had not yet been recognized related to nonvested options, TSOs and restricted stock grants was $14.7 million. Of this total, $8.4 million is expected to be recognized in 2010, $5.6 million in 2011 and $0.7 million in 2012. These amounts may be impacted by future grants, changes in forfeiture estimates or vesting terms, actual forfeiture rates which differ from estimated forfeitures and/or timing of TSO vesting.
Employee Stock Purchase Plan
The General Growth Properties, Inc. Employee Stock Purchase Plan (the "ESPP"), which was terminated effective June 30, 2009 and had been suspended from June 2008 through June 2009, was established to assist eligible employees in acquiring stock ownership interest in GGP. Under the ESPP, eligible employees made payroll deductions over a six-month purchase period. At the end of each six-month purchase period, the amounts withheld were used to purchase shares of our common stock at a purchase price equal to 85% of the lesser of the closing price of a share of a common stock on the first or last trading day of the purchase period. The ESPP was considered a compensatory plan in accordance with the generally accepted accounting principles related to sharebased payments. From inception through June 30, 2009, an aggregate of 1.7 million shares of our common stock had been purchased by eligible employees under the ESPP. Compensation expense related to the ESPP was $1.0 million in 2008 and $2.0 million in 2007. No compensation expense was recognized in 2009.
Defined Contribution Plan
We sponsor the General Growth 401(k) Savings Plan (the "401(k) Plan") which permits all eligible employees to defer a portion of their compensation in accordance with the provisions of Section 401(k) of the Code. Subject to certain limitations (including an annual limit imposed by the Code), each participant is allowed to make before-tax contributions up to 50% of gross earnings, as defined. We
F-72
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10 STOCK-BASED COMPENSATION PLANS (Continued)
add to a participant's account through a matching contribution up to 5% of the participant's annual earnings contributed to the 401(k) Plan. We match 100% of the first 4% of earnings contributed by each participant and 50% of the next 2% of earnings contributed by each participant. We recognized expense resulting from the matching contributions of $9.1 million in 2009, $10.7 million in 2008, and $10.2 million in 2007.
Dividend Reinvestment and Stock Purchase Plan
The Dividend Reinvestment and Stock Purchase Plan ("DRSP") was terminated on the Petition Date. In general, the DRSP had allowed participants to purchase our common stock from dividends received or additional cash investments. The stock was purchased at current market price, but no fees or commissions were charged to the participant. As of the Petition Date, an aggregate of 837,604 shares of our common stock had been issued under the DRSP.
NOTE 11 OTHER ASSETS AND LIABILITIES
The following table summarizes the significant components of prepaid expenses and other assets.
|
December 31,
2009 |
December 31,
2008 |
|||||
---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||
Below-market ground leases (Note 2) |
$ | 241,676 | $ | 247,553 | |||
Receivablesfinance leases and bonds |
119,506 | 118,543 | |||||
Security and escrow deposits |
99,685 | 156,574 | |||||
Prepaid expenses |
88,651 | 63,879 | |||||
Real estate tax stabilization agreement (Note 2) |
71,607 | 75,531 | |||||
Special Improvement District receivable |
48,713 | 51,314 | |||||
Above-market tenant leases (Note 2) |
34,339 | 51,308 | |||||
Deferred tax, net of valuation allowances |
28,615 | 37,973 | |||||
Other |
21,955 | 32,780 | |||||
|
$ | 754,747 | $ | 835,455 | |||
F-73
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11 OTHER ASSETS AND LIABILITIES (Continued)
The following table summarizes the significant components of accounts payable, accrued expenses and other liabilities.
|
December 31,
2009 |
December 31,
2008 |
|||||||
---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||||
Accounts payable and accrued expenses |
$ | 434,911 | $ | 263,167 | |||||
Accrued interest |
366,398 | 115,968 | |||||||
Construction payable |
150,746 | 257,178 | |||||||
Uncertain tax position liability |
129,413 | 134,646 | |||||||
Accrued payroll and other employee liabilities |
104,926 | 62,591 | |||||||
Accrued real estate taxes |
88,511 | 90,663 | |||||||
Hughes participation payable (Note 8) |
68,378 | 73,325 | |||||||
Deferred gains/income |
67,611 | 62,716 | |||||||
Below-market tenant leases (Note 2) |
63,290 | 88,756 | |||||||
Conditional asset retirement obligation liability |
24,601 | 23,499 | |||||||
Tenant and other deposits |
23,250 | 24,452 | |||||||
Derivative financial instruments |
| 27,715 | |||||||
Funded defined contribution plan liabilities |
| 7,517 | |||||||
Other |
212,861 | 306,956 | |||||||
Total accounts payable and accrued expenses |
1,734,896 | 1,539,149 | |||||||
Less: amounts subject to compromise (Note 1) |
(612,008 | ) | | ||||||
Accounts payable and accrued expenses not subject to compromise |
$ | 1,122,888 | $ | 1,539,149 | |||||
F-74
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12 NONCONTROLLING INTERESTS
The following table reflects the activity of the redeemable noncontrolling interests for the years ended December 31, 2009, 2008 and 2007.
|
(In thousands)
|
|||
---|---|---|---|---|
Balance at December 31, 2006 (as adjusted) |
$ | 3,109,732 | ||
Net income |
69,472 | |||
Distributions |
(169,522 | ) | ||
Conversion of operating partnership units into common shares |
(7,695 | ) | ||
Conversion of convertible preferred units to common shares |
(488 | ) | ||
Other comprehensive income |
5,486 | |||
Adjustment for noncontrolling interests in operating partnership |
65,431 | |||
Adjust redeemable noncontrolling interests |
(713,515 | ) | ||
Balance at December 31, 2007 |
$ | 2,358,901 | ||
Net income |
11,499 |
|||
Distributions |
(88,328 | ) | ||
Conversion of operating partnership units into common shares |
(9,147 | ) | ||
Conversion of convertible preferred units to common shares |
(250 | ) | ||
Other comprehensive loss |
(18,160 | ) | ||
Adjustment for noncontrolling interests in operating partnership |
117,447 | |||
Adjust redeemable noncontrolling interests |
(1,872,037 | ) | ||
Balance at December 31, 2008 |
$ | 499,925 | ||
Net loss |
(21,959 |
) |
||
Distributions |
(9,433 | ) | ||
Conversion of operating partnership units into common shares |
(324,489 | ) | ||
Other comprehensive income |
10,573 | |||
Adjustment for noncontrolling interests in operating partnership |
(13,200 | ) | ||
Adjust redeemable noncontrolling interests |
65,416 | |||
Balance at December 31, 2009 |
$ | 206,833 | ||
On January 2, 2009, MB Capital Units LLC, pursuant to the Rights Agreement, converted 42,350,000 Common Units (approximately 13% of all outstanding Common Units, including those owned by GGP) in the Company's Operating Partnership into 42,350,000 shares of GGP common stock.
F-75
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12 NONCONTROLLING INTERESTS (Continued)
The Operating Partnership has also issued Convertible Preferred Units, which are convertible, with certain restrictions, at any time by the holder into Common Units of the Operating Partnership at the following rates (subject to adjustment):
|
Number of
Common Units for each Preferred Unit |
|||
---|---|---|---|---|
Series BJP Realty |
3.000 | |||
Series DFoothills Mall |
1.508 | |||
Series EFour Seasons Town Centre |
1.298 |
NOTE 13 ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Components of accumulated other comprehensive (loss) income as of December 31, 2009 and 2008 are as follows:
|
2009 | 2008 | |||||
---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||
Net unrealized losses on financial instruments |
$ | (14,673 | ) | $ | (27,903 | ) | |
Accrued pension adjustment |
(1,704 | ) | (2,110 | ) | |||
Foreign currency translation |
16,166 | (25,634 | ) | ||||
Unrealized losses on available-for-sale securities |
(38 | ) | (481 | ) | |||
|
$ | (249 | ) | $ | (56,128 | ) | |
NOTE 14 COMMITMENTS AND CONTINGENCIES
In the normal course of business, from time to time, we are involved in legal proceedings relating to the ownership and operations of our properties. In management's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on our consolidated financial position, results of operations or liquidity.
We lease land or buildings at certain properties from third parties. The leases generally provide us with a right of first refusal in the event of a proposed sale of the property by the landlord. Rental payments are expensed as incurred and have, to the extent applicable, been straight-lined over the term of the lease. Contractual rental expense, including participation rent, was $19.0 million in 2009, $19.3 million in 2008 and $19.5 million in 2007, while the same rent expense excluding amortization of above and below-market ground leases and straight-line rents, as presented in our consolidated financial statements, was $12.7 million in 2009, $12.4 million in 2008 and $12.0 million in 2007.
We have, in the past, periodically entered into contingent agreements for the acquisition of properties. Each acquisition subject to such agreements was subject to satisfactory completion of due diligence and, in the case of property acquired under development, completion of the project. In conjunction with the acquisition of The Grand Canal Shoppes in 2004, we entered into an agreement (the "Phase II Agreement") to acquire the multi-level retail space that is part of The Shoppes at The Palazzo in Las Vegas, Nevada (The "Phase II Acquisition") which is connected to the existing Venetian
F-76
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14 COMMITMENTS AND CONTINGENCIES (Continued)
and the Sands Expo and Convention Center facilities and The Grand Canal Shoppes. The project opened on January 18, 2008. The acquisition closed on February 29, 2008 for an initial purchase price payment of $290.8 million, which was primarily funded with $250.0 million of new variable-rate short-term debt collateralized by the property and for Federal income tax purposes was used as replacement property in a like-kind exchange. The Phase II Agreement provides for additional purchase price payments based on net operating income, as defined, of the Phase II retail space. Such additional payments, if any, are to be made during the 30 months after closing with the final payment being subject to re-adjustment 48 months after closing. Although we have currently estimated that no additional amounts will be paid pursuant to the Phase II Agreement, the total final purchase price of the Phase II Acquisition could be different than the current estimate.
See Note 7 for our obligations related to uncertain tax positions for disclosure of additional contingencies.
The following table summarizes the contractual maturities of our long-term commitments. Both long-term debt and ground leases include the related purchase accounting Fair Value adjustments:
|
2010 | 2011 | 2012 | 2013 | 2014 |
Subsequent /
Other |
Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
(In thousands)
|
|
|
|
|||||||||||||||
Long-term debt-principal(1) |
$ | 1,114,925 | $ | 191,366 | $ | 1,006,706 | $ | 481,140 | $ | 1,626,788 | $ | 2,879,847 | $ | 7,300,772 | ||||||||
Retained debt-principal |
119,694 | 775 | 37,742 | | | | 158,211 | |||||||||||||||
Ground lease payments |
14,547 | 14,365 | 14,336 | 14,381 | 14,444 | 543,378 | 615,451 | |||||||||||||||
Uncertainty in income taxes, including interest |
| | | | | 129,413 | 129,413 | |||||||||||||||
Total |
$ | 1,249,166 | $ | 206,506 | $ | 1,058,784 | $ | 495,521 | $ | 1,641,232 | $ | 3,552,638 | $ | 8,203,847 | ||||||||
Contingent Stock Agreement
In conjunction with GGP's acquisition of The Rouse Company ("TRC") in November 2004, GGP assumed TRC's obligations under a CSA. TRC entered into the CSA in 1996 when it acquired The Hughes Corporation ("Hughes"). This acquisition included various assets, including Summerlin (the "CSA Assets"), a development in GGP's Master Planned Communities segment. The CSA is an unsecured obligation of GGP and therefore, GGP's obligations to the former Hughes owners or their successors (the "Beneficiaries") under the CSA are, and will be, subject to treatment in accordance with applicable requirements of the bankruptcy law and any plan of reorganization that may be confirmed by the Bankruptcy Court.
F-77
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14 COMMITMENTS AND CONTINGENCIES (Continued)
Under the terms of the CSA, GGP was required through August 2009 to issue shares of its common stock semi-annually (February and August) to the Beneficiaries with the number of shares to be issued in any period based on cash flows from the development and/or sale of the CSA Assets and GGP's stock price. The Beneficiaries' share of earnings from the CSA Assets is accounted for as a land sales operations expense. During 2009, GGP was not obligated to deliver any shares of its common stock under the CSA as the net development and sales cash flows were negative for the applicable periods. During 2008, 356,661 shares of GGP common stock (from treasury shares) were delivered to the Beneficiaries pursuant to the CSA.
Under the terms of the CSA, GGP is also required to make a final distribution to the Beneficiaries in 2010, following a final valuation of the remaining CSA Assets as of December 31, 2009. The CSA sets forth a methodology for establishing this final valuation and requires the payment, if any, be made in shares of GGP common stock. GGP would account for any final distribution to the Beneficiaries as an additional GGP investment in the CSA Assets (that is, contingent consideration). However, since GGP's plan of reorganization is still being developed, treatment of the CSA and the final distribution amount, if any, to the Beneficiaries cannot currently be determined and, therefore, no liability for any final distribution amount is probable or estimable at December 31, 2009. The carrying amount of the CSA Assets as reflected in the Company's Consolidated Financial Statements is not the final valuation, and should not be relied upon for purposes of determining, or estimating, the final distribution amount, if any, to the Beneficiaries.
NOTE 15 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On June 12, 2009, the FASB issued new generally accepted accounting guidance that amends the consolidation guidance applicable to variable interest entities. The amendments to the consolidation guidance affect all entities and enterprises currently within the scope of the previous guidance and are effective to the Company on January 1, 2010. Although the amendments significantly affected the overall consolidation analysis under previously issued guidance, we do not expect changes to our consolidated financial statements for this new guidance.
In June 2009, the FASB issued new generally accepted accounting guidance related to the accounting standards codification and the hierarchy of generally accepted accounting principles. The codification's content will carry the same level of authority, effectively superseding previous related guidance. The GAAP hierarchy has been modified to include only two levels of GAAP: authoritative and nonauthoritative. This new guidance was effective for us in the third quarter of 2009. The effect of the implementation of this new guidance on our consolidated financial statements resulted in the conversion of previously referenced specific accounting guidance to a "plain English" reference.
NOTE 16 SEGMENTS
We have two business segments which offer different products and services. Our segments are managed separately because each requires different operating strategies or management expertise. We do not distinguish or group our consolidated operations on a geographic basis. Further, all material
F-78
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16 SEGMENTS (Continued)
operations are within the United States and no customer or tenant comprises more than 10% of consolidated revenues. Our reportable segments are as follows:
The operating measure used to assess operating results for the business segments is Real Estate Property Net Operating Income ("NOI") which represents the operating revenues of the properties less property operating expenses, exclusive of depreciation and amortization and, with respect to our retail and other segment, provisions for impairment. Management believes that NOI provides useful information about a property's operating performance.
The accounting policies of the segments are the same as those described in Note 2, except that we report Unconsolidated Real Estate Affiliates using the proportionate share method rather than the equity method. Under the proportionate share method, our share of the revenues and expenses of the Unconsolidated Properties are combined with the revenues and expenses of the Consolidated Properties. Under the equity method, our share of the net revenues and expenses of the Unconsolidated Properties are reported as a single line item, Equity in income of Unconsolidated Real Estate Affiliates, in our Consolidated Statements of Income and Comprehensive Income. This difference affects only the reported revenues and operating expenses of the segments and has no effect on our reported net earnings. In addition, other revenue includes the NOI of discontinued operations and is reduced by the NOI attributable to our noncontrolling interest partners in consolidated joint ventures.
The total cash expenditures for additions to long-lived assets for the Master Planned Communities segment was $78.2 million for the year ended December 31, 2009, $166.1 million for the year ended December 31, 2008 and $243.3 million for the year ended December 31, 2007. Similarly, cash expenditures for long-lived assets for the Retail and Other segment was $252.8 million for the year ended December 31, 2009, $1.19 billion for the year ended December 31, 2008 and $1.50 billion for the year ended December 31, 2007. Such amounts for the Master Planned Communities segment and the Retail and Other segment are included in the amounts listed as Land/residential development and acquisitions expenditures and Acquisition/development of real estate and property additions/improvements, respectively, in our Consolidated Statements of Cash Flows.
The total amount of goodwill, as presented on our Consolidated Balance Sheets, is included in our Retail and Other segment.
F-79
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16 SEGMENTS (Continued)
Segment operating results are as follows:
|
Year Ended December 31, 2009 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Consolidated
Properties |
Unconsolidated
Properties |
Segment
Basis |
||||||||||
|
(In thousands)
|
||||||||||||
Retail and Other |
|||||||||||||
Property revenues: |
|||||||||||||
Minimum rents |
$ | 1,992,046 | $ | 388,997 | $ | 2,381,043 | |||||||
Tenant recoveries |
883,595 | 158,160 | 1,041,755 | ||||||||||
Overage rents |
52,306 | 7,779 | 60,085 | ||||||||||
Other, including noncontrolling interests |
75,232 | 56,320 | 131,552 | ||||||||||
Total property revenues |
3,003,179 | 611,256 | 3,614,435 | ||||||||||
Property operating expenses: |
|||||||||||||
Real estate taxes |
280,895 | 47,661 | 328,556 | ||||||||||
Property maintenance costs |
119,270 | 21,714 | 140,984 | ||||||||||
Marketing |
34,363 | 7,225 | 41,588 | ||||||||||
Other property operating costs |
529,686 | 131,220 | 660,906 | ||||||||||
Provision for doubtful accounts |
30,331 | 6,131 | 36,462 | ||||||||||
Total property operating expenses |
994,545 | 213,951 | 1,208,496 | ||||||||||
Retail and other net operating income |
2,008,634 | 397,305 | 2,405,939 | ||||||||||
Master Planned Communities |
|||||||||||||
Land sales |
45,997 | 37,993 | 83,990 | ||||||||||
Land sales operations |
(50,807 | ) | (33,684 | ) | (84,491 | ) | |||||||
Master Planned Communities net operating (loss) income before provision for impairment |
(4,810 | ) | 4,309 | (501 | ) | ||||||||
Provision for impairment |
(108,691 | ) | | (108,691 | ) | ||||||||
Master Planned Communities net operating (loss) income |
(113,501 | ) | 4,309 | (109,192 | ) | ||||||||
Real estate property net operating income |
$ | 1,895,133 | $ | 401,614 | $ | 2,296,747 | |||||||
F-80
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16 SEGMENTS (Continued)
|
Year Ended December 31, 2008 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Consolidated
Properties |
Unconsolidated
Properties |
Segment
Basis |
||||||||||
|
(In thousands)
|
||||||||||||
Retail and Other |
|||||||||||||
Property revenues: |
|||||||||||||
Minimum rents |
$ | 2,085,758 | $ | 383,003 | $ | 2,468,761 | |||||||
Tenant recoveries |
927,332 | 159,499 | 1,086,831 | ||||||||||
Overage rents |
72,882 | 9,461 | 82,343 | ||||||||||
Other, including noncontrolling interests |
101,438 | 62,081 | 163,519 | ||||||||||
Total property revenues |
3,187,410 | 614,044 | 3,801,454 | ||||||||||
Property operating expenses: |
|||||||||||||
Real estate taxes |
274,317 | 44,934 | 319,251 | ||||||||||
Property maintenance costs |
114,532 | 19,972 | 134,504 | ||||||||||
Marketing |
43,426 | 8,501 | 51,927 | ||||||||||
Other property operating costs |
557,259 | 140,062 | 697,321 | ||||||||||
Provision for doubtful accounts |
17,873 | 3,442 | 21,315 | ||||||||||
Total property operating expenses |
1,007,407 | 216,911 | 1,224,318 | ||||||||||
Retail and other net operating income |
2,180,003 | 397,133 | 2,577,136 | ||||||||||
Master Planned Communities |
|||||||||||||
Land sales |
66,557 | 72,189 | 138,746 | ||||||||||
Land sales operations |
(63,441 | ) | (46,311 | ) | (109,752 | ) | |||||||
Master Planned Communities net operating income before provision for impairment |
3,116 | 25,878 | 28,994 | ||||||||||
Provision for impairment |
(40,346 | ) | | (40,346 | ) | ||||||||
Master Planned Communities net operating (loss) income |
(37,230 | ) | 25,878 | (11,352 | ) | ||||||||
Real estate property net operating income |
$ | 2,142,773 | $ | 423,011 | $ | 2,565,784 | |||||||
F-81
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16 SEGMENTS (Continued)
|
Year Ended December 31, 2007 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Consolidated Properties | Unconsolidated Properties | Segment Basis | ||||||||||
|
(In thousands)
|
||||||||||||
Retail and Other |
|||||||||||||
Property revenues: |
|||||||||||||
Minimum rents |
$ | 1,933,674 | $ | 406,241 | $ | 2,339,915 | |||||||
Tenant recoveries |
859,801 | 173,486 | 1,033,287 | ||||||||||
Overage rents |
89,016 | 12,213 | 101,229 | ||||||||||
Other, including noncontrolling interests |
102,553 | 82,884 | 185,437 | ||||||||||
Total property revenues |
2,985,044 | 674,824 | 3,659,868 | ||||||||||
Property operating expenses: |
|||||||||||||
Real estate taxes |
246,484 | 50,478 | 296,962 | ||||||||||
Property and maintenance costs |
111,490 | 22,670 | 134,160 | ||||||||||
Marketing |
54,664 | 12,233 | 66,897 | ||||||||||
Other property operating costs |
523,341 | 168,038 | 691,379 | ||||||||||
Provision for doubtful accounts |
5,426 | 1,978 | 7,404 | ||||||||||
Total property operating expenses |
941,405 | 255,397 | 1,196,802 | ||||||||||
Retail and other net operating income |
2,043,639 | 419,427 | 2,463,066 | ||||||||||
Master Planned Communities |
|||||||||||||
Land sales |
145,649 | 85,017 | 230,666 | ||||||||||
Land sales operations |
(116,708 | ) | (57,813 | ) | (174,521 | ) | |||||||
Master Planned Communities net operating income before provision for impairment |
28,941 | 27,204 | 56,145 | ||||||||||
Provision for impairment |
(127,600 | ) | | (127,600 | ) | ||||||||
Master Planned Communities net operating (loss) income |
(98,659 | ) | 27,204 | (71,455 | ) | ||||||||
Real estate property net operating income |
$ | 1,944,980 | $ | 446,631 | $ | 2,391,611 | |||||||
F-82
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16 SEGMENTS (Continued)
The following reconciles NOI to GAAP-basis operating income and income from continuing operations:
|
Years Ended December 31, | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2007 | ||||||||
|
(In thousands)
|
||||||||||
Real estate property net operating income: |
|||||||||||
Segment basis |
$ | 2,296,747 | $ | 2,565,784 | $ | 2,391,611 | |||||
Unconsolidated Properties |
(401,614 | ) | (423,011 | ) | (446,631 | ) | |||||
Consolidated Properties |
1,895,133 | 2,142,773 | 1,944,980 | ||||||||
Management fees and other corporate revenues |
75,851 | 96,495 | 119,941 | ||||||||
Property management and other costs |
(176,876 | ) | (184,738 | ) | (198,610 | ) | |||||
General and administrative |
(28,608 | ) | (39,245 | ) | (37,005 | ) | |||||
Strategic initiatives |
(67,341 | ) | (18,727 | ) | | ||||||
Litgation recovery (provision) |
| 57,145 | (89,225 | ) | |||||||
Provisions for impairment |
(1,115,119 | ) | (76,265 | ) | (2,933 | ) | |||||
Depreciation and amortization |
(755,161 | ) | (759,930 | ) | (670,454 | ) | |||||
Noncontrolling interest in NOI of Consolidated Properties and other |
10,787 | 11,063 | 11,167 | ||||||||
Operating income |
(161,334 | ) | 1,228,571 | 1,077,861 | |||||||
Interest income |
3,321 | 3,197 | 8,641 | ||||||||
Interest expense |
(1,311,283 | ) | (1,325,273 | ) | (1,191,466 | ) | |||||
Benefit from (provision for) income taxes |
14,610 | (23,461 | ) | 294,160 | |||||||
Equity in income of Unconsolidated Real Estate Affiliates |
4,635 | 80,594 | 158,401 | ||||||||
Reorganization items |
146,190 | | | ||||||||
(Loss) income from continuing operations |
$ | (1,303,861 | ) | $ | (36,372 | ) | $ | 347,597 | |||
The following reconciles segment revenues to GAAP-basis consolidated revenues:
|
Years Ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2007 | |||||||
|
(In thousands)
|
|||||||||
Segment basis total property revenues |
$ | 3,614,435 | $ | 3,801,454 | $ | 3,659,868 | ||||
Unconsolidated segment revenues |
(611,256 | ) | (614,044 | ) | (674,824 | ) | ||||
Consolidated land sales |
45,997 | 66,557 | 145,649 | |||||||
Management fees and other corporate revenues |
75,851 | 96,495 | 119,941 | |||||||
Noncontrolling interest in NOI of Consolidated Properties and other |
10,787 | 11,063 | 11,167 | |||||||
GAAP-basis consolidated total revenues |
$ | 3,135,814 | $ | 3,361,525 | $ | 3,261,801 | ||||
F-83
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16 SEGMENTS (Continued)
The assets by segment and the reconciliation of total segment assets to the total assets in the consolidated financial statements at December 31, 2009 and 2008 are summarized as follows:
|
2009 | 2008 | |||||
---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||
Retail and Other |
$ | 28,166,899 | $ | 29,931,570 | |||
Master Planned Communities |
2,095,415 | 2,174,015 | |||||
Total segment assets |
30,262,314 | 32,105,585 | |||||
Unconsolidated Properties |
(4,609,763 | ) | (4,481,818 | ) | |||
Corporate and other |
2,497,223 | 1,933,563 | |||||
Total assets |
$ | 28,149,774 | $ | 29,557,330 | |||
NOTE 17 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
|
2009 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
||||||||||
|
(In thousands except for per share amounts)
|
|||||||||||||
Total revenues |
$ | 788,640 | $ | 792,095 | $ | 760,961 | $ | 794,118 | ||||||
Operating (loss) income(1) |
(95,438 | ) | 193,590 | 201,206 | (460,692 | ) | ||||||||
Loss from continuing operations(1) |
(404,145 | ) | (158,581 | ) | (117,454 | ) | (623,681 | ) | ||||||
(Loss) income from discontinued operations |
(55 | ) | | 29 | (940 | ) | ||||||||
Net loss attibutable to common shareholders |
(396,082 | ) | (158,402 | ) | (117,847 | ) | (612,358 | ) | ||||||
Loss per share from continuing operations(2): |
||||||||||||||
Basic |
(1.27 | ) | (0.51 | ) | (0.38 | ) | (1.96 | ) | ||||||
Diluted |
(1.27 | ) | (0.51 | ) | (0.38 | ) | (1.96 | ) | ||||||
Loss per share(2): |
||||||||||||||
Basic |
(1.27 | ) | (0.51 | ) | (0.38 | ) | (1.96 | ) | ||||||
Diluted |
(1.27 | ) | (0.51 | ) | (0.38 | ) | (1.96 | ) | ||||||
Dividends declared per share |
| | | 0.19 | ||||||||||
Weighted-average shares outstanding: |
||||||||||||||
Basic |
310,868 | 312,337 | 312,363 | 312,382 | ||||||||||
Diluted |
310,868 | 312,337 | 312,363 | 312,382 |
F-84
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17 QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (Continued)
|
2008 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
||||||||||
|
(In thousands except for per share amounts)
|
|||||||||||||
Total revenues |
$ | 830,322 | $ | 815,618 | $ | 814,701 | $ | 900,884 | ||||||
Operating income(1) |
318,280 | 304,447 | 257,671 | 348,173 | ||||||||||
Income (loss) from continuing operations(1) |
7,581 | 872 | (40,286 | ) | (4,539 | ) | ||||||||
Income (loss) from discontinued operations |
| 37,060 | 18,023 | (39 | ) | |||||||||
Net income (loss) attibutable to common shareholders |
3,360 | 28,751 | (20,859 | ) | (6,533 | ) | ||||||||
Earnings (loss) per share from continuing operations: |
||||||||||||||
Basic |
0.01 | | (0.13 | ) | (0.02 | ) | ||||||||
Diluted |
0.01 | | (0.13 | ) | (0.02 | ) | ||||||||
Earnings (loss) per share: |
||||||||||||||
Basic |
0.01 | 0.12 | (0.08 | ) | (0.02 | ) | ||||||||
Diluted(2) |
0.01 | 0.12 | (0.08 | ) | (0.02 | ) | ||||||||
Dividends declared per share |
0.50 | 0.50 | 0.50 | | ||||||||||
Weighted-average shares outstanding: |
||||||||||||||
Basic |
244,765 | 267,369 | 267,945 | 268,569 | ||||||||||
Diluted |
244,918 | 267,369 | 267,945 | 268,569 |
As more fully described in Note 2, the Company, under applicable GAAP guidance, was deemed to incur compensation expense as a result of a series of loans made to two officers of the Company by an affiliate of certain Bucksbaum family trusts. The independent members of the Company's Board of Directors learned of these loans in October 2008 and the aggregate deemed compensation expense amount of approximately $15.4 million, before noncontrolling interest, was recorded as a general and administrative expense (a component of operating income) in the fourth quarter of 2008. This amount is a cumulative correction of an error as no expense amounts for these loans were recorded or reflected in the above schedules of unaudited quarterly financial information for the first, second or third quarters of 2008. Had the deemed compensation expense been recorded in the applicable periods, operating income would have declined by approximately $2.9 million, $59 thousand and $12.1 million, respectively, for the first, second and third quarters of 2008, respectively. For net income, which is presented net of noncontrolling interest, net income would have been lower by approximately $2.4 million, $50 thousand and $10.1 million for the first, second and third quarters of 2008, respectively. If this deemed expense had been recorded in the applicable quarters as just discussed rather than as a correction of an error in the fourth quarter of 2008, fourth quarter 2008 operating income would have increased by the full amount of the correction recorded ($15.4 million) and net income (presented net of noncontrolling interest) would have increased by $12.8 million. We have assessed the impacts to the previously reported quarters of 2008 (and the related year-to-date 2008 amounts), and the impact of the cumulative correction recorded in the fourth quarter of 2008, and concluded that all such impacts are immaterial. Accordingly, we have determined that no restatement of previously issued financial statements or information is necessary and, therefore, no such restatement is reflected in the above presentation of unaudited quarterly financial information for the deemed compensation expense correction recorded.
F-85
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
General Growth Properties, Inc.
Chicago, Illinois
We have audited the consolidated financial statements of General Growth Properties, Inc. (Debtor-in-Possession) and subsidiaries (the "Company") as of December 31, 2009 and 2008, and for each of the three years in the period ended December 31, 2009, and the Company's internal control over financial reporting as of December 31, 2009, and have issued our reports thereon dated March 1, 2010 (for which the report on the consolidated financial statements expresses an unqualified opinion and includes explanatory paragraphs regarding the Company's bankruptcy proceedings, the Company's ability to continue as a going concern and the Company's change in methods of accounting for noncontrolling interests and convertible debt instruments); such consolidated financial statements and reports are included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of the Company listed in the Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule on page F-1 of this Form 10-K. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Chicago,
Illinois
March 1, 2010
F-86
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2009
|
|
|
|
|
Costs Capitalized
Subsequent to Acquisition(c) |
Gross Amounts at Which
Carried at Close of Period(d) |
|
|
|
Life
Upon Which Latest Income Statement is Computed |
||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Initial Cost(b) |
|
|
|
||||||||||||||||||||||||||||||||
Name of Center
|
Location | Encumbrances(a) | Land |
Buildings and
Improvements |
Land |
Buildings and
Improvements |
Land |
Buildings and
Improvements |
Total |
Accumulated
Depreciation(e) |
Date of
Construction |
Date
Acquired |
||||||||||||||||||||||||||
|
|
(In thousands)
|
|
|
|
|||||||||||||||||||||||||||||||||
Retail and Other: |
||||||||||||||||||||||||||||||||||||||
Ala Moana Center |
Honolulu, HI |
$ |
1,500,000 |
$ |
336,229 |
$ |
473,771 |
$ |
|
$ |
287,812 |
$ |
336,229 |
$ |
761,583 |
$ |
1,097,812 |
$ |
195,434 |
1999 |
(e |
) |
||||||||||||||||
Alameda Plaza |
Pocatello, ID | | 740 | 2,060 | | 13 | 740 | 2,073 | 2,813 | 387 | 2002 | (e | ) | |||||||||||||||||||||||||
Anaheim Crossing |
Anaheim, CA | | | 1,986 | | 29 | | 2,015 | 2,015 | 375 | 2002 | (e | ) | |||||||||||||||||||||||||
Animas Valley Mall |
Farmington, NM | 35,054 | 6,464 | 35,902 | | 8,645 | 6,464 | 44,547 | 51,011 | 9,011 | 2002 | (e | ) | |||||||||||||||||||||||||
Apache Mall |
Rochester, MN | | 8,110 | 72,993 | | 26,639 | 8,110 | 99,632 | 107,742 | 29,428 | 1998 | (e | ) | |||||||||||||||||||||||||
Arizona Center |
Phoenix, AZ | | 2,314 | 132,158 | | 2,326 | 2,314 | 134,484 | 136,798 | 28,994 | 2004 | (e | ) | |||||||||||||||||||||||||
Augusta Mall |
Augusta, GA | 159,000 | 787 | 162,272 | 1,217 | 82,949 | 2,004 | 245,221 | 247,225 | 30,377 | 2004 | (e | ) | |||||||||||||||||||||||||
Austin Bluffs Plaza |
Colorado Springs, CO | 2,288 | 1,080 | 3,007 | | 234 | 1,080 | 3,241 | 4,321 | 610 | 2002 | (e | ) | |||||||||||||||||||||||||
Bailey Hills Village |
Eugene, OR | | 290 | 806 | | 36 | 290 | 842 | 1,132 | 156 | 2002 | (e | ) | |||||||||||||||||||||||||
Baybrook Mall |
Friendswood, TX | 168,570 | 13,300 | 117,163 | 6,853 | 28,291 | 20,153 | 145,454 | 165,607 | 38,830 | 1999 | (e | ) | |||||||||||||||||||||||||
Bayshore Mall |
Eureka, CA | 31,005 | 3,005 | 27,399 | | 37,512 | 3,005 | 64,911 | 67,916 | 33,854 | 1986-1987 | (e | ) | |||||||||||||||||||||||||
Bayside Marketplace |
Miami, FL | 84,103 | | 177,801 | | 3,616 | | 181,417 | 181,417 | 39,816 | 2004 | (e | ) | |||||||||||||||||||||||||
Beachwood Place |
Beachwood, OH | 240,164 | 18,500 | 319,684 | | 27,113 | 18,500 | 346,797 | 365,297 | 39,988 | 2004 | (e | ) | |||||||||||||||||||||||||
Bellis Fair |
Bellingham, WA | 61,586 | 7,616 | 47,040 | (131 | ) | 15,946 | 7,485 | 62,986 | 70,471 | 32,856 | 1987-1988 | (e | ) | ||||||||||||||||||||||||
Birchwood Mall |
Port Huron, MI | 44,308 | 1,769 | 34,575 | 1,274 | 19,871 | 3,043 | 54,446 | 57,489 | 30,763 | 1989-1990 | (e | ) | |||||||||||||||||||||||||
Boise Plaza |
Boise, ID | | 374 | 1,042 | | 112 | 374 | 1,154 | 1,528 | 210 | 2002 | (e | ) | |||||||||||||||||||||||||
Boise Towne Plaza |
Boise, ID | 10,921 | 3,988 | 11,101 | | 146 | 3,988 | 11,247 | 15,235 | 2,116 | 2002 | (e | ) | |||||||||||||||||||||||||
Boise Towne Square |
Boise, ID | 69,689 | 23,449 | 131,001 | 1,088 | 36,423 | 24,537 | 167,424 | 191,961 | 31,202 | 2002 | (e | ) | |||||||||||||||||||||||||
Burlington Town Center |
Burlington, VT | 26,304 | 1,637 | 32,798 | 2,597 | 20,396 | 4,234 | 53,194 | 57,428 | 7,976 | 2004 | (e | ) | |||||||||||||||||||||||||
Cache Valley Mall |
Logan, UT | 28,043 | 3,875 | 22,047 | (415 | ) | 472 | 3,460 | 22,519 | 25,979 | | 2002 | (e | ) | ||||||||||||||||||||||||
Cache Valley Marketplace |
Logan, UT | | 1,500 | 1,583 | 1,310 | 3,526 | 2,810 | 5,109 | 7,919 | | 2002 | (e | ) | |||||||||||||||||||||||||
Capital Mall |
Jefferson City, MO | 11,000 | 4,200 | 14,201 | (287 | ) | 10,871 | 3,913 | 25,072 | 28,985 | 12,648 | 1993 | (e | ) | ||||||||||||||||||||||||
Century Plaza |
Birmingham, AL | | 3,164 | 28,514 | | (14,290 | ) | 3,164 | 14,224 | 17,388 | 6 | 1997 | (e | ) | ||||||||||||||||||||||||
Chapel Hills Mall |
Colorado Springs, CO | 98,500 | 4,300 | 34,017 | | 72,043 | 4,300 | 106,060 | 110,360 | 40,624 | 1993 | (e | ) | |||||||||||||||||||||||||
Chico Mall |
Chico, CA | 55,524 | 16,958 | 45,628 | (1,187 | ) | (6,966 | ) | 15,771 | 38,662 | 54,433 | | 2003 | (e | ) | |||||||||||||||||||||||
Coastland Center |
Naples, FL | 117,006 | 11,450 | 103,050 | | 50,040 | 11,450 | 153,090 | 164,540 | 38,703 | 1998 | (e | ) | |||||||||||||||||||||||||
Collin Creek |
Plano, TX | 68,940 | 26,250 | 122,991 | | 2,529 | 26,250 | 125,520 | 151,770 | 16,772 | 2004 | (e | ) | |||||||||||||||||||||||||
Colony Square Mall |
Zanesville, OH | 25,239 | 1,000 | 24,500 | 597 | 25,302 | 1,597 | 49,802 | 51,399 | 27,678 | 1986 | (e | ) | |||||||||||||||||||||||||
Columbia Mall |
Columbia, MO | 90,000 | 5,383 | 19,663 | | 32,259 | 5,383 | 51,922 | 57,305 | 27,795 | 1984-1985 | (e | ) | |||||||||||||||||||||||||
Coral Ridge Mall |
Coralville, IA | 88,250 | 3,364 | 64,218 | 49 | 22,952 | 3,413 | 87,170 | 90,583 | 31,860 | 1998-1999 | (e | ) | |||||||||||||||||||||||||
Coronado Center |
Albuquerque, NM | 168,798 | 33,072 | 148,799 | | 3,482 | 33,072 | 152,281 | 185,353 | 28,996 | 2003 | (e | ) | |||||||||||||||||||||||||
Cottonwood Mall |
Salt Lake City, UT | | 7,613 | 42,987 | (4,713 | ) | (42,987 | ) | 2,900 | | 2,900 | | 2002 | (e | ) | |||||||||||||||||||||||
Cottonwood Square |
Salt Lake City, UT | | 1,558 | 4,339 | | 218 | 1,558 | 4,557 | 6,115 | 847 | 2002 | (e | ) | |||||||||||||||||||||||||
Country Hills Plaza |
Ogden, UT | 13,526 | 3,620 | 9,080 | (88 | ) | (1,111 | ) | 3,532 | 7,969 | 11,501 | | 2002 | (e | ) | |||||||||||||||||||||||
Crossroads Center |
St. Cloud, MN | 78,436 | 10,813 | 72,203 | 2,393 | 40,769 | 13,206 | 112,972 | 126,178 | 25,981 | 2000 | (e | ) | |||||||||||||||||||||||||
Cumberland Mall |
Atlanta, GA | 103,862 | 15,199 | 136,787 | 10,042 | 74,528 | 25,241 | 211,315 | 236,556 | 50,567 | 1998 | (e | ) | |||||||||||||||||||||||||
Division Crossing |
Portland, OR | 5,273 | 1,773 | 4,935 | | 422 | 1,773 | 5,357 | 7,130 | 1,007 | 2002 | (e | ) | |||||||||||||||||||||||||
Eagle Ridge Mall |
Lake Wales, FL | 47,578 | 7,620 | 49,561 | (3,280 | ) | (27,366 | ) | 4,340 | 22,195 | 26,535 | | 1995-1996 | (e | ) | |||||||||||||||||||||||
Eastridge Mall |
Casper, WY | 31,992 | 6,171 | 34,384 | (79 | ) | 11,590 | 6,092 | 45,974 | 52,066 | 8,090 | 2002 | (e | ) | ||||||||||||||||||||||||
Eastridge Mall |
San Jose, CA | 170,000 | 36,724 | 178,018 | | 23,540 | 36,724 | 201,558 | 238,282 | 29,010 | 2006 | (e | ) | |||||||||||||||||||||||||
Eden Prairie Center |
Eden Prairie, MN | 79,828 | 465 | 19,024 | 28 | 123,355 | 493 | 142,379 | 142,872 | 49,162 | 1997 | (e | ) |
F-87
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
DECEMBER 31, 2009
|
|
|
|
|
Costs Capitalized
Subsequent to Acquisition(c) |
Gross Amounts at Which
Carried at Close of Period(d) |
|
|
|
Life
Upon Which Latest Income Statement is Computed |
||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Initial Cost(b) |
|
|
|
||||||||||||||||||||||||||||||||
Name of Center
|
Location | Encumbrances(a) | Land |
Buildings and
Improvements |
Land |
Buildings and
Improvements |
Land |
Buildings and
Improvements |
Total |
Accumulated
Depreciation(e) |
Date of
Construction |
Date
Acquired |
||||||||||||||||||||||||||
|
|
(In thousands)
|
|
|
|
|||||||||||||||||||||||||||||||||
Fallbrook Center |
West Hills, CA | 85,000 | 6,117 | 10,077 | 10 | 101,497 | 6,127 | 111,574 | 117,701 | 50,995 | 1984 | (e | ) | |||||||||||||||||||||||||
Faneuil Hall Marketplace |
Boston, MD | 87,235 | | 122,098 | | 2,033 | | 124,131 | 124,131 | 20,769 | 2004 | (e | ) | |||||||||||||||||||||||||
Fashion Place |
Murray, UT | 136,850 | 21,604 | 206,484 | 706 | 46,542 | 22,310 | 253,026 | 275,336 | 32,922 | 2004 | (e | ) | |||||||||||||||||||||||||
Fashion Show |
Las Vegas, NV | 645,918 | 523,650 | 602,288 | | (7,683 | ) | 523,650 | 594,605 | 1,118,255 | 94,137 | 2004 | (e | ) | ||||||||||||||||||||||||
Foothills Mall |
Fort Collins, CO | 50,758 | 8,031 | 96,642 | (3,576 | ) | (59,906 | ) | 4,455 | 36,736 | 41,191 | | 2003 | (e | ) | |||||||||||||||||||||||
Fort Union |
Midvale, UT | 2,753 | | 3,842 | | 27 | | 3,869 | 3,869 | 736 | 2002 | (e | ) | |||||||||||||||||||||||||
Four Seasons Town Centre |
Greensboro, NC | 100,429 | 27,231 | 141,978 | | 6,810 | 27,231 | 148,788 | 176,019 | 25,280 | 2004 | (e | ) | |||||||||||||||||||||||||
Fox River Mall |
Appleton, WI | 195,000 | 2,701 | 18,291 | 2,086 | 66,854 | 4,787 | 85,145 | 89,932 | 41,709 | 1983-1984 | (e | ) | |||||||||||||||||||||||||
Fremont Plaza |
Las Vegas, NV | | | 3,956 | | 330 | | 4,286 | 4,286 | 774 | 2002 | (e | ) | |||||||||||||||||||||||||
Gateway Crossing Shopping Center |
Bountiful, UT | 15,234 | 4,104 | 11,422 | | 991 | 4,104 | 12,413 | 16,517 | 2,407 | 2002 | (e | ) | |||||||||||||||||||||||||
Gateway Mall |
Springfield, OR | 40,597 | 8,728 | 34,707 | (96 | ) | 38,375 | 8,632 | 73,082 | 81,714 | 35,420 | 1989-1990 | (e | ) | ||||||||||||||||||||||||
Gateway Overlook |
Columbia, MD | 55,000 | | 31,679 | | 2,850 | | 34,529 | 34,529 | 2,321 | 2007 | (e | ) | |||||||||||||||||||||||||
Glenbrook Square |
Fort Wayne, IN | 153,429 | 30,414 | 195,896 | 50 | 13,375 | 30,464 | 209,271 | 239,735 | 34,569 | 2003 | (e | ) | |||||||||||||||||||||||||
Governor's Square |
Tallahassee, FL | 74,368 | | 121,482 | | 5,941 | | 127,423 | 127,423 | 21,978 | 2004 | (e | ) | |||||||||||||||||||||||||
Grand Teton Mall |
Idaho Falls, ID | 48,795 | 6,973 | 44,030 | | 11,397 | 6,973 | 55,427 | 62,400 | 10,189 | 2002 | (e | ) | |||||||||||||||||||||||||
Grand Teton Plaza |
Idaho Falls, ID | | 2,349 | 7,336 | | 132 | 2,349 | 7,468 | 9,817 | 989 | 2004 | (e | ) | |||||||||||||||||||||||||
Grand Traverse Mall |
Traverse City, MI | 85,302 | 3,534 | 20,776 | | 30,413 | 3,534 | 51,189 | 54,723 | 28,311 | 1990-1991 | (e | ) | |||||||||||||||||||||||||
Greenwood Mall |
Bowling Green, KY | 45,579 | 3,200 | 40,202 | 187 | 37,664 | 3,387 | 77,866 | 81,253 | 34,517 | 1993 | (e | ) | |||||||||||||||||||||||||
Halsey Crossing |
Gresham, OR | 2,581 | | 4,363 | | 126 | | 4,489 | 4,489 | 864 | 2002 | (e | ) | |||||||||||||||||||||||||
Harborplace |
Baltimore, MD | 49,016 | | 54,308 | | 11,728 | | 66,036 | 66,036 | 12,133 | 2004 | (e | ) | |||||||||||||||||||||||||
Hulen Mall |
Fort Worth, TX | 113,021 | 8,910 | 153,894 | | (4,392 | ) | 8,910 | 149,502 | 158,412 | 17,736 | 2004 | (e | ) | ||||||||||||||||||||||||
Jordan Creek Town Center |
West Des Moines, IA | 185,950 | 18,142 | 166,143 | | 11,816 | 18,142 | 177,959 | 196,101 | 39,536 | 2004 | (e | ) | |||||||||||||||||||||||||
Knollwood Mall |
St. Louis Park, MN | 39,942 | | 9,748 | 7,026 | 42,058 | 7,026 | 51,806 | 58,832 | 26,280 | 1978 | (e | ) | |||||||||||||||||||||||||
Lakeside Mall |
Sterling Heights, MI | 161,380 | 35,860 | 369,639 | | 5,620 | 35,860 | 375,259 | 411,119 | 55,813 | 2004 | (e | ) | |||||||||||||||||||||||||
Lakeview Square |
Battle Creek, MI | 41,334 | 3,579 | 32,210 | (274 | ) | (2,733 | ) | 3,305 | 29,477 | 32,782 | | 1996 | (e | ) | |||||||||||||||||||||||
Landmark Mall |
Alexandria, VA | | 28,396 | 67,235 | (10,038 | ) | (38,434 | ) | 18,358 | 28,801 | 47,159 | | 2003 | (e | ) | |||||||||||||||||||||||
Lansing Mall |
Lansing, MI | 24,144 | 6,978 | 62,800 | 4,518 | 44,239 | 11,496 | 107,039 | 118,535 | 38,275 | 1996 | (e | ) | |||||||||||||||||||||||||
Lincolnshire Commons |
Lincolnshire, IL | 28,000 | 10,784 | 9,441 | | 20,994 | 10,784 | 30,435 | 41,219 | 4,892 | 2006 | (e | ) | |||||||||||||||||||||||||
Lockport Mall |
Lockport, NY | | 800 | 10,000 | | (3,523 | ) | 800 | 6,477 | 7,277 | 1,054 | 1986 | (e | ) | ||||||||||||||||||||||||
Lynnhaven Mall |
Virginia Beach, VA | 210,408 | 33,698 | 229,433 | | 6,126 | 33,698 | 235,559 | 269,257 | 41,760 | 2003 | (e | ) | |||||||||||||||||||||||||
Mall At Sierra Vista |
Sierra Vista, AZ | 23,556 | 3,652 | 20,450 | | 4,128 | 3,652 | 24,578 | 28,230 | 5,006 | 2002 | (e | ) | |||||||||||||||||||||||||
Mall of Louisiana |
Baton Rouge, LA | 235,174 | 28,649 | 275,102 | (4,058 | ) | 78,430 | 24,591 | 353,532 | 378,123 | 47,583 | 2004 | (e | ) | ||||||||||||||||||||||||
Mall of The Bluffs |
Council Bluffs, IA | 35,951 | 1,860 | 24,016 | 35 | 24,636 | 1,895 | 48,652 | 50,547 | 27,669 | 1985-1986 | (e | ) | |||||||||||||||||||||||||
Mall St. Matthews |
Louisville, KY | 144,565 | | 176,583 | 33,108 | 1,877 | 33,108 | 178,460 | 211,568 | 21,484 | 2004 | (e | ) | |||||||||||||||||||||||||
Mall St. Vincent |
Shreveport, LA | 32,578 | 2,640 | 23,760 | | 10,264 | 2,640 | 34,024 | 36,664 | 12,412 | 1998 | (e | ) | |||||||||||||||||||||||||
Market Place Shopping Center |
Champaign, IL | 106,000 | 7,000 | 63,972 | | 56,631 | 7,000 | 120,603 | 127,603 | 42,423 | 1997 | (e | ) | |||||||||||||||||||||||||
Mayfair Mall |
Wauwatosa, WI | 274,932 | 14,707 | 224,847 | | 41,831 | 14,707 | 266,678 | 281,385 | 75,210 | 2003 | (e | ) | |||||||||||||||||||||||||
Meadows Mall |
Las Vegas, NV | 101,463 | 24,634 | 104,088 | (3,259 | ) | 21,489 | 21,375 | 125,577 | 146,952 | 33,617 | 2003 | (e | ) | ||||||||||||||||||||||||
Mondawmin Mall |
Baltimore, MD | 84,689 | 11,850 | 57,871 | (2,182 | ) | 41,824 | 9,668 | 99,695 | 109,363 | 7,592 | 2004 | (e | ) | ||||||||||||||||||||||||
North Plains Mall |
Clovis, NM | 10,656 | 2,722 | 15,048 | (385 | ) | (2,670 | ) | 2,337 | 12,378 | 14,715 | | 2002 | (e | ) | |||||||||||||||||||||||
North Star Mall |
San Antonio, TX | 232,570 | 29,230 | 467,961 | 3,791 | 44,593 | 33,021 | 512,554 | 545,575 | 67,828 | 2004 | (e | ) | |||||||||||||||||||||||||
North Temple Shops(g) |
Salt Lake City, UT | | 168 | 468 | (168 | ) | (468 | ) | | | | | 2002 | (e | ) | |||||||||||||||||||||||
NorthTown Mall |
Spokane, WA | 114,976 | 22,407 | 125,033 | | 5,593 | 22,407 | 130,626 | 153,033 | 25,631 | 2002 | (e | ) | |||||||||||||||||||||||||
Northgate Mall |
Chattanooga, TN | 27,179 | 2,525 | 43,944 | (908 | ) | (19,565 | ) | 1,617 | 24,379 | 25,996 | | 2003 | (e | ) | |||||||||||||||||||||||
Northridge Fashion Center |
Northridge, CA | 127,168 | 16,618 | 149,563 | 248 | 40,840 | 16,866 | 190,403 | 207,269 | 58,604 | 1998 | (e | ) |
F-88
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
DECEMBER 31, 2009
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Costs Capitalized
Subsequent to Acquisition(c) |
Gross Amounts at Which
Carried at Close of Period(d) |
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Life
Upon Which Latest Income Statement is Computed |
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Name of Center
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Location | Encumbrances(a) | Land |
Buildings and
Improvements |
Land |
Buildings and
Improvements |
Land |
Buildings and
Improvements |
Total |
Accumulated
Depreciation(e) |
Date of
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Date
Acquired |
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Oak View Mall |
Omaha, NE | 83,292 | 12,056 | 113,042 | | 6,174 | 12,056 | 119,216 | 131,272 | 29,852 | 2003 | (e | ) | |||||||||||||||||||||||||
Oakwood Center |
Gretna, LA | 95,000 | 2,830 | 137,574 | 1,532 | (7,342 | ) | 4,362 | 130,232 | 134,594 | 14,427 | 2004 | (e | ) | ||||||||||||||||||||||||
Oakwood Mall |
Eau Claire, WI | 75,772 | 3,267 | 18,281 | | 29,964 | 3,267 | 48,245 | 51,512 | 28,743 | 1985-1986 | (e | ) | |||||||||||||||||||||||||
Oglethorpe Mall |
Savannah, GA | 141,375 | 16,036 | 92,978 | | 9,614 | 16,036 | 102,592 | 118,628 | 30,208 | 2003 | (e | ) | |||||||||||||||||||||||||
Orem Plaza Center Street |
Orem, UT | 2,460 | 1,069 | 2,974 | | 2,389 | 1,069 | 5,363 | 6,432 | 751 | 2002 | (e | ) | |||||||||||||||||||||||||
Orem Plaza State Street |
Orem, UT | 1,523 | 592 | 1,649 | | 191 | 592 | 1,840 | 2,432 | 336 | 2002 | (e | ) | |||||||||||||||||||||||||
Oviedo Marketplace |
Orlando, FL | 51,819 | 24,017 | 23,958 | (4,052 | ) | (10,072 | ) | 19,965 | 13,886 | 33,851 | | 2004 | (e | ) | |||||||||||||||||||||||
Owings Mills Mall |
Owing Mills, MD | 56,043 | 27,534 | 173,005 | (13,386 | ) | (127,323 | ) | 14,148 | 45,682 | 59,830 | 2,294 | 2004 | (e | ) | |||||||||||||||||||||||
Oxmoor Center |
Louisville, KY | 60,789 | | 131,434 | | 10,464 | | 141,898 | 141,898 | 18,897 | 2004 | (e | ) | |||||||||||||||||||||||||
Paramus Park |
Paramus, NJ | 102,855 | 47,660 | 182,124 | | 7,065 | 47,660 | 189,189 | 236,849 | 30,369 | 2004 | (e | ) | |||||||||||||||||||||||||
Park City Center |
Lancaster, PA | 149,234 | 8,465 | 177,191 | (276 | ) | 39,572 | 8,189 | 216,763 | 224,952 | 56,339 | 2003 | (e | ) | ||||||||||||||||||||||||
Park Place |
Tucson, AZ | 176,443 | 4,996 | 44,993 | (280 | ) | 116,377 | 4,716 | 161,370 | 166,086 | 49,674 | 1996 | (e | ) | ||||||||||||||||||||||||
Park West |
Peoria, AZ | | 16,526 | 77,548 | 1 | 124 | 16,527 | 77,672 | 94,199 | 5,301 | 2008 | (e | ) | |||||||||||||||||||||||||
Peachtree Mall |
Columbus, GA | 79,573 | 22,052 | 67,679 | | 6,053 | 22,052 | 73,732 | 95,784 | 14,998 | 2003 | (e | ) | |||||||||||||||||||||||||
Pecanland Mall |
Monroe, LA | 51,860 | 10,101 | 68,329 | 297 | 17,716 | 10,398 | 86,045 | 96,443 | 17,892 | 2002 | (e | ) | |||||||||||||||||||||||||
Piedmont Mall |
Danville, VA | 33,911 | 2,000 | 38,000 | (390 | ) | (13,952 | ) | 1,610 | 24,048 | 25,658 | | 1995 | (e | ) | |||||||||||||||||||||||
Pierre Bossier Mall |
Bossier City, LA | 40,382 | 4,367 | 35,353 | | 10,525 | 4,367 | 45,878 | 50,245 | 14,608 | 1998 | (e | ) | |||||||||||||||||||||||||
Pine Ridge Mall |
Pocatello, ID | 15,400 | 4,905 | 27,349 | | 6,816 | 4,905 | 34,165 | 39,070 | 7,345 | 2002 | (e | ) | |||||||||||||||||||||||||
Pioneer Place |
Portland, OR | 157,116 | 10,805 | 209,965 | | 3,696 | 10,805 | 213,661 | 224,466 | 33,867 | 2004 | (e | ) | |||||||||||||||||||||||||
Plaza 800 |
Sparks, NV | | | 5,430 | | 724 | | 6,154 | 6,154 | 974 | 2002 | (e | ) | |||||||||||||||||||||||||
Plaza 9400 |
Sandy, UT | | | 9,114 | | (6,932 | ) | | 2,182 | 2,182 | 6 | 2002 | (e | ) | ||||||||||||||||||||||||
Prince Kuhio Plaza |
Hilo, HI | 37,826 | 9 | 42,710 | | 1,940 | 9 | 44,650 | 44,659 | 12,601 | 2002 | (e | ) | |||||||||||||||||||||||||
Providence Place |
Providence, RI | 411,494 | | 502,809 | | 11,224 | | 514,033 | 514,033 | 80,398 | 2004 | (e | ) | |||||||||||||||||||||||||
Provo Towne Centre |
Provo, UT | 56,879 | 13,486 | 74,587 | | 1,761 | 13,486 | 76,348 | 89,834 | 15,711 | 2002 | (e | ) | |||||||||||||||||||||||||
Red Cliffs Mall |
St. George, UT | 21,882 | 1,880 | 26,561 | | 14,028 | 1,880 | 40,589 | 42,469 | 6,934 | 2002 | (e | ) | |||||||||||||||||||||||||
Red Cliffs Plaza |
St. George, UT | | | 2,366 | | 467 | | 2,833 | 2,833 | 560 | 2002 | (e | ) | |||||||||||||||||||||||||
Regency Square Mall |
Jacksonville, FL | 77,152 | 16,498 | 148,478 | 1,386 | 22,149 | 17,884 | 170,627 | 188,511 | 49,484 | 1998 | (e | ) | |||||||||||||||||||||||||
Ridgedale Center |
Minnetonka, MN | 153,754 | 10,710 | 272,607 | | 18,222 | 10,710 | 290,829 | 301,539 | 42,481 | 2004 | (e | ) | |||||||||||||||||||||||||
Rio West Mall |
Gallup, NM | | | 19,500 | | 7,479 | | 26,979 | 26,979 | 15,239 | 1986 | (e | ) | |||||||||||||||||||||||||
River Falls Mall |
Clarksville, IN | | 3,178 | 54,610 | 3,703 | (41,302 | ) | 6,881 | 13,308 | 20,189 | 2,817 | 1989-1990 | (e | ) | ||||||||||||||||||||||||
River Hills Mall |
Mankato, MN | 80,000 | 3,714 | 29,014 | 561 | 44,371 | 4,275 | 73,385 | 77,660 | 31,435 | 1990-1991 | (e | ) | |||||||||||||||||||||||||
River Pointe Plaza |
West Jordan, UT | 3,811 | 1,302 | 3,623 | | 549 | 1,302 | 4,172 | 5,474 | 751 | 2002 | (e | ) | |||||||||||||||||||||||||
Riverlands Shopping Center |
LaPlace, LA | | 500 | 4,500 | 601 | 6,195 | 1,101 | 10,695 | 11,796 | 2,547 | 1998 | (e | ) | |||||||||||||||||||||||||
Riverside Plaza |
Provo, UT | 5,454 | 2,475 | 6,890 | | 2,330 | 2,475 | 9,220 | 11,695 | 1,873 | 2002 | (e | ) | |||||||||||||||||||||||||
Rivertown Crossings |
Grandville, MI | 119,588 | 10,973 | 97,142 | (3,747 | ) | 50,543 | 7,226 | 147,685 | 154,911 | 49,820 | 1998-1999 | (e | ) | ||||||||||||||||||||||||
Riverwalk Marketplace |
New Orleans, LA | | | 94,513 | | (2,397 | ) | | 92,116 | 92,116 | 11,324 | 2004 | (e | ) | ||||||||||||||||||||||||
Rogue Valley Mall |
Medford, OR | 27,440 | 21,913 | 36,392 | (95 | ) | 5,694 | 21,818 | 42,086 | 63,904 | 9,424 | 2003 | (e | ) | ||||||||||||||||||||||||
Saint Louis Galleria |
St. Louis, MO | 219,770 | 36,774 | 184,645 | (545 | ) | 38,249 | 36,229 | 222,894 | 259,123 | 35,796 | 2003 | (e | ) | ||||||||||||||||||||||||
Salem Center |
Salem, OR | 41,728 | 6,966 | 38,976 | | 2,150 | 6,966 | 41,126 | 48,092 | 8,188 | 2002 | (e | ) | |||||||||||||||||||||||||
Sikes Senter |
Wichita Falls, TX | 61,381 | 12,759 | 50,567 | | 2,030 | 12,759 | 52,597 | 65,356 | 10,161 | 2003 | (e | ) | |||||||||||||||||||||||||
Silver Lake Mall |
Coeur d'Alene, ID | 18,228 | 4,448 | 24,801 | (1,727 | ) | (11,782 | ) | 2,721 | 13,019 | 15,740 | | 2002 | (e | ) | |||||||||||||||||||||||
Sooner Mall |
Norman, OK | 60,000 | 2,700 | 24,300 | (119 | ) | 21,040 | 2,581 | 45,340 | 47,921 | 16,716 | 1996 | (e | ) | ||||||||||||||||||||||||
South Street Seaport |
New York, NY | | | 10,872 | | (5,082 | ) | | 5,790 | 5,790 | 2,416 | 2004 | (e | ) | ||||||||||||||||||||||||
Southlake Mall |
Morrow, GA | 100,000 | 6,700 | 60,407 | (85 | ) | 14,668 | 6,615 | 75,075 | 81,690 | 25,463 | 1997 | (e | ) | ||||||||||||||||||||||||
Southland Center |
Taylor, MI | 103,185 | 7,690 | 99,376 | | 9,789 | 7,690 | 109,165 | 116,855 | 21,519 | 2004 | (e | ) |
F-89
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
DECEMBER 31, 2009
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Costs Capitalized
Subsequent to Acquisition(c) |
Gross Amounts at Which
Carried at Close of Period(d) |
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Life
Upon Which Latest Income Statement is Computed |
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Name of Center
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Location | Encumbrances(a) | Land |
Buildings and
Improvements |
Land |
Buildings and
Improvements |
Land |
Buildings and
Improvements |
Total |
Accumulated
Depreciation(e) |
Date of
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Date
Acquired |
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Southland Mall |
Hayward, CA | 81,477 | 13,921 | 75,126 | 200 | 17,089 | 14,121 | 92,215 | 106,336 | 16,928 | 2002 | (e | ) | |||||||||||||||||||||||||
Southshore Mall |
Aberdeen, WA | | 650 | 15,350 | | (10,735 | ) | 650 | 4,615 | 5,265 | 280 | 1986 | (e | ) | ||||||||||||||||||||||||
Southwest Plaza |
Littleton, CO | 96,187 | 9,000 | 103,984 | 602 | 41,133 | 9,602 | 145,117 | 154,719 | 41,555 | 1998 | (e | ) | |||||||||||||||||||||||||
Spokane Valley Mall |
Spokane, WA | 53,880 | 11,455 | 67,046 | | 2,657 | 11,455 | 69,703 | 81,158 | 13,453 | 2002 | (e | ) | |||||||||||||||||||||||||
Spokane Valley Plaza |
Spokane, WA | | 3,558 | 10,150 | | 79 | 3,558 | 10,229 | 13,787 | 1,903 | 2002 | (e | ) | |||||||||||||||||||||||||
Spring Hill Mall |
West Dundee, IL | 68,088 | 12,400 | 111,644 | (6,809 | ) | (69,066 | ) | 5,591 | 42,578 | 48,169 | | 1998 | (e | ) | |||||||||||||||||||||||
Staten Island Mall |
Staten Island, NY | 282,842 | 222,710 | 339,102 | | 14,571 | 222,710 | 353,673 | 576,383 | 55,648 | 2004 | (e | ) | |||||||||||||||||||||||||
Stonestown Galleria |
San Francisco, CA | 273,000 | 67,000 | 246,272 | | 9,938 | 67,000 | 256,210 | 323,210 | 34,724 | 1998 | (e | ) | |||||||||||||||||||||||||
The Boulevard Mall |
Las Vegas, NV | 107,630 | 16,490 | 148,413 | (1,135 | ) | 13,670 | 15,355 | 162,083 | 177,438 | 47,317 | 1998 | (e | ) | ||||||||||||||||||||||||
The Crossroads |
Portage, MI | 40,154 | 6,800 | 61,200 | | 23,348 | 6,800 | 84,548 | 91,348 | 23,154 | 1999 | (e | ) | |||||||||||||||||||||||||
The Gallery At Harborplace |
Baltimore, MD | 101,244 | 17,912 | 174,410 | | 394 | 17,912 | 174,804 | 192,716 | 20,717 | 2004 | (e | ) | |||||||||||||||||||||||||
The Grand Canal Shoppes |
Las Vegas, NV | 371,475 | | 766,232 | | 15,139 | | 781,371 | 781,371 | 114,835 | 2004 | (e | ) | |||||||||||||||||||||||||
The Maine Mall |
South Portland, ME | 195,596 | 41,374 | 238,457 | (79 | ) | 15,200 | 41,295 | 253,657 | 294,952 | 39,850 | 2003 | (e | ) | ||||||||||||||||||||||||
The Mall In Columbia |
Columbia, MD | 400,000 | 34,650 | 522,363 | | 20,497 | 34,650 | 542,860 | 577,510 | 81,026 | 2004 | (e | ) | |||||||||||||||||||||||||
The Pines |
Pine Bluff, AR | | 1,489 | 17,627 | (242 | ) | 17,295 | 1,247 | 34,922 | 36,169 | 21,568 | 1985-1986 | (e | ) | ||||||||||||||||||||||||
The Shoppes at the Palazzo |
Las Vegas, Nevada | 249,623 | | 470,167 | | (229,647 | ) | | 240,520 | 240,520 | | 2008 | (e | ) | ||||||||||||||||||||||||
The Shops At Fallen Timbers |
Maumee, OH | 42,401 | 3,677 | 77,825 | 1,417 | 39,209 | 5,094 | 117,034 | 122,128 | 9,139 | 2007 | (e | ) | |||||||||||||||||||||||||
The Shops At La Cantera |
San Antonio, TX | 168,949 | 10,966 | 205,222 | 3,504 | 110,155 | 14,470 | 315,377 | 329,847 | 30,757 | 2005 | (e | ) | |||||||||||||||||||||||||
The Streets At SoutHPoint |
Durham, NC | 237,825 | 16,070 | 406,266 | | 8,592 | 16,070 | 414,858 | 430,928 | 61,166 | 2004 | (e | ) | |||||||||||||||||||||||||
The Village Of Cross Keys |
Baltimore, MD | | 18,070 | 57,285 | (11,859 | ) | (54,690 | ) | 6,211 | 2,595 | 8,806 | 226 | 2004 | (e | ) | |||||||||||||||||||||||
Three Rivers Mall |
Kelso, WA | 17,400 | 4,312 | 23,019 | | 3,266 | 4,312 | 26,285 | 30,597 | 5,063 | 2002 | (e | ) | |||||||||||||||||||||||||
Town East Mall |
Mesquite, TX | 92,848 | 7,711 | 149,258 | | 24,418 | 7,711 | 173,676 | 181,387 | 38,485 | 2004 | (e | ) | |||||||||||||||||||||||||
Tucson Mall |
Tucson, AZ | 112,867 | | 181,424 | 6,406 | 33,196 | 6,406 | 214,620 | 221,026 | 44,391 | 2001 | (e | ) | |||||||||||||||||||||||||
Twin Falls Crossing |
Twin Falls, ID | | 275 | 769 | | | 275 | 769 | 1,044 | 144 | 2002 | (e | ) | |||||||||||||||||||||||||
University Crossing |
Orem, UT | 11,373 | 3,420 | 9,526 | | 1,240 | 3,420 | 10,766 | 14,186 | 1,953 | 2002 | (e | ) | |||||||||||||||||||||||||
Valley Hills Mall |
Hickory, NC | 49,737 | 3,444 | 31,025 | 2,212 | 45,127 | 5,656 | 76,152 | 81,808 | 26,006 | 1997 | (e | ) | |||||||||||||||||||||||||
Valley Plaza Mall |
Bakersfield, CA | 83,906 | 12,685 | 114,166 | | 23,701 | 12,685 | 137,867 | 150,552 | 39,952 | 1998 | (e | ) | |||||||||||||||||||||||||
Visalia Mall |
Visalia, CA | 36,936 | 11,052 | 58,172 | (15 | ) | 6,927 | 11,037 | 65,099 | 76,136 | 12,855 | 2002 | (e | ) | ||||||||||||||||||||||||
Ward Centers |
Honolulu, HI | 203,284 | 164,007 | 89,321 | 5,550 | 120,136 | 169,557 | 209,457 | 379,014 | 27,361 | 2002 | (e | ) | |||||||||||||||||||||||||
West Valley Mall |
Tracy, CA | 56,436 | 9,295 | 47,789 | 1,591 | 36,304 | 10,886 | 84,093 | 94,979 | 32,241 | 1995 | (e | ) | |||||||||||||||||||||||||
Westlake Center |
Seattle, WA | 70,784 | 12,971 | 117,003 | 4,669 | (4,298 | ) | 17,640 | 112,705 | 130,345 | 15,089 | 2004 | (e | ) | ||||||||||||||||||||||||
Westwood Mall |
Jackson, MI | 24,117 | 2,658 | 23,924 | 913 | 5,991 | 3,571 | 29,915 | 33,486 | 11,801 | 1996 | (e | ) | |||||||||||||||||||||||||
White Marsh Mall |
Baltimore, MD | 187,000 | 24,760 | 239,688 | | 16,019 | 24,760 | 255,707 | 280,467 | 41,624 | 2004 | (e | ) | |||||||||||||||||||||||||
White Mountain Mall |
Rock Springs, WY | 10,656 | 1,363 | 7,611 | | 7,983 | 1,363 | 15,594 | 16,957 | 5,429 | 2002 | (e | ) | |||||||||||||||||||||||||
Willowbrook |
Wayne, NJ | 168,760 | 28,810 | 444,762 | 30 | 5,451 | 28,840 | 450,213 | 479,053 | 56,548 | 2004 | (e | ) | |||||||||||||||||||||||||
Woodbridge Center |
Woodbridge, NJ | 207,934 | 50,737 | 420,703 | | 8,424 | 50,737 | 429,127 | 479,864 | 64,904 | 2004 | (e | ) | |||||||||||||||||||||||||
Woodlands Village |
Flagstaff, AZ | 6,968 | 2,689 | 7,484 | | 278 | 2,689 | 7,762 | 10,451 | 1,430 | 2002 | (e | ) | |||||||||||||||||||||||||
Yellowstone Square |
Idaho Falls, ID | | 1,057 | 2,943 | | 147 | 1,057 | 3,090 | 4,147 | 592 | 2002 | (e | ) | |||||||||||||||||||||||||
Total GGPI |
15,030,063 | 2,833,560 | 17,251,138 | 34,423 | 2,379,283 | 2,867,983 | 19,630,421 | 22,498,404 | 3,894,207 |
F-90
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
DECEMBER 31, 2009
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|
|
Costs Capitalized
Subsequent to Acquisition(c) |
Gross Amounts at Which
Carried at Close of Period(d) |
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|
|
Life
Upon Which Latest Income Statement is Computed |
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Initial Cost(b) |
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Name of Center
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Location | Encumbrances(a) | Land |
Buildings and
Improvements |
Land |
Buildings and
Improvements |
Land |
Buildings and
Improvements |
Total |
Accumulated
Depreciation(e) |
Date of
Construction |
Date
Acquired |
||||||||||||||||||||||||||
|
|
(In thousands)
|
|
|
|
|||||||||||||||||||||||||||||||||
Bay City Mall |
Bay City, MI | 23,751 | 2,867 | 31,529 | (87 | ) | (8,030 | ) | 2,780 | 23,499 | 26,279 | | 2007 | (e | ) | |||||||||||||||||||||||
Brass Mill Center |
Waterbury, CT | 99,510 | 19,455 | 151,989 | | 2,037 | 19,455 | 154,026 | 173,481 | 26,316 | 2007 | (e | ) | |||||||||||||||||||||||||
Brass Mill Commons |
Waterbury, CT | 21,282 | 4,993 | 27,170 | (1 | ) | | 4,992 | 27,170 | 32,162 | 5,068 | 2007 | (e | ) | ||||||||||||||||||||||||
Chula Vista Center |
Chula Vista, CA | | 15,085 | 81,697 | | 2,585 | 15,085 | 84,282 | 99,367 | 13,521 | 2007 | (e | ) | |||||||||||||||||||||||||
Columbiana Centre |
Columbia, SC | 105,441 | 14,731 | 125,830 | | 464 | 14,731 | 126,294 | 141,025 | 19,363 | 2007 | (e | ) | |||||||||||||||||||||||||
Deerbrook Mall |
Humble, TX | 73,964 | 17,015 | 137,480 | | 4,780 | 17,015 | 142,260 | 159,275 | 21,524 | 2007 | (e | ) | |||||||||||||||||||||||||
Lakeland Square |
Lakeland, FL | 53,675 | 14,492 | 82,428 | | 326 | 14,492 | 82,754 | 97,246 | 14,420 | 2007 | (e | ) | |||||||||||||||||||||||||
Moreno Valley Mall |
Moreno Valley, CA | 86,814 | 10,045 | 77,088 | (360 | ) | (10,323 | ) | 9,685 | 66,765 | 76,450 | | 2007 | (e | ) | |||||||||||||||||||||||
Newgate Mall |
Ogden, UT | 37,911 | 7,686 | 59,688 | | 2,724 | 7,686 | 62,412 | 70,098 | 6,353 | 2007 | (e | ) | |||||||||||||||||||||||||
Newpark Mall |
Newark, CA | 68,987 | 15,278 | 136,773 | | 450 | 15,278 | 137,223 | 152,501 | 27,120 | 2007 | (e | ) | |||||||||||||||||||||||||
North Point Mall |
Alpharetta, GA | 215,283 | 32,733 | 258,996 | | 7,483 | 32,733 | 266,479 | 299,212 | 40,908 | 2007 | (e | ) | |||||||||||||||||||||||||
Pembroke Lakes Mall |
Pembroke Pines, FL | 126,924 | 41,980 | 230,513 | | 4,563 | 41,980 | 235,076 | 277,056 | 30,694 | 2007 | (e | ) | |||||||||||||||||||||||||
Steeplegate Mall |
Concord, NH | 77,889 | 7,258 | 72,616 | | (513 | ) | 7,258 | 72,103 | 79,361 | 13,876 | 2007 | (e | ) | ||||||||||||||||||||||||
The Parks at Arlington |
Arlington, TX | 174,517 | 27,101 | 279,987 | 1 | 8,416 | 27,102 | 288,403 | 315,505 | 42,653 | 2007 | (e | ) | |||||||||||||||||||||||||
The Shoppes at Buckland |
Manchester, CT | 161,319 | 24,319 | 196,291 | | (14 | ) | 24,319 | 196,277 | 220,596 | 28,166 | 2007 | (e | ) | ||||||||||||||||||||||||
The Woodlands Mall |
The Woodlands, TX | 229,929 | 17,776 | 294,229 | 1 | 8,251 | 17,777 | 302,480 | 320,257 | 42,640 | 2007 | (e | ) | |||||||||||||||||||||||||
Tysons Galleria |
McLean, VA | 254,555 | 22,874 | 220,782 | | 2,173 | 22,874 | 222,955 | 245,829 | 28,239 | 2007 | (e | ) | |||||||||||||||||||||||||
Vista Ridge Mall |
Lewisville, TX | 61,624 | 14,614 | 130,520 | (1 | ) | 294 | 14,613 | 130,814 | 145,427 | 37,383 | 2007 | (e | ) | ||||||||||||||||||||||||
Washington Park Mall |
Bartlesville, OK | 10,296 | 2,072 | 15,431 | 1 | (1,105 | ) | 2,073 | 14,326 | 16,399 | 3,351 | 2007 | (e | ) | ||||||||||||||||||||||||
West Oaks Mall |
Ocoee, FL | 68,301 | 18,677 | 91,899 | 6,599 | (732 | ) | 25,276 | 91,167 | 116,443 | 16,218 | 2007 | (e | ) | ||||||||||||||||||||||||
Purchase accounting related adjustments |
Chicago, IL | | (70 | ) | 5,400 | 70 | (5,400 | ) | | | | | ||||||||||||||||||||||||||
Total Homart I(f) |
1,951,972 | 330,981 | 2,708,336 | 6,223 | 18,429 | 337,204 | 2,726,765 | 3,063,969 | 417,813 | |||||||||||||||||||||||||||||
Other, including corporate and developments in progress |
7,381,714 |
291,114 |
492,836 |
(24,251 |
) |
253,004 |
266,863 |
745,840 |
1,012,703 |
181,853 |
||||||||||||||||||||||||||||
Total Retail and Other |
24,363,749 | 3,455,655 | 20,452,310 | 16,395 | 2,650,716 | 3,472,050 | 23,103,026 | 26,575,076 | 4,493,873 | |||||||||||||||||||||||||||||
Master Planned Communities |
||||||||||||||||||||||||||||||||||||||
Bridgeland |
Houston, TX | 29,812 | 257,222 | | 148,550 | 1,123 | 405,772 | 1,123 | 406,895 | 412 | 2004 | (e | ) | |||||||||||||||||||||||||
Columbia |
Howard County, MD | | 321,118 | | (146,428 | ) | 57 | 174,690 | 57 | 174,747 | 5 | 2004 | (e | ) | ||||||||||||||||||||||||
Fairwood |
Prince George's County, MD | | 136,434 | | (134,921 | ) | 19 | 1,513 | 19 | 1,532 | 1 | 2004 | (e | ) | ||||||||||||||||||||||||
Summerlin |
Summerlin, NV | 52,199 | 990,179 | | 125,164 | 31 | 1,115,343 | 31 | 1,115,374 | 5 | 2004 | (e | ) | |||||||||||||||||||||||||
Natick-Nouvelle at Natick (Dev) |
Natick, MA | | | | 74,364 | 4 | 74,364 | 4 | 74,368 | 1 | ||||||||||||||||||||||||||||
Other |
10,257 | | | 2,103 | 7 | 2,103 | 7 | 2,110 | | |||||||||||||||||||||||||||||
Total Master Planned Communities |
92,268 |
1,704,953 |
|
68,832 |
1,241 |
1,773,785 |
1,241 |
1,775,026 |
424 |
|||||||||||||||||||||||||||||
Total |
$ |
24,456,017 |
$ |
5,160,608 |
$ |
20,452,310 |
$ |
85,227 |
$ |
2,651,957 |
$ |
5,245,835 |
$ |
23,104,267 |
$ |
28,350,102 |
$ |
4,494,297 |
||||||||||||||||||||
F-91
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTES TO SCHEDULE III
|
Years | ||
---|---|---|---|
Buildings, improvements and carrying costs |
40 - 45 | ||
Equipment, tenant improvements and fixtures |
5 - 10 |
Reconciliation of Real Estate | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2007 | ||||||||
|
(In thousands)
|
||||||||||
Balance at beginning of year |
$ | 29,863,649 | $ | 28,591,756 | $ | 24,661,601 | |||||
Acquisitions |
| 503,096 | 3,152,350 | ||||||||
Change in Master Planned Communities land |
(70,156 | ) | 204,569 | (16,466 | ) | ||||||
Additions |
263,418 | 641,757 | 866,353 | ||||||||
Impairments |
(1,079,473 | ) | | | |||||||
Dispositions and write-offs |
(627,336 | ) | (77,529 | ) | (72,082 | ) | |||||
Balance at end of year |
$ | 28,350,102 | $ | 29,863,649 | $ | 28,591,756 | |||||
|
Reconciliation of Accumulated Depreciation |
|
|||||||||
|
2009 | 2008 | 2007 | ||||||||
|
(In thousands)
|
||||||||||
Balance at beginning of year |
$ | 4,240,222 | $ | 3,605,199 | $ | 2,766,871 | |||||
Depreciation expense |
707,183 | 712,552 | 635,873 | ||||||||
Acquisitions |
| | 274,537 | (h) | |||||||
Dispositions and write-offs |
(453,108 | ) | (77,529 | ) | (72,082 | ) | |||||
Balance at end of year |
$ | 4,494,297 | $ | 4,240,222 | $ | 3,605,199 | |||||
F-92
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
September 30,
2010 |
December 31,
2009 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(Dollars in thousands)
|
|||||||||
Assets: |
||||||||||
Investment in real estate: |
||||||||||
Land |
$ | 3,326,422 | $ | 3,327,447 | ||||||
Buildings and equipment |
22,827,890 | 22,851,511 | ||||||||
Less accumulated depreciation |
(4,882,862 | ) | (4,494,297 | ) | ||||||
Developments in progress |
424,616 | 417,969 | ||||||||
Net property and equipment |
21,696,066 | 22,102,630 | ||||||||
Investment in and loans to/from Unconsolidated Real Estate Affiliates |
1,915,480 | 1,979,313 | ||||||||
Investment property and property held for development and sale |
1,906,163 | 1,753,175 | ||||||||
Net investment in real estate |
25,517,709 | 25,835,118 | ||||||||
Cash and cash equivalents |
630,014 | 654,396 | ||||||||
Accounts and notes receivable, net |
373,001 | 404,041 | ||||||||
Goodwill |
199,664 | 199,664 | ||||||||
Deferred expenses, net |
260,978 | 301,808 | ||||||||
Prepaid expenses and other assets |
761,567 | 754,747 | ||||||||
Total assets |
$ | 27,742,933 | $ | 28,149,774 | ||||||
Liabilities and Equity: |
||||||||||
Liabilities not subject to compromise: |
||||||||||
Mortgages, notes and loans payable |
$ | 16,927,928 | $ | 7,300,772 | ||||||
Investment in and loans to/from Unconsolidated Real Estate Affiliates |
46,099 | 38,289 | ||||||||
Deferred tax liabilities |
792,170 | 866,400 | ||||||||
Accounts payable and accrued expenses |
1,317,622 | 1,122,888 | ||||||||
Liabilities not subject to compromise |
19,083,819 | 9,328,349 | ||||||||
Liabilities subject to compromise |
7,836,856 | 17,767,253 | ||||||||
Total liabilities |
26,920,675 | 27,095,602 | ||||||||
Redeemable noncontrolling interests: |
||||||||||
Preferred |
120,756 | 120,756 | ||||||||
Common |
115,117 | 86,077 | ||||||||
Total redeemable noncontrolling interests |
235,873 | 206,833 | ||||||||
Commitments and Contingencies |
|
|
||||||||
Redeemable Preferred Stock: $100 par value; 5,000,000 shares authorized; none issued and outstanding |
|
|
||||||||
Equity: |
||||||||||
Common stock: $.01 par value; 875,000,000 shares authorized, 318,842,071 shares issued as of September 30, 2010 and 313,831,411 shares issued as of December 31, 2009 |
3,188 | 3,138 | ||||||||
Additional paid-in capital |
3,750,360 | 3,729,453 | ||||||||
Retained earnings (accumulated deficit) |
(3,129,683 | ) | (2,832,627 | ) | ||||||
Accumulated other comprehensive income (loss) |
15,300 | (249 | ) | |||||||
Less common stock in treasury, at cost, 1,449,939 shares as of September 30, 2010 and December 31, 2009 |
(76,752 | ) | (76,752 | ) | ||||||
Total stockholders' equity |
562,413 | 822,963 | ||||||||
Noncontrolling interests in consolidated real estate affiliates |
23,972 | 24,376 | ||||||||
Total equity |
586,385 | 847,339 | ||||||||
Total liabilities and equity |
$ | 27,742,933 | $ | 28,149,774 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-93
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | 2010 | 2009 | |||||||||||
|
(Dollars in thousands, except for per share amounts)
|
||||||||||||||
Revenues: |
|||||||||||||||
Minimum rents |
$ | 487,433 | $ | 489,472 | $ | 1,464,650 | $ | 1,487,288 | |||||||
Tenant recoveries |
217,906 | 217,040 | 647,744 | 674,750 | |||||||||||
Overage rents |
10,333 | 10,408 | 28,126 | 26,214 | |||||||||||
Land and condominium sales |
20,290 | 7,409 | 85,325 | 38,844 | |||||||||||
Management fees and other corporate revenues |
14,075 | 16,851 | 48,063 | 57,569 | |||||||||||
Other |
19,655 | 19,781 | 62,337 | 57,031 | |||||||||||
Total revenues |
769,692 | 760,961 | 2,336,245 | 2,341,696 | |||||||||||
Expenses: |
|||||||||||||||
Real estate taxes |
71,339 | 69,925 | 214,496 | 210,443 | |||||||||||
Property maintenance costs |
27,176 | 28,246 | 89,207 | 77,704 | |||||||||||
Marketing |
9,043 | 7,358 | 22,374 | 21,840 | |||||||||||
Other property operating costs |
132,441 | 136,235 | 387,713 | 394,414 | |||||||||||
Land and condominium sales operations |
19,770 | 9,582 | 89,001 | 42,046 | |||||||||||
Provision for doubtful accounts |
5,628 | 5,925 | 15,575 | 25,104 | |||||||||||
Property management and other costs |
41,057 | 44,876 | 125,007 | 130,485 | |||||||||||
General and administrative |
9,401 | 8,324 | 22,707 | 22,436 | |||||||||||
Strategic initiatives |
| 3,328 | | 67,341 | |||||||||||
Provisions for impairment |
4,620 | 60,940 | 35,893 | 474,420 | |||||||||||
Depreciation and amortization |
175,336 | 185,016 | 527,956 | 576,103 | |||||||||||
Total expenses |
495,811 | 559,755 | 1,529,929 | 2,042,336 | |||||||||||
Operating income |
273,881 | 201,206 | 806,316 | 299,360 | |||||||||||
Interest income |
274 | 523 | 1,087 | 1,754 | |||||||||||
Interest expense |
(413,237 | ) | (326,357 | ) | (1,050,241 | ) | (983,198 | ) | |||||||
Loss before income taxes, noncontrolling interests, equity in income of Unconsolidated Real Estate Affiliates and reorganization items |
(139,082 | ) | (124,628 | ) | (242,838 | ) | (682,084 | ) | |||||||
(Provision for) benefit from income taxes |
(1,913 | ) | 14,430 | (19,797 | ) | 10,202 | |||||||||
Equity in income of Unconsolidated Real Estate Affiliates |
9,789 | 15,341 | 60,441 | 39,218 | |||||||||||
Reorganization items |
(102,517 | ) | (22,597 | ) | (93,216 | ) | (47,515 | ) | |||||||
Loss from continuing operations |
(233,723 | ) | (117,454 | ) | (295,410 | ) | (680,179 | ) | |||||||
Discontinued operationsgain (loss) on dispositions |
| 29 | | (26 | ) | ||||||||||
Net loss |
(233,723 | ) | (117,425 | ) | (295,410 | ) | (680,205 | ) | |||||||
Allocation to noncontrolling interests |
2,538 | (422 | ) | (1,646 | ) | 7,876 | |||||||||
Net loss attributable to common stockholders |
$ | (231,185 | ) | $ | (117,847 | ) | $ | (297,056 | ) | $ | (672,329 | ) | |||
Basic and Diluted Loss Per Share: |
|||||||||||||||
Continuing operations |
$ | (0.73 | ) | $ | (0.38 | ) | $ | (0.94 | ) | $ | (2.16 | ) | |||
Discontinued operations |
| | | | |||||||||||
Total basic and diluted loss per share |
$ | (0.73 | ) | $ | (0.38 | ) | $ | (0.94 | ) | $ | (2.16 | ) | |||
Dividends declared per share |
$ | | $ | | $ | | $ | | |||||||
Comprehensive Loss, Net: |
|||||||||||||||
Net loss |
$ | (233,723 | ) | $ | (117,425 | ) | $ | (295,410 | ) | $ | (680,205 | ) | |||
Other comprehensive income: |
|||||||||||||||
Net unrealized (losses) gains on financial instruments |
(227 | ) | 6,055 | 7,952 | 13,679 | ||||||||||
Accrued pension adjustment |
88 | 162 | 188 | 486 | |||||||||||
Foreign currency translation |
16,291 | 17,448 | 7,751 | 43,132 | |||||||||||
Unrealized gains on available-for-sale securities |
5 | 6 | 6 | 117 | |||||||||||
Other comprehensive income |
16,157 | 23,671 | 15,897 | 57,414 | |||||||||||
Comprehensive loss |
(217,566 | ) | (93,754 | ) | (279,513 | ) | (622,791 | ) | |||||||
Other comprehensive loss allocated to noncontrolling interests |
(354 | ) | (537 | ) | (348 | ) | (1,304 | ) | |||||||
Adjustment for noncontrolling interests |
| | | (9,065 | ) | ||||||||||
Comprehensive loss, net, attributable to common stockholders |
$ | (217,920 | ) | $ | (94,291 | ) | $ | (279,861 | ) | $ | (633,160 | ) | |||
The accompanying notes are an integral part of these consolidated financial statements.
F-94
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
|
Common
Stock |
Additional
Paid-In Capital |
Retained
Earnings (Accumulated Deficit) |
Accumulated
Other Comprehensive Income (Loss) |
Treasury
Stock |
Noncontrolling
Interests in Consolidated Real Estate Affiliates |
Total Equity | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(Dollars in thousands)
|
|||||||||||||||||||||
Balance at January 1, 2009 |
$ | 2,704 | $ | 3,454,903 | $ | (1,488,586 | ) | $ | (56,128 | ) | $ | (76,752 | ) | $ | 24,266 | $ | 1,860,407 | |||||
Net (loss) income |
(672,329 |
) |
1,814 |
(670,515 |
) |
|||||||||||||||||
Distributions to noncontrolling interests in consolidated Real Estate Affiliates |
(1,270 | ) | (1,270 | ) | ||||||||||||||||||
Conversion of operating partnership units to common stock (43,408,053 common shares) |
434 | 324,055 | 324,489 | |||||||||||||||||||
Issuance of common stock (69,309 common shares) |
1 | 42 | 43 | |||||||||||||||||||
Restricted stock grant, net of forfeitures and compensation expense (1,617 common shares) |
(1 | ) | 1,927 | 1,926 | ||||||||||||||||||
Other comprehensive income |
47,046 | 47,046 | ||||||||||||||||||||
Adjustment for noncontrolling interest in operating partnership |
12,313 | 12,313 | ||||||||||||||||||||
Balance at September 30, 2009 |
$ | 3,138 | $ | 3,793,240 | $ | (2,160,915 | ) | $ | (9,082 | ) | $ | (76,752 | ) | $ | 24,810 | $ | 1,574,439 | |||||
Balance at January 1, 2010 |
$ |
3,138 |
$ |
3,729,453 |
$ |
(2,832,627 |
) |
$ |
(249 |
) |
$ |
(76,752 |
) |
$ |
24,376 |
$ |
847,339 |
|||||
Net (loss) income |
(297,056 | ) | 1,475 | (295,581 | ) | |||||||||||||||||
Distributions to noncontrolling interests in consolidated Real Estate Affiliates |
(1,879 | ) | (1,879 | ) | ||||||||||||||||||
Issuance of common stockpayment of dividend (4,923,287 common shares) |
50 | 53,346 | 53,396 | |||||||||||||||||||
Restricted stock grants, net of forfeitures and compensation expense (87,373 common shares) |
3,069 | 3,069 | ||||||||||||||||||||
Other comprehensive income |
15,549 | 15,549 | ||||||||||||||||||||
Adjustment for noncontrolling interest in operating partnership |
(35,508 | ) | (35,508 | ) | ||||||||||||||||||
Balance at September 30, 2010 |
$ | 3,188 | $ | 3,750,360 | $ | (3,129,683 | ) | $ | 15,300 | $ | (76,752 | ) | $ | 23,972 | $ | 586,385 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-95
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
Nine Months Ended
September 30, |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | ||||||||
|
(In thousands)
|
|||||||||
Cash Flows from Operating Activities: |
||||||||||
Net loss |
$ | (295,410 | ) | $ | (680,205 | ) | ||||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||||
Equity in income of Unconsolidated Real Estate Affiliates |
(60,441 | ) | (39,218 | ) | ||||||
Provision for doubtful accounts |
15,575 | 25,104 | ||||||||
Distributions received from Unconsolidated Real Estate Affiliates |
40,427 | 31,065 | ||||||||
Depreciation |
494,475 | 539,091 | ||||||||
Amortization |
33,481 | 37,012 | ||||||||
Amortization/write-off of deferred finance costs |
26,753 | 37,042 | ||||||||
Amortization (accretion) of debt market rate adjustments |
43,330 | (9,357 | ) | |||||||
(Accretion) amortization of intangibles other than in-place leases |
(352 | ) | 901 | |||||||
Straight-line rent amortization |
(27,153 | ) | (27,173 | ) | ||||||
Non-cash interest expense on Exchangeable Senior Notes |
21,618 | 20,347 | ||||||||
Non-cash interest expense resulting from termination of interest rate swaps |
9,636 | (14,156 | ) | |||||||
Non-cash interest expense related to Special Consideration Properties |
(33,417 | ) | | |||||||
Provisions for impairment |
35,893 | 474,420 | ||||||||
Participation expense pursuant to Contingent Stock Agreement |
| (3,572 | ) | |||||||
Land/residential development and acquisitions expenditures |
(53,540 | ) | (46,781 | ) | ||||||
Cost of land and condominium sales |
62,528 | 20,147 | ||||||||
Revenue recognition of deferred condominium sales |
(36,443 | ) | | |||||||
Reorganization itemsfinance costs related to emerged entities |
138,548 | | ||||||||
Accrued interest expense related to the Plan |
83,739 | | ||||||||
Non-cash reorganization items |
(127,401 | ) | 24,114 | |||||||
(Increase) decrease in restricted cash |
(48,739 | ) | 1,221 | |||||||
Glendale Matter deposit |
| 67,054 | ||||||||
Net changes: |
||||||||||
Accounts and notes receivable |
43,155 | (1,140 | ) | |||||||
Prepaid expenses and other assets |
26,134 | (11,954 | ) | |||||||
Deferred expenses |
(24,238 | ) | (25,667 | ) | ||||||
Accounts payable and accrued expenses and deferred tax liabilities |
177,845 | 238,009 | ||||||||
Other, net |
(170 | ) | 15,063 | |||||||
Net cash provided by operating activities |
545,833 | 671,367 | ||||||||
Cash Flows from Investing Activities: |
||||||||||
Acquisition/development of real estate and property additions/improvements |
(204,599 | ) | (158,237 | ) | ||||||
Proceeds from sales of investment properties |
94 | 6,418 | ||||||||
Proceeds from sales of investment in Unconsolidated Real Estate Affiliates |
7,450 | | ||||||||
Increase in investments in Unconsolidated Real Estate Affiliates |
(17,229 | ) | (144,293 | ) | ||||||
Distributions received from Unconsolidated Real Estate Affiliates in excess of income |
107,431 | 62,335 | ||||||||
Loans to Unconsolidated Real Estate Affiliates, net |
| (9,666 | ) | |||||||
(Increase) decrease in restricted cash |
(8,849 | ) | 8,900 | |||||||
Other, net |
(4,144 | ) | (3,381 | ) | ||||||
Net cash used in investing activities |
(119,846 | ) | (237,924 | ) | ||||||
Cash Flows from Financing Activities: |
||||||||||
Proceeds from refinance/issuance of the DIP facility |
400,000 | 400,000 | ||||||||
Principal payments on mortgages, notes and loans payable |
(704,155 | ) | (309,350 | ) | ||||||
Deferred finance costs |
| (2,595 | ) | |||||||
Finance costs related to emerged entities |
(138,548 | ) | | |||||||
Cash distributions paid to common stockholders |
(5,957 | ) | | |||||||
Cash distributions paid to holders of Common Units |
| (982 | ) | |||||||
Proceeds from issuance of common stock, including from common stock plans |
| 43 | ||||||||
Other, net |
(1,709 | ) | 2,213 | |||||||
Net cash (used in) provided by financing activities |
(450,369 | ) | 89,329 | |||||||
Net change in cash and cash equivalents |
(24,382 | ) | 522,772 | |||||||
Cash and cash equivalents at beginning of period |
654,396 | 168,993 | ||||||||
Cash and cash equivalents at end of period |
$ | 630,014 | $ | 691,765 | ||||||
Supplemental Disclosure of Cash Flow Information: |
||||||||||
Interest paid |
$ | 734,684 | $ | 792,543 | ||||||
Interest capitalized |
31,526 | 43,198 | ||||||||
Income taxes paid |
5,247 | 18,068 | ||||||||
Reorganization items paid |
220,617 | 23,401 | ||||||||
Non-Cash Transactions: |
||||||||||
Common stock issued in exchange for Operating Partnership Units |
$ | | $ | 324,489 | ||||||
Change in accrued capital expenditures included in accounts payable and accrued expenses |
(83,524 | ) | (75,123 | ) | ||||||
Change in deferred contingent property acquisition liabilities |
161,622 | (147,616 | ) | |||||||
Deferred financing costs payable in conjunction with the DIP Facility |
| 19,000 | ||||||||
Recognition of note payable in conjunction with land held for development and sale |
| 6,520 | ||||||||
Mortgage debt market rate adjustments related to emerged entities |
323,318 | | ||||||||
Gain on Aliansce IPO |
9,652 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-96
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession)
NOTE 1 ORGANIZATION
Readers of this Quarterly Report should refer to the Company's (as defined below) audited Consolidated Financial Statements for the year ended December 31, 2009 which are included in the Company's Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 2009 (Commission File No. 1-11656), as certain footnote disclosures which would substantially duplicate those contained in our Annual Report have been omitted from this report. Capitalized terms used, but not defined, in this Quarterly Report have the same meanings as in our Annual Report.
General
General Growth Properties, Inc. ("GGP" or the "Company"), a Delaware corporation, is a self-administered and self-managed real estate investment trust, referred to as a "REIT" which, together with certain of the Company's subsidiaries, filed for voluntary bankruptcy protection under Chapter 11 of Title 11 of the United States Code ("Chapter 11") in the Southern District of New York (the "Bankruptcy Court") on April 16, 2009. On April 22, 2009 (together with April 16, 2009, as applicable, the "Petition Date") certain additional domestic subsidiaries (collectively with GGP and the subsidiaries filing on April 16, 2009, the "Debtors") of the Company also filed voluntary petitions for relief in the Bankruptcy Court (collectively, the "Chapter 11 Cases"), which the Bankruptcy Court ruled may be jointly administered.
GGP was organized in 1986 and through its subsidiaries and affiliates owns, operates, manages and develops retail and other rental properties, primarily shopping centers, which are located primarily throughout the United States. GGP also holds assets through its international Unconsolidated Real Estate Affiliates in Brazil (Note 3). In July 2010, we sold our third party management business for nominal consideration and participation in the future earnings of the assigned management contracts. Additionally, GGP develops and sells land for residential, commercial and other uses primarily in large-scale, long-term master planned community projects in and around Columbia, Maryland; Summerlin (Las Vegas), Nevada; and Houston, Texas, as well as one residential condominium project located in Natick (Boston), Massachusetts.
Substantially all of our business is conducted by our operating partnership, GGP Limited Partnership ("GGPLP" or the "Operating Partnership"), in which, at September 30, 2010, GGP holds approximately a 98% common equity ownership interest. In these notes, the terms "we," "us" and "our" refer to GGP and its subsidiaries.
On August 17, 2010, GGP filed with the Bankruptcy Court its third amended and restated disclosure statement and the plan of reorganization, as supplemented by the plan of reorganization supplement filed September 30, 2010 and as modified on October 21, 2010 (the "Plan") for the 126 Debtors currently remaining in the Chapter 11 Cases (the "TopCo Debtors"). On October 21, 2010, the Bankruptcy Court entered an order confirming the Plan. Pursuant to the Plan, GGP will reorganize into a new company ("New GGP") at the date of GGP's emergence from bankruptcy (the "Effective Date"), which is currently expected to be on or about November 8, 2010. The Plan (as described in more detail in the "Debtors in Possession" section below) provides that prepetition creditors will be satisfied in full and equity holders will receive current equity in New GGP and a distribution of equity in The Howard Hughes Corporation ("THHC"), a newly formed real estate company. After such
F-97
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
distribution, THHC will be a publicly-held company, majority-owned by our existing stockholders. Its assets are expected to consist of the following:
In this report, we refer to our ownership interests in majority-owned or controlled properties as "Consolidated Properties", to joint ventures in which we own a noncontrolling interest as "Unconsolidated Real Estate Affiliates" and the properties owned by such joint ventures as the "Unconsolidated Properties." Our "Company Portfolio" includes both our Consolidated Properties and our Unconsolidated Properties.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of GGP, our subsidiaries and joint ventures in which we have a controlling interest. For consolidated joint ventures, the noncontrolling partner's share of the assets, liabilities and operations of the joint ventures (generally computed as the joint venture partner's ownership percentage) is included in noncontrolling interests in consolidated real estate affiliates as permanent equity of the Company. All significant intercompany balances and transactions have been eliminated.
In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods have been included. The results for the interim period ended September 30, 2010 are not necessarily indicative of the results to be obtained for the full fiscal year.
Reclassifications
Certain amounts in the 2009 Consolidated Financial Statements have been reclassified to conform to the current period presentation. Specifically, we reclassified $2.4 million and $8.0 million, respectively, of joint venture asset management fees and other corporate revenues (such as sponsorship income, photo income and vending income) for the three and nine months ended September 30, 2009 from other revenue to management fees and other corporate revenues. In addition, we reclassified $28.2 million and $84.2 million, respectively, of cleaning, landscaping and refuse removal expenses for the three and nine months ended September 30, 2009 from property maintenance costs to other property operating costs.
Debtors in Possession
As we had significant past due, or imminently due debt, and certain cross-collateralized or cross-defaulted debt, the Company, the Operating Partnership and certain of the Company's domestic
F-98
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
subsidiaries filed voluntary petitions for relief under Chapter 11 in April 2009. However, neither GGMI, certain of our wholly-owned subsidiaries, nor any of our joint ventures, (collectively, the "Non-Debtors") either consolidated or unconsolidated, sought such protection.
Pursuant to Chapter 11, a debtor is afforded certain protection against its creditors and creditors are prohibited from taking certain actions (such as pursuing collection efforts or proceeding to foreclose on secured obligations) related to debts that were owed prior to the commencement of the Chapter 11 Cases. Accordingly, although the commencement of the Chapter 11 Cases triggered defaults on substantially all debt obligations of the Debtors, creditors are stayed from taking any action as a result of such defaults. These pre-petition liabilities will be settled under the Plan.
Through September 30, 2010, of the total 388 Debtors with approximately $21.83 billion of debt that filed in 2009 for Chapter 11 protection, 262 Debtors owning 146 properties with $14.89 billion of secured mortgage loans filed consensual plans of reorganization and emerged from bankruptcy (the "Emerged Debtors"). During the nine months ended September 30, 2010, 149 Debtors owning 96 properties with $10.23 billion of secured mortgage debt emerged from bankruptcy, while 113 Debtors owning 50 properties with $4.66 billion secured debt had emerged from bankruptcy as of December 31, 2009. In addition, as the result of a consensual agreement reached in the third quarter of 2010 with lenders of certain of our corporate debt, we recognized $83.7 million of additional interest expense for the three and nine months ended September 30, 2010.
The Plan is based on the agreements (collectively, as amended and restated, the "Investment Agreements") with REP Investments LLC (as predecessor to Brookfield Retail Holdings LLC), an affiliate of Brookfield Asset Management Inc. (as its designees, as applicable, the "Brookfield Investor"), an affiliate of Fairholme Funds, Inc. ("Fairholme") and an affiliate of Pershing Square Capital Management, L.P. ("Pershing Square" and together with the Brookfield Investor and Fairholme, the "Plan Sponsors"), pursuant to which GGP would be divided into two companies, New GGP and THHC, and the Plan Sponsors would invest in the Company's standalone emergence plan. As a result of the Investment Agreements, the Company has equity commitments for $6.55 billion subject to the conditions set forth in such agreements. Pursuant to the Investment Agreements, the Plan Sponsors are expected to purchase on the Effective Date up to $6.3 billion of New GGP common stock at $10.00 per share and $250.0 million of THHC stock at $47.61904 per share. In addition, pursuant to our agreement with the Teachers Retirement System of Texas ("Texas Teachers"), Texas Teachers will purchase $500.0 million of New GGP common stock at $10.25 per share, subject to the conditions set forth in such agreement. Finally, the Plan Sponsors have entered into an agreement with Blackstone Real Estate Partners VI L.P. ("Blackstone") whereby Blackstone has been given the option to subscribe for approximately 7.6% of the New GGP and THHC shares to be issued to the Plan Sponsors and receive a pro rata portion of each Plan Sponsors' Permanent Warrants (as defined below). On September 21, 2010, we entered into a financing commitment agreement for a $300.0 million senior secured revolving facility which commences on the Effective Date and is not expected to be drawn upon.
The Investment Agreements and our agreement with Texas Teachers permit us to reduce the equity commitments of Pershing, Fairholme and Texas Teachers up to 50% with alternative equity sources at more favorable pricing at any time prior to the Effective Date or up to 45 days after the Effective Date.
F-99
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
On October 11, 2010, we gave notice to Pershing, Fairholme and Texas Teachers that we reserved the right to repurchase within 45 days after the Effective Date up to $1.55 billion of Fairholme's and Pershing Square's shares and up to $250.0 million of Texas Teachers' shares of New GGP common stock issued on the Effective Date with the proceeds of an offering of New GGP common stock if the common stock in that offering is valued at $10.50 per share or more (net of all underwriting and other discounts, fees and related consideration). In connection with our reserving shares for repurchase after the Effective Date, we must pay to Fairholme and/or Pershing Square, as applicable, in cash on the Effective Date, an amount equal to approximately $38.75 million. No fee is required to be paid to Texas Teachers. In such regard, New GGP, a wholly-owned subsidiary of GGP until the Effective Date, has filed a registration statement with the Securities and Exchange Commission to raise up to $2.25 billion through the sale of common stock to repurchase the applicable shares held by Fairholme, Pershing Square and Texas Teachers.
In connection with our election to reserve shares for repurchase as described above, $350.0 million of Pershing Square's equity capital commitment will be fulfilled by the payment of cash to New GGP at closing in exchange for unsecured note(s) issued by New GGP to Pershing Square which would be payable or exchangeable into New GGP common stock six months from closing (the "Pershing Square Bridge Notes") at the election of New GGP. The Pershing Square Bridge Notes will bear interest at a rate of 6% per annum and will be pre-payable by New GGP (from the proceeds of equity offerings or other sources of cash) at any time without premium or penalty. New GGP has a put right to sell up to 35 million shares, subject to reduction as provided in the investment agreement, to Pershing Square at $10.00 per share (adjusted for dividends) six months following the Effective Date to fund the repayment of the Pershing Square Bridge Notes to the extent that they have not already been repaid.
In lieu of the receipt of fees that would be customary in similar transactions, pursuant to the Investment Agreements, interim warrants were issued to the Brookfield Investor and Fairholme to purchase approximately 103 million shares of GGP at $15.00 per share (the "Interim Warrants") on May 10, 2010. The Interim Warrants vest: 40% upon issuance, 20% on July 12, 2010, and the remaining Interim Warrants vest in equal daily installments from July 13, 2010 to December 31, 2010, except that any Interim Warrants that have not vested on or prior to termination of the Brookfield Investor or Fairholme's Investment Agreement, as the case may be, will not vest and will be cancelled. The Interim Warrants may only be exercised if the Investment Agreements are not consummated. Accordingly, no expense has been recognized for the issuance of the Interim Warrants. Upon consummation of the Plan, the Interim Warrants will be cancelled and warrants to purchase equity of THHC and New GGP will be issued to the Plan Sponsors (the "Permanent Warrants"). Specifically, eight million warrants to purchase equity of THHC at an exercise price of $50.00 per share and 120 million warrants to purchase equity of New GGP at an exercise price of $10.75 per share, in the case of the Brookfield Investor, and an exercise price of $10.50 in the case of Fairholme and Pershing Square, will be issued. Recognition of the estimated $338.5 million value of the Permanent Warrants will occur when, and if, such Permanent Warrants are issued as an adjustment to the equity contribution of the Plan Sponsors.
Even if the Pershing Square, Fairholme and Texas Teachers equity commitments are replaced, to the maximum extent permitted by the Investment Agreements and the Texas Teachers agreement, the Plan Sponsors are expected to own, in the aggregate, a majority of the equity in New GGP. As a result, consummation of the Plan will require the application of acquisition accounting to the assets and liabilities of New GGP (after the distribution of certain assets and liabilities to THHC). The assets and liabilities of New GGP will be recorded at Fair Value (Note 2) as of the Effective Date and are
F-100
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
expected to have a carrying value substantially different than the historical cost, carrying values included in the accompanying consolidated financial statements. The consolidated financial statements and related notes contained herein do not give effect to the Plan and related restructuring transactions, including the distribution of THHC, or acquisition accounting. Following our emergence from bankruptcy, it will be difficult to compare certain information reflecting our results of operations and financial condition to those for historical periods prior to emergence from bankruptcy.
Until the Effective Date, there will continue to be substantial doubt as to our ability to continue as a going concern. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, as a result of the Chapter 11 Cases, such realization of assets and satisfaction of liabilities are subject to a significant number of uncertainties. Our consolidated financial statements do not reflect any adjustments related to the recoverability of assets and satisfaction of liabilities that might be necessary should we be unable to continue as a going concern.
Accounting for Reorganization
The generally accepted accounting principles related to financial reporting by entities in reorganization under the Bankruptcy Code provides that if a debtor, or group of debtors, has significant combined assets and liabilities of entities which have not sought, or no longer remain under, Chapter 11 bankruptcy protection, the debtors and non-debtors should continue to be combined. However, separate disclosure of financial statement information solely relating to the debtor entities should be presented. The accompanying unaudited combined condensed financial statements of the TopCo Debtors presented below have been prepared in accordance with generally accepted accounting principles, and on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
F-101
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
The unaudited combined condensed balance sheets of the TopCo Debtors which are operating under Chapter 11 protection, excluding the Emerged Debtors, are presented as of the dates indicated below:
Unaudited Combined Condensed Balance Sheets
|
September 30,
2010 |
December 31,
2009 |
||||||
---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||
Net investment in real estate |
$ | 2,986,702 | $ | 2,873,317 | ||||
Cash and cash equivalents |
567,975 | 584,592 | ||||||
Accounts and notes receivable, net |
18,964 | 27,431 | ||||||
Other |
4,587,072 | 4,422,713 | ||||||
Total assets |
$ | 8,160,713 | $ | 7,908,053 | ||||
Liabilities not subject to compromise: |
||||||||
Mortgages, notes and loans payable |
$ | 404,591 | $ | 400,000 | ||||
Deferred tax liabilities |
835,965 | 910,847 | ||||||
Investment in and loans to/from Unconsolidated Real Estate Affiliates |
33,303 | 33,005 | ||||||
Accounts payable and accrued expenses |
677,360 | 559,005 | ||||||
Liabilities subject to compromise |
7,836,856 | 7,426,085 | ||||||
Total redeemable noncontrolling interests |
235,873 | 206,833 | ||||||
Deficit |
(1,863,235 | ) | (1,627,722 | ) | ||||
Total liabilities and deficit |
$ | 8,160,713 | $ | 7,908,053 | ||||
As described above, substantially all of the subsidiary mortgage borrower Debtors have emerged from bankruptcy protection as of September 30, 2010. The unaudited combined condensed statements of operations and the unaudited combined condensed statements of cash flows presented below includes only the TopCo Debtors, and excludes Emerged Debtors, for the three and nine months ended September 30, 2010. Since the Debtor's commenced their respective Chapter 11 Cases on two different dates in April 2009, the unaudited combined condensed statements of operations have been prepared for the three months ended September 30, 2009 and for the period from May 1, 2009 to September 30, 2009 and the combined condensed statement of cash flows have been prepared for the period from May 1, 2009 to September 30, 2009.
F-102
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
Unaudited Combined Condensed Statements of Operations
|
Three Months
Ended September 30, 2010 |
Three Months
Ended September 30, 2009 |
Nine Months
Ended September 30, 2010 |
May 1, 2009
to September 30, 2009 |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||||||
Operating revenues |
$ | 51,344 | $ | 42,798 | $ | 184,406 | $ | 69,313 | ||||||
Operating expenses |
54,729 | 53,877 | 194,118 | 158,303 | ||||||||||
Provision for impairment |
4,608 | 52,546 | 16,151 | 72,325 | ||||||||||
Operating loss |
(7,993 | ) | (63,625 | ) | (25,863 | ) | (161,315 | ) | ||||||
Interest expense, net |
(167,949 | ) | (91,099 | ) | (349,086 | ) | (163,911 | ) | ||||||
(Provision for) benefit from income taxes |
(6,284 | ) | 4,764 | (20,929 | ) | 5,780 | ||||||||
Equity in income of Real Estate Affiliates |
25,430 | 29,933 | 90,645 | 52,091 | ||||||||||
Reorganization items |
(93,030 | ) | (24,185 | ) | (239,886 | ) | (47,308 | ) | ||||||
Net loss |
(249,826 | ) | (144,212 | ) | (545,119 | ) | (314,663 | ) | ||||||
Allocation to noncontrolling interests |
901 | (471 | ) | (4,259 | ) | (149 | ) | |||||||
Net loss attributable to common stockholders |
$ | (248,925 | ) | $ | (144,683 | ) | $ | (549,378 | ) | $ | (314,812 | ) | ||
Unaudited Combined Condensed Statements of Cash Flows
|
Nine Months
Ended September 30, 2010 |
May 1, 2009
to September 30, 2009 |
|||||||
---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||||
Net cash used in (provided by): |
|||||||||
Operating activities |
$ | (12,370 | ) | $ | 330,451 | ||||
Investing activities |
1,710 | 55,617 | |||||||
Financing activities |
(5,957 | ) | 188,225 | ||||||
Net (decrease) increase in cash and cash equivalents |
(16,617 | ) | 574,293 | ||||||
Cash and cash equivalents, beginning of period |
584,592 | 52,971 | |||||||
Cash and cash equivalents, end of period |
$ | 567,975 | $ | 627,264 | |||||
Cash paid for reorganization items |
$ |
(79,702 |
) |
$ |
(22,524 |
) |
Classification of Liabilities Not Subject to Compromise
Liabilities not subject to compromise include: (1) liabilities held by Non-Debtor entities and Debtors that have emerged from bankruptcy; (2) liabilities incurred after the Petition Date; (3) certain pre-Petition Date liabilities the TopCo Debtors expect to pay in full, even though certain of these amounts may not be paid until the Plan is effective; (4) liabilities related to pre-petition contracts that affirmatively have not been rejected; and (5) pre-Petition Date liabilities that have been approved for payment by the Bankruptcy Court and that the Debtors expect to pay (in advance of a plan of reorganization) in the ordinary course of business, including certain employee related items (salaries, vacation and medical benefits).
F-103
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION
All liabilities incurred by the Debtors prior to the Petition Date other than those specified above are considered liabilities subject to compromise. The amounts of the various categories of liabilities that are subject to compromise are set forth below. These amounts represent the Company's estimates of known or potential pre-Petition Date claims that are likely to be resolved in connection with the bankruptcy filings. Such claims remain subject to future adjustments. Adjustments may result from negotiations, actions of the Bankruptcy Court, rejection of executory contracts and unexpired leases, the determination as to the value of any collateral securing claims, proofs of claim, or other events. There can be no assurance that the equity of the Company's stockholders will not be diluted. The amounts subject to compromise consisted of the following items:
|
September 30, 2010 | December 31, 2009 | ||||||
---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||
Mortgages and secured notes |
$ | 403,292 | $ | 11,148,467 | ||||
Unsecured notes |
6,528,843 | 6,006,778 | ||||||
Accounts payable and accrued liabilities |
904,721 | 612,008 | ||||||
Total liabilities subject to compromise |
$ | 7,836,856 | $ | 17,767,253 | ||||
The classification of liabilities "not subject to compromise" versus liabilities "subject to compromise" is based on currently available information and analysis. Although Debtors subject to the remaining Chapter 11 Cases had their plans of reorganization confirmed as of October 21, 2010, additional analysis remains to be completed and the Bankruptcy Court may be requested to rule on pre-petition liabilities to be allowed and paid pursuant to the Plan. Certain creditors have claimed that they are contractually entitled to approximately $117.9 million of default rate interest and other related fees. Accordingly, the amounts in these two categories ultimately paid may change. The amount of any such changes could be significant. In addition, the Plan provides that certain pre-petition liabilities related to the assets distributed to THHC will remain an obligation of New GGP.
Reorganization Items
Reorganization items are expense or income items that were incurred or realized by the Debtors as a result of the Chapter 11 Cases and are presented separately in the Consolidated Statements of Income and Comprehensive Income and in the unaudited condensed combined statements of operations of the Debtors that have not emerged from bankruptcy at September 30, 2010 presented above. These items include professional fees and similar types of expenses and gains on liabilities subject to compromise directly related to the Chapter 11 Cases, resulting from activities of the reorganization process, and interest earned on cash accumulated by the Debtors as a result of the Chapter 11 Cases.
With respect to certain retained professionals, the terms of engagement and the timing of payment for services rendered are subject to approval by the Bankruptcy Court. In addition, certain of these retained professionals have agreements that provide for success or completion fees that are payable upon the consummation of specified restructuring or sale transactions. A portion of such fees, currently estimated at approximately $48.6 million in the aggregate, have been deemed probable of being paid; and therefore, we accrued the portion related to the period from the date the Bankruptcy Court approved retention of those professionals to our estimated date of successful emergence from bankruptcy. We accrued a liability for such fees in Accounts payable and accrued expense on the
F-104
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
Consolidated Balance Sheets of $43.1 million as of September 30, 2010 and $7.2 million as of December 31, 2009. In addition, we recognized $13.4 million of expense in Reorganization items in the Consolidated Statements of Income and Comprehensive Income for the three months ended September 30, 2010, $35.9 million for the nine months ended September 30, 2010 and $2.4 million for the three and nine months ended September 30, 2009.
In addition, the key employee incentive program (the "KEIP") provides for payment to certain key employees upon successful emergence from bankruptcy. Although the amount of the potential KEIP payment is uncapped, a portion of the KEIP, currently estimated for financial statement purposes based on the trading value of the GGP common stock on September 30, 2010 at approximately $155.1 million in the aggregate, has been deemed probable of being paid; therefore, we are recognizing our estimated KEIP expense in the period from the date the KEIP was approved by the Bankruptcy Court to our estimated date of successful emergence from bankruptcy. We accrued a liability for the KEIP in Accounts payable and accrued expense on the Consolidated Balance Sheets of $140.0 million as of September 30, 2010 and $27.5 million as of December 31, 2009. In addition, we recognized expense in Reorganization items in the Consolidated Statements of Income and Comprehensive Income of $43.0 million for the three months ended September 30, 2010 and $112.5 million for the nine months ended September 30, 2010. We did not recognize any expense related to the KEIP for the three and nine months ended September 30, 2009 as the KEIP was not approved by the Bankruptcy Court until October 2009.
Reorganization items are as follows:
Reorganization Items
|
Three Months
Ended September 30, 2010 |
Three Months
Ended September 30, 2009 |
Nine Months
Ended September 30, 2010 |
Nine Months
Ended September 30, 2009 |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||||||
Losses (Gains) on liabilities subject to compromisevendors(1) |
$ | 188 | $ | (2,670 | ) | $ | (6,688 | ) | $ | (5,049 | ) | |||
Gains on liabilities subject to compromisemortgage debt(2) |
(4,309 | ) | | (323,318 | ) | | ||||||||
Interest income(3) |
(73 | ) | (15 | ) | (163 | ) | (23 | ) | ||||||
U.S. Trustee fees(4) |
1,423 | 1,419 | 4,260 | 2,516 | ||||||||||
Restructuring costs(5) |
105,288 | 23,863 | 419,125 | 50,071 | ||||||||||
Total reorganization items |
$ | 102,517 | $ | 22,597 | $ | 93,216 | $ | 47,515 | ||||||
F-105
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
gain recorded in June 2010 as the result of the forgiveness of debt associated with the paydown of debt for Stonestown Galleria.
Impairment
Operating properties and land held for development and redevelopment, including assets to be sold after such development or redevelopment
The generally accepted accounting principles related to accounting for the impairment or disposal of long-lived assets require that if impairment indicators exist and the undiscounted cash flows expected to be generated by an asset are less than its carrying amount, an impairment provision should be recorded to write down the carrying amount of such asset to its Fair Value. We review our consolidated and unconsolidated real estate assets, including operating properties, land held for development and sale and developments in progress, for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Impairment indicators for our retail and other segment are assessed separately for each property and include, but are not limited to, significant decreases in real estate property net operating income and occupancy percentages.
Impairment indicators for our Master Planned Communities segment are assessed separately for each community and include, but are not limited to, significant decreases in sales pace or average selling prices, significant increases in expected land development and construction costs or cancellation rates, and projected losses on expected future sales.
Impairment indicators for pre-development costs, which are typically costs incurred during the beginning stages of a potential development, developments in progress, and land held for development and redevelopment are assessed by project and include, but are not limited to, significant changes the Company's plans with respect to the project, significant changes in projected completion dates, revenues or cash flows, development costs, market factors and sustainability of development projects.
If an indicator of potential impairment exists, the asset is tested for recoverability by comparing its carrying amount to the estimated future undiscounted cash flows. The cash flow estimates used both for determining recoverability and estimating Fair Value are inherently judgmental and reflect current and projected trends in rental, occupancy and capitalization rates, and estimated holding periods for the applicable assets. Although the estimated Fair Value of certain assets may be exceeded by the carrying amount, a real estate asset is only considered to be impaired when its carrying amount cannot be recovered through estimated future undiscounted cash flows. To the extent an impairment provision is determined to be necessary, the excess of the carrying amount of the asset over its estimated Fair Value is expensed to operations. In addition, the impairment provision is allocated proportionately to
F-106
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
adjust the carrying amount of the asset. The adjusted carrying amount, which represents the new cost basis of the asset, is depreciated over the remaining useful life of the asset.
We recorded impairment charges related to our operating properties, land held for development and sale, and properties under development of $4.6 million for the three months ended September 30, 2010, $54.7 million for the three months ended September 30, 2009, $35.9 million for the nine months ended September 30, 2010 and $339.4 million for the nine months ended September 30, 2009, as presented in the table below. All of these impairment charges are included in Provisions for impairment in our Consolidated Statements of Income and Comprehensive Income.
Investment in Unconsolidated Real Estate Affiliates
In accordance with the generally accepted accounting principles related to the equity method of accounting for investments, a series of operating losses of an investee or other factors may indicate that an other-than-temporary decrease in value of our investment in the Unconsolidated Real Estate Affiliates has occurred. The investment in each of the Unconsolidated Real Estate Affiliates is evaluated periodically and as deemed necessary for recoverability and valuation declines that are other than temporary. Accordingly, in addition to the property-specific impairment analysis that we perform on the investment properties, land held for development and sale and developments in progress owned by such joint ventures (as part of our investment property impairment process described above), we also considered the ownership and distribution preferences and limitations and rights to sell and repurchase our ownership interests. Based on our evaluations, no provisions for impairment were recorded for the three and nine months ended September 30, 2010 and 2009 related to our investments in Unconsolidated Real Estate Affiliates.
Goodwill
The excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed was recorded as goodwill. Goodwill has been recognized and allocated to specific properties in our Retail and Other Segment since each individual rental property or each operating property is an operating segment and considered a reporting unit. The generally accepted accounting principles related to goodwill and other intangible assets states that goodwill should be tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. We perform this test by first comparing the estimated Fair Value of each property with our book value of the property, including, if applicable, its allocated portion of aggregate goodwill. We assess Fair Value based on estimated future cash flow projections that utilize discount and capitalization rates which are generally unobservable in the market place (Level 3 inputs) under these principles, but approximate the inputs we believe would be utilized by market participants in assessing Fair Value. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions. If the carrying amount of a property, including its goodwill, exceeds its estimated Fair Value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. In this second step, if the implied Fair Value of goodwill is less than the carrying amount of goodwill, an impairment charge is recorded.
As of September 30, 2010, there were no events or changes in circumstances that would indicate that the current carrying amount of goodwill might be impaired; accordingly, we did not perform
F-107
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
interim testing procedures. As of September 30, 2009, we performed interim impairment tests of goodwill as changes in market and economic conditions for the three and nine months ended September 30, 2009 indicated an impairment of the asset might have occurred. As a result of the procedures performed, we recorded provisions for impairment of goodwill of $6.3 million for the three months ended September 30, 2009 and $135.0 million for the nine months ended September 30, 2009, as presented in the table below.
General
Certain of our properties had estimated Fair Values less than their carrying amounts. However, based on the Company's plans with respect to the New GGP properties, we believe that the carrying amounts are recoverable and therefore, under applicable generally accepted accounting principles, no additional impairments were taken. Additional impairment charges could be taken in the future if economic conditions change or if our plans regarding the New GGP assets change. Therefore, we can provide no assurance that material impairment charges with respect to the New GGP assets, including operating properties, Unconsolidated Real Estate Affiliates, developments in progress, or goodwill will not occur in future periods. Accordingly, we will continue to monitor circumstances and events in future periods to determine whether additional impairments are warranted.
Applicable generally accepted accounting principles require that if an impairment indicator exists for a long-lived asset, which is distributed to the owners in a spinoff, an impairment loss shall be recognized at the date of disposal to the extent that the carrying amount exceeds the Fair Value. The distribution of certain assets and liabilities of THHC to existing GGP stockholders constitutes a distribution to the owners in a spinoff, and as such, is required to be accounted for at the lower of carrying value or Fair Value. Accordingly, GGP will likely incur a significant impairment charge in the fourth quarter of 2010 in conjunction with the distribution of assets to THHC as the Fair Value of such assets is estimated to be lower than the carrying value. Further, the assets distributed to THHC will be under the control of a new Board of Directors and new management who may change existing plans for these assets, which could result in future impairment charges being recorded by THHC.
Impaired Asset
|
Location | Method of Determining Fair Value |
Three Months
Ended September 30, 2010 |
Nine Months
Ended September 30, 2010 |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
(In thousands)
|
|||||||||||
Retail and other: |
||||||||||||||
Operating properties: |
||||||||||||||
Bay City Mall |
Bay City, MI | Discounted cash flow analysis(1) | $ | | $ | 2,309 | ||||||||
Chico Mall |
Chico, CA | Discounted cash flow analysis(1) | | 895 | ||||||||||
Eagle Ridge Mall |
Lake Wales, FL | Discounted cash flow analysis(1) | | 266 | ||||||||||
Lakeview Square |
Battle Creek, MI | Discounted cash flow analysis(1) | | 7,057 | ||||||||||
Moreno Valley Mall |
Moreno Valley, CA | Discounted cash flow analysis(1) | | 6,608 | ||||||||||
Northgate Mall |
Chattanooga, TN | Discounted cash flow analysis(1) | | 1,398 | ||||||||||
Oviedo Marketplace |
Oviedo, FL | Discounted cash flow analysis(1) | | 1,184 | ||||||||||
The Pines |
Pine Bluff, AR | Direct Capitalization method(2) | | 11,057 | ||||||||||
Plaza 800 |
Sparks, NV | Projected sales price analysis(2) | 4,516 | 4,516 | ||||||||||
Total operating properties |
$ | 4,516 | $ | 35,290 | ||||||||||
Various pre-development costs |
(3) |
104 |
603 |
|||||||||||
Total Provisions for impairment |
$ |
4,620 |
$ |
35,893 |
||||||||||
F-108
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
Impaired Asset
|
Location | Method of Determining Fair Value |
Three Months
Ended September 30, 2009 |
Nine Months
Ended September 30, 2009 |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
(In thousands)
|
|||||||||||
Retail and other: |
||||||||||||||
Operating properties: |
||||||||||||||
Owings Mills Mall |
Owings Mills, MD | Discounted cash flow analysis(4) | $ | | $ | 40,308 | ||||||||
River Falls Mall |
Clarksville, IN | Discounted cash flow analysis(4) | | 81,114 | ||||||||||
The Village at Redlands |
Redlands, CA | Projected sales price analysis(2) | 5,492 | 5,492 | ||||||||||
Plaza 9400 |
Sandy, UT | Projected sales price analysis(2) | 5,191 | 5,191 | ||||||||||
Owings Mills-Two Corporate Center |
Owings Mills, MD | Projected sales price analysis(2) | 7,478 | 7,478 | ||||||||||
Total operating properties |
$ | 18,161 | $ | 139,583 | ||||||||||
Development: |
||||||||||||||
Allen Towne Mall |
Allen, TX | Projected sales price analysis(2) | | 24,166 | ||||||||||
Redlands Promenade |
Redlands, CA | Projected sales price analysis(2) | | 6,747 | ||||||||||
West Kendall development |
Miami, FL | Projected sales price analysis(2) | 35,518 | 35,518 | ||||||||||
Total development |
$ | 35,518 | $ | 66,431 | ||||||||||
Various pre-development costs |
(3) |
978 |
24,680 |
|||||||||||
Goodwill |
(4) |
6,283 |
135,034 |
|||||||||||
Total Retail and other |
$ |
60,940 |
$ |
365,728 |
||||||||||
Master Planned Communities: |
||||||||||||||
Fairwood Master Planned Community |
Columbia, MD | Projected sales price analysis(5) | | 52,769 | ||||||||||
Nouvelle at Natick |
Natick, MA | Discounted cash flow analysis(5) | | 55,923 | ||||||||||
Total Master Planned Communities |
$ | | $ | 108,692 | ||||||||||
Total Provisions for impairment |
$ |
60,940 |
$ |
474,420 |
||||||||||
Noncontrolling Interests
The TopCo Plan, as approved by the Bankruptcy Court on October 21, 2010, provided that holders of the Common Units could elect to redeem or convert their units. Three holders of the Common Units elected to redeem their 159,760 Common Units in the aggregate on the Effective Date. All remaining Common Units will be reinstated in the Operating Partnership on the Effective Date.
F-109
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
Generally, the holders of the Common Units shared equally with our common stockholders on a per share basis in any distributions by the Operating Partnership. However, the Operating Partnership agreement permitted distributions solely to GGP if such distributions were required to allow GGP to comply with the REIT distribution requirements or to avoid the imposition of excise tax. Under certain circumstances, the conversion rate for each Common Unit would be adjusted to give effect to stock distributions. Also, under certain circumstances, the Common Units (other than Common Units held by the parties to the Rights Agreement dated July 27, 1993, as described below) could be redeemed at the option of the holders for cash or, at our election, shares of GGP common stock. Upon receipt of a request for redemption by a holder of such Common Units, the Company, as general partner of the Operating Partnership, had the option to pay the redemption price for such Common Units with shares of common stock of the Company (subject to certain conditions), or in cash, with a cash redemption price calculated based upon the market price of one share of common stock of the Company at the time of redemption. Parties to the Rights Agreement dated July 27, 1993 (the "Rights Agreement") had the right to redeem the Common Units covered by such agreement for shares of GGP common stock.
All prior requests for redemption of Common Units have been fulfilled with shares of the Company's common stock. Notwithstanding this historical practice, the aggregate amount of cash that would have been paid to the holders of the outstanding Common Units as of September 30, 2010 if such holders had requested redemption of the Common Units as of September 30, 2010, and all such Common Units were redeemed (or purchased in the case of the Rights Agreement) for cash, would have been $115.1 million. During the pendency of the Chapter 11 Cases, we were precluded from redeeming Common Units for cash or shares of GGP common stock. In addition, the conditions necessary to issue GGP common stock upon redemption of Common Units were not currently satisfied.
Generally accepted accounting principles provide that the redeemable noncontrolling interests are to be presented in our Consolidated Balance Sheets at the greater of Fair Value (the conversion value of the units based on the stock price) or the carrying amount of the units. The applicable stock price was $15.60 at September 30, 2010 and $11.56 at December 31, 2009. Accordingly, the redeemable noncontrolling interests have been presented at Fair Value at September 30, 2010 and December 31, 2009.
F-110
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
The following table reflects the activity of the redeemable noncontrolling interests for the nine months ended September 30, 2010 and 2009.
|
(In thousands) | |||
---|---|---|---|---|
Balance at January 1, 2009 |
$ | 499,925 | ||
Net loss |
(9,690 | ) | ||
Distributions |
(7,008 | ) | ||
Conversion of Operating Partnership units into common shares |
(324,489 | ) | ||
Other comprehensive income |
10,369 | |||
Adjustment for noncontrolling interests in Operating Partnership |
(12,313 | ) | ||
Balance at September 30, 2009 |
$ | 156,794 | ||
Balance at January 1, 2010 |
$ |
206,833 |
||
Net income |
171 | |||
Distributions |
(6,987 | ) | ||
Other comprehensive loss |
348 | |||
Adjustment for noncontrolling interests in Operating Partnership |
35,508 | |||
Balance at September 30, 2010 |
$ | 235,873 | ||
On January 2, 2009, MB Capital Units LLC, pursuant to the Rights Agreement, converted 42,350,000 Common Units (approximately 13% of all outstanding Common Units, including those owned by GGP) held in the Company's Operating Partnership into 42,350,000 shares of GGP common stock.
The Operating Partnership had also issued Convertible Preferred Units, which were convertible, with certain restrictions, at any time by the holder into Common Units of the Operating Partnership at the following rates (subject to adjustment):
|
Number of Common Units
for each Preferred Unit |
|||
---|---|---|---|---|
Series B |
3.000 | |||
Series D |
1.508 | |||
Series E |
1.298 |
The Plan provides that holders of the preferred units will receive their previously accrued and unpaid dividends net of the applicable taxes, reinstatement of their preferred units in the Operating Partnership and a number of shares of the THHC common stock equal to the number of shares such holder would have received had its respective preferred units below converted into GGP Common Stock immediately prior to the THHC distribution.
Fair Value Measurements
Fair Value is defined as the price that would be received to sell or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The accounting principles
F-111
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
for Fair Value measurements establish a three-tier Fair Value hierarchy, which prioritizes the inputs used in measuring Fair Value. These tiers include:
The asset or liability Fair Value measurement level within the Fair Value hierarchy is based on the lowest level of any input that is significant to the Fair Value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Any Fair Values utilized or disclosed in our consolidated financial statements were developed for the purpose of complying with the accounting principles established for Fair Value measurements. The Fair Values of our assets or liabilities for enterprise value in our Chapter 11 Cases or as a component of our reorganization plan (Note 1) may reflect differing assumptions and methodologies. These estimates will be subject to a number of approvals and reviews and therefore may be materially different.
F-112
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
As of September 30, 2010 and 2009, our derivative financial instruments and our investments in marketable securities are immaterial to our consolidated financial statements. The following table summarizes our assets and liabilities that are measured at Fair Value on a nonrecurring basis:
|
Total
Fair Value Measurement |
Quoted
Prices in Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total
(Loss) Gain Three Months Ended September 30, 2010 |
Total
(Loss) Gain Three Months Ended September 30, 2009 |
Total
(Loss) Gain Nine Months Ended September 30, 2010 |
Total
(Loss) Gain Nine Months Ended September 30, 2009 |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|
|
|||||||||||||||||||||||
Investments in real estate: |
||||||||||||||||||||||||||
Bay City Mall |
$ | 23,950 | $ | | $ | | $ | 23,950 | $ | | $ | | $ | (2,309 | ) | $ | | |||||||||
Chico Mall |
54,000 | | | 54,000 | | | (895 | ) | | |||||||||||||||||
Eagle Ridge Mall |
26,600 | | | 26,600 | | | (266 | ) | | |||||||||||||||||
Lakeview Square |
25,900 | | | 25,900 | | | (7,057 | ) | | |||||||||||||||||
Moreno Valley Mall |
71,000 | | | 71,000 | | | (6,608 | ) | | |||||||||||||||||
Northgate Mall |
24,000 | | | 24,000 | | | (1,398 | ) | | |||||||||||||||||
Oviedo Marketplace |
32,840 | | | 32,840 | | | (1,184 | ) | | |||||||||||||||||
The Pines Mall |
4,100 | | | 4,100 | | | (11,057 | ) | | |||||||||||||||||
Plaza 800 |
600 | | | 600 | (4,516 | ) | | (4,516 | ) | | ||||||||||||||||
Owings Mills Mall |
38,068 | | | 38,068 | | | | (40,308 | ) | |||||||||||||||||
River Falls Mall |
22,003 | | | 22,003 | | | | (81,114 | ) | |||||||||||||||||
The Village at Redlands |
7,500 | | | 7,500 | | (5,492 | ) | | (5,492 | ) | ||||||||||||||||
Plaza 9400 |
2,400 | | | 2,400 | | (5,191 | ) | | (5,191 | ) | ||||||||||||||||
Owings Mills-Two Corporate Center |
15,360 | | | 15,360 | | (7,478 | ) | | (7,478 | ) | ||||||||||||||||
Allen Towne Mall |
29,511 | | 29,511 | | | | | (24,166 | ) | |||||||||||||||||
Redlands Promenade |
6,727 | | | 6,727 | | | | (6,747 | ) | |||||||||||||||||
West Kendall development |
13,931 | | | 13,931 | | (35,518 | ) | | (35,518 | ) | ||||||||||||||||
Fairwood Master Planned Community |
12,629 | | 12,629 | | | | | (52,769 | ) | |||||||||||||||||
Nouvelle at Natick |
64,661 | | | 64,661 | | | | (55,923 | ) | |||||||||||||||||
Total investments in real estate |
$ | 475,780 | $ | | $ | 42,140 | $ | 433,640 | $ | (4,516 | ) | $ | (53,679 | ) | $ | (35,290 | ) | $ | (314,706 | ) | ||||||
Debt: |
||||||||||||||||||||||||||
Fair Value of emerged entity mortgage debt (1) |
$ | 9,512,579 | $ | | $ | | $ | 9,512,579 | $ | 4,103 | $ | | $ | 181,819 | $ | | ||||||||||
Of the Emerged Debtors, as of September 30, 2010, we have identified 13 properties (the "Special Consideration Properties") as underperforming retail assets. Pursuant to the terms of the agreements with the lenders for these properties, the Debtors have until two days following emergence of the TopCo Debtors to determine whether the collateral property for these loans should be deeded to the respective lender or the property should be retained with further modified loan terms. Prior to emergence of the TopCo Debtors, all cash produced by the property is under the control of respective lenders and we are required to pay any operating expense shortfall. In addition, prior to emergence of the TopCo Debtors, the respective lender can change the manager of the property or put the property in receivership and GGP has the right to deed the property to the lender. We have entered into Deed in Lieu agreements dated September 9, 2010 with respect to Eagle Ridge Mall and Oviedo Marketplace which provide that the respective deed transfers will occur by November 1, 2010.
F-113
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
However, such transfers are subject to a number of conditions and therefore, there can be no assurance that such transfer will occur, and the dates of deed transfer for the remaining properties cannot be currently estimated. We also agree to cooperate with the respective lenders of five of the Special Consideration Properties to jointly market such properties for sale.
Generally accepted accounting principles state that an entity may choose to elect the Fair Value option for an eligible item only on the date of the event that requires Fair Value measurement. As each of the Special Consideration Properties emerged from bankruptcy, we elected to measure and report the mortgages related these properties at Fair Value from the date of emergence because the Debtor entities of the Special Consideration Properties have the right to return the properties to the lenders in full satisfaction of the related debt. Accordingly, the Fair Value of the mortgage liability should not exceed the Fair Value of the underlying property. See our disclosure of ImpairmentOperating properties and land held for development and redevelopment, including assets to be sold after such development or redevelopment for more detail regarding the methodology used in determining the Fair Value of these properties.
The following is a summary of the components of our debt that was eligible for the Fair Value option, and similar items that were not eligible for the Fair Value option at September 30, 2010 and December 31, 2009.
|
September 30, 2010 | December 31, 2009 | |||||
---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||
Debt related to Special Consideration Properties (elected for Fair Value option) |
$ | 587,590 | $ | 316,966 | |||
Similar eligible debt (not elected for Fair Value option) |
184,670 | 4,233,747 | |||||
Debt not eligible for Fair Value option |
16,582,446 | 3,010,301 | |||||
Market rate adjustments |
(426,778 | ) | (260,242 | ) | |||
Total Mortgages, notes and loans payable, not subject to compromise |
$ | 16,927,928 | $ | 7,300,772 | |||
Of the Special Consideration Properties, five of the properties had emerged from bankruptcy as of December 31, 2009 for which we recorded a gain in reorganization items of $54.2 million for the year ended December 31, 2009. The remaining eight properties emerged in 2010, resulting in a gain in reorganization items of $69.3 million for the nine months ended September 30, 2010. Subsequent to the emergence from bankruptcy, we are required to determine the Fair Value of the mortgage loans related to the Special Consideration Properties quarterly, so long as we hold the Special Consideration Properties. Any change in the Fair Value of the mortgages related to the Special Consideration Properties will be recorded in interest expense in the quarter in which such change occurs. When the transfers of Eagle Ridge Mall and Oviedo Marketplace occur, no significant gain or loss is expected to result because we have recorded the Fair Value of the mortgages related to these properties.
F-114
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
The unpaid debt balance, Fair Value estimates, Fair Value measurements, gain (in reorganization items) and interest expense for the three months ended and nine months ended September 30, 2010, with respect to the Special Consideration Properties, are as follows:
|
Unpaid
Debt Balance of Special Consideration Properties |
Fair Value
Estimate of Special Consideration Properties |
Significant
Unobservable Inputs (Level 3) |
Total Gain
for the Three Months Ended September 30, 2010 |
Total Gain
for the Nine Months Ended September 30, 2010 |
Interest
Expense for the Three Months Ended September 30, 2010 |
Interest
Expense for the Nine Months Ended September 30, 2010 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||||||||||||||
Mortgages, notes and loans payable, not subject to compromise |
$ | 744,535 | $ | 587,590 | $ | 587,590 | $ | | $ | 69,346 | $ | 12,646 | $ | (2,839 | ) |
A summary of the changes to the carrying value of the debt relate to the Special Consideration Properties reflected the Fair Value measurements discussed above, are as follows:
|
September 30, 2010 | ||||
---|---|---|---|---|---|
|
(In thousands)
|
||||
Balance at January 1, 2010 |
$ | 316,966 | |||
Additions during the periodEmerged Special Consideration Properties debt |
309,307 | ||||
Balance at March 31, 2010 |
626,273 | ||||
Changes in Fair ValueSpecial Consideration Properties |
(36,124 | ) | |||
Principal payments |
(2,559 | ) | |||
Balance at June 30, 2010 |
587,590 | ||||
Changes in Fair ValueSpecial Consideration Properties |
2,700 | ||||
Principal payments |
(2,700 | ) | |||
Balance at September 30, 2010 |
$ | 587,590 | |||
Fair Value of Financial Instruments
The Fair Values of our financial instruments approximate their carrying amount in our financial statements except for debt. As a result of the Company's Chapter 11 filing, the Fair Value for the outstanding debt that is included in liabilities subject to compromise in our Consolidated Balance Sheets cannot be reasonably determined at September 30, 2010 as the timing and amounts to be paid are subject to confirmation by the Bankruptcy Court. For the $16.93 billion of mortgages, notes and loans payable that are outstanding and not subject to compromise at September 30, 2010, management's required estimates of Fair Value are presented below. This Fair Value was estimated solely for financial statement reporting purposes and should not be used for any other purposes, including estimating the value of any of the Company's securities. We estimated the Fair Value of this debt based on quoted market prices for publicly-traded debt, recent financing transactions (which may not be comparable), estimates of the Fair Value of the property that serves as collateral for such debt, historical risk premiums for loans of comparable quality, current London Interbank Offered Rate ("LIBOR"), a widely quoted market interest rate which is frequently the index used to determine the rate at which we borrow funds, U.S. treasury obligation interest rates and on the discounted estimated future cash payments to be made on such debt. The discount rates estimated reflect our judgment as to what the approximate current lending rates for loans or groups of loans with similar maturities and
F-115
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
credit quality would be if credit markets were operating efficiently and assume that the debt is outstanding through maturity. We have utilized market information as available or present value techniques to estimate the amounts required to be disclosed, or, in the case of the Emerged Debtors, recorded due to GAAP bankruptcy emergence guidance. Since such amounts are estimates that are based on limited available market information for similar transactions and do not acknowledge transfer or other repayment restrictions that may exist in specific loans, it is unlikely that the estimated Fair Value of any of such debt could be realized by immediate settlement of the obligation.
|
September 30, 2010 | ||||||
---|---|---|---|---|---|---|---|
|
Carrying
Amount |
Estimated
Fair Value |
|||||
Fixed-rate debt |
$ | 14,469,996 | $ | 15,017,201 | |||
Variable-rate debt |
2,457,932 | 2,522,783 | |||||
|
$ | 16,927,928 | $ | 17,539,984 | |||
Derivative Financial Instruments
As of January 1, 2009, we adopted the generally accepted accounting principles related to disclosures about derivative instruments and hedging activities which requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the Fair Value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
We use derivative financial instruments to reduce risk associated with movement in interest rates. We may choose or be required by lenders to reduce cash flow and earnings volatility associated with interest rate risk exposure on variable-rate borrowings and/or forecasted fixed-rate borrowings by entering into interest rate swaps or interest rate caps. We do not use derivative financial instruments for speculative purposes. During the first quarter of 2009, our interest rate swaps no longer qualified as highly effective and therefore no longer qualified for hedge accounting treatment as the Company made the decision not to pay future settlement payments under such swaps. As a result of the terminations of the swaps, we incurred termination fees of $34.8 million. Accordingly, we reduced the liability associated with these derivative financial instruments during the first and second quarter of 2009 (included in interest expense in our consolidated financial statements) which for the nine months ended September 30, 2009 resulted in a reduction in interest expense of $27.7 million. As the interest payments on the hedged debt remain probable, the net balance in the gain or loss in accumulated other comprehensive (loss) income of $(27.7) million that existed as of December 31, 2008 is amortized to interest expense as the hedged forecasted transactions impact earnings or are deemed probable not to occur. The amortization of the accumulated other comprehensive (loss) income resulted in additional interest expense of $0.6 million and $9.6 million for the three and nine months ended September 30, 2010 and $4.5 million and $13.6 million for the three and nine months ended September 30, 2009.
Under interest rate cap agreements, we make initial premium payments to the counterparties in exchange for the right to receive payments from them if interest rates exceed specified levels 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. We had no interest rate cap derivatives for our Consolidated Properties as of September 30, 2010 while as of September 30,
F-116
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
2009, we had one outstanding interest rate cap derivative that was designated as a cash flow hedge of interest rate risk with a notional value of $67.5 million.
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. We do not require any collateral under these agreements, but deal only with well known financial institution counterparties (which, in certain cases, are also the lenders on the related debt) and expect that all counterparties will meet their obligations.
We have not recognized any losses as a result of hedge discontinuance and the expense that we recognized related to changes in the time value of interest rate cap agreements were insignificant for the three and nine months ended September 30, 2010 and 2009.
Revenue Recognition and Related Matters
Minimum rent revenues are recognized on a straight-line basis over the terms of the related leases. Minimum rent revenues also include amounts collected from tenants to allow the termination of their leases prior to their scheduled termination dates and accretion related to above and below-market tenant leases on acquired properties. Termination income recognized was $2.5 million for the three months ended September 30, 2010, $3.6 million for the three months ended September 30, 2009, $18.6 million for the nine months ended September 30, 2010 and $20.2 million for the nine months ended September 30, 2009. Net accretion related to above and below-market tenant leases was $1.3 million for the three months ended September 30, 2010, $2.7 million for the three months ended September 30, 2009, $4.4 million for the nine months ended September 30, 2010, and $6.1 million for the nine months ended September 30, 2009.
Straight-line rent receivables, which represent the current net cumulative rents recognized prior to when billed and collectible as provided by the terms of the leases, of $288.3 million as of September 30, 2010 and $255.3 million as of December 31, 2009, are included in Accounts and notes receivable, net in our consolidated financial statements.
Percentage rent in lieu of fixed minimum rent received from tenants was $16.0 million for the three months ended September 30, 2010, $16.4 million for the three months ended September 30, 2009, $47.8 million for the nine months ended September 30, 2010 and $41.2 million for the nine months ended September 30, 2009, and is included in Minimum Rents in our consolidated financial statements.
Condominium sales and associated costs of sales are recognized on the percentage of completion method. As of September 30, 2010, there have been 152 unit closings of sales at our 215 unit Nouvelle at Natick residential condominium project. We recognized $63.2 million of revenue and $58.2 million of associated costs of sales for the nine months ended September 30, 2010 within our Master Planned Community segment related to condominium unit sales at the Nouvelle at Natick. All revenue from condominium sales prior to the three and six months ended June 30, 2010 were deferred as the threshold of sold units required to recognize revenue had not been met. As such, $52.9 million of previously deferred revenue from condominium sales and $48.6 million of associated costs of sales were recorded during the three months ended June 30, 2010 as the result of the recognition of all deferred unit sales through June 30, 2010. For the three months ended September 30, 2010, Nouvelle at Natick recognized $10.3 million of revenue and $9.6 million of associated costs of sales related to 24 condominium sales during the third quarter of 2010.
F-117
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. For example, estimates and assumptions have been made with respect to useful lives of assets, capitalization of development and leasing costs, provision for income taxes, recoverable amounts of receivables and deferred taxes, initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to acquisitions, impairment of long-lived assets and goodwill, Fair Value of debt of the Emerged Debtors and cost ratios and completion percentages used for land sales. Actual results could differ from these and other estimates.
Earnings Per Share ("EPS")
Information related to our EPS calculations is summarized as follows:
|
Three Months Ended September 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | ||||||||||||
|
Basic | Diluted | Basic | Diluted | ||||||||||
|
(In thousands)
|
|||||||||||||
Numerators: |
||||||||||||||
Loss from continuing operations |
$ | (233,723 | ) | $ | (233,723 | ) | $ | (117,454 | ) | $ | (117,454 | ) | ||
Allocation to noncontrolling interests |
2,538 | 2,538 | (421 | ) | (421 | ) | ||||||||
Loss from continuing operationsnet of noncontrolling interests |
(231,185 | ) | (231,185 | ) | (117,875 | ) | (117,875 | ) | ||||||
Discontinued operationsgain on dispositions |
| | 29 | 29 | ||||||||||
Allocation to noncontrolling interests |
| | (1 | ) | (1 | ) | ||||||||
Discontinued operationsnet of noncontrolling interests |
| | 28 | 28 | ||||||||||
Net loss |
(233,723 | ) | (233,723 | ) | (117,425 | ) | (117,425 | ) | ||||||
Allocation to noncontrolling interests |
2,538 | 2,538 | (422 | ) | (422 | ) | ||||||||
Net loss attributable to common stockholders |
$ | (231,185 | ) | $ | (231,185 | ) | $ | (117,847 | ) | $ | (117,847 | ) | ||
Denominators: |
||||||||||||||
Weighted average number of common shares outstandingbasic and diluted |
317,393 | 317,393 | 312,363 | 312,363 | ||||||||||
F-118
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
|
Nine Months Ended September 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | ||||||||||||
|
Basic | Diluted | Basic | Diluted | ||||||||||
|
(In thousands)
|
|||||||||||||
Numerators: |
||||||||||||||
Loss from continuing operations |
$ | (295,410 | ) | $ | (295,410 | ) | $ | (680,179 | ) | $ | (680,179 | ) | ||
Allocation to noncontrolling interests |
(1,646 | ) | (1,646 | ) | 7,875 | 7,875 | ||||||||
Loss from continuing operationsnet of noncontrolling interests |
(297,056 | ) | (297,056 | ) | (672,304 | ) | (672,304 | ) | ||||||
Discontinued operationsloss on dispositions |
| | (26 | ) | (26 | ) | ||||||||
Allocation to noncontrolling interests |
| | 1 | 1 | ||||||||||
Discontinued operationsnet of noncontrolling interests |
| | (25 | ) | (25 | ) | ||||||||
Net loss |
(295,410 | ) | (295,410 | ) | (680,205 | ) | (680,205 | ) | ||||||
Allocation to noncontrolling interests |
(1,646 | ) | (1,646 | ) | 7,876 | 7,876 | ||||||||
Net loss attributable to common stockholders |
$ | (297,056 | ) | $ | (297,056 | ) | $ | (672,329 | ) | $ | (672,329 | ) | ||
Denominators: |
||||||||||||||
Weighted average number of common shares outstandingbasic and diluted |
316,849 | 316,849 | 311,861 | 311,861 | ||||||||||
All options were anti-dilutive for all periods presented because of net losses, and, as such, their effect has not been included in the calculation of diluted net loss per share. In addition, potentially dilutive shares of 1,365,440 for the three months ended September 30, 2010, and 1,351,001 for the nine months ended September 30, 2010, have been excluded from the denominator in the computation of diluted EPS because they are anti-dilutive. Outstanding Common Units have also been excluded from the diluted earnings per share calculation because including such Common Units would also require that the share of GGPLP income attributable to such Common Units be added back to net income therefore resulting in no effect on EPS. In addition, the impact of the exchange feature of the Exchangeable Notes that were issued in April 2007 is also excluded from EPS for all periods presented because, while the conditions for exchange were met, as a result of the Chapter 11 Cases, the holders of such notes are stayed from exercising such exchange rights absent an order from the Bankruptcy Court. The Exchangeable Notes are currently expected to be paid in connection with the Emergence. Finally, the effect of the Interim Warrants (Note 1) has been excluded as the conditions for exercise of such warrants were not satisfied at September 30, 2010 and we expect that such Interim Warrants will be terminated upon effectiveness of the Plan.
Debt Market Rate Adjustments
We record market rate adjustments related to our mortgages, notes and loans payable primarily for debt of the Debtors upon emergence from bankruptcy, with the exception of the Special Consideration Properties. Such debt market rate adjustments are recorded based on the estimated Fair Value of the debt at the time of emergence and are recorded within mortgages, notes and loans payable on our Consolidated Balance Sheets. The debt market rate adjustments are amortized as interest expense over the remaining term of the loans.
F-119
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 1 ORGANIZATION (Continued)
Transactions with Affiliates
Management fees and other corporate revenues primarily represent management and leasing fees, development fees, financing fees and fees for other ancillary services performed for the benefit of certain of the Unconsolidated Real Estate Affiliates and for properties owned by third parties. Fees earned from the Unconsolidated Properties totaled $13.8 million for the three months ended September 30, 2010, $14.5 million for the three months ended September 30, 2009, $43.1 million for the nine months ended September 30, 2010, and $47.7 million for the nine months ended September 30, 2009. Such fees are recognized as revenue when earned.
NOTE 2 INTANGIBLE ASSETS AND LIABILITIES
The following table summarizes our intangible assets and liabilities:
|
Gross Asset
(Liability) |
Accumulated
(Amortization)/ Accretion |
Net Carrying
Amount |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||||||
As of September 30, 2010 |
|||||||||||
Tenant leases: |
|||||||||||
In-place value |
$ | 472,031 | $ | (302,965 | ) | $ | 169,066 | ||||
Above-market |
62,489 | (35,906 | ) | 26,583 | |||||||
Below-market |
(124,151 | ) | 73,018 | (51,133 | ) | ||||||
Ground leases: |
|||||||||||
Above-market |
(16,968 | ) | 2,778 | (14,190 | ) | ||||||
Below-market |
271,602 | (34,334 | ) | 237,268 | |||||||
Real estate tax stabilization agreement |
91,879 | (23,215 | ) | 68,664 | |||||||
As of December 31, 2009 |
|||||||||||
Tenant leases: |
|||||||||||
In-place value |
$ | 539,257 | $ | (335,310 | ) | $ | 203,947 | ||||
Above-market |
94,194 | (59,855 | ) | 34,339 | |||||||
Below-market |
(149,978 | ) | 86,688 | (63,290 | ) | ||||||
Ground leases: |
|||||||||||
Above-market |
(16,968 | ) | 2,423 | (14,545 | ) | ||||||
Below-market |
271,602 | (29,926 | ) | 241,676 | |||||||
Real estate tax stabilization agreement |
91,879 | (20,272 | ) | 71,607 |
The gross asset balances of the in-place value of tenant leases are included in Buildings and equipment in our Consolidated Balance Sheets. The above-market and below-market tenant and ground leases are included in Prepaid expenses and other assets and Accounts payable and accrued expenses (Note 7) in our consolidated financial statements. The decrease in the gross asset (liability) accounts at September 30, 2010 compared to December 31, 2009 is primarily due to the write-off of fully amortized assets and liabilities for the nine months ended September 30, 2010.
F-120
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 2 INTANGIBLE ASSETS AND LIABILITIES (Continued)
Amortization/accretion of these intangible assets and liabilities, and similar assets and liabilities from our Unconsolidated Real Estate Affiliates at our share, decreased our income (excluding the impact of noncontrolling interests and the provision for income taxes) by $13.4 million for the three months ended September 30, 2010; $44.5 million for the nine months ended September 30, 2010; $16.2 million for the three months ended September 30, 2009 and $45.4 million for the nine months ended September 30, 2009. Future amortization, including our share of such items from Unconsolidated Real Estate Affiliates, is estimated to decrease net income (excluding the impact of noncontrolling interests and the provision for income taxes as well as excluding the impact of acquisition accounting to New GGP upon consummation of the Plan) by approximately $57.8 million in 2010, $43.3 million in 2011, $36.0 million in 2012, $30.2 million in 2013 and $31.0 million in 2014.
NOTE 3 UNCONSOLIDATED REAL ESTATE AFFILIATES
The Unconsolidated Real Estate Affiliates include our noncontrolling investments in real estate joint ventures. Generally, we share in the profits and losses, cash flows and other matters relating to our investments in Unconsolidated Real Estate Affiliates in accordance with our respective ownership percentages. We manage most of the properties owned by these joint ventures. As we have joint interest and control of these ventures with our venture partners and they have substantive participating rights in such ventures, we account for these joint ventures using the equity method. Some of the joint ventures have elected to be taxed as REITs. As described in Note 1, at September 30, 2010, we have two joint venture investments located outside the U.S. These investments, with an aggregate carrying amount of $245.5 million at September 30, 2010 and $214.4 million at December 31, 2009, are managed by the respective joint venture partners in each country. As we also have substantial participation rights with respect to these international joint ventures, we account for them on the equity method. Lastly, during March 2010, we closed on the sale of our Costa Rica investment for $7.5 million, yielding a gain of $0.9 million.
Generally, we anticipate that the 2010 operations of our joint venture properties will support the operational cash needs of the properties, including debt service payments. However, we have identified two properties (Silver City and Montclair) owned by our Unconsolidated Real Estate Affiliates with approximately $393.5 million of non-recourse secured mortgage debt, of which our share is $198.1 million, as underperforming assets. With respect to each of the properties owned by such Unconsolidated Real Estate Affiliates, all cash produced by such properties are under the control of the applicable lender. In the event we are unable to satisfactorily modify the terms of each of the loans associated with these properties, the collateral property for any such loan may be deeded to the respective lender in full satisfaction of the related debt. On October 6, 2010, Silver City entered into a Forbearance Agreement with the lender which provides for the joint marketing of the property with the lender for sale in lieu of foreclosure.
On May 3, 2010, the Unconsolidated Real Estate Affiliate that owned the Highland Mall located in Austin, Texas conveyed the property to the lender in full satisfaction of the non-recourse mortgage loan secured by the property. Such conveyance yielded to the Highland joint venture a gain on forgiveness of debt of approximately $55 million. Our allocable share of such gain was approximately $27 million, with such gain yielding an equal increase in our investment account. Immediately subsequent to the conveyance, GGP wrote-off the balance of its investment in Highland, yielding a nominal net gain on our investment in such joint venture.
F-121
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 3 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
In June and July 2009 we made capital contributions of $28.7 million and $57.5 million, respectively, to fund our portion of $172.2 million of joint venture mortgage debt which had reached maturity. As of September 30, 2010, $6.49 billion of indebtedness was secured by our Unconsolidated Properties, our proportionate share of which was $3.02 billion, including Retained Debt (as defined below). There can be no assurance that we will be able to refinance or restructure such debt on acceptable terms or otherwise, or that joint venture operations or contributions by us and/or our partners will be sufficient to repay such loans.
In certain circumstances, we have debt obligations in excess of our pro rata share of the debt of our Unconsolidated Real Estate Affiliates ("Retained Debt"). This Retained Debt represents distributed debt proceeds of the Unconsolidated Real Estate Affiliates in excess of our pro rata share of the non-recourse mortgage indebtedness of such Unconsolidated Real Estate Affiliates. The proceeds of the Retained Debt which are distributed to us are included as a reduction in our investment in Unconsolidated Real Estate Affiliates.
Such Retained Debt totaled $156.2 million as of September 30, 2010 and $158.2 million as of December 31, 2009, and has been reflected as a reduction in our investment in Unconsolidated Real Estate Affiliates. We are obligated to contribute funds to our Unconsolidated Real Estate Affiliates in amounts of sufficient to pay debt service on such Retained Debt. If we do not contribute such funds, our distributions from such Unconsolidated Real Estate Affiliates, or our interest in, could be reduced to the extent of such deficiencies. As of September 30, 2010, we do not anticipate an inability to perform on our obligations with respect to such Retained Debt.
In certain other circumstances, the Company, in connection with the debt obligations of certain Unconsolidated Real Estate Affiliates, has agreed to provide supplemental guarantees or master-lease commitments to provide to the debt holders additional credit-enhancement or security. As of September 30, 2010, we do not expect to be required to perform pursuant to any of such supplemental credit-enhancement provisions for our Unconsolidated Real Estate Affiliates, either due to estimates of the current obligations represented by such provisions or as a result of the protections afforded us through our Chapter 11 Cases.
On January 29, 2010, our Brazilian joint venture, Aliansce Shopping Centers S.A. ("Aliansce"), commenced trading on the Brazilian Stock Exchange, or BM&FBovespa, as a result of an initial public offering of Aliansce's common shares in Brazil (the "Aliansce IPO"). Although we did not sell any of our Aliansce shares in the Aliansce IPO, our ownership interest in Aliansce was diluted from 49% to approximately 31% as a result of the stock sold in the Aliansce IPO. We will continue to apply the equity method of accounting to our ownership interest in Aliansce. Generally accepted accounting principles state that as an equity method investor, we need to account for the shares issued by Aliansce as if we had sold a proportionate share of our investment at the issuance price per share of the Aliansce IPO. Accordingly, we recognized a gain of $9.7 million for the nine months ended September 30, 2010, which is reflected in equity in income of Unconsolidated Real Estate Affiliates.
On August 4, 2010, we agreed to sell our entire interest in our joint venture in Turkey to our venture partner. Such transaction was completed on October 14, 2010 resulting in an estimated gain of $10.5 million which will be recorded in the fourth quarter 2010.
The significant accounting policies used by the Unconsolidated Real Estate Affiliates are the same as ours.
F-122
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 3 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
Condensed Combined Financial Information of Unconsolidated Real Estate Affiliates
Following is summarized financial information for our Unconsolidated Real Estate Affiliates as of September 30, 2010 and December 31, 2009 and for the three and nine months ended September 30, 2010 and 2009. Certain amounts in the 2009 condensed combined financial information have been reclassified to conform to the current period presentation.
|
September 30,
2010 |
December 31,
2009 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||
Condensed Combined Balance SheetsUnconsolidated Real Estate Affiliates |
||||||||||
Assets: |
||||||||||
Land |
$ | 926,596 | $ | 901,387 | ||||||
Buildings and equipment |
7,974,564 | 7,924,577 | ||||||||
Less accumulated depreciation |
(1,836,077 | ) | (1,691,362 | ) | ||||||
Developments in progress |
313,867 | 333,537 | ||||||||
Net property and equipment |
7,378,950 | 7,468,139 | ||||||||
Investment in unconsolidated joint ventures |
584,181 | 452,291 | ||||||||
Investment property and property held for development and sale |
242,746 | 266,253 | ||||||||
Net investment in real estate |
8,205,877 | 8,186,683 | ||||||||
Cash and cash equivalents |
550,800 | 275,018 | ||||||||
Accounts and notes receivable, net |
210,648 | 226,385 | ||||||||
Deferred expenses, net |
196,596 | 197,663 | ||||||||
Prepaid expenses and other assets |
199,240 | 209,568 | ||||||||
Total assets |
$ | 9,363,161 | $ | 9,095,317 | ||||||
Liabilities and Owners' Equity: |
||||||||||
Mortgages, notes and loans payable |
$ | 6,488,820 | $ | 6,358,718 | ||||||
Accounts payable, accrued expenses and other liabilities |
502,112 | 490,814 | ||||||||
Owners' equity |
2,372,229 | 2,245,785 | ||||||||
Total liabilities and owners' equity |
$ | 9,363,161 | $ | 9,095,317 | ||||||
Investment In and Loans To/From Unconsolidated Real Estate Affiliates, Net: |
||||||||||
Owners' equity |
$ | 2,372,229 | $ | 2,245,785 | ||||||
Less joint venture partners' equity |
(2,169,769 | ) | (1,935,689 | ) | ||||||
Capital or basis differences and loans |
1,666,921 | 1,630,928 | ||||||||
Investment in and loans to/from Unconsolidated Real Estate Affiliates, net |
$ | 1,869,381 | $ | 1,941,024 | ||||||
ReconciliationInvestment In and Loans To/From Unconsolidated Real Estate Affiliates: |
||||||||||
AssetInvestment in and loans to/from Unconsolidated Real Estate Affiliates |
$ | 1,915,480 | $ | 1,979,313 | ||||||
LiabilityInvestment in and loans to/from Unconsolidated Real Estate Affiliates |
(46,099 | ) | (38,289 | ) | ||||||
Investment in and loans to/from Unconsolidated Real Estate Affiliates, net |
$ | 1,869,381 | $ | 1,941,024 | ||||||
F-123
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 3 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | 2010 | 2009 | |||||||||||
|
(In thousands)
|
(In thousands)
|
|||||||||||||
Condensed Combined Statements of IncomeUnconsolidated Real Estate Affiliates |
|||||||||||||||
Revenues: |
|||||||||||||||
Minimum rents |
$ | 191,270 | $ | 184,701 | $ | 570,567 | $ | 564,497 | |||||||
Tenant recoveries |
81,236 | 84,262 | 244,116 | 253,109 | |||||||||||
Overage rents |
2,218 | 2,416 | 7,049 | 5,475 | |||||||||||
Land sales |
20,617 | 14,858 | 70,088 | 50,134 | |||||||||||
Management and other fees |
10,895 | 8,845 | 32,525 | 25,267 | |||||||||||
Other |
22,338 | 19,634 | 66,315 | 66,383 | |||||||||||
Total revenues |
328,574 | 314,716 | 990,660 | 964,865 | |||||||||||
Expenses: |
|||||||||||||||
Real estate taxes |
23,309 | 24,642 | 74,602 | 76,506 | |||||||||||
Property maintenance costs |
10,304 | 10,623 | 31,622 | 29,949 | |||||||||||
Marketing |
4,310 | 3,133 | 9,925 | 8,857 | |||||||||||
Other property operating costs |
61,129 | 61,090 | 175,196 | 186,376 | |||||||||||
Land sales operations |
17,376 | 11,838 | 55,042 | 39,404 | |||||||||||
Provision for doubtful accounts |
2,064 | 3,224 | 6,503 | 9,531 | |||||||||||
Property management and other costs |
17,067 | 20,469 | 56,349 | 58,491 | |||||||||||
General and administrative * |
12,259 | 755 | 12,610 | 13,879 | |||||||||||
Provisions for impairment |
39 | | 881 | 6,459 | |||||||||||
Depreciation and amortization |
69,600 | 66,253 | 203,200 | 199,830 | |||||||||||
Total expenses |
217,457 | 202,027 | 625,930 | 629,282 | |||||||||||
Operating income |
111,117 | 112,689 | 364,730 | 335,583 | |||||||||||
Interest income |
6,340 |
1,745 |
14,611 |
5,141 |
|||||||||||
Interest expense |
(95,902 | ) | (74,900 | ) | (277,689 | ) | (246,255 | ) | |||||||
Benefit (provision) for income taxes |
239 | (81 | ) | (551 | ) | (1,050 | ) | ||||||||
Equity in income of unconsolidated joint ventures |
8,376 | 14,472 | 37,236 | 31,699 | |||||||||||
Income from continuing operations |
30,170 | 53,925 | 138,337 | 125,118 | |||||||||||
Discontinued operations(loss) gain on dispositions |
(22 | ) | | 55,077 | | ||||||||||
Allocation to noncontrolling interests |
67 | (1,119 | ) | 106 | (2,044 | ) | |||||||||
Net income attributable to joint venture partners |
$ | 30,215 | $ | 52,806 | $ | 193,520 | $ | 123,074 | |||||||
Equity In Income of Unconsolidated Real Estate Affiliates: |
|||||||||||||||
Net income attributable to joint venture partners |
$ | 30,215 | $ | 52,806 | $ | 193,520 | $ | 123,074 | |||||||
Joint venture partners' share of income |
(10,634 | ) | (26,632 | ) | (79,997 | ) | (63,423 | ) | |||||||
Amortization of capital or basis differences |
(10,072 | ) | (10,536 | ) | (33,066 | ) | (19,543 | ) | |||||||
Gain on Aliansce IPO |
269 | | 9,652 | | |||||||||||
Gain (loss) on Highland Mall conveyence |
11 | | (29,668 | ) | | ||||||||||
Elimination of Unconsolidated Real Estate Affiliates loan interest |
| (297 | ) | | (890 | ) | |||||||||
Equity in income of Unconsolidated Real Estate Affiliates |
$ | 9,789 | $ | 15,341 | $ | 60,441 | $ | 39,218 | |||||||
F-124
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 3 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
Condensed Financial Information of Individually Significant Unconsolidated Real Estate Affiliates
Following is summarized financial information for GGP/Homart II L.L.C. ("GGP/Homart II"), GGP-TRS L.L.C. ("GGP/Teachers") and The Woodlands Land Development Holdings, L.P. ("The Woodlands Partnership"). We account for these joint ventures using the equity method because we have joint interest and control of these ventures with our venture partners and they have substantive participating rights in such ventures. For financial reporting purposes, we consider each of these joint ventures to be an individually significant Unconsolidated Real Estate Affiliate. Our investment in such affiliates varies from a strict ownership percentage due to capital or basis differences or loans and related amortization.
|
GGP/Homart II | ||||||||
---|---|---|---|---|---|---|---|---|---|
|
September 30,
2010 |
December 31,
2009 |
|||||||
|
(In thousands)
|
||||||||
Assets: |
|||||||||
Land |
$ | 232,164 | $ | 238,164 | |||||
Buildings and equipment |
2,783,385 | 2,783,869 | |||||||
Less accumulated depreciation |
(590,181 | ) | (526,985 | ) | |||||
Developments in progress |
17,114 | 5,129 | |||||||
Net investment in real estate |
2,442,482 | 2,500,177 | |||||||
Cash and cash equivalents |
95,326 | 70,417 | |||||||
Accounts and notes receivable, net |
49,196 | 47,843 | |||||||
Deferred expenses, net |
92,367 | 92,439 | |||||||
Prepaid expenses and other assets |
29,607 | 20,425 | |||||||
Total assets |
$ | 2,708,978 | $ | 2,731,301 | |||||
Liabilities and Capital: |
|||||||||
Mortgages, notes and loans payable |
$ | 2,207,225 | $ | 2,245,582 | |||||
Accounts payable, accrued expenses and other liabilities |
71,330 | 63,923 | |||||||
Capital |
430,423 | 421,796 | |||||||
Total liabilities and capital |
$ | 2,708,978 | $ | 2,731,301 | |||||
F-125
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 3 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
|
GGP/Homart II | GGP/Homart II | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Three Months End September 30, | Nine Months Ended September 30, | |||||||||||||
|
2010 | 2009 | 2010 | 2009 | |||||||||||
|
(In thousands)
|
(In thousands)
|
|||||||||||||
Revenues: |
|||||||||||||||
Minimum rents |
$ | 62,016 | $ | 59,298 | $ | 183,546 | $ | 181,405 | |||||||
Tenant recoveries |
26,176 | 26,854 | 79,278 | 82,596 | |||||||||||
Overage rents |
622 | 475 | 1,674 | 1,359 | |||||||||||
Other |
1,836 | 1,572 | 5,311 | 5,048 | |||||||||||
Total revenues |
90,650 | 88,199 | 269,809 | 270,408 | |||||||||||
Expenses: |
|||||||||||||||
Real estate taxes |
5,481 | 7,615 | 22,350 | 24,383 | |||||||||||
Property maintenance costs |
3,092 | 3,125 | 9,272 | 8,309 | |||||||||||
Marketing |
1,339 | 1,135 | 3,223 | 3,385 | |||||||||||
Other property operating costs |
13,139 | 12,933 | 37,782 | 38,057 | |||||||||||
Provision for doubtful accounts |
893 | 109 | 2,163 | 2,110 | |||||||||||
Property management and other costs |
5,340 | 5,302 | 16,538 | 16,562 | |||||||||||
General and administrative |
27 | 84 | 91 | 294 | |||||||||||
Provisions for impairment |
| (1 | ) | 725 | 3,693 | ||||||||||
Depreciation and amortization |
24,663 | 24,231 | 72,971 | 72,282 | |||||||||||
Total expenses |
53,974 | 54,533 | 165,115 | 169,075 | |||||||||||
Operating income |
36,676 | 33,666 | 104,694 | 101,333 | |||||||||||
Interest income |
58 |
1,294 |
202 |
3,914 |
|||||||||||
Interest expense |
(35,420 | ) | (31,117 | ) | (95,763 | ) | (92,575 | ) | |||||||
Provision for income taxes |
(157 | ) | (234 | ) | (505 | ) | (783 | ) | |||||||
Net income |
1,157 | 3,609 | 8,628 | 11,889 | |||||||||||
Allocation to noncontrolling interests |
14 | 2 | 75 | (2 | ) | ||||||||||
Net income attributable to joint venture partners |
$ | 1,171 | $ | 3,611 | $ | 8,703 | $ | 11,887 | |||||||
F-126
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 3 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
|
GGP/Teachers | ||||||||
---|---|---|---|---|---|---|---|---|---|
|
September 30,
2010 |
December 31,
2009 |
|||||||
|
(In thousands)
|
||||||||
Assets: |
|||||||||
Land |
$ | 195,832 | $ | 195,832 | |||||
Buildings and equipment |
1,073,588 | 1,071,748 | |||||||
Less accumulated depreciation |
(177,349 | ) | (153,778 | ) | |||||
Developments in progress |
2,460 | 3,586 | |||||||
Net investment in real estate |
1,094,531 | 1,117,388 | |||||||
Cash and cash equivalents |
10,939 | 6,663 | |||||||
Accounts and notes receivable, net |
16,104 | 17,622 | |||||||
Deferred expenses, net |
40,963 | 42,941 | |||||||
Prepaid expenses and other assets |
10,990 | 7,216 | |||||||
Total assets |
$ | 1,173,527 | $ | 1,191,830 | |||||
Liabilities and Members' Capital: |
|||||||||
Mortgages, notes and loans payable |
$ | 1,006,112 | $ | 1,011,700 | |||||
Accounts payable, accrued expenses and other liabilities |
37,258 | 32,914 | |||||||
Members' Capital |
130,157 | 147,216 | |||||||
Total liabilities and members' capital |
$ | 1,173,527 | $ | 1,191,830 | |||||
F-127
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 3 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
|
GGP/Teachers | GGP/Teachers | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Three Months End September 30, | Nine Months Ended September 30, | |||||||||||||
|
2010 | 2009 | 2010 | 2009 | |||||||||||
|
(In thousands)
|
(In thousands)
|
|||||||||||||
Revenues: |
|||||||||||||||
Minimum rents |
$ | 23,993 | $ | 24,648 | $ | 73,996 | $ | 76,752 | |||||||
Tenant recoveries |
12,236 | 14,226 | 36,791 | 39,237 | |||||||||||
Overage rents |
488 | 451 | 1,117 | 816 | |||||||||||
Other |
650 | 390 | 2,061 | 1,453 | |||||||||||
Total revenues |
37,367 | 39,715 | 113,965 | 118,258 | |||||||||||
Expenses: |
|||||||||||||||
Real estate taxes |
3,794 | 3,740 | 11,249 | 11,152 | |||||||||||
Property maintenance costs |
1,107 | 1,116 | 3,525 | 3,454 | |||||||||||
Marketing |
614 | 550 | 1,437 | 1,662 | |||||||||||
Other property operating costs |
6,464 | 6,165 | 18,722 | 18,023 | |||||||||||
Provision for doubtful accounts |
215 | 441 | 730 | 1,392 | |||||||||||
Property management and other costs |
2,172 | 2,112 | 6,602 | 6,681 | |||||||||||
General and administrative |
| 44 | | 178 | |||||||||||
Provisions for impairment |
| | | 17 | |||||||||||
Depreciation and amortization |
8,866 | 9,359 | 27,502 | 28,950 | |||||||||||
Total expenses |
23,232 | 23,527 | 69,767 | 71,509 | |||||||||||
Operating income |
14,135 | 16,188 | 44,198 | 46,749 | |||||||||||
Interest income |
|
2 |
2 |
5 |
|||||||||||
Interest expense |
(17,830 | ) | (13,866 | ) | (46,105 | ) | (41,197 | ) | |||||||
(Provision for) benefit from income taxes |
(4 | ) | (25 | ) | 753 | (67 | ) | ||||||||
Net (loss) income attributable to joint venture partners |
$ | (3,699 | ) | $ | 2,299 | $ | (1,152 | ) | $ | 5,490 | |||||
F-128
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 3 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
|
The Woodlands Partnership | ||||||||
---|---|---|---|---|---|---|---|---|---|
|
September 30,
2010 |
December 31,
2009 |
|||||||
|
(In thousands)
|
||||||||
Assets: |
|||||||||
Land |
$ | 19,841 | $ | 19,841 | |||||
Buildings and equipment |
133,250 | 101,119 | |||||||
Less accumulated depreciation |
(16,812 | ) | (14,105 | ) | |||||
Developments in progress |
2,272 | 31,897 | |||||||
Investment property and property held for development and sale |
242,746 | 266,253 | |||||||
Net investment in real estate |
381,297 | 405,005 | |||||||
Cash and cash equivalents |
35,799 | 30,373 | |||||||
Accounts and notes receivable, net |
5,128 | 4,660 | |||||||
Deferred expenses, net |
920 | 593 | |||||||
Prepaid expenses and other assets |
53,620 | 30,275 | |||||||
Total assets |
$ | 476,764 | $ | 470,906 | |||||
Liabilities and Owners' Equity: |
|||||||||
Mortgages, notes and loans payable |
$ | 276,385 | $ | 281,964 | |||||
Accounts payable, accrued expenses and other liabilities |
4,361 | 629 | |||||||
Owners' equity |
196,018 | 188,313 | |||||||
Total liabilities and owners' equity |
$ | 476,764 | $ | 470,906 | |||||
F-129
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 3 UNCONSOLIDATED REAL ESTATE AFFILIATES (Continued)
|
The Woodlands Partnership | The Woodlands Partnership | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Three Months End September 30, | Nine Months Ended September 30, | |||||||||||||
|
2010 | 2009 | 2010 | 2009 | |||||||||||
|
(In thousands)
|
(In thousands)
|
|||||||||||||
Revenues: |
|||||||||||||||
Minimum rents |
$ | 1,744 | $ | 1,820 | $ | 4,096 | $ | 4,738 | |||||||
Land sales |
20,617 | 14,858 | 70,088 | 50,134 | |||||||||||
Other |
1,349 | 2,319 | 6,154 | 7,144 | |||||||||||
Total revenues |
23,710 | 18,997 | 80,338 | 62,016 | |||||||||||
Expenses: |
|||||||||||||||
Real estate taxes |
498 | 131 | 1,479 | 392 | |||||||||||
Property maintenance costs |
299 | 356 | 391 | 804 | |||||||||||
Other property operating costs |
2,425 | 3,865 | 8,280 | 11,988 | |||||||||||
Land sales operations |
17,376 | 11,838 | 55,042 | 39,404 | |||||||||||
Depreciation and amortization |
973 | 799 | 2,644 | 2,233 | |||||||||||
Total expenses |
21,571 | 16,989 | 67,836 | 54,821 | |||||||||||
Operating income |
2,139 | 2,008 | 12,502 | 7,195 | |||||||||||
Interest income |
81 |
116 |
313 |
474 |
|||||||||||
Interest expense |
(1,446 | ) | (978 | ) | (3,378 | ) | (2,870 | ) | |||||||
Provision for income taxes |
(58 | ) | (158 | ) | (457 | ) | (426 | ) | |||||||
Net income attributable to joint venture partners |
$ | 716 | $ | 988 | $ | 8,980 | $ | 4,373 | |||||||
F-130
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 4 MORTGAGES, NOTES AND LOANS PAYABLE
Mortgages, notes and loans payable are summarized as follows:
|
September 30,
2010 |
December 31,
2009 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||
Fixed-rate debt: |
||||||||||
Collateralized mortgages, notes and loans payable |
$ | 14,885,658 | $ | 15,446,962 | ||||||
Corporate and other unsecured term loans |
3,750,982 | 3,724,463 | ||||||||
Total fixed-rate debt |
18,636,640 | 19,171,425 | ||||||||
Variable-rate debt: |
||||||||||
Collateralized mortgages, notes and loans payable |
2,439,723 | 2,500,892 | ||||||||
Corporate and other unsecured term loans |
2,783,700 | 2,783,700 | ||||||||
Total variable-rate debt |
5,223,423 | 5,284,592 | ||||||||
Total Mortgages, notes and loans payable |
23,860,063 | 24,456,017 | ||||||||
Less: Mortgages, notes and loans payable subject to compromise |
(6,932,135 | ) | (17,155,245 | ) | ||||||
Total mortgages, notes and loans payable not subject to compromise |
$ | 16,927,928 | $ | 7,300,772 | ||||||
As previously discussed, on April 16 and 22, 2009, the Debtors filed voluntary petitions for relief under Chapter 11, which triggered defaults on substantially all debt obligations of the Debtors. However, under section 362 of Chapter 11, the filing of a bankruptcy petition automatically stays most actions against the debtor's estate. These pre-petition liabilities are subject to settlement under a plan of reorganization, and therefore are presented as Liabilities subject to compromise on the Consolidated Balance Sheet. The $16.93 billion that is not subject to compromise as of September 30, 2010 consists primarily of the collateralized mortgages of the Non-Debtors, the Emerged Debtors and the DIP Facility (defined below).
A total of 262 Debtors owning 146 properties with $14.89 billion of secured mortgage debt emerged from bankruptcy as of September 30, 2010. Of the Emerged Debtors, 149 Debtors owning 96 properties with $10.23 billion of secured mortgage debt emerged from bankruptcy during the nine months ended September 30, 2010, while 113 Debtors owning 50 properties with $4.66 billion secured debt had emerged from bankruptcy as of December 31, 2009. The plans of reorganization for such Emerged Debtors provided for, in exchange for payment of certain extension fees and cure of previously unpaid amounts due on the applicable mortgage loans (primarily, principal amortization otherwise scheduled to have been paid since the Petition Date), the extension of the secured mortgage loans at previously existing non-default interest rates. As a result of the extensions, none of these loans will have a maturity prior to January 1, 2014 and the weighted average remaining duration of the secured loans associated with these properties as of September 30, 2010 is 5.33 years. In conjunction with these extensions, certain financial and operating covenants and guarantees were created or reinstated, all to be effective with the bankruptcy emergence of the TopCo Debtors.
As of September 30, 2010, the 13 Special Consideration Properties with $744.5 million in secured debt have emerged from bankruptcy. As described in Note 1, we have entered into agreements to deed two of the Special Consideration Properties to the lenders in the fourth quarter of 2010.
F-131
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 4 MORTGAGES, NOTES AND LOANS PAYABLE (Continued)
The weighted-average interest rate (including the effects of interest rate swaps for December 31, 2009), excluding the effects of deferred finance costs and using the contract rate prior to any defaults on such loans, on our collateralized mortgages, notes and loans payable was 5.23% at September 30, 2010 and 5.31% at December 31, 2009. The weighted average interest rate, using the contract rate prior to any defaults on such loans, on the remaining corporate unsecured fixed and variable rate debt and the revolving credit facility was 3.78% at September 30, 2010 and 4.24% at December 31, 2009. With respect to those loans and Debtors that remain in bankruptcy at September 30, 2010, we are currently recognizing interest expense on our loans based on contract rates in effect prior to bankruptcy as the Bankruptcy Court has ruled that interest payments based on such contract rates constitutes adequate protection to the secured lenders. In addition, as the result of a consensual agreement reached in the third quarter of 2010 with lenders of certain of our corporate debt, we recognized $83.7 million of additional interest expense for the three months ended September 30, 2010.
Collateralized Mortgages, Notes and Loans Payable
As of September 30, 2010, $24.46 billion of land, buildings and equipment and developments in progress (before accumulated depreciation) have been pledged as collateral for our mortgages, notes and loans payable. Certain of these secured loans, representing $3.29 billion of debt, are cross-collateralized with other properties. Although substantially all of the $17.33 billion of fixed and variable rate collateralized mortgages, notes and loans payable are non-recourse, $2.65 billion of such mortgages, notes and loans payable are recourse due to guarantees or other security provisions for the benefit of the note holder. Enforcement of substantially all of these security provisions are stayed by our Chapter 11 Cases. In addition, certain mortgage loans as of September 30, 2010 contain other credit enhancement provisions (primarily master leases for all or a portion of the property) which have been provided by TopCo Debtors. Certain mortgage notes payable may be prepaid but are generally subject to a prepayment penalty equal to a yield-maintenance premium, defeasance or a percentage of the loan balance.
Corporate and Other Unsecured Loans
The TopCo Debtors have certain unsecured debt obligations, the terms of which are described below. Plan treatment for each of these obligations is also described below.
In April 2007, GGPLP sold $1.55 billion aggregate principal amount of 3.98% Exchangeable Notes. Interest on the Exchangeable Notes is payable semi-annually in arrears on April 15 and October 15 of each year, beginning October 15, 2007. The Exchangeable Notes will mature on April 15, 2027 unless previously redeemed by GGPLP, repurchased by GGPLP or exchanged in accordance with their terms prior to such date. Prior to April 15, 2012, we will not have the right to redeem the Exchangeable Notes, except to preserve our status as a REIT. On or after April 15, 2012, we may redeem for cash all or part of the Exchangeable Notes at any time, at 100% of the principal amount of the Exchangeable Notes, plus accrued and unpaid interest, if any, to the redemption date. On each of April 15, 2012, April 15, 2017 and April 15, 2022, holders of the Exchangeable Notes may require us to repurchase the Exchangeable Notes, in whole or in part, for cash equal to 100% of the principal amount of Exchangeable Notes to be repurchased, plus accrued and unpaid interest.
The Exchangeable Notes are exchangeable for GGP common stock or a combination of cash and common stock, at our option, upon the satisfaction of certain conditions, and any exchange currently is
F-132
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 4 MORTGAGES, NOTES AND LOANS PAYABLE (Continued)
stayed by our Chapter 11 Cases. The exchange rate for each $1,000 principal amount of the Exchangeable Notes is 11.45 shares of GGP common stock, which is subject to adjustment under certain circumstances. The Plan provides that the holders of the Exchangeable Notes will be reinstated unless they elect to be paid in full in cash at par plus accrued interest at the stated non-default rate. Pursuant to the Plan, all of the holders of the Exchangeable Notes have elected to be paid in full in cash at par plus accrued interest.
The 2006 Credit Facility provides for a $2.85 billion term loan (the "Term Loan") and a $650.0 million revolving credit facility. However, as of September 30, 2010, $1.99 billion of the Term Loan and $590.0 million of the revolving credit facility was outstanding under the 2006 Credit Facility and no further amounts were available to be drawn due to our Chapter 11 Cases. The 2006 Credit Facility had a scheduled maturity of February 24, 2010, although collection of such amount has been stayed by the Chapter 11 Cases. The interest rate, as of September 30, 2010, was LIBOR plus 1.25%. The Plan provides for payment in full of 2006 Credit Facility principal and accrued interest.
Concurrently with the 2006 Credit Facility transaction, GGP Capital Trust I, a Delaware statutory trust (the "Trust") and a wholly-owned subsidiary of GGPLP, completed a private placement of $200.0 million of trust preferred securities ("TRUPS"). The Trust also issued $6.2 million of Common Securities to GGPLP. The Trust used the proceeds from the sale of the TRUPS and Common Securities to purchase $206.2 million of floating rate Junior Subordinated Notes of GGPLP due 2036. Distributions on the TRUPS are equal to LIBOR plus 1.45%. Distributions are cumulative and accrue from the date of original issuance. The TRUPS mature on April 30, 2036, but may be redeemed beginning on April 30, 2011 if the Trust exercises its right to redeem a like amount of the Junior Subordinated Notes. The Junior Subordinated Notes bear interest at LIBOR plus 1.45%. Though the Trust is a wholly-owned subsidiary of GGPLP, we are not the primary beneficiary of the Trust and, accordingly, it is not consolidated for accounting purposes. As a result, we have recorded the Junior Subordinated Notes as Mortgages, Notes and Loans Payable and our common equity interest in the Trust as Prepaid Expenses and Other Assets in our Consolidated Balance Sheets at September 30, 2010 and December 31, 2009. The Plan provides for reinstatement of the TRUPS.
In conjunction with the TRC Merger, we assumed certain publicly-traded unsecured bonds with varying maturities. In addition, in May 2006 TRCLP sold $800.0 million of senior unsecured bonds which have a scheduled maturity of May 1, 2013. The balance of such bonds was $2.25 billion at September 30, 2010 and December 31, 2009. The Plan provides for repayment in full, including accrued interest of the $595.0 million of bonds that have matured as of the Effective Date. Of the remaining amount of unmatured debt, approximately $1.04 billion will be reinstated and $608.7 million will be exchanged for new 6.75% TRCLP bonds due 2015.
Debtor-in-Possession Facility
On May 14, 2009, the Bankruptcy Court issued an order authorizing certain of the Debtors to enter into a Senior Secured Debtor in Possession Credit, Security and Guaranty Agreement among the Company, as co-borrower, GGP Limited Partnership, as co-borrower, certain of their subsidiaries, as guarantors, UBS AG, Stamford Branch, as agent, and the lenders party thereto (the "DIP Facility").
The DIP Facility, which closed on May 15, 2009, provided for an aggregate commitment of $400.0 million (the "DIP Term Loan"), which was used to refinance the $215.0 million remaining balance on the short-term secured loan and the remainder of which has been used to provide
F-133
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 4 MORTGAGES, NOTES AND LOANS PAYABLE (Continued)
additional liquidity to the Debtors during the pendency of their Chapter 11 Cases. The DIP Facility provided that principal outstanding on the DIP Term Loan bear interest at an annual rate equal to LIBOR (subject to a minimum LIBOR floor of 1.5%) plus 12%.
Subject to certain conditions being present, the Company had the right to elect to repay all or a portion of the outstanding principal amount of the DIP Term Loan, plus accrued and unpaid interest thereon and all exit fees The DIP Credit Agreement contained customary non-financial covenants, representations and warranties, and events of default.
On June 22, 2010, the Bankruptcy Court issued an order authorizing certain of the Debtors to enter into a new Senior Secured Debtor in Possession Credit, Security and Guaranty Agreement among the Company, as co-borrower, GGP Limited Partnership, as co-borrower, certain of their subsidiaries, as guarantors, Barclays Capital, as the sole arranger, Barclay and Bank, PLC, as the Administrative Agent and Collateral Agent and the lenders party thereto (the "New DIP Facility").
The New DIP Facility, which closed on July 23, 2010, provides for an aggregate commitment of $400.0 million (the "New DIP Term Loan"), which was used to refinance the DIP Term Loan. The New DIP Facility provides that principal outstanding on the New DIP Term Loan bears interest at an annual rate equal to 5.5% and matures at the earlier of May 16, 2011 or the effective date of a plan of reorganization of the Remaining Debtors.
The New DIP Credit Agreement contains customary covenants, representations and warranties, and events of default. The Plan provides for the repayment of the New DIP Term Loan in full in cash, including accrued interest.
Letters of Credit and Surety Bonds
We had outstanding letters of credit and surety bonds of $93.3 million as of September 30, 2010 and $112.8 million as of December 31, 2009. These letters of credit and bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations.
NOTE 5 INCOME TAXES
We elected to be taxed as a REIT under sections 856-860 of the Internal Revenue Code, commencing with our taxable year beginning January 1, 1993. We currently intend to maintain our REIT status. To qualify as a REIT, we must meet a number of organizational and operational requirements, including requirements to distribute at least 90% of our ordinary taxable income and to either distribute capital gains to stockholders, or pay corporate income tax on the undistributed capital gains. In addition, we are required to meet certain asset and income tests. In December, 2009, we obtained Bankruptcy Court approval to distribute $0.19 per share to our stockholders (paid on January 28, 2010) to satisfy such REIT distribution requirements for 2009. The dividend was paid on January 28, 2010 in a combination of $6.0 million in cash and 4,923,287 shares of common stock (with a valuation of $10.8455 calculated based on the volume weighted average trading prices of GGP's common stock on January 20, 21 and 22, 2010).
We also have subsidiaries which we have elected to be treated as taxable real estate investment trust subsidiaries and which are therefore subject to federal and state income taxes.
F-134
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 5 INCOME TAXES (Continued)
Unrecognized tax benefits recorded pursuant to uncertain tax positions were $176.1 million and $107.6 million as of September 30, 2010 and December 31, 2009, respectively, excluding interest, of which $36.3 million as of September 30, 2010 and December 31, 2009, respectively, would impact our effective tax rate. Accrued interest related to these unrecognized tax benefits amounted to $42.4 million as of September 30, 2010 and $21.8 million as of December 31, 2009. We recognized an increase of interest expense related to the unrecognized tax benefits of $3.3 million for the three months ended September 30, 2010 and $20.6 million for the nine months ended September 30, 2010. We recognized a reduction of interest expense related to the unrecognized tax benefits of $3.9 million for the three months ended September 30, 2009 and $0.9 million for the nine months ended September 30, 2009.
We increased previously unrecognized tax benefits related to tax positions taken in prior years, excluding accrued interest, of $68.5 million for the nine months ended September 30, 2010, of which $66.3 million decreased our deferred tax liability and $2.2 million increased expense related to uncertain tax positions.
Generally, we are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending December 31, 2005 through 2009 and are open to audit by state taxing authorities for years ending December 31, 2004 through 2009.
Two of our taxable REIT subsidiaries are subject to IRS audit for the years ended December 31, 2007 and December 31, 2008, and in connection with such audits, the IRS has proposed changes resulting in $148.2 million of additional tax. We have disputed the proposed changes and it is the Company's position that the tax law in question has been properly applied and reflected in the 2007 and 2008 returns for these two taxable REIT subsidiaries. We rejected a settlement offer from the IRS and cannot predict when these audits will be resolved. We have previously provided for the additional taxes sought by the IRS, through our uncertain tax position liability or deferred tax liabilities. Although we believe our tax returns are correct, the final determination of tax examinations and any related litigation could be different than what was reported on the returns. In the opinion of management, we have made adequate tax provisions for the years subject to examination.
Based on our assessment of the expected outcome of these examinations or examinations that may commence, or as a result of the expiration of the statute of limitations for specific jurisdictions, we do not expect that the related unrecognized tax benefits, excluding accrued interest, for tax positions taken regarding previously filed tax returns will materially change from those recorded at September 30, 2010 during the next twelve months. A material change in unrecognized tax benefits could have a material effect on our statements of income and comprehensive income. As of September 30, 2010, there are not any unrecognized tax benefits, excluding accrued interest, which due to the reasons above, that we believe could significantly increase or decrease during the next twelve months.
There are certain tax attributes, such as net operating loss carry forwards, that may be limited in the event of an ownership change as defined under section 382 of the Internal Revenue Code. If an ownership change were to occur, there could be valuation allowances placed on deferred tax assets that do not have valuation allowances as of September 30, 2010.
F-135
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 6 STOCK-BASED COMPENSATION PLANS
Incentive Stock Plans
Prior to the Chapter 11 Cases, we granted qualified and non-qualified stock options and restricted stock grants to attract and retain officers and key employees through the General Growth Properties, Inc. 2003 Incentive Stock Plan (the "2003 Incentive Plan"). The 2003 Incentive Plan provides for the issuance of 9,000,000 shares, of which 5,873,359 shares (5,036,627 stock options and 836,732 restricted shares) have been granted as of September 30, 2010 (subject to certain customary adjustments to prevent dilution). Additionally, the Compensation Committee of the Board of Directors (the "Compensation Committee") grants employment inducement awards to senior executives on a discretionary basis, and in the fourth quarter of 2008 granted 1,800,000 stock options to two senior executives. In addition, during the three months ended March 31, 2010 the Compensation Committee granted 100,000 stock options to a senior executive under the 2003 Incentive Plan. Further, as a result of the stock dividend, the number of shares issuable upon exercise of all outstanding options was increased by 58,127 shares in January 2010. Stock options are granted by the Compensation Committee of the Board of Directors at an exercise price of not less than 100% of the Fair Value of our common stock on the date of grant. The other terms of these options were determined by the Compensation Committee.
The following tables summarize stock option activity for the 2003 Incentive Plan as of and for the nine months ended September 30, 2010 and 2009.
|
2010 | 2009 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Shares |
Weighted
Average Exercise Price |
Shares |
Weighted
Average Exercise Price |
|||||||||
Stock options outstanding at January 1, |
4,241,500 | $ | 31.63 | 4,730,000 | $ | 33.01 | |||||||
Granted |
100,000 | 16.75 | | | |||||||||
Stock dividend adjustment |
58,127 | 30.32 | | | |||||||||
Forfeited |
(55,870 | ) | 64.79 | (290,000 | ) | 54.66 | |||||||
Expired |
(929,840 | ) | 44.28 | (197,900 | ) | 30.84 | |||||||
Stock options outstanding at September 30, |
3,413,917 | $ | 26.67 | 4,242,100 | $ | 31.63 | |||||||
|
Stock Options Outstanding | Stock Options Exercisable | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Prices
|
Shares |
Weighted
Average Remaining Contractual Term (in years) |
Weighted
Average Exercise Price |
Shares |
Weighted
Average Remaining Contractual Term (in years) |
Weighted
Average Exercise Price |
||||||||||||||
$0 $ 6.5810 |
1,828,369 | 3.1 | $ | 3.67 | 1,828,369 | 3.1 | $ | 3.67 | ||||||||||||
$13.1621$19.7430 |
150,788 | 3.2 | 16.25 | 50,788 | 0.7 | 15.25 | ||||||||||||||
$39.4861$46.0670 |
25,394 | 0.2 | 45.91 | 25,394 | 0.2 | 45.91 | ||||||||||||||
$46.0671$52.6480 |
698,333 | 0.4 | 49.63 | 698,333 | 0.4 | 49.63 | ||||||||||||||
$59.2291$65.8100 |
711,033 | 1.2 | 64.79 | 633,511 | 1.2 | 64.79 | ||||||||||||||
Total |
3,413,917 | 2.1 | $ | 26.67 | 3,236,395 | 2.1 | $ | 26.06 | ||||||||||||
Intrinsic value (in thousands) |
$ | 21,812 | $ | 21,812 | ||||||||||||||||
F-136
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 6 STOCK-BASED COMPENSATION PLANS (Continued)
Stock options generally vest 20% at the time of the grants and in 20% annual increments thereafter. The intrinsic value of outstanding and exercisable stock options as of September 30, 2010 represents the excess of our closing stock price of $15.60 on that date over the weighted average exercise price multiplied by the applicable number of shares that may be acquired upon exercise of stock options, and is therefore not presented in the table above if the result is a negative value. The intrinsic value of exercised stock options represents the excess of our stock price, at the time the option was exercised, over the exercise price. No options were exercised for the three and nine month periods ended September 30, 2010. No options were exercised or granted during the nine months ended September 30, 2009. The total grant date Fair Value of the stock options granted during the nine months ended September 30, 2010 was $0.5 million.
Restricted Stock
Pursuant to the 2003 Incentive Plan, we make restricted stock grants to certain employees and non-employee directors. The vesting terms of these grants are specific to the individual grant. The vesting terms vary in that a portion of the shares vest either immediately or on the first anniversary and the remainder vest in equal annual amounts over the next two to five years. Participating employees must remain employed for vesting to occur (subject to certain exceptions in the case of retirement). Shares that do not vest are forfeited. Dividends are paid on stock subject to restrictions and are not returnable, even if the related stock does not ultimately vest.
The following table summarizes restricted stock activity for the respective grant years as of and for the nine months ended September 30, 2010 and 2009.
|
2010 | 2009 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Shares |
Weighted
Average Grant Date Fair Value |
Shares |
Weighted
Average Grant Date Fair Value |
||||||||||
Nonvested restricted stock grants outstanding as of January 1, |
275,433 | $ | 33.04 | 410,767 | $ | 41.29 | ||||||||
Granted |
90,000 | 15.14 | 70,000 | 2.10 | ||||||||||
Canceled |
(7,783 | ) | 35.57 | (68,383 | ) | 46.23 | ||||||||
Vested |
(150,246 | ) | 29.29 | (135,706 | ) | 35.38 | ||||||||
Nonvested restricted stock grants outstanding as of September 30, |
207,404 | $ | 27.90 | 276,678 | $ | 33.05 | ||||||||
The weighted average remaining contractual term (in years) of nonvested awards as of September 30, 2010 was 1.3 years.
The total Fair Value of restricted stock grants vested during the nine months ended September 30, 2010 was $2.1 million while the total Fair Value of restricted stock grants which vested during the nine months ended September 30, 2009 was $0.1 million.
Threshold-Vesting Stock Options
Under the 1998 Incentive Stock Plan (the "1998 Incentive Plan"), stock incentive awards to employees in the form of threshold-vesting stock options ("TSOs") have been granted. The exercise
F-137
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 6 STOCK-BASED COMPENSATION PLANS (Continued)
price of the TSO is the Current Market Price ("CMP") as defined in the 1998 Incentive Plan of our common stock on the date the TSO is granted. In order for the TSOs to vest, our common stock must achieve and sustain the applicable threshold price for at least 20 consecutive trading days at any time during the five years following the date of grant. Participating employees must remain employed until vesting occurs in order to exercise the options. The threshold price is determined by multiplying the CMP on the date of grant by an Estimated Annual Growth Rate (7%) and compounding the product over a five-year period. TSOs granted in 2004 and thereafter must be exercised within 30 days of the vesting date. TSOs granted prior to 2004, all of which have vested, have a term of up to 10 years. The 1998 Incentive Plan terminated according to its terms December 31, 2008. As of September 30, 2010, a total of 1,708,073 TSOs were outstanding for all grant years.
Other Required Disclosures
Historical data, such as the past performance of our common stock and the length of service by employees, is used to estimate expected life of the stock options, TSOs and our restricted stock and represents the period of time the options or grants are expected to be outstanding. During the nine months ended September 30, 2010, we granted awards from the 2003 Incentive Plan of which 100,000 stock options were granted to a senior executive, the number of shares issuable upon exercise of outstanding options was adjusted to reflect 58,127 additional shares and 90,000 restricted shares were issued to certain non-employee directors. No TSOs were granted during the nine months ended September 30, 2010. No stock options or TSOs were granted during the nine months ended September 30, 2009. The weighted average estimated values of options granted during 2010 were based on the following assumptions:
Risk-free interest rate |
1.55 | % | ||
Dividend yield |
4.50 | % | ||
Expected volatility |
50.82 | % | ||
Expected life (in years) |
3.0 |
Compensation expense related to the Incentive Stock Plans, TSOs and restricted stock was $2.6 million for the three months ended September 30, 2010, $9.7 million for the nine months ended September 30, 2010, $3.6 million for the three months ended September 30, 2009 and $9.6 million for the nine months ended September 30, 2009.
As of September 30, 2010, total compensation expense which had not yet been recognized related to nonvested options, TSOs and restricted stock grants was $6.8 million. The provisions of all of our Incentive Stock Plans provide for vesting of all such outstanding unvested restricted stock and options under certain conditions, with such conditions expected to occur on the Effective Date, pursuant to the Plan. Accordingly, all such previously unrecognized expense is expected to be recognized in 2010. Additionally, the Plan provides that all outstanding options to purchase our stock will be converted into vested options to purchase THHC common stock and New GGP common stock, with appropriate adjustments to the exercise price and the relative amounts of such options determined by the relative common stock trading prices of THHC and New GGP in the ten day period after the Effective Date.
F-138
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 6 STOCK-BASED COMPENSATION PLANS (Continued)
Effect of the Plan on Stock-Based Compensation Plans
On the Effective Date, all outstanding options and restricted stock will vest in full. Accordingly, holders of previously restricted stock will have the same treatment under the Plan as other holders of our common stock. In conjunction with consummation of the Plan, the Outstanding GGP Options will be converted into (i) an option to acquire the same number of shares of New GGP Common Stock and (ii) a separate option to acquire .0983 shares of THHC Common Stock for each existing option for one share of GGP Common Stock with an exercise price for each such New GGP option and THHC option based upon the relative market values post emergence.
Notwithstanding the foregoing, pursuant to the terms of GGP's 1998 Incentive Stock Plan, holders of any outstanding TSOs issued thereunder shall have the right to elect, within sixty days after the Effective Date, to surrender such option as of the Effective Date for a cash payment equal to the amount by which the highest reported sales price, regular way, of a share of New GGP Common Stock in any transaction reported on the NYSE Composite Tape during the sixty-day period ending on the Effective Date exceeds the exercise price per share under such option, multiplied by the number of shares of New GGP Common Stock under such option, as converted.
NOTE 7 OTHER ASSETS AND LIABILITIES
The following table summarizes the significant components of prepaid expenses and other assets.
|
September 30,
2010 |
December 31,
2009 |
|||||
---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||
Below-market ground leases (Note 2) |
$ | 237,268 | $ | 241,676 | |||
Security and escrow deposits |
159,694 | 99,685 | |||||
Prepaid expenses |
106,705 | 88,651 | |||||
Receivablesfinance leases and bonds |
85,796 | 119,506 | |||||
Real estate tax stabilization agreement (Note 2) |
68,664 | 71,607 | |||||
Special Improvement District receivable |
48,584 | 48,713 | |||||
Above-market tenant leases (Note 2) |
26,583 | 34,339 | |||||
Deferred tax, net of valuation allowances |
12,520 | 28,615 | |||||
Other |
15,753 | 21,955 | |||||
|
$ | 761,567 | $ | 754,747 | |||
F-139
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 7 OTHER ASSETS AND LIABILITIES (Continued)
The following table summarizes the significant components of accounts payable, accrued expenses and other liabilities.
|
September 30,
2010 |
December 31,
2009 |
|||||||
---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||||
Accrued interest* |
$ | 655,135 | $ | 366,398 | |||||
Accounts payable and accrued expenses |
382,141 | 434,912 | |||||||
Contingent purchase price liability |
230,000 | 68,378 | |||||||
Accrued payroll and other employee liabilities |
220,231 | 104,926 | |||||||
Uncertain tax position liability |
218,499 | 129,413 | |||||||
Accrued real estate taxes |
116,600 | 88,511 | |||||||
Deferred gains/income |
82,870 | 67,611 | |||||||
Below-market tenant leases (Note 2) |
51,133 | 63,290 | |||||||
Construction payable |
50,836 | 150,746 | |||||||
Conditional asset retirement obligation liability |
24,959 | 24,601 | |||||||
Tenant and other deposits |
23,723 | 23,250 | |||||||
Other |
166,216 | 212,860 | |||||||
Total accounts payable and accrued expenses |
2,222,343 | 1,734,896 | |||||||
Less: amounts subject to compromise (Note 1) |
(904,721 | ) | (612,008 | ) | |||||
Accounts payable and accrued expenses not subject to compromise |
$ | 1,317,622 | $ | 1,122,888 | |||||
NOTE 8 COMMITMENTS AND CONTINGENCIES
In the normal course of business, from time to time, we are involved in legal proceedings relating to the ownership and operations of our properties. In management's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on our consolidated financial position, results of operations or liquidity.
We lease land or buildings at certain properties from third parties. The leases generally provide us with a right of first refusal in the event of a proposed sale of the property by the landlord. Rental payments are expensed as incurred and have, to the extent applicable, been straight-lined over the term of the lease. Contractual rental expense, including participation rent, was $4.5 million for the three months ended September 30, 2010, $4.7 million for the three months ended September 30, 2009, $13.2 million for the nine months ended September 30, 2010, and $14.2 million for the nine months ended September 30, 2009. The same rent expense excluding amortization of above and below-market ground leases and straight-line rents, as presented in our consolidated financial statements, was $3.2 million for the three months ended September 30, 2010, $3.1 million for the three months ended September 30, 2009, $9.1 million for the nine months ended September 30, 2010, and $9.4 million for the nine months ended September 30, 2009.
F-140
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 8 COMMITMENTS AND CONTINGENCIES (Continued)
We have, in the past, periodically entered into contingent agreements for the acquisition of properties. Each acquisition subject to such agreements was subject to satisfactory completion of due diligence and, in the case of property acquired under development, completion of the project. In conjunction with the acquisition of The Grand Canal Shoppes in 2004, we entered into an agreement (the "Phase II Agreement") to acquire the multi-level retail space that is part of The Shoppes at The Palazzo in Las Vegas, Nevada (The "Phase II Acquisition") which is connected to the existing Venetian and the Sands Expo and Convention Center facilities and The Grand Canal Shoppes. The project opened on January 18, 2008. The acquisition closed on February 29, 2008 for an initial purchase price payment of $290.8 million, which was primarily funded with $250.0 million of new variable-rate short-term debt collateralized by the property and for Federal income tax purposes was used as replacement property in a like-kind exchange. The Phase II Agreement provides for additional purchase price payments based on net operating income, as defined, of the Phase II retail space. Such additional payments, if any, are to be made on the later of (i) during the 30 months after closing with the final payment being subject to re-adjustment 48 months after closing or (ii) as agreed by the parties. Although we have currently estimated that no additional consideration will be paid or exchanged pursuant to the Phase II Agreement and the final payment date has currently been extended to October 28, 2010 by agreement of the parties, the total final purchase price of the Phase II Acquisition could be different than the current estimate.
See Note 5 for our obligations related to uncertain tax positions for disclosure of additional contingencies.
Contingent Stock Agreement
In conjunction with GGP's acquisition of The Rouse Company ("TRC") in November 2004, GGP assumed TRC's obligations under the Contingent Stock Agreement, ("the "CSA"). TRC entered into the CSA in 1996 when it acquired The Hughes Corporation ("Hughes"). This acquisition included various assets, including Summerlin (the "CSA Assets"), a development in our Master Planned Communities segment. GGP's obligations to the former Hughes owners or their successors (the "Beneficiaries") under the CSA are subject to treatment in accordance with applicable requirements of the bankruptcy law and any plan of reorganization that may be confirmed by the Bankruptcy Court.
Under the terms of the CSA, GGP was required through August 2009 to issue shares of its common stock semi-annually (February and August) to the Beneficiaries with the number of shares to be issued in any period based on cash flows from the development and/or sale of the CSA Assets and GGP's stock price. The Beneficiaries' share of earnings from the CSA Assets has been accounted for in our consolidated financial statements as a land sales operations expense, with the difference between such share of operations and the share of cash flows paid remaining as a contingent obligation. During 2009, GGP was not obligated to deliver any shares of its common stock under the CSA as the net development and sales cash flows were negative for the applicable periods. During 2008, 356,661 shares of GGP common stock (from treasury shares) were delivered to the Beneficiaries pursuant to the CSA.
The Plan provides that the final payment and settlement of all other claims under the CSA will be a total of $230.0 million, and such amount will be distributed after the Effective Date. Accordingly, as of September 30, 2010, we adjusted the previous estimated liability in accounts payable and accrued expenses net of the accrued contingent obligation related to the share of previous earnings of the CSA
F-141
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 8 COMMITMENTS AND CONTINGENCIES (Continued)
assets, with such amount reflected as additional investment of $161.6 million in the CSA Assets which is included in investment property and property held for development and sale.
NOTE 9 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On June 12, 2009, the FASB issued new generally accepted accounting guidance that amends the consolidation guidance applicable to variable interest entities. The amendments significantly affect the overall consolidation analysis under previously issued guidance. The amendments to the consolidation guidance affect all entities and enterprises currently within the scope of the previous guidance and are effective on January 1, 2010. We have adopted this new pronouncement and it did not have a material impact on our consolidated financial statements.
NOTE 10 SEGMENTS
We have two business segments which offer different products and services. Our segments are managed separately because each requires different operating strategies or management expertise. We do not distinguish or group our consolidated operations on a geographic basis. Further, all material operations are within the United States and no customer or tenant comprises more than 10% of consolidated revenues. Our reportable segments are as follows:
The operating measure used to assess operating results for the business segments is Real Estate Property Net Operating Income ("NOI") which represents the operating revenues of the properties less property operating expenses, exclusive of depreciation and amortization and, with respect to our retail and other segment, provisions for impairment. Management believes that NOI provides useful information about a property's operating performance.
The accounting policies of the segments are the same as those of the Company, except that we report unconsolidated real estate ventures using the proportionate share method rather than the equity method. Under the proportionate share method, our share of the revenues and expenses of the Unconsolidated Properties are combined with the revenues and expenses of the Consolidated Properties. Under the equity method, our share of the net revenues and expenses of the Unconsolidated Properties are reported as a single line item, Equity in income of Unconsolidated Real Estate Affiliates, in our Consolidated Statements of Income and Comprehensive Income. This difference affects only the reported revenues and operating expenses of the segments and has no effect on our reported net earnings. In addition, other revenues are reduced by the NOI attributable to our noncontrolling interests in consolidated joint ventures.
The total expenditures for additions to long-lived assets for the Master Planned Communities segment were $53.5 million for the nine months ended September 30, 2010 and $46.8 million for the nine months ended September 30, 2009. The total expenditures for additions to long-lived assets for the Retail and Other segment were $204.6 million for the nine months ended September 30, 2010 and
F-142
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 10 SEGMENTS (Continued)
$158.2 million for the nine months ended September 30, 2009. Such amounts for the Master Planned Communities segment and the Retail and Other segment are included in the amounts listed as Land/residential development and acquisitions expenditures and Acquisition/development of real estate and property additions/improvements, respectively, in our Consolidated Statements of Cash Flows.
The total amount of goodwill, as presented on our Consolidated Balance Sheets, is included in our Retail and Other segment.
Segment operating results are as follows:
|
Three Months Ended September 30, 2010 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Consolidated
Properties |
Unconsolidated
Properties |
Segment
Basis |
||||||||||
|
(In thousands)
|
||||||||||||
Retail and Other |
|||||||||||||
Property revenues: |
|||||||||||||
Minimum rents |
$ | 487,433 | $ | 94,000 | $ | 581,433 | |||||||
Tenant recoveries |
217,906 | 38,364 | 256,270 | ||||||||||
Overage rents |
10,333 | 1,065 | 11,398 | ||||||||||
Other, including noncontrolling interests |
16,505 | 10,802 | 27,307 | ||||||||||
Total property revenues |
732,177 | 144,231 | 876,408 | ||||||||||
Property operating expenses: |
|||||||||||||
Real estate taxes |
71,339 | 11,047 | 82,386 | ||||||||||
Property maintenance costs |
27,176 | 4,840 | 32,016 | ||||||||||
Marketing |
9,043 | 2,009 | 11,052 | ||||||||||
Other property operating costs |
132,441 | 30,118 | 162,559 | ||||||||||
Provision for doubtful accounts |
5,628 | 938 | 6,566 | ||||||||||
Total property operating expenses |
245,627 | 48,952 | 294,579 | ||||||||||
Retail and other net operating income |
486,550 | 95,279 | 581,829 | ||||||||||
Master Planned Communities |
|||||||||||||
Land and condominium sales |
20,290 | 10,824 | 31,114 | ||||||||||
Land and condominium sales operations |
(19,770 | ) | (8,080 | ) | (27,850 | ) | |||||||
Master Planned Communities net operating income |
520 | 2,744 | 3,264 | ||||||||||
Real estate property net operating income |
$ | 487,070 | $ | 98,023 | $ | 585,093 | |||||||
F-143
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 10 SEGMENTS (Continued)
|
Three Months Ended September 30, 2009 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Consolidated Properties | Unconsolidated Properties | Segment Basis | ||||||||||
|
(In thousands)
|
||||||||||||
Retail and Other |
|||||||||||||
Property revenues: |
|||||||||||||
Minimum rents |
$ | 489,472 | $ | 94,264 | $ | 583,736 | |||||||
Tenant recoveries |
217,040 | 39,718 | 256,758 | ||||||||||
Overage rents |
10,408 | 1,442 | 11,850 | ||||||||||
Other, including noncontrolling interests |
17,125 | 12,172 | 29,297 | ||||||||||
Total property revenues |
734,045 | 147,596 | 881,641 | ||||||||||
Property operating expenses: |
|||||||||||||
Real estate taxes |
69,925 | 11,775 | 81,700 | ||||||||||
Property maintenance costs |
28,246 | 5,024 | 33,270 | ||||||||||
Marketing |
7,358 | 1,484 | 8,842 | ||||||||||
Other property operating costs |
136,235 | 31,278 | 167,513 | ||||||||||
Provision for doubtful accounts |
5,925 | 1,539 | 7,464 | ||||||||||
Total property operating expenses |
247,689 | 51,100 | 298,789 | ||||||||||
Retail and other net operating income |
486,356 | 96,496 | 582,852 | ||||||||||
Master Planned Communities |
|||||||||||||
Land and condominium sales |
7,409 | 7,800 | 15,209 | ||||||||||
Land and condominium sales operations |
(9,582 | ) | (8,647 | ) | (18,229 | ) | |||||||
Master Planned Communities net operating loss |
(2,173 | ) | (847 | ) | (3,020 | ) | |||||||
Real estate property net operating income |
$ | 484,183 | $ | 95,649 | $ | 579,832 | |||||||
F-144
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 10 SEGMENTS (Continued)
|
Nine Months Ended September 30, 2010 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Consolidated Properties | Unconsolidated Properties | Segment Basis | ||||||||||
|
|
(In thousands)
|
|
||||||||||
Retail and Other |
|||||||||||||
Property revenues: |
|||||||||||||
Minimum rents |
$ | 1,464,650 | $ | 288,606 | $ | 1,753,256 | |||||||
Tenant recoveries |
647,744 | 115,135 | 762,879 | ||||||||||
Overage rents |
28,126 | 3,251 | 31,377 | ||||||||||
Other, including noncontrolling interests |
53,055 | 33,143 | 86,198 | ||||||||||
Total property revenues |
2,193,575 | 440,135 | 2,633,710 | ||||||||||
Property operating expenses: |
|||||||||||||
Real estate taxes |
214,496 | 35,711 | 250,207 | ||||||||||
Property maintenance costs |
89,207 | 14,721 | 103,928 | ||||||||||
Marketing |
22,374 | 4,637 | 27,011 | ||||||||||
Other property operating costs |
387,713 | 87,198 | 474,911 | ||||||||||
Provision for doubtful accounts |
15,575 | 3,065 | 18,640 | ||||||||||
Total property operating expenses |
729,365 | 145,332 | 874,697 | ||||||||||
Retail and other net operating income |
1,464,210 | 294,803 | 1,759,013 | ||||||||||
Master Planned Communities |
|||||||||||||
Land and condominium sales |
85,325 | 36,796 | 122,121 | ||||||||||
Land and condominium sales operations |
(89,001 | ) | (26,821 | ) | (115,822 | ) | |||||||
Master Planned Communities net operating (loss) income |
(3,676 | ) | 9,975 | 6,299 | |||||||||
Real estate property net operating income |
$ | 1,460,534 | $ | 304,778 | $ | 1,765,312 | |||||||
F-145
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 10 SEGMENTS (Continued)
|
Nine Months Ended September 30, 2009 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Consolidated Properties | Unconsolidated Properties | Segment Basis | ||||||||||
|
|
(In thousands)
|
|
||||||||||
Retail and Other |
|||||||||||||
Property revenues: |
|||||||||||||
Minimum rents |
$ | 1,487,288 | $ | 288,698 | $ | 1,775,986 | |||||||
Tenant recoveries |
674,750 | 119,259 | 794,009 | ||||||||||
Overage rents |
26,214 | 3,632 | 29,846 | ||||||||||
Other, including minority interest |
48,733 | 37,813 | 86,546 | ||||||||||
Total property revenues |
2,236,985 | 449,402 | 2,686,387 | ||||||||||
Property operating expenses: |
|||||||||||||
Real estate taxes |
210,443 | 36,620 | 247,063 | ||||||||||
Property maintenance costs |
77,705 | 14,023 | 91,728 | ||||||||||
Marketing |
21,840 | 4,234 | 26,074 | ||||||||||
Other property operating costs |
394,413 | 95,768 | 490,181 | ||||||||||
Provision for doubtful accounts |
25,104 | 4,592 | 29,696 | ||||||||||
Total property operating expenses |
729,505 | 155,237 | 884,742 | ||||||||||
Retail and other net operating income |
1,507,480 | 294,165 | 1,801,645 | ||||||||||
Master Planned Communities |
|||||||||||||
Land and condominium sales |
38,844 | 26,320 | 65,164 | ||||||||||
Land and condominium sales operations |
(42,046 | ) | (22,148 | ) | (64,194 | ) | |||||||
Master Planned Communities net operating (loss) income before provision for impairment |
(3,202 | ) | 4,172 | 970 | |||||||||
Provision for impairment |
(108,691 | ) | | (108,691 | ) | ||||||||
Master Planned Communities net operating (loss) income |
(111,893 | ) | 4,172 | (107,721 | ) | ||||||||
Real estate property net operating income |
$ | 1,395,587 | $ | 298,337 | $ | 1,693,924 | |||||||
F-146
GENERAL GROWTH PROPERTIES, INC.
(Debtor-in-Possession) (Continued)
NOTE 10 SEGMENTS (Continued)
The following reconciles NOI to GAAP-basis operating income and loss from continuing operations:
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | 2010 | 2009 | ||||||||||
|
(In thousands)
|
|||||||||||||
Real estate property net operating income: |
||||||||||||||
Segment basis |
$ | 585,093 | $ | 579,832 | $ | 1,765,312 | $ | 1,693,924 | ||||||
Unconsolidated Properties |
(98,023 | ) | (95,649 | ) | (304,778 | ) | (298,337 | ) | ||||||
Consolidated Properties |
487,070 | 484,183 | 1,460,534 | 1,395,587 | ||||||||||
Management fees and other corporate revenues |
14,075 | 16,851 | 48,063 | 57,569 | ||||||||||
Property management and other costs |
(41,057 | ) | (44,876 | ) | (125,007 | ) | (130,485 | ) | ||||||
General and administrative |
(9,401 | ) | (8,324 | ) | (22,707 | ) | (22,436 | ) | ||||||
Strategic initiatives |
| (3,328 | ) | | (67,341 | ) | ||||||||
Provisions for impairment |
(4,620 | ) | (60,940 | ) | (35,893 | ) | (365,729 | ) | ||||||
Depreciation and amortization |
(175,336 | ) | (185,016 | ) | (527,956 | ) | (576,103 | ) | ||||||
Noncontrolling interest in NOI of Consolidated Properties and other |
3,150 | 2,656 | 9,282 | 8,298 | ||||||||||
Operating income |
273,881 | 201,206 | 806,316 | 299,360 | ||||||||||
Interest income |
274 | 523 | 1,087 | 1,754 | ||||||||||
Interest expense |
(413,237 | ) | (326,357 | ) | (1,050,241 | ) | (983,198 | ) | ||||||
(Provision for) benefit from income taxes |
(1,913 | ) | 14,430 | (19,797 | ) | 10,202 | ||||||||
Equity in income of Unconsolidated Real Estate Affiliates |
9,789 | 15,341 | 60,441 | 39,218 | ||||||||||
Reorganization items |
(102,517 | ) | (22,597 | ) | (93,216 | ) | (47,515 | ) | ||||||
Loss from continuing operations |
$ | (233,723 | ) | $ | (117,454 | ) | $ | (295,410 | ) | $ | (680,179 | ) | ||
The following reconciles segment revenues to GAAP-basis consolidated revenues:
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | 2010 | 2009 | |||||||||
|
(In thousands)
|
||||||||||||
Segment basis total property revenues |
$ | 876,408 | $ | 881,641 | $ | 2,633,710 | $ | 2,686,387 | |||||
Unconsolidated segment revenues |
(144,231 | ) | (147,596 | ) | (440,135 | ) | (449,402 | ) | |||||
Consolidated Land and condominium sales |
20,290 | 7,409 | 85,325 | 38,844 | |||||||||
Management fees and other corporate revenues |
14,075 | 16,851 | 48,063 | 57,569 | |||||||||
Noncontrolling interest in NOI of Consolidated Properties and other |
3,150 | 2,656 | 9,282 | 8,298 | |||||||||
GAAP-basis consolidated total revenues |
$ | 769,692 | $ | 760,961 | $ | 2,336,245 | $ | 2,341,696 | |||||
F-147
Shares
New GGP, Inc.
Common Stock
PROSPECTUS
, 2010
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses, other than underwriting commissions, expected to be incurred by New GGP (the "Registrant") in connection with the issuance and distribution of the securities being registered under this Registration Statement are estimated to be as follows:
Securities and Exchange Commission Registration Fee |
$ | 160,425 | ||
Financial Industry Regulatory Authority, Inc. Filing Fee |
75,500 | |||
NYSE Listing Fee |
* | |||
Printing and Engraving |
* | |||
Legal Fees and Expenses |
* | |||
Accounting Fees and Expenses |
* | |||
Blue Sky Fees and Expenses |
* | |||
Transfer Agent and Registrar Fees |
* | |||
Miscellaneous |
* | |||
Total |
* |
ITEM 32. SALES TO SPECIAL PARTIES.
In order to fund a portion of the Plan, Old GGP entered into the Brookfield Investor Agreement with Brookfield Investor, the Fairholme Agreement with Fairholme and the Pershing Square Agreement with Pershing Square, or together, the Investment Agreements. The Investment Agreements committed the Plan Sponsors to fund an aggregate of $6.55 billion, consisting of $6.3 billion of new equity capital at a value of $10.00 per share of New GGP and a $250 million equity capital commitment in the common stock of THHC at a value of $47.619048 per share. The Plan Sponsors entered into agreements with Blackstone whereby Blackstone subscribed for approximately 7.6% of the New GGP common stock and 7.6% of the THHC common stock to be issued to each of the Plan Sponsors on the Effective Date (for the same price to be paid by such Plan Sponsors) and, in connection therewith, Blackstone was entitled to receive an allocation of each Plan Sponsor's Permanent Warrants as described below (the "Blackstone Designation").
Pursuant to the Investment Agreements, Brookfield Investor invested approximately $2,309 million, Fairholme invested approximately $2,507 million, Pershing Square invested approximately $1,003 million and Blackstone invested approximately $481 million.
On October 11, 2010, New GGP gave a notice to the investors whereby New GGP preserved the right to repurchase within 45 days after the Effective Date up to 155 million shares (representing $1.55 billion of the shares issued to Fairholme and Pershing Square on the Effective Date) at $10.00 per share and up to approximately 24.4 million shares (representing $250.0 million of the shares issued to Texas Teachers on the Effective Date) at $10.25 per share with the proceeds of this offering. In order to be entitled to repurchase such shares, the price per share of common stock issued in this offering must be at least $10.50 per share (net of all underwriting and other discounts, fees and related consideration). In connection with New GGP's election to reserve shares for repurchase, New GGP paid to Fairholme and Pershing Square, as applicable, in cash on the Effective Date, an amount equal to $0.25 per reserved share (approximately $38.75 million in the aggregate). No fee was required to be paid to Texas Teachers.
In addition, in connection with the election to reserve Pershing Square's shares for repurchase as described above, 35 million shares (representing $350 million of Pershing Square's equity capital commitment) were designated as "put shares" in accordance with the Investment Agreement with Pershing Square. The payment for these 35 million shares was fulfilled on the Effective Date by the payment of cash to New GGP at closing in exchange for unsecured notes issued by New GGP to Pershing Square which will be payable six months from closing. The Pershing Square Bridge Notes are
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prepayable at any time without premium or penalty. One of the ways that New GGP may raise the cash to repay the Pershing Square Bridge Notes is to exercise its right to sell to Pershing up to 35 million shares at $10 per share (adjusted for dividends) six months following the Effective Date.
In addition, under the Investment Agreements, in lieu of the receipt of any fees that would be customary in similar transactions, the Investment Agreements provided for the issuance of interim warrants to Brookfield Investor and Fairholme to purchase approximately 103 million shares of Old GGP at $15.00 per share (the "Interim Warrants"), which occurred on May 10, 2010 following the Bankruptcy Court's approval of the Investment Agreements. The Interim Warrants vest as follows: 40% upon issuance, 20% on July 12, 2010, and the remaining Interim Warrants will vest in equal daily installments from July 13, 2010 to December 31, 2010, except that any Interim Warrants that have not vested on or prior to the termination of Brookfield Investor's or Fairholme's Investment Agreement, as the case may be, will not vest and will be cancelled. Upon consummation of the Plan contemplated by the Investment Agreements, the Interim Warrants were cancelled and warrants to purchase common stock of New GGP and THHC were issued to each of the Plan Sponsors and Blackstone. After giving effect to Blackstone Designation, in accordance with the Investment Agreements, New GGP issued to (a) Brookfield Investor warrants to purchase up to 57.5 million shares of New GGP common stock with an initial exercise price of $10.75 per share, (b) Fairholme warrants to purchase up to 41.07 million shares of New GGP common stock with an initial exercise price of $10.50 per share, (c) Pershing Square warrants to purchase up to 16.43 million shares of New GGP common stock with an initial exercise price of $10.50 per share and (d) Blackstone warrants to purchase up to 5.0 million shares of New GGP common stock with an initial exercise price of $10.50 per share with respect to one-half of the warrants and $10.75 per share with respect to the remaining one-half of the warrants. In addition, pursuant to the Plan and after giving effect to the Blackstone Designation, THHC issued to (1) Brookfield Investor warrants to purchase up to 3.83 million shares of THHC common stock, (2) Fairholme warrants to purchase up to 1.92 million shares of THHC common stock, (3) Pershing Investor warrants to purchase up to 1.92 million shares of THHC common stock and (4) Blackstone warrants to purchase up to 0.33 million shares of THHC common stock, in each case, with an initial exercise price of $50.00 per share. The above exercise prices are subject to adjustment as provided in the related warrant agreements. Each warrant has a term of seven years from the closing date of the investments. The Permanent Warrants held by each of Fairholme and Pershing Square may only be exercised upon 90 days notice. The Permanent Warrants held by each of Brookfield Investor and Blackstone are immediately exercisable, subject to any lockup restrictions.
Old GGP also entered into an investment agreement with Texas Teachers, pursuant to which Texas Teachers committed to fund $500.00 million for new equity capital of New GGP at a value of $10.25 per share. Old GGP intends to use the proceeds of the sale of the common stock offered hereby, for not less than $10.50 per share (net of all underwriting and other discounts, fees and related considerations), to repurchase up to 50% of the shares be sold to Texas Teachers (or approximately $250 million) for up to 45 days after the Effective Date at a price of $10.25 per share pursuant to the terms of the investment agreement. Texas Teachers is committed to make the investment until December 31, 2010, provided that this date may be extended in certain circumstances to January 31, 2011. Texas Teachers will receive customary piggyback registration rights pursuant to a registration rights agreement.
In October 2010, New GGP entered into an employment agreement with Mr. Sandeep Mathrani, pursuant to which Mr. Mathrani agreed to serve as the Chief Executive Officer of New GGP commencing on January 17, 2011. In connection with entering into this employment agreement, New GGP agreed to grant to Mr. Mathrani, among other things, 1,500,000 shares of restricted stock on the Effective Date vesting over three years and granted as of the date of the employment agreement options to acquire 2,000,000 shares of New GGP common stock at an exercise price of $10.25 per share, in each case in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act.
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ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
On May 10, 2010, pursuant to the investment agreements with Brookfield Investor and Fairholme, Old GGP entered into the Warrant and Registration Rights Agreement with Mellon Investor Services LLC as warrant agent (the "Warrant Agreement"), pursuant to which GGP issued 60,000,000 Warrants to Brookfield Investor and 42,857,143 warrants to Fairholme in connection with each of their investments.
Each warrant entitles the holder thereof to purchase one share of Common Stock at an initial exercise price of $15 per share, subject to adjustment as provided in the Warrant Agreement. 40% of the warrants vested upon issuance, 20% of the warrants will vest on July 12, 2010, and the remaining warrants will vest in equal daily installments from July 13, 2010 to December 31, 2010, except that any Investor's warrants that have not vested on or prior to termination of such Investor's Investment Agreement will not vest and will be cancelled. The warrants will expire on May 10, 2017. The warrants were issued to Brookfield Investor and Fairholme in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act.
In addition, in connection with the election to reserve Pershing Square's shares for repurchase as described above, 35 million shares (representing $350 million of Pershing Square's equity capital commitment) were designated as "put shares" in accordance with the Investment Agreement with Pershing Square. The payment for these 35 million shares was fulfilled on the Effective Date by the payment of cash to New GGP at closing in exchange for the Pershing Square Bridge Notes which will be payable six months from closing. The Pershing Square Bridge Notes are prepayable at any time without premium or penalty. One of the ways that New GGP may raise the cash to repay the Pershing Square Bridge Notes is to exercise its right to sell to Pershing up to 35 million shares at $10 per share (adjusted for dividends) six months following the Effective Date. The Pershing Square Bridge Notes were issued to Pershing Square in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act.
In October 2010, New GGP entered into an employment agreement with Mr. Sandeep Mathrani, pursuant to which Mr. Mathrani agreed to serve as the Chief Executive Officer of New GGP commencing on January 17, 2011. In connection with entering into this employment agreement, New GGP agreed to grant to Mr. Mathrani, among other things, 1,500,000 shares of restricted stock on the Effective Date vesting over three years and granted as of the date of the employment agreement options to acquire 2,000,000 shares of New GGP common stock at an exercise price of $10.25 per share, in each case in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act.
The information set forth in Item 32 Sales to Special Parties is incorporated by reference herein.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, or DGCL, provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees)), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he 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 his conduct was unlawful. Section 145 further provides that a corporation similarly may indemnify any such person serving in any such capacity who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a
II-3
director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney's fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or such other court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper.
Each of the Registrant's Bylaws authorize the indemnification of their officers and directors, consistent with Section 145 of the DGCL. Old GGP has entered and New GGP intends to enter into indemnification agreements with each of its directors and executive officers. These agreements, among other things, require the Registrant to indemnify each director and executive officer to the fullest extent permitted by Delaware law, including indemnification of expenses such as attorneys' fees, judgments, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action or proceeding by or in right of us, arising out of the person's services as a director or executive officer.
Reference is made to Section 102(b)(7) of the DGCL, which enables a corporation in its original certificate of incorporation or an amendment thereto to eliminate or limit the personal liability of a director for violations of the director's fiduciary duty, except (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL, which provides for liability of directors for unlawful payments of dividends of unlawful stock purchase or redemptions or (iv) for any transaction from which a director derived an improper personal benefit.
Reference is also made to Section 145 of the DGCL, which provides that a corporation may indemnify any person, including an officer or director, who is, or is threatened to be made, party to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of such corporation, by reason of the fact that such person was an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such officer, director, employee or agent acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the corporation's best interest and, for criminal proceedings, had no reasonable cause to believe that his conduct was unlawful. A Delaware corporation may indemnify any officer or director in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses that such officer or director actually and reasonably incurred.
Old GGP maintains and New GGP expects to maintain standard policies of insurance that provide coverage (i) to its directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act and (ii) to Old GGP and New GGP, respectively, with respect to indemnification payments that each may make to such directors and officers.
The proposed form of Underwriting Agreement to be filed as Exhibit 1.1 to this registration statement provides for indemnification to the Registrant's directors and officers by the underwriters against certain liabilities.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
II-4
ITEM 36. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
|
Exhibit
Number |
Description of Exhibits | |||
---|---|---|---|---|---|
1.1* | Form of Underwriting Agreement. | ||||
2.1 | Third Amended Plan of Reorganization, as modified, filed with the United States Bankruptcy Court for the Southern District of New York on October 21, 2010 (previously filed as Exhibit 2.1 to General Growth Properties, Inc.'s ("Old GGP") Current Report on Form 8-K dated October 21, 2010 which was filed with the SEC on October 26, 2010). | ||||
3.1+ | Certificate of Incorporation of New GGP, Inc., dated July 1, 2010. | ||||
3.2+ | Amended Certificate of Incorporation of New GGP, Inc., dated October 27, 2010. | ||||
3.3+ | Form of Amended and Restated Certificate of Incorporation of New GGP, Inc. | ||||
3.4* | Form of Amended and Restated Certificate of Incorporation of Old GGP. | ||||
3.5+ | Form of Amended and Restated Bylaws of New GGP, Inc. | ||||
3.6* | Form of Amended and Restated Bylaws of Old GGP. | ||||
3.7 | Certificate of Designations, Preferences and Rights of Increasing Rate Cumulative Preferred Stock, Series I filed with the Delaware Secretary of State on February 26, 2007 (previously filed as Exhibit 3.3 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2006, which was previously filed with the SEC on March 1, 2007). | ||||
4.1 | Rights Agreement dated July 27, 1993, between Old GGP and certain other parties named therein (previously filed as Exhibit 4.2 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
4.2 | Amendment to Rights Agreement dated as of February 1, 2000, between Old GGP and certain other parties named therein (previously filed as Exhibit 4.3 to Old GGP's Registration Statement on Form 8-A12B which was filed with the SEC on March 3, 2010). | ||||
4.3 | Redemption Rights Agreement dated June 19, 1997, among the Operating Partnership, Old GGP, and CA Southlake Investors, Ltd. (previously filed as Exhibit 4.6 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
4.4 | Redemption Rights Agreement dated October 23, 1997, among Old GGP, the Operating Partnership and Peter Leibowits (previously filed as Exhibit 4.7 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
4.5 | Redemption Rights Agreement dated April 2, 1998, among the Operating Partnership, Old GGP and Southwest Properties Venture (previously filed as Exhibit 4.8 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
4.6 | Redemption Rights Agreement dated July 21, 1998, among the Operating Partnership, Old GGP, Nashland Associates, and HRE Altamonte, Inc. (previously filed as Exhibit 4.9 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). |
II-5
|
Exhibit
Number |
Description of Exhibits | |||
---|---|---|---|---|---|
4.7 | Redemption Rights Agreement dated October 21, 1998, among the Operating Partnership, Old GGP and the persons on the signature pages thereof (previously filed as Exhibit 4.10 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
4.8 | Redemption Rights Agreement (Common Units) dated July 10, 2002, by and among the Operating Partnership, Old GGP and the persons listed on the signature pages thereof (previously filed as Exhibit 4.11 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2007 which was filed with the SEC on February 27, 2008). | ||||
4.9 | Redemption Rights Agreement (Series B Preferred Units) dated July 10, 2002, by and among the Operating Partnership, Old GGP and the persons listed on the signature pages thereof (previously filed as Exhibit 4.12 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2007 which was filed with the SEC on February 27, 2008). | ||||
4.10 | Redemption Rights Agreement (Common Units) dated November 27, 2002, by and among the Operating Partnership, Old GGP and JSG, LLC (previously filed as Exhibit 4.13 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2008 which was filed with the SEC on February 27, 2009). | ||||
4.11 | Redemption Rights Agreement dated December 11, 2003, by and among the Operating Partnership, Old GGP and Everitt Enterprises, Inc. (previously filed as Exhibit 4.14 to Old GGP's Annual Report on Form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). | ||||
4.12 | Redemption Rights Agreement dated March 5, 2004, by and among the Operating Partnership, Old GGP and Koury Corporation (previously filed as Exhibit 4.15 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2007 which was filed with the SEC on February 27, 2008). | ||||
4.13 | Registration Rights Agreement dated April 15, 1993, between Old GGP, Martin Bucksbaum, Matthew Bucksbaum and the other parties named therein (previously filed as Exhibit 4.16 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2007 which was filed with the SEC on February 27, 2008). | ||||
4.14 | Amendment to Registration Rights Agreement dated February 1, 2000, among Old GGP and certain other parties named therein (previously filed as Exhibit 4.17 to Old GGP's Annual Report on Form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). | ||||
4.15 | Registration Rights Agreement dated April 17, 2002, between Old GGP and GSEP 2002 Realty Corp (previously filed as Exhibit 4.18 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2007 which was filed with the SEC on February 27, 2008). | ||||
4.16 | The Rouse Company and The First National Bank of Chicago (Trustee) Indenture dated as of February 24, 1995 (previously filed as Exhibit 4.24 to Old GGP's Annual Report on Form 10-K/A for the year ended December 31, 2010 which was filed with the SEC on April 30, 2010). | ||||
4.17 | The Rouse Company LP, TRC Co-Issuer, Inc. and The Bank of New York Mellon Corporation (Trustee) Indenture dated May 5, 2006 (previously filed as Exhibit 4.24 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2006 which was filed with the SEC on March 1, 2007). | ||||
4.18* | Form of Indenture between The Rouse Company LLC and Wilmington Trust FSB, as trustee. | ||||
5.1+ | Opinion of Weil, Gotshal & Manages LLP, dated November 2, 2010. |
II-6
|
Exhibit
Number |
Description of Exhibits | |||
---|---|---|---|---|---|
8.1* | Opinion re tax matters of Arnold & Porter LLP, dated . | ||||
10.1+ | Form of Amended and Restated Agreement of Limited Partnership of the Operating Partnership. | ||||
10.2+ | Form of Amended and Restated Operating Agreement of GGPLP L.L.C. | ||||
10.3 | Operating Agreement dated November 10, 1999, between the Operating Partnership, NYSCRF, and GGP/Homart II L.L.C. (previously filed as Exhibit 10.20 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
10.4 | Amendment to the Operating Agreement of GGP/Homart II L.L.C. dated November 22, 2002 (previously filed as Exhibit 10.21 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
10.5 | Letter Amendment to the Operating Agreement of GGP/Homart II L.L.C. dated January 31, 2003 (previously filed as Exhibit 10.22 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
10.6 | Second Amendment to the Operating Agreement of GGP/Homart II L.L.C. dated January 31, 2003 (previously filed as Exhibit 10.23 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
10.7 | Third Amendment to the Operating Agreement of GGP/Homart II L.L.C. dated February 8, 2008 (previously filed as Exhibit 10.25 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2007 which was filed with the SEC on February 27, 2008). | ||||
10.8 | Amended and Restated Operating Agreement of GGP-TRS L.L.C. dated August 26, 2002, between the Operating Partnership, Teachers' Retirement System of the State of Illinois and GGP-TRS L.L.C. (previously filed as Exhibit 10.24 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
10.9 | First Amendment to Amended and Restated Operating Agreement of GGP-TRS L.L.C. dated December 19, 2002 (previously filed as Exhibit 10.25 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
10.10 | Second Amendment to Amended and Restated Operating Agreement of GGP-TRS L.L.C. dated November 1, 2005 (previously filed as Exhibit 10.26 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
10.11* | Summary of Non-Employee Director Compensation Program. | ||||
10.12 | Contingent Stock Agreement, effective January 1, 1996, by The Rouse Company and in favor of and for the benefit of the Holders and the Representatives (as defined therein) (previously filed as Exhibit 10.30 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2007 which was filed with the SEC on February 27, 2008). | ||||
10.13 | Assumption Agreement dated October 19, 2004 by Old GGP and The Rouse Company in favor of and for the benefit of the Holders and the Representatives (as defined therein) (previously filed as Exhibit 99.2 to Old GGP's Registration Statement on Form S-3/A (No. 333-120373) which was filed with the SEC on December 23, 2004). |
II-7
|
Exhibit
Number |
Description of Exhibits | |||
---|---|---|---|---|---|
10.14 | Indemnity Agreement dated as of February 2006 by the Company and The Rouse Company, LP. (previously filed as Exhibit 10.1 to Old GGP's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006 which was filed with the SEC on May 10, 2006). | ||||
10.15 | Old GGP 1998 Incentive Stock Plan, as amended (previously filed as Exhibit 10.33 to Old GGP's Annual Report on Form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). | ||||
10.16 | Amendment dated November 9, 2006 and effective January 1, 2007 to Old GGP 1998 Incentive Stock Plan (previously filed as Exhibit 10.1 to Old GGP's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 which was filed with the SEC on November 8, 2006). | ||||
10.17 | Form of Option Agreement pursuant to 1998 Incentive Stock Plan (previously filed as Exhibit 10.35 to Old GGP's Annual Report on Form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). | ||||
10.18 | Old GGP Second Amended and Restated 2003 Incentive Stock Plan, effective December 18, 2008 (previously filed as Exhibit 10.36 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2008 which was filed with the SEC on February 27, 2009). | ||||
10.19 | Amendment to Old GGP's Second Amended and Restated 2003 Incentive Stock Plan, effective March 1, 2010 (previously filed as exhibit 10.37 to Old GGP's Annual Report on Form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). | ||||
10.20 | Form of Option Agreement pursuant to 2003 Incentive Stock Plan (previously filed as Exhibit 10.38 to Old GGP's Annual Report on Form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2009). | ||||
10.21 | Form of Employee Restricted Stock Agreement pursuant to the 2003 Incentive Stock Plan (previously filed as Exhibit 10.2 to Old GGP's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006 which was filed with the SEC on August 9, 2006). | ||||
10.22 | Form of Non-Employee Director Restricted Stock Agreement pursuant to the 2003 Incentive Stock Plan (previously filed as Exhibit 10.40 to Old GGP's Annual Report on Form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). | ||||
10.23 | Form of Restricted Stock Agreement pursuant to the Old GGP 2003 Incentive Stock Plan, as amended (previously filed as Exhibit 10.1 to Old GGP's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008 which was filed with the SEC on May 8, 2008). | ||||
10.24 | General Growth Properties, Inc. 2010 Equity Incentive Plan (previously filed as Exhibit 4.1 to Old GGP's Current Report on Form 8-K dated October 27, 2010 which was filed with the SEC on October 29, 2010). | ||||
10.25* | Form of Option Agreement pursuant to 2010 Equity Incentive Plan. | ||||
10.26 | Employment Agreement dated as of November 2, 2008 by and among Old GGP, GGP Limited Partnership and Adam S. Metz (previously filed as Exhibit 10.1 to Old GGP's Current Report on Form 8-K dated November 2, 2008 which was filed with the SEC on November 4, 2008). | ||||
10.27 | Employment Agreement dated as of November 2, 2008 by and among Old GGP, GGP Limited Partnership and Thomas H. Nolan, Jr. (previously filed as Exhibit 10.2 to Old GGP's Current Report on Form 8-K dated November 2, 2008 which was filed with the SEC on November 4, 2008). |
II-8
|
Exhibit
Number |
Description of Exhibits | |||
---|---|---|---|---|---|
10.28 | Amendment to Employment Agreement, dated as of March 6, 2009 by and among Old GGP, GGP Limited Partnership and Adam S. Metz (previously filed as Exhibit 10.1 to Old GGP's Current Report on Form 8-K dated March 6, 2009 which was filed with the SEC on March 10, 2009). | ||||
10.29 | Amendment to Employment Agreement, dated as of March 6, 2009 by and among Old GGP, GGP Limited Partnership and Thomas H. Nolan, Jr. (previously filed as Exhibit 10.1 to Old GGP's Current Report on Form 8-K dated March 6, 2009 which was filed with the SEC on March 10, 2009). | ||||
10.30 | Employment Agreement dated September 8, 2010 by and among Old GGP, GGP Limited Partnership and Adman S. Metz (previously filed as Exhibit 10.1 to Old GGP's Current Report on Form 8-K dated September 8, 2010 which was filed with the SEC on September 10, 2010). | ||||
10.31 | Employment Agreement dated September 8, 2010 by and among Old GGP, GGP Limited Partnership and Thomas H. Nolan (previously filed as Exhibit 10.2 to Old GGP's Current Report on Form 8-K dated September 8, 2010 which was filed with the SEC on September 10, 2010). | ||||
10.32 | Employment Agreement, dated October 27, 2010, by and between New GGP and Sandeep Mathrani (previously filed as Exhibit 10.1 to Old GGP's Current Report on Form 8-K dated October 27, 2010 which was filed with the SEC on October 29, 2010). | ||||
10.33 | Non-Qualified Stock Option Agreement dated as of November 3, 2008 by and between Old GGP and Adam S. Metz (previously filed as Exhibit 10.3 to Old GGP's Current Report on Form 8-K dated November 2, 2008 which was filed with the SEC on November 4, 2008). | ||||
10.34 | Non-Qualified Option Agreement dated as of November 3, 2008 by and between Old GGP and Thomas H. Nolan, Jr. (previously filed as Exhibit 10.4 to Old GGP's Current Report on Form 8-K dated November 2, 2008 which was filed with the SEC on November 4, 2008). | ||||
10.35 | Nonqualified Stock Option Award Agreement, dated October 27, 2010, by and between New GGP and Sandeep Mathrani (previously filed as Exhibit 10.2 to Old GGP's Current Report on Form 8-K dated October 27, 2010 which was filed with the SEC on October 29, 2010). | ||||
10.36 | Old GGP Key Employee Incentive Plan dated October 2, 2009 and effective October 15, 2009 (previously filed as Exhibit 10.47 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2009 which was filed with the SEC on March 1, 2010). | ||||
10.37 | Old GGP Cash Value Added Incentive Compensation plan dated June 9, 1999 (previously filed as Exhibit 10.51 to Old GGP's Annual Report on form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). | ||||
10.38 | Amendment to Old GGP Cash Value Added Incentive Compensation plan, effective January 1, 2007 (previously filed as Exhibit 10.52 to Old GGP's Annual Report on form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). | ||||
10.39 | 2009 and 2010 Subplan to Old GGP Cash Value Added Incentive Compensation plan (previously filed as Exhibit 10.53 to Old GGP's Annual Report on form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). |
II-9
|
Exhibit
Number |
Description of Exhibits | |||
---|---|---|---|---|---|
10.40 | Amended and Restated Cornerstone Investment Agreement, effective as of March 31, 2010, between REP Investments LLC (as predecessor to Brookfield Retail Holdings LLC), an affiliate of Brookfield Asset Management Inc. and Old GGP (previously filed as Exhibit 10.1 to Old GGP's Current Report on Form 8-K dated August 2, 2010 which was filed with the SEC on August 3, 2010). | ||||
10.41 | Amended and Restated Stock Purchase Agreement, effective as of March 31, 2010, between The Fairholme Fund, Fairholme Focused Income Fund and Old GGP (previously filed as Exhibit 10.3 to Old GGP's Current Report on Form 8-K dated August 2, 2010 which was filed with the SEC on August 3, 2010). | ||||
10.42 | Amendment No. 1 to Amended and Restated Stock Purchase Agreement, dated as of September 17, 2010, between The Fairholme Fund, Fairholme Focused Income Fund and Old GGP (previously filed as part of Exhibit 99.1 to Old GGP's Current Report on Form 8-K dated September 30, 2010 which was filed with the SEC on October 1, 2010). | ||||
10.43 | Amended and Restated Stock Purchase Agreement, effective as of March 31, 2010, between Pershing Square Capital Management, L.P. on behalf of Pershing Square, L.P., Pershing Square II, L.P., Pershing Square International, Ltd. and Pershing Square International V, Ltd. and Old GGP (previously filed as Exhibit 10.2 to Old GGP's Current Report on Form 8-K dated August 2, 2010 which was filed with the SEC on August 3, 2010). | ||||
10.44 | Amendment No. 1 to Amended and Restated Stock Purchase Agreement, dated as of September 17, 2010, between Pershing Square Capital Management, L.P., certain of its affiliates and Old GGP (previously filed as part of Exhibit 99.1 to Old GGP's Current Report on Form 8-K dated September 30, 2010 which was filed with the SEC on October 1, 2010). | ||||
10.45 | Warrant and Registration Rights Agreement, dated as of May 10, 2010, between Old GGP and Mellon Investor Services LLC (previously filed as Exhibit 10.4 to Old GGP's Current Report on Form 8-K dated May 7, 2010 which was filed with the SEC on May 13, 2010). | ||||
10.46* | Form of Registration Rights Agreement between REP Investments LLC and New GGP, Inc. | ||||
10.47* | Form of Registration Rights Agreement between The Fairholme Fund, Fairholme Focused Income Fund and New GGP, Inc. | ||||
10.48* | Form of Registration Rights Agreement between Blackstone Real Estate Partners VI L.P., and New GGP, Inc. | ||||
10.49* | Form of Registration Rights Agreement between Teacher Retirement System of Texas and New GGP, Inc. | ||||
10.50* | Form of Warrant Agreement between New GGP, Inc. and Mellon Investor Services LLC, relating to the warrants issued to REP Investments LLC., The Fairholme Fund, Fairholme Focused Income Fund, Pershing Square Capital Management, L.P., Pershing Square II, L.P., Pershing Square International, Ltd., Pershing Square International V, Ltd. and Blackstone Real Estate Partners VI L.P. | ||||
10.51* | Form of Relationship Agreement between Brookfield Asset Management Inc. and General Growth Properties, Inc. | ||||
10.52 | Stock Purchase Agreement, dated as of July 8, 2010, between Teacher Retirement System of Texas and General Growth Properties, Inc. (previously filed as Exhibit 10.1 to Old GGP's Current Report on Form 8-K which was filed with the SEC on July 13, 2010). | ||||
10.53+ | Form of indemnification agreement for directors and executive officers. | ||||
10.54* | Form of Standstill Agreement between REP Investments LLC and New GGP. |
II-10
|
Exhibit
Number |
Description of Exhibits | |||
---|---|---|---|---|---|
10.55* | Form of Standstill Agreement between The Fairholme Fund and Fairholme Focused Income Fund and New GGP. | ||||
10.56* | Form of Standstill Agreement between Pershing Square II, L.P., Pershing Square International, Ltd. and Pershing Square International V, Ltd. and New GGP. | ||||
10.57+ | Form of Separation Agreement between The Howard Hughes Corporation and General Growth Properties, Inc. | ||||
10.58+ | Form of Transition Services Agreement between The Howard Hughes Corporation and General Growth Properties, Inc. | ||||
10.59+ | Form of Tax Matters Agreement between The Howard Hughes Corporation and General Growth Properties, Inc. | ||||
10.60* | Revolving credit facility agreement, dated as of , among Deutsche Bank Trust Company Americas, as administrative agent and collateral agent, various lenders, and Deutsche Bank Securities Inc., Wells Fargo Securities, LLC and RBC Capital Markets Corporation as Joint Lead Arrangers and New GGP. | ||||
11.1+ | Statement regarding computation of per share earnings (incorporated by reference to the Notes to the Selected Historical Consolidated Financial Statements included in Part I of this Registration Statement). | ||||
21.1* | List of Subsidiaries of New GGP, Inc. | ||||
23.1+ | Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm, relating to Old GGP. | ||||
23.2+ | Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm, relating to New GGP, Inc. | ||||
23.3+ | Consent of KPMG LLP, Independent Registered Public Accounting Firm, relating to GGP/Homart II, L.L.C. | ||||
23.4+ | Consent of KPMG LLP, Independent Registered Public Accounting Firm, relating to GGP-TRS L.L.C. | ||||
23.5+ | Consent of Weil, Gotshal & Manages LLP (included in the opinion filed as Exhibit 5.1 hereto). | ||||
23.6* | Consent of Arnold & Porter LLP (included in the opinion filed as Exhibit 8.2 hereto). | ||||
24.1+ | Power of Attorney (included on signature page). | ||||
99.1** | Consent of Ric Clark. | ||||
99.2** | Consent of Bruce Flatt. | ||||
99.3** | Consent of Mary Lou Fiala. | ||||
99.4** | Consent of John Haley. | ||||
99.5** | Consent of David Neithercut. |
II-11
The undersigned registrants hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act") may be permitted to directors, officers and controlling persons of each of the registrants pursuant to the provisions referenced in Item 34 of this registration statement, or otherwise, each of the registrants has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities 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 hereunder, the registrants 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 of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
II-12
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-11 and has duly caused this Amendment No. 3 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago, State of Illinois, on November 2, 2010.
NEW GGP, INC. | ||||
|
|
By: |
|
/s/ Adam Metz Name: Adam Metz Title: Chief Executive Officer and Director |
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned constitutes and appoints each of Steven Douglas and Edmund Hoyt, or either of them, each acting alone, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for such person and in his name, place and stead, in any and all capacities, to sign this Registration Statement on Form S-11 (including all pre-effective and post-effective amendments and registration statements filed pursuant to Rule 462 under the Securities Act of 1933), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that any such attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
II-13
Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 3 to the registration statement has been signed by the following persons in the capacities and on November 2, 2010.
Signature
|
Title
|
|
---|---|---|
|
|
|
/s/ Adam Metz
Adam Metz |
Chief Executive Officer and Director
(Principal Executive Officer) |
|
/s/ Steven Douglas Steven Douglas |
|
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
/s/ Thomas Nolan, Jr. Thomas Nolan, Jr. |
|
Director, President and Chief Operating Officer |
/s/ Cyrus Madon Cyrus Madon |
|
Director |
/s/ Sheli Rosenberg Sheli Rosenberg |
|
Director |
/s/ John G. Schreiber John G. Schreiber |
|
Director |
II-14
|
Exhibit
Number |
Description of Exhibits | |||
---|---|---|---|---|---|
1.1* | Form of Underwriting Agreement. | ||||
2.1 | Third Amended Plan of Reorganization, as modified, filed with the United States Bankruptcy Court for the Southern District of New York on October 21, 2010 (previously filed as Exhibit 2.1 to General Growth Properties, Inc.'s ("Old GGP") Current Report on Form 8-K dated October 21, 2010 which was filed with the SEC on October 26, 2010). | ||||
3.1+ | Certificate of Incorporation of New GGP, Inc., dated July 1, 2010. | ||||
3.2+ | Amended Certificate of Incorporation of New GGP, Inc., dated October 27, 2010. | ||||
3.3+ | Form of Amended and Restated Certificate of Incorporation of New GGP, Inc. | ||||
3.4* | Form of Amended and Restated Certificate of Incorporation of Old GGP. | ||||
3.5+ | Form of Amended and Restated Bylaws of New GGP, Inc. | ||||
3.6* | Form of Amended and Restated Bylaws of Old GGP. | ||||
3.7 | Certificate of Designations, Preferences and Rights of Increasing Rate Cumulative Preferred Stock, Series I filed with the Delaware Secretary of State on February 26, 2007 (previously filed as Exhibit 3.3 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2006, which was previously filed with the SEC on March 1, 2007). | ||||
4.1 | Rights Agreement dated July 27, 1993, between Old GGP and certain other parties named therein (previously filed as Exhibit 4.2 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
4.2 | Amendment to Rights Agreement dated as of February 1, 2000, between Old GGP and certain other parties named therein (previously filed as Exhibit 4.3 to Old GGP's Registration Statement on Form 8-A12B which was filed with the SEC on March 3, 2010). | ||||
4.3 | Redemption Rights Agreement dated June 19, 1997, among the Operating Partnership, Old GGP, and CA Southlake Investors, Ltd. (previously filed as Exhibit 4.6 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
4.4 | Redemption Rights Agreement dated October 23, 1997, among Old GGP, the Operating Partnership and Peter Leibowits (previously filed as Exhibit 4.7 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
4.5 | Redemption Rights Agreement dated April 2, 1998, among the Operating Partnership, Old GGP and Southwest Properties Venture (previously filed as Exhibit 4.8 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
4.6 | Redemption Rights Agreement dated July 21, 1998, among the Operating Partnership, Old GGP, Nashland Associates, and HRE Altamonte, Inc. (previously filed as Exhibit 4.9 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
4.7 | Redemption Rights Agreement dated October 21, 1998, among the Operating Partnership, Old GGP and the persons on the signature pages thereof (previously filed as Exhibit 4.10 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). |
|
Exhibit
Number |
Description of Exhibits | |||
---|---|---|---|---|---|
4.8 | Redemption Rights Agreement (Common Units) dated July 10, 2002, by and among the Operating Partnership, Old GGP and the persons listed on the signature pages thereof (previously filed as Exhibit 4.11 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2007 which was filed with the SEC on February 27, 2008). | ||||
4.9 | Redemption Rights Agreement (Series B Preferred Units) dated July 10, 2002, by and among the Operating Partnership, Old GGP and the persons listed on the signature pages thereof (previously filed as Exhibit 4.12 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2007 which was filed with the SEC on February 27, 2008). | ||||
4.10 | Redemption Rights Agreement (Common Units) dated November 27, 2002, by and among the Operating Partnership, Old GGP and JSG, LLC (previously filed as Exhibit 4.13 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2008 which was filed with the SEC on February 27, 2009). | ||||
4.11 | Redemption Rights Agreement dated December 11, 2003, by and among the Operating Partnership, Old GGP and Everitt Enterprises, Inc. (previously filed as Exhibit 4.14 to Old GGP's Annual Report on Form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). | ||||
4.12 | Redemption Rights Agreement dated March 5, 2004, by and among the Operating Partnership, Old GGP and Koury Corporation (previously filed as Exhibit 4.15 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2007 which was filed with the SEC on February 27, 2008). | ||||
4.13 | Registration Rights Agreement dated April 15, 1993, between Old GGP, Martin Bucksbaum, Matthew Bucksbaum and the other parties named therein (previously filed as Exhibit 4.16 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2007 which was filed with the SEC on February 27, 2008). | ||||
4.14 | Amendment to Registration Rights Agreement dated February 1, 2000, among Old GGP and certain other parties named therein (previously filed as Exhibit 4.17 to Old GGP's Annual Report on Form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). | ||||
4.15 | Registration Rights Agreement dated April 17, 2002, between Old GGP and GSEP 2002 Realty Corp (previously filed as Exhibit 4.18 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2007 which was filed with the SEC on February 27, 2008). | ||||
4.16 | The Rouse Company and The First National Bank of Chicago (Trustee) Indenture dated as of February 24, 1995 (previously filed as Exhibit 4.24 to Old GGP's Annual Report on Form 10-K/A for the year ended December 31, 2010 which was filed with the SEC on April 30, 2010). | ||||
4.17 | The Rouse Company LP, TRC Co-Issuer, Inc. and The Bank of New York Mellon Corporation (Trustee) Indenture dated May 5, 2006 (previously filed as Exhibit 4.24 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2006 which was filed with the SEC on March 1, 2007). | ||||
4.18* | Form of Indenture between The Rouse Company LLC and Wilmington Trust FSB, as trustee. | ||||
5.1+ | Opinion of Weil, Gotshal & Manages LLP, dated November 2, 2010. | ||||
8.1* | Opinion re tax matters of Arnold & Porter LLP, dated . | ||||
10.1+ | Form of Amended and Restated Agreement of Limited Partnership of the Operating Partnership. | ||||
10.2+ | Form of Amended and Restated Operating Agreement of GGPLP L.L.C. |
|
Exhibit
Number |
Description of Exhibits | |||
---|---|---|---|---|---|
10.3 | Operating Agreement dated November 10, 1999, between the Operating Partnership, NYSCRF, and GGP/Homart II L.L.C. (previously filed as Exhibit 10.20 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
10.4 | Amendment to the Operating Agreement of GGP/Homart II L.L.C. dated November 22, 2002 (previously filed as Exhibit 10.21 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
10.5 | Letter Amendment to the Operating Agreement of GGP/Homart II L.L.C. dated January 31, 2003 (previously filed as Exhibit 10.22 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
10.6 | Second Amendment to the Operating Agreement of GGP/Homart II L.L.C. dated January 31, 2003 (previously filed as Exhibit 10.23 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
10.7 | Third Amendment to the Operating Agreement of GGP/Homart II L.L.C. dated February 8, 2008 (previously filed as Exhibit 10.25 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2007 which was filed with the SEC on February 27, 2008). | ||||
10.8 | Amended and Restated Operating Agreement of GGP-TRS L.L.C. dated August 26, 2002, between the Operating Partnership, Teachers' Retirement System of the State of Illinois and GGP-TRS L.L.C. (previously filed as Exhibit 10.24 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
10.9 | First Amendment to Amended and Restated Operating Agreement of GGP-TRS L.L.C. dated December 19, 2002 (previously filed as Exhibit 10.25 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
10.10 | Second Amendment to Amended and Restated Operating Agreement of GGP-TRS L.L.C. dated November 1, 2005 (previously filed as Exhibit 10.26 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2005 which was filed with the SEC on March 31, 2006). | ||||
10.11* | Summary of Non-Employee Director Compensation Program. | ||||
10.12 | Contingent Stock Agreement, effective January 1, 1996, by The Rouse Company and in favor of and for the benefit of the Holders and the Representatives (as defined therein) (previously filed as Exhibit 10.30 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2007 which was filed with the SEC on February 27, 2008). | ||||
10.13 | Assumption Agreement dated October 19, 2004 by Old GGP and The Rouse Company in favor of and for the benefit of the Holders and the Representatives (as defined therein) (previously filed as Exhibit 99.2 to Old GGP's Registration Statement on Form S-3/A (No. 333-120373) which was filed with the SEC on December 23, 2004). | ||||
10.14 | Indemnity Agreement dated as of February 2006 by the Company and The Rouse Company, LP. (previously filed as Exhibit 10.1 to Old GGP's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006 which was filed with the SEC on May 10, 2006). | ||||
10.15 | Old GGP 1998 Incentive Stock Plan, as amended (previously filed as Exhibit 10.33 to Old GGP's Annual Report on Form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). |
|
Exhibit
Number |
Description of Exhibits | |||
---|---|---|---|---|---|
10.16 | Amendment dated November 9, 2006 and effective January 1, 2007 to Old GGP 1998 Incentive Stock Plan (previously filed as Exhibit 10.1 to Old GGP's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 which was filed with the SEC on November 8, 2006). | ||||
10.17 | Form of Option Agreement pursuant to 1998 Incentive Stock Plan (previously filed as Exhibit 10.35 to Old GGP's Annual Report on Form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). | ||||
10.18 | Old GGP Second Amended and Restated 2003 Incentive Stock Plan, effective December 18, 2008 (previously filed as Exhibit 10.36 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2008 which was filed with the SEC on February 27, 2009). | ||||
10.19 | Amendment to Old GGP's Second Amended and Restated 2003 Incentive Stock Plan, effective March 1, 2010 (previously filed as exhibit 10.37 to Old GGP's Annual Report on Form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). | ||||
10.20 | Form of Option Agreement pursuant to 2003 Incentive Stock Plan (previously filed as Exhibit 10.38 to Old GGP's Annual Report on Form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2009). | ||||
10.21 | Form of Employee Restricted Stock Agreement pursuant to the 2003 Incentive Stock Plan (previously filed as Exhibit 10.2 to Old GGP's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006 which was filed with the SEC on August 9, 2006). | ||||
10.22 | Form of Non-Employee Director Restricted Stock Agreement pursuant to the 2003 Incentive Stock Plan (previously filed as Exhibit 10.40 to Old GGP's Annual Report on Form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). | ||||
10.23 | Form of Restricted Stock Agreement pursuant to the Old GGP 2003 Incentive Stock Plan, as amended (previously filed as Exhibit 10.1 to Old GGP's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008 which was filed with the SEC on May 8, 2008). | ||||
10.24 | General Growth Properties, Inc. 2010 Equity Incentive Plan (previously filed as Exhibit 4.1 to Old GGP's Current Report on Form 8-K dated October 27, 2010 which was filed with the SEC on October 29, 2010). | ||||
10.25* | Form of Option Agreement pursuant to 2010 Equity Incentive Plan. | ||||
10.26 | Employment Agreement dated as of November 2, 2008 by and among Old GGP, GGP Limited Partnership and Adam S. Metz (previously filed as Exhibit 10.1 to Old GGP's Current Report on Form 8-K dated November 2, 2008 which was filed with the SEC on November 4, 2008). | ||||
10.27 | Employment Agreement dated as of November 2, 2008 by and among Old GGP, GGP Limited Partnership and Thomas H. Nolan, Jr. (previously filed as Exhibit 10.2 to Old GGP's Current Report on Form 8-K dated November 2, 2008 which was filed with the SEC on November 4, 2008). | ||||
10.28 | Amendment to Employment Agreement, dated as of March 6, 2009 by and among Old GGP, GGP Limited Partnership and Adam S. Metz (previously filed as Exhibit 10.1 to Old GGP's Current Report on Form 8-K dated March 6, 2009 which was filed with the SEC on March 10, 2009). | ||||
10.29 | Amendment to Employment Agreement, dated as of March 6, 2009 by and among Old GGP, GGP Limited Partnership and Thomas H. Nolan, Jr. (previously filed as Exhibit 10.1 to Old GGP's Current Report on Form 8-K dated March 6, 2009 which was filed with the SEC on March 10, 2009). |
|
Exhibit
Number |
Description of Exhibits | |||
---|---|---|---|---|---|
10.30 | Employment Agreement dated September 8, 2010 by and among Old GGP, GGP Limited Partnership and Adman S. Metz (previously filed as Exhibit 10.1 to Old GGP's Current Report on Form 8-K dated September 8, 2010 which was filed with the SEC on September 10, 2010). | ||||
10.31 | Employment Agreement dated September 8, 2010 by and among Old GGP, GGP Limited Partnership and Thomas H. Nolan (previously filed as Exhibit 10.2 to Old GGP's Current Report on Form 8-K dated September 8, 2010 which was filed with the SEC on September 10, 2010). | ||||
10.32 | Employment Agreement, dated October 27, 2010, by and between New GGP and Sandeep Mathrani (previously filed as Exhibit 10.1 to Old GGP's Current Report on Form 8-K dated October 27, 2010 which was filed with the SEC on October 29, 2010). | ||||
10.33 | Non-Qualified Stock Option Agreement dated as of November 3, 2008 by and between Old GGP and Adam S. Metz (previously filed as Exhibit 10.3 to Old GGP's Current Report on Form 8-K dated November 2, 2008 which was filed with the SEC on November 4, 2008). | ||||
10.34 | Non-Qualified Option Agreement dated as of November 3, 2008 by and between Old GGP and Thomas H. Nolan, Jr. (previously filed as Exhibit 10.4 to Old GGP's Current Report on Form 8-K dated November 2, 2008 which was filed with the SEC on November 4, 2008). | ||||
10.35 | Nonqualified Stock Option Award Agreement, dated October 27, 2010, by and between New GGP and Sandeep Mathrani (previously filed as Exhibit 10.2 to Old GGP's Current Report on Form 8-K dated October 27, 2010 which was filed with the SEC on October 29, 2010). | ||||
10.36 | Old GGP Key Employee Incentive Plan dated October 2, 2009 and effective October 15, 2009 (previously filed as Exhibit 10.47 to Old GGP's Annual Report on Form 10-K for the year ended December 31, 2009 which was filed with the SEC on March 1, 2010). | ||||
10.37 | Old GGP Cash Value Added Incentive Compensation plan dated June 9, 1999 (previously filed as Exhibit 10.51 to Old GGP's Annual Report on form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). | ||||
10.38 | Amendment to Old GGP Cash Value Added Incentive Compensation plan, effective January 1, 2007 (previously filed as Exhibit 10.52 to Old GGP's Annual Report on form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). | ||||
10.39 | 2009 and 2010 Subplan to Old GGP Cash Value Added Incentive Compensation plan (previously filed as Exhibit 10.53 to Old GGP's Annual Report on form 10-K/A for the year ended December 31, 2009 which was filed with the SEC on April 30, 2010). | ||||
10.40 | Amended and Restated Cornerstone Investment Agreement, effective as of March 31, 2010, between REP Investments LLC (as predecessor to Brookfield Retail Holdings LLC), an affiliate of Brookfield Asset Management Inc. and Old GGP (previously filed as Exhibit 10.1 to Old GGP's Current Report on Form 8-K dated August 2, 2010 which was filed with the SEC on August 3, 2010). | ||||
10.41 | Amended and Restated Stock Purchase Agreement, effective as of March 31, 2010, between The Fairholme Fund, Fairholme Focused Income Fund and Old GGP (previously filed as Exhibit 10.3 to Old GGP's Current Report on Form 8-K dated August 2, 2010 which was filed with the SEC on August 3, 2010). | ||||
10.42 | Amendment No. 1 to Amended and Restated Stock Purchase Agreement, dated as of September 17, 2010, between The Fairholme Fund, Fairholme Focused Income Fund and Old GGP (previously filed as part of Exhibit 99.1 to Old GGP's Current Report on Form 8-K dated September 30, 2010 which was filed with the SEC on October 1, 2010). |
|
Exhibit
Number |
Description of Exhibits | |||
---|---|---|---|---|---|
10.43 | Amended and Restated Stock Purchase Agreement, effective as of March 31, 2010, between Pershing Square Capital Management, L.P. on behalf of Pershing Square, L.P., Pershing Square II, L.P., Pershing Square International, Ltd. and Pershing Square International V, Ltd. and Old GGP (previously filed as Exhibit 10.2 to Old GGP's Current Report on Form 8-K dated August 2, 2010 which was filed with the SEC on August 3, 2010). | ||||
10.44 | Amendment No. 1 to Amended and Restated Stock Purchase Agreement, dated as of September 17, 2010, between Pershing Square Capital Management, L.P., certain of its affiliates and Old GGP (previously filed as part of Exhibit 99.1 to Old GGP's Current Report on Form 8-K dated September 30, 2010 which was filed with the SEC on October 1, 2010). | ||||
10.45 | Warrant and Registration Rights Agreement, dated as of May 10, 2010, between Old GGP and Mellon Investor Services LLC (previously filed as Exhibit 10.4 to Old GGP's Current Report on Form 8-K dated May 7, 2010 which was filed with the SEC on May 13, 2010). | ||||
10.46* | Form of Registration Rights Agreement between REP Investments LLC and New GGP, Inc. | ||||
10.47* | Form of Registration Rights Agreement between The Fairholme Fund, Fairholme Focused Income Fund and New GGP, Inc. | ||||
10.48* | Form of Registration Rights Agreement between Blackstone Real Estate Partners VI L.P. and New GGP, Inc. | ||||
10.49* | Form of Registration Rights Agreement between Teacher Retirement System of Texas and New GGP, Inc. | ||||
10.50* | Form of Warrant Agreement between New GGP, Inc. and Mellon Investor Services LLC, relating to the warrants issued to REP Investments LLC., The Fairholme Fund, Fairholme Focused Income Fund, Pershing Square Capital Management, L.P., Pershing Square II, L.P., Pershing Square International, Ltd., Pershing Square International V, Ltd. and Blackstone Real Estate Partners VI L.P. | ||||
10.51* | Form of Relationship Agreement between Brookfield Asset Management Inc. and General Growth Properties, Inc. | ||||
10.52 | Stock Purchase Agreement, dated as of July 8, 2010, between Teacher Retirement System of Texas and General Growth Properties, Inc. (previously filed as Exhibit 10.1 to Old GGP's Current Report on Form 8-K which was filed with the SEC on July 13, 2010). | ||||
10.53+ | Form of indemnification agreement for directors and executive officers. | ||||
10.54* | Form of Standstill Agreement between REP Investments LLC and New GGP. | ||||
10.55* | Form of Standstill Agreement between The Fairholme Fund and Fairholme Focused Income Fund and New GGP. | ||||
10.56* | Form of Standstill Agreement between Pershing Square II, L.P., Pershing Square International, Ltd. and Pershing Square International V, Ltd. and New GGP. | ||||
10.57+ | Form of Separation Agreement between The Howard Hughes Corporation and General Growth Properties, Inc. | ||||
10.58+ | Form of Transition Services Agreement between The Howard Hughes Corporation and General Growth Properties, Inc. | ||||
10.59+ | Form of Tax Matters Agreement between The Howard Hughes Corporation and General Growth Properties, Inc. | ||||
10.60* | Revolving credit facility agreement, dated as of , among Deutsche Bank Trust Company Americas, as administrative agent and collateral agent, various lenders, and Deutsche Bank Securities Inc., Wells Fargo Securities, LLC and RBC Capital Markets Corporation as Joint Lead Arrangers and New GGP. |
|
Exhibit
Number |
Description of Exhibits | |||
---|---|---|---|---|---|
11.1+ | Statement regarding computation of per share earnings (incorporated by reference to the Notes to the Selected Historical Consolidated Financial Statements included in Part I of this Registration Statement). | ||||
21.1* | List of Subsidiaries of New GGP, Inc. | ||||
23.1+ | Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm, relating to Old GGP. | ||||
23.2+ | Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm, relating to New GGP, Inc. | ||||
23.3+ | Consent of KPMG LLP, Independent Registered Public Accounting Firm, relating to GGP/Homart II, L.L.C. | ||||
23.4+ | Consent of KPMG LLP, Independent Registered Public Accounting Firm, relating to GGP-TRS L.L.C. | ||||
23.5+ | Consent of Weil, Gotshal & Manages LLP (included in the opinion filed as Exhibit 5.1 hereto). | ||||
23.6* | Consent of Arnold & Porter LLP (included in the opinion filed as Exhibit 8.2 hereto). | ||||
24.1+ | Power of Attorney (included on signature page). | ||||
99.1** | Consent of Ric Clark. | ||||
99.2** | Consent of Bruce Flatt. | ||||
99.3** | Consent of Mary Lou Fiala. | ||||
99.4** | Consent of John Haley. | ||||
99.5** | Consent of David Neithercut. |
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
NEW GGP, INC.
This Certificate of incorporation of New GGP, Inc. (the Corporation ) is being executed by the undersigned for the purpose of forming a corporation pursuant to the Delaware General Corporation Law.
ARTICLE I
The name of the corporation is New GGP, Inc.
ARTICLE II
The Registered Office of the Corporation is located at 2711 Centerville Road, Suite 400, Wilmington, New Castle County, Delaware, 19808. The name of its Registered Agent at that address is Corporation Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, as amended from time to time (as amended, the Delaware Law ).,
ARTICLE IV
The total number of shares of stock which the Corporation shall have authority to issue is One Thousand (1,000) shares of common stock, no par value per share.
ARTICLE V
In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors and/or the stockholders of the Corporation are expressly empowered to make, alter, amend or repeal the Bylaws of the Corporation in the manner determined by the terms of the Bylaws of the Corporation then in existence.
In the event of any conflict between this Certificate of Incorporation and the Bylaws of the Corporation, this Certificate of Incorporation shall control.
ARTICLE VI
The name and the mailing address of the sole incorporator are as follows:
NAME |
MAILING ADDRESS |
|
|
Georgina Parra |
110 N. Wacker Drive |
|
Chicago, Illinois 60606 |
ARTICLE VII
The Corporation shall have perpetual existence.
ARTICLE VIII
The Corporation shall indemnify all officers and directors of the Corporation, and advance expenses reasonably incurred by such officers and directors in defending any civil, criminal, administrative or investigative action, suit or proceeding, in accordance with and to the fullest extent permitted by Section 145 of the Delaware Law.
ARTICLE IV
To the fullest extent permitted by the Delaware Law, a director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.
IN WITNESS WHEREOF, the undersigned has caused this Certificate of Incorporation to be duly executed as of the 1st day of July, 2010.
|
/s/ Georgina Parra |
|
Georgina Parra, Sole Incorporator |
Exhibit 3.2
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
OF
NEW GGP, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the Corporation ) is New GGP, Inc.
2. The Certificate of Incorporation of the Corporation is hereby amended by deleting Article IV in its entirety and inserting the following:
ARTICLE IV
A. Classes and Number of Shares . The total number of shares of all classes of capital stock that the Corporation shall have authority to issue is Eleven Billion Five Hundred Million (11,500,000,000) shares, consisting of (i) Five Hundred Million (500,000,000) shares of preferred stock, par value $0.01 per share (the Preferred Stock ), and (ii) Eleven Billion (11,000,000,000) shares of common stock, par value $0.01 per share (the Common Stock ).
B. Common Stock . The holders of outstanding shares of Common Stock shall have the right to vote on all questions to the exclusion of all other stockholders, each holder of record of Common Stock being entitled to one vote for each share of Common Stock standing in the name of the stockholder on the books of the Corporation, except as may be provided in this Certificate of Incorporation, as it may be amended from time to time (the Certificate of Incorporation ), in a Preferred Stock Designation (as hereinafter defined), or as required by law.
C. Preferred Stock . The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized to provide for the issuance of shares of Preferred Stock in series and, by filing a certificate of designations pursuant to the applicable law of the State of Delaware (hereinafter referred to as a Preferred Stock Designation ), to establish from time to time for each such series the number of shares to be included in each such series and to fix the designations, powers, rights and preferences of the shares of each such series, and the qualifications, limitations and restrictions thereof. The
authority of the Board of Directors with respect to each series of Preferred Stock shall include, but not be limited to, determination of the following:
(1) The designation of the series, which may be by distinguishing number, letter or title.
(2) The number of shares of the series, which number the Board of Directors may thereafter (except where otherwise provided in the Preferred Stock Designation) increase or decrease (but not below the number of shares thereof then outstanding).
(3) Whether dividends, if any, shall be paid, and, if paid, the date or dates upon which, or other times at which, such dividends shall be payable, whether such dividends shall be cumulative or noncumulative, the rate of such dividends (which may be variable) and the relative preference in payment of dividends of such series.
(4) The redemption provisions and price or prices, if any, for shares of the series.
(5) The terms and amounts of any sinking fund or similar fund provided for the purchase or redemption of shares of the series.
(6) The amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
(7) Whether the shares of the series shall be convertible into shares of any other class or series, or any other security, of the Corporation or any other corporation, and, if so, the specification of such other class or series of such other security, the conversion price or prices, or rate or rates, any adjustments thereto, the date or dates on which such shares shall be convertible and all other terms and conditions upon which such conversion may be made.
(8) Restrictions on the issuance of shares of the same series or of any other class or series.
(9) The voting rights, if any, of the holders of shares of the series.
D. Issuance of Rights to Purchase Securities and Other Property . Subject to the express rights of the holders of any series of Preferred Stock, if any outstanding, but only to the extent expressly set forth in the Preferred Stock Designation with respect thereto, the Board of Directors is hereby authorized to create and to authorize and direct the
issuance (on either a pro rata or a non-pro rata basis) by the Corporation of rights, options and warrants for the purchase of shares of capital stock of the Corporation or other securities of the Corporation, at such times, in such amounts, to such persons, for such consideration, with such form and content (including without limitation the consideration for which any shares of capital stock of the Corporation or other securities of the Corporation are to be issued) and upon such terms and conditions as it may, from time to time, determine upon, subject only to the restrictions, limitations, conditions and requirements imposed by the DGCL, other applicable laws and this Certificate of Incorporation.
3. The amendment of the Corporations Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
Signed on October 27, 2010
|
/s/ Linda J. Wight |
|
Linda J. Wight, Assistant Secretary |
Exhibit 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GENERAL GROWTH PROPERTIES, INC.
The present name of the corporation is General Growth Properties, Inc. (the Corporation ). The Corporation was incorporated under the name New GGP, Inc. by the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware on July 1, 2010, which Certificate of Incorporation was amended, in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware (the DGCL ), by the filing of a Certificate of Amendment with the Secretary of State of the State of Delaware on October 27, 2010. In accordance with Sections 242 and 245 of the DGCL, the Certificate of Incorporation of the Corporation, as previously amended, is hereby amended and restated to read in its entirety as follows:
ARTICLE I
The name of the corporation (which is hereinafter referred to as the Corporation ) shall be General Growth Properties, Inc.
ARTICLE II
The address of the Corporations registered office in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, County of New Castle. The name of the Corporations registered agent at such address is Corporation Service Company. The Corporation may have such other offices, either within or without the State of Delaware, as the Board of Directors of the Corporation (the Board of Directors ) may designate or as the business of the Corporation may from time to time require.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.
ARTICLE IV
A. Classes and Number of Shares . The total number of shares of all classes of capital stock that the Corporation shall have authority to issue is Eleven Billion Five Hundred Million (11,500,000,000) shares, consisting of (i) Five Hundred Million (500,000,000) shares of
preferred stock, par value $0.01 per share (the Preferred Stock), and (ii) Eleven Billion (11,000,000,000) shares of common stock, par value $0.01 per share (the Common Stock).
B. Common Stock . The holders of outstanding shares of Common Stock shall have the right to vote on all questions to the exclusion of all other stockholders, each holder of record of Common Stock being entitled to one vote for each share of Common Stock standing in the name of the stockholder on the books of the Corporation, except as may be provided in this Certificate of Incorporation, as it may be amended from time to time (the Certificate of Incorporation ), in a Preferred Stock Designation (as hereinafter defined), or as required by law.
C. Preferred Stock . The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized to provide for the issuance of shares of Preferred Stock in series and, by filing a certificate of designations pursuant to the applicable law of the State of Delaware (hereinafter referred to as a Preferred Stock Designation ), to establish from time to time for each such series the number of shares to be included in each such series and to fix the designations, powers, rights and preferences of the shares of each such series, and the qualifications, limitations and restrictions thereof. The authority of the Board of Directors with respect to each series of Preferred Stock shall include, but not be limited to, determination of the following:
(1) The designation of the series, which may be by distinguishing number, letter or title.
(2) The number of shares of the series, which number the Board of Directors may thereafter (except where otherwise provided in the Preferred Stock Designation) increase or decrease (but not below the number of shares thereof then outstanding).
(3) Whether dividends, if any, shall be paid, and, if paid, the date or dates upon which, or other times at which, such dividends shall be payable, whether such dividends shall be cumulative or noncumulative, the rate of such dividends (which may be variable) and the relative preference in payment of dividends of such series.
(4) The redemption provisions and price or prices, if any, for shares of the series.
(5) The terms and amounts of any sinking fund or similar fund provided for the purchase or redemption of shares of the series.
(6) The amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
(7) Whether the shares of the series shall be convertible into shares of any other class or series, or any other security, of the Corporation or any other corporation, and, if so, the specification of such other class or series of such other security, the conversion price or prices, or rate or rates, any adjustments thereto, the date or dates on which such shares shall be convertible and all other terms and conditions upon which such conversion may be made.
(8) Restrictions on the issuance of shares of the same series or of any other class or series.
(9) The voting rights, if any, of the holders of shares of the series.
D. Issuance of Rights to Purchase Securities and Other Property . Subject to the express rights of the holders of any series of Preferred Stock, if any outstanding, but only to the extent expressly set forth in the Preferred Stock Designation with respect thereto, the Board of Directors is hereby authorized to create and to authorize and direct the issuance (on either a pro rata or a non-pro rata basis) by the Corporation of rights, options and warrants for the purchase of shares of capital stock of the Corporation or other securities of the Corporation, at such times, in such amounts, to such persons, for such consideration, with such form and content (including without limitation the consideration for which any shares of capital stock of the Corporation or other securities of the Corporation are to be issued) and upon such terms and conditions as it may, from time to time, determine upon, subject only to the restrictions, limitations, conditions and requirements imposed by the DGCL, other applicable laws and this Certificate of Incorporation.
ARTICLE V
In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation; provided , however , that any amendment, alteration, modification or repeal of a Bylaw or adoption of a new provision in the Bylaws, in each case by the stockholders, may provide that it cannot be further amended, altered, modified or repealed by the Board of Directors, in which case the Board of Directors shall not be authorized to further amend, alter, modify or repeal such Bylaw amendment or such new Bylaw provision.
ARTICLE VI
A. Subject to the rights of the holders of any series of Preferred Stock, if any outstanding, as set forth in a Preferred Stock Designation to elect additional directors under specified circumstances, the number of directors of the Corporation shall be fixed by the Bylaws of the Corporation and may be increased or decreased from time to time in such a manner as may be prescribed by the Bylaws and the DGCL.
B. Unless and except to the extent that the Bylaws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot.
C. Subject to the rights of the holders of any series of Preferred Stock, if any outstanding, with respect to the election of directors under specified circumstances, any director may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of a majority of the voting power of the capital stock of the Corporation entitled to vote generally in the election of directors (the Voting Stock ), voting together as a single class.
D. Notwithstanding the foregoing provisions of this Article VI and any limitations contained in any Preferred Stock Designation, each director shall serve until such directors successor is duly elected and qualified or until such directors death, resignation or removal. No change in the number of directors constituting the Board of Directors shall shorten or increase the term of any incumbent director.
ARTICLE VII
The Corporation, to the fullest extent permitted by the DGCL, as the same exists or may hereafter be amended, shall indemnify and hold harmless any person (a Covered Person ) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative, regulatory, arbitral or investigative (a proceeding ), by reason of the fact that he or she, or a person for whom he or she is a legal representative, is or was a director or officer of the Corporation, or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, limited liability entity, joint venture, trust, other enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss (including judgments, fines and amounts paid in settlement) suffered and expenses (including attorneys fees) reasonably incurred by such Covered Person. Notwithstanding the foregoing sentence, the Corporation shall be required to indemnify a Covered Person in connection with a proceeding (or part thereof) commenced by such Covered Person (other than proceedings to enforce rights conferred by this Certificate of Incorporation or the Bylaws of the Corporation) only if the commencement of such proceeding was authorized in the specific case by the Board of Directors. To the fullest extent permitted by the DGCL, as the same exists or may hereafter be amended, expenses (including attorneys fees) incurred by a Covered Person in defending any proceeding shall be paid by the Corporation in advance of the final disposition of such proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized hereby. The Corporation may, by action of the Board of Directors, provide indemnification to employees and agents of the Corporation or its subsidiaries with the same (or lesser) scope and effect as the foregoing indemnification of directors and officers.
ARTICLE VIII
No director shall be personally liable either to the Corporation or to any of its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as the same exists or may hereafter be amended. Any amendment, modification or repeal of any provision of this Certificate of Incorporation inconsistent with the foregoing sentence shall not adversely affect any right or protection of a director of the Corporation hereunder in respect of any act or omission occurring prior to the time of such amendment, modification or repeal.
ARTICLE IX
The Corporation may purchase and maintain insurance, at its expense, on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was a
director, officer, employee or agent of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability, expense or loss asserted against such person and incurred by such person in any such capacity, or arising out of such persons status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability, expense or loss under the provisions of the Bylaws of the Corporation or the DGCL. To the extent that the Corporation maintains any policy or policies providing such insurance, each such person shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage thereunder for any such person.
ARTICLE X
The Corporation reserves the right at any time and from time to time to amend, modify or repeal any provision contained in this Certificate of Incorporation or a Preferred Stock Designation, and any other provisions authorized by the laws of the State of Delaware in force at such time may be added or inserted in the manner now or hereafter prescribed herein or by applicable law, and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this Article X; provided , however , that any amendment, modification or repeal of Article VII or Article VIII of this Certificate of Incorporation shall not adversely affect any right or protection existing hereunder immediately prior to such amendment, modification or repeal.
ARTICLE XI
The Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of fiduciary duty owed by any director or officer of the Corporation to the Corporation or the Corporations stockholders, (iii) any action asserting a claim against the Corporation arising pursuant to any provision of the DGCL or this Certificate of Incorporation or the Bylaws or (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine.
ARTICLE XII
Subject to the rights of the holders of any series of Preferred Stock as set forth in a Preferred Stock Designation, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing of such stockholders.
ARTICLE XIII
The Corporation shall not issue any class of non-voting equity securities unless and solely to the extent permitted by Section 1123(a)(6) of title 11 of the United States Code (the Bankruptcy Code ) as in effect on the date of filing of this Certificate of Incorporation with the Secretary of State of the State of Delaware; provided , however , that this Article XIII (a) will have no further force and effect beyond that required under Section 1123(a)(6) of the Bankruptcy
Code, (b) will have such force and effect, if any, only for so long as Section 1123(a)(6) of the Bankruptcy Code is in effect and applicable to the Corporation and (c) in all events may be amended or eliminated from time to time in accordance with applicable law.
ARTICLE XIV
For purposes of this Article XIV, the following terms shall have the following meaning:
Beneficial Ownership shall mean ownership of shares of Capital Stock by a Person, whether the interest in such shares is held directly or indirectly (including by a nominee), and shall include shares of Capital Stock that would be treated as owned through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms Beneficial Owner , Beneficially Owns , Beneficially Own , and Beneficially Owned shall have correlative meanings.
Beneficiary shall mean, with respect to any Trust, one or more organizations described in each of Section 501(c)(3), Section 170(b)(1)(A) (other than clauses (vii) or (viii) thereof) and Section 170(c)(2) of the Code that are named by the Corporation as the beneficiary or beneficiaries of such Trust, in accordance with the provisions of subsection G(1) of this Article XIV.
Code shall mean the Internal Revenue Code of 1986, as amended, or any successor statute.
Capital Stock shall mean the Common Stock and the Preferred Stock.
Constructive Ownership shall mean ownership of shares of Capital Stock by a Person whether the interest in such shares is held directly or indirectly (including through a nominee), and shall include shares of Capital Stock that would be treated as owned through the application of Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms Constructive Owner , Constructively Owns , Constructively Own , and Constructively Owned shall have correlative meanings.
Constructive Ownership Limit shall mean 9.9% of the number or value, whichever is more restrictive, of the outstanding shares of Capital Stock, as may be adjusted pursuant to subsection H of this Article XIV.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
Investment Agreements means (i) that certain Amended and Restated Cornerstone Investment Agreement, effective as of March 31, 2010, by and between General Growth Properties, Inc. and REP Investments LLC, (ii) that certain Amended and Restated Stock Purchase Agreement, effective as of March 31, 2010, by and between General Growth Properties, Inc. and The Fairholme Fund and Fairholme Focused Income Fund and (iii) that certain Amended and Restated Stock Purchase Agreement, effective as of March 31, 2010, by and between General Growth Properties, Inc. and Pershing Square Capital Management, L.P., on behalf of Pershing Square L.P., Pershing Square II, L.P., Pershing Square International, Ltd. and
Pershing Square International V, Ltd.; each as may be further amended or modified from time to time.
Market Price on any date shall mean the fair market value of the relevant Capital Stock, as determined in good faith by the Board of Directors.
Non-Transfer Event shall mean an event, other than a purported Transfer, that would cause any Person to Beneficially Own shares of Capital Stock in excess of the Stock Ownership Limit or Constructively Own shares of Capital Stock in excess of the Constructive Ownership Limit. Non-Transfer Events include, but are not limited to, (i) the granting of any option or entering into any agreement for the sale, transfer, or other disposition of shares of Capital Stock, (ii) the sale, transfer, assignment, or other disposition of any securities or rights convertible into or exchangeable for shares of Capital Stock, (iii) a Person purchasing or otherwise acquiring an interest in a Person which Beneficially Owns shares of Capital Stock, or (iv) a redemption, repurchase, restructuring or similar transaction with respect to a person that Beneficially Owns shares of Capital Stock.
Permitted Transferee shall mean any Person designated as a Permitted Transferee in accordance with the provisions of subsection G(5) of this Article XIV.
Person shall mean an individual, corporation, partnership, limited liability company, estate, trust, a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock corporation, or other entity.
Prohibited Owner shall mean, with respect to any purported Transfer or Non-Transfer Event, any Person who, but for the provisions of subsection B of Article XIV hereof, would (i) Beneficially Own shares of Capital Stock in excess of the Stock Ownership Limit (but such Person will be considered a Prohibited Owner only with respect to those shares in excess of the applicable limit), (ii) Constructively Own shares of Capital Stock in excess of the Constructive Ownership Limit (but such Person will be considered a Prohibited Owner only with respect to those shares in excess of the applicable limit), (iii) cause the shares of Capital Stock to be beneficially owned by fewer than 100 Persons (determined under the principles of Section 856(a)(5) of the Code), (iv) cause the Corporation to be closely held within the meaning of Section 856(h) of the Code, or (v) cause the Corporation or any of its Subsidiaries to Constructively Own 9.9% or more of the ownership interests in a tenant of the Corporations or a Subsidiarys real property, within the meaning of Section 856(d)(2)(B) of the Code, and if appropriate in the context, shall also mean any Person who would own record title to shares of Capital Stock that the Prohibited Owner would have so owned.
REIT shall mean a real estate investment trust under Sections 856 through 860 of the Code.
REIT Requirements shall mean the requirements contained in Sections 856 through 860 of the Code which must be satisfied in order for the Corporation to qualify as a REIT.
Restriction Termination Date shall mean the first day after the date on which the Board of Directors determines that it is no longer in the best interests of the Corporation to qualify as a REIT.
Shares-in-Trust shall mean any shares of Capital Stock designated Shares-in-Trust pursuant to subsection B of this Article XIV.
Stock Ownership Limit shall mean 9.9% of the number or value, whichever is more restrictive, of the outstanding shares of Capital Stock, as may be adjusted pursuant to subsection H of this Article XIV.
Subsidiary shall have the meaning set forth in subsection A(4) of this Article XIV.
Transfer (as a noun) shall mean any issuance, sale, transfer, gift, assignment, devise, or other disposition of shares of Capital Stock, whether voluntary or involuntary, whether of record, constructively or beneficially, and whether by operation of law or otherwise. Transfer (as a verb) shall have the correlative meaning.
Trust shall mean any separate trust created pursuant to subsection B of this Article XIV and administered in accordance with the terms of subsection G of this Article XIV, for the exclusive benefit of any Beneficiary.
Trustee shall mean any Person or entity that is not an affiliate of either the Corporation or any Prohibited Owner, such Trustee to be designated by the Corporation to act as trustee of any Trust, or any successor trustee thereof.
A. Restrictions on Transfers .
(1) Except as provided in subsection F of this Article XIV, from the date hereof and through and including the Restriction Termination Date,
(a) (A) no Person shall Beneficially Own outstanding shares of Capital Stock in excess of the Stock Ownership Limit, and (B) no Person shall Constructively Own outstanding shares of Capital Stock in excess of the Constructive Ownership Limit;
(b) any purported Transfer that, if effective, would result in any Person Beneficially Owning shares of Capital Stock in excess of the Stock Ownership Limit or Constructively Owning shares of Capital Stock in excess of the Constructive Ownership Limit shall be void ab initio as to the Transfer of that number of shares of Capital Stock which otherwise would be Beneficially Owned by such person in excess of the Stock Ownership Limit or Constructively Owned by such Person in excess of the Constructive Ownership Limit, and the intended transferee shall acquire no rights in such excess shares of Capital Stock; and
(2) From the date hereof and through and including the Restriction Termination Date, any Transfer that, if effective, would result in shares of Capital Stock being beneficially owned by fewer than 100 Persons (determined under the principles of
Section 856(a)(5) of the Code) shall be void ab initio as to the Transfer of that number of shares which would be otherwise beneficially owned (determined without reference to any rules of attribution) by the transferee, and the intended transferee shall acquire no rights in such shares of Capital Stock.
(3) From the date hereof and through and including the Restriction Termination Date, any Transfer of shares of Capital Stock that, if effective, would result in the Corporation being closely held within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of the taxable year) shall be void ab initio as to the Transfer of that number of shares of Capital Stock which would cause the Corporation to be closely held within the meaning of Section 856(h) of the Code, and the intended transferee shall acquire no rights in such shares of Capital Stock.
(4) From the date hereof and through and including the Restriction Termination Date, any Transfer of shares of Capital Stock that, if effective, would cause the Corporation or any of its Subsidiaries to Constructively Own 10% or more of the ownership interests in a tenant of the real property of (i) the Corporation or (ii) any direct or indirect subsidiary (including, without limitation, partnerships and limited liability companies) of the Corporation (a Subsidiary ), within the meaning of Section 856(d)(2)(B) of the Code, shall be void ab initio as to the Transfer of that number of shares of Capital Stock which would cause the Corporation to Constructively Own 10% or more of the ownership interests in a tenant of the Corporations or a Subsidiarys real property, within the meaning of Section 856(d)(2)(B) of the Code, and the intended transferee shall acquire no rights in such excess shares of Capital Stock.
B. Transfers to Trust .
(1) If, notwithstanding the other provisions contained in this Article XIV, at any time after the date hereof and through and including the Restriction Termination Date, there is a purported Transfer or Non-Transfer Event such that, if effective, any Person would either (A) Beneficially Own shares of Capital Stock in excess of the Stock Ownership Limit or (B) Constructively Own shares of Capital Stock in excess of the Constructive Ownership Limit (x) except as otherwise provided in subsection F of this Article XIV, the purported transferee shall acquire no right or interest (or, in the case of a Non-Transfer Event, the Person holding record title to the shares of Capital Stock Beneficially Owned or Constructively Owned by such Beneficial Owner or Constructive Owner shall cease to own any right or interest) in such number of shares of Capital Stock which would cause such Person to Beneficially Own shares of Capital Stock in excess of the Stock Ownership Limit or Constructively Own shares of Capital Stock in excess of the Constructive Ownership Limit, as applicable, (y) such number of shares of Capital Stock in excess of the Stock Ownership Limit or the Constructive Ownership Limit, as applicable (rounded up to the nearest whole share), shall be designated Shares-in-Trust and, in accordance with the provisions of subsection G of this Article XIV, transferred automatically and by operation of law to the Trust to be held in accordance with subsection G of this Article XIV, and (z) the Prohibited Owner shall submit such number of shares of Capital Stock to the Corporation for registration in the name of the Trustee.
Such transfer to the Trust and the designation of shares as Shares-in-Trust shall be effective as of the close of business on the business day prior to the date of the Transfer or Non-Transfer Event, as the case may be.
(2) If, notwithstanding the other provisions contained in this Article XIV, at any time after the date hereof and through and including the Restriction Termination Date, there is a purported Transfer or Non-Transfer Event that, if effective, would (i) result in the shares of Capital Stock being beneficially owned by fewer than 100 Persons (determined under the principles of Section 856(a)(5) of the Code), (ii) result in the Corporation being closely held within the meaning of Section 856(h) of the Code, or (iii) cause the Corporation or any of its Subsidiaries to Constructively Own 10% or more of the ownership interests in a tenant of the Corporations or a Subsidiarys real property, within the meaning of Section 856(d)(2)(B) of the Code, then (x) the purported transferee shall not acquire any right or interest (or, in the case of a Non-Transfer Event, the Person holding record title of the shares of Capital Stock with respect to which such Non-Transfer Event occurred shall cease to own any right or interest) in such number of shares of Capital Stock, the ownership of which by such purported transferee or record holder would (A) result in the shares of Capital Stock being beneficially owned by fewer than 100 Persons (determined under the principles of Section 856(a)(5) of the Code), (B) result in the Corporation being closely held within the meaning of Section 856(h) of the Code, or (C) cause the Corporation or any of its Subsidiaries to Constructively Own 10% or more of the ownership interests in a tenant of the Corporations or a Subsidiarys real property, within the meaning of Section 856(d)(2)(B) of the Code, (y) such number of shares of Capital Stock (rounded up to the nearest whole share) shall be designated Shares-in-Trust and, in accordance with the provisions of subsection G of this Article XIV, transmitted automatically and by operation of law to the Trust to be held in accordance with subsection G of this Article XIV, and (z) the Prohibited Owner shall submit such number of shares of Capital Stock to the Corporation for registration in the name of the Trustee. Such transfer to a Trust and the designation of shares as Shares-in-Trust shall be effective as of the close of business on the business day prior to the date of the Transfer or Non-Transfer Event, as the case may be.
(3) The transfer of Capital Stock to the Trust shall be subject to the proviso in paragraph 10 of Exhibit D to the Investment Agreements.
C. Remedies For Breach . If the Corporation shall at any time determine, after requesting such information as the Corporation determines is relevant, subject to the provisions of subsection E of this Article XIV, that a Transfer has taken place in violation of subsection A of this Article XIV or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any shares of Capital Stock in violation of subsection A of this Article XIV, the Corporation shall take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or acquisition, including, but not limited to, refusing to give effect to such Transfer on the books of the Corporation or instituting proceedings to enjoin such Transfer or acquisition.
D. Notice of Restricted Transfer . Any Person who acquires or attempts to acquire shares of Capital Stock in violation of subsection A of this Article XIV, or any Person who
owned shares of Capital Stock that were transferred to the Trust pursuant to the provisions of subsection B of this Article XIV, shall as promptly as practicable give written notice to the Corporation of such event or, in the case of such a proposed or attempted transaction, give at least fifteen (15) days prior written notice, and shall provide to the Corporation such other information as the Corporation may request in order to determine the effect, if any, of such Transfer or Non-Transfer Event, as the case may be, on the Corporations status as a REIT.
E. Owner Required to Provide Information . From the date hereof and through and including the Restriction Termination Date, upon reasonable advance written notice by the Corporation by January 30th of each year, every Beneficial Owner or Constructive Owner of more than five percent (5%), or such lower percentages as required pursuant to regulations under the Code (currently Treasury Regulation § 1.857-8(d)), of the outstanding shares of all classes of Capital Stock shall either (A) provide to the Corporation a written statement or affidavit stating the name and address of such Beneficial Owner or Constructive Owner, the number of shares of Capital Stock Beneficially Owned or Constructively Owned, and a description of how such shares are held, or (B) comply with Treasury Regulation § 1.857-9. Each such Beneficial Owner or Constructive Owner shall provide to the Corporation such information as the Corporation may reasonably request in order to determine the effect, if any, of such Beneficial Ownership or Constructive Ownership on the Corporations status as a REIT and to ensure compliance with the Stock Ownership Limit and the Constructive Ownership Limit.
F. Exception . The Board of Directors, in its sole and absolute discretion, may except a Person from the Stock Ownership Limit or the Constructive Ownership Limit if (i) such Person is not (A) an individual for purposes of Code Section 542(a)(2), as modified by Code Section 856(h), or (B) treated as the owner of such stock for purposes of Code Section 542(a)(2), as modified by Code Section 856(h), and the Board of Directors obtains such representations and undertakings from such Person as are necessary to ascertain that no Persons Beneficial or Constructive Ownership of such shares of Capital Stock will violate subsection A(1), A(2), A(3) or A(4) of this Article XIV, (ii) such Person does not and represents that it will not Beneficially Own shares of Capital Stock to the extent that such Beneficial Ownership of Capital Stock would result in the Corporation being closely held within the meaning of Section 856(h) of the Code, or otherwise failing to qualify as a REIT (including, but not limited to, Beneficial or Constructive Ownership that would result in the Corporation or any of its Subsidiaries Constructively Owning an interest in a tenant of the Corporation (or a tenant of any entity owned or controlled by the Corporation) that would cause the Corporation or a Subsidiary to Constructively Own 10% or more of the ownership interests in such tenant with the result that the Corporation does not satisfy the REIT Requirements), and the Board of Directors obtains such representations and undertakings from such Person as are necessary to ascertain this fact, and (iii) such Person agrees that any violation or attempted violation of such representations or undertakings (or other action which is contrary to the restrictions contained in subsections A through E of this Article XIV) will result in such shares of Capital Stock that are in excess of the Stock Ownership Limit or the Constructive Ownership Limit, as applicable, being designated as Shares-in-Trust in accordance with the provisions of subsection B of this Article XIV. In exercising its discretion under this subsection F, the Board of Directors may, but is not required to, obtain a ruling from the Internal Revenue Service or an opinion of counsel, in either case in form and substance satisfactory to the Board of Directors, as it may deem necessary or desirable in order to maintain the Corporations status as a REIT, and, in addition, may obtain such
representations and undertakings from a Beneficial Owner or Constructive Owner that it may deem necessary or desirable under the circumstances.
G. Shares-in-Trust .
(1) Trust . Any shares of Capital Stock transferred to a Trust and designated Shares-in-Trust pursuant to subsection B of this Article XIV shall be held for the exclusive benefit of the Beneficiary. The Corporation shall name a Beneficiary for each Trust within five (5) days after the date on which the Corporation is made aware of the existence of the Trust. Any transfer to a Trust, and subsequent designation of shares of Capital Stock as Shares-in-Trust, pursuant to subsection B of this Article XIV shall be effective as of the close of business on the business day prior to the date of the Transfer or Non-Transfer Event that results in the transfer to the Trust. Shares-in-Trust shall remain issued and outstanding shares of Capital Stock of the Corporation and shall be entitled to the same rights and privileges on identical terms and conditions as are all other issued and outstanding shares of Capital Stock of the same class and series. When transferred to a Permitted Transferee in accordance with the provisions of subsection G(5) of this Article XIV, such Shares-in-Trust shall cease to be designated as Shares-in-Trust.
(2) Dividend Rights . The Trust, as record holder of Shares-in-Trust, shall be entitled to receive all dividends and distributions with respect to such shares of Capital Stock and shall hold such dividends or distributions in trust for the benefit of the Beneficiary. The Prohibited Owner with respect to Shares-in-Trust shall repay to the Trust the amount of any dividends or distributions received by it that are attributable to any shares of Capital Stock designated as Shares-in-Trust and the record date of which was on or after the date that such shares became Shares-in-Trust. The Corporation shall take all measures that it determines reasonably necessary to recover the amount of any such dividend or distribution paid to a Prohibited Owner, including, if necessary, (x) withholding any portion of future dividends or distributions payable on shares of Capital Stock Beneficially Owned or Constructively Owned by the Person who, but for the provisions of subsection B of this Article XIV, would Constructively Own or Beneficially Own the Shares-in-Trust, and (y) as soon as reasonably practicable following the Corporations receipt or withholding thereof paying over to the Trust for the benefit of the Beneficiary the dividends or distributions so received or withheld, as the case may be.
(3) Rights Upon Liquidation . In the event of any voluntary or involuntary liquidation, dissolution, or winding-up of, or any distribution of the assets of, the Corporation, each holder of Shares-in-Trust shall be entitled to receive, ratably with each other holder of shares of Capital Stock of the same class or series, that portion of the assets of the Corporation which is available for distribution to the holders of such class or series of shares of Capital Stock. The Trust shall distribute to the Prohibited Owner the amounts received upon such liquidation, dissolution, winding-up, or distribution; provided , however , that the Prohibited Owner shall not be entitled to receive amounts pursuant to this subsection G(3) of this Article XIV in excess of, in the case of a purported Transfer in which the Prohibited Owner gave value for shares of Capital Stock
and which Transfer resulted in the transfer of the shares to the Trust, the price per share, if any, such Prohibited Owner paid for the shares of Capital Stock and, in the case of a Non-Transfer Event or Transfer in which the Prohibited Owner did not give value for such shares (e.g., if the shares were received through a gift or devise) and which Non-Transfer Event or Transfer, as the case may be, resulted in the transfer of shares to the Trust, the price per share equal to the Market Price on the date of such Non-Transfer Event or Transfer. Any remaining amount in such Trust shall be distributed to the Beneficiary.
(4) Voting Rights . The Trustee shall be entitled to vote all Shares-in-Trust. Any vote by a Prohibited Owner as a holder of shares of Capital Stock prior to the discovery by the Corporation that the shares of Capital Stock are Shares-in-Trust shall, subject to applicable law, be rescinded and be void ab initio with respect to such Shares-in-Trust and be recast by the Trustee; provided , however , that if the Corporation has already taken irreversible corporation action, then the Trustee shall not have the authority to rescind and recast such vote. The Trustee shall vote all Shares-in-Trust in accordance with the recommendation of the Designated Proxy Firm and shall abstain if no such recommendation has been made. For the purposes of this subsection (4), the Designated Proxy Firm means Institutional Shareholder Services, Inc. or any successor thereto or a nationally recognized proxy advisory firm designated by the vote of a majority of the independent members of the Board of Directors in their discretion from time to time; provided , however , that the independent members of the Board of Directors shall not designate a Designated Proxy Firm after the date on which a meeting of stockholders has been called until after such meeting has been held; provided , further , however that if such meeting has been adjourned, no designation of a Designated Proxy Firm shall occur until after the date on which such adjourned meeting has been held. The Prohibited Owner shall be deemed to have given, as of the close of business on the business day prior to the date of the purported Transfer or Non-Transfer Event that results in the transfer to the Trust of shares of Capital Stock under subsection B of this Article XIV, an irrevocable proxy to the Trustee to vote the Shares-in-Trust in accordance with this subsection (4).
(5) Designation of Permitted Transferee . The Trustee shall have the exclusive and absolute right to designate a Permitted Transferee of any and all Shares-in-Trust in an orderly fashion so as not to materially adversely affect the Market Price of its Shares-in-Trust. The Trustee shall designate any Person as a Permitted Transferee, provided , however , that (i) the Permitted Transferee so designated purchases for valuable consideration (whether in a public or private sale) the Shares-in-Trust, and (ii) the Permitted Transferee so designated may acquire such Shares-in-Trust without such acquisition resulting in a transfer to a Trust and the redesignation of such shares of Capital Stock so acquired as Shares-in-Trust under subsection B of this Article XIV. Upon the designation by the Trustee of a Permitted Transferee in accordance with the provisions of this subsection G(5), the Trustee shall (i) cause to be transferred to the Permitted Transferee that number of Shares-in-Trust acquired by the Permitted Transferee, (ii) cause to be recorded on the books of the Corporation that the Permitted Transferee is the holder of record of such number of shares of Capital Stock, as applicable, (iii) cause the Shares-in-Trust to be cancelled, and (iv) distribute to the
Beneficiary any and all amounts held with respect to the Shares-in-Trust after making the payment to the Prohibited Owner pursuant to subsection G(6) of this Article XIV.
(6) Compensation to Record Holder of Shares of Capital Stock that Become Shares-in-Trust . Any Prohibited Owner shall be entitled (following discovery of the Shares-in-Trust and subsequent designations of the Permitted Transferee in accordance with subsection G(5) of this Article XIV or following the acceptance of the offer to purchase such shares in accordance with subsection G(7) of this Article XIV) to receive from the Trustee following the sale or other disposition of such Shares-in-Trust the lesser of (i) in the case of (a) a purported Transfer in which the Prohibited Owner gave value for shares of Capital Stock and which Transfer resulted in the transfer of the shares to the Trust, the price per share, if any, such Prohibited Owner paid for the shares of Capital Stock, or (b) a Non-Transfer Event or Transfer in which the Prohibited Owner did not give value for such shares (e.g., if the shares were received through a gift or devise) and which Non-Transfer Event or Transfer, as the case may be, resulted in the transfer of shares to the Trust, the price per share equal to the Market Price on the date of such Non-Transfer Event or Transfer, and (ii) the price per share received by the Trustee from the sale or other disposition of such Shares-in-Trust. Any amounts received by the Trustee in respect of such Shares-in-Trust and in excess of such amounts to be paid to the Prohibited Owner pursuant to this subsection G(6) shall be distributed to the Beneficiary in accordance with the provisions of subsection G(5) of this Article XIV. Each Beneficiary and Prohibited Owner waives any and all claims that it may have against the Trustee and the Trust arising out of the disposition of Shares-in-Trust, except for claims arising out of the gross negligence or willful misconduct of, or any failure to make payments in accordance with this subsection G(6), by such Trustee or the Corporation.
(7) Purchase Right in Shares-in-Trust . Shares-in-Trust shall be deemed to have been offered for sale to the Corporation, or its designee, at a price per share equal to the lesser of (i) the price per share in the transaction that created such Shares-in-Trust (or, in the case of devise, gift or Non-Transfer Event, the Market Price at the time of such devise, gift or Non-Transfer Event), and (ii) the Market Price on the date the Corporation, or its designee, accepts such offer. Subject to subsection G(6) of this Article XIV, the Corporation shall have the right to accept such offer for a period of ninety (90) days after the later of (i) the date of the Non-Transfer Event or purported Transfer which resulted in such Shares-in-Trust and (ii) the date the Corporation determines in good faith that a Transfer or Non-Transfer Event resulting in Shares-in-Trust has occurred, if the Corporation does not receive a notice of such Transfer or Non-Transfer Event pursuant to subsection D of this Article XIV.
H. Modification and Limitations on Changes of Limits .
(1) Increase or Decrease in Stock Ownership Limit or Constructive Ownership Limit . Subject to the limitations provided in subsection H(2) of this Article XIV, the Board may from time to time increase or decrease the Stock Ownership Limit or the Constructive Ownership Limit; provided , however , that (i) any decrease may only be made prospectively as to subsequent holders (other than a decrease as a result of a retroactive change in existing law that would require a decrease in order for the
Corporation to retain REIT status, in which case such decrease shall be effective immediately) and (ii) any decrease may only be made if the Board reasonably determines that such decrease is advisable to help the Corporation protect its status as a REIT.
(2) Limitation on Changes in Stock Ownership Limit or Constructive Ownership Limit . Prior to the modification of any Stock Ownership Limit or Constructive Ownership Limit pursuant to subsection H(1) of this Article XIV, the Board may require such opinions of counsel, affidavits, undertakings, or agreements as it may deem necessary or advisable in order to determine or ensure the Corporations status as a REIT.
I. Remedies Not Limited . Nothing contained in this Article XIV shall limit the authority of the Corporation to take such other action as it deems necessary or advisable (i) to protect the Corporation and the interests of its stockholders by preservation of the Corporations status as a REIT, and (ii) to ensure compliance with the Stock Ownership Limit or the Constructive Ownership Limit, as applicable.
J. Ambiguity . In the case of an ambiguity in the application of any of the provisions of this Article XIV, including any defined term contained herein, the Board of Directors shall have the power to determine the application of the provisions of this Article XIV with respect to any situation based on the facts known to it. In the event that this Article XIV requires an action by the Board of Directors and this Certificate of Incorporation fails to provide specific guidance with respect to such action, the Board of Directors shall have the power to determine the action to be taken so long as such action is in furtherance of the provisions of this Article XIV.
K. Severability . If any provision of this Article XIV or any application of any such provision is determined to be invalid by any Federal or state court having jurisdiction over the issues, the validity of the remaining provisions shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court.
L. Legend . Each certificate for shares of Capital Stock shall bear substantially the following legend:
The shares represented by this certificate are subject to restrictions on transfer for the purpose of the Corporations maintenance of its status as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the Code ). No Person may (i) Beneficially Own shares of Capital Stock in excess of 9.9% of the number or value of outstanding shares of Capital Stock (whichever is more restrictive) or Constructively Own shares of Capital Stock in excess of 9.9% of the number or value of outstanding shares of Capital Stock (whichever is more restrictive); (ii) beneficially own shares of Capital Stock that would result in the shares of Capital Stock being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution); (iii) Beneficially Own shares of Capital Stock that would result in the Corporation being closely held under Section 856(h) of the Code; or (iv) Constructively Own shares of Capital Stock that would cause the Corporation or any of its Subsidiaries to Constructively Own 10% or more of the ownership interests in a tenant of the Corporations or a
Subsidiarys real property, within the meaning of Section 856(d)(2)(B) of the Code. Any Person who attempts to Beneficially Own or Constructively Own shares of Capital Stock in excess of the above limitations must notify the Corporation in writing as promptly as practicable. Any transfer in violation of the above limitations will be void ab initio . Notwithstanding the foregoing, if the restrictions above are violated, the shares of Capital Stock represented hereby will be transferred automatically and by operation of law to a Trust and shall be designated Shares-in-Trust. The foregoing summary does not purport to be complete and is qualified in its entirety by reference to, and all capitalized terms in this legend have the meanings defined in, the Corporations charter, a copy of which, including the restrictions on transfer, will be sent without charge to each stockholder who so requests.
ARTICLE XV
In addition to any votes required by applicable law and subject to the express rights of the holders of any series of Preferred Stock, if any outstanding, and notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of the then outstanding Voting Stock, voting together as a single class, shall be required to amend, modify or repeal any provision, or adopt any new or additional provision, in a manner inconsistent with Articles V, VI(C), VII, XII and this Article XV.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be signed by its this day of November, 2010.
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SIGNATURE PAGE TO GENERAL GROWTH PROPERTIES, INC. AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
AMENDED AND RESTATED
BYLAWS
OF
GENERAL GROWTH PROPERTIES, INC.
(Adopted November, 2010)
ARTICLE I
STOCKHOLDERS
SECTION 1. Stockholder Meetings .
(a) The annual meeting of stockholders of General Growth Properties, Inc. (the Corporation) for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held each year at such date, time and place, if any, within or without the State of Delaware, as the Board of Directors shall determine.
(b) A special meeting of the stockholders for any purpose or purposes may be called by the Board of Directors. A special meeting of stockholders shall be called by the Secretary promptly upon and in accordance with the written request, stating the purpose, date, time and place within or without the State of Delaware of the meeting, of stockholders of record who together hold fifteen percent (15%) or more of the voting power of the issued and outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (the Voting Stock).
SECTION 2. Notice of Meetings . Whenever stockholders are required or permitted to take any action at a meeting, a notice of the meeting shall be given that shall state the place, date and time of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present and vote at such meeting, the place at which the list of stockholders may be examined, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, and any other information required by law to be included in the notice. Unless otherwise provided by law, the Corporations Certificate of Incorporation, as it may be amended from time to time (the Certificate of Incorporation), or these amended and restated bylaws (the Bylaws), the notice of any meeting shall be mailed or otherwise delivered (including pursuant to electronic transmission in the manner provided in Section 232 of the General Corporation Law of the State of Delaware (the DGCL)) not less than ten (10) nor more than sixty (60) days prior to the date of the meeting to each stockholder of record entitled to vote at such meeting and shall otherwise comply with applicable law. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid, addressed to the stockholder at his address as it appears on the stock transfer books of the Corporation. If notice is given by electronic transmission, such notice shall be deemed to be given at the times provided in the DGCL. Any previously scheduled meeting of the stockholders may be postponed, and (unless the Corporations Certificate of Incorporation otherwise provides) any special meeting of the stockholders called by the Board of Directors may be cancelled, by resolution of the Board of Directors upon public announcement made prior to the date previously scheduled for such meeting of stockholders.
SECTION 3. Quorum and Adjournment . Except as otherwise provided by law or the Certificate of Incorporation, a quorum for the transaction of business at any meeting of stockholders shall consist of the holders of record of a majority of the voting power of the Voting Stock, present in person or by proxy, except that when specified business is to be voted on by a class or series of stock voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum of such class or series for the transaction of such business. The chairman of the meeting may (i) from time to time adjourn any meeting that is not a special meeting called by a stockholder(s) pursuant to Section 1(b), whether or not there is such a quorum and (ii) adjourn a special meeting called by a stockholder(s) pursuant to Section 1(b) only if there is not such a quorum; provided , that, in the case of clauses (i) and (ii), the date, time and place of the adjourned meeting is announced at the meeting such adjournment is taken; provided , however , that notice shall be provided if the meeting is adjourned for more than 30 days or otherwise required by law. The stockholders present at a duly called meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
SECTION 4. Organization . Meetings of stockholders shall be presided over by the Chairman of the Board of Directors (the Chairman), or if none or in the Chairmans absence, the Presiding Director, or if none or in the Presiding Directors absence, the Vice-Chairman, or if none or in the Vice-Chairmans absence, the Chief Executive Officer, or in the Chief Executive Officers absence, a Vice-President, or, if none of the foregoing is present, by a chairman to be chosen by the stockholders entitled to vote who are present in person or by proxy at the meeting. The Secretary of the Corporation, or in the Secretarys absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the chairman of the meeting shall appoint any person present to act as secretary of the meeting.
SECTION 5. Voting; Proxies; Required Vote .
(a) At each meeting of stockholders, every stockholder shall be entitled to vote in person or by proxy appointed by an instrument in writing, subscribed by such stockholder or by such stockholders duly authorized attorney in fact and otherwise complying with requirements of the DGCL and any stock exchange(s) upon which the Voting Stock is then listed (but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period), and, unless the Certificate of Incorporation provides otherwise, shall have one vote for each share of stock entitled to vote registered in the name of such stockholder on the books of the Corporation on the applicable record date fixed pursuant to these Bylaws. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, which shall be governed by Section 8 of this Article I, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter shall be the act of the stockholders.
(b) When specified business is to be voted on by a class or series of stock voting as a class, the affirmative vote of the majority of shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class, unless otherwise provided in the Certificate of Incorporation.
SECTION 6. Inspectors . The Board of Directors, in advance of any meeting, may, but need not unless required by law, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not so appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of such inspectors duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of such inspectors ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question or matter determined by such inspector or inspectors and execute a certificate of any fact found by such inspector or inspectors.
SECTION 7. Notice of Stockholder Nominations and Other Business .
(a) Annual Meetings of Stockholders .
(1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of other business to be considered by the stockholders may be made at an annual meeting of stockholders only (A) pursuant to the Corporations notice of meeting (or any supplement thereto), (B) by or at the direction of the Board of Directors, or (C) by any stockholder of the Corporation who (i) was a stockholder of record of the Corporation at the time the notice provided for in this Section 7 is delivered to the Secretary of the Corporation and at the time of the annual meeting, (ii) is entitled to vote at the meeting, and (iii) complies with the notice procedures set forth in this Section 7 as to such business or nomination. Clause (C) of the preceding sentence shall be the exclusive means for a stockholder to make nominations or submit other business (other than matters or nominations properly brought under Rule 14a-8 or Rule 14a-11 under the Securities Exchange Act of 1934, as amended (including the rules and regulations promulgated thereunder, the Exchange Act) and included in the Corporations proxy statement) at an annual meeting of stockholders.
(2) Without qualification or limitation of any other requirement, for any nominations or any other business to be properly brought before an annual meeting by a stockholder pursuant to clause (C) of paragraph (a)(1) of this Section 7, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and any such proposed business other than the nominations of persons for election to the Board of Directors must constitute a proper matter for stockholder action. To be timely, a stockholders notice shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the one hundred twentieth (120th) day nor later than the close of business on the ninetieth (90th) day prior to the first anniversary of the preceding years annual meeting ( provided , however , that in the event that the date of the annual meeting is more than
thirty (30) days before or more than seventy (70) days after such anniversary date, notice by the stockholder must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or, if the first public announcement of the date of such annual meeting is less than one hundred (100) days prior to the date of such annual meeting, not later than the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation). In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholders notice as described above.
(3) To be in proper form, a stockholders notice delivered pursuant to this Section 7 must set forth: (A) as to each person, if any, whom the stockholder proposes to nominate for election or reelection as a director (i) all information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in contested election, or is otherwise required, in each case pursuant to and in accordance with Regulation 14A under the Exchange Act, (ii) such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected and (iii) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such stockholder and, if applicable, the beneficial owner of the shares held of record by such stockholder (the Beneficial Owner), if any, and their respective affiliates, or others acting in concert therewith, on the one hand, and each proposed nominee, and such persons respective affiliates, or others acting in concert therewith, on the other hand, including, without limitation all information that would be required to be disclosed pursuant to Item 404 promulgated under Regulation S-K if the stockholder making the nomination and any Beneficial Owner, if any, or any affiliate thereof or person acting in concert therewith, were the registrant for purposes of such rule and the nominee were a director or executive officer of such registrant; (B) if the notice relates to any business other than a nomination of a director or directors that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend these Bylaws, the language of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the Beneficial Owner, if any, on whose behalf the proposal is made, and a description of all agreements, arrangements and understandings between such stockholder and Beneficial Owner, if any, (including their names) in connection with the proposal of such business by such stockholder; and (C) as to the stockholder giving the notice and the Beneficial Owner, if any, (i) the name and address of such stockholder, as they appear on the Corporations books, and of such Beneficial Owner, if any, (ii) (a) the class or series and number of shares of capital stock of the Corporation which are, directly or indirectly, owned beneficially and of record by such stockholder and such Beneficial Owner, (b) any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder has a right to vote any shares of any security of the Corporation, (c) any short interest in any security of the Corporation (for purposes of these Bylaws a person shall be deemed have a short interest of such stockholders and Beneficial Owner, if any, in a security if such person directly or indirectly, through any contract, arrangement, understanding, relationship
or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security), (d) any rights to dividends on the shares of the Corporation owned beneficially by such stockholder and Beneficial Owner, if any, that are separated or separable from the underlying shares of the Corporation and (e) any proportionate interest in shares of the Corporation held, directly or indirectly, by a general or limited partnership in which such stockholder is a general partner or, directly or indirectly, beneficially owns an interest in a general partner, (iii) a description of any agreement, arrangement or understanding with respect to the nomination or proposal between or among such stockholder and such Beneficial Owner, if any, any of their respective affiliates, and any others acting in concert with any of the foregoing with respect to such nomination or proposal, (iv) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination, (v) a representation whether the stockholder or the Beneficial Owner, if any, intends to be or is part of a group which intends (a) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the voting power of the Corporations outstanding Voting Stock required to approve or adopt the proposal or elect the nominee or (b) otherwise to solicit proxies from stockholders in support of such proposal or nomination, and (vi) any other information relating to such stockholder and Beneficial Owner, if any, that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested election pursuant to Section 14 of the Exchange Act. In addition, the stockholders notice with respect to the election of directors must include, with respect to each nominee for election or reelection to the Board of Directors, the completed and signed questionnaire, representation and agreement required by Section 9 of this Article I. The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable stockholders understanding of the independence, or lack thereof, of such nominee. Notwithstanding the foregoing, the information required by clauses (a)(3)(C)(ii) and (a)(3)(C)(iii) of this Section 7 shall be updated by such stockholder and Beneficial Owner, if any, not later than ten (10) days after the record date for the meeting to disclose such information as of the record date.
(4) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 7 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation at an annual meeting is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least one hundred (100) days prior to the first anniversary of the preceding years annual meeting, a stockholders notice required by this Section 7 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.
(b) Special Meetings of Stockholders . Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporations notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected
pursuant to the Corporations notice of meeting (1) by or at the direction of the Board of Directors or a committee thereof, or (2) provided , that the Board of Directors, such committee or stockholder(s) pursuant to Section 1(b) hereof have determined that a purpose of the meeting is to elect directors, by any stockholder of the Corporation who (i) is a stockholder of record of the Corporation at the time the notice provided for in this Section 7 is delivered to the Secretary of the Corporation and at the time of the special meeting, (ii) is entitled to vote at the meeting and upon such election, and (iii) complies with the notice procedures set forth in this Section 7 as to such nomination. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporations notice of meeting, if the stockholders notice required by paragraph (a)(3) hereof with respect to any nomination (including the completed and signed questionnaire, representation and agreement required by these Bylaws) shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the one hundred twentieth (120th) day prior to such special meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such special meeting or, if the first public announcement of the date of such special meeting is less than one hundred (100) days prior to the date of such special meeting, the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholders notice as described above.
(c) Conduct of Meetings . The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the person presiding over any meeting of stockholders shall have the right and authority to convene the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding person, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the presiding person of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the presiding person of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. The presiding person at any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such presiding person should so determine, such presiding person shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board of Directors or the person presiding over the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
(d) General .
(1) Only such persons who are nominated in accordance with the procedures set forth in this Section 7 and the Certificate of Incorporation shall be eligible to be elected at an annual or special meeting of stockholders of the Corporation to serve as directors and only such other business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 7. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the person presiding at the meeting of stockholders shall have the power and duty (a) to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 7 (including whether the stockholder or Beneficial Owner, if any, solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies in support of such stockholders nominee or proposal in compliance with such stockholders representation as required by clause (a)(3)(C)(v) of this Section 7) and (b) if the presiding person determines that any proposed nomination or other business was not made or proposed in compliance with this Section 7, to declare that such nomination shall be disregarded or that such proposed other business shall not be transacted. Notwithstanding the foregoing provisions of this Section 7, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or other business, such nomination shall be disregarded and such proposed other business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 7, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.
(2) For purposes of this Section 7, public announcement shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission (the SEC) pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding anything to the contrary in the foregoing provisions of this Section 7, a stockholder shall also comply with all applicable requirements of the Exchange Act with respect to the matters set forth in this Section 7; provided , however , that any references in these Bylaws to the Exchange Act are not intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to this Section 7 (including clause (a)(1)(C) and paragraph (b) hereof), and compliance with clause (a)(1)(C) and paragraph (b) of this Section 7 shall be the exclusive means for a stockholder to make nominations or submit other business, as applicable (other than matters or nominations brought properly under and in compliance with Rule 14a-8 or Rule 14a-11 of the Exchange Act). Nothing in this Section 7 shall be deemed to affect any rights (A) of stockholders to request inclusion of proposals in the Corporations proxy statement pursuant to Rule 14a-8 of the Exchange Act or (B) of the holders of any class or series of stock having a preference over the common stock of the Corporation as to dividends or upon liquidation
(Preferred Stock) to elect directors pursuant to any applicable provisions of the Certificate of Incorporation.
SECTION 8. Required Vote for Election of Directors .
(a) Except as otherwise provided pursuant to the Certificate of Incorporation and except as provided by Section 12 of Article II with respect to the filling of vacancies, directors shall be elected by a majority of votes cast by the shares represented at a meeting of stockholders and entitled to vote thereon, a quorum being present at such meeting, unless the election is contested, in which case directors shall be elected by a plurality of votes cast by the shares represented at such meeting. A majority of votes cast means that the number of votes cast for the election of the nominee exceeds fifty percent (50%) of the total number of votes cast for and against the election of that nominee. Stockholders shall also be provided the opportunity to abstain from voting with respect to the election of a director. In voting on the election of directors, abstentions, votes designated to be withheld from the election of a director and shares present but not voted in respect of the election of a director shall not be considered as votes cast. An election shall be considered contested if the number of nominees for election is greater than the number of directors to be elected. For purposes hereof, the number of nominees shall be determined as of the later of (i) the tenth (10th) day preceding the date the Corporation first mails its notice of meeting for such meeting to the stockholders of the Corporation and (ii) the last date on which a stockholder in accordance with these Bylaws may give notice of the nomination of a person for election as a director in order for such nomination to be required to be presented for a vote of the stockholders of the Corporation. Each director, including a director elected to fill a vacancy, shall hold office until the next annual meeting of stockholders and until such directors successor is duly elected and qualified or until such directors earlier death, incapacity, resignation, retirement, disqualification or removal from office.
(b) If a nominee for director who is an incumbent director is not elected and no successor has been elected at such meeting, the director shall promptly tender such directors resignation to the Board of Directors. The Nominating and Governance Committee shall make a recommendation to the Board of Directors as to whether to accept or reject the tendered resignation, or whether other action should be taken. The Board of Directors shall act on the tendered resignation, taking into account the Nominating and Governance Committees recommendation, and publicly disclose (by a press release, a filing with the SEC or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale behind the decision within ninety (90) days from the date of the certification of the election results. The Nominating and Governance Committee in making its recommendation, and the Board of Directors in making its decision, may each consider any factors or other information that it considers appropriate and relevant. The director who tenders a resignation shall not participate in the recommendation of the Nominating and Governance Committee or the decision of the Board of Directors with respect to such resignation. If such incumbent directors resignation is not accepted by the Board of Directors, such director shall continue to serve until the next annual meeting and until such directors successor is duly elected, or such directors earlier resignation or removal. If a directors resignation is accepted by the Board of Directors pursuant to these Bylaws, or if a nominee for director is not elected and the nominee is not an incumbent director, then the Board of Directors, in its sole discretion, may fill any resulting
vacancy pursuant to the provisions of Article II, Section 12 of these Bylaws or may decrease the size of the Board of Directors pursuant to the provisions of Article II, Section 2 of these Bylaws.
SECTION 9. Submission of Questionnaire, Representation and Agreement . To be eligible to be a nominee for election or reelection as a director of the Corporation, a person must deliver (in accordance with the time periods prescribed for delivery of notice under Article I, Section 7 of these Bylaws) to the Secretary at the principal executive offices of the Corporation a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request) and a written representation and agreement (in the form provided by the Secretary upon written request) that such person (A) will abide by the requirements of Article I, Section 8 of these Bylaws, (B) is not and will not become a party to (1) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a Voting Commitment) that has not been disclosed to the Corporation or (2) any Voting Commitment that could limit or interfere with such persons ability to comply, if elected as a director of the Corporation, with such persons fiduciary duties under applicable law as it presently exists or may hereafter be amended, (C) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein, and (D) in such persons individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the Corporation, and will comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation.
SECTION 10. Removal of Director . Unless otherwise provided by law and subject to the provisions of the Certificate of Incorporation and subject to the rights of the holders of any series of Preferred Stock, if any outstanding, with respect to such series of Preferred Stock, the stockholders, acting at a duly called annual meeting or a duly called special meeting of the stockholders, at which there is a proper quorum and where notice has been provided in accordance with Section 2 of this Article I, may remove a director or directors of the Corporation, but only for cause.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers . The business, property and affairs of the Corporation shall be managed by, or under the direction of, the Board of Directors. In addition to the powers and authorities by these Bylaws expressly conferred upon them, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws required to be exercised or done by the stockholders.
SECTION 2. Qualification; Number; Term; Remuneration .
(a) Each director shall be at least 18 years of age. A director need not be a stockholder, a citizen of the United States, or a resident of the State of Delaware. The total number of directors that the Corporation would have if there were no vacancies (the Whole Board) shall be fixed from time to time exclusively by action of the Board of Directors, one of whom may be selected by the Board of Directors to be its Chairman.
(b) Directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal.
(c) Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and directors who are not employees of the Corporation may be paid a fixed sum for attendance at each meeting of the Board of Directors and each meeting of a committee of the Board of Directors on which such director serves or a stated salary as director or such other compensation scheme (which may include awards of stock, options, or other incentive awards) as the Compensation Committee of the Board of Directors determines from time to time. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for committee service.
SECTION 3. Quorum and Manner of Voting . Except as otherwise provided by law or in these Bylaws, a majority of the Whole Board shall constitute a quorum. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting from time to time to another time and place without notice. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. The directors present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum.
SECTION 4. Places of Meetings . Meetings of the Board of Directors may be held at any place within or without the State of Delaware as may from time to time be fixed by resolution of the Board of Directors, or as may be specified in the notice of meeting.
SECTION 5. Regular Meetings . Regular meetings of the Board of Directors shall be held at such times and places as the Board of Directors shall from time to time by resolution determine. Notice need not be given of regular meetings of the Board of Directors held at times and places fixed by resolution of the Board of Directors.
SECTION 6. Special Meetings . Special meetings of the Board of Directors shall be held whenever called by the Chairman, Presiding Director, President, Chief Executive Officer or by any two (2) of the directors then in office.
SECTION 7. Notice of Meetings . A notice of the place, date and time and the purpose or purposes of each special meeting of the Board of Directors shall be given to each director by mail, personal delivery, electronic transmission or telephone at least twenty-four (24) hours before the day of the meeting; provided , however , if notice is sent by United States Mail, it shall be deposited in the United States Mail at least five (5) days before the date of the meeting. Notice shall be deemed to be given at the time of mailing, but said twenty-four (24) hours notice need not be given to any director who consents in writing, whether before or after the meeting, or who attends the meeting without protesting prior thereto or at its commencement, the lack of notice to him.
SECTION 8. Chairman of the Board of Directors . Except as otherwise provided by law, the Certificate of Incorporation, or in Section 9 of this Article II, the Chairman of the Board of Directors, if there be one, shall preside at all meetings of the Board of Directors and shall have such other powers and duties as may from time to time be assigned by the Board of Directors.
SECTION 9. Presiding Director . If at any time the Chairman of the Board of Directors shall be an executive officer or former executive officer of the Corporation or for any reason shall not be an independent director, a Presiding Director shall be selected by the independent directors from among the directors who are not executive officers or former executive officers of the Corporation and are otherwise independent. If the Chairman of the Board of Directors is not present, the Presiding Director shall chair meetings of the Board of Directors. The Presiding Director shall chair any meeting of the independent directors and shall also perform such other duties as may be assigned to the Presiding Director by these Bylaws or the Board of Directors.
SECTION 10. Organization . At all meetings of the Board of Directors, the Chairman, or if none or in the Chairmans absence or inability to act, the Presiding Director, or if none or in the Presiding Directors absence or inability to act, the Chief Executive Officer, or in the Chief Executive Officers absence or inability to act, any Vice-President who is a member of the Board of Directors, or if none or in such Vice-Presidents absence or inability to act, a chairman chosen by the directors shall preside. The Secretary of the Corporation shall act as secretary at all meetings of the Board of Directors when present, and, in the Secretarys absence, the presiding officer may appoint any person to act as secretary.
SECTION 11. Resignation . Any director may resign at any time upon written notice to the Corporation and, except for a resignation tendered pursuant to Section 8(b) of Article I, such resignation shall take effect upon receipt thereof by the Chief Executive Officer or Secretary, unless otherwise specified in the resignation.
SECTION 12. Vacancies . Subject to applicable law and the rights of the holders of any series of Preferred Stock with respect to such series of Preferred Stock, if any outstanding, newly created directorships resulting from any increase in the authorized number of directors will be filled by a majority of the Board of Directors then in office, provided , that a majority of the Whole Board is present, unless the Board of Directors otherwise determines that such directorships should be filled by the affirmative vote of the stockholders of record of at least a majority of the Voting Stock, and any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause will be filled
generally by the majority vote of the remaining directors in office, even if less than a quorum is present. No change in the number of authorized directors constituting the Whole Board shall shorten or increase the term of any incumbent director.
SECTION 13. Conference Telephone Meetings . Members of the Board of Directors, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting.
SECTION 14. Action by Unanimous Written Consent . Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all the directors consent thereto in writing (which may be provided by electronic transmission), and such writing or writings are filed with the minutes of proceedings of the Board of Directors.
ARTICLE III
COMMITTEES
SECTION 1. Appointment . From time to time the Board of Directors, by a resolution adopted by a majority of the Whole Board, may appoint any committee or committees, each committee to consist of two (2) (or such other minimum number, if any, mandated by law and the applicable listing requirements of the New York Stock Exchange (or the principal stock exchange on which the Corporations common stock is listed), as in effect from time to time) or more directors of the Corporation for any purpose or purposes, to the extent lawful, which shall have powers as shall be determined and specified by the Board of Directors in the resolution of appointment, including the following committees:
(a) an Executive Committee, which shall have such authority as has been or shall be delegated by the Board of Directors and shall advise the Board of Directors from time to time with respect to such matters as the Board of Directors shall direct; and
(b) an Audit Committee, a Compensation Committee and a Nominating & Governance Committee, each of which shall have such authority (i) as has been or shall be set forth in the charter for such committee (as in effect from time to time and approved by the Board of Directors), which authority shall at all times be not less than that mandated by law and the applicable listing requirements of the New York Stock Exchange (or the principal stock exchange on which the Corporations common stock is listed), and (ii) as shall otherwise be delegated by the Board of Directors.
The Board of Directors shall have power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee, provided , that each committee shall consist of at least such minimum number of directors, if any, mandated by law and the applicable listing requirements of the New York Stock Exchange (or the principal stock exchange on which the Corporations common stock is listed), as in effect from time to time. Nothing herein shall be deemed to prevent the Board of Directors from appointing one or more committees consisting in
whole or in part of persons who are not directors of the Corporation; provided , however , that no such committee shall have or may exercise any authority of the Board of Directors.
SECTION 2. Procedures, Quorum and Manner of Acting . Each committee shall fix its own rules of procedure and shall meet where and as provided by such rules or by resolution of the Board of Directors. Except as otherwise provided by law, the presence of a majority of the then appointed members of a committee shall constitute a quorum for the transaction of business by that committee, and in every case where a quorum is present the affirmative vote of a majority of the members of the committee present shall be the act of the committee. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Each committee shall keep minutes of its proceedings, and actions taken by a committee shall be reported to the Board of Directors.
SECTION 3. Action by Unanimous Written Consent . Any action required or permitted to be taken at any meeting of any committee of the Board of Directors may be taken without a meeting if all the members of the committee consent thereto in writing (which may be provided by electronic transmission), and such writing or writings are filed with the minutes of proceedings of the committee.
SECTION 4. Term; Termination . In the event any person shall cease to be a director of the Corporation, such person shall simultaneously therewith cease to be a member of any committee appointed by the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 1. Election and Qualifications . The Board of Directors shall elect the officers of the Corporation, which shall include a Chief Executive Officer and a Secretary, and may include, by election or appointment, one or more Vice-Presidents (any one or more of whom may be given an additional designation of rank or function), a Treasurer and such other officers as the Board of Directors may from time to time deem proper. Each officer shall have such powers and duties as may be prescribed by these Bylaws and as may be assigned by the Board of Directors or the Chief Executive Officer. Any two or more offices may be held by the same person; provided , however , no person shall simultaneously hold the offices of Chief Executive Officer and Secretary.
SECTION 2. Term of Office and Remuneration . The term of office of all officers shall be one year or until their respective successors have been elected and qualified, but any officer may be removed from office, either with or without cause, at any time by a vote of the Board of Directors. Any vacancy in any office arising from any cause may be filled for the unexpired portion of the term by the Board of Directors. The remuneration of all officers of the Corporation may be fixed by the Board of Directors or in such manner as the Board of Directors shall provide.
SECTION 3. Resignation; Removal . Any officer may resign at any time upon written notice to the Corporation and such resignation shall take effect upon receipt thereof by the Chief Executive Officer or Secretary, unless otherwise specified in the resignation. Any officer shall be subject to removal, with or without cause, at any time by a vote of the Board of Directors.
SECTION 4. Chief Executive Officer . The Chief Executive Officer shall have such duties as customarily pertain to that office. The Chief Executive Officer shall have general management and supervision of the property, business and affairs of the Corporation and over its other officers and may appoint and remove assistant officers and other agents and employees other than officers referred to in Section 1 of this Article IV.
SECTION 5. Vice-President . A Vice-President shall have such other authority as from time to time may be assigned by the Board of Directors or the Chief Executive Officer.
SECTION 6. Treasurer . The Treasurer shall in general have all duties incident to the position of Treasurer and such other duties as may be assigned by the Board of Directors or the Chief Executive Officer.
SECTION 7. Secretary . The Secretary shall in general have all the duties incident to the office of Secretary and such other duties as may be assigned by the Board of Directors or the Chief Executive Officer.
SECTION 8. Assistant Officers . Any assistant officer shall have such powers and duties of the officer such assistant officer assists as such officer or the Board of Directors shall from time to time prescribe.
SECTION 9. Other Officers . The Board of Directors may elect other officers from time to time, and vest such officers with such powers and duties, as the Board of Directors may deem proper.
ARTICLE V
BOOKS AND RECORDS
SECTION 1. Location . The books and records of the Corporation may be kept at such place or places within or outside the State of Delaware as the Board of Directors or the respective officers in charge thereof may from time to time determine. The record books containing the names and addresses of all stockholders, the number and class of shares of stock held by each and the dates when they respectively became the owners of record thereof shall be kept by the Secretary and by such officer or agent as shall be designated by the Board of Directors.
SECTION 2. Addresses of Stockholders . Notices of meetings and all other corporate notices may be delivered (i) personally or mailed to each stockholder at the stockholders address as it appears on the records of the Corporation, or (ii) any other method permitted by applicable law and rules and regulations of the SEC as they presently exist or may hereafter be amended.
SECTION 3. Fixing Date for Determination of Stockholders of Record .
(a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided , however , that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
ARTICLE VI
STOCK
SECTION 1. Stock; Signatures . Shares of the Corporations stock may be evidenced by certificates for shares of stock or may be issued in uncertificated form in accordance with applicable law as it presently exists or may hereafter be amended. The Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution or the issuance of shares in uncertificated form shall not affect shares already represented by a certificate until such certificate is surrendered to the Corporation. Every holder of shares of stock in the Corporation that is represented by certificates shall be entitled to have a certificate certifying the number of shares owned by him in the Corporation and registered in certificated form. Stock certificates shall be signed by or in the name of the Corporation by the Chairman or Vice Chairman, if any, of the Board of Directors, or the Chief Executive Officer or Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, representing the number of shares registered in certificated form. Any and all signatures on any such certificate may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The name of the holder of record of the shares represented by certificated or uncertificated shares, with the number of such shares and the date of issue, shall be entered on the books of the Corporation.
SECTION 2. Transfers of Stock . Transfers of shares of stock of the Corporation shall be made on the books of the Corporation after receipt of a request with proper evidence of succession, assignation, or authority to transfer by the record holder of such stock, or by an attorney lawfully constituted in writing, and in the case of stock represented by a certificate, upon surrender of the certificate. Subject to the foregoing, the Board of Directors may make such rules and regulations as it shall deem necessary or appropriate concerning the issue, transfer and registration of shares of stock of the Corporation, and to appoint and remove transfer agents and registrars of transfers.
SECTION 3. Fractional Shares . The Corporation may, but shall not be required to, issue certificates for fractions of a share where necessary to effect authorized transactions, or the Corporation may pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or it may issue scrip in registered or bearer form over the manual or facsimile signature of an officer of the Corporation or of its agent, exchangeable as therein provided for full shares, but such scrip shall not entitle the holder to any rights of a stockholder except as therein provided.
SECTION 4. Lost, Stolen or Destroyed Certificates . The Corporation may issue a new certificate of stock or uncertificated shares in place of any certificate, theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Board of Directors may require the owner of any lost, stolen or destroyed certificate, or the legal representative thereof, to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificated or uncertificated shares.
SECTION 5. Special Designation on Certificates . If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, designations, preferences, and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of any certificate that the Corporation shall issue to represent such class or series of stock; provided , however , that, except as otherwise provided in the DGCL, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences, and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this Section 5 or otherwise required by law or with respect to this Section 5 a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences, and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
ARTICLE VII
DIVIDENDS
Except as otherwise provided by law or the Certificate of Incorporation (including the terms of any Preferred Stock provided for therein), the Board of Directors shall have full power to determine whether any, and, if any, what part of any, funds legally available for the payment of dividends shall be declared as dividends and paid to stockholders; the division of the whole or any part of such funds of the Corporation shall rest wholly within the lawful discretion of the Board of Directors, and it shall not be required at any time, against such discretion, to divide or pay any part of such funds among or to the stockholders as dividends or otherwise; and before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall think conducive to the interest of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. Dividends may be paid in cash, in property or in shares of the Corporations capital stock.
ARTICLE VIII
RATIFICATION
Any transaction, questioned in any lawsuit on the ground of lack of authority, defective or irregular execution, adverse interest of director, officer or stockholder, nondisclosure, miscomputation, or the application of improper principles or practices of accounting, may be ratified before or after judgment, by the Board of Directors or by the stockholders, and if so ratified shall have the same force and effect as if the questioned transaction had been originally duly authorized. Such ratification shall be binding upon the Corporation and its stockholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned transaction.
ARTICLE IX
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the Corporation and the year of its incorporation, and shall be in such form and contain such other words and/or figures as the Board of Directors shall determine. The corporate seal may be used by printing, engraving, lithographing, stamping or otherwise making, placing or affixing, or causing to be printed, engraved, lithographed, stamped or otherwise made, placed or affixed, upon any paper or document, by any process whatsoever, an impression, facsimile or other reproduction of said corporate seal. Affixing the corporate seal shall not be required for the validity of any contract or agreement, deed, promissory note or other document executed and delivered by the Corporation, except as otherwise required by law.
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject to change, by the Board of Directors.
ARTICLE XI
WAIVER OF NOTICE
Whenever notice is required to be given by these Bylaws or by the Certificate of Incorporation or by law, the person or persons entitled to said notice may consent in writing, whether before or after the time stated therein, to waive such notice requirement. Notice shall also be deemed waived by any person who attends a meeting without protesting prior thereto or at its commencement, the lack of notice to him.
ARTICLE XII
BANK ACCOUNTS, DRAFTS, CONTRACTS, ETC.
SECTION 1. Bank Accounts and Drafts . In addition to such bank accounts as may be authorized by the Board of Directors, the chief financial officer, the Treasurer or any person designated by said chief financial officer or Treasurer, whether or not an employee of the Corporation, may authorize such bank accounts to be opened or maintained in the name and on behalf of the Corporation as such person may deem necessary or appropriate, payments from such bank accounts to be made upon and according to the check of the Corporation in accordance with the written instructions of said chief financial officer, or other person so designated by the Treasurer.
SECTION 2. Contracts . The Board of Directors may authorize any person or persons, in the name and on behalf of the Corporation, to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. Except as otherwise provided by the Board of Directors or the Chief Executive Officer, any officer of the Corporation may execute and deliver any deed, bond, mortgage, contract or other obligation or instrument on behalf of the Corporation.
SECTION 3. Proxies; Powers of Attorney; Other Instruments . The Chief Executive Officer, the Treasurer or any other person designated by either of them shall have the power and authority to execute and deliver proxies, powers of attorney and other instruments on behalf of the Corporation in connection with the rights and powers incident to the ownership of stock by the Corporation. The Chief Executive Officer, the Treasurer or any other person authorized by proxy or power of attorney executed and delivered by either of them on behalf of the Corporation may attend and vote at any meeting of stockholders of any company in which the Corporation may hold stock, and may exercise on behalf of the Corporation any and all of the rights and powers incident to the ownership of such stock at any such meeting, or otherwise as specified in
the proxy or power of attorney so authorizing any such person. The Board of Directors, from time to time, may confer like powers upon any other person.
SECTION 4. Financial Reports . The Board of Directors may appoint the chief financial officer, the Treasurer or other fiscal officer or any other officer to cause to be prepared and furnished to stockholders entitled thereto any special financial notice and/or financial statement, as the case may be, which may be required by any provision of law.
ARTICLE XIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), any person (a Covered Person) who was or is a party or is threatened to be made a party to, or is otherwise involved in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative in nature (a proceeding), by reason of the fact that such Covered Person, or a person for whom he or she is the legal representative, is or was, at any time during which these Bylaws are in effect or any time prior thereto (whether or not such Covered Person continues to serve in such capacity at the time any indemnification or payment of expenses pursuant hereto is sought or at the time any proceeding relating thereto exists or is brought), a director or officer of the Corporation (including, for the purposes of this Article XIII, any predecessor of the Corporation absorbed by the Corporation in a consolidation, merger or reorganization), or has or had agreed to become a director or officer of the Corporation, or while a director or officer of the Corporation is or was serving at the request of the Corporation as a director, officer, trustee, employee or agent of another corporation, limited liability company, partnership, joint venture, employee benefit plan, trust, nonprofit entity or other enterprise, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, trustee, employee or agent or in any other capacity while serving as a director, officer, trustee, employee or agent, against all liability and loss suffered (including, without limitation, any judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) and expenses (including attorneys fees and disbursements), actually and reasonably incurred by such Covered Person in connection with such proceeding to the fullest extent permitted by law, and such indemnification shall continue as to a person who has ceased to be a director, officer, trustee, employee or agent and shall inure to the benefit of such persons heirs, executors and administrators, and the Corporation may enter into agreements with any such person for the purpose of providing for such indemnification. For purposes of this Article XIII, a director or officer of the Corporation serving as a director, officer, trustee, employee or agent or in any other capacity while serving as a director, officer, trustee, employee or agent of a company of which the Corporation owns, directly or indirectly, a majority of the shares or other interests entitled to vote in the selection of its directors or the members of a comparable governing body or of an employee benefit plan of the Corporation or of any such company shall be deemed to have served in such capacity at the request of the Corporation and actions taken or omitted by a Covered Person on behalf of such an employee benefit plan of the Corporation or of any direct or indirect subsidiary of the Corporation, if done in good faith and in a manner that he
or she reasonably believed was in the best interests of the employee benefit plan or its participants or beneficiaries, shall be deemed to have been done in a manner not opposed to the best interests of the Corporation and actions taken or omitted on behalf of a direct or indirect subsidiary of the Corporation (even if not wholly owned by the Corporation), if done in good faith and in a manner that he or she reasonably believed to be in the best interests of the subsidiary or its owners, shall be deemed to have been done in a manner not opposed to the best interests of the Corporation. Except as otherwise provided in this Article XIII, and other than proceedings to enforce rights conferred by the Certificate of Incorporation or this Article XIII, the Corporation shall be required to indemnify a person in connection with a proceeding (or part thereof) initiated by such person only if the proceeding (or part thereof) was authorized by the Board of Directors. The right to indemnification conferred in this Article XIII shall include the right to be paid by the Corporation the expenses (including attorneys fees) incurred by a Covered Person in defending any such proceeding in advance of its final disposition, such advances to be paid by the Corporation within sixty (60) days after the receipt by the Corporation of a statement or statements from the claimant requesting such advance or advances from time to time (and subject to filing a written request for indemnification pursuant to the following paragraph of Section 1 of this Article XIII); provided , however , that the payment of such expenses incurred by a director or officer (or a former director or officer) in such persons capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) shall be made only upon receipt of an undertaking by or on behalf of the Covered Person to repay all amounts advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal that the Covered Person is not entitled to be indemnified by the Corporation for such expenses under this Article XIII or otherwise. The rights conferred upon Covered Persons in this Article XIII shall be contract rights that vest at the time of such persons service to or at the request of the Corporation and such rights shall continue as to a Covered Person who has ceased to be a director, officer, trustee, employee or agent and shall inure to the benefit of the indemnitees heirs, executors and administrators.
To obtain advancement or indemnification under this Article XIII, a claimant shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to advancement or indemnification. Upon written request by a claimant for indemnification pursuant to the immediately preceding sentence, a determination, if required by applicable law, with respect to the claimants entitlement thereto shall be made as follows: (1) if requested by the claimant, by Independent Counsel (as hereinafter defined), or (2) if no request is made by the claimant for a determination by Independent Counsel, (i) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined), or (ii) by a committee of Disinterested Directors designated by a majority of such directors, even though less than a quorum, or (iii) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the claimant, or (iv) if a quorum of Disinterested Directors so directs, by the stockholders of the Corporation. In the event the determination of entitlement to indemnification is to be made by Independent Counsel at the request of the claimant, the Independent Counsel shall be selected by the Board of Directors unless there shall have occurred within two (2) years prior to the date of the
commencement of the action, suit or proceeding for which indemnification is claimed a Change of Control (as defined below), in which case the Independent Counsel shall be selected by the claimant unless the claimant shall request that such selection be made by the Board of Directors. If it is so determined that the claimant is entitled to indemnification, payment to the claimant shall be made within sixty (60) days after such determination. As used herein, Change in Control means the happening of any of the following events: (A) any Person (as hereinafter defined) acquires Beneficial Ownership (as hereinafter defined) of 50% or more of the combined voting power of the then outstanding Voting Stock; (B) consummation of a Business Combination (as hereinafter defined), unless, following such Business Combination, (x) all or substantially all of the individuals and entities that were the Beneficial Owners of the outstanding Voting Stock immediately prior to such Business Combination Beneficially Own, directly or indirectly, more than 50% of the combined voting power of the issued and outstanding voting securities entitled to vote generally in the election of directors (or equivalent) of the entity resulting from such Business Combination (including, without limitation, a company that, as a result of such transaction, owns the Corporation or all or substantially all of the Corporations assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the voting power of the Voting Stock, and (y) no Person Beneficially Owns, directly or indirectly, 50% or more of the combined voting power of the issued and outstanding voting securities entitled to vote generally in the election of directors (or equivalent) of such entity; (C) approval by the stockholders of the Corporation of a liquidation or dissolution of the Corporation; or (D) individuals who, as of November, 2010, constitute the Board of Directors (the Incumbent Board) cease for any reason to constitute at least a majority of the Board of Directors ( provided , however , that any individual whose election or nomination for election by the Corporations shareholders was approved by a vote of at least a majority of the directors comprising the incumbent Board of Directors as of such election or nomination, shall be considered as though such individual were a member of the Incumbent Board). In this paragraph, the terms (I) Beneficial Owner, Beneficially Own and Beneficial Ownership are used as defined in Rules 13d-3 and 13d-5 of the Exchange Act (but without taking into account any contractual restrictions or limitations on voting or other rights), (II) Business Combination means (a) any merger, consolidation, share exchange or similar business combination transaction involving the Corporation with any Person or (b) the sale or other disposition by the Corporation of all or substantially all of its assets; and (III) Person means an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act).
SECTION 2. If a claim for advancement or indemnification under this Article XIII is not paid in full within sixty (60) days after a written claim pursuant has been received by the Corporation, the claimant may at any time thereafter file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking has been tendered to the Corporation) that the claimant has not met the standard of conduct which makes it permissible under the DGCL for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, Independent Counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Board of Directors, Independent Counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
SECTION 3. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred on any Covered Person by this Article XIII (i) shall not be exclusive of any other rights which such Covered Person may have or hereafter acquire under any statute, provision of these Bylaws, agreement, vote of stockholders or Disinterested Directors or otherwise and (ii) cannot be terminated by the Corporation, the Board of Directors or the stockholders of the Corporation with respect to a Covered Persons service occurring prior to the date of such termination. The Corporation may enter into agreements providing for indemnity of or advancement of expenses to a director or officer containing such provisions further to or alternative to the provisions of this Article XIII as the Board of Directors determines is in the best interests of the Corporation. However, notwithstanding the foregoing, the Corporations obligation to indemnify or to advance expenses to any Covered Person who was or is serving at its request as a director, officer, employee or agent of another corporation, limited liability company, partnership, joint venture, employee benefit plan, trust, enterprise or nonprofit entity shall be reduced by any amount such person has collected as indemnification from such other corporation, limited liability company, partnership, joint venture, employee benefit plan, trust, nonprofit entity, or other enterprise; and, in the event the Corporation has fully paid such expenses, the Covered Person shall return to the Corporation any amounts subsequently received from such other source of indemnification.
Any repeal, other termination, amendment, alteration or modification of the provisions of this Article XIII that in any way diminishes, limits, restricts, adversely affects or eliminates any right of an indemnitee or such persons successors to indemnification, advancement of expenses or otherwise shall be prospective only and shall not in any way diminish, limit, restrict, adversely affect or eliminate any such right with respect to any actual or alleged act or omission occurring prior thereto while such a person was a director or officer of the Corporation or any actual or alleged state of facts, occurrence, action or omission then or previously existing, or any action, suit or proceeding previously or thereafter brought or threatened based in whole or in part upon any such actual or alleged state of facts, occurrence, action or omission.
SECTION 4. This Article XIII shall not limit the right of the Corporation, to the extent and in the manner permitted by law, to indemnify and advance expenses (on substantially similar terms and subject to the same obligations as those set forth in Sections 1 through 3 of this Article XIII) to persons other than Covered Persons when and as authorized by the Board of Directors. In addition, the Corporation may purchase and maintain insurance, at its expense, on behalf of any person who is or was a Covered Person and any employee or agent of the Corporation or its subsidiaries against any liability, expense or loss asserted against such person and incurred by such person in such capacity, or arising out of such persons status as such, whether or not the Corporation would have the power or obligation to indemnify such person against such liability, expense or loss.
SECTION 5. If any provision or provisions of this Article XIII shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of this Article XIII (including, without limitation, each portion of any paragraph of this Article XIII containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of this Article XIII (including, without limitation, each such portion of any paragraph of this Article XIII containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
SECTION 6. For purposes of this Article XIII:
(1) Disinterested Director means a director of the Corporation who is not and was not a party to the matter in respect of which indemnification is sought by the claimant.
(2) Independent Counsel means a law firm, a member of a law firm, or an independent practitioner, that is experienced in matters of corporation law and indemnification issues and neither presently is, nor in the past five years has been, retained to represent: (i) the Corporation or the claimant in any matter material to either such party, or (ii) any other party to the proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Corporation or the claimant in an action to determine the claimants rights under this Article XIII.
SECTION 7. Any notice, request or other communication required or permitted to be given to the Corporation under this Article XIII shall be in writing and either delivered in person or sent by telecopy, telex, telegram, overnight mail or courier service, or certified or registered mail, postage prepaid, return receipt requested, to the Secretary of the Corporation and shall be effective only upon receipt by the Secretary.
ARTICLE XIV
AMENDMENTS
The Board of Directors shall have power to amend, modify or repeal these Bylaws or adopt any new provision authorized by the laws of the State of Delaware in force at such time. The stockholders of the Corporation shall have the power to amend, modify or repeal these Bylaws, or adopt any new provision authorized by the laws of the State of Delaware in force at such time, at a duly called meeting of the stockholders; provided , that notice of the proposed adoption, amendment, modification or repeal was given in the notice of the meeting; provided , further , notwithstanding any other provisions of these Bylaws or any provision of law which might otherwise permit a lesser vote or no vote, the affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of the then outstanding Voting Stock, voting together as a single class, shall be required to amend, modify or repeal any provision, or adopt
any new or additional provision, in a manner inconsistent with Sections 7 and 8 of Article I, Sections 2(a) of Article II, Article XIII and this Article XIV of these Bylaws.
General Growth Properties, Inc.
a Delaware corporation
CERTIFICATE OF ADOPTION OF AMENDED AND RESTATED BYLAWS
The undersigned hereby certifies that he or she is the duly elected, qualified, and acting of General Growth Properties, Inc., a Delaware corporation, and that the foregoing Amended and Restated Bylaws were adopted as the Corporations bylaws on November , 2010 by the Corporations Board of Directors.
IN WITNESS WHEREOF, the undersigned has hereunto set such persons hand this day of , 2010.
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Exhibit 5.1
November 2, 2010
New GGP, Inc.
110 N. Wacker Drive
Chicago, IL 60606
Ladies and Gentlemen:
We have acted as counsel to New GGP, Inc., a Delaware corporation (the Company), in connection with the preparation and filing with the Securities and Exchange Commission of the Companys Registration Statement on Form S-11, File No. 333-168111 (as amended, and including any subsequent registration statement on Form S-11 filed pursuant to Rule 462(b), the Registration Statement), under the Securities Act of 1933, as amended (the Act), relating to the registration of the offer, issuance and sale by the Company of shares of common stock, par value $0.01 per share, of the Company (together with any additional shares of common stock that may be sold by the Company pursuant to Rule 462(b) of the Act, the Common Stock). The Common Stock is to be sold by the Company pursuant to an underwriting agreement among the Company and the underwriters named therein (the Underwriting Agreement), the form of which has been filed as Exhibit 1.1 to the Registration Statement.
In so acting, we have examined originals or copies (certified or otherwise identified to our satisfaction) of (i) the certificate of incorporation of the Company, filed as Exhibit 3.1 to the Registration Statement; (ii) the amended certificate of incorporation of the Company, filed as Exhibit 3.2 to the Registration Statement; (iii) the form of amended and restated certificate of incorporation of the Company, filed as Exhibit 3.3 to the Registration Statement (iv) the form of amended and restated bylaws of the Company, filed as Exhibit 3.5 to the Registration Statement; (v) the Registration Statement; (vi) the prospectus contained within the Registration Statement; (vii) the form of the Underwriting Agreement; and (viii) such corporate records, agreements, documents and other instruments, and such certificates or comparable documents of public officials and of officers and representatives of the Company, and have made such inquiries of such officers and representatives, as we have deemed relevant and necessary as a basis for the opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or photostatic copies and the authenticity of the originals of such latter documents. As to all questions of fact material to this opinion that have not been independently established, we have relied upon certificates or comparable documents of officers and representatives of the Company.
Based on the foregoing, and subject to the qualifications stated herein, we are of the opinion that the Common Stock, when issued and paid for as contemplated in the Registration Statement and pursuant to the Underwriting Agreement, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this letter as an exhibit to the Registration Statement and to the reference to our firm under the caption Legal Matters in the prospectus which is a part of the Registration Statement. This opinion and consent may be incorporated by reference in a subsequent registration statement on Form S-11 filed pursuant to Rule 462(b) under the Act with respect to the Common Stock.
Very truly yours,
/s/ Weil, Gotshal & Manges, LLP
Exhibit 10.1
FOURTEENTH AMENDMENT
TO
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
GGP LIMITED PARTNERSHIP
THIS FOURTEENTH AMENDMENT (this Amendment ) is made and entered into on , 2010 by and among the undersigned parties:
WHEREAS , a Delaware limited partnership known as GGP Limited Partnership (the Partnership ) exists pursuant to that certain Second Amended and Restated Agreement of Limited Partnership dated as of April 1, 1998, as amended ( Second Restated Limited Partnership Agreement ), and the Delaware Revised Uniform Limited Partnership Act;
WHEREAS , General Growth Properties, Inc., a Delaware corporation, is the sole general partner of the Partnership (the General Partner );
WHEREAS , on April 16, 2009, the General Partner and the Partnership filed voluntary petitions for relief under title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York (the Chapter 11 Cases );
WHEREAS , in connection with the General Partner and the Partnerships emergence from the Chapter 11 Cases, it is proposed that all of the issued and outstanding shares of common stock, par value $0.01 per share, of The Howard Research and Development Corporation, a Maryland corporation ( HRD ), be distributed by the Partnership to the General Partner (the HRD Distribution );
WHEREAS , in connection with the General Partner and the Partnerships emergence from the Chapter 11 Cases, shares of common stock, no par value, of Spinco, Inc., a Delaware corporation and a wholly-owned subsidiary of the Partnership ( Spinco ), will be distributed (the Spinco Distribution ) to the holders of Units (as defined in the Second Restated Limited Partnership Agreement) in a manner such that upon emergence of the Partnership and the General Partner from the Chapter 11 Cases, each of the holders of Units (other than the General Partner) and each holder of shares of common stock of the General Partner will hold the same number of shares of common stock of Spinco as each such holder would have held if each of the holders of Units (other than the General Partner) had converted (in accordance with its existing contractual rights) its respective Units into shares of common stock of the General Partner immediately prior to the HRD/Spinco Distribution;
WHEREAS , after contributing certain assets to HRD, the General Partner proposes to contribute its shares of common stock of HRD to Spinco in exchange for additional shares of common stock of Spinco (the Contribution );
WHEREAS , the HRD Distribution, the Spinco Distribution and the Contribution, taken together, will result in the pro rata ownership, directly or indirectly, of Spinco and HRD by the holders of Units; and
WHEREAS , the General Partner and a Majority-In-Interest of the Limited Partners of the Partnership desire to adopt this Amendment and provide for the HRD Distribution and the Spinco Distribution.
NOW, THEREFORE , in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, do hereby agree as follows:
1. Capitalized Terms . Capitalized terms used but not defined herein shall have the definitions assigned to such terms in the Second Restated Limited Partnership Agreement, as amended.
2. Amendments . Notwithstanding anything to the contrary in the Second Restated Limited Partnership Agreement, including but not limited to Section 6.3(c), the Second Restated Limited Partnership Agreement shall be amended as follows:
a. The following defined term is added to Section 1.1 of the Second Restated Limited Partnership Agreement:
Chapter 11 Cases shall mean those voluntary petitions filed on April 16, 2009 by the General Partner and the Partnership for relief under title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York.
b. The following new Section 5.2(c) is added to the Second Restated Limited Partnership Agreement:
The General Partner may, in connection with the emergence of the General Partner and the Partnership from the Chapter 11 Cases, make a non-pro rata distribution of shares of common stock of each of The Howard Research and Development Corporation, a Maryland corporation ( HRD ), and Spinco, Inc., a Delaware corporation ( Spinco ) (the HRD/Spinco Distribution ). The HRD/Spinco Distribution shall consist of (a) the distribution of all of the issued and outstanding shares of common stock, par value $0.01 per share, of HRD by the Partnership to the General Partner and (b) the distribution of shares of common stock, no par value, of Spinco by the Partnership to the holders of Units. For the avoidance of doubt, following the HRD/Spinco Distribution, upon emergence of the Partnership and the General Partner from the Chapter 11 Cases, each of the holders of Units (other than the General Partner) and each holder of shares of common stock of the General Partner will hold the same number of shares of common stock of Spinco as each such
holder would have held if each of the holders of Units (other than the General Partner) had converted (in accordance with its existing contractual rights) its respective Units into shares of common stock of the General Partner immediately prior to the HRD/Spinco Distribution.
3. Counterparts . This Amendment may be executed in counterparts, each of which shall be an original and all of which together shall constitute the same document.
4. Other Provisions Unaffected . Except as expressly amended hereby, the Second Restated Limited Partnership Agreement shall remain in full force an effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
WITNESS WHEREOF, the parties hereto have executed this Amendment on the date first written above.
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GENERAL PARTNER : |
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GENERAL GROWTH PROPERTIES, INC., |
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a Delaware corporation |
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Its: |
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LIMITED PARTNERS : |
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MAJORITY-IN-INTEREST OF |
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THE LIMITED PARTNERS: |
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M.B. CAPITAL UNITS, LLC, |
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a Delaware limited liability company |
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M.B. CAPITAL PARTNERS III, |
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a South Dakota general partnership, |
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its sole member |
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General Trust Company, |
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as Trustee of MBA Trust, |
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a partner |
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By: |
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E. Michael Greaves, |
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Vice President |
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MATTHEW BUCKSBAUM REVOCABLE TRUST |
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General Trust Company, |
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as Trustee |
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By: |
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E. Michael Greaves, |
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Vice President |
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
GGP LIMITED PARTNERSHIP
TABLE OF CONTENTS
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Page |
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ARTICLE I |
DEFINITIONS; ETC. |
2 |
1.1 |
Definitions |
2 |
1.2 |
Exhibits, Etc. |
15 |
ARTICLE II |
CONTINUATION |
15 |
2.1 |
Continuation |
15 |
2.2 |
Name |
15 |
2.3 |
Character of the Business |
15 |
2.4 |
Location of the Principal Place of Business |
16 |
2.5 |
Registered Agent and Registered Office |
16 |
ARTICLE III |
TERM |
16 |
3.1 |
Commencement |
16 |
3.2 |
Dissolution |
16 |
ARTICLE IV |
CONTRIBUTIONS TO CAPITAL |
17 |
4.1 |
General Partner and Affiliate Limited Partner Capital Contribution |
17 |
4.2 |
Limited Partner Capital Contributions |
17 |
4.3 |
Additional Funds |
17 |
4.4 |
Stock Plans |
19 |
4.5 |
No Third Party Beneficiary |
19 |
4.6 |
No Interest; No Return |
19 |
4.7 |
Preferred Units |
19 |
ARTICLE V |
ALLOCATIONS AND OTHER TAX AND ACCOUNTING MATTERS |
20 |
5.1 |
Allocations |
20 |
5.2 |
Distributions With Respect to Common Units |
20 |
5.3 |
Books of Account |
20 |
5.4 |
Reports |
21 |
5.5 |
Audits |
21 |
5.6 |
Tax Elections and Returns |
21 |
5.7 |
Tax Matters Partner |
22 |
5.8 |
Withholding |
22 |
TABLE OF CONTENTS
(continued)
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Page |
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5.9 |
Distributions with Respect to Preferred Units |
23 |
ARTICLE VI |
RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER |
23 |
6.1 |
Expenditures by Partnership |
23 |
6.2 |
Powers and Duties of General Partner |
23 |
6.3 |
Major Decisions |
26 |
6.4 |
Actions with Respect to Certain Documents |
26 |
6.5 |
Public REIT Participation |
26 |
6.6 |
Proscriptions |
27 |
6.7 |
Additional Partners |
27 |
6.8 |
Title Holder |
27 |
6.9 |
Compensation of the General Partner |
27 |
6.10 |
Waiver and Indemnification |
27 |
6.11 |
Limited Partner Representatives |
28 |
6.12 |
Operation in Accordance with REIT Requirements |
28 |
ARTICLE VII |
DISSOLUTION, LIQUIDATION AND WINDING-UP |
29 |
7.1 |
Accounting |
29 |
7.2 |
Distribution on Dissolution |
29 |
7.3 |
Timing Requirements |
29 |
7.4 |
Sale of Partnership Assets |
29 |
7.5 |
Distributions in Kind |
30 |
7.6 |
Documentation of Liquidation |
30 |
7.7 |
Liability of the Liquidating Trustee |
30 |
7.8 |
Liquidation Preference of Preferred Units |
30 |
7.9 |
Negative Capital Accounts |
31 |
ARTICLE VIII |
TRANSFER OF UNITS |
32 |
8.1 |
General Partner Transfer |
32 |
8.2 |
Transfers by Limited Partners |
33 |
8.3 |
Issuance of Additional Common Units |
33 |
8.4 |
Restrictions on Transfer |
34 |
TABLE OF CONTENTS
(continued)
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Page |
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ARTICLE IX |
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS |
35 |
9.1 |
No Participation in Management |
35 |
9.2 |
Bankruptcy of a Limited Partner |
35 |
9.3 |
No Withdrawal |
35 |
9.4 |
Duties and Conflicts |
36 |
ARTICLE X |
LIMITED PARTNER REPRESENTATIONS AND WARRANTIES |
36 |
ARTICLE XI |
GENERAL PARTNER REPRESENTATIONS AND WARRANTIES |
37 |
ARTICLE XII |
ARBITRATION OF DISPUTES |
37 |
12.1 |
Arbitration |
37 |
12.2 |
Procedures |
37 |
12.3 |
Binding Character |
38 |
12.4 |
Exclusivity |
38 |
12.5 |
No Alteration of Agreement |
39 |
ARTICLE XIII |
GENERAL PROVISIONS |
39 |
13.1 |
Notices |
39 |
13.2 |
Successors |
39 |
13.3 |
Effect and Interpretation |
39 |
13.4 |
Counterparts |
39 |
13.5 |
Partners Not Agents |
39 |
13.6 |
Entire Understanding; Etc. |
39 |
13.7 |
Amendments |
39 |
13.8 |
Severability |
40 |
13.9 |
Trust Provision |
40 |
13.10 |
Pronouns and Headings |
40 |
13.11 |
Assurances |
40 |
13.12 |
Issuance of Certificates |
40 |
13.13 |
November 20, 2003 Division of Common Units |
41 |
13.14 |
Performance by the Public REIT |
41 |
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
GGP LIMITED PARTNERSHIP
THIS THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is made and entered into this [ ] day of [ ], 2010, by and among the undersigned parties.
W I T N E S S E T H :
WHEREAS, a Delaware limited partnership known as GGP Limited Partnership (the Partnership ) exists pursuant to that certain Second Amended and Restated Agreement of Limited Partnership dated as of April 1, 1998, as amended by that certain First Amendment thereto dated June 10, 1998, that certain Second Amendment thereto dated June 29, 1998, that certain Third Amendment thereto dated as of February 15, 2002, that certain Amendment thereto dated as of April 24, 2002, that certain Fourth Amendment thereto dated as of July 10, 2002, that certain Amendment thereto dated as of November 27, 2002, that certain Sixth Amendment thereto dated as of November 20, 2003, that certain Amendment thereto dated as of December 11, 2003, that certain Amendment thereto dated March 5, 2004, that certain Amendment thereto dated November 12, 2004, that certain Amendment thereto dated as of September 30, 2006, that certain Twelfth Amendment thereto dated as of December 31, 2006, that certain Thirteenth Amendment thereto dated February 9, 2007 and that certain Fourteenth Amendment thereto dated as of [ ] [ ], 2010 (collectively, the Second Restated Partnership Agreement ), and the Delaware Revised Uniform Limited Partnership Act;
WHEREAS, GGP, Inc., f/k/a General Growth Properties, Inc., a Delaware corporation, is the sole general partner of the Partnership (the General Partner );
WHEREAS, pursuant to that certain [Contribution Agreement], GGP Limited Partnership II, a Delaware limited partnership, will be admitted to the Partnership as a Limited Partner (the Affiliate Limited Partner ) and will receive Common Units and Series F Preferred Units;
WHEREAS, contemporaneously with the admission of the Affiliate Limited Partner, the General Partner desires to transfer certain of its Units to the Affiliate Limited Partner (the GP Transfer );
WHEREAS, the General Partner and a Majority-in-Interest of the Limited Partners of the Partnership desire to create and issue the Series F Preferred Units, amend and restate the Second Restated Partnership Agreement as set forth herein and consent to the GP Transfer.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, do hereby create and issue the Series F Preferred Units, consent to the GP Transfer and amend and restate the Second Restated Partnership Agreement to read as follows:
ARTICLE I
Definitions; Etc.
1.1 Definitions . Except as otherwise herein expressly provided, the following terms and phrases shall have the meanings set forth below:
Accountants shall mean the firm or firms of independent certified public accountants selected by the General Partner on behalf of the Partnership and the Property Partnerships to audit the books and records of the Partnership and the Property Partnerships and to prepare statements and reports in connection therewith.
Acquisition Cost shall have the meaning set forth in Section 4.1 hereof.
Act shall mean the Revised Uniform Limited Partnership Act as enacted in the State of Delaware, and as the same may hereafter be amended from time to time.
Additional Units shall have the meaning set forth in Section 8.3 hereof.
Additional Partner shall have the meaning set forth in Section 8.3 hereof.
Adjusted Capital Account Deficit shall mean, with respect to any Limited Partner, the deficit balance, if any, in such Partners Capital Account as of the end of any relevant fiscal year and after giving effect to the following adjustments:
(a) credit to such Capital Account any amounts which such Partner is obligated or treated as obligated to restore with respect to any deficit balance in such Capital Account pursuant to Section 1.704-1(b)(2)(ii)(c) of the Regulations, or is deemed to be obligated to restore with respect to any deficit balance pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and
(b) debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the requirements of the alternate test for economic effect contained in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith.
Adjustment Date shall have the meaning set forth in Section 4.3(a) hereof.
Administrative Expenses shall mean (i) all administrative and operating costs and expenses incurred by the Partnership, (ii) all administrative, operating and other costs and expenses incurred by the Property Partnerships, which expenses are being assumed by the Partnership pursuant to Section 6.1 hereof, (iii) those administrative costs and expenses of the Affiliate Limited Partner and the REIT Entities, including salaries paid to officers of the Public REIT and accounting and legal expenses undertaken by the General Partner on behalf or for the
benefit of the Partnership, and (iv) to the extent not included in clause (iii) above, REIT Expenses.
Affiliate shall mean, with respect to any Partner (or as to any other Person the affiliates of whom are relevant for purposes of any of the provisions of this Agreement), (i) any member of the Immediate Family of such Partner; (ii) any trustee or beneficiary of a Partner; (iii) any legal representative, successor, or assignee of such Partner or any Person referred to in the preceding clauses (i) and (ii); (iv) any trustee of any trust for the benefit of such Partner or any Person referred to in the preceding clauses (i) through (iii); or (v) any Entity which directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Partner or any Person referred to in the preceding clauses (i) through (iv).
Affiliate Limited Partner shall mean GGP Limited Partnership II, a Delaware limited partnership.
Aggregate Protected Amount shall mean, with respect to the Obligated Partners, as a group, the aggregate amount of the Protected Amounts, if any, of the Obligated Partners, as determined on the date in question.
Agreement shall mean this Third Amended and Restated Agreement of Limited Partnership, as originally executed and as amended, modified, supplemented or restated from time to time, as the context requires.
Audited Financial Statements shall mean financial statements (balance sheet, statement of income, statement of partners equity and statement of cash flows prepared in accordance with generally accepted accounting principles and accompanied by an independent auditors report containing (i) an opinion containing no material qualification, and (ii) no explanatory paragraph disclosing information relating to material uncertainties (except as to litigation) or going concern issues.
Bankruptcy shall mean, with respect to any Partner or the Partnership, (i) the commencement by such Partner or the Partnership of any proceeding seeking relief under any provision or chapter of the federal Bankruptcy Code or any other federal or state law relating to insolvency, bankruptcy or reorganization, (ii) an adjudication that such Partner or the Partnership is insolvent or bankrupt, (iii) the entry of an order for relief under the federal Bankruptcy Code with respect to such Partner or the Partnership, (iv) the filing of any such petition or the commencement of any such case or proceeding against such Partner or the Partnership, unless such petition and the case or proceeding initiated thereby are dismissed within ninety (90) days from the date of such filing, (v) the filing of an answer by such Partner or the Partnership admitting the allegations of any such petition, (vi) the appointment of a trustee, receiver or custodian for all or substantially all of the assets of such Partner or the Partnership unless such appointment is vacated or dismissed within ninety (90) days from the date of such appointment but not less than five (5) days before the proposed sale of any assets of such Partner or the Partnership, (vii) the insolvency of such Partner or the Partnership or the execution by such Partner or the Partnership of a general assignment for the benefit of creditors, (viii) the convening by such Partner or the Partnership of a meeting of its creditors, or any class thereof,
for purposes of effecting a moratorium upon or extension or composition of its debts, (ix) the failure of such Partner or the Partnership to pay its debts as they mature, (x) the levy, attachment, execution or other seizure of substantially all of the assets of such Partner or the Partnership where such seizure is not discharged within thirty (30) days thereafter, or (xi) the admission by such Partner or the Partnership in writing of its inability to pay its debts as they mature or that it is generally not paying its debts as they become due.
Bankruptcy Cases shall mean those voluntary petitions filed on April 16, 2009 by the General Partner and the Partnership for relief under title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York.
Bucksbaum Limited Partners shall mean M.B. Capital Partners III and its successors and assigns.
Bucksbaum Rights Agreement shall mean that certain Rights Agreement dated as of July 27, 1993, among the General Partner and certain predecessors of the Bucksbaum Limited Partners.
Capital Account shall mean, with respect to any Partner, the separate book account which the Partnership shall establish and maintain for such Partner in accordance with Section 704(b) of the Code and Section 1.704-1(b)(2)(iv) of the Regulations and such other provisions of Section 1.704-1(b) of the Regulations that must be complied with in order for the Capital Accounts to be determined in accordance with the provisions of said Regulations. In furtherance of the foregoing, the Capital Accounts shall be maintained in compliance with Section 1.704-1(b)(2)(iv) of the Regulations, and the provisions hereof shall be interpreted and applied in a manner consistent therewith. In the event that any Units are transferred in accordance with the terms of this Agreement, the Capital Account, at the time of the transfer, of the transferor attributable to the transferred Units shall carry over to the transferee.
Capital Contribution shall mean, with respect to any Partner, the amount of money and the initial Gross Asset Value of any property other than money contributed to the Partnership with respect to the Units held by such Partner (net of liabilities to which such property is subject).
Certificate shall mean the Certificate of Limited Partnership establishing the Partnership, as filed with the office of the Delaware Secretary of State, as it may be amended from time to time in accordance with the terms of this Agreement and the Act.
Charter shall mean the corporate charter of the Public REIT, as filed with the office of the Delaware Secretary of State, as it may be amended from time to time.
Closing Price on any day shall mean the average of the intra-day high and low for such day as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the
principal national securities exchange on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System or, if such system is no longer in use, the principal other automated quotations system that may then be in use or, if the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock as such person is selected from time to time by the Board of Directors of the Public REIT.
Code shall mean the Internal Revenue Code of 1986, as amended.
Common Stock shall mean the shares of common stock of the Public REIT.
Common Units shall mean all Units other than Preferred Units.
Consent of the Limited Partners shall mean the written consent of a Majority-In-Interest of the Limited Partners (or other specified group of Limited Partners), which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and may be given or withheld by a Majority-in-Interest of the Limited Partners (or such specified group of Limited Partners), unless otherwise expressly provided herein, in their sole and absolute discretion.
Contributed Funds shall have the meaning set forth in Section 4.3(a)(ii) hereof.
Contributed Property shall have the meaning set forth in Section 4.1 hereof.
Contribution Agreements shall mean all contribution and other agreements executed by the Partnership and/or the General Partner in connection with the issuance of Units.
Contribution Date shall have the meaning set forth in Section 8.3 hereof.
Control shall mean the ability, whether by the direct or indirect ownership of shares or other equity interests by contract or otherwise, to elect a majority of the directors of a corporation, to select the managing partner of a partnership, or otherwise to select, or have the power to remove and then select, a majority of those persons exercising governing authority over an Entity. In the case of a limited partnership, the sole general partner, all of the general partners to the extent each has equal management control and authority, or the managing general partner or managing general partners thereof shall be deemed to have control of such partnership and, in the case of a trust, any trustee thereof or any Person having the right to select any such trustee shall be deemed to have control of such trust.
Conversion Factor shall mean 0.98448404. The Conversion Factor shall be adjusted in the event that the Public REIT, (i) declares or pays a dividend on its outstanding shares of Common Stock in shares of Common Stock or makes a distribution to all holders of its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivides its outstanding
shares of Common Stock, or (iii) combines its outstanding shares of Common Stock into a smaller number of shares. The Conversion Factor shall be adjusted by multiplying the Conversion Factor (as in effect immediately prior to such adjustment) by fraction, the numerator of which shall be the actual number of shares of Common Stock issued and outstanding on the record date for such dividend, distribution, subdivision or combination (determined without the below assumption), and the denominator of which shall be the number of shares of Common Stock issued and outstanding on the record date for such dividend, distribution, subdivision or combination (assuming for such purposes that such dividend, distribution, subdivision or combination has occurred as of such time). Any adjustment to the Conversion Factor shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event.
CSA shall mean that certain Contingent Stock Agreement, effective as of January 1, 1996, by The Rouse Company in favor of and for the benefit of the Holders (named in Schedule I thereto) and the Representatives (therein defined), as amended.
Current Per Share Market Price shall mean, as of any date, the average of the Closing Price for the five consecutive Trading Days ending on such date or the average of the Closing Price for any other period of Trading Days that the Public REIT deems appropriate with respect to any transaction or other event for which Current Per Share Market Price is determined (other than a redemption pursuant to any Rights Agreement unless otherwise provided therein); provided, however, that the Closing Price for any Trading Day or Trading Days that are included in any calculation of Current Per Share Market Price shall be adjusted to take into account any stock split, dividend, subdivision, combination and the like if Public REIT deems such adjustment to be appropriate.
Demand Notice shall have the meaning set forth in Section 12.2 hereof.
Depreciation shall mean, with respect to any asset of the Partnership for any fiscal year or other period, the depreciation, depletion or amortization, as the case may be, allowed or allowable for federal income tax purposes in respect of such asset for such fiscal year or other period; provided, however, that if there is a difference between the Gross Asset Value and the adjusted tax basis of such asset, Depreciation shall mean book depreciation, depletion or amortization as determined under Section 1.704-1(b)(2)(iv)(g)(3) of the Regulations.
Entity shall mean any general partnership, limited partnership, limited liability company, corporation, joint venture, trust, business trust, cooperative, association or other entity.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time (or any corresponding provisions of succeeding laws).
Exercise Notice shall have the meaning set forth in the Bucksbaum Rights Agreement.
Foreign Owner shall mean a foreign person or a person that is directly or indirectly owned, in whole or in part by a foreign person as determined in accordance with Section 897(H)(4) of the Code and the Regulations promulgated thereunder.
Funding Date shall mean the date of consummation of any Funding Loan, offering of shares of Common Stock or other transaction pursuant to which the Public REIT, REIT Entities or the Affiliate Limited Partner raise Required Funds.
Funding Loan Proceeds shall mean the net cash proceeds received by the Public REIT, REIT Entities or the Affiliate Limited Partner in connection with any Funding Loan, after deduction of all costs and expenses incurred by the Public REIT, the REIT Entities or the Affiliate Limited Partner in connection with such Funding Loan.
Funding Loan(s) shall mean any borrowing or refinancing of borrowings by or on behalf of the Public REIT, the REIT Entities or the Affiliate Limited Partner from any lender for the purpose of advancing the Funding Loan Proceeds to the Partnership as a loan pursuant to Section 4.3(a) hereof.
GAAP shall mean generally accepted accounting principles.
General Partner shall mean GGP, Inc., f/k/a General Growth Properties, Inc., a Delaware corporation, its duly admitted successors and assigns and any other Person who is a general partner of the Partnership at the time of reference thereto.
Gross Asset Value shall mean, with respect to any asset of the Partnership, such assets adjusted basis for federal income tax purposes except as follows:
(a) the initial Gross Asset Value of (i) the assets contributed by each Partner to the Partnership prior to the date hereof is the gross fair market value of such contributed assets as indicated in the books and records of the Partnership as of the date hereof, and (ii) any asset hereafter contributed by a Partner, other than money, is the gross fair market value thereof as reasonably determined by the General Partner using such reasonable method of valuation as the General Partner may adopt; provided that the gross fair market value of any such assets hereafter contributed by the General Partner shall be the Acquisition Cost thereof (without reduction for any borrowings incurred by the General Partner in connection with the acquisition of such assets and assumed by the Partnership or, if such assumption was not possible, with respect to which borrowings the Partnership obligates itself to make payments to the General Partner in a like amount and on like terms);
(b) if the General Partner reasonably determines that an adjustment is necessary or appropriate to reflect the relative economic interests of the Partners, the Gross Asset Values of all Partnership assets shall be adjusted to equal their respective gross fair market values, as reasonably determined by the General Partner, as of the following times:
(i) a Capital Contribution (other than a de minimis Capital Contribution) to the Partnership by a new or existing Partner as consideration for Units;
(ii) the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership property as consideration for the redemption of Units; and
(iii) the liquidation of the Partnership within the meaning of section 1.704-1(b)(2)(ii) (g) of the Regulations;
(c) the Gross Asset Values of Partnership assets distributed to any Partner shall be the gross fair market values of such assets (taking Section 7701(g) of the Code into account) as reasonably determined by the General Partner as of the date of distribution; and
(d) the Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Sections 734(b) or 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations (See Exhibit B); provided, however, that Gross Asset Values shall not be adjusted pursuant to this paragraph to the extent that the General Partner reasonably determines that an adjustment pursuant to paragraph (b) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this paragraph (d).
At all times, Gross Asset Values shall be adjusted by any Depreciation taken into account with respect to the Partnerships assets for purposes of computing Net Income and Net Loss. Any adjustment to the Gross Asset Values of Partnership property shall require an adjustment to the Partners Capital Accounts; as for the manner in which such adjustments are allocated to the Capital Accounts, see paragraph (c) of the definition of Net Income and Net Loss in the case of adjustment by Depreciation, and paragraph (d) of said definition in all other cases.
Immediate Family shall mean with respect to any Person, such Persons spouse, parents, parents-in-law, descendants, nephews, nieces, brothers, sisters, brothers-in-law, sisters-in-law and children-in-law.
Incentive Option means an option to purchase Common Stock granted under the Stock Incentive Plan.
Incentive Option Agreement means the form of Incentive Option Agreement to be used under the Stock Incentive Plan.
Indirect Owner shall mean, in the case of an Obligated Partner that is an entity that is classified as a partnership or disregarded entity for federal income tax purposes, any person owning an equity interest in such Obligated Partner, and, in the case of any Indirect Owner that itself is an entity that is classified as a partnership or disregarded entity for federal income tax purposes, any person owning an equity interest in such entity.
Second Restated Partnership Agreement shall have the meaning set forth in the preliminary recitals hereto.
Lien shall mean any liens, security interests, mortgages, deeds of trust, charges, claims, encumbrances, pledges, options, rights of first offer or first refusal and any other rights or interests of others of any kind or nature, actual or contingent, or other similar encumbrances of any nature whatsoever.
Limited Partner Representatives shall have the meaning set forth in Section 6.11 hereof.
Limited Partners shall mean the Persons listed under the caption Limited Partners on Exhibit A hereto, their permitted successors or assigns or any Person who, at the time of reference thereto, is a limited partner of the Partnership.
Liquidating Trustee shall mean such individual or Entity as is selected as the Liquidating Trustee hereunder by the General Partner, which individual or Entity may include an Affiliate of the General Partner, provided such Liquidating Trustee agrees in writing to be bound by the terms of this Agreement. The Liquidating Trustee shall be empowered to give and receive notices, reports and payments in connection with the dissolution, liquidation and/or winding-up of the Partnership and shall hold and exercise such other rights and powers as are necessary or required to permit all parties to deal with the Liquidating Trustee in connection with the dissolution, liquidation and/or winding-up of the Partnership.
Major Decisions shall have the meaning set forth in Section 6.3 hereof.
Majority-in-Interest of the Limited Partners shall mean Limited Partner(s) (or specified group of Limited Partners) who hold in the aggregate more than fifty percent (50%) of the Percentage Interests then allocable to and held by the Limited Partners (or such specified group of Limited Partners), as a class (excluding any Units held by the General Partner, the Affiliate Limited Partner or any other Affiliate of the General Partner other than the Limited Partners as at April 1, 1998, their Affiliates and their successors and assigns, who shall not be excluded).
Management Agreement shall mean a property management agreement with respect to the property management of certain Properties entered into (a) with respect to any Property in which the Partnership directly holds or acquires ownership of a fee or leasehold interest, between the Partnership, as owner, and the Property Manager, or such other property manager as the General Partner shall engage, as manager, and (b) with respect to all Properties other than those described in (a) above, between each Property Partnership, as owner, and the Property Manager, or such other property manager as the General Partner shall engage, as such agreement may be amended, modified or supplemented from time to time.
Minimum Gain Attributable to Partner Nonrecourse Debt shall mean partner nonrecourse debt minimum gain as determined in accordance with Regulation Section 1.704-2(i)(2).
Net Financing Proceeds shall mean the cash proceeds received by the Partnership in connection with any borrowing or refinancing of borrowing by or on behalf of the Partnership or by or on behalf of any Property Partnership (whether or not secured), after deduction of all costs and expenses incurred by the Partnership or the Property Partnership in
connection with such borrowing, and after deduction of that portion of such proceeds used to repay any other indebtedness of the Partnership or Property Partnerships, or any interest or premium thereon.
Net Income or Net Loss shall mean, for each fiscal year or other applicable period, an amount equal to the Partnerships net income or loss for such year or period as determined for federal income tax purposes by the Accountants, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a) of the Code shall be included in taxable income or loss), with the following adjustments: (a) by including as an item of gross income any tax-exempt income received by the Partnership (b) by treating as a deductible expense any expenditure of the Partnership described in Section 705(a)(2)(B) of the Code (including amounts paid or incurred to organize the partnership (unless an election is made pursuant to Code Section 709(b)) or to promote the sale of interests in the Partnership and by treating deductions for any losses incurred in connection with the sale or exchange of Partnership property disallowed pursuant to Section 267(a)(1) or Section 707(b) of the Code as expenditures described in Section 705(a)(2)(B) of the Code); (c) in lieu of depreciation, depletion, amortization, and other cost recovery deductions taken into account in computing total income or loss, there shall be taken into account Depreciation; (d) gain or loss resulting from any disposition of Partnership property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of such property rather than its adjusted tax basis; and (e) in the event of an adjustment of the Gross Asset Value of any Partnership asset which requires that the Capital Accounts of the Partnership be adjusted pursuant to Regulation Section 1.704-1(b)(2)(iv)(e), (f) and (m), the amount of such adjustment is to be taken into account as additional Net Income or Net Loss pursuant to Exhibit B.
Net Operating Cash Flow shall mean, with respect to any fiscal period of the Partnership, the excess, if any, of Receipts over Expenditures. For purposes hereof, the term Receipts means the sum of all cash receipts of the Partnership from all sources for such period, including Net Sale Proceeds and Net Financing Proceeds but excluding Capital Contributions, and any amounts held as reserves as of the last day of such period which the General Partner reasonably deems to be in excess of necessary reserves as determined below. The term Expenditures means the sum of (a) all cash expenses or expenditures of the Partnership for such period, (b) the amount of all payments of principal and interest on account of any indebtedness of the Partnership including payments of principal and interest on account of REIT Loans, or amounts due on such indebtedness during such period (in the case of clauses (a) and (b), excluding expenses or expenditures paid from previously established reserves or deducted in computing Net Financing Proceeds or Net Sales Proceeds), and (c) such additional cash reserves as of the last day of such period as the General Partner deems necessary for any capital or operating expenditure permitted hereunder.
Net Sale Proceeds means the cash proceeds received by the Partnership in connection with a sale of any asset by or on behalf of the Partnership or by or on behalf of a Property Partnership after deduction of any costs or expenses incurred by the Partnership or a Property Partnership, or payable specifically out of the proceeds of such sale (including, without limitation, any repayment of any indebtedness required to be repaid as a result of such sale or which the General Partner elects to repay out of the proceeds of such sale, together with accrued
interest and premium, if any, thereon and any sales commissions or other costs and expenses due and payable to any Person in connection with a sale, including to a Partner or its Affiliates).
Nonrecourse Deductions shall have the meaning set forth in Sections 1.704-2(b)(1) and (c) of the Regulations.
Nonrecourse Liabilities shall have the meaning set forth in Section 1.704-2(b)(3) of the Regulations.
Obligated Partner shall mean that or those Limited Partners listed as Obligated Partners on Exhibit C attached hereto and made a part hereof, as such Exhibit may be amended from time to time by the General Partner, whether by express amendment to this Agreement or by execution of a written instrument by and between any additional Obligated Partner being directly affected thereby and the General Partner acting on behalf of the Partnership and without the prior consent of the Limited Partners (other than the Obligated Partners being affected thereby).
Offered Units shall have the meaning set forth in the Bucksbaum Rights Agreement.
Partner Nonrecourse Debt shall mean a liability as defined in Regulations Section 1.704-2(b)(4).
Partner Nonrecourse Deductions shall have the meaning set forth in Section 1.704-2(i)(2) of the Regulations.
Partners shall mean the General Partner and the Limited Partners, their duly admitted successors or assigns or any Person who is a partner of the Partnership at the time of reference thereto.
Partnership shall have the meaning set forth in the preliminary recitals hereto.
Partnership Minimum Gain shall have the meaning set forth in Section 1.704-2(b)(2) of the Regulations.
Partnership Record Date shall mean the record date established by the General Partner for a distribution of Net Operating Cash Flow pursuant to Section 5.2 hereof, which record date shall be the same as the record date established by the Public REIT for the distribution to its stockholders of some or all of its indirect share of such distribution.
Percentage Interest shall mean, with respect to any Partner at any time, the percentage ownership interest of such Partner in the Partnership at such time, which percentage ownership interest shall be equal to the quotient of the number of Common Units owned by such Partner at such time divided by the aggregate number of issued and outstanding Common Units at such time, and any holder of Preferred Units shall have a 0% Percentage Interest in respect of such Preferred Units. The Percentage Interest of each Partner on the date hereof is set forth opposite its name on Exhibit A.
Person shall mean any individual or Entity.
Precontribution Gain shall have the meaning set forth in Exhibit B.
Preferred Units shall mean the Series B Preferred Units, Series D Preferred Units, Series E Preferred Units and Series F Preferred Units and any other series of preferred units of limited partnership interest in the Partnership that are established and issued from time to time in accordance with the terms hereof.
Prime Rate shall mean the prime rate announced from time to time by Wells Fargo Bank, N.A. or any successor thereof.
Property shall mean any Shopping Center Project in which the Partnership or any Property Partnership, directly or indirectly, acquires ownership of a fee or leasehold interest.
Property Manager shall mean General Growth Management, Inc., a Delaware corporation, or its permitted successors or assigns.
Property Partnership shall mean and include any partnership, limited liability company or other Entity in which the Partnership directly or indirectly is or becomes a partner, member or other equity participant and which has been or is formed for the purpose of directly or indirectly acquiring, developing or owning a Property at a proposed Property.
Property Partnership Interests shall mean and include the interest of the Partnership as a partner, member or other equity participant in any Property Partnership.
Protected Amount shall mean, with respect to any Obligated Partner, the amount set forth opposite the name of such Obligated Partner on Exhibit C hereto and made a part hereof as such Exhibit may be amended from time to time by an amendment to the Partnership Agreement or by execution of a written instrument by and between any Obligated Partners being affected thereby and the General Partner, acting on behalf of the Partnership and without the prior consent of the Limited Partners (other than the Obligated Partners being affected thereby); provided, however; that, in the case of an Obligated Partner that is an entity that is classified as a partnership or disregarded entity for federal income tax purposes, upon the date nine months after the death of any Indirect Owner in such Obligated Partner, or upon a fully taxable sale or exchange of all of an Indirect Owners equity interest in such Obligated Partner ( i.e. , a sale or exchange in which the transferees basis in the Indirect Owners equity interest in the Obligated Partner is not determined, in whole or in part, by reference to the Indirect Owners basis in the Obligated Partner), the Protected Amount of such Obligated Partner shall be reduced to the extent of the Indirect Owners allocable share of the Obligated Partners Protected Amount. The principles of the preceding sentence shall apply in the same manner in the case of any Indirect Owner that itself is an entity that is classified as a partnership or disregarded entity for federal income tax purposes.
Public REIT shall mean (a) General Growth Properties, Inc., a Delaware corporation whose shares of common stock are listed on the New York Stock Exchange substantially concurrently herewith, that is the successor registrant to old General Growth Properties, Inc. and will file reports under the Securities Exchange Act of 1934 in lieu of old
General Growth Properties, Inc. or (b) any Person in the future whose securities are publicly traded and holds directly or indirectly substantially all of the ownership interests of the Partnership currently owned by General Growth Properties, Inc.
Qualified Individual shall have the meaning set forth in Section 12.2 hereof.
Recourse Liabilities shall mean, as of the date of determination, the amount of indebtedness of the Partnership on that date other than Nonrecourse Liabilities and Partner Nonrecourse Debt.
Regulations shall mean the final, temporary or proposed Income Tax Regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
Regulatory Allocations shall have the meaning set forth in Exhibit B.
REIT shall mean a real estate investment trust as defined in Section 856 of the Code.
REIT Entities shall mean the Public REIT, GGP Real Estate Holding I, Inc., a Delaware corporation, GGP Real Estate Holding II, Inc., a Delaware corporation, and the General Partner.
REIT Expenses shall mean (i) costs and expenses relating to the formation and continuity of existence of the Public REIT and its subsidiaries (which subsidiaries shall, for purposes of this definition, be included within the definition of Public REIT), including taxes, fees and assessments associated therewith, any and all costs, expenses or fees payable to any director or trustee of the Public REIT or such subsidiaries, (ii) costs and expenses relating to any offer or registration of securities by the Public REIT and all statements, reports, fees and expenses incidental thereto, including underwriting discounts and selling commissions applicable to any such offer of securities, (iii) costs and expenses associated with the preparation and filing of any periodic reports by the Public REIT under federal, state or local laws or regulations, including filings with the SEC, (iv) costs and expenses associated with compliance by the Public REIT with laws, rules and regulations promulgated by any regulatory body, including the SEC, and (v) all other operating or administrative costs of the Public REIT incurred in the ordinary course of its business on behalf of the Partnership.
REIT Loan shall have the meaning set forth in Section 4.3(a) hereof.
REIT Requirements shall have the meaning set forth in Section 5.2 hereof.
Requesting Party shall have the meaning set forth in Section 12.2 hereof.
Required Funds shall have the meaning set forth in Section 4.3 hereof.
Responding Party shall have the meaning set forth in Section 12.2 hereof.
Restricted Period shall have the meaning set forth in Section 9.5 hereof.
Restrictions Lapse Data shall have the meaning set forth in Section 9.5 hereof.
Rights shall mean Rights, Redemption Rights or other similar rights as defined in the Rights Agreements.
Rights Agreements shall mean the Bucksbaum Rights Agreement and those certain Redemption Rights Agreements entered into before, on or after the date hereof by the Partnership, the General Partner and certain other Persons in connection with the issuance of Units to such other Persons, as the same may be amended from time to time.
SEC shall mean the United States Securities and Exchange Commission.
Section 704 (c) Tax Items shall have the meaning set forth in Exhibit B.
Series B Preferred Units shall mean the series of preferred units of the Partnership designated as 8.5% Series B Cumulative Convertible Preferred Units having such designations, preferences and other rights described in Schedule A.
Series D Preferred Units shall mean the series of preferred units of the Partnership designated as 6.5% Series D Cumulative Convertible Preferred Units having such designations, preferences and other rights described in Schedule B.
Series E Preferred Units shall mean the series of preferred units of the Partnership designated as 7% Series E Cumulative Convertible Preferred Units having such designations, preferences and other rights described in Schedule C.
Series F Preferred Units shall mean the series of preferred units of the Partnership designated as Series F Cumulative Preferred Units having such designations, preferences and other rights described in Schedule D.
Shopping Center Project shall mean any shopping center, including construction and improvement activities undertaken with respect thereto and off-site improvements, on-site improvements, structures, buildings and/or related parking and other facilities.
Stock Incentive Plan means the General Partners 1993 Stock Incentive Plan, as amended, 1998 Incentive Stock Plan, as amended, and 2003 Incentive Stock Plan, as amended.
Stock Plans shall mean the Stock Incentive Plan and the other option, stock purchase and/or dividend reinvestment plans of the Public REIT, General Partner or the Partnership that are in effect from time to time.
Substituted Limited Partner shall have the meaning set forth in Section 8.2 hereof.
Tax Items shall have the meaning set forth in Exhibit B.
Trading Day shall mean a day on which the principal national securities exchange on which the Common Stock is listed or admitted to trading is open for the transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange, shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or Executive Order to close.
Units shall mean the partnership units in the Partnership established and issued from time to time in accordance with the terms hereof, including without limitation Common Units and Series B Preferred Units, Series D Preferred Units, Series E Preferred Units and Series F Preferred Units. The number and designation of all Units held by each Partner is set forth opposite such Partners name on Exhibit A.
1.2 Exhibits, Etc. References to an Exhibit or to a Schedule are, unless otherwise specified, to one of the Exhibits or Schedules attached to this Agreement, and references to an Article or a Section are, unless otherwise specified, to one of the Articles or Sections of this Agreement. Each Exhibit and Schedule attached hereto and referred to herein is hereby incorporated herein by reference.
ARTICLE II
Continuation
2.1 Continuation . The parties hereto do hereby continue the Partnership as a limited partnership pursuant to the provisions of the Act, and all other pertinent laws of the State of Delaware, for the purposes and upon the terms and conditions hereinafter set forth. The Partners agree that the rights and liabilities of the Partners shall be as provided in the Act except as otherwise herein expressly provided. The General Partner shall cause such notices, instruments, documents or certificates as may be required by applicable law or which may be necessary to enable the Partnership to conduct its business and to own its properties in the Partnership name to be filed or recorded in all appropriate public offices.
2.2 Name . The business of the Partnership shall continue to be conducted under the name of GGP Limited Partnership or such other name as the General Partner may select and all transactions of the Partnership, to the extent permitted by applicable law, shall be carried on and completed in such name.
2.3 Character of the Business . The purpose of the Partnership shall be to acquire, hold, own, develop, construct, improve, maintain, operate, sell, lease, transfer, encumber, convey, exchange and otherwise dispose of or deal with Properties; to acquire, hold, own, develop, construct, improve, maintain, operate, sell, lease, transfer, encumber, convey, exchange and otherwise dispose of or deal with real and personal property of all kinds; to exercise all of the powers of a partner, member or other equity participant in Property Partnerships; to acquire, own, deal with and dispose of Property Partnership Interests; to undertake such other activities as may be necessary, advisable, desirable or convenient to the business of the Partnership, and to engage in such other ancillary activities as shall be necessary or desirable to effectuate the foregoing purposes. The Partnership shall have all powers necessary or desirable to accomplish
the purposes enumerated. In connection with and without limiting the foregoing, but subject to all of the terms, covenants, conditions and limitations contained in this Agreement and any other agreement entered into by the Partnership, the Partnership shall have full power and authority, directly or through its interest in Property Partnerships, to enter into, perform and carry out contracts of any kind, to borrow money and to issue evidences of indebtedness, whether or not secured by mortgage, trust deed, pledge or other lien, and, directly or indirectly to acquire and construct additional Properties necessary or useful in connection with its business.
2.4 Location of the Principal Place of Business . The location of the principal place of business of the Partnership shall be at 110 North Wacker Drive, Chicago, Illinois 60606, or at such other location as shall be selected by the General Partner from time to time in its sole discretion.
2.5 Registered Agent and Registered Office . The Registered Agent of the Partnership shall be Prentice-Hall Corporation System, Inc. or such other Person as the General Partner may select in its sole discretion. The Registered Office of the Partnership shall be 32 Loockerman Square, Suite L-100, Dover, Delaware 19901 or such other location as the General Partner may select in its sole and absolute discretion.
ARTICLE III
Term
3.1 Commencement . The Partnership heretofore commenced business as a limited partnership upon the filing of the Certificate with the Secretary of State of the State of Delaware.
3.2 Dissolution . The Partnership shall continue until dissolved upon the occurrence of the earliest of the following events:
(a) The dissolution, termination, retirement or Bankruptcy of the General Partner unless the Partnership is continued as provided in Section 8.1 hereof; provided, however, none of the foregoing shall be deemed to have occurred on account of liquidation of the General Partner into one or more subsidiaries of the Public REIT or one of more subsidiaries thereof; and provided, further, that no event of dissolution shall have been deemed to occur by virtue of the Bankruptcy Cases;
(b) The election to dissolve the Partnership made in writing by the General Partner with the Consent of the Limited Partners;
(c) The sale or other disposition of all or substantially all the assets of the Partnership unless the General Partner, with the Consent of the Limited Partners, elects to continue the Partnership business for the purpose of the receipt and the collection of indebtedness or the collection of any other consideration to be received in exchange for the assets of the Partnership (which activities shall be deemed to be part of the winding up of the affairs of the Partnership); or
(d) Dissolution required by operation of law.
ARTICLE IV
Contributions to Capital
4.1 General Partner and Affiliate Limited Partner Capital Contribution . The General Partner and the Affiliate Limited Partner have contributed to the Partnership as their Capital Contribution the cash and property reflected in the Partnerships books and records as having been contributed by them. The gross fair market value of any property contributed by the General Partner or the Affiliate Limited Partner to the Partnership ( Contributed Property ) after the date hereof, other than money, shall be the acquisition cost of such Contributed Property (the Acquisition Cost ). The Acquisition Cost also shall include any costs and expenses incurred by the General Partner or the Affiliate Limited Partner in connection with such acquisition or contribution; provided, however, that in the event the Acquisition Cost of Contributed Property is financed by any borrowings by the REIT Entities or Affiliate Limited Partner, the Partnership shall assume any such obligations concurrently with the contribution of such property to the Partnership or, if impossible, shall obligate itself to the General Partner or the Affiliate Limited Partner, as applicable, in an amount and on terms equal such indebtedness, and the Acquisition Cost shall be reduced appropriately. If the General Partner or the Affiliate Limited Partner contributes Contributed Property to the Partnership, the General Partner or the Affiliate Limited Partner, as applicable, shall be deemed to have contributed to the Partnership as Contributed Funds pursuant to Section 4.3(a)(ii) hereof an amount equal to the Acquisition Cost of such Contributed Property.
4.2 Limited Partner Capital Contributions . Each Limited Partner (other than the Affiliate Limited Partner) has heretofore contributed, or is deemed to have contributed, as its Capital Contribution to the capital of the Partnership, the property reflected in the Partnerships books and records as having been contributed by it.
4.3 Additional Funds .
(a) If the General Partner determines that funds are required or desired for any proper Partnership purpose in excess of the funds anticipated to be available and the General Partner is not able or does not deem it advisable to cause the Partnership to borrow such funds or the REIT Entities or Affiliate Limited Partner otherwise raises any funds, including by issuance of new or sale of existing equity interests or securities (all of such funds, the Required Funds ), the General Partner shall either:
(i) to the extent the REIT Entities or the Affiliate Limited Partner borrows all or any portion of the Required Funds by entering into a Funding Loan, such entity shall, on the Funding Date, lend (the REIT Loan ) to the Partnership the Funding Loan Proceeds on the same terms and conditions, including interest rate, repayment schedule and costs and expenses, as shall be applicable with respect to or incurred in connection with the Funding Loan; or
(ii) to the extent (x) the Public REIT issues shares of its Common Stock or other securities (other than notes issued in connection with a Funding Loan), (y) the other REIT Entities or Affiliate Limited Partner issue new equity
interests or securities to any Person not under the Control of, or not wholly owned (except for de minimis preferred stock), directly or indirectly, by, the Public REIT or (z) the Public REIT, directly or indirectly, sells any previously issued equity interests or securities in the other REIT Entities or the Affiliate Limited Partner to raise the Required Funds, the General Partner and/or Affiliate Limited Partner, as applicable, shall, on the Funding Date, contribute to the Partnership as an additional Capital Contribution the amount of the Required Funds so raised ( Contributed Funds ) (hereinafter, each Funding Date on which the General Partner and/or Affiliate Limited Partner, as applicable, so contributes Contributed Funds pursuant to this subparagraph (ii) is referred to as an Adjustment Date ). In the event the General Partner and/or Affiliate Limited Partner advances Required Funds to the Partnership as Contributed Funds pursuant to this subparagraph (ii), the Partnership shall assume and pay (or reflect on its books as additional Contributed Funds) the expenses (including any applicable underwriting discounts) incurred by the REIT Entities or the Affiliate Limited Partner in connection with raising such Contributed Funds through a public offering of its securities or otherwise.
(b) Effective on each Adjustment Date and without the consent of any other Partner, the Partnership shall issue to the General Partner and/or Affiliate Limited Partner, as applicable, with respect to Contributed Funds relating to:
(i) an issuance by the Public REIT of Common Stock, the number of additional Common Units equal to the product of (x) the number of shares of Common Stock issued by the Public REIT in connection with obtaining such Contributed Funds, and (y) the Conversion Factor;
(ii) an issuance by the Public REIT of other equity interests or securities, Preferred Units with terms that are equivalent to the terms of such other equity interests or securities;
(iii) an issuance by the other REIT Entities or the Affiliate Limited Partner of equity interests or securities to any Person not under the Control of, or not wholly owned (except for de minimis preferred stock), directly or indirectly, by, the Public REIT, the number of Series F Preferred Units equal to a fraction, the numerator of which shall be the liquidation value of such equity securities and the denominator of which shall be $1000; provided, the Public REIT shall cause the other REIT Entities and the Affiliate Limited Partner to restrict such issuances to equity interests or securities having substantially similar terms to the Series F Preferred Units; or
(iv) a sale, directly or indirectly, by the Public REIT of equity interests or securities in the other REIT Entities or the Affiliate Limited Partner, the number of additional Common Units equal to (x) the Conversion Factor multiplied by (y) the quotient of (1) the sale price of such equity interests divided by (2) the Current Per Share Market Price in respect of such transaction.
The General Partner shall be authorized on behalf of each of the Partners to amend this Agreement to reflect the issuance of Units in accordance with Sections 4.3 and 4.4 in the event that the General Partner deems such amendment to be desirable.
4.4 Stock Plans . If at any time or from time to time options granted in connection with the Stock Incentive Plan or any other Stock Plans are exercised in accordance with the terms thereof or shares of Common Stock are otherwise issued pursuant to any of the Stock Plans:
(a) the Public REIT, General Partner and/or Affiliate Limited Partner, as applicable, shall, as soon as practicable after such exercise, purchase or other issuance, contribute or cause to be contributed to the capital of the Partnership an amount equal to the exercise price or other purchase price paid to the Public REIT, General Partner and/or Affiliate Limited Partner, as applicable, by the exercising or purchasing party in connection with such exercise or issuance; and
(b) the Partnership shall issue to the General Partner and/or Affiliate Limited Partner, as applicable, with respect to any exercise of options or purchase of shares of Common Stock pursuant to the Stock Plans, the number of additional Common Units equal to the product of (i) the number of shares of Common Stock issued by the Public REIT in connection with such exercise, purchase or issuance, multiplied by (ii) the Conversion Factor.
4.5 No Third Party Beneficiary . No creditor or other third party having dealings with the Partnership shall have the right to enforce the right or obligation of any Partner to make Capital Contributions or loans or to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the parties hereto and their respective successors and assigns. None of the rights or obligations of the Partners herein set forth to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to, secure any debt or other obligation of the Partnership or of any of the Partners.
4.6 No Interest; No Return . No Partner shall be entitled to interest on its Capital Contribution or on such Partners Capital Account. Except as provided herein or by law, no Partner shall have any right to demand or receive the return of its Capital Contribution from the Partnership.
4.7 Preferred Units . The Series B Preferred Units, Series D Preferred Units, and Series E Preferred Units and Series F Preferred Units have been established and have the rights, preferences, limitations and qualifications as are described in Schedule A, Schedule B, Schedule C and Schedule D, respectively, in addition to the applicable rights and preferences contained herein.
ARTICLE V
Allocations and Other Tax and Accounting Matters
5.1 Allocations . The Net Income, Net Loss and/or other Partnership items shall be allocated pursuant to the provisions of Exhibit B hereto.
5.2 Distributions With Respect to Common Units .
(a) Subject to the terms of the Preferred Units and after giving effect to the same, the General Partner shall, from time to time as determined by the General Partner (but in any event not less frequently than quarterly), cause the Partnership to distribute all or a portion of the remaining Net Operating Cash Flow to the holders of Common Units on the relevant Partnership Record Date in such amounts as the General Partner shall determine; provided, however, that all such distributions shall be made pro rata in accordance with the Partners then Percentage Interests; and provided further, that notwithstanding anything to the contrary contained herein, the General Partner shall use its best efforts to cause the Partnership to distribute sufficient amounts to enable the REIT Entities to pay shareholder dividends that will (i) satisfy the requirements for qualifying as a REIT under the Code and Regulations ( REIT Requirements ), and (ii) avoid any federal income or excise tax liability of the REIT Entities.
(b) In no event may a Limited Partner receive a distribution of Net Operating Cash Flow in respect of a Unit that such Partner has exchanged for a share of Common Stock pursuant to a Rights Agreement on or prior to the relevant Partnership Record Date; rather, all such distributions shall be made to the General Partner. Upon the receipt by the General Partner of each Exercise Notice pursuant to which one or more Limited Partners exercise Rights in accordance with the provisions of the Bucksbaum Rights Agreement, the General Partner shall, unless the Public REIT is required or elects only to issue Common Stock to such exercising Limited Partners, cause the Partnership to distribute to the Partners, pro rata in accordance with their Percentage Interests on the date of delivery of such Exercise Notice, all (or such lesser portion as the General Partner shall reasonably determine to be prudent under the circumstances) of Net Operating Cash Flow, which distribution shall be made prior to the closing of the purchase and sale of the Offered Units specified in such Exercise Notice.
5.3 Books of Account . At all times during the continuance of the Partnership, the General Partner shall maintain or cause to be maintained full, true, complete and correct books of account in accordance with generally accepted accounting principles wherein shall be entered particulars of all monies, goods or effects belonging to or owing to or by the Partnership, or paid, received, sold or purchased in the course of the Partnerships business, and all of such other transactions, matters and things relating to the business of the Partnership as are usually entered in books of account kept by persons engaged in a business of a like kind and character. In addition, the Partnership shall keep all records as required to be kept pursuant to the Act. The books and records of account shall be kept at the principal office of the Partnership, and each Partner shall at all reasonable times have access to such books and records and the right to inspect the same.
5.4 Reports . The Public REIT shall cause to be submitted to the Limited Partners, promptly upon receipt of the same from the Accountants and in no event later than April 1 of each year, copies of Audited Financial Statements prepared on a consolidated basis for the Public REIT and the Partnership together with their consolidated subsidiaries, together with the reports thereon, and all supplementary schedules and information, prepared by the Accountants. The Public REIT shall also cause to be prepared such reports and/or information as are necessary for the REIT Entities to determine their qualification as a REIT and their compliance with REIT Requirements.
5.5 Audits . Not less frequently than annually, the books and records of the Partnership shall be audited by the Accountants. The General Partner shall, unless determined otherwise by the General Partner with the Consent of the Limited Partners, engage the Accountants to audit the books and records of the Property Partnerships.
5.6 Tax Elections and Returns .
(a) All elections required or permitted to be made by the Partnership under any applicable tax law shall be made by the General Partner in its sole discretion, including without limitation an election on behalf of the Partnership pursuant to Section 754 of the Code to adjust the basis of the Partnership property in the case of transfers of Units, and the General Partner shall not be required to make any such election.
(b) The General Partner shall cause the Accountants to prepare and file all state and federal tax returns on a timely basis. The General Partner shall cause the Accountants to prepare and submit to the Limited Partner Representatives on or before April 1 of each year for review all federal and state income tax returns of the Partnership and cause the Accountants for the Property Partnerships to submit to the Limited Partner Representatives on or before April 1 of each year for review all federal and state income tax returns of the Property Partnerships. If the Limited Partner Representatives determine that any modifications to the tax returns of the Partnership or any Property Partnership should be considered, the Limited Partner Representatives shall, within thirty (30) days following receipt of such tax returns from the Accountants or the General Partner, indicate to the General Partner the suggested revisions to the tax returns, which returns shall be resubmitted to the Limited Partner Representatives for their review (but not approval). The Limited Partner Representatives shall complete their review of the resubmitted returns within ten (10) days after receipt thereof from the Accountants or the General Partner. The General Partner shall consult in good faith with the Limited Partner Representatives regarding any such proposed modifications to the tax returns of the Partnership and/or the Property Partnerships. A statement of the allocation of Net Income or Net Loss of the Partnership shown on the annual income tax returns prepared by the Accountants and a statement of the allocation of Net Income or Net Loss shown on the income tax return, of the Property Partnerships shall be transmitted and delivered to the Limited Partner Representatives within ten (10) days of the receipt thereof by the Partnership. The General Partner shall be responsible for preparing and filing all federal and state tax returns for the Partnership and furnishing copies thereof to the Partners, together with required Partnership schedules showing allocations of tax items and copies
of the tax returns of all Property Partnerships, all within the period of time prescribed by law or by the provisions hereof.
5.7 Tax Matters Partner . The General Partner is hereby designated as the Tax Matters Partner within the meaning of section 6231(a)(7) of the Code for the Partnership; provided, however, (i) in exercising its authority as Tax Matters Partner it shall be limited by the provisions of this Agreement affecting tax aspects of the Partnership; (ii) the General Partner shall consult in good faith with the Limited Partner Representatives regarding the filing of a Code Section 6227(b) administrative adjustment request with respect to the Partnership or a Property before filing such request, it being understood, however, that the provisions hereof shall not be construed to limit the ability of any Partner, including the General Partner, to file an administrative adjustment request on its own behalf pursuant to Section 6227(a) of the Code; (iii) the General Partner shall consult in good faith with the Limited Partner Representatives regarding the filing of a petition for judicial review of an administrative adjustment request under Section 6228 of the Code, or a petition for judicial review of a final partnership administrative judgment under Section 6226 of the Code relating to the Partnership before filing such petition; (iv) the General Partner shall give prompt notice to the Limited Partner Representatives of the receipt of any written notice that the Internal Revenue Service or any state or local taxing authority intends to examine Partnership income tax returns for any year, receipt of written notice of the beginning of an administrative proceeding at the Partnership level relating to the Partnership under Section 6223 of the Code, receipt of written notice of the final Partnership administrative adjustment relating to the Partnership pursuant to Section 6223 of the Code, and receipt of any request from the Internal Revenue Service for waiver of any applicable statute of limitations with respect to the filing of any tax return by the Partnership; and (v) the General Partner shall promptly notify the Limited Partner Representatives if the General Partner does not intend to file for judicial review with respect to the Partnership. The General Partner, in acting on behalf of the Partnership as tax matters partner of a Property Partnership, shall afford the Limited Partners the same rights with respect to Property Partnership tax matters as afforded to the Limited Partners under this Section 5.7.
5.8 Withholding . Each Partner hereby authorizes the Partnership to withhold or pay on behalf of or with respect to such Partner any amount of federal, state, local or foreign taxes that the General Partner determines the Partnership is required to withhold or pay with respect to any amount distributable or allocable to such Partner pursuant to this Agreement, including without limitation any taxes required to be withheld or paid by the Partnership pursuant to Sections 1441, 1442, 1445 or 1446 of the Code. Any amount paid on behalf of or with respect to a partner shall constitute a loan by the Partnership to such Partner, which loan shall be due within fifteen (15) days after repayment is demanded of such Partner and shall be repaid through withholding of subsequent distributions to such Partner. Nothing in this Section 5.8 shall create any obligation on the General Partner to advance funds to the Partnership or to borrow funds in order to make payments on account of any liability of the Partnership under a withholding tax act. Any amounts payable by a Limited Partner hereunder shall bear interest at the lesser of (a) the Prime Rate and (b) the maximum lawful rate of interest on such obligation, such interest to accrue from the date such amount is due ( i.e. , fifteen (15) days after demand) until such amount is paid in full. To the extent the payment or accrual of withholding tax results in a federal, state or local tax credit to the Partnership, such credit shall be allocated to the Partner to whose distribution the tax is attributable.
5.9 Distributions with Respect to Preferred Units .
(a) The holders of Series B Preferred Units are entitled to quarterly, cumulative partnership distributions when, if and as declared, in an amount equal to the greater of (i) $1.0625 per Series B Preferred Unit and (ii) the amount of regular quarterly cash distributions upon the number of Common Units into which such Series B Preferred Unit is then convertible, as more particularly described in Schedule A.
(b) The holders of Series D Preferred Units are entitled to quarterly, cumulative partnership distributions when, if and as declared, in an amount equal to the greater of (i) $0.8125 per Series D Preferred Unit and (ii) the amount of regular quarterly cash distributions upon the number of Common Units into which such Series D Preferred Unit is then convertible, as more particularly described in Schedule B.
(c) The holders of Series E Preferred Units are entitled to quarterly, cumulative partnership distributions when, if and as declared, in an amount equal to the greater of (i) $0.875 per Series E Preferred Unit and (ii) the amount of regular quarterly cash distributions upon the number of Common Units into which such Series E Preferred Unit is then convertible, as more particularly described in Schedule C.
(d) The holders of Series F Preferred Units are entitled to quarterly, cumulative partnership distributions when, if and as declared, in an amount equal to $25, as more particularly described in Schedule D.
ARTICLE VI
Rights, Duties and Restrictions of the General Partner
6.1 Expenditures by Partnership . The General Partner is hereby authorized to pay compensation for accounting, administrative, legal, technical, management and other services rendered to the Partnership. All of the aforesaid expenditures shall be made on behalf of the Partnership and the General Partner shall be entitled to reimbursement by the Partnership for any expenditures incurred by it on behalf of the Partnership which shall be made other than out of the funds of the Partnership. The Partnership shall also assume and pay when due, all Administrative Expenses.
6.2 Powers and Duties of General Partner . The General Partner shall be responsible for the management of the Partnerships business and affairs. Except as otherwise herein expressly provided, and subject to the limitations contained in Section 6.3 hereof with respect to Major Decisions, the General Partner shall have, and is hereby granted, full and complete power, authority and discretion to take such action for and on behalf of the Partnership and in its name as the General Partner shall, in its sole and absolute discretion, deem necessary or appropriate to carry out the purposes for which the Partnership was organized. Except as otherwise expressly provided herein, and subject to Section 6.3 hereof but without limiting the foregoing grant of power, authority and discretion, the General Partner shall have the right, power and authority:
(a) To manage, control, invest, reinvest, acquire by purchase, lease or otherwise, sell, contract to purchase or sell, grant, obtain, or exercise options to purchase,
options to sell or conversion rights, assign, transfer, convey, deliver, endorse, exchange, pledge, mortgage, abandon, improve, repair, maintain, insure, lease for any term and otherwise deal with any and all property of whatsoever kind and nature, and wheresoever situated, in furtherance of the purposes of the Partnership;
(b) To acquire, directly or indirectly, interests in real estate of any kind and of any type, and any and all kinds of interests therein, and to determine the manner in which title thereto is to be held; to manage, insure against loss, protect and subdivide any of the real estate interests therein or parts thereof; to improve, develop or redevelop any such real estate; to participate in the ownership and development of any property; to dedicate for public use, to vacate any subdivisions or parts thereof, to resubdivide, to contract to sell, to grant options to purchase or lease, to sell on any terms; to convey, to mortgage, pledge or otherwise encumber said property, or any part thereof; to lease said property or any part thereof from time to time, upon any terms and for any period of time, and to renew or extend leases, to amend, change or modify the terms and provisions of any leases and to grant options to lease and options to renew leases and options to purchase; to partition or to exchange said real property, or any part thereof, for other real or personal property; to grant easements or charges of any kind; to release, convey or assign any right, title or interest in or about or easement appurtenant to said property or any part thereof; to construct and reconstruct, remodel, alter, repair, add to or take from buildings on said premises; to insure any Person having an interest in or responsibility for the care, management or repair of such property; to direct the trustee of any land trust to mortgage, lease, convey or contract to convey the real estate held in such land trust or to execute and deliver deeds, mortgages, notes and any and all documents pertaining to the property subject to such land trust or in any matter regarding such trust; to execute assignments of all or any part of the beneficial interest in such land trust;
(c) To employ, engage or contract with or dismiss from employment or engagement Persons to the extent deemed necessary by the General Partner for the operation and management of the Partnership business, including but not limited to, the engagement of the Property Manager pursuant to the Management Agreements and the employment or engagement of other contractors, subcontractors, engineers, architects, surveyors, mechanics, consultants, accountants, attorneys, insurance brokers, real estate brokers and others;
(d) To enter into contracts on behalf of the Partnership;
(e) To borrow money, procure loans and advances from any Person for Partnership purposes, and to apply for and secure, from any Person, credit or accommodations; to contract liabilities and obligations, direct or contingent and of every kind and nature with or without security; and to repay, discharge, settle, adjust, compromise or liquidate any such loan, advance, credit, obligation or liability;
(f) To pledge, hypothecate, mortgage, assign, deposit, deliver, enter into sale and leaseback arrangements or otherwise give as security or as additional or substitute security, or for sale or other disposition any and all Partnership property, tangible or intangible, including, but not limited to, real estate and beneficial interests in land trusts,
and to make substitutions thereof, and to receive any proceeds thereof upon the release or surrender thereof; to sign, execute and deliver any and all assignments, deeds and other contracts and instruments in writing; to authorize, give, make, procure, accept and receive moneys, payments, property, notices, demands, vouchers, receipts, releases, compromises and adjustments; to waive notices, demands, protests and authorize and execute waivers of every kind and nature; to enter into, make, execute, deliver and receive written agreements, undertakings and instruments of every kind and nature; to give oral instructions and make oral agreements; and generally to do any and all other acts and things incidental to any of the foregoing or with reference, to any dealings or transactions which any attorney may deem necessary, proper or advisable;
(g) To acquire and enter into any contract of insurance which the General Partner deems necessary or appropriate for the protection of the Partnership, for the conservation of the Partnerships assets or for any purpose convenient or beneficial to the Partnership;
(h) To conduct any and all banking transactions on behalf of the Partnership; to adjust and settle checking, savings and other accounts with such institutions as the General Partner shall deem appropriate; to draw, sign, execute, accept, endorse, guarantee, deliver, receive and pay any checks, drafts, bills of exchange, acceptances, notes, obligations, undertakings and other instruments for or relating to the payment of money in, into or from any account in the Partnerships name; to execute, procure, consent to and authorize extensions and renewals of the same; to make deposits and withdraw the same and to negotiate or discount commercial paper, acceptances, negotiable instruments, bills of exchange and dollar drafts;
(i) To demand, sue for, receive and otherwise take steps to collect or recover all debts, rents, proceeds, interests, dividends, goods, chattels, income from property, damages and all other property, to which the Partnership may be entitled or which are or may become due the Partnership from any Person; to commence, prosecute or enforce, or to defend, answer or oppose, contest and abandon all legal proceedings in which the Partnership is or may hereafter be interested; and to settle, compromise or submit to arbitration any accounts, debts, claims, disputes and matters which may arise between the Partnership and any other Person and to grant an extension of time for the payment or satisfaction thereof on any terms, with or without security;
(j) To make arrangements for financing, including the taking of all action deemed necessary or appropriate by the General Partner to cause any approved loans to be closed;
(k) To take all reasonable measures necessary to insure compliance by the Partnership with applicable arrangements, and other contractual obligations and arrangements entered into by the Partnership from time to time in accordance with the provisions of this Agreement, including periodic reports as required to lenders and using all due diligence to insure that the Partnership is in compliance with its contractual obligations;
(l) To maintain the Partnerships books and records; and
(m) To prepare and deliver, or cause to be prepared and delivered by the Partnerships Accountants, all financial and other reports with respect to the operations of the Partnership, and preparation and filing of all federal and state tax returns and reports.
Except as otherwise provided herein, to the extent the duties of the General Partner require expenditures of funds to be paid to third parties, the General Partner shall not have any obligations hereunder except to the extent that Partnership funds are reasonably available to it for the performance of such duties, and nothing herein contained shall be deemed to authorize or require General Partner, in its capacity as such, to expend its individual funds for payment to third parties or to undertake any individual liability or obligation on behalf of the Partnership.
6.3 Major Decisions . The General Partner shall not, without the prior Consent of the Limited Partners, on behalf of the Partnership, undertake any of the following actions (the Major Decisions ):
(a) Amend, modify or terminate this Agreement other than to reflect the admission of additional limited partners pursuant to Section 8.3 hereof or the issuance of additional Units pursuant to Section 4.3 hereof and other than as provided in other sections hereof.
(b) Make a general assignment for the benefit of creditors or appoint or acquiesce in the appointment of a custodian, receiver or trustee for all or any part of the assets of the Partnership.
(c) Take title to any personal or real property, other than in the name of the Partnership or a Property Partnership or pursuant to the provisions hereof.
(d) Institute any proceeding for Bankruptcy on behalf of the Partnership.
(e) Sell all or substantially all of the assets of the Partnership.
(f) Dissolve the Partnership.
6.4 Actions with Respect to Certain Documents . Notwithstanding the provisions of Section 6.3 hereof to the contrary, whenever the consent, agreement, authorization or approval of the Partnership is required under any agreement to which the Bucksbaum Limited Partners and/or their Affiliates are parties in interest other than in their capacities as Limited Partners of the Partnership, the prior approval of a majority of the directors of the General Partner who are not Affiliates of the Bucksbaum Limited Partners shall be required.
6.5 Public REIT Participation . The Public REIT agrees that all business activities of the Public REIT, the Affiliated Limited Partner and the other REIT Entities, including activities pertaining to the acquisition, development and ownership of Properties, shall be conducted through the Partnership (other than the Public REITs, Affiliated Limited Partners or the other REIT Entities direct or indirect interest of not more than one percent (1%) in Property Partnerships not owned through the Partnership). Without the Consent of the Limited Partners,
the Public REIT shall not, directly or indirectly, and shall cause the Affiliate Limited Partner and/or the other REIT Entities not to directly or indirectly, participate in or otherwise acquire any interest in any real or personal property unless the Partnership participates in, or otherwise acquires an interest in, such real or personal property at least to the extent of 99 times such proposed participation by the Public REIT, the Affiliate Limited Partner and/or the other REIT Entities, as applicable. The Public REIT agrees and agrees on behalf of the Affiliate Limited Partner and the other REIT Entities that all borrowings for the purpose of making distributions to its stockholders will be incurred by the Partnership or the Property Partnerships and the proceeds of such indebtedness will be included as Net Financing Proceeds hereunder.
6.6 Proscriptions . The General Partner shall not have the authority to:
(a) Do any act in contravention of this Agreement or which would make it impossible to carry on the ordinary business of the Partnership;
(b) Possess any Partnership property or assign rights in specific Partnership property for other than Partnership purposes; or
(c) Do any act in contravention of applicable law.
Nothing herein contained shall impose any obligation on any Person or firm doing business with the Partnership to inquire as to whether or not the General Partner has properly exercised its authority in executing any contract, lease, mortgage, deed or other instrument or document on behalf of the Partnership, and any such third Person shall be fully protected in relying upon such authority.
6.7 Additional Partners . Additional Partners may be admitted to the Partnership only as provided in Section 8.3 hereof:
6.8 Title Holder . To the extent allowable under applicable law, title to all or any part of the properties of the Partnership may be held in the name of the Partnership or any other individual, corporation, partnership, trust or otherwise, the beneficial interest in which shall at all times be vested in the Partnership. Any such title holder shall perform any and all of its respective functions to the extent and upon such terms and conditions as may be determined from time to time by the General Partner.
6.9 Compensation of the General Partner . The General Partner shall not be entitled to any compensation for services rendered to the Partnership solely in its capacity as General Partner except with respect to reimbursement for those costs and expenses constituting Administrative Expenses.
6.10 Waiver and Indemnification .
(a) Neither the General Partner nor any Person acting on its behalf (pursuant hereto, shall be liable, responsible or accountable in damages or otherwise to the Partnership or to any Partner for any acts or omissions performed or omitted to be performed by them within the scope of the authority conferred upon the General Partner by this Agreement and the Act, provided that the General Partners or such other Persons
conduct or omission to act was taken in good faith and in the belief that such conduct or omission was in the best interests of the Partnership and, provided further, that the General Partner or such other Person shall not be guilty of fraud, misconduct or gross negligence. The Partnership shall, and hereby does, indemnify and hold harmless the General Partner and its Affiliates and any individual acting on their behalf from any loss, damage, claim or liability, including, but not limited to, reasonable attorneys fees and expenses, incurred by them by reason of any act performed by them in accordance with the standards set forth above or in enforcing the provisions of this indemnity; provided, however, no Partner shall have any personal liability with respect to the foregoing indemnification, any such indemnification to be satisfied solely out of the assets of the Partnership.
(b) Any Person entitled to indemnification under this Agreement shall be entitled to receive, upon application therefor, advances to cover the costs of defending any proceeding against such Person; provided, however, that such advances shall be repaid to the Partnership, without interest, if such Person is found by a court of competent jurisdiction upon entry of a final judgment not be entitled to such indemnification, all rights of the indemnitee hereunder shall survive the dissolution of the Partnership; provided, however, that a claim for indemnification under this Agreement must be made by or on behalf of the Person seeking indemnification prior to the time the Partnership is liquidated hereunder. The indemnification rights contained in this Agreement shall be cumulative of, and in addition to, any and all rights, remedies and recourse to which the person seeking indemnification shall be entitled, whether at law or at equity. Indemnification pursuant to this Agreement shall be made solely and entirely from the assets of the Partnership and no Partner shall be liable therefor.
6.11 Limited Partner Representatives . A Majority-In-Interest of the Bucksbaum Limited Partners shall appoint one or more representatives ( Limited Partner Representatives ). A Majority-In-Interest of the Bucksbaum Limited Partners shall have the rights at any time, within their sole discretion, to replace any of the Limited Partner Representatives, to appoint a temporary substitute to act for any Limited Partner Representative unable to act, or to vest in only one of the Limited Partner Representatives the sole power to exercise rights of the Limited Partner Representatives thereunder. The Limited Partner Representatives shall be appointed by the Bucksbaum Limited Partners in writing, a copy of which shall be delivered to the General Partner. Any appointments of Limited Partner Representatives made hereunder shall remain effective until rescinded in a writing delivered to the General Partner and the General Partner shall have the right and authority to rely (and shall be fully protected in so doing) on the actions taken and directions given by such Limited Partner Representatives without any further evidence of their authority or further action by the Bucksbaum Limited Partners.
6.12 Operation in Accordance with REIT Requirements . The Partners acknowledge and agree that the Partnership shall be operated in a manner that will enable the REIT Entities to (a) satisfy the REIT Requirements and (b) avoid the imposition of any federal, income or excise tax liability. The Partnership shall avoid taking any action, or permitting any Property Partnership to take any action, which would result in the REIT Entities ceasing to satisfy the REIT Requirements or would result in the imposition of any federal income or excise tax liability on the REIT Entities. The determination as to whether the Partnership has operated in
the manner prescribed in this Section 6.12 shall be made without regard to any action or inaction of the General Partner with respect to distributions and the timing thereof.
ARTICLE VII
Dissolution, Liquidation and Winding-Up
7.1 Accounting . In the event of the dissolution, liquidation and winding-up of the Partnership, a proper accounting (which shall be certified) shall be made of the Capital Account of each Partner and of the Net Profits or Net Losses of the Partnership from the date of the last previous accounting to the date of dissolution. Financial statements presenting such accounting shall include a report of a certified public accountant selected by the Liquidating Trustee.
7.2 Distribution on Dissolution . In the event of the dissolution and liquidation of the Partnership for any reason, the assets of the Partnership shall be liquidated for distribution in the following rank and order:
(a) Payment of creditors of the Partnership (other than Partners) in the order of priority as provided by law;
(b) Establishment of reserves as provided by the General Partner to provide for contingent liabilities, if any;
(c) Payment of debts of the Partnership to any, in the order of priority provided by law;
(d) Payment to the holders of Preferred Units in accordance with the terms thereof; and
(e) To the Partners holding Common Units in accordance with their respective Percentage Interests.
Whenever the Liquidating Trustee reasonably determines that any reserves established pursuant to paragraph (b) above are in excess of the reasonable requirements of the Partnership, the amount determined to be excess shall be distributed to the Partners in accordance with the above provisions.
7.3 Timing Requirements . In the event that the Partnership is liquidated within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations, any and all distributions, to the Partners pursuant to Section 7.2(d) hereof shall be made no later than the later to occur of (i) the last day of the taxable year of the Partnership in which such liquidation occurs or (ii) ninety (90) days after the date of such liquidation.
7.4 Sale of Partnership Assets . In the event of the liquidation of the Partnership in accordance with the terms of this Agreement, the Liquidating Trustee may, with the Consent of the Limited Partners, sell Partnership or Property Partnership property if the Liquidating Trustee has in good faith solicited bids from unrelated third parties and obtained independent appraisals before making any such sale; provided, however, all sales, leases, encumbrances or transfers of
Partnership assets shall be made by the Liquidating Trustee with the prior Consent of the Limited Partners and solely on an arms-length basis, at the best price and on the best terms and conditions as the Liquidating Trustee in good faith believes are reasonably available at the time and under the circumstances and on a non-recourse basis to the Limited Partners. The liquidation of the Partnership shall not be deemed finally terminated until the Partnership shall have received cash payments in full with respect to obligations such as notes, installment sale contracts or other similar receivables received by the Partnership in connection with the sale of Partnership assets and all obligations of the Partnership have been satisfied or assumed by the General Partner. The Liquidating Trustee shall continue to act to enforce all of the rights of the Partnership pursuant to any such obligations until paid in full.
7.5 Distributions in Kind . In the event that it becomes necessary to make a distribution of Partnership property in kind, the General Partner may, with the Consent of the Limited Partners, transfer and convey such property to the distributees as tenants in common, subject to any liabilities attached thereto, so as to vest in them undivided interests in the whole of such property in proportion to their respective rights to share in the proceeds of the sale of such property (other than as a creditor) in accordance with the provisions of Section 7.2 hereof.
7.6 Documentation of Liquidation . Upon the completion of the dissolution and liquidation of the Partnership, the Partnership shall terminate and the Liquidating Trustee shall have the authority to execute and record any and all documents or instruments required to effect the dissolution, liquidation and termination of the partnership.
7.7 Liability of the Liquidating Trustee . The Liquidating Trustee shall be indemnified and held harmless by the Partnership from and against any and all claims, demands, liabilities, costs, damages and causes of action of any nature whatsoever arising out of or incidental to the Liquidating Trustees taking of any action authorized under or within the scope of this Agreement; provided, however, that the Liquidating Trustee shall not be entitled to indemnification, and shall not be held harmless, where the claim, demand, liability, cost, damage or cause of action at issue arose out of:
(a) A matter entirely unrelated to the Liquidating Trustees action or conduct pursuant to the provisions of this Agreement; or
(b) The proven misconduct or negligence of the Liquidating Trustee.
7.8 Liquidation Preference of Preferred Units . With respect to liquidation of the Partnership:
(a) The holders of Series B Preferred Units shall have the rights and preferences described in Schedule A.
(b) The holders of Series D Preferred Units shall have the rights and preferences described in Schedule B.
(c) The holders of Series E Preferred Units shall have the rights and preferences described in Schedule C
(d) The holders of Series F Preferred Units shall have the rights and preferences described in Schedule D.
7.9 Negative Capital Accounts .
(a) Except as provided in the next sentence and Section 7.9(b), no Partner shall be liable to the Partnership or to any other partner for any deficit or negative balance which may exist in its Capital Account. Upon liquidation of any Obligated Partners interest in the Partnership, whether pursuant to a liquidation of the Partnership or by means of a distribution to the Obligated Partner by the Partnership, if such Obligated Partner has a deficit balance in its Capital Account, after giving effect to all contributions, distributions, allocations and adjustments to Capital Accounts for all periods, each such Obligated Partner shall contribute to the capital of the Partnership an amount equal to its respective deficit balance. Each Obligated Partner having such an obligation to restore a deficit Capital Account shall satisfy such obligation by the end of the fiscal year of liquidation (or, if later, within ninety (90) days following the liquidation and dissolution of the Partnership). Any such contribution by an Obligated Partner shall be used to make payments to creditors of the Partnership and such Obligated Partners (i) shall not be subrogated to the rights of any such creditor against the General Partner, the Partnership, another Partner or any Person related thereto, and (ii) hereby waive any right to reimbursement, contribution or similar right to which such Obligated Partners might otherwise be entitled as a result of the performance of their obligations under this Agreement.
(b) Notwithstanding any other provision of this Agreement, an Obligated Partner other than Koury Corporation shall cease to be an Obligated Partner upon the earlier of (i) nine months after the death of such Obligated Partner or (ii) six months after (A) any date after the third anniversary date of the date of the Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership of GGP Limited Partnership dated as of April 1, 1998, which is selected by the Obligated Partner as the date upon which such Obligated Partners obligation hereunder shall terminate (and for which notice of such date shall be given at least 60 days prior to such selected date) or (B) an exchange of all of such Obligated Partners remaining Units for shares of Common Stock or preferred stock of the Public REIT (pursuant to a Rights Agreement) or in an otherwise taxable sale or exchange of all of such Obligated Partners Units provided that at the time of or during such six-month period following such event set forth in (ii)(A) or (B), there has not been: (X) an entry of decree or order for relief in respect of the Partnership by a court having jurisdiction over a substantial part of the Partnerships assets, or the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar Official) of the Partnership or of any substantial part of its property, ordering the winding up or liquidation of the Partnerships affairs, in an involuntary case under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law; or (Y) the commencement against the Partnership of an involuntary case under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law; or (Z) the commencement by the Partnership of a voluntary case under the federal bankruptcy laws, as now or hereafter constituted, or
any other applicable federal or state bankruptcy, insolvency or other similar law, or the consent by it to the entry of an order for relief in an involuntary case under any such law or the consent by it to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Partnership or of any substantial part of its property, or the making by it of a general assignment for the benefit of creditors, or the failure of the Partnership generally to pay its debts as such debts become due or the taking of any action in furtherance of any of the foregoing. Following the passage of the six-month period after the event set forth in clause (ii)(A) or (B) of this paragraph, an Obligated Partner shall cease to be an Obligated Partner at the first time, if any, that all of the conditions set forth in (X) through (Z) above are no longer in existence.
(c) Notwithstanding any other provision of this Agreement, Koury Corporation shall cease to be an Obligated Partner immediately upon the earlier of (i) any date which is selected by Koury Corporation as the date upon which its status as an Obligated Partner hereunder shall terminate (and for which notice of such selected date shall be given at least 60 days prior to such selected date, but only if such selected date is not earlier than the first anniversary date of the last day of the Partnerships most recent completed tax year in which Koury Corporations Protected Amount increased), (ii) an exchange of all of Koury Corporations remaining Units for shares of Common Stock of the Public REIT (pursuant to a Rights Agreement) or in an otherwise taxable sale, or exchange of all of such Obligated Partners Units; or (iii) the Partnerships termination, for a Partnership purposes, of Koury Corporations status as an Obligated Partner on any date that follows March 5, 2017.
ARTICLE VIII
Transfer of Units
8.1 General Partner Transfer . The General Partner shall not withdraw from the Partnership and shall not sell, assign, pledge, encumber or otherwise dispose of all or any portion of its Units, either to a new General Partner or a Limited Partner, without the Consent of the Limited Partners. Upon any transfer of Units to a new General Partner in accordance with the provisions of this Section 8.1, the transferee General Partner shall become vested with the powers and rights of the transferor General Partner, and shall be liable for all obligations and responsible for all duties of the General Partner, once such transferee has executed such instruments as may be necessary to effectuate such admission and to confirm the agreement of such transferee to be bound by all the terms and provisions of this Agreement with respect to the Units so acquired. It is a condition to any transfer of Units to a new General Partner otherwise permitted hereunder that the transferee assumes by operation of law or express agreement all of the obligations of the transferor General Partner under this Agreement with respect to such transferred Units and no such transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor General Partner are assumed by a successor corporation by operation of law), shall relieve the transferor General Partner of its obligations under this Agreement without the Consent of the Limited Partners, in their reasonable discretion. In the event the General Partner withdraws from the Partnership in violation of this Agreement or otherwise, or dissolves or terminates or upon the Bankruptcy of
the General Partner, a Majority-in-Interest of the Limited Partners may elect to continue the Partnership business by selecting a substitute general partner. Notwithstanding the foregoing, the General Partner shall be permitted at any time, and from time to time, to transfer its Units to the Affiliate Limited Partner or liquidate into one or more subsidiaries of the Public REIT or one or more subsidiaries thereof without the Consent of the Limited Partners; provided, however, that such transfer or liquidation shall not materially change the proportionate direct or indirect ownership in the Partnership by the Public REIT and, in the event of the liquidation of the General Partner, the Affiliate Limited Partner (or its successor) shall select a new General Partner; provided further, such new General Partner shall be under the Control of the Public REIT.
8.2 Transfers by Limited Partners . Each Limited Partner shall, subject to the provisions of this Section 8.2 and Section 8.4 hereof, have the right to transfer all or a portion of its Units to any Person, whether or not in connection with the exercise of the Rights. It is a condition to any transfer otherwise permitted hereunder that the transferee assumes by operation of law or express agreement all of the obligations of the transferor Limited Partner under this Agreement with respect to such transferred Units and no such transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor Partner are assumed by a successor corporation by operation of law) shall relieve the transferor Partner of its obligations under this Agreement without the approval of the General Partner in its reasonable discretion. Upon such transfer, the transferee shall be admitted as a substituted limited partner as such term is defined in the Act (the Substituted Limited Partner ) and shall succeed to all of the rights of the transferor Limited Partner under this Agreement in the place and stead of such transferor Limited Partner; provided, however, that notwithstanding the foregoing, any transferee of any transferred Units, to the extent such transferee is entitled to exercise Rights under the Rights Agreement, shall be subject to any and all ownership limitations contained in the Charter which may limit or restrict such transferees ability to exercise the Rights. Any transferee, whether or not admitted as a Substituted Limited Partner, shall take subject to the obligations of the transferor hereunder. Unless admitted as a Substituted Limited Partner, no transferee, whether by a voluntary transfer, by operation of law or otherwise, shall have rights hereunder, other than to receive such portion of the distributions made by the Partnership as are allocable to the Units transferred. Notwithstanding the foregoing, without the Consent of the Limited Partners, the Affiliate Limited Partner shall not transfer its Units in the Partnership, and shall not suffer or permit the transfer or issuance of interests in itself, unless the transferee of such Units or interests is under the Control of the Public REIT and the Public REITs direct and indirect ownership interest in the Partnership is not materially altered.
8.3 Issuance of Additional Common Units .
(a) At any time without the consent of any Partner, but subject to the provisions of Section 8.4 hereof, the General Partner may, upon its determination that the issuance of additional Common Units ( Additional Units ) is in the best interests of the Partnership, cause the Partnership to issue Additional Units to and admit as a Limited Partner in the Partnership, any Person (the Additional Partner ) in exchange for the contribution by such Person of cash and/or property desirable to further the purposes of the Partnership under Section 2.3 hereof. The number of Additional Units issued to any Additional Partner shall be equal to the product of the (a) Conversion Factor multiplied
by (b) the quotient of (i) the Gross Asset Value of the property contributed by the Additional Partner (net of liabilities assumed by the Partnership in connection with the contribution of such property to the Partnership or to which such property is subject) as of the date of contribution (the Contribution Date ) divided by (ii) Current Per Share Market Price in respect of such transaction, and the General Partner may admit an Additional Partner to the Partnership upon such other terms as it deems appropriate. The General Partner shall be authorized on behalf of each of the Partners to amend this Agreement to reflect the admission of any Additional Partner in accordance with the provisions of this Section 8.3 in the event that the General Partner deems such amendment to be desirable, and the General Partner promptly shall deliver a copy of such amendment to each Limited Partner. Notwithstanding anything contained herein to the contrary, an Additional Partner that acquires Additional Units pursuant to this Section 8.3 shall not acquire any interest in and may not exercise or otherwise participate in any Rights pursuant to the Rights Agreements unless they are expressly granted such rights.
(b) (i) Upon issuance by either of the General Partner or the Public REIT of shares of its common stock pursuant to the CSA or in settlement of any dispute relating to the CSA, the Partnership shall issue to the General Partner an equal number of Common Units and (ii) upon issuance of shares of its preferred stock pursuant to the CSA, the Partnership shall issue to the General Partner an equal number of Preferred Units with terms that are equivalent to the terms of such shares of preferred stock. Notwithstanding anything to the contrary contained in the Partnership Agreement, if there are one or more actual or deemed distributions which would otherwise be treated as giving rise to a disguised sale under Section 707 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder, such distributions shall be treated as having been made in reimbursement of the General Partners preformation capital expenditures as described in Reg. 1.707-4 (d) and Rev. Rul. 2000-44 to the extent of such preformation capital expenditures.
8.4 Restrictions on Transfer . In addition to any other restrictions on transfer herein contained, in no event may any transfer or assignment of Units by any Partner be made (i) to any Person who lacks the legal right, power or capacity to own Units; (ii) in violation of any provision of any mortgage or trust deed (or the note or bond secured thereby) constituting a Lien against a Property or any part thereof, or other instrument, document or agreement to which the Partnership or any Property Partnership is a party or otherwise bound; (iii) in violation of applicable law; (iv) of any component portion of a Unit, such as the Capital Account, or rights to Net Operating Cash Flow, separate and apart from all other components of such Unit (other than such assignments of the right to receive distributions as the General Partner shall approve in writing which approval the General Partner may withhold in its sole discretion); (v) in the event such transfer would cause the REIT Entities to cease to comply with the REIT requirements; (vi) if such transfer would cause a termination of the Partnership for federal income tax purposes; (vii) if such transfer would, in the opinion of counsel to the Partnership, cause the Partnership to cease to be classified as a partnership for federal income tax purposes; (viii) if such transfer would, in the opinion of counsel to the Partnership, cause any assets of the Partnership to constitute assets of a benefit plan investor pursuant to 29 C.F.R. § 2510.3-101, as modified by Section 3(42) of the Employee Retirement Income Security Act of 1974, as amended or (ix) if such transfer is effectuated through an established securities market or
secondary market (or the substantial equivalent thereof) within the meaning of Section 7704 of the Code or such transfer causes the Partnership to become a publicly traded partnership as such term is defined in Section 7704(b) of the Code. Notwithstanding anything in this Agreement to the contrary:
(a) no Limited Partner admitted to the Partnership after June 29, 1998 may sell, assign or otherwise transfer its Units or other interest in the Partnership or any portion thereof to any Foreign Owner (and no interest in such Limited Partner or any Person that directly or indirectly owns an interest in such Limited Partner may be transferred if such Limited Partner shall become a Foreign Owner as the result of such transfer) without the prior written consent of the General Partner (which consent may be given or withheld in the sole discretion of the General Partner); and
(b) no other Limited Partner may sell, assign or otherwise transfer its Units or other interest in the Partnership or any portion thereof to any Foreign Owner (and no interest in such Limited Partner or any Person that directly or indirectly owns an interest in such Limited Partner may be transferred if such Limited Partner shall become a Foreign Owner as the result of such transfer) without providing written notice of the same to the General Partner. Any such written notice shall be received by the General Partner at least thirty days prior to any such sale, assignment or other transfer.
Any sale, assignment or other transfer of Units or other interests in the Partnership made in violation of this Agreement (including without limitation any sale, assignment or other transfer of Units made without giving the notice described above at the time described above) shall be null and void ab initio .
ARTICLE IX
Rights and Obligations of the Limited Partners
9.1 No Participation in Management . Except as expressly permitted hereunder, the Limited Partners shall not take part in the management of the Partnerships business, transact any business in the Partnerships name or have the power to sign documents for or otherwise bind the Partnership.
9.2 Bankruptcy of a Limited Partner . The Bankruptcy of any Limited Partner shall not cause a dissolution of Partnership, but the rights of such Limited Partner to share in the Net Profits or Net Losses of the Partnership and, to receive distributions of Partnership funds shall, on the happening of such event, devolve on its successors or assigns, subject to the terms and conditions of this Agreement, and the Partnership shall continue as a limited partnership. However, in no event shall such assignee(s) become a Substituted Limited Partner without the consent of the General Partner.
9.3 No Withdrawal . No Limited Partner may withdraw from the Partnership without the prior written consent of the General Partner, other than as expressly provided in this Agreement.
9.4 Duties and Conflicts . The General Partner recognizes that the Limited Partners and their Affiliates have or may hereafter have other business interests, activities and investments, some of which may be in conflict or competition with the business of the Partnership, and that such Persons are entitled to carry on such other business interests, activities and investments. The Limited Partners and their Affiliates may engage in or possess an interest in any other business or venture of any kind, independently or with others, on their own behalf or on behalf of other entities with which they are affiliated or associated, and such persons may engage in any activities, whether or not competitive with the Partnership, without any obligation to offer any interest in such activities to the Partnership or to any Partner. Neither the Partnership nor any Partner shall have any right, by virtue of this Agreement, in or to such activities, or the income or profits derived therefrom, and the pursuit of such activities, even if competitive with the business of the Partnership, shall not be deemed wrongful or improper.
ARTICLE X
Limited Partner Representations and Warranties
Each Limited Partner, severally, and not jointly and severally, represents and warrants to the Partnership and the General Partner as follows:
(a) Organization; Authority . The Limited Partner (i) in the case of a Person who is a natural person, has full power and authority to execute, deliver and perform this Agreement or (ii) in the case of a Person which is a corporation, limited liability company, partnership or trust, is a corporation, limited liability company, partnership, corporation or trust, as the case may be, duly formed, validly existing and in good standing (to the extent applicable) under the laws of its jurisdiction of formation with the requisite authority to execute, deliver and perform this Agreement.
(b) Due Authorization; Binding Agreement . The execution, delivery and performance of this Agreement by the Limited Partner has been duly and validly authorized by all necessary action of the Limited Partner in the case of a Limited Partner which is an Entity. This Agreement has been duly executed and delivered by the Limited Partner, or an authorized representative of the Limited Partner, and constitutes a legal, valid and binding obligation of the Limited Partner, enforceable against the Limited Partner in accordance with the terms hereof.
(c) Consents and Approvals . No consent, waiver, approval or authorization of, or filing, registration or qualification with, or notice to, any governmental unit or any other Person is required to be made, obtained or given by the Limited Partner in connection with the execution, delivery and performance of this Agreement.
(d) No Violation . None of the execution, delivery or performance of this Agreement by the Limited Partner does or will, with or without the giving of notice, lapse of time or both, (i) violate, conflict with or constitute a default under any term or condition of (A) the organizational documents of the Limited Partner or other agreement to which the Limited Partner is a party or by which it is bound or (B) any judgment, decree, order, statute, injunction, rule or regulation of a governmental unit applicable to
the Limited Partner or by which it or its assets or properties are bound or (ii) result in the creation of any Lien or other encumbrance upon the assets or properties of the Limited Partner.
ARTICLE XI
General Partner Representations and Warranties
The General Partner represents and warrants to the Partnership and the Limited Partners as follows:
(a) Organization; Authority . The General Partner is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware with full corporate power to execute, deliver and perform this Agreement.
(b) Due Authorization; Binding Agreement . The execution, delivery and performance of this Agreement by the General Partner has been duly and validly authorized by all necessary action of the General Partner. This Agreement has been duly executed and delivered by the General Partner, or an authorized representative of the General Partner, and constitutes a legal, valid and binding obligation of the General Partner, enforceable against the General Partner in accordance with the terms hereof.
(c) Consents and Approvals . No consent, waiver, approval or authorization of, or filing, registration or qualification with, or notice to, any governmental unit or any other person is required to be made, obtained or given by the General Partner in connection with the execution, delivery and performance of this Agreement other than consents, waivers, approvals or authorizations which have been obtained prior to the date hereof.
ARTICLE XII
Arbitration of Disputes
12.1 Arbitration . Notwithstanding anything to the contrary contained in this Agreement, all claims, disputes and controversies between the parties hereto (including, without limitation, any claims, disputes and controversies between the Partnership and any one or more of the Partners and any claims, disputes and controversies between any one or more Partners) arising out of or in connection with this Agreement or the Partnership relating to the validity, construction, performance, breach, enforcement or termination thereof, or otherwise, shall be resolved by binding arbitration in New York, New York, in accordance with this Article XII and, to the extent not inconsistent herewith, the Expedited Procedures and Commercial Arbitration Rules of the Arbitration Association.
12.2 Procedures . Any arbitration called for by this Article XII shall be conducted in accordance with the following procedures:
(a) The Partnership or any Partner (the Requesting Party ) may demand arbitration pursuant to Section 12.1 hereof at any time by giving written notice of such
demand (the Demand Notice ) to all other Partners and (if the Requesting Party is not the Partnership) to the Partnership which Demand Notice shall describe in reasonable detail the nature of the claim, dispute or controversy.
(b) Within fifteen (15) days after the giving of a Demand Notice, the Requesting Party, on the one hand, and each of the other Partners and/or the Partnership against whom the claim has been made or with respect to which a dispute has arisen (collectively, the Responding Party ), on the other hand, shall select and designate in writing to the other party one reputable, disinterested individual (a Qualified Individual ) willing to act as an arbitrator of the claim, dispute or controversy in question. Each of the Requesting Party and the Responding Party shall use their best efforts to select a present or former partner of a nationally known accounting firm having no affiliation with any of the parties as their respective Qualified Individual. Within fifteen (15) days after the foregoing selections have been made, the arbitrators so selected shall only select a present or former partner of a nationally known accounting firm having no affiliation with any of the parties as the third Qualified Individual willing to act as an arbitrator of the claim, dispute or controversy in question. In the event that the two arbitrators initially selected are unable to agree on a third arbitrator within the second fifteen (15) day period referred to above, then, on the application of either party, the American Arbitration Association shall promptly select and appoint a present or former partner of a nationally known accounting firm having no affiliation with any of the parties as the Qualified Individual to act as the third arbitrator. The three arbitrators selected pursuant to this subsection (b) shall constitute the arbitration panel for the arbitration in question.
(c) The presentations of the parties hereto in the arbitration proceeding shall be commenced and completed within sixty (60) days after the selection of the arbitration panel pursuant to subsection (B) above, and the arbitration panel shall render its decision in writing within thirty (30) days after the completion of such presentations. Any decision concurred in by any two (2) of the arbitrators shall constitute the decision of the arbitration panel, and unanimity shall not be required.
(d) The arbitration panel shall have the discretion to include in its decision a direction that all or part of the attorneys fees and costs of any party or parties and/or the costs of such arbitration be paid by any other party or parties. On the application of a party before or after the initial decision of the arbitration panel, and proof of its attorneys fees and costs, the arbitration panel shall order the other party to make any payments directed pursuant to the preceding sentence.
12.3 Binding Character . Any decision rendered by the arbitration panel pursuant to this Article XII shall be final and binding on the parties hereto, and judgment thereon may be entered by any state or federal court of competent jurisdiction.
12.4 Exclusivity . Arbitration shall be the exclusive method available for resolution of claims, disputes and controversies described in Section 12.1 hereof, and the Partnership and its Partners stipulate that the provisions hereof shall be a complete defense to any suit, action, or proceeding in any court or before any administrative or arbitration tribunal with respect to any
such claim, controversy or dispute. The provisions of this Article XII shall survive the dissolution of the Partnership.
12.5 No Alteration of Agreement . Nothing contained herein shall be deemed to give the arbitrators any authority, power or right to alter, change, amend, modify, add to or subtract from any of the provisions of this Partnership Agreement.
ARTICLE XIII
General Provisions
13.1 Notices . All notices, offers or other communications required or permitted to be given pursuant to this Agreement shall be in writing and may be personally served, telecopied or sent by United States mail and shall be deemed to have been given when delivered in person, upon receipt of telecopy or three business days after deposit in United States mail, registered or certified, postage prepaid, and properly addressed, by or to the appropriate party. For purposes of this Section 13.1, the addresses of the parties hereto shall be as set forth in the books and records of the Partnership. The address of any party hereto may be changed by a notice in writing given in accordance with the provisions hereof. Notwithstanding anything to the contrary herein, no provision of this Partnership Agreement requiring notice of any event prior to the occurrence thereof shall apply to stock splits, subdivisions, dividends, combinations. or any other similar event occurring after the date hereof.
13.2 Successors . This Agreement and all the terms and provisions hereof shall be binding upon and shall inure to the benefit of all Partners, and their legal representatives, heirs, successors and permitted assigns, except as expressly herein otherwise provided.
13.3 Effect and Interpretation . This Agreement shall be governed by and construed in conformity with the laws of the State of Delaware (without regard to its conflicts of law principles).
13.4 Counterparts . This Agreement may be executed in counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument.
13.5 Partners Not Agents . Nothing contained herein shall be construed to constitute any Partner the agent of another Partner, except as specifically provided herein, or in any manner to limit the Partners in the carrying on of their own respective businesses or activities.
13.6 Entire Understanding; Etc. This Agreement, together with any and all Contribution Agreements and Rights Agreements, constitutes the entire agreement and understanding among the Partners and supersedes any prior understandings and/or written or oral agreements among them respecting the subject matter within (including without limitation the Second Restated Partnership Agreement except for the consents, approvals and waivers given therein, and the agreements by Partners to be bound by the provisions thereof, as the same is amended hereby, which shall continue in full force and effect).
13.7 Amendments . Except as otherwise provided herein, this Agreement may not be amended, and no provision may be waived, except by a written instrument signed by the General
Partner (and, in the case of amendments or waivers benefiting the Bucksbaum Limited Partners, approved on behalf of the General Partner by at least a majority or its directors who are not Affiliates of the Bucksbaum Limited Partners) and a Majority-In-Interest of the Limited Partners. Notwithstanding anything to the contrary contained herein, (a) without the written consent of a Limited Partner, this Agreement may not be amended to convert such Limited Partners partnership interest in the Partnership to a general partnership interest (or otherwise adversely affect such Limited Partners limited liability) and (b) without the written consent of a Limited Partner holding Common Units, this Agreement may not be amended to materially adversely affect such Limited Partners rights to distributions or allocations in respect of such Common Units except in connection with the admission of Additional Partners or unless such amendment affects the Bucksbaum Limited Partners in the same manner on a Unit-for-Unit basis. The immediately preceding sentence of this Section 13.7 may not be amended to modify the approval rights of a Partner without such Partners consent.
13.8 Severability . If any provision of this Agreement, or the application of such provision to any person or circumstance, shall be held invalid by a court of competent jurisdiction, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those to which it is held invalid by such court, shall not be affected thereby.
13.9 Trust Provision . This Agreement, to the extent executed by the trustee of a trust, is executed by such trustee solely as trustee and not in a separate capacity. Nothing herein contained shall create any liability on, or require the performance of any covenant by any such trustee individually, nor shall anything contained herein subject the individual personal property of any trustee to any liability.
13.10 Pronouns and Headings . As used herein, all pronouns shall include the masculine, feminine and neuter, and all defined terms shall include the singular and plural thereof wherever the context and facts require such construction. The headings, titles and subtitles herein are inserted for convenience of reference only and are to be ignored in any construction of the provisions hereof. Any references in this Agreement to including shall be deemed to mean including without limitation.
13.11 Assurances . Each of the Partners shall hereafter execute and deliver such further instruments and do such further acts and things as may be required or useful to carry out the intent and purpose of this Agreement and as are not inconsistent with the terms hereof.
13.12 Issuance of Certificates . The General Partner may, in its sole discretion, issue a certificate setting forth the name of any Partner and the number of Units owned by such Partner and, in such event, the General Partner shall establish such rules and regulations relating to issuances and reissuances of certificates upon transfer of Units, the division of Units among multiple certificates and the loss, theft, destruction or mutilation of certificates as the General Partner reasonably deems appropriate. Notwithstanding anything to the contrary contained herein or in any certificate, (a) no certificate issued by the Partnership shall constitute a certificated security under Article 8 of the Uniform Commercial Code or an instrument, (b) the issuance or existence of certificates shall not create any rights on the part of the holders of such certificates or other Persons that would not exist if such certificates had not been issued, (c) the
Partnership shall have no liability to holders of certificates or other persons that it would not have had if it had not issued such certificates, and (d) only those Persons shown on the Partnerships book and records as the registered owner of any particular Unit shall have any rights as a Limited Partner or otherwise with respect thereto.
13.13 November 20, 2003 Division of Common Units . On November 20, 2003, (a) the General Partner effected a three for one split of its common stock (the Stock Split ) and the Partnership effected a three for one split of the Common Units, such that each Common Unit then outstanding was deemed to be three Common Units, so that, as of such time, each holder of record of Common Units, automatically and without further action, was deemed to be the holder of two additional Common Units for each Common Unit held immediately prior to such time (the Unit Split ) and (b) there was no adjustment of the Conversion Factor on account of the Stock Split; provided, however, that for Common Units issued and outstanding on or prior to November 20, 2003 (the Legacy Units ), (x) if the rights under any Specified Rights Agreement (as defined below) are exercised as to one or more Legacy Units, then, effective immediately prior to the redemption or purchase of such Legacy Units pursuant to such Specified Rights Agreement, the Unit Split shall be completely reversed as to such Legacy Units and each such Legacy Unit, automatically and without further action, shall be deemed to be one-third of a Common Unit and (y) if such Legacy Units are transferred to the General Partner (rather than the Partnership) pursuant to such Specified Rights Agreement, then, effective immediately following such transfer, the Unit Split shall be completely reinstated as to such Legacy Units and each such Legacy Unit, automatically and without further action, shall be deemed to be three Common Units. For purposes hereof, a Specified Rights Agreement is any Rights Agreement pursuant to which the Conversion Factor (or the equivalent) referred to therein is adjusted as the result of the Stock Split and such adjustment is not completely reversed as a result of the Unit Split. The purpose of the proviso contained in the first sentence of this paragraph is to ensure that there are not duplicative adjustments with respect to any Legacy Units on account of the Stock Split, and this Section 13.3 shall be interpreted and applied consistently therewith.
13.14 Performance by the Public REIT . The Public REIT shall cause the General Partner and the Affiliate Limited Partner to fulfill the obligations of the General Partner and Affiliate Limited Partner, as applicable, under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed as of the date and year first above written.
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GENERAL PARTNER : |
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GGP, INC., |
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a Delaware corporation |
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AFFILIATE LIMITED PARTNER : |
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GGP LIMITED PARTNERSHIP II , a Delaware limited partnership |
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GGP, Inc., a Delaware corporation, its general partner |
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SIGNATURE PAGE TO THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
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MAJORITY-IN-INTEREST OF |
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THE LIMITED PARTNERS : |
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M.B. CAPITAL UNITS, LLC, |
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a Delaware limited liability company |
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M.B. CAPITAL PARTNERS III, |
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a South Dakota general partnership, |
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its sole member |
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General Trust Company, |
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as Trustee of MBA Trust, |
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a partner |
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E. Michael Greaves, |
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Vice President |
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MATTHEW BUCKSBAUM REVOCABLE |
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TRUST |
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General Trust Company, |
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as Trustee |
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E. Michael Greaves, |
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Vice President |
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
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Solely for the limited purpose set forth in Sections 4.3, 4.4, 5.4, 6.5, 8.1 and 13.14. |
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PUBLIC REIT : |
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GENERAL GROWTH PROPERTIES, INC., |
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a Delaware corporation |
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SIGNATURE PAGE TO THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
SCHEDULE A
1. Definitions . As used in this Schedule A, the following terms shall have the meanings set forth below, unless the context otherwise requires:
Distribution Period shall mean the quarterly period that is then the dividend period with respect to the Common Stock or, if no such dividend period is established, the calendar quarter shall be the Dividend Period; provided that (a) the initial distribution period shall commence on July 10, 2002 and end on and include September 30, 2002 and (b) the distribution period in which the final liquidation payment is made pursuant to Section 7.2 of the Third Amended and Restated Agreement of Limited Partnership shall commence on the first day following the immediately preceding Distribution Period and end on the date of such final liquidation payment.
Distribution Payment Date shall mean, with respect to any Distribution Period, the payment date for the distribution declared by the Public REIT on its shares of Common Stock for such Distribution Period or, if no such distribution payment date is established, the last business day of such Distribution Period.
Fair Market Value shall mean the average of the daily Closing Price during the five consecutive Trading Days selected by the General Partner commencing not more than 20 Trading Days before, and ending not later than, the day in question with respect to the issuance or distribution requiring such computation.
Fifteenth Anniversary Date shall mean July 10, 2017.
2. Designation and Number; Etc . The Series B Preferred Units have been established and shall have such rights, preferences, limitations and qualifications as are described herein (in addition to the rights, preferences, limitations and qualifications contained in the Third Amended and Restated Agreement of Limited Partnership to the extent applicable). The authorized number of Series B Preferred Units shall be 1,426,392.6660. Notwithstanding anything to the contrary contained herein, in the event of a conflict between the provisions of this Schedule A and any other provision of the Third Amended and Restated Agreement of Limited Partnership, the provisions of this Schedule A shall control. For purposes of this Amendment, the rights of the Series B Preferred Units shall be construed to include their rights under the Redemption Rights Agreement (Common Units) and Redemption Rights Agreement (Series B Preferred Units).
3. Rank . The Series B Preferred Units shall, with respect to the payment of distributions and the distribution of amounts upon voluntary or involuntary liquidation, dissolution or winding-up of the Partnership, rank as follows:
(a) senior to all classes or series of Common Units and to all Units the terms of which provide that such Units shall rank junior to such Series B Preferred Units;
(b) on a parity with the Series D Preferred Units, the Series E Preferred Units and each other series of Preferred Units issued by the Partnership which does not provide by its express terms that it ranks junior in right of payment to the Series B Preferred Units with respect to payment of distributions or amounts upon liquidation, dissolution or winding-up; and
(c) junior to any class or series of Preferred Units issued by the Partnership that ranks senior to the Series B Preferred Units in accordance with Section 4 of this Schedule A.
4. Voting .
(a) Holders of Series B Preferred Units shall not have any voting rights, except as provided by applicable law and as described below in this Section 4.
(b) So long as any Series B Preferred Units remain outstanding, the Partnership shall not, without the affirmative vote or consent of the holders of at least a majority of the Series B Preferred Units outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (i) authorize, create, issue or increase the authorized or issued amount of, any class or series of partnership interests in the Partnership ranking prior to the Series B Preferred Units with respect to the payment of distributions or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding-up of the Partnership or reclassify any Common Units into such partnership interests, or create, authorize or issue any obligation or security convertible or exchangeable into or evidencing the right to purchase any such partnership interests; or (ii) amend, alter or repeal the provisions of the Partnership Agreement, whether by merger or consolidation or otherwise (an Event ), so as to materially and adversely affect any right, preference, privilege or voting power of the Series B Preferred Units or the holders thereof. Notwithstanding anything to the contrary contained herein, none of the following shall be deemed to materially and adversely affect any such right, preference, privilege or voting power or otherwise require the vote or consent of the holders of the Series B Preferred Units: (X) the occurrence of any Event so long as either (1) the Partnership is the surviving entity, such entity is the principal direct subsidiary of a publicly traded REIT whose common equity is traded on the New York Stock Exchange and the Series B Preferred Units remain outstanding with the terms thereof materially unchanged or (2) interests in an entity having substantially the same rights and terms as the Series B Preferred Units are substituted for the Series B Preferred Units and such entity is the principal direct subsidiary of a publicly traded REIT whose common equity is traded on the New York Stock Exchange, (Y) any increase in the amount of the authorized Preferred Units or Common Units or the creation or issuance of any other series or class of Preferred Units or Common Units or any increase in the amount of Common Units or any other series of Preferred Units, in each case ranking on a parity with or junior to the Series B Preferred Units with respect to payment of distributions and the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding-up of the Partnership and (Z) the dissolution, liquidation and/or winding-up of the Partnership.
The foregoing voting provisions shall not apply if at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series B Preferred Units shall have been converted or redeemed.
For purposes of the foregoing provisions of this Section 4, each Series B Preferred Unit shall have one (1) vote. Except as otherwise required by applicable law or as set forth herein, the Series B Preferred Units shall not have any voting rights or powers and the consent of the holders thereof shall not be required for the taking of any action.
5. Distributions .
(a) With respect to each Distribution Period and subject to the rights of the holders of Preferred Units ranking senior to or on parity with the Series B Preferred Units, the holders of Series B Preferred Units shall be entitled to receive, when, as and if declared by the General Partner, out of assets of the Partnership legally available for the payment of distributions, quarterly cumulative cash distributions in an amount per Series B Preferred Unit equal to the greater of (i) $1.0625 and (ii) the amount of the regular quarterly cash distribution for such Distribution Period upon the number of Common Units (or portion thereof) into which such Series B Preferred Unit is then convertible in accordance with Section 7 of this Schedule A (but, with respect to any Distribution Period ending after the Fifteenth Anniversary Date, no amount shall be paid in respect of clause (ii) of this paragraph in respect of the portion of such Distribution Period occurring after the Fifteenth Anniversary Date). Notwithstanding anything to the contrary contained herein, the amount of distributions described under each of clause (i) and (ii) of this paragraph for the initial Distribution Period, or any other period shorter than a full Distribution Period, shall be prorated and computed on the basis of twelve 30-day months and a 360-day year. The distributions upon the Series B Preferred Units for each Distribution Period shall, if and to the extent declared or authorized by the General Partner on behalf of the Partnership, be paid in arrears (without interest or other amount) on the Distribution Payment Date with respect thereto, and, if not paid on such date, shall accumulate, whether or not there are funds legally available for the payment thereof and whether or not such distributions are declared or authorized. The record date for distributions upon the Series B Preferred Units for any Distribution Period shall be the same as the record date for the distributions upon the Common Units for such Distribution Period (or, if no such record is set for the Common Units, the fifteenth day of the calendar month in which the applicable Distribution Payment Date falls). Accumulated and unpaid distributions for any past Distribution Periods to be declared and paid at any time, without reference to any Distribution Payment Date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the General Partner. Any distribution payment made upon the Series B Preferred Units shall first be credited against the earliest accumulated but unpaid distributions due with respect to such Units which remains payable. No interest, or sum of money in lieu of interest, shall be owing or payable in respect of any distribution payment or payments on the Series B Preferred Units, whether or not in arrears, including, without limitation, any distribution payment that is deferred pursuant to Section 5(g) of this Schedule A.
(b) No distribution on the Series B Preferred Units shall be declared by the General Partner or paid or set apart for payment by the Partnership at such time as the terms and provisions of any agreement of the Partnership, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof, or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. Notwithstanding the foregoing, distributions on the Series B Preferred Units shall accumulate whether or not any of the foregoing restrictions exist.
(c) Except as provided in Section 5(d) of this Schedule A, so long as any Series B Preferred Units are outstanding, (i) no distributions (other than in Common Units or other Units ranking junior to the Series B Preferred Units as to payment of distributions and
amounts upon liquidation, dissolution or winding-up of the Partnership) shall be declared or paid or set apart for payment upon the Common Units or any other class or series of partnership interests in the Partnership or Units ranking, as to payment of distributions or amounts distributable upon liquidation, dissolution or winding-up of the Partnership, on a parity with or junior to the Series B Preferred Units, for any period and (ii) no Common Units or other Units ranking junior to or on a parity with the Series B Preferred Units as to payment of distributions or amounts upon liquidation, dissolution or winding-up of the Partnership, shall be redeemed, purchased or otherwise acquired for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Units) by the Partnership (except by conversion into or exchange for other Units ranking junior to the Series B Preferred Units as to payment of distributions and amounts upon liquidation, dissolution or winding-up of the Partnership or by redemptions pursuant to Rights Agreements) unless, in the case of either clause (i) or (ii), full cumulative distributions have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series B Preferred Units for all Distribution Periods ending on or prior to the distribution payment date for the Common Units or such other class or series of Unit or the date of such redemption, purchase or other acquisition.
(d) When distributions are not paid in full (or a sum sufficient for such full payment is not set apart for such payment) upon the Series B Preferred Units and any other partnership interests in the Partnership or Units ranking on a parity as to payment of distributions with the Series B Preferred Units, all distributions declared upon the Series B Preferred Units and any other partnership interests in the Partnership or Units ranking on a parity as to payment of distributions with the Series B Preferred Units shall be declared pro rata so that the amount of distributions declared per Unit of Series B Preferred Units and such other partnership interests in the Partnership or Units shall in all cases bear to each other the same ratio that accrued distributions per Unit on the Series B Preferred Units and such other partnership interests in the Partnership or Units (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such Units do not have cumulative distributions) bear to each other.
(e) Holders of Series B Preferred Units shall not be entitled to any distributions, whether payable in cash, property or Units, in excess of the cumulative distributions described in Section 5(a) above.
(f) Distributions with respect to the Series B Preferred Units are intended to qualify as permitted distributions of cash that are not treated as a disguised sale within the meaning of Treasury Regulation §1.707-4 and the provisions of this Schedule A shall be construed and applied consistently with such Treasury Regulations.
(g) Notwithstanding anything to the contrary contained herein (but subject to the last sentence of Section 5(a) hereof), if the distributions with respect to the Series B Preferred Units made on or prior to the second anniversary of the issuance of the Series B Preferred Units would result in any holder of Series B Preferred Units receiving, an annual return on such holders unreturned capital (as defined for purposes of Treasury Regulation Section 1.707-4(a)) for a fiscal year (treating the fiscal year in which such second anniversary occurs as ending on such date) in excess of the Safe Harbor Rate (as defined below), then the distributions to such
holder in excess of such Safe Harbor Rate will be deferred, will cumulate and will be paid, if and to the extent declared or authorized by the General Partner on behalf of the Partnership and subject, to the provisions of Section 5(b) hereof, on the earlier to occur of (i) the disposition of the Series B Preferred Units to which such deferred distributions relate in a transaction in which the disposing holder recognizes taxable gain thereon or (ii) the first distribution payment date with respect to the Series B Preferred Units following the second anniversary of the issuance of the Series B Preferred Units. For purposes of the foregoing, the Safe Harbor Rate shall equal 150% of the highest applicable federal rate, based on annual compounding, in effect for purposes of Section 1274(d) of the Code at any time between the date of the issuance of the Series B Preferred Units and the date on which the relevant distribution payment is made. Notwithstanding anything to the contrary contained herein, any distributions that are deferred under this Section 5(g) shall be deemed to have been paid in full for purposes of Sections 5(c) and (d) of this Schedule A until the end of the Distribution Period during which they are to be paid as provided above.
(h) For any quarterly period, any amounts paid with respect to the Series B Preferred Units in excess of the amount that would have been paid with respect to such Units for such period had they been converted into Common Units in accordance with the terms of Section 7 of this Schedule A are intended to constitute guaranteed payments within the meaning of Section 707(c) of the Code and shall not be treated as distributions for purposes of allocating Net Income and Net Loss or otherwise maintaining Capital Accounts.
6. Liquidation Preference .
(a) In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Partnership, before any payment or distribution of the assets of the Partnership (whether capital or surplus) shall be made to or set apart for the holders of Common Units or any other partnership interests in the Partnership or Units ranking junior to the Series B Preferred Units as to the distribution of assets upon the liquidation, dissolution or winding-up of the Partnership, the holders of the Series B Preferred Units shall, with respect to each such Unit, be entitled to receive, out of the assets of the Partnership available for distribution to Partners after payment or provision for payment of all debts and other liabilities of the Partnership, an amount equal to the greater of (i) $50.00, plus an amount equal to all distributions (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution and (ii) the amount that a holder of such Series B Preferred Unit would have received upon final distribution in respect of the number of Common Units into which such Series B Preferred Unit was convertible immediately prior to such date of final distribution (but no amount shall be paid in respect of the foregoing clause (ii) after the Fifteenth Anniversary Date) if, upon any such voluntary or involuntary liquidation, dissolution or winding-up of the Partnership, the assets of the Partnership, or proceeds thereof, distributable among the holders of the Series B Preferred Units are insufficient to pay in full the preferential amount aforesaid on the Series B Preferred Units and liquidating payments on any other Units or partnership interests in the Partnership of any class or series ranking, as to payment of distributions and amounts upon the liquidation, dissolution or winding-up of the Partnership, on a parity with the Series B Preferred Units, then such assets, or the proceeds thereof, shall be distributed among the holders of Series B Preferred Units and any such other Units or partnership interests in the Partnership ratably in accordance with the respective amounts that would be payable on such Series B Preferred Units and such
other Units or partnership interests in the Partnership if all amounts payable thereon were paid in full. For the purposes of this Section 6, none of (i) a consolidation or merger of the Partnership with or into another entity, (ii) a merger of another entity with or into the Partnership or (iii) a sale, lease or conveyance of all or substantially all of the Partnerships assets, properties or business shall be deemed to be a liquidation, dissolution or winding-up of the Partnership.
(b) Written notice of such liquidation, dissolution or winding-up of the Partnership, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series B Preferred Units at the respective addresses of such holders as the same shall appear on the transfer records of the Partnership.
(c) After payment of the full amount of liquidating distributions to which they are entitled as provided in Section 6(a) of this Schedule A, the holders of Series B Preferred Units shall have no right or claim to any of the remaining assets of the Partnership.
7. Conversion . Holders of Series B Preferred Units shall have the right to convert all or a portion of such Units into Common Units, as follows:
(a) A holder of Series B Preferred Units shall have the right, at such holders option, at any time (subject to the proviso contained in the immediately succeeding sentence), to convert any whole number of Series B Preferred Units, in whole or in part, into Common Units. Each Series B Preferred Unit shall be convertible into the number of Common Units determined by dividing (i) the $50.00 face amount per Unit, plus an amount equal to all distributions (whether or not earned or declared) accrued and unpaid thereon to the end of the last Distribution Period (but without duplication of the distributions, if any, which the holder of such Series B Preferred Unit is entitled to receive for such last Distribution Period pursuant to the third paragraph of Section 7(b) of this Schedule A or in respect of the Common Units into which such Series B Preferred Unit is converted) by (ii) a conversion price of $16.6667 per Common Unit (equivalent to a conversion rate of three Common Units for each Series B Preferred Unit)(1), subject to adjustment as described in Section 7(c) hereof (the Conversion Price ); provided , however , that the right to convert Series B Preferred Units may not be exercised after the Fifteenth Anniversary Date. No fractional Common Units will be issued upon any conversion of Series B Preferred Units. Instead, the number of Common Units to be issued upon each conversion shall be rounded to the nearest whole number of Common Units.
(b) To exercise the conversion right, the holder of each Series B Preferred Unit to be converted shall execute and deliver to the General Partner, at the principal office of the Partnership, a written notice (the Conversion Notice) indicating that the holder thereof elects to convert such Series B Preferred Unit. Unless the Units issuable on conversion are to be issued in the same name as the name in which such Series B Preferred Unit is registered, each Series B Preferred Unit surrendered for conversion shall be accompanied by instruments of transfer, in form reasonably satisfactory to the Partnership, duly executed by the holder or such
(1) The conversion price of $16.6667 per Common Unit takes into consideration the Common Unit split of the Partnership on November 20, 2003.
holders duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Partnership demonstrating that such taxes have been paid).
As promptly as practicable after delivery of the Conversion Notice as aforesaid, the Partnership shall amend the Partnership Agreement to reflect the conversion and the issuance of Common Units issuable upon the conversion of such Series B Preferred Units in accordance with the provisions of this Section 7. In addition, the Partnership shall deliver to the holder at its address as reflected on the records of the Partnership, a copy of such amendment.
A holder of Series B Preferred Units at the close of business on the record date for any Distribution Period shall be entitled to receive the distribution payable on such Units on the corresponding Distribution Payment Date notwithstanding the conversion of such Series B Preferred Units following such record date and prior to such Distribution Payment Date and shall have no right to receive any distribution for such Distribution Period in respect of the Common Units into which such Series B Preferred Units were converted. Except as provided herein, the Partnership shall make no payment or allowance for unpaid distributions, whether or not in arrears, on converted Series B Preferred Units or for distributions on the Common Units that are issued upon such conversion.
Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the Conversion Notice is received by the Partnership as aforesaid, and the person or persons in whose name or names any Common Units shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of such Units at such time on such date, and such conversion shall be at the Conversion Price in effect at such time and on such date unless the transfer books of the Partnership shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such transfer books are open, but such conversion shall be at the Conversion Price in effect on the date on which such Units have been surrendered and such notice received by the Partnership.
(c) The Conversion Price shall be adjusted from time to time as follows:
(i) If the Partnership shall, after the date on which the Series B Preferred Units are first issued (the Issue Date ), (A) pay or make a distribution to holders of its partnership interests or Units in Common Units, (B) subdivide its outstanding Common Units into a greater number of Units or distribute Common Units to the holders thereof, (C) combine its outstanding Common Units into a smaller number of Units or (D) issue any partnership interests or Units by reclassification of its Common Units, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of holders entitled to receive such distribution or at the opening of business on the day next following the day on which such subdivision, combination or reclassification becomes effective, as the case may be, shall be adjusted so that the holder of any Series B Preferred Unit thereafter surrendered for conversion shall be entitled to receive the number of Common Units or other partnership interests or securities that such holder would have owned or have been entitled to receive after the happening of any of the events described above had such Series B Preferred Unit been
converted immediately prior to the record date in the case of a distribution or the effective date in the case of a subdivision, combination or reclassification. An adjustment made pursuant to this subsection (i) shall become effective immediately after the opening of business on the day next following the record date (except as provided in subsection (g) below) in the case of a distribution and shall become effective immediately after the opening of business on the day next following the effective date in the case of a subdivision, combination or reclassification.
(ii) If the Partnership shall issue after the Issue Date rights, options or warrants to all holders of Common Units entitling them to subscribe for or purchase Common Units (or securities convertible into or exchangeable for Common Units) at a price per Unit less than the Fair Market Value per Common Unit on the record date for the determination of holders of Common Units entitled to receive such rights, options or warrants, then the Conversion Price in effect at the opening of business on the day next following such record date shall be adjusted to equal the price determined by multiplying (I) the Conversion Price in effect immediately prior to the opening of business on the day following the date fixed for such determination by (II) a fraction, the numerator of which shall be the sum of (A) the number of Common Units outstanding at the close of business on the date fixed for such determination and (B) the number of Common Units that the aggregate proceeds to the Partnership from the exercise of such rights, options or warrants for Common Units would purchase at such Fair Market Value, and the denominator of which shall be the sum of (A) the number of Common Units outstanding at the close of business on the date fixed for such determination and (B) the number of additional Common Units offered for subscription or purchase pursuant to such rights, options or warrants. Such adjustment shall become effective immediately after the opening of business on the day next following such record date (except as provided in subsection (g) below). In determining whether any-rights, options or warrants entitle the holders of Common Units to subscribe for or purchase Common Units at less than the Fair Market Value, there shall be taken into account any consideration received by the Partnership upon issuance and upon exercise of such rights, options or warrants, the value of such consideration, if other than cash, to be determined in good faith by the Board of the General Partner.
(iii) If the Partnership shall distribute after the Issue Date to all holders of Common Units any other securities or evidences of its indebtedness or assets (excluding those rights, options and warrants referred to in and treated under subsection (ii) above, and excluding distributions paid exclusively in cash) (any of the foregoing being hereinafter in this subsection (iii) called the Securities), then in each case the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying (I) the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of holders of Common Units entitled to receive such distribution by (II) a fraction, the numerator of which shall be the Fair Market Value per Common Unit on the record date mentioned below less the then fair market value (as determined in good faith by the Board of the General Partner) of the portion of the Securities so distributed applicable to the Common Unit, and the denominator of which shall be the Fair Market Value per Common Unit on the record date mentioned below. Such adjustment shall become effective immediately at the opening of business on the
business day next following (except as provided in subsection (g) below) the record date for the determination of holders of Common Units entitled to receive such distribution. For the purposes of this subsection (iii), a distribution in the form of a Security, which is distributed not only to the holders of the Common Units on the date fixed for the determination of holders of Common Units entitled to such distribution of such Security, but also is distributed with each Common Unit delivered to a person converting a Series B Preferred Unit after such determination date, shall not require an adjustment of the Conversion Price pursuant to this subsection (iii); provided that on the date, if any, on which a person converting a Series B Preferred Unit would no longer be entitled to receive such Security with a Common Unit, a distribution of such Securities shall be deemed to have occurred, and the Conversion Price shall be adjusted as provided in this subsection (iii) (and such day shall be deemed to be the date fixed for the determination of the holders of Common Units entitled to receive such distribution and the record date within the meaning of the two preceding sentences).
(iv) No adjustment in the Conversion Price shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% in such price; provided , however , that any adjustments that by reason of this subsection (iv) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made; and provided , further , that any adjustment shall be required and made in accordance with the provisions of this Section 7 (other than this subsection (iv)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holders of Common Units. Notwithstanding any other provisions of this Section 7, the Partnership shall not be required to make any adjustment to the Conversion Price for the issuance of any Common Units pursuant to any plan providing for the reinvestment of distributions or interest payable on securities of the Partnership and the investment of additional optional amounts in Common Units under such plan. All calculations under this Section 7 shall be made to the nearest cent (with $.005 being rounded upward) or to the nearest one-tenth of a Unit (with .05 of a Unit being rounded upward), as the case may be. Anything in this subsection (c) to the contrary notwithstanding, the Partnership shall be entitled, to the extent permitted by law, to make such reductions in the Conversion Price, in addition to those required by this subsection (c), as it in its discretion shall determine to be advisable in order that any Unit distributions, subdivision of Units, reclassification or combination of Units, distribution of rights, options or warrants to purchase Units or securities, or a distribution consisting of other assets (other than cash distributions) hereafter made by the Partnership to its holders of Units shall not be taxable but any such adjustment shall not adversely affect the value of the Series B Preferred Units.
(d) If the Partnership shall be a party to any transaction (including, without limitation, a merger, consolidation, self tender offer for all or substantially all of the Common Units, sale of all or substantially all of the Partnerships assets or recapitalization of the Common Units and excluding any transaction as to which subsection (c)(i) of this Section 7 applies) (each of the foregoing being referred to herein as a Transaction ), in each case as a result of which Common Units shall be converted into the right to receive other partnership interests, shares, stock, securities or other property (including cash or any combination thereof), each Series B Preferred Unit which is not converted into the right to receive other partnership interests, shares,
stock, securities or other property in connection with such Transaction shall thereafter be convertible into the kind and amount of shares, stock, securities and other property (including cash or any combination thereof) receivable upon the consummation of such Transaction by a holder of that number of Common Units into which one Series B Preferred Unit was convertible immediately prior to such Transaction, assuming such holder of Common Units is not a Person with which the Partnership consolidated or into which the Partnership merged or which merged into the Partnership or to which such sale or transfer was made, as the case may be (a Constituent Person ), or an affiliate of a Constituent Person. The Partnership shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this subsection (d), and it shall not consent or agree to the occurrence of any Transaction until the Partnership has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series B Preferred Units that will contain provisions enabling the holders of Series B Preferred Units that remain outstanding after such Transaction to convert into the consideration received by holders of Common Units at the Conversion Price in effect immediately prior to such Transaction (with the holder having the option to elect the type of consideration if a choice was offered in the Transaction). The provisions of this subsection (d) shall similarly apply to successive Transactions.
(e) If:
(i) the Partnership shall declare a distribution on the Common Units (other than a cash distribution) or there shall be a reclassification, subdivision or combination of Common Units; or
(ii) the Partnership shall authorize the granting to the holders of the Common Units of rights, options or warrants to subscribe for or purchase any Units of any class or any other rights, options or warrants; or
(iii) there shall be any reclassification of the Common Units or any consolidation or merger to which the Partnership is a party and for which approval of any partners of the Partnership is required, involving the conversion or exchange of Common Units into securities or other property, or a self tender offer by the Partnership for all or substantially all of the Common Units, or the sale or transfer of all or substantially all of the assets of the Partnership as an entirety; or
(iv) there shall occur the voluntary or involuntary liquidation, dissolution or winding-up of the Partnership;
then the Partnership shall cause to be mailed to the holders of the Series B Preferred Units at their addresses as shown on the records of the Partnership, as promptly as possible a notice stating (A) the date on which a record is to be taken for the purpose of such distribution of rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Units of record to be entitled to such distribution of rights, options or warrants are to be determined or (B) the date on which such reclassification, subdivision, combination, consolidation, merger, sale, transfer, liquidation, dissolution or winding-up is expected to become effective, and the date as of which it is expected that holders of Common Units of record shall be entitled to exchange their Common Units for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution or winding-up. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the proceedings described in this Section 7.
(f) Whenever the Conversion Price is adjusted as herein provided, the Partnership shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the effective date such adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to the holder of each Series B Preferred Unit at such holders last address as shown on the records of the Partnership.
(g) In any case in which subsection (c) of this Section 7 provides that an adjustment shall become effective on the date next following the record date for an event, the Partnership may defer until the occurrence of such event issuing to the holder of any Series B Preferred Unit converted after such record date and before the occurrence of such event the additional Common Units issuable upon such conversion by reason of the adjustment required by such event over and above the Common Units issuable upon such conversion before giving effect to such adjustment.
(h) For purposes of this Section 7, the number of Common Units at any time outstanding shall not include any Common Units then owned or held by or for the account of the Partnership. The Partnership shall not make any distribution on Common Units held in the treasury of the Partnership.
(i) If any action or transaction would require adjustment of the Conversion Price pursuant to more than one subsection of this Section 7, only one adjustment shall be made, and such adjustment shall be the amount of adjustment that has the highest absolute value.
(j) If the Partnership shall take any action affecting the Common Units, other than action described in this Section 7, that in the reasonable judgment of the General Partner would materially and adversely affect the conversion rights of the holders of the Series B Preferred Units, the Conversion Price for the Series B Preferred Units may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the General Partner determines to be equitable in the circumstances.
(k) The Partnership covenants that Common Units issued upon conversion of the Series B Preferred Units shall be validly issued, fully paid and nonassessable and the holder thereof shall be entitled to rights of a holder of Common Units specified in the Partnership Agreement. Prior to the delivery of any securities that the Partnership shall be obligated to deliver upon conversion of the Series B Preferred Units, the Partnership shall endeavor to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof, by any governmental authority.
(l) The Partnership will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Common Units or other securities or property on conversion of the Series B Preferred Units pursuant hereto; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issue or delivery of Common Units or other securities or property in a name other than that of the holder of the Series B Preferred Units to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Partnership the amount of any such tax or established, to the reasonable satisfaction of the Partnership, that such tax has been paid.
(m) Notwithstanding anything to the contrary contained herein, the adjustment provisions contained in this Section 7 shall be applied so that there is no duplication of adjustments made pursuant to any other document.
SCHEDULE B
1. Definitions . As used in this Schedule B, the following terms shall have the meanings set forth below, unless the context otherwise requires:
Common Unit Value shall mean, with respect to any trading day, the trading price of a share of Common Stock (calculated based on the average of the intra-day high and low and subject to adjustment in the event that the exchange ratio between Common Units and shares of Common Stock is not one-to-one or other adjustments if the kind or amount of securities into which Common Units can be converted or exchanged (as provided in the Redemption Rights Agreement, dated the date hereof) changes after the date hereof).
Distribution Payment Date shall mean, with respect to any Distribution Period, the payment date for the distribution declared by the General Partner on its Common Units for such Distribution Period or, if no such distribution payment date is established, the last business day of the first full month following such Distribution Period.
Distribution Period shall mean the quarterly period that is then the distribution period with respect to the Common Units or, if no such distribution period is established, the calendar quarter shall be the Distribution Period; provided that (a) the initial Distribution Period shall commence on December 11, 2003 and end on and include December 31, 2003 and (b) the Distribution Period in which the final liquidation payment is made pursuant to Section 7.2 of the Third Amended and Restated Agreement of Limited Partnership shall commence on the first day following the immediately preceding Distribution Period and end on the date of such final liquidation payment.
Fair Market Value shall mean the average of the daily Closing Price during the ten consecutive Trading Days ending on the business day immediately preceding the day in question with respect to the issuance or distribution requiring such computation (subject to appropriate adjustment in the event that the exchange ratio between Common Units and shares of Common Stock is not one-to-one).
Relevant Distribution Periods shall mean (i) each of the three (3) consecutive Distribution Periods the last of which ends during the 90-day period referred to in the last paragraph of Section 7(b) and (ii) the next immediately following Distribution Period after the third Distribution Period described in clause (i) above.
Tenth Anniversary Date shall mean December 11, 2013.
2. Designation and Number; Etc . The Series D Preferred Units have been established and shall have such rights, preferences, limitations and qualifications as are described herein (in addition to the rights, preferences, limitations and qualifications contained in the Third Amended and Restated Agreement of Limited Partnership to the extent applicable). The authorized number of Series D Preferred Units shall be 532,749.6574. Notwithstanding anything to the contrary contained herein, in the event of a conflict between the provisions of this Schedule B and any other provision of the Third Amended and Restated Agreement of Limited Partnership, the provisions of this Schedule B shall control.
3. Rank . The Series D Preferred Units shall, with respect to the payment of distributions and the distribution of amounts upon voluntary or involuntary liquidation, dissolution or winding-up of the Partnership, rank as follows:
(a) senior to all classes or series of Common Units and to all Units the terms of which provide that such Units shall rank junior to the Series D Preferred Units;
(b) on a parity with the Series B Preferred Units, Series E Preferred Units and each other series of Preferred Units issued by the Partnership which does not provide by its express terms that it ranks junior or senior in right of payments to the Series D Preferred Units with respect to payment of distributions or amounts upon liquidation, dissolution or winding-up; and
(c) junior to any class or series of Preferred Units issued by the Partnership that ranks senior to the Series D Preferred Units and has been approved in accordance with Section 4 of this Schedule B.
4. Voting .
(a) Holders of Series D Preferred Units shall not have any voting rights, except as required by applicable law or as described below in this Section 4.
(b) So long as any Series D Preferred Units remain outstanding, the Partnership shall not, without the affirmative vote or consent of the holders of at least a majority of the Series D Preferred Units outstanding at the time, given in person or by proxy, either in voting or at a meeting (such series voting separately as a class), (i) authorize, create, issue or increase the authorized or issued amount of, any class or series of partnership interests in the Partnership ranking senior to the Series B Preferred Units with respect to the payment of distributions or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding-up of the Partnership or reclassify any Common Units into such partnership interests, or create, authorize or issue any obligation or security convertible or exchangeable into or evidencing the right to purchase any such partnership interests; or (ii) amend, alter or repeal the provisions of the Partnership Agreement, whether by merger or consolidation or otherwise (an Event), so as to negate the provisions of clause (i) or (ii) of this paragraph or so as to materially and adversely affect any special right, preference, privilege or voting power of the Series D Preferred Units or the holders thereof that is contained in this Schedule B. Notwithstanding anything to the contrary contained herein, each of the following shall be deemed not to (i) materially and adversely affect any such special right, preference, privilege or voting power or (ii) otherwise require the vote or consent of the holders of the Series D Preferred Units: (X) the occurrence of any merger, consolidation, entity conversion, unit exchange, recapitalization of the Common Units or other business combination or reorganization, so long as either (1) the Partnership is the surviving entity and the Series D Preferred Units remain outstanding with the terms thereof materially unchanged or (2) if the Partnership is not the surviving entity in such transaction, interests in an entity having substantially the same rights and terms with respect to rights to distributions, voting, redemption and conversion as the Series D Preferred Units are exchanged or substituted for the Series D Preferred Units without any income, gain or loss expected to be recognized by the holder upon the exchange or substitution
for federal income tax purposes (and with the terms of the Common Units or such other securities for which the Series D Preferred Units (or the substitute or exchanged security therefor) are convertible or redeemable materially the same with respect to rights to distributions, voting and redemption), (Y) any increase in the amount of the authorized Preferred Units or Common Units or the creation or issuance of any other series or class of Preferred Units or Common Units or any increase in the amount of Common Units or any other series of Preferred Units, in each case so long as such Units rank on a parity with or junior to the Series D Preferred Units with respect to payment of distributions and the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding-up of the Partnership and (Z) the dissolution, liquidation and/or winding up of the Partnership.
The foregoing voting provisions shall not apply if at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series D Preferred Units shall have been converted or redeemed.
For purposes of the foregoing provisions of this Section 4, each Series D Preferred Unit shall have one (1) vote.
Except as otherwise required by applicable law or as set forth herein, the Series D Preferred Units shall not have any voting right or powers and the consent of the holders thereof shall not be required for the taking of any action.
5. Distributions .
(a) With respect to each Distribution Period and subject to the rights of the holders of Preferred Units ranking senior to or on parity with the Series D Preferred Units, the holders of Series D Preferred Units shall be entitled to receive, when, as and if declared by the General Partner, out of assets of the Partnership legally available for the payment of distributions, quarterly cumulative cash distributions in an amount per Series D Preferred Unit equal to the greater of (i) $0.8125 (the Base Quarterly Distribution) and (ii) the amount of the regular quarterly cash distribution for such Distribution Period upon the number of Common Units (or portion thereof) into which such Series D Preferred Unit is then convertible in accordance with Section 7 of this Schedule B. Notwithstanding anything to the contrary contained herein, the amount of distributions described under each of clause (i) and (ii) of this paragraph for the initial Distribution Period, or any other Period shorter than a full Distribution Period, shall be prorated and computed on the basis of twelve 30-day months and a 360-day year. Such distributions shall with respect to each Series D Preferred Unit, accrue from its issue date, whether or not in, or with respect to, any Distribution Period or Periods (A) the distributions described above are declared, (B) the Partnership is contractually prohibited from paying such distributions or (C) there shall be assets of the Partners legally available for the payment of such distributions. The distributions upon the Series D Preferred Units for each Distribution Period shall, if and to the extent declared or authorized by the General Partner on behalf of the Partnership, be paid in arrears (without interest or other amount) on the Distribution Payment Date with respect thereto, and, if not paid on such date, shall accumulate, whether or not in, or with respect to, any Distribution Period or Periods (X) the distributions are declared, (Y) the Partnership is contractually prohibited from paying such distributions or (Z) there shall be assets of the Partnership legally available for the payment of such distributions. The record date for
distributions upon the Series D Preferred Units for any Distribution Period shall be the same as the record date, for the distributions upon the Common Units for such Distribution Period (or, if no such record date is set for the Common Units, the fifteenth day of the calendar month in which the applicable Distribution Payment Date falls if prior to such Distribution Payment Date otherwise, the fifteenth day of the immediately preceding calendar month). Accumulated and unpaid distributions for any past Distribution Periods may be declared and paid at any time, without reference to any Distribution Payment Date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the General Partner. Any distribution payment made upon the Series D Preferred Units shall first be credited against the earliest accrued but unpaid distributions due with respect to such Units which remains payable. No interest, or sum of money in lieu of interest, shall be owing or payable in respect of any distribution payment or payments on the Series D Preferred Units, whether or not in arrears.
(b) No distribution on the Series D Preferred Units shall be declared by the General Partner or paid or set apart for payment by the Partnership at such time as the terms and provisions of any bona fide agreement of the Partnership, including any agreement relating to bona fide indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof, of a default thereunder, or if such declaration or payment shall be restricted or prohibited by law (and such failure to pay distributions on the Series D Preferred Units shall prohibit other distributions by the Partnership as described in Sections 5(c) or (d) of this Schedule B). Notwithstanding the foregoing, distributions on the Series D Preferred Units shall accumulate as provided herein whether or not any of the foregoing restrictions exist.
(c) Except as provided in Section 5(d) of this Schedule B, so long as any Series D Preferred Units are outstanding, (i) no distributions (other than in Common Units or other Units ranking junior to the Series D Preferred Units as to payment of distributions and amounts upon liquidation, dissolution or winding-up of the Partnership) shaft be declared or paid or set apart for payment upon the Common Units or any other class or series of partnership interests in the Partnership or Units ranking, as to payment of distributions or amounts distributable upon liquidation, dissolution or winding-up of the Partnership, on a parity with or junior to the Series D Preferred Units, for any period and (ii) no Common Units or other Units ranking junior to, or on a parity with the Series D Preferred Units as to payment of distributions or amounts upon liquidation, dissolution or winding-up of the Partnership shall be redeemed, purchased or otherwise acquired for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Units) by the Partnership (except by conversion into or exchange for other Units ranking junior to the Series D Preferred Units as to payment of distributions and amounts upon liquidation, dissolution or winding-up of the Partnership or by redemptions pursuant to Rights Agreements) unless, in the case of either clause (i) or (ii), full cumulative distributions have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series D Preferred Units for all Distribution Periods ending on or prior to the distribution payment date for the Common Units or such other class or series of Unit or the date of such redemption, purchase or other acquisition.
(d) When distributions are not paid in full (or a sum sufficient for such full payment is not set apart for such payment) upon the Series D Preferred Units and any other
partnership interests in the Partnership or Units ranking on a parity as to payment of distributions with the Series D Preferred Units, all distributions declared upon the Series D Preferred Units and any other partnership interests in the Partnership or Units ranking on a parity as to payment of distributions with the Series D Preferred Units shall be declared pro rata so that the amount of distributions declared per Unit of Series D Preferred Units and such other partnership interests in the Partnership or Units shall in all cases bear to each other the same ratio that accrued and unpaid distributions per Unit on the Series D Preferred Units and such other partnership interests in the Partnership or Units (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such Units do not have cumulative distributions) bear to each other.
(e) Holders of Series D Preferred Units shall not be entitled to any distributions, whether payable in cash, property or Units, in excess of the cumulative distributions described in Section 5(a) above.
(f) For any quarterly period, any amounts paid with respect to the Series D Preferred Units in excess of the amount that would have been paid with respect to such Units for such period had they been converted into Common Units in accordance with the terms of Section 7 of this Schedule B are intended to constitute guaranteed payments within the meaning of Section 707(c) of the Code and shall not be treated as distributions for purposes of allocating Net Income and Net Loss or otherwise maintaining Capital Accounts.
6. Liquidation Preference .
(a) In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Partnership, before any payment or distribution of the assets of the Partnership (whether capital or surplus) shall be made to or set apart for the holders of Common Units or any other partnership interests in the Partnership or Units ranking junior to the Series D Preferred Units as to the distribution of assets upon the liquidation, dissolution or winding-up of the Partnership, the holders of the Series D Preferred Units shall, with respect to each such Unit, be entitled to receive, out of the assets of the Partnership available for distribution to Partners after payment or provision for payment of all debts and other liabilities of the Partnership and subject to the rights of the holders of any series of Preferred Units ranking senior to or on parity with the Series D Preferred Units with respect to payment of amounts upon liquidation, dissolution or winding-up of the Partnership, an amount equal to $50, plus an amount equal to all distributions (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution (including all accumulated and unpaid distributions). If upon any such voluntary or involuntary dissolution or winding-up of the Partnership, the assets of the Partnership, or proceeds thereof distributable among the holders of the Series D Preferred Units are insufficient to pay in full the preferential amount aforesaid on the Series D Preferred Units and liquidating payment on any other Units or partnership interests in the Partnership of any class or series ranking as to payment of distributions and amounts upon the liquidation, dissolution or winding-up of the Partnership, on a parity with the Series D Preferred Units, then such assets, or the proceeds thereof, shall be distributed among the holders of Series D Preferred Units and any such other Units or partnership interests in the Partnership ratably in accordance with the respective amounts that would be payable on such Series D Preferred Units and such other Units or partnership interests in the Partnership if all amounts payable thereon were paid in full. For the purposes of this
Section 6, none of (i) a consolidation or merger of the Partnership with or into another entity, (ii) a merger of another entity with or into the Partnership or (iii) a sale, lease or conveyance of all or substantially all of the Partnerships assets, properties or business shall be deemed to be a liquidation, dissolution or winding-up of the Partnership.
(b) Written notice of such liquidation, dissolution or winding-up of the Partnership, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series D Preferred Units at the respective addresses of such holders as the same shall appear on the transfer records of the Partnership.
(c) After payment of the full amount of liquidating distributions to which they are entitled as provided in Section 6(a) of this Schedule B, the holders of Series D Preferred Units shall have no right or claim to any of the remaining assets of the Partnership.
7. Conversion . Holders of Series D Preferred Units shall have the right to convert all or a portion of such Units into Common Units, as follows:
(a) A holder of Series D Preferred Units shall have the right at such holders option, at any time, to convert any whole number of Series D Preferred Units into fully paid and non-assessable Common Units; provided, however, that the conversion right may not be exercised at any one time by a holder of Series D Preferred Units with respect to less than 1,000 Series D Preferred Units (or all the Series D Preferred Units then owned by such holder if such holder owns less than 1,000 Series D Preferred Units). Each Series D Preferred Unit shall be convertible into the number of Common Units determined by dividing (i) the $50 base liquidation preference per Series D Preferred Unit plus, an amount equal to all accumulated and unpaid distributions (whether or not earned or declared) with respect thereto by (ii) a conversion price of $33.151875 per Common Unit (equivalent to an initial conversion rate of 1.508210 Common Units for each Series D Preferred Unit), subject to adjustment as described in Section 7(c) hereof (the Conversion Price).
(b) To exercise the conversion right, the holder of each Series D Preferred Unit to be converted shall execute and deliver to the General Partner, at the principal office of the Partnership, a written notice (the Conversion Notice) indicating that the holder thereof elects to convert such Series D Preferred Unit and containing representations and warranties of such holder that (i) such holder has good and marketable title to such Series D Preferred Unit, free and clear of all liens, claims and encumbrances, (ii) such holder is an accredited investor as defined in Regulation D under the Securities Act of 1933, as amended, and has such knowledge and experience in financial and business matters such that such holder is capable of evaluating the merits and risks of receiving and owning the Common Units that may be issued to it in exchange for such Series D Preferred Unit, (iii) such holder is able to bear the economic risk of such ownership and (iv) such Common Units to be acquired by such holder pursuant to this Agreement would be acquired by such holder for its own account, for investment purposes only and not with a view to, and with no present intention of, selling or distributing the same in violation of federal or state securities laws. Unless the Units issuable on conversion are to be issued in the same name as the name in which such Series D Preferred Unit is registered, each
Series D Preferred Unit surrendered for conversion shall be accompanied by instruments of transfer, in form reasonably satisfactory to the Partnership, duly executed by the holder or such holders duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Partnership demonstrating that such taxes have been paid).
As promptly as practicable after delivery of the Conversion Notice as aforesaid, the Partnership shall amend the Partnership Agreement to reflect the conversion and the issuance of Common Units issuable upon the conversion of such Series D Preferred Units in accordance with the provisions of this Section 7. In addition, the Partnership shall deliver to the holder at its address as reflected on the records of the Partnership, a copy of such amendment.
A holder of Series D Preferred Units at the close of business on the record date for any Distribution Period shall be entitled to receive the distribution payable on su ch Units on the corresponding Distribution Payment Date notwithstanding the conversion of such Series D Preferred Units following such record date and prior to such Distribution Payment Date and shall have no right to receive any distribution for such Distribution Period in respect of the Common Units into which such Series D Preferred Units were converted. Except as provided herein, the Partnership shall make no payment or allowance for unpaid distributions, whether or not in arrears, on converted Series D Preferred Units or for distributions on the Common Units that are issued upon such conversion in the event that a holder of Series D Preferred Units converts its Series D Preferred Units into Common Units on or prior to the record date for the initial Distribution Period, the distribution for such Distribution Period in respect of such Common Units shall be prorated and computed on the basis of twelve 30-day months and a 360-day year.
Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the Conversion Notice is received by the Partnership as aforesaid, and the person or persons in whose name or names any Common Units shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of such Units at such time on such date and such conversion shall be at the Conversion Price in effect at such time and on such date unless the transfer books of the Partnership shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day, on which such transfer books are open, but such conversion shall be at the Conversion Price in effect on the date on which such Units have been surrendered and such notice received by the Partnership.
Notwithstanding anything to the contrary contained herein, all holders of Preferred Units shall be deemed to have delivered a Conversion Notice (and therefore exercised their conversion rights effective as of the time specified in the next sentence) as to all Series D Preferred Units if (a) with respect to any period of 90 consecutive calendar days following the Tenth Anniversary Date, the Common Unit Value exceeds on each trading day during such 90-day period the Conversion Price then in effect and (b) the amount of the distribution (as calculated in accordance with Section 5(a)(ii) of this Schedule B) for each of the four (4) Relevant Distribution Periods upon the number of Common Units (or portion thereof) into which a Series D Preferred Unit is then convertible in accordance with this Section 7 exceeds the Base Quarterly Distribution. The forced conversion referred to in this paragraph shall be effective at the close of business on the Distribution Payment Date for the last Relevant Distribution Period.
(c) The Conversion Price shall be adjusted from time to time as follows:
(i) If the Partnership shall, after the date on which the Series D Preferred Unit are first issued (the Issue Date), (A) pay or make a distribution to holders of its partnership interests or Units in Common Units, (B) subdivide its outstanding Common Units into a greater number of Units or distribute Common Units to the holders thereof, (C) combine its outstanding Common Units into a smaller number of Units, or (D) issue any partnership interests or Units by reclassification of its Common Units, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of holders entitled to receive such distribution or at the opening of business on the day next following the day on which such subdivision, combination or reclassification becomes effective, as the case may be, shall be adjusted so that the holder of any Series D Preferred Unit thereafter surrendered for conversion shall be entitled to receive the number of Common Units or other partnership interests or securities that such holder would have owned or have been entitled to receive after the happening of any of the events described above had such Series Preferred Unit been converted immediately prior to the close of business on the record date in the case of a distribution or the effective date in the case of a subdivision, combination or reclassification. An adjustment made pursuant to this subsection (i) shall become effective immediately after the opening of business on the day next following the record date (except as provided in subsection (g) below) in the case of a distribution and shall become effective immediately after the opening of business on the day next following the effective date in the case of a subdivision, combination or reclassification.
(ii) If the Partnership shall issue after the Issue Date rights, options or warrants to all holders of Common Units entitling them to subscribe for or purchase Common Units (or securities convertible into or exchangeable for Common Units) at a price per unit less than the Fair Market Value per Common Unit on the record date for the determination of holders of Common Units entitled to receive such rights, options or warrants, then the Conversion Price in effect at the opening of business on the day next following such record date shall be adjusted to equal the price determined by multiplying (I) the Conversion Price in effect immediately prior to the close of business on the date fixed for such determination by (II) a fraction, the numerator of which shall be the sum of (A) the number of Common Units outstanding at the close of business on the date fixed for such determination and (B) the number of Common Units that the aggregate proceeds to the Partnership from the exercise of such rights, options or warrants for Common Units would purchase at such Fair Market Value, and the denominator of which shall be the sum of (A) the number of Common Units outstanding at the close of business on the date fixed for such determination and (B) the number of additional Common Units offered for subscription or purchase pursuant to such rights, options or warrants. Such adjustment shall become effective immediately after the opening of business on the day next following such record date (except as provided in subsection (g) below). In determining whether any rights, options or warrants entitle the holders of Common Units to subscribe for or purchase Common Units at less than the Fair Market Value, there shall be taken into account any consideration received by the Partnership upon issuance and upon exercise of such rights, options or warrants, the value of such consideration, if other than cash, to be determined in good faith by the Board of the General Partner.
(iii) If the Partnership shall distribute after the Issue Date to all holders of Common Units any other securities or evidences of its indebtedness or assets (excluding those rights, options, warrants, securities and other assets referred to in and treated under subsection (i) or (ii) above, and excluding distributions paid exclusively in cash) (any of the foregoing being hereinafter in this subsection (iii) called the Securities), then in each case the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying (I) the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of holders of Common Units entitled to receive such distribution by (II) a fraction, the numerator of which shall be the Fair Market Value per Common Unit on the record date mentioned below less the then fair market value (as determined in good faith by the Board of the General Partner) of the portion of the Securities so distributed applicable to one Common Unit, and the denominator of which shall be the Fair Market Value per Common Unit on the record date mentioned below. Such adjustment shall become effective immediately at the opening of business on the business day next following (except as provided in subsection (g) below) the record date for the determination of holders of Common Units entitled to receive such distribution. For the purposes of this subsection (iii), a distribution in the form of a Security, which is distributed not only to the holders of the Common Units on the date fixed for the determination of holders of Common Units entitled to such distribution of such Security, but also is distributed with each Common Unit delivered to a person converting a Series D Preferred Unit after such determination date (together with distributions thereon paid to the holders of Common Units prior thereto), shall not require an adjustment of the Conversion Price pursuant to this subsection (iii); provided that on the date, if any, on which a person converting a Series D Preferred Unit would no longer be entitled to receive such Security with a Common Unit, a distribution of such Securities shall be deemed to have occurred, and the Conversion Price shall be adjusted as provided in this subsection (iii) (and such day shall be deemed to be the date fixed for the determination of the holders of Common Units entitled to receive such distribution and the record date within the meaning of the two preceding sentences).
(iv) Notwithstanding the foregoing, no adjustment shall be made pursuant to the preceding clauses (i) and (iii) that would result in an increase in the Conversion Price. No adjustment in the Conversion Price shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% in such price; provided, however, that any adjustments that by reason of this subsection (iv) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made; and provided, further, that any adjustment shall be required and made in accordance with the provisions of this Section 7 (other than this subsection (iv)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holders of Common Units. Notwithstanding any other provisions of this Section 7, the Partnership shall not be required to make any adjustment to the Conversion Price for the issuance of (i) any Common Units pursuant to any plan providing for the reinvestment of distributions or interest payable on securities of the Partnership and the investment of additional optional amounts in Common Units under such plan or (ii) any options, rights or Common Units pursuant to or on account of any unit or stock option, unit or stock purchase or any unit or stock-based compensation plan
maintained by the Partnership or the General Partner. All calculations under this Section 7 shall be made to the nearest cent (with $.005 being rounded upward) or to the nearest one-tenth of a Unit (with .05 of a Unit being rounded upward), as the case may be.
(d) If the Partnership shall be a party to any transaction (including, without limitation, a merger, consolidation, entity conversion, unit exchange, self tender offer for all or substantially all of the Common Units, sale of all or substantially all of the Partnerships assets or recapitalization of the Common Units or other business combination or reorganization and excluding any transaction as to which subsection (c)(i) of this Section 7 applies) (each of the foregoing being referred to herein as a Transaction), in each case as a result of which Common Units shall be exchanged for or converted into partnership interests, shares, stock, securities or other property (including cash or any combination thereof), each Series D Preferred Unit which is not converted into the right to receive partnership interests, shares, stock, securities or other property in connection with such Transaction (and thus remains outstanding) shall thereafter be convertible into the kind and amount of partnership interests, shares, stock, securities and other property (including cash or any combination thereof) receivable upon the consummation of such Transaction by a holder of that number of Common Units into which one Series D Preferred Unit (including all distributions (whether or not earned or declared) accumulated and unpaid thereon) was convertible immediately prior to such Transaction, assuming such holder of Common Units is not a Person with which the Partnership consolidated or into which the Partnership merged or which merged into the Partnership or to which such sale or transfer was made, as the case may be (a Constituent Person), or an affiliate of a Constituent Person. In the event that holders of Common Units have the opportunity to elect the form or type of consideration to be received upon consummation of the Transaction, prior to such transaction the General Partner shall give prompt written notice to each Series D Preferred Unit holder of such election, and each Series D Preferred Unit holder shall also have the right to elect by written notice to the General Partner, the form or type of consideration to be received upon conversion of each Series D Preferred Unit held by such holder following consummation of such Transaction. If a holder of Series D Preferred Units fails to make such an election, such holder (and any of its transferees) shall receive upon conversion of each Series D Preferred Unit held by such holder (or by any of its transferees) the same consideration that a holder of that number of Common Units into which one Series D Preferred Unit was convertible immediately prior to such Transaction would receive if such Common Unit holder failed to make such an election. The Partnership shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this subsection (d), and it shall not consent or agree to the occurrence of any Transaction until the Partnership has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series D Preferred Units that will contain provisions enabling the holders of Series D Preferred Units that remain outstanding after such Transaction to convert into the consideration received by holders of Common Units at the Conversion Price in effect immediately prior to such Transaction (with the holder having the option to elect the type of consideration if a choice is offered in the Transaction as specified above). The provisions of this subsection (d) shall similarly apply to successive Transactions.
(e) If:
(i) the Partnership shall authorize the granting to the holders of the Common Units of rights, options or warrants to subscribe for or purchase any Units of any class or any other rights, options or warrants; or
(ii) there shall be any reclassification of the Common Units (other than as described in clause (c)(i) of this Section 7) or any consolidation or merger to which the Partnership is a party and for which approval of any partners of the Partnership is required, involving the conversion or exchange of Common Units into securities or other property, or a unit exchange involving the conversion or exchange of Common Units into securities or other property, a self tender offer by the Partnership for all or substantially all of the Common Units, or the sale or transfer of all or substantially all of the assets of the Partnership as an entirety, or
(iii) there shall occur the voluntary or involuntary liquidation, dissolution or winding-up of the Partnership;
then the Partnership shall cause to be mailed to the holders of the Series D Preferred Units at their addresses as shown on the records of the Partnership, as promptly as possible a notice stating (A) the date on which a record is to be taken for the purpose of such distribution of rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Units of record to be entitled to such distribution of rights, options or warrants are to be determined or (B) the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution or winding-up is expected to become effective, and the date as of which it is expected that holders of Common Units of record shall be entitled to exchange their Common Units for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution or winding-up. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the proceedings described in this Section 7.
(f) Whenever the Conversion Price is adjusted as herein provided, the Partnership shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the effective date such adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to the holder of each Series D Preferred Unit at such holders last address as shown on the records of the Partnership.
(g) In any case in which subsection (c) of this Section 7 provides that an adjustment shall become effective on the date next following the record date for an event, the Partnership may defer until the occurrence of such event issuing to the holder of any Series D Preferred Unit converted after such record date and before the occurrence of such event the additional Common Units issuable upon such conversion by reason of the adjustment required by such event over and above the Common Units issuable upon such conversion before giving effect to such adjustment.
(h) For purposes of this Section 7, the number of Common Units at any time outstanding shall not include any Common Units then owned or held by or for the account of the
Partnership. The Partnership shall not make any distribution on Common Units held in the treasury of the Partnership.
(i) If any action or transaction would require adjustment of the Conversion Price pursuant to more than one subsection of this Section 3, only one adjustment shall be made, and such adjustment shall be the amount of adjustment that has the highest absolute value.
(j) If the Partnership shall take any action affecting the Common Units, other than action described in this Section 7, that in the reasonable judgment of the Partnership would materially affect the conversion rights of the holders of the Series D Preferred Units, the Conversion Price for the Series D Preferred Units may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the General Partner, determines to be equitable in the circumstances.
(k) The Partnership covenants that Common Units issued upon conversion of the Series D Preferred Units shall be validly issued, fully paid and non-assessable and the holder thereof shall be entitled to rights of a holder of Common Units specified in the Partnership Agreement. Prior to the delivery of any securities that the Partnership shall be obligated to deliver upon conversion of the Series D Preferred Units, the Partnership shall endeavor to comply with federal and state laws and regulations in respect thereof.
(l) The Partnership will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Common Units or other securities or property on conversion of the Series D Preferred Units, pursuant hereto; provided, however, that the Company, shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of Common Units or other securities or property in a name other than that of the holder of the Series D Preferred Units to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Partnership the amount of any such tax or established, to the reasonable satisfaction of the Partnership, that such tax has been paid.
(m) Notwithstanding anything to the contrary contained herein, (i) the adjustment provisions contained in this Section 7 shall be applied so that there is no duplication of adjustments made pursuant to any other document and (ii) no adjustment under any provision hereof shall be made on account of (A) the stock split approved by the stockholders of the General Partner on November 20, 2003 or (B) the split of the Common Units that occurred on November 20, 2003.
SCHEDULE C
1. Definitions . As used in this Schedule C, the following terms shall have the meanings set forth below, unless the context otherwise requires:
Common Unit Value shall mean, with respect to any trading day, the value of a Common Unit, which shall equal the trading price of a share of Common Stock (calculated based on the average of the intra-day high and low and subject to adjustment in the event that the exchange ratio between Common Units and shares of Common Stock is not one-to-one or other adjustments if the kind or amount of securities into which Common Units can be converted or exchanged (as provided in the Redemption Rights Agreement, dated the date hereof) changes after the date hereof).
Distribution Payment Date shall mean, with respect to any Distribution Period, the payment date for the distribution declared by the General Partner on its Common Units for such Distribution Period or, if no such distribution payment date is established, the last business day of the first full month following such Distribution Period.
Distribution Period shall mean the quarterly period that is then the distribution period with respect to the Common Units or, if no such distribution period is established, the calendar quarter shall be the Distribution Period; provided that (a) the initial Distribution Period shall commence on March 5, 2004 and end on and include March 31, 2004 and (b) the Distribution Period in which the final liquidation payment is made pursuant to Section 7.2 of the Third Amended and Restated Agreement of Limited Partnership, as amended, shall commence on the first day following the immediately preceding Distribution Period and end on the date of such final liquidation payment.
Fair Market Value shall mean, as of any day, the average of the Common Unit Value for the ten consecutive Trading Days ending on the business day immediately preceding the day in question with respect to the issuance or distribution requiring such computation.
Relevant Distribution Periods shall mean (i) each of the three (3) consecutive Distribution Periods the last of which ends during the 90-day period referred to in the last paragraph of Section 7(b) and (ii) the next immediately following Distribution Period after the third Distribution Period described in clause (i) above.
Tenth Anniversary Date shall mean March 5, 2014.
2. Designation and Number; Etc . The Series E Preferred Units have been established and shall have such rights, preferences, limitations and qualifications as are described herein (in addition to the rights, preferences, limitations and qualifications contained in the Third Amended and Restated Agreement of Limited Partnership to the extent applicable). The authorized number of Series E Preferred Units shall be 502,657.8128. Notwithstanding anything to the contrary contained herein, in the event of a conflict between the provisions of this Schedule C and any other provision of the Third Amended and Restated Agreement of Limited Partnership, the provisions of this Schedule C shall control.
3. Rank. The Series E Preferred Units shall, with respect to the payment of distributions and the distribution of amounts upon voluntary or involuntary liquidation, dissolution or winding-up of the Partnership, rank as follows:
(a) senior to all classes or series of Common Units and to all Units the terms of which provide that such Units shall rank junior to the Series E Preferred Units;
(b) on a parity with the Series B Preferred Units, Series D Preferred Units and each other series of Preferred Units issued by the Partnership which does not provide by its express terms that it ranks junior or senior in right of payment to the Series E Preferred Units with respect to payment of distributions or amounts upon liquidation, dissolution or winding-up; and
(c) junior to any class or series of Preferred Units issued by the Partnership that ranks senior to the Series E Preferred Units and has been approved in accordance with Section 4 of this Schedule C.
4. Voting .
(a) Holders of Series E Preferred Units shall not have any voting rights, except as described below in this Section 4.
(b) So long as any Series E Preferred Units remain outstanding, the Partnership shall not, without the affirmative vote or consent of the holders of at least a majority of the Series E Preferred Units outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (i) authorize, create, issue or increase the authorized or issued amount of any class or series of partnership interests in the Partnership ranking senior to the Series E Preferred Units with respect to the payment of distributions or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding-up of the Partnership or reclassify any Common Units or other Preferred Units into such partnership interests, or create, authorize or issue any obligation or security convertible or exchangeable into or evidencing the right to purchase any such partnership interests; or (ii) amend, alter or repeal the provisions of the Third Amended and Restated Agreement of Limited Partnership, as amended, whether by merger or consolidation or otherwise (an Event), so as to (A) negate the provisions of clause (i) or (ii) of this paragraph, (B) materially and adversely affect the right of the holders of Series E Preferred Units to transfer such Units unless the amendment also applies to the holders of all other Units, (C) give the holders of any partnership interest a right to the payment of distributions from the Partnership or a right to the distribution of amounts upon voluntary or involuntary liquidation, dissolution or winding-up of the Partnership that ranks senior to the Series E Preferred Units or (D) materially and adversely affect any right, preference, privilege or voting power of the Series E Preferred Units or the holders thereof contained in this Schedule C. Notwithstanding anything to the contrary contained herein, each of the following shall be deemed not to (i) materially and adversely affect any such right, preference, privilege or voting power or (ii) otherwise require the vote or consent of the holders of the Series E Preferred Units: (X) the occurrence of any merger, consolidation, entity conversion, unit exchange, recapitalization of the Common Units or other business combination or reorganization, so long as either (1) the Partnership is the surviving entity and the Series E Preferred Units remain outstanding with the terms thereof materially unchanged (including
without limitation the terms with respect to distributions, voting, redemption and conversion), or (2) if the Partnership is not the surviving entity in such transaction, interests in an entity having substantially the same rights and terms (including without limitation rights to distributions, voting, redemption and conversion) as the Series E Preferred Units are exchanged or substituted for the Series E Preferred Units (and with the terms of the Common Units or such other securities for which the Series E Preferred Units (or the substitute or exchanged security therefor) are convertible or redeemable materially the same with respect to rights to distributions, voting and redemption), (Y) any increase in the amount of the authorized Preferred Units or Common Units or the creation or issuance of any other series or class of Preferred Units or Common Units or any increase in the amount of Common Units or any other series of Preferred Units, in each case so long as such Units rank on a parity with or junior to the Series E Preferred Units with respect to the payment of distributions and the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding-up of the Partnership and (Z) a sale or other disposition of all or substantially all of the Partnerships assets (by merger or otherwise) if, in connection with such transaction, the holders of Series E Preferred Units have the opportunity to surrender all of the issued and outstanding Series E Preferred Units in exchange for a cash payment equal to the amount that such holders would be entitled to receive in respect thereof upon a liquidation, dissolution or winding-up of the Partnership (such surrender and payment to be made contemporaneously with the closing of such transaction) and any resulting dissolution, liquidation and/or winding-up of the Partnership.
The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series E Preferred Units shall have been converted or redeemed.
For purposes of the foregoing provisions of this Section 4, each Series E Preferred Unit shall have one (l) vote.
Except as otherwise required by applicable law or as set forth herein, the Series E Preferred Units shall not have any voting rights or powers and the consent of the holders thereof shall not be required for the taking of any action.
5. Distributions .
(a) With respect to each Distribution Period and subject to the rights of the holders of Preferred Units ranking senior to or on parity with the Series E Preferred Units, the holders of Series E Preferred Units shall be entitled to receive, when, as and if declared by the General Partner, out of assets of the Partnership legally available for the payment of the distributions, quarterly cumulative cash distributions in an amount per Series E Preferred Unit equal to the greater of (i) $0.875 (the Base Quarterly Distribution) and (ii) the amount of the regular quarterly cash distribution paid for such Distribution Period upon the number of Common Units (or portion thereof) into which such Series E Preferred Unit is then convertible in accordance with Section 7 of this Schedule C. Notwithstanding anything to the contrary contained herein, the amount of distributions described under each of clause (i) and (ii) of this paragraph for the initial Distribution Period, or any other period shorter than a full Distribution Period, shall be prorated and computed based on the actual number of days in such Distribution Period relative to the actual number of days in the calendar quarter of which the Distribution Period is a part. Such
distributions shall, with respect to each Series E Preferred Unit, accrue from its issue date, whether or not in, or with respect to, any Distribution Period or Periods (A) the distributions described above are declared, (B) the Partnership is contractually prohibited from paying such distributions or (C) there shall be assets of the Partnership legally available for the payment of such distributions. The distributions upon the Series E Preferred Units for each Distribution Period shall, if and to the extent declared or authorized by the General Partner on behalf of the Partnership, be paid in arrears (without interest or other amount) on the Distribution Payment Date with respect thereto, and, if not paid on such date, shall accumulate, whether or not in, or with respect to, any Distribution Period or Periods (X) the distributions are declared, (Y) the Partnership is contractually prohibited from paying such distributions or (Z) there shall be assets of the Partnership legally available for the payment of such distributions (and shall not constitute accumulated distributions prior to such date). The record date for distributions upon the Series E Preferred Units for any Distribution Period shall be the same as the record date for the distributions upon the Common Units for such Distribution Period (or, if no such record date is set for the Common Units, the fifteenth day of the calendar month in which the applicable Distribution Payment Date falls if prior to such Distribution Payment Date; otherwise, the fifteenth day of the immediately preceding calendar month). Accumulated and unpaid distributions for any past Distribution Periods may be declared and paid at any time, without reference to any Distribution Payment Date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the General Partner. Any distribution payment made upon the Series E Preferred Units shall first be credited against the earliest accrued but unpaid distributions due with respect to such Units which remains payable. No interest, or sum of money in lieu of interest, shall be owing or payable in respect of any distribution payment or payments on the Series E Preferred Units, whether or not in arrears.
(b) No distribution on the Series E Preferred Units shall be declared by the General Partner or paid or set apart for payment by the Partnership at such time as and to the extent that the terms and provisions of any bona fide agreement of the Partnership, including any agreement relating to bona fide indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof, or a default thereunder, or to the extent that such declaration of payment shall be restricted or prohibited by law (and such failure to pay distributions on the Series E Preferred Units shall prohibit other distributions by the Partnership as described in Sections 5(c) or (d) of this Schedule C). Notwithstanding the foregoing, distributions on the Series E Preferred Units shall accumulate as provided herein whether or not any of the foregoing restrictions exist.
(c) Except as provided in Section 5(d) of this Schedule C, so long as any Series E Preferred Units are outstanding, (i) no cash or non-cash distributions (other than in Common Units or other Units ranking junior to the Series E Preferred Units as to payment of distributions and amounts upon liquidation, dissolution or winding-up of the Partnership) shall be declared or paid or set apart for payment upon the Common Units or any other class or series of partnership interests in the Partnership or Units ranking, as to payment of distributions or amounts distributable upon liquidation, dissolution or winding-up of the Partnership, on a parity with or junior to the Series E Preferred Units, for any period and (ii) no Common Units or other Units ranking junior to or on a parity with the Series E Preferred Units as to payment of distributions or amounts upon liquidation, dissolution or winding-up of the Partnership shall be redeemed, purchased or otherwise acquired for any consideration (or any monies be paid to or made
available for a sinking fund for the redemption of any such Units) by the Partnership (except by conversion into or exchange for other Units ranking junior to the Series E Preferred Units as to payment of distributions and amounts upon liquidation, dissolution or winding-up of the Partnership or by redemptions pursuant to Rights Agreements) unless, in the case of either clause (i) or (ii), full cumulative distributions have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment in the next 30 days on the Series E Preferred Units for all Distribution Periods ending on or prior to the distribution payment date for the Common Units or such other class or series of Unit or the date of such redemption, purchase or other acquisition.
(d) When distributions are not paid in full (or a sum sufficient for such full payment is not set apart for such payment in the next 30 days) upon the Series E Preferred Units and any other partnership interests in the Partnership or Units ranking on a parity as to payment of distributions with the Series E Preferred Units, all distributions declared upon the Series E Preferred Units and any other partnership interests in the Partnership or Units ranking on a parity as to payment of distributions with the Series E Preferred Units shall be declared or paid pro rata so that the amount of distributions declared per Unit of Series E Preferred Units and such other partnership interests in the Partnership or Units shall in all cases bear to each other the same ratio that accrued and unpaid distributions per Unit on the Series E Preferred Units and such other partnership interests in the Partnership or Units (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such Units do not have cumulative distributions) bear to each other.
(e) Except as set forth in Section 6 of this Schedule C, holders of Series E Preferred Units shall not be entitled to any distributions, whether payable in cash, property or Units, in excess of the cumulative distributions described in Section 5(a) of this Schedule C.
(f) Distributions with respect to the Series E Preferred Units are intended to qualify as permitted distributions of cash that are not treated as a disguised sale within the meaning of Treasury Regulation §1.707-4 and the provisions of this Schedule C shall be construed and applied consistently with such Treasury Regulations.
6. Liquidation Preference .
(a) In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Partnership, before any payment or distribution of the assets of the Partnership (whether capital or surplus) shall be made to or set apart for the holders of Common Units or any other partnership interests in the Partnership or Units ranking junior to the Series E Preferred Units as to the distribution of assets upon the liquidation, dissolution or winding-up of the Partnership, the holders of the Series E Preferred Units shall, with respect to each such Unit, be entitled to receive, out of the assets of the Partnership available for distribution to Partners after payment or provision for payment of all debts and other liabilities of the Partnership and subject to the rights of the holders of any series of Preferred Units ranking senior to or on parity with the Series E Preferred Units with respect to payment of amounts upon liquidation, dissolution or winding-up of the Partnership, an amount equal to the greater of (i) $50, plus an amount equal to all distributions (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution (including all accumulated and unpaid distributions) and (ii) the amount that a holder
of such Series E Preferred Unit would have received upon final distribution in respect of the number of Common Units into which such Series E Preferred Unit (including all accumulated and unpaid distributions (whether or not earned or declared) with respect thereto) was convertible immediately prior to such date of final distribution. If, upon any such voluntary or involuntary liquidation, dissolution or winding-up of the Partnership, the assets of the Partnership, or proceeds thereof, distributable among the holders of the Series E Preferred Units are insufficient to pay in full the preferential amount aforesaid on the Series E Preferred Units and liquidating payments on any other Units or partnership interests in the Partnership of any class or series ranking, as to payment of distributions and amounts upon the liquidation, dissolution or winding-up of the Partnership, on a parity with the Series E Preferred Units, then such assets, or the proceeds thereof, shall be distributed among the holders of Series E Preferred Units and any such other Units or partnership interests in the Partnership ratably in accordance with the respective amounts that would be payable on such Series E Preferred Units and such other Units or partnership interests in the Partnership if all amounts payable thereon were paid in full. For the purposes of this Section 6, none of (i) a consolidation or merger of the Partnership with or into another entity, (ii) a merger of another entity with or into the Partnership or (iii) a sale, lease or conveyance of all or substantially all of the Partnerships assets, properties or business shall be deemed to be a liquidation, dissolution or winding-up of the Partnership (unless all or substantially all of the proceeds thereof are distributed by the Partnership, in which case a liquidation, dissolution or winding-up of the Partnership shall be deemed to have occurred).
(b) Written notice of such liquidation, dissolution or winding-up of the Partnership, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series E Preferred Units at the respective addresses of such holders as the same shall appear on the transfer records of the Partnership.
(c) After payment of the full amount of liquidating distributions to which they are entitled as provided in Section 6(a) of this Schedule C, the holders of Series E Preferred Units shall have no right or claim to any of the remaining assets of the Partnership.
7. Conversion . Holders of Series E Preferred Units shall have the right to convert all or a portion of such Units into Common Units, as follows:
(a) A holder of Series E Preferred Units shall have the right, at such holders option, at any time, to convert any whole number of Series E Preferred Units into fully paid and non-assessable Common Units; provided, however, that the conversion right may not be exercised at any one time by a holder of Series E Preferred Units with respect to less than 1,000 Series E Preferred Units (or all the Series E Preferred Units then owned by such holder if such holder owns less than 1,000 Series E Preferred Units). Each Series E Preferred Unit shall be convertible into the number of Common Units determined by dividing (i) the $50 base liquidation preference per Series E Preferred Unit, plus an amount equal to all accumulated and unpaid distributions (whether or not earned or declared) with respect thereto by (ii) a conversion price of $38.51 per Common Unit (equivalent to an initial conversion rate of 1.298364 Common Units for each Series E Preferred Unit), subject to adjustment as described in Section 7(c) hereof (the Conversion Price).
(b) To exercise the conversion right, the holder of each Series E Preferred Unit to be converted shall execute and deliver to the General Partner, at the principal office of the Partnership, a written notice (the Conversion Notice) indicating that the holder thereof elects to convert such Series E Preferred Unit and containing representations and warranties of such holder that (i) such holder has good and marketable title to such Series E Preferred Unit, free and clear of all liens, claims and encumbrances, (ii) such holder is an accredited investor as defined in Regulation D under the Securities Act of 1933, as amended, and has such knowledge and experience in financial and business matters such that such holder is capable of evaluating the merits and risks of receiving and owning the Common Units that may be issued to it in exchange for such Series E Preferred Unit, (iii) such holder is able to bear the economic risk of such ownership and (iv) such Common Units to be acquired by such holder pursuant to this Agreement would be acquired by such holder for its own account, for investment purposes only and not with a view to, and with no present intention of, selling or distributing the same in violation of federal or state securities laws. Unless the Units issuable on conversion are to be issued in the same name as the name in which such Series E Preferred Unit is registered, each Series E Preferred Unit surrendered for conversion shall be accompanied by instruments of transfer, in form reasonably satisfactory to the Partnership, duly executed by the holder or such holders duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Partnership demonstrating that such taxes have been paid).
As promptly as practicable after delivery of the Conversion Notice as aforesaid, the Partnership shall amend the Partnership Agreement to reflect the conversion and the issuance of Common Units issuable upon the conversion of such Series E Preferred Units in accordance with the provisions of this Section 7. In addition, the Partnership shall deliver to the holder at its address as reflected on the records of the Partnership, a copy of such amendment.
A holder of Series E Preferred Units at the close of business on the record date for any Distribution Period shall be entitled to receive the distribution payable on such Units on the corresponding Distribution Payment Date notwithstanding the conversion of such Series E Preferred Units following such record date and prior to such Distribution Payment Date and shall have no right to receive any distribution for such Distribution Period in respect of the Common Units into which such Series E Preferred Units were converted. Except as provided herein, the Partnership shall make no payment or allowance for unpaid distributions, whether of not in arrears, on converted Series E Preferred Units or for distributions on the Common Units that are issued upon such conversion. In the event that a holder of Series E Preferred Units converts its Series E Preferred Units into Common Units on or prior to the record date for the initial Distribution Period, the distribution for such Distribution Period in respect of such Common Units shall be prorated and computed on the basis of twelve 30-day months and a 360-day year.
Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the Conversion Notice is received by the Partnership as aforesaid, and the person or persons, in whose name or names any Common Units shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of such Units at such time on such date, and such conversion shall be at the Conversion Price in effect at such time and on such date unless the transfer books of the Partnership shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of
record immediately prior to the close of business on the next succeeding day on which such transfer books are open, but such conversion shall be at the Conversion Price in effect on the date on which such Units have been surrendered and such notice received by the Partnership.
Notwithstanding anything to the contrary contained herein, all holders of Series E Preferred Units shall be deemed to have delivered a Conversion Notice (and therefore exercised their conversion rights effective as of the time specified in the next sentence) as to all Series E Preferred Units if (a) with respect to any period of 90 consecutive calendar days following the Tenth Anniversary Date, the Common Unit Value exceeds on each trading day during such 90-day period the Conversion Price then in effect and (b) the amount of the distribution (as calculated in accordance with Section 5(a)(ii) of this Schedule C) for each of the four (4) Relevant Distribution Periods upon the number of Common Units (or portion thereof) into which a Series E Preferred Unit is then convertible in accordance with this Section 7 exceeds the Base Quarterly Distribution. The forced conversion referred to in this paragraph shall be effective at the close of business on the Distribution Payment Date for the last Relevant Distribution Period.
(c) The Conversion Price shall be adjusted from time to time as-follows:
1. If the Partnership shall, after the date on which the Series E Preferred Units are first issued (the Issue Date), (A) pay or make a distribution to holders of its partnership interests Units in Common Units, (B) subdivide its outstanding Common Units into a greater number of Units or distribute Common Units to the holders thereof, (C) combine its outstanding Common Units into a smaller number of Units, or (D) issue any partnership interests or Units by reclassification of its Common Units, the Conversion Price shall be adjusted so that the conversion rights of the holder of any Series E Preferred Unit are not diluted or expanded thereby.
2. If the Partnership shall issue after the Issue Date rights, options or warrants to all holders of Common Units entitling them to subscribe for or purchase Common Units (or securities convertible into or exchangeable for Common Units) at a price per Unit less than the Fair Market Value on the record date for the determination of holders of Common Units entitled to receive such rights, options or warrants, then the Conversion Price shall be adjusted to equal the price determined by multiplying (I) the Conversion Price in effect immediately prior to adjustment by (II) a fraction, the numerator of which shall be the sum of (A) the number of Common Units outstanding at the close of business on the date fixed for such determination and (B) the number of Common Units that the aggregate proceeds to the Partnership from the exercise of such rights, options or warrants for Common Units would purchase at a price per Unit equal to the Fair Market Value, and the denominator of which shall be the sum of (A) the number of Common Units outstanding at the close of business on the date fixed for such determination and (B) the number of additional Common Units offered for subscription or purchase pursuant to such rights, options or warrants. In determining whether any rights, options or warrants entitle the holder of Common Units to subscribe for or purchase Common Units at a price per Unit less than the Fair Market Value, there shall be taken into account any consideration received by the Partnership upon issuance and upon exercise of such rights, options or warrants, the value of such consideration, if other than cash, to be determined in good faith by the Board of the General Partner.
3. If the Partnership shall distribute after the Issue Date to all holders of Common Units any other securities or evidences of its indebtedness or assets (excluding those rights, options, warrants, securities and other assets referred to in and treated under subsection (i) or (ii) above, and excluding distributions paid exclusively in cash) (any of the foregoing being hereinafter in this subsection (iii) called the Securities), then in each case the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying (I) the Conversion Price in effect immediately prior to the adjustment by (II) a fraction, the numerator of which shall be the Fair Market Value on the record date for the determination of holders of Common Units entitled to receive such distribution less the then fair market value (as determined in good faith by the General Partner) of the portion of the Securities so distributed applicable to one Common Unit, and the denominator of which shall be the Fair Market Value on the record date mentioned above. For the purposes of this subsection (iii), a distribution in the form of a Security, which is distributed not only to the holders of the Common Units on the date fixed for the determination of holders of Common Units entitled to such distribution of such Security, but also is distributed with each Common Unit delivered to a person converting a Series E Preferred Unit after such determination date (together with distributions thereon paid to the holders of Common Units prior thereto), shall not require an adjustment of the Conversion Price pursuant to this subsection (iii); provided that on the date, if any, on which a person converting a Series E Preferred Unit would no longer be entitled to receive such Security with a Common Unit, a distribution of such Securities shall be deemed to have occurred, and the Conversion Price shall be adjusted as provided in this subsection (iii) (and such day shall be deemed to be the date fixed for the determination of the holders of Common Units entitled to receive such distribution and the record date within the meaning of the preceding sentence).
4. Notwithstanding the foregoing, no adjustment shall be made pursuant to the preceding clauses (ii) and (iii) that would result in an increase in the Conversion Price. No adjustment in the Conversion Price shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% in such price; provided, however, that any adjustments that by reason of this subsection (iv) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made; and provided, further, that any adjustment shall be required and made in accordance with the provisions of this Section 7 (other than this subsection (iv)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holders of Common Units. Notwithstanding any other provisions of this Section 7, the Partnership shall not be required to make any adjustment to the Conversion Price for the issuance of (i) any Common Units on account of any plan providing for the reinvestment of distributions or interest payable on securities of the Partnership or the General Partner and the investment of additional optional amounts under such plan or (ii) any options, rights or Common Units pursuant to or on account of any unit or stock option, unit or stock purchase or any unit or stock-based compensation plan maintained by the Partnership or the General Partner. All calculations under this Section 7 shall be made to the nearest cent (with $.005 being rounded upward) or to the nearest one-tenth of a Unit (with .05 of a Unit being rounded upward), as the case may be.
(d) If the Partnership shall be a party to any transaction (including, without limitation, a merger, consolidation, entity conversion, unit exchange, self tender offer for all or substantially all of the Common Units, sale of all or substantially all of the Partnerships assets or recapitalization of the Common Units or other business combination or reorganization and excluding any transaction as to which subsection (c)(i) of this Section 7 applies) (each of the foregoing being referred to herein as a Transaction), in each case as a result of which Common Units shall be exchanged for or converted into partnership interests, shares, stock, securities or other properties (including cash or any combination thereof), each Series E Preferred Unit which is not converted into the right to receive partnership interests, shares, stock, securities or other property in connection with such Transaction (and thus remains outstanding) shall thereafter be convertible into the kind and amount of partnership interests, shares, stock, securities and other property (including cash or any combination thereof) receivable upon the consummation of such Transaction by a holder of that number of Common Units into which one Series E Preferred Unit (including all distributions (whether or not earned or declared) accumulated and unpaid thereon) was convertible immediately prior to such Transaction, assuming such holder of Common Units is not a Person with which the Partnership consolidated or into which the Partnership merged or which merged into the Partnership or to which such sale or transfer was made, as the case may be (a Constituent Person), or an affiliate of a Constituent Person. In the event that holders of Common Units have the opportunity to elect the form or type of consideration to be received upon consummation of the Transaction, prior to such transaction the General Partner shall give prompt written notice to each Series E Preferred Unit holder of such election, and each Series E Preferred Unit holder shall also have the right to elect, by written notice to the General Partner, the form or type or consideration to be received upon conversion of each Series E Preferred Unit held by such holder following consummation of such Transaction. If a holder of Series E Preferred Units fails to make such an election, such holder (and any of its transferees) shall receive upon conversion of each Series E Preferred Unit held by such holder (or by any of its transferees) the same consideration that a holder of that number of Common Units into which one Series E Preferred Unit was convertible immediately prior to such Transaction would receive if such Common Unit holder failed to make such an election. The Partnership shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this subsection (d), and it shall not consent or agree to the occurrence of any Transaction until the Partnership has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series E Preferred Units that will contain provisions enabling the holders of Series E Preferred Units that remain outstanding after such Transaction to convert into the consideration received by holders of Common Units at the Conversion Price in effect immediately prior to such Transaction (with the holder having the option to elect the type of consideration if a choice is offered in the Transaction as specified above). The provisions of this subsection (d) shall similarly apply to successive Transactions.
(e) If:
1. the Partnership shall declare a distribution on the Common Units (other than a regular quarterly cash distribution or a distribution in Common Units); or
2. the Partnership shall authorize the granting to the holders of the Common Units of rights, options or warrants to subscribe for or purchase any Units of any class or any other rights, options or warrants; or
3. there shall be any reclassification of the Common Units (other than a distribution in Common Units or a subdivision or combination of Common Units) or any consolidation or merger to which the Partnership is a party and for which approval of any partners of the Partnership is required, involving the conversion or exchange of Common Units into securities or other property, or a unit exchange involving the conversion or exchange of Common Units into securities or other property, a self tender offer by the Partnership for all or substantially all of the Common Units, or the sale or transfer of all or substantially all of the assets of the Partnership as an entirety; or
4. there shall occur the voluntary or involuntary liquidation, dissolution or winding-up of the Partnership;
then the Partnership shall caused to be mailed to the holders of the Series E Preferred Units at their addresses as shown on the records of the Partnership, as promptly as possible a prior notice stating (A) the date on which a record is to be taken for the purpose of such distribution or grant, or, if a record is not to be taken, the date as of which the holders of Common Units of record to be entitled to such distribution or grant are to be determined or (B) the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution or winding-up is expected to become effective, and the date as of which it is expected that holders of Common Units of record shall be entitled to exchange their Common Units for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution or winding-up. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the proceedings described in this Section 7.
(f) Whenever the Conversion Price is adjusted as herein provided, the Partnership shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and shall mail such notice of such adjustment of the Conversion Price to the holder of each Series E Preferred Unit at such holders last address as shown on the records of the Partnership.
(g) Any adjustment to the Conversion Price pursuant to subsection (c) of this Section 7 with respect to any event shall become effective at such time as is necessary to prevent dilution or expansion of the conversion rights on account of such event.
(h) For purposes of this Section 7, the number of Common Units at any time outstanding shall not include any Common Units then owned or held by or for the account of the Partnership. The Partnership shall not make any distribution on Common Units held in the treasury of the Partnership.
(i) If any action or transaction would require adjustment of the Conversion Price pursuant to more than one subsection of this Section 7, only one adjustment shall be made, and such adjustment shall be the amount of adjustment that results in the lowest absolute value of the Conversion Price.
(j) If the Partnership shall take any action affecting the Common Units, other than action described in this Section 7, that in the reasonable judgment of the Partnership would materially affect the conversion rights of the holders of the Series E Preferred Units, the
Conversion Price for the Series E Preferred Units may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the General Partner, determines to be equitable in the circumstances.
(k) The Partnership covenants that Common Units issued upon conversion of the Series E Preferred Units shall be validly issued, fully paid and non-assessable and the holder thereof shall be entitled to rights of a holder of Common Units specified in the Partnership Agreement. Prior to the delivery of any securities that the Partnership shall be obligated to deliver upon conversion of the Series E Preferred Units, the Partnership shall endeavor to comply with all federal and state laws and regulations in respect thereof.
(l) The Partnership will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Common Units or other securities or property on conversion of the Series E Preferred Units pursuant hereto; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of Common Units or other securities or property in a name other than that of the holder of the Series E Preferred Units to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Partnership the amount of any such tax or established, to the reasonable satisfaction of the Partnership, that such tax has been paid.
(m) Notwithstanding anything to the contrary contained herein, the adjustment provisions contained in this Section 7 shall be applied so that there is no duplication of adjustments made pursuant to any other document.
SCHEDULE D
1. Definitions . As used in this Schedule D, the following terms shall have the meanings set forth below, unless the context otherwise requires:
Distribution Payment Date shall mean, with respect to any Distribution Period, the payment date for the distribution declared by the General Partner on its Common Units for such Distribution Period or, if no such distribution payment date is established, the last business day of the first full month following such Distribution Period.
Distribution Period shall mean the quarterly period that is then the distribution period with respect to the Common Units or, if no such distribution period is established, the calendar quarter shall be the Distribution Period; provided that the Distribution Period in which the final liquidation payment is made pursuant to Section 7.2 of the Third Amended and Restated Agreement of Limited Partnership, as amended, shall commence on the first day following the immediately preceding Distribution Period and end on the date of such final liquidation payment.
2. Designation and Number; Etc . The Series F Preferred Units have been established and shall have such rights, preferences, limitations and qualifications as are described herein (in addition to the rights, preferences, limitations and qualifications contained in the Third Amended and Restated Agreement of Limited Partnership to the extent applicable). The authorized number of Series F Preferred Units shall be 1,000. Notwithstanding anything to the contrary contained herein, in the event of a conflict between the provisions of this Schedule D and any other provision of the Third Amended and Restated Agreement of Limited Partnership, the provisions of this Schedule D shall control.
3. Rank. The Series F Preferred Units shall, with respect to the payment of distributions and the distribution of amounts upon voluntary or involuntary liquidation, dissolution or winding-up of the Partnership, rank as follows:
(a) senior to all classes or series of Common Units and to all Units the terms of which provide that such Units shall rank junior to the Series F Preferred Units;
(b) on a parity with the Series B Preferred Units, Series D Preferred Units, Series E Preferred Units and each other series of Preferred Units issued by the Partnership which does not provide by its express terms that it ranks junior or senior in right of payment to the Series F Preferred Units with respect to payment of distributions or amounts upon liquidation, dissolution or winding-up; and
(c) junior to any class or series of Preferred Units issued by the Partnership that ranks senior to the Series F Preferred Units.
4. Voting . Holders of Series F Preferred Units shall not have any voting rights, except as required by law.
5. Distributions .
(a) With respect to each Distribution Period and subject to the rights of the holders of Preferred Units ranking senior to or on parity with the Series F Preferred Units, the holders of Series F Preferred Units shall be entitled to receive, when, as and if declared by the General Partner, out of assets of the Partnership legally available for the payment of the distributions, quarterly cumulative cash distributions in an amount per Series F Preferred Unit equal to $25. Notwithstanding anything to the contrary contained herein, the amount of distributions described under this paragraph for the initial Distribution Period, or any other period shorter than a full Distribution Period, shall be prorated and computed based on the actual number of days in such Distribution Period relative to the actual number of days in the calendar quarter of which the Distribution Period is a part. Such distributions shall, with respect to each Series F Preferred Unit, accrue from its issue date, whether or not in, or with respect to, any Distribution Period or Periods (A) the distributions described above are declared, (B) the Partnership is contractually prohibited from paying such distributions or (C) there shall be assets of the Partnership legally available for the payment of such distributions. The distributions upon the Series F Preferred Units for each Distribution Period shall, if and to the extent declared or authorized by the General Partner on behalf of the Partnership, be paid in arrears (without interest or other amount) on the Distribution Payment Date with respect thereto, and, if not paid on such date, shall accumulate, whether or not in, or with respect to, any Distribution Period or Periods (X) the distributions are declared, (Y) the Partnership is contractually prohibited from paying such distributions or (Z) there shall be assets of the Partnership legally available for the payment of such distributions (and shall not constitute accumulated distributions prior to such date). The record date for distributions upon the Series F Preferred Units for any Distribution Period shall be the same as the record date for the distributions upon the Common Units for such Distribution Period (or, if no such record date is set for the Common Units, the fifteenth day of the calendar month in which the applicable Distribution Payment Date falls if prior to such Distribution Payment Date; otherwise, the fifteenth day of the immediately preceding calendar month). Accumulated and unpaid distributions for any past Distribution Periods may be declared and paid at any time, without reference to any Distribution Payment Date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the General Partner. Any distribution payment made upon the Series F Preferred Units shall first be credited against the earliest accrued but unpaid distributions due with respect to such Units which remains payable. No interest, or sum of money in lieu of interest, shall be owing or payable in respect of any distribution payment or payments on the Series F Preferred Units, whether or not in arrears.
(b) No distribution on the Series F Preferred Units shall be declared by the General Partner or paid or set apart for payment by the Partnership at such time as and to the extent that the terms and provisions of any bona fide agreement of the Partnership, including any agreement relating to bona fide indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof, or a default thereunder, or to the extent that such declaration of payment shall be restricted or prohibited by law (and such failure to pay distributions on the Series F Preferred Units shall prohibit other distributions by the Partnership as described in Sections 5(c) or (d) of this Schedule D). Notwithstanding the foregoing, distributions on the Series F Preferred Units shall accumulate as provided herein whether or not any of the foregoing restrictions exist.
(c) Except as provided in Section 5(d) of this Schedule C, so long as any Series F Preferred Units are outstanding, (i) no cash or non-cash distributions (other than in Common Units or other Units ranking junior to the Series F Preferred Units as to payment of distributions and amounts upon liquidation, dissolution or winding-up of the Partnership) shall be declared or paid or set apart for payment upon the Common Units or any other class or series of partnership interests in the Partnership or Units ranking, as to payment of distributions or amounts distributable upon liquidation, dissolution or winding-up of the Partnership, on a parity with or junior to the Series F Preferred Units, for any period and (ii) no Common Units or other Units ranking junior to or on a parity with the Series F Preferred Units as to payment of distributions or amounts upon liquidation, dissolution or winding-up of the Partnership shall be redeemed, purchased or otherwise acquired for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Units) by the Partnership (except by conversion into or exchange for other Units ranking junior to the Series F Preferred Units as to payment of distributions and amounts upon liquidation, dissolution or winding-up of the Partnership or by redemptions pursuant to Rights Agreements) unless, in the case of either clause (i) or (ii), full cumulative distributions have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment in the next 30 days on the Series F Preferred Units for all Distribution Periods ending on or prior to the distribution payment date for the Common Units or such other class or series of Unit or the date of such redemption, purchase or other acquisition.
(d) When distributions are not paid in full (or a sum sufficient for such full payment is not set apart for such payment in the next 30 days) upon the Series F Preferred Units and any other partnership interests in the Partnership or Units ranking on a parity as to payment of distributions with the Series F Preferred Units, all distributions declared upon the Series F Preferred Units and any other partnership interests in the Partnership or Units ranking on a parity as to payment of distributions with the Series F Preferred Units shall be declared or paid pro rata so that the amount of distributions declared per Unit of Series F Preferred Units and such other partnership interests in the Partnership or Units shall in all cases bear to each other the same ratio that accrued and unpaid distributions per Unit on the Series F Preferred Units and such other partnership interests in the Partnership or Units (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such Units do not have cumulative distributions) bear to each other.
(e) Except as set forth in Section 6 of this Schedule D, holders of Series F Preferred Units shall not be entitled to any distributions, whether payable in cash, property or Units, in excess of the cumulative distributions described in Section 5(a) of this Schedule D.
(f) Distributions with respect to the Series F Preferred Units are intended to qualify as permitted distributions of cash that are not treated as a disguised sale within the meaning of Treasury Regulation §1.707-4 and the provisions of this Schedule D shall be construed and applied consistently with such Treasury Regulations.
6. Liquidation Preference .
(a) In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Partnership, before any payment or distribution of the assets of the Partnership (whether
capital or surplus) shall be made to or set apart for the holders of Common Units or any other partnership interests in the Partnership or Units ranking junior to the Series F Preferred Units as to the distribution of assets upon the liquidation, dissolution or winding-up of the Partnership, the holders of the Series F Preferred Units shall, with respect to each such Unit, be entitled to receive, out of the assets of the Partnership available for distribution to Partners after payment or provision for payment of all debts and other liabilities of the Partnership and subject to the rights of the holders of any series of Preferred Units ranking senior to or on parity with the Series F Preferred Units with respect to payment of amounts upon liquidation, dissolution or winding-up of the Partnership, an amount equal to $1000, plus an amount equal to all distributions (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution (including all accumulated and unpaid distributions). If, upon any such voluntary or involuntary liquidation, dissolution or winding-up of the Partnership, the assets of the Partnership, or proceeds thereof, distributable among the holders of the Series F Preferred Units are insufficient to pay in full the preferential amount aforesaid on the Series F Preferred Units and liquidating payments on any other Units or partnership interests in the Partnership of any class or series ranking, as to payment of distributions and amounts upon the liquidation, dissolution or winding-up of the Partnership, on a parity with the Series F Preferred Units, then such assets, or the proceeds thereof, shall be distributed among the holders of Series F Preferred Units and any such other Units or partnership interests in the Partnership ratably in accordance with the respective amounts that would be payable on such Series F Preferred Units and such other Units or partnership interests in the Partnership if all amounts payable thereon were paid in full. For the purposes of this Section 6, none of (i) a consolidation or merger of the Partnership with or into another entity, (ii) a merger of another entity with or into the Partnership or (iii) a sale, lease or conveyance of all or substantially all of the Partnerships assets, properties or business shall be deemed to be a liquidation, dissolution or winding-up of the Partnership (unless all or substantially all of the proceeds thereof are distributed by the Partnership, in which case a liquidation, dissolution or winding-up of the Partnership shall be deemed to have occurred).
(b) Written notice of such liquidation, dissolution or winding-up of the Partnership, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series F Preferred Units at the respective addresses of such holders as the same shall appear on the transfer records of the Partnership.
(c) After payment of the full amount of liquidating distributions to which they are entitled as provided in Section 6(a) of this Schedule D, the holders of Series F Preferred Units shall have no right or claim to any of the remaining assets of the Partnership.
7. Redemption .
Notwithstanding anything to the contrary contained in this Schedule D or the Third Amended and Restated Agreement of Limited Partnership, other than preferences in favor of the Series B Preferred Units, Series D Preferred Units and Series E Preferred Units, the Partnership may, from time to time and at any time, redeem any or all of the Series F Preferred Units for an amount equal to $1000, plus an amount equal to all distributions (whether or not earned or
declared) accrued and unpaid thereon to the date of such redemption (including all accumulated and unpaid distributions).
EXHIBIT A
[List of Unit Holders]
EXHIBIT B
Allocations
1. Allocation of Net Income and Net Loss.
(a) Net Income . Except as otherwise provided herein, Net Income for any fiscal year or other applicable period shall be allocated in the following order and priority:
1. First, to the General Partner to the extent the cumulative Net Loss allocated to the General Partner pursuant to subparagraph (b)(5) below exceeds the cumulative Net Income allocated to the General Partner pursuant to this subparagraph (a)(1);
2. Second, to each Partner in proportion to and to the extent of the amount by which the cumulative Net Loss allocated to such Partner pursuant to subparagraph (b)(4) exceeds the cumulative Net Income allocated to such Partner pursuant to this subparagraph (a)(2);
3. Third, to the General Partner until the cumulative Net Income allocated to the General Partner pursuant to this subparagraph (a)(3) equals the cumulative Net Loss allocated to the General Partner pursuant to subparagraph (b)(3);
4. Fourth, to each holder of Preferred Units other than the Series D Preferred Units to the extent of and in proportion to the excess of (I) the cumulative amount of distributions made in respect of such Preferred Units, reduced by in the case of the Series B Preferred Units the cumulative Common Unit Reallocated Amounts, and increased by in the case of the Series B Preferred Units the cumulative Series B Preferred Unit Reallocated Amounts, pursuant to the provisos below, over (II) the cumulative amount of Net Income allocated to each holder of Preferred Units pursuant to this subparagraph (a)(4) and subparagraph (a)(5) for such period and all prior periods reduced by the cumulative amount of Net Loss allocated to such holder of Preferred Units pursuant to subparagraph (b)(2) below for all prior periods; provided, however, that in the event the cumulative Net Income allocable to the holders of the Common Units pursuant to this subparagraph (a)(4) and subparagraph (a)(5) below for such period and all prior periods (before application of this proviso for such period) exceeds the cumulative distributions made to the holders of Common Units with respect to such Units for such period and all prior periods, the Series B Preferred Unit Reallocated Amount shall be reallocated pro rata to the holders of Series B Preferred Units; and
5. Thereafter, to the holders of Common Units pro rata in accordance with their Percentage Interests; provided, however, that in the event the cumulative distributions made to the holders of Common Units with respect to such Units for such period and all prior periods exceed the cumulative Net Income allocable to the holders of the Common Units pursuant to subparagraph (a)(4) and this subparagraph (a)(5) for such period and all prior periods (before application of this proviso for such period), the Common Unit Reallocated Amount shall be reallocated pro rata to the holders of Common Units.
The term Common Unit Reallocated Amount shall mean an amount equal to the difference between (I) the amount of Net Income allocable to the Series B Preferred Units pursuant to subparagraph (a)(4) with respect to such fiscal year or other period, and (II) the product obtained by multiplying (A) a fraction, the numerator of which is the number of the Common Units into which the Series B Preferred Units are convertible and the denominator of which is the sum of the number of Common Units into which the Series B Preferred Units are convertible plus the number of Common Units and (B) the sum of (i) the Net Income allocable to the Series B Preferred Units pursuant to subparagraph (a)(4) with respect to such fiscal year or other period and (ii) the Net Income allocable to the Common Units pursuant to subparagraph (a)(5) with respect to such fiscal year or other period. The Common Unit Reallocated Amount shall be calculated based on the amounts of Net Income allocable under subparagraphs (a)(4) and (a)(5) prior to the application of the provisos contained in such subparagraphs with respect to such fiscal year or other period.
The term Series B Preferred Unit Reallocated Amount shall mean the difference between (I) the amount of Net Income allocable to the Common Units pursuant to subparagraph (a)(5) with respect to such fiscal year or other period, and (II) the product obtained by multiplying (A) a fraction, the numerator of which is the number of Common Units and the denominator of which is the sum of the number of Common Units into which the Series B Preferred Units are convertible plus the number of Common Units and (B) the sum of (i) Net Income allocable to the Series B Preferred Units pursuant to subparagraph (a)(4) with respect to such fiscal year or other period and (ii) the Net Income allocable to the Common Units pursuant to this subparagraph (a)(5) with respect to such fiscal year or other period; provided, however, that to the extent the allocation of the Series B Preferred Unit Reallocated Amount to the holders of Series B Preferred Units would cause such holders on a cumulative basis to have been allocated Net Income in excess of distributions, the Series B Preferred Unit Reallocated Amount shall be reduced by such excess. The Series B Preferred Unit Reallocated Amount shall be calculated based on the amounts of Net Income allocable pursuant to subparagraphs (a)(4) and (a)(5) prior to the application of the provisos contained in such subparagraphs with respect to such fiscal year or other period.
It is the intention of the parties that the application of subparagraphs (a)(4) and (a)(5) above will result in corresponding return of capital distributions (per Unit) to the Series B Preferred Units (on an as-converted basis) and Common Units on a cumulative basis and shall be applied and interpreted consistently therewith.
In allocating Net Income for each fiscal year or period, for all purposes of this Section 1(a) (including for purposes of determining the Percentage Interests of the holders of both the Common Units and the Series D Preferred Units), the holders of the Series D Preferred Units shall be treated as though they held that number of Common Units into which their Series D Preferred Units were convertible, as determined from time to time during such fiscal year or period.
(b) Net Loss . Except as otherwise provided herein, Net Loss of the Partnership for each fiscal year or other applicable period shall be allocated as follows:
1. First, to the holders of Common Units, in proportion to their respective Percentage Interests provided that the Net Loss allocated to a holder of Common Units pursuant to this Section (b)(1) shall not exceed the maximum amount of Net Loss that can be allocated without causing a holder of Common Units to have an Adjusted Capital Account Deficit (excluding for this purpose any increase to such Adjusted Capital Account Deficit for a holders actual obligation to fund a deficit Capital Account balance, including the obligation of an Obligated Partner to fund a deficit Capital Account Balance pursuant to Section 7.8 hereof and also excluding for this purpose the balance of such holders Capital Account attributable to such holders Preferred Units, if any);
2. Second, to the holders of Preferred Units in proportion to each such holders Capital Account balance in such Preferred Units, provided that the Net Loss allocated to a holder of Preferred Units pursuant to this Section (b)(2) shall not exceed the maximum amount of Net Loss that can be allocated without causing any holder of Preferred Units to have an Adjusted Capital Account Deficit (excluding for this purpose any increase to such Adjusted Capital Account Deficit for a holders actual obligation to fund a deficit Capital Account balance, including the obligation of an Obligated Partner to fund a deficit Capital Account Balance pursuant to Section 7.8 hereof);
3. Third, to the General Partner, until the General Partners Adjusted Capital Account Deficit (excluding for this purpose any increase to such Adjusted Capital Account Deficit for the obligation of the General Partner to actually fund a deficit Capital Account balance, including any deemed obligation pursuant to Regulation Section 1.704-(1)(b)(2)(ii)(c)) equals the excess of (i) the amount of Recourse Liabilities over (ii) the Aggregate Protected Amount;
4. Fourth, to the Obligated Partners, in proportion to their respective Protected Amounts, until such time as the Obligated Partners have been allocated an aggregate amount of Net Loss pursuant to this subparagraph (b)(4) equal to the Aggregate Protected Amount; and
5. Thereafter, to the General Partner.
2. Special Allocations .
Notwithstanding any provisions of paragraph 1 of this Exhibit B, the following special allocations shall be made in the following order:
(a) Minimum Gain Chargeback (Nonrecourse Liabilities) . If there is a net decrease in Partnership Minimum Gain for any Partnership fiscal year (except as a result of conversion or refinancing of Partnership indebtedness, certain capital contributions or revaluation of the Partnership property as further outlined in Regulation Sections 1.704-2(d)(4), (f)(2) or (f)(3)), each Partner shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to that Partners share of the net decrease in Partnership Minimum Gain. The items to be so allocated shall be determined in accordance with Regulation Section 1.704-2(f). This paragraph (a) is intended to comply with the minimum gain chargeback requirement in said section of the Regulations and shall be interpreted consistently
therewith. Allocations pursuant to this paragraph (a) shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant hereto.
(b) Minimum Gain Attributable to Partner Nonrecourse Debt . If there is a net decrease in Minimum Gain Attributable to Partner Nonrecourse Debt during any fiscal year (other than due to the conversion, refinancing or other change in the debt instrument causing it to become partially or wholly nonrecourse, certain capital contributions, or certain revaluations of Partnership property as further outlined in Regulation Section 1.704-2(i)(4)), each Partner shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to that Partners share of the net decrease in the Minimum Gain Attributable to Partner Nonrecourse Debt. The items to be so allocated shall be determined in accordance with Regulation Section 1.704-2(i)(4) and (j)(2). This paragraph (b) is intended to comply with the minimum gain chargeback requirement with respect to Partner Nonrecourse Debt contained in said section of the Regulations and shall be interpreted consistently therewith. Allocations pursuant to this paragraph (b) shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant hereto.
(c) Qualified Income Offset . In the event a Limited Partner unexpectedly receives any adjustments, allocations or distributions described in Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6), and such Limited Partner has an Adjusted Capital Account Deficit, items of Partnership income and gain shall be specially allocated to such Partner in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit as quickly as possible. This paragraph (c) is intended to constitute a qualified income offset under Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(d) Partner Nonrecourse Deductions . Partner Nonrecourse Deductions for any fiscal year or other applicable period shall be specially allocated to the Partner that bears the economic risk of loss for the debt (i.e., the Partner Nonrecourse Debt) in respect of which such Partner Nonrecourse Deductions are attributable (as determined under Regulation Section 1.704-2(b)(4) and (i)(1)).
(e) Allocations With Respect to Preferred Unit Redemptions . After giving effect to the special allocations set forth above, Net Income of the Partnership shall be allocated to the holders of Preferred Units, at the time of redemption of such Preferred Units (other than in the case of a redemption occurring pursuant to a final liquidation of the Partnership), in an amount equal to the portion of any redemption distribution that exceeds the Liquidation Preference Amount (other than any accrued but unpaid distribution thereon) per Preferred Unit established for such Preferred Unit in the applicable Preferred Unit designation. The character of the items of Net Income allocated to the holders of Preferred Units pursuant to this subparagraph (e) shall proportionately reflect the relative amounts of the items of Partnership income and gain as determined for federal income tax purposes under Section 703(a) of the Code.
(f) Tax Treatment of Conversion of Preferred Units . Upon conversion of a Preferred Unit(s) into Common Unit(s), the Company will specially allocate to the converting Partner any Net Income or Net Loss attributable to an adjustment of Gross Asset Values under subparagraph (b) of the definition of Gross Asset Value until the portion of such Partners Capital Account attributable to each Common Unit received upon conversion equals the Capital Account
attributable to a Common Unit at the time of conversion. To the extent that such allocation is insufficient to bring the portion of the Capital Account attributable to each Common Unit received upon conversion by the converting Partner to the Capital Account attributable to a Common Unit at the time of conversion, a portion of the Capital Account of the non-converting Partners will be shifted, pro rata in accordance with their relative Capital Account balances, to the converted Partner and such transaction shall be treated by the Partnership and the Converting Partner as a transaction defined in Section 721 of the Code.
(g) Curative Allocations . The Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss, and deduction among the Partners so that, to the extent possible, the cumulative net amount of allocations of Partnership items under paragraphs 1 and 2 of this Exhibit B shall be equal to the net amount that would have been allocated to each Partner if the Regulatory Allocations had not occurred. This subparagraph (g) is intended to minimize to the extent possible and to the extent necessary any economic distortions which may result from application of the Regulatory Allocations and shall be interpreted in a manner consistent therewith. For purposes hereof, Regulatory Allocations shall mean the allocations provided under subparagraphs 2(a) through (d).
3. Tax Allocations .
(a) Generally . Subject to paragraphs (b) and (c) hereof, items of income, gain, loss, deduction and credit to be allocated for income tax purposes (collectively, Tax Items) shall be allocated among the Partners on the same basis as their respective book items.
(b) Sections 1245/1250 Recapture . If any portion of gain from the sale of property is treated as gain which is ordinary income by virtue of the application of Code Sections 1245 or 1250 (Affected Gain), then (A) such Affected Gain shall be allocated among the Partners in the same proportion that the depreciation and amortization deductions giving rise to the Affected Gain were allocated and (B) other Tax Items of gain of the same character that would have been recognized, but for the application of Code Sections 1245 and/or 1250, shall be allocated away from those Partners who are allocated Affected Gain pursuant to Clause (A) so that, to the extent possible, the other Partners are allocated the same amount, and type, of capital gain that would have been allocated to them had Code Sections 1245 and/or 1250 not applied. For purposes hereof, in order to determine the proportionate allocations of depreciation and amortization deductions for each fiscal year or other applicable period, such deductions shall be deemed allocated on the same basis as Net Income and Net Loss for such respective period.
(c) Allocations Respecting Section 704(c) and Revaluations; Curative Allocations Resulting from the Ceiling Rule . Notwithstanding paragraph (b) hereof, Tax Items with respect to Partnership property that is subject to Code Section 704(c) and/or Regulation Section 1.704-1(b)(2)(iv)(f) (collectively Section 704(c) Tax Items) shall be allocated in accordance with said Code section and/or Regulation Section 1.704-1(b)(4)(i), as the case may be. The allocation of Tax Items shall be in accordance with the traditional method set forth in Treas. Reg. §1.704-3(b)(1), unless otherwise determined by the General Partner, and shall be subject to the ceiling rule stated in Regulation Section 1.704-3(b)(1). The General Partner is authorized to specially allocate Tax Items (other than Section 704(c) Tax Items) to cure for the effect of the ceiling rule. The intent of this Section 3(c) is that each Partner who contributed to the capital of the
Partnership a partnership interest in an existing Property Partnership will bear, through reduced allocations of depreciation and increased allocations of gain or other items, the tax detriments associated with any precontribution gain and this Section 3(c) shall be interpreted consistently with such intent.
4. Allocations Upon Final Liquidation .
With respect to the fiscal year in which the final liquidation of the Partnership occurs in accordance with Section 7.2 of the Agreement, and notwithstanding any other provision of Sections 1, 2, or 3 hereof, items of Partnership income, gain, loss and deduction shall be specially allocated to the Partners in such amounts and priorities as are necessary so that the positive capital accounts of the Partners shall, as closely as possible, equal the amounts that will be distributed to the Partners pursuant to Section 7.2.
EXHIBIT C
[Obligated Partners]
Exhibit 10.2
THIRD AMENDED AND RESTATED
OPERATING AGREEMENT
OF
GGPLP L.L.C.
TABLE OF CONTENTS
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Page |
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Article I |
Definitions; Etc. |
2 |
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1.1 |
Definitions |
2 |
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1.2 |
Exhibits, Etc. |
11 |
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1.3 |
Pronouns and Headings |
11 |
Article II |
Continuation |
12 |
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2.1 |
Continuation |
12 |
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2.2 |
Name |
12 |
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2.3 |
Character of the Business |
12 |
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2.4 |
Location of the Principal Place of Business |
12 |
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2.5 |
Registered Agent and Registered Office |
12 |
Article III |
Term |
13 |
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3.1 |
Commencement |
13 |
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3.2 |
Dissolution |
13 |
Article IV |
Classes of Units |
13 |
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4.1 |
Common Units |
13 |
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4.2 |
Preferred Units |
13 |
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4.3 |
Establishment of Series C Preferred Units |
14 |
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4.4 |
No Third Party Beneficiary |
14 |
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4.5 |
No Interest; No Return; No Withdrawal |
14 |
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4.6 |
No Other Capital Contributions |
14 |
Article V |
Allocations and Other Tax and Accounting Matters |
14 |
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5.1 |
Allocations |
14 |
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5.2 |
Distributions |
14 |
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5.3 |
Books of Account |
15 |
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5.4 |
Reports |
15 |
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5.5 |
Tax Elections and Returns |
15 |
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5.6 |
Tax Matters Member |
15 |
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5.7 |
Withholding |
16 |
TABLE OF CONTENTS
(continued)
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Page |
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Article VI |
Rights, Duties and Restrictions of the Managing Member |
16 |
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6.1 |
Expenditures by Company |
16 |
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6.2 |
Powers and Duties of Managing Member |
16 |
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6.3 |
Proscriptions |
19 |
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6.4 |
Title Holder |
19 |
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6.5 |
Compensation of the Managing Member |
19 |
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6.6 |
Waiver and Indemnification |
19 |
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6.7 |
Operation in Accordance with REIT Requirements |
20 |
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6.8 |
Duties and Conflicts |
20 |
Article VII |
Dissolution, Liquidation and Winding-Up |
21 |
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7.1 |
Accounting |
21 |
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7.2 |
Distribution on Dissolution |
21 |
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7.3 |
Timing Requirements |
21 |
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7.4 |
Sale of Company Assets |
22 |
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7.5 |
Distributions in Kind |
22 |
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7.6 |
Documentation of Liquidation |
22 |
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7.7 |
Negative Capital Accounts |
22 |
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7.8 |
DAI Contribution Obligation |
22 |
Article VIII |
Transfer of Units |
24 |
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8.1 |
Managing Member Transfer |
24 |
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8.2 |
Transfers in Other Members |
25 |
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8.3 |
Restrictions on Transfer |
25 |
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8.4 |
Bankruptcy of a Member |
26 |
Article IX |
Arbitration of Disputes |
26 |
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9.1 |
Arbitration |
26 |
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9.2 |
Procedures |
26 |
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9.3 |
Binding Character |
27 |
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9.4 |
Exclusivity |
27 |
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9.5 |
No Alteration of Agreement |
27 |
TABLE OF CONTENTS
(continued)
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Page |
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Article X |
General Provisions |
27 |
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10.1 |
Notices |
27 |
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10.2 |
Successors |
28 |
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10.3 |
Effect and Interpretation |
28 |
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10.4 |
Counterparts |
28 |
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10.5 |
Members Not Agents |
28 |
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10.6 |
Entire Understanding; Etc. |
28 |
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10.7 |
Amendments |
28 |
|
10.8 |
Severability |
28 |
|
10.9 |
Trust Provision |
28 |
|
10.10 |
Issuance of Certificates Representing Units |
28 |
|
10.11 |
Specific Performance |
29 |
|
10.12 |
Power of Attorney |
29 |
THIRD AMENDED AND RESTATED
OPERATING AGREEMENT
OF
GGPLP L.L.C.
THIS THIRD AMENDED AND RESTATED OPERATING AGREEMENT is made and entered into this [ ] day of [ ], 2010, by and among the undersigned parties.
W I T N E S S E T H:
WHEREAS, a Delaware limited liability company known as GGPLP L.L.C. (the Company ) exists pursuant to the Delaware Limited Liability Company Act and that certain Second Amended and Restated Operating Agreement dated as of April 17, 2002, as amended by that certain First Amendment thereto dated April 23, 2002, that certain Second Amendment thereto dated May 13, 2002, that certain Third Amendment thereto dated October 30, 2002, that certain Fourth Amendment thereto dated April 7, 2003, that certain Fifth Amendment dated April 11, 2003, that certain Sixth Amendment thereto dated November 12, 2003, that certain Seventh Amendment thereto dated May 25, 2005, that certain Eighth Amendment thereto dated April 23, 2007, that certain Ninth Amendment thereto dated March 9, 2009, that certain Tenth Amendment thereto dated May 13, 2010 and that certain Amendment dated August 2, 2010 (the Original Agreement ); and
WHEREAS, on April 16, 2009, the Company, GGP Limited Partnership, a Delaware limited partnership, (the Managing Member ), and certain Affiliates filed voluntary petitions for relief under title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York (the Chapter 11 Cases );
WHEREAS, in connection with the Company and the Managing Members emergence from the Chapter 11 Cases, the Company will redeem the Common Units held by certain Members (the Redemption ); and
WHEREAS, upon the Redemption the Managing Member will own all of the outstanding Common Units and desires to amend and restate the Original Agreement in its entirety.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the Managing Member, intending legally to be bound, does hereby amend and restate the Original Agreement to read in its entirety as follows:
ARTICLE I
Definitions; Etc .
1.1 Definitions . Except as otherwise herein expressly provided, the following terms and phrases shall have the meanings set forth below (such definitions to be equally applicable to the singular and plural forms of the terms so defined):
Accountants shall mean the firm or firms of independent certified public accountants selected by the Managing Member on behalf of the Company and the Property Partnerships.
Act shall mean the Limited Liability Company Act as enacted in the State of Delaware, as the same has been amended and as the same may hereafter be amended from time to time.
Adjusted Capital Account Deficit shall mean, with respect to any Member, the deficit balance, if any, in such Members Capital Account as of the end of any relevant fiscal year and after giving effect to the following adjustments:
(a) credit to such Capital Account any amounts which such Member is obligated or treated as obligated to restore with respect to any deficit balance in such Capital Account pursuant to Section 1.704-1(b)(2)(ii)(c) of the Regulations, or is deemed to be obligated to restore with respect to any deficit balance pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(0(5) of the Regulations; and
(b) debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the requirements of the alternate test for economic effect contained in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith.
Administrative Expenses shall mean (i) all administrative and operating costs and expenses incurred by the Company, (ii) all administrative, operating and other costs and expenses incurred by the Property Partnerships, which expenses are being assumed by the Company pursuant to Section 6.1, (iii) a pro rata portion (as determined in the reasonable judgment of the Managing Member) of administrative costs and expenses of the Managing Member and GGPI, including salaries paid to officers of the Managing Member and GGPI and accounting and legal expenses undertaken by the Managing Member and GGPI on behalf or for the benefit of the Company, and (iv) to the extent not included in clause (iii) above, a pro rata portion (as determined in the reasonable discretion of the Managing Member) of REIT Expenses.
Affiliate shall mean, with respect to any Member (or as to any other Person the affiliates of whom are relevant for purposes of any of the provisions of this Agreement), (i) any member of the Immediate Family of such Member; (ii) any trustee or beneficiary of a Member; (iii) any legal representative, successor, or assignee of such Member or any Person referred to in the preceding clauses (i) and (ii); (iv) any trustee of any trust for the benefit of such Member or any Person referred to in the preceding clauses (i) through (iii); or (v) any Person which directly
or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Member or any Person referred to in the preceding clauses (i) through (iv).
Agreement shall mean this Third Amended and Restated Operating Agreement, as originally executed and as amended, modified, supplemented or restated from time to time, as the context requires.
Bankruptcy shall mean, with respect to any Member or the Company, (i) the commencement by such Member or the Company of any proceeding seeking relief under any provision or chapter of the federal Bankruptcy Code or any other federal or state law relating to insolvency, bankruptcy or reorganization, (ii) an adjudication that such Member or the Company is insolvent or bankrupt, (iii) the entry of an order for relief under the federal Bankruptcy Code with respect to such Member or the Company, (iv) the filing of any such petition or the commencement of any such case or proceeding against such Member or the Company, unless such petition and the case or proceeding initiated thereby are dismissed within ninety (90) days from the date of such filing, (v) the filing of an answer by such Member or the Company admitting the allegations of any such petition, (vi) the appointment of a trustee, receiver or custodian for all or substantially all of the assets of such Member or the Company unless such appointment is vacated or dismissed within ninety (90) days from the date of such appointment but not less than five (5) days before the proposed sale of any assets of such Member or the Company, (vii) the insolvency of such Member or the Company or the execution by such Member or the Company of a general assignment for the benefit of creditors, (viii) the convening by such Member or the Company of a meeting of its creditors, or any class thereof, for purposes of effecting a moratorium upon or extension or composition of its debts, (ix) the failure of such Member or the Company to pay its debts as they mature, (x) the levy, attachment, execution or other seizure of substantially all of the assets of such Member or the Company where such seizure is not discharged within thirty (30) days thereafter, or (xi) the admission by such Member or the Company in writing of its inability to pay its debts as they mature or that it is generally not paying its debts as they become due.
Business Day shall mean a day other than a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New York are not required to be open.
Capital Account shall mean, with respect to any Member, the separate book account which the Company shall establish and maintain for such Member in accordance with Section 704(b) of the Code and Section l.704-1(b)(2)(iv) of the Regulations and such other provisions of Section 1.704-1(b) of the Regulations that must be complied with in order for the Capital Accounts to be determined in accordance with the provisions of said Regulations. In furtherance of the foregoing, the Capital Accounts shall be maintained in compliance with Section 1.704-1(b)(2)(iv) of the Regulations; and the provisions hereof shall be interpreted and applied in a manner consistent therewith. In the event that any Units are transferred in accordance with the terms of this Agreement, the Capital Account, at the time of the transfer, of the transferor attributable to the transferred Units shall carry over to the transferee.
Capital Contribution shall mean, with respect to any Member, the amount of money and the initial Gross Asset Value of any property other than money contributed to the Company
with respect to the Units held by such Member (net of liabilities to which such property is subject).
Certificate shall mean the Certificate of Formation establishing the Company, as filed with the office of the Delaware Secretary of State, as it may be amended from time to time in accordance with the terms of this Agreement and the Act.
Charter shall mean the certificate of incorporation of GGPI, as filed with the office of the Delaware Secretary of State, as it may be amended from time to time.
Closing Price shall mean, with respect to any Common Shares on any date, the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and ask prices, regular way, in either case as reported in the principal consolidated transaction reporting system if the Common Shares are listed or admitted to trading on the New York Stock Exchange or, if the Common Shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Shares are listed or admitted to trading or, if the Common Shares are not listed or admitted to trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System or, if such system is no longer in use, the principal other automated quotations system that may then be in use or, if the Common Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Shares as such person is selected from time to time by the Board of Directors of GGPI.
Code shall mean the Internal Revenue Code of 1986, as amended.
Common Shares shall mean the shares of the common stock, par value $.01 per share, of GGPI.
Common Unit Record Date shall mean the record date established by the Managing Member for a distribution of Net Operating Cash Flow pursuant to Section 5.2.
Common Units shall mean all Units other than Preferred Units.
Company shall have the meaning set forth in the preliminary recitals hereto.
Consent of the Holders of Common Units shall mean the written consent of the holders of a Majority-In-Interest of the Common Units, which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and may be given or withheld by the holders of a Majority-In-Interest of the Common Units, unless otherwise expressly provided herein, in their sole and absolute discretion.
Control shall have the meaning provided in the regulations promulgated under the Securities Exchange Act of 1934, as amended.
Current Per Share Market Price shall mean, as of any date, the average of the Closing Price for the twenty consecutive Trading Days ending on such date.
DAI shall mean DA Retail Investments, LLC, a Delaware limited liability company.
DAI Contribution Obligation shall mean the obligation of DAI to make a Capital Contribution pursuant to Section 7.8 hereof.
Demand Notice shall have the meaning set forth in Section 9.2.
Depreciation shall mean, with respect to any asset of the Company for any fiscal year or other period, the depreciation, depletion or amortization, as the case may be, allowed or allowable for Federal income tax purposes in respect of such asset for such fiscal year or other period; provided, however, that if there is a difference between the Gross Asset Value and the adjusted tax basis of such asset, Depreciation shall mean book depreciation, depletion or amortization as determined under Section 1.704-1(b)(2)(iv)( g )( 3 ) of the Regulations.
Entity shall mean any general partnership, limited partnership, limited liability company, corporation, joint venture, trust, business trust, cooperative, association or Other entity.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time (or any corresponding provisions of succeeding laws).
Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
Exculpatory Liabilities shall mean Company liabilities with respect to which both of the following conditions are met: (i) the creditors right to repayment is not limited to specified assets of the Company (i.e., the liability constitutes a recourse obligation of the Company), and (ii) no Member or related person bears the economic risk of loss for such liability (as determined pursuant to Section 1.752-2 of the Regulations, except that for this purpose the DAI Contribution Obligation shall be disregarded).
Financial Statements shall mean financial statements (balance sheet, statement of income, statement of partners equity and statement of cash flows) prepared in accordance with generally accepted accounting principles.
GAAP shall mean generally accepted accounting principles in the United States as in effect from time to time.
GGPI shall mean General Growth Properties, Inc., a Delaware corporation.(1)
Gross Asset Value shall mean, with respect to any asset of the Company, such assets adjusted basis for Federal income tax purposes, except as follows:
(1) This will be New GGP, post-Effective Date.
(a) the initial Gross Asset Value of (i) the assets contributed by each Member to the Company prior to the date hereof is the gross fair market value of such contributed assets as indicated in the books and records of the Company as of the date hereof, and (ii) any asset hereafter contributed by a Member (including the Managing Member), other than money, is the gross fair market value thereof as reasonably determined by the Managing Member using such reasonable method of valuation as the Managing Member may adopt;
(b) if the Managing Member reasonably determines that an adjustment is necessary or appropriate to reflect the relative economic interests of the Members, the Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values, as reasonably determined by the Managing Member, as of the following times:
(i) a Capital Contribution (other than a de minimis Capital Contribution) to the Company by a new or existing Member as consideration for Units; and
(ii) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for the redemption of Units;
(c) the Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values, as reasonably determined by the Managing Member, upon liquidation of the Company within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations;
(d) the Gross Asset Values of Company assets distributed to any Member shall be the gross fair market values of such assets (taking Section 7701(g) of the Code into account) as reasonably determined by the Managing Member as of the date of distribution; and
(e) the Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Sections 734(b) or 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations (See Exhibit A ); provided, however, that Gross Asset Values shall not be adjusted pursuant to this paragraph to the extent that the Managing Member reasonably determines that an adjustment pursuant to paragraph (b) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this paragraph (d).
At all times, Gross Asset Values shall be adjusted by any Depreciation taken into account with respect to the Companys assets for purposes of computing Net Income and Net Loss. Any adjustment to the Gross Asset Values of Company property shall require an adjustment to the Members Capital Accounts; as for the manner in which such adjustments are allocated to the Capital Accounts, see paragraph (c) of the definition of Net Income and Net Loss in the case of adjustment by Depreciation, and paragraph (e) of said definition in all other cases.
Gross Asset Value Available to Pay Recourse Liabilities and Exculpatory Liabilities shall be determined upon liquidation of the Company and shall mean the excess of (i) the aggregate Gross Asset Value of all Company assets (not including the DAI Contribution Obligation or any similar capital contribution obligation or capital account restoration obligation of any other Member), except that for this purpose Code Section 7701(g) shall not be applied in determining the fair market value of an asset solely because it is subject to or available to satisfy one or more Exculpatory Liabilities, over (ii) the aggregate amount of all Nonrecourse Liabilities other than Exculpatory Liabilities.
Immediate Family shall mean, with respect to any Person, such Persons spouse, parents, parents-in-law, descendants, nephews, nieces, brothers, sisters, brothers-in-law, sisters-in-law and children-in-law.
Lien shall mean any liens, security interests, mortgages, deeds of trust, charges, claims, encumbrances, pledges, options, rights of first offer or first refusal and any other rights or interests of others of any kind or nature, actual or contingent, or other similar encumbrances of any nature whatsoever.
Liquidating Trustee shall mean such individual or Entity as is selected as the Liquidating Trustee hereunder by the Managing Member, which individual or Entity may include the Managing Member or an Affiliate of the Managing Member, provided such Liquidating Trustee agrees in writing to be bound by the terms of this Agreement. The Liquidating Trustee shall be empowered to give and receive notices, reports and payments in connection with the dissolution, liquidation and/or winding-up of the Company and shall hold and exercise such other rights and powers as are necessary or required to permit all parties to deal with the Liquidating Trustee in connection with the dissolution, liquidation and/or winding-up of the Company.
Majority-In-Interest of the Common Units shall mean holders of more than fifty percent (50%) of then issued and outstanding Common Units.
Management Agreement shall mean a property management agreement with respect to the property management of certain Properties entered into (a) with respect to any Property in which the Company directly holds or acquires ownership of a fee or leasehold interest, between the Company, as owner, and the Property Manager, or such other property manager as the Managing Member shall engage, as manager, and (b) with respect to all Properties other than those described in (a) above, between each Property Partnership, as owner, and the Property Manager, or such other property manager as the Managing Member shall engage, as such agreement may be amended, modified or supplemented from time to time.
Managing Member shall mean GGP Limited Partnership, a Delaware limited partnership, its duly admitted successors and assigns and any other Person who is a Managing Member of the Company at the time of reference thereto. The Managing Member may not be removed as Managing Member for any reason.
Members shall mean the Persons listed under the caption Members on Schedule A hereto, their permitted successors or assigns or any Person who, at the time of reference thereto,
is a member of the Company, including the holders of Common Units and Preferred Units on the date thereof.
Minimum Gain Attributable to Partner Nonrecourse Debt shall mean partner nonrecourse debt minimum gain as determined in accordance with Regulation Section 1.704-2(i)(2).
Net Financing Proceeds shall mean the cash proceeds received by the Company in connection with any borrowing or refinancing of borrowing by or on behalf of the Company or by or on behalf of any Property Partnership (whether or not secured), after deduction of all costs and expenses incurred by the Company or the Property Partnership in connection with such borrowing, and after deduction of that portion of such proceeds used to repay any other indebtedness of the Company or Property Partnerships, or any interest or premium thereon.
Net Income or Net Loss shall mean, for each fiscal year or other applicable period, an amount equal to the Companys net income or loss for such year or period as determined for federal income tax purposes by the Accountants, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a) of the Code shall be included in taxable income or loss), with the following adjustments: (a) by including as an item of gross income any tax-exempt income received by the Company; (b) by treating as a deductible expense any expenditure of the Company described in Section 705(a)(2)(B) of the Code (including amounts paid or incurred to organize the Company (unless an election is made pursuant to Code Section 709(b)) or to promote the sale of interests in the Company and by treating deductions for any losses incurred in connection with the sale or exchange of Company property disallowed pursuant to Section 267(a)(1) or Section 707(b) of the Code as expenditures described in Section 705(a)(2)(B) of the Code); (c) in lieu of depreciation, depletion, amortization, and other cost recovery deductions taken into account in computing total income or loss, there shall be taken into account Depreciation; (d) gain or loss resulting from any disposition of Company property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of such property rather than its adjusted tax basis; and (e) in the event of an adjustment of the Gross Asset Value of any Company asset which requires that the Capital Accounts of the Company be adjusted pursuant to Regulation Section 1.704-1(b)(2)(iv)(e), (f) and (m), the amount of such adjustment is to be taken into account as additional Net Income or Net Loss pursuant to Exhibit A .
Net Operating Cash Flow shall mean, with respect to any fiscal period of the Company, the excess, if any, of Receipts over Expenditures. For purposes hereof, the term Receipts means the sum of all cash receipts of the Company from all sources for such period, including Net Sale Proceeds and Net Financing Proceeds but excluding Capital Contributions, and any amounts held as reserves as of the last day of such period which the Managing Member reasonably deems to be in excess of necessary reserves as determined below. The term Expenditures means the sum of (a) all cash expenses or expenditures of the Company for such period, (b) the amount of all payments of principal and interest on account of any indebtedness of the Company, or amounts due on such indebtedness during such period (in the case of clauses (a) and (b), excluding expenses or expenditures paid from previously established reserves or deducted in computing Net Financing Proceeds or Net Sales Proceeds), and (c) such additional
cash reserves as of the last day of such period as the Managing Member deems necessary for any capital or operating expenditure permitted hereunder.
Net Sale Proceeds means the cash proceeds received by the Company in connection with a sale of any asset by or on behalf of the Company or by or on behalf of a Property Partnership after deduction of any costs or expenses incurred by the Company or a Property Partnership, or payable specifically out of the proceeds of such sale (including, without limitation, any repayment of any indebtedness required to be repaid as a result of such sale or which the Managing Member elects to repay out of the proceeds of such sale, together with accrued interest and premium, if any, thereon and any sales commissions or other costs and expenses due and payable to any Person in connection with a sale, including to a Member or its Affiliates).
Nonrecourse Deductions shall have the meaning set forth in Sections 1.704-2(b)(1) and (c) of the Regulations.
Nonrecourse Liabilities shall have the meaning set forth in Section 1.704-2(b)(3) of the Regulations.
Original Agreement shall have the meaning set forth in the preliminary recitals hereto.
Partner Nonrecourse Deductions shall have the meaning set forth in Section 1.704-2(i)(2) of the Regulations.
Partnership Minimum Gain shall have the meaning set forth in Section 1.704-2(b)(2) of the Regulations.
Person or person shall mean any individual or Entity.
Preferred Units shall mean the Series C Preferred Units and any other series of preferred units of membership interest in the Company that are established and issued from time to time in accordance with the terms hereof.
Prime Rate shall mean the prime rate announced from time to time by Wells Fargo Bank, N.A. or any successor thereof.
Property shall mean a Shopping Center Project in which the Company or any Property Partnership, directly or indirectly, acquires ownership of a fee or leasehold interest.
Property Manager shall mean General Growth Management, Inc., a Delaware corporation, or its successors or assigns.
Property Partnership shall mean and include any partnership, limited liability company or other Entity in which the Company directly or indirectly is or becomes a partner, member or other equity participant and which has been or is formed for the purpose of directly or indirectly acquiring, developing or owning a Property or a proposed Property.
Property Partnership Interests shall mean and include the interest of the Company or any other Entity as a partner, member or other equity participant in any Property Partnership.
Qualified Entity shall mean a partnership, limited liability company or other Entity that is organized under the laws of any state and that is not taxable as a corporation for U.S. federal income tax purposes.
Qualified Individual shall have the meaning set forth in Section 9.2.
Recourse Liabilities shall mean Company liabilities with respect to which a Member or related person bears the economic risk of loss (as determined pursuant to Section 1.752-2 of the Regulations, except that for this purpose the DAI Contribution Obligation shall be disregarded).
Regulations shall mean the final, temporary or proposed Income Tax Regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
Regulatory Allocations shall have the meaning set forth in Exhibit A .
REIT shall mean a real estate investment trust as defined in Section 856 of the Code.
REIT Expenses shall mean (i) costs and expenses relating to the formation and continuity of existence of GGPI and its subsidiaries (which subsidiaries shall, for purposes of this definition, be included within the definition of GGPI), including taxes, fees and assessments associated therewith, any and all costs, expenses or fees payable to any director or trustee of GGPI or such subsidiaries, (ii) costs and expenses relating to any offer or registration of securities by GGPI and all statements, reports, fees and expenses incidental thereto, including underwriting discounts and selling commissions applicable to any such offer of securities, (iii) costs and expenses associated with the preparation and filing of any periodic reports by GGPI under federal, state or local laws or regulations, including filings with the SEC, (iv) costs and expenses associated with compliance by GGPI with laws, rules and regulations promulgated by any regulatory body, including the SEC, and (v) all other operating or administrative costs of GGPI incurred in the ordinary course of its business.
REIT Requirements shall have the meaning set forth in Section 5.2.
REIT Subsidiaires shall mean [SubREIT 1], a Delaware corporation, [SubREIT 2], a Delaware corporation, and [Existing GGP], a Delaware corporation.
Requesting Party shall have the meaning set forth in Section 9.2.
Responding Party shall have the meaning set forth in Section 9.2.
SEC shall mean the United States Securities and Exchange Commission.
Section 704(c) Tax Items shall have the meaning set forth in Exhibit A .
Securities Act shall mean the Securities Act of 1933, as amended.
Series C Preferred Units shall have the meaning set forth in Section 4.3.
Shopping Center Project shall mean any shopping center, including construction and improvement activities undertaken with respect thereto and off-site improvements, on-site improvements, structures, buildings and/or related parking and other facilities.
Subsidiaries shall mean all Entities in which the Company has a direct or indirect interest and that would be consolidated with the Company for financial accounting purposes under GAAP.
Substituted Member shall have the meaning set forth in Section 8.2.
Tax Items shall have the meaning set forth in Exhibit A .
Trading Day shall mean a day on which the principal national securities exchange on which the Common Shares are listed or admitted to trading is open for the transaction of business or, if the Common Shares are not listed or admitted to trading on any national securities exchange, shall mean any Business Day.
Unit(s) shall mean a unit of a Members limited liability company interest as a Member of the Company entitling the holder to an equal share, with every other holder of a Unit, in the allocations and distributions of the Company pursuant to Article VIII, and the rights of management, consent, approval or participation, if any, granted to holders of Units as provided in this Agreement. Notwithstanding anything to the contrary, to the extent prohibited by Section 1123(a)(6) of the Bankruptcy Code, the Company will not issue nonvoting equity interests; provided , however the foregoing restriction will (a) have no further force and effect beyond that required under Section 1123 of the Bankruptcy Code, (b) only have such force and effect for so long as Section 1123 of the Bankruptcy Code is in effect and applicable to the Company, and (c) in all events may be amended or eliminated in accordance with applicable law as from time to time may be in effect. Such interests shall be deemed securities under Article 8 of the Uniform Commercial Code and shall be governed by Article 8 of the Uniform Commercial Code as in effect from time to time within the State. The number and designation of all Units held by each Member as of [ ], 2010 is set forth opposite such Members name on Schedule A
1.2 Exhibits, Etc . References to an Exhibit or to a Schedule are, unless otherwise specified, to one of the Exhibits or Schedules attached to this Agreement, and references to an Article or a Section are, unless otherwise specified, to one of the Articles or Sections of this Agreement. Each Exhibit and Schedule attached hereto and referred to herein is hereby incorporated herein by reference.
1.3 Pronouns and Headings . As used herein, all pronouns shall include the masculine, feminine and neuter, and all defined terms shall include the singular and plural thereof wherever the context and facts require such construction. The headings, titles and subtitles herein are inserted for convenience of reference only and are to be ignored in any construction of the provisions hereof. Any references in this Agreement to including shall be deemed to mean including without limitation.
ARTICLE II
Continuation
2.1 Continuation . The Company was formed as a limited liability company under the Act on May 17, 2000 by the filing of the Certificate with the Delaware Secretary of State on such date. The Members agree that the rights and liabilities of the Members shall be as provided in this Agreement (which amends and restates and supersedes the Original Agreement in its entirety) and, to the extent not provided herein, in the Act. The Managing Member shall cause such notices, instruments, documents, or certificates as may be required by applicable law or which may be necessary to enable the Company to conduct its business and to own its properties in the Company name to be filed or recorded in all appropriate public offices.
2.2 Name . The business of the Company shall be conducted under the name of GGPLP L.L.C. or such other name as the Managing Member may select, and all transactions of the Company, to the extent permitted by applicable law, shall be carried on and completed in such name.
2.3 Character of the Business . The purpose of the Company shall be to acquire, hold, own, develop, construct, improve, maintain, operate, sell, lease, transfer, encumber, convey, exchange, and otherwise dispose of or deal with Properties; to acquire, hold, own, develop, construct, improve, maintain, operate, sell, lease, transfer, encumber, convey, exchange, and otherwise dispose of or deal with real and personal property of all kinds; to exercise all of the powers of a partner, member or other equity participant in Property Partnerships; to acquire, own, deal with and dispose of Property Partnership Interests; to undertake such other activities as may be necessary, advisable, desirable or convenient to the business of the Company, and to engage in such other ancillary activities as shall be necessary or desirable to effectuate the foregoing purposes. The Company shall have all powers necessary or desirable to accomplish the purposes enumerated. In connection with and without limiting the foregoing, but subject to all of the terms, covenants, conditions and limitations contained in this Agreement and any other agreement entered into by the Company, the Company shall have full power and authority, directly or through its interests in Property Partnerships, to enter into, perform, and carry out contracts of any kind, to borrow money and to issue evidences of indebtedness, whether or not secured by mortgage, trust deed, pledge or other Lien, and, directly or indirectly, to acquire and construct additional Properties.
2.4 Location of the Principal Place of Business . The location of the principal place of business of the Company shall be at 110 North Wacker Drive, Chicago, Illinois 60606, or at such other location as shall be selected by the Managing Member from time to time in its sole discretion.
2.5 Registered Agent and Registered Office . The Company shall maintain a registered agent and registered office as is required by the Act.
ARTICLE III
Term
3.1 Commencement . The Company heretofore commenced business as a limited liability company.
3.2 Dissolution . The Company shall continue until dissolved upon the occurrence of the earliest of the following events:
(a) The dissolution, termination or retirement of the Managing Member unless the Company is continued as provided in Section 8.1;
(b) The sale or other disposition of all or substantially all the assets of the Company unless the Managing Member elects to continue the Company business for the purpose of the receipt and the collection of indebtedness or the collection of any other consideration to be received in exchange for the assets of the Company (which activities shall be deemed to be part of the winding up of the affairs of the Company); or
(c) Dissolution required by operation of law.
The bankruptcy (as defined in Section 18-101(1) and 18-304 of the Act) of the Managing Member shall not cause the Managing Member to cease to be a member and Managing Member of the Company and upon the occurrence of such an event, the business of the Company shall continue without dissolution.
ARTICLE IV
Classes of Units
4.1 Common Units . The Company has issued to the Members the number of common units of membership interest in the Company (the Common Units ) set forth opposite their names on Schedule A , and, in exchange therefor, such Members have contributed to the Company as their Capital Contributions the cash and other property set forth in the books and records of the Company. The Common Units have such rights as are described herein. The Managing Member may, without the consent of the other Members, issue additional Common Units to itself and others from time to time for such consideration as it deems is appropriate. The Managing Member shall be authorized to amend this Agreement to reflect the issuance of Common Units in accordance with this Section 4.1 without the joinder of any other Member.
4.2 Preferred Units . The Managing Member shall have the right, without the consent of the other Members (except as otherwise provided herein), to establish and issue from time to time series of preferred units of membership interest in the Company ( Preferred Units ) and to establish from time to time the number of Preferred Units to be included in each such series, to fix the designation, powers, preferences and rights of the Preferred Units of each such series and the qualifications, limitations and restrictions thereof and to determine the consideration to be paid from time to time for the Preferred Units in each such series. Except as otherwise provided herein, Preferred Units that are cancelled or redeemed or purchased by the
Company may, at the election of the Managing Member, either (a) be reissued by the Company or (b) be cancelled. The Managing Member shall be authorized to amend this Agreement to effect the provisions of this Section 4.2 without the joinder of any other Member (except as otherwise provided herein).
4.3 Establishment of Series C Preferred Units . A series of Preferred Units designated as the 8.25% Series C Cumulative Preferred Units (the Series C Preferred Units ) was previously established and shall have such rights, preferences, limitations and qualifications as are described on Schedule B , attached hereto and by this reference made a part hereof (in addition to the rights, preferences, limitations and qualifications contained elsewhere in this Agreement, to the extent applicable). The maximum number of Series C Preferred Units which may be issued by the Company from time to time shall be 20,000.
4.4 No Third Party Beneficiary . No creditor or other third party having dealings with the Company shall have the right to enforce the right or obligation of any Member to make Capital Contributions or loans or to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by the parties hereto and their respective successors and assigns. None of the rights or obligations of the Members herein set forth to make Capital Contributions or loans to the Company shall be deemed an asset of the Company for any purpose by any creditor or other third party, nor may such rights or obligations be sold, transferred or assigned by the Company or pledged or encumbered by the Company to secure any debt or other obligation of the Company or of any of the Members.
4.5 No Interest; No Return; No Withdrawal . No Member shall be entitled to interest on its Capital Contribution or on its Capital Account. Except as provided herein or by law, no Member shall have any right to demand or receive the return of its Capital Contribution from the Company. No Member may withdraw from the Company without the prior written consent of the Managing Member, other than as expressly provided in this Agreement.
4.6 No Other Capital Contributions . No Member shall have any obligation to make any additional Capital Contribution to the Company.
ARTICLE V
Allocations and Other Tax and Accounting Matters
5.1 Allocations . The Net Income, Net Loss and/or other Company items shall be allocated pursuant to the provisions of Exhibit A hereto.
5.2 Distributions .
(a) Subject to the rights of holders of Preferred Units, the Managing Member shall, from time to time as determined by the Managing Member (but in any event not less frequently than quarterly), cause the Company to distribute all or a portion of Net Operating Cash Flow to the holders of the Common Units who are such on the relevant Common Unit Record Date in such amounts as the Managing Member shall determine; provided , however , that all such distributions shall be made pro rata in accordance with
the number of Common Units then owned by the Members; and provided further, that notwithstanding the foregoing, the Managing Member shall use its best efforts to cause the Company to distribute sufficient amounts to enable GGPI and the REIT Subsidiaries to pay shareholder dividends that will (a) satisfy the requirements for qualifying as a REIT under the Code and Regulations ( REIT Requirements ), and (b) avoid any federal income or excise tax liability of GGPI and the REIT Subsidiaries.
(b) The Company shall pay distributions in respect of each series of Preferred Units as provided in Section 4.3 hereof, Schedule B and/or any amendment hereto relating to such series of Preferred Units.
5.3 Books of Account . At all times during the continuance of the Company, the Managing Member shall maintain or cause to be maintained full, true, complete and correct books of account in accordance with generally accepted accounting principles wherein shall be entered particulars of all monies, goods or effects belonging to or owing to or by the Company, or paid, received, sold or purchased in the course of the Companys business, and all of such other transactions, matters and things relating to the business of the Company as are usually entered in books of account kept by persons engaged in a business of a like kind and character. In addition, the Company shall keep all records as required to be kept pursuant to the Act. The books and records of account shall be kept at the principal office of the Company, and each Member shall at all reasonable times have access to such books and records and the right to inspect the same.
5.4 Reports . The Managing Member shall cause to be submitted to the other Members, promptly following the end of the last calendar year, copies of Financial Statements prepared on a consolidated basis for the Company and the Property Partnerships. The Company shall also cause to be prepared such reports and/or information as are necessary for GGPI and the REIT Subsidiaries to determine their qualification as a REIT and their compliance with the REIT Requirements.
5.5 Tax Elections and Returns .
(a) All elections required or permitted to be made by the Company under any applicable tax law shall be made by the Managing Member in its sole discretion, including without limitation an election on behalf of the Company pursuant to Section 754 of the Code to adjust the basis of the Company property in the case of transfers of Units, and the Managing Member shall not be required to make any such election.
(b) The Managing Member shall cause the Accountants to prepare and file all state and federal tax returns on a timely basis.
5.6 Tax Matters Member . The Managing Member is hereby designated as the Tax Matters Member of the Company, which has the meaning of Tax Matters Partner as specified in Section 6231(a)(7) of the Code; provided, however, in exercising its authority as Tax Matters Member it shall be limited by the provisions of this Agreement affecting tax aspects of the Company;
5.7 Withholding . Each Member hereby authorizes the Company to withhold or pay on behalf of or with respect to such Member any amount of federal, state, local or foreign taxes that the Managing Member determines the Company is required to withhold or pay with respect to any amount distributable or allocable to such Member pursuant to this Agreement, including without limitation any taxes required to be withheld or paid by the Company pursuant to Sections 1441, 1442, 1445 or 1446 of the Code. Any amount paid on behalf of or with respect to a Member shall constitute a loan by the Company to such Member, which loan shall be due within fifteen (15) days after repayment is demanded of such Member and shall be repaid through withholding of subsequent distributions to such Member. Any amounts payable by a Member hereunder shall bear interest at the lesser of (a) the Prime Rate and (b) the maximum lawful rate of interest on such obligation, such interest to accrue from the date such amount is due (i.e., fifteen (15) days after demand) until such amount is paid in full. To the extent the payment or accrual of withholding tax results in a federal, state or local tax credit to the Company, such credit shall be allocated to the Member to whose distribution the tax is attributable.
ARTICLE VI
Rights, Duties and Restrictions of the Managing Member
6.1 Expenditures by Company . The Managing Member is hereby authorized to pay compensation for accounting, administrative, legal, technical, management and other services rendered to the Company. All of the aforesaid expenditures shall be made on behalf of the Company, and the Managing Member shall be entitled to reimbursement by the Company for any expenditures incurred by it on behalf of the Company which shall be made other than out of the funds of the Company. The Company also shall assume, and pay when due, all Administrative Expenses.
6.2 Powers and Duties of Managing Member . The Managing Member shall be responsible for the management of the Companys business and affairs. Except as otherwise herein expressly provided, the Managing Member shall have, and is hereby granted, full, complete and exclusive power, authority and discretion under all circumstances to manage the business of the Company and to take all actions for and on behalf of the Company and in its name as the Managing Member shall, in its sole and absolute discretion, deem necessary or appropriate to carry out the purposes for which the Company was organized. Except as otherwise expressly provided herein and without limiting the foregoing, the Managing Member shall have the right, power and authority:
(a) To manage, control, invest, reinvest, acquire by purchase, lease or otherwise, sell, contract to purchase or sell, grant, obtain, or exercise options to purchase, options to sell or conversion rights, assign, transfer, convey, deliver, endorse, exchange, pledge, mortgage, abandon, improve, repair, maintain, insure, lease for any term and otherwise deal with any and all property of whatsoever kind and nature, and wheresoever situated, in furtherance of the purposes of the Company;
(b) To acquire, directly or indirectly, interests in real estate of any kind and of any type, and any and all kinds of interests therein, and to determine the mariner in which
title thereto is to be held; to manage, insure against loss, protect and subdivide any of the real estate, interests therein or parts thereof; to improve, develop or redevelop any such real estate; to participate in the ownership and development of any property; to dedicate for public use, to vacate any subdivisions or parts thereof, to resubdivide, to contract to sell, to grant options to purchase or lease, to sell on any terms; to convey, to mortgage, pledge or otherwise encumber said property, or any part thereof; to lease said property or any part thereof from time to time, upon any terms and for any period of time, and to renew or extend leases, to amend, change or modify the terms and provisions of any leases and to grant options to lease and options to renew leases and options to purchase; to partition or to exchange said real property, or any part thereof, for other real or personal property; to grant easements or charges of any kind; to release, convey or assign any right, title or interest in or about or easement appurtenant to said property or any part thereof; to construct and reconstruct, remodel, alter, repair, add. to or take from buildings on said premises; to insure any Person having an interest in or responsibility for the care, management or repair of such property; to direct the trustee of any land trust to mortgage, lease, convey or contract to convey the real estate held in such land trust or to execute and deliver deeds, mortgages, notes, and any and all documents pertaining to the property subject to such land trust or in any matter regarding such trust; to execute assignments of all or any part of the beneficial interest in such land trust;
(c) To employ, engage or contract with or dismiss from employment or engagement Persons to the extent deemed necessary by the Managing Member for the operation and management of the Company business, including but not limited to, the engagement of the Property Manager pursuant to the Management Agreements and the employment or engagement of other contractors, subcontractors, engineers, architects, surveyors, mechanics, consultants, accountants, attorneys, insurance brokers, real estate brokers and others;
(d) To enter into contracts on behalf of the Company;
(e) To borrow money, procure loans and advances from any Person for Company purposes, and to apply for and secure, from any Person, credit or accommodations; to contract liabilities and obligations, direct or contingent and of every kind and nature with or without security; and to repay, discharge, settle, adjust, compromise, or liquidate any such loan, advance, credit, obligation or liability;
(f) To pledge, hypothecate, mortgage, assign, deposit, deliver, enter into sale and leaseback arrangements or otherwise give as security or as additional or substitute security, or for sale or other disposition any and all Company property, tangible or intangible, including, but not limited to, real estate and beneficial interests in land trusts, and to make substitutions thereof, and to receive any proceeds thereof upon the release or surrender thereof; to sign, execute and deliver any and all assignments, deeds and other contracts and instruments in writing; to authorize, give, make, procure, accept and receive moneys, payments, property, notices, demands, vouchers, receipts, releases, compromises and adjustments; to waive notices, demands, protests and authorize and execute waivers of every kind and nature; to enter into, make, execute, deliver and receive written agreements, undertakings and instruments of every kind and nature; to give oral
instructions and make oral agreements; and generally to do any and all other acts and things incidental to any of the foregoing or with reference to any dealings or transactions which any attorney may deem necessary, proper or advisable;
(g) To acquire and enter into any contract of insurance which the Managing Member deems necessary or appropriate for the protection of the Company, for the conservation of the Companys assets or for any purpose convenient or beneficial to the Company;
(h) To conduct any and all banking transactions on behalf of the Company; to adjust and settle checking, savings, and other accounts with such institutions as the Managing Member shall deem appropriate; to draw, sign, execute, accept, endorse, guarantee, deliver, receive and pay any checks, drafts, bills of exchange, acceptances, notes, obligations, undertakings and other instruments for or relating to the payment of money in, into, or from any account in the Companys name; to execute, procure, consent to and authorize extensions and renewals of the same; to make deposits and withdraw the same and to negotiate or discount commercial paper, acceptances, negotiable instruments, bills of exchange and dollar drafts;
(i) To demand, sue for, receive, and otherwise take steps to collect or recover all debts, rents, proceeds, interests, dividends, goods, chattels, income from property, damages and all other property, to which the Company may be entitled or which are or may become due the Company from any Person; to commence, prosecute or enforce, or to defend, answer or oppose, contest and abandon all legal proceedings in which the Company is or may hereafter be interested; and to settle, compromise or submit to arbitration any accounts, debts, claims, disputes and matters which may arise between the Company and any other Person and to grant an extension of time for the payment or satisfaction thereof on any terms, with or without security;
(j) To make arrangements for financing, including the taking of all action deemed necessary or appropriate by the Managing Member to cause any approved loans to be closed;
(k) To take all reasonable measures necessary to insure compliance by the Company with applicable arrangements, and other contractual obligations and arrangements entered into by the Company from time to time in accordance with the provisions of this Agreement, including periodic reports as required to lenders and using all due diligence to insure that the Company is in compliance with its contractual obligations;
(l) To maintain the Companys books and records;
(m) To prepare and deliver, or cause to be prepared and delivered by the Companys Accountants, all financial and other reports with respect to the operations of the Company, and preparation and filing of all Federal and state tax returns and reports; and
(n) Any and all other actions that the Managing Member, in its sole and absolute discretion, may deem necessary or appropriate in furtherance of the business of the Company.
The Managing Member shall not have any obligations hereunder except to the extent that Company funds are reasonably available to it for the performance of such duties, and nothing herein contained shall be deemed to authorize or require the Managing Member, in its capacity as such, to expend its individual funds for payment to third parties or to undertake any individual liability or obligation on behalf of the Company. Subject to the terms of Section 4.3 and the terms of any other Preferred Units, the merger or consolidation of the Company with or into another Entity shall be authorized by the Consent of the Holders of Common Units.
6.3 Proscriptions . The Managing Member shall not have the authority to:
(a) Do any act in contravention of this Agreement or which would make it impossible to carry on the ordinary business of the Company (other than a sale of all or substantially all of the Company assets or the dissolution of the Company, each of which is within the power and authority of the Managing Member and do not require the consent of the Members;
(b) Possess any Company property or assign rights in specific Company property for other than Company purposes; or
(c) Do any act in contravention of applicable law.
Nothing herein contained shall impose any obligation on any Person or firm doing business with the Company to inquire as to whether or not the Managing Member has properly exercised its authority in executing any contract, lease, mortgage, deed or other instrument or document on behalf of the Company, and any such third Person shall be fully protected in relying upon such authority.
6.4 Title Holder . To the extent allowable under applicable law, title to all or any part of the properties of the Company may be held in the name of the Company or any other individual, corporation, partnership, trust or otherwise, the beneficial interest in which shall at all times be vested in the Company, Any such title holder shall perform any and all of its respective functions to the extent and upon such terms and conditions as may be determined from time to time by the Managing Member.
6.5 Compensation of the Managing Member . The Managing Member shall not be entitled to any compensation for services rendered to the Company solely in its capacity as Managing Member except with respect to reimbursement for those costs and expenses constituting Administrative Expenses.
6.6 Waiver and Indemnification .
(a) Neither the Managing Member nor any Person acting on its behalf, pursuant hereto, shall be liable, responsible or accountable in damages or otherwise to the Company or to any Member for any acts or omissions performed or omitted to be
performed by them (whether on, prior to or after the date hereof) within the scope of the authority conferred upon the Managing Member by this Agreement and the Act; provided that (i) the Managing Members or such other Persons conduct or omission to act was taken in good faith and in the belief that such conduct or omission was in the best interests of the Company and (ii) the Managing Member or such other Person shall not be guilty of fraud, willful misconduct or gross negligence. The Company shall, and hereby does, indemnify and hold harmless the Managing Member and its Affiliates and any individual acting on their behalf from any loss, damage, claim or liability, including, but not limited to, reasonable attorneys fees and expenses, incurred by them by reason of any act performed or omitted to be performed by them (whether on, prior to or after the date hereof) in accordance with the standards set forth above or in enforcing the provisions of this indemnity; provided , however , no Member shall have any personal liability with respect to the foregoing indemnification, any such indemnification to be satisfied solely out of the assets of the Company.
(b) Any Person entitled to indemnification under this Agreement shall be entitled to receive, upon application therefor, advances to cover the costs of defending any proceeding against such Person; provided , however , that such advances shall be repaid to the Company, without interest, if such Person is found by a court of competent jurisdiction upon entry of a final judgment not to be entitled to such indemnification. All rights of the indemnitee hereunder shall survive the dissolution of the Company. The indemnification rights contained in this Agreement shall be cumulative of, and in addition to, any and all rights, remedies and recourse to which the person seeking indemnification shall be entitled, whether at law or at equity. Indemnification pursuant to this Agreement shall be made solely and entirely from the assets of the Company and no Member shall be liable therefor.
(c) The provisions of this Section 6.6 also shall apply to the Liquidating Trustee and the Tax Matters Member.
6.7 Operation in Accordance with REIT Requirements . The Members acknowledge and agree that the Company shall be operated in a manner that will enable GGPI and the REIT Subsidiaries to (a) satisfy the REIT Requirements and (b) avoid the imposition of any federal income or excise tax liability. The Company shall avoid taking any action, or permitting any Property Partnership to take any action, which would result in GGPI and the REIT Subsidiaries ceasing to satisfy the REIT Requirements or would result in the imposition of any federal income or excise tax liability on GGPI and the REIT Subsidiaries.
6.8 Duties and Conflicts . The Managing Member only shall be required to devote such time to the management of the business of the Company as it deems necessary to promote the interests of the Company. Each Member recognizes that the other Members (including the Managing Member) and their Affiliates have or may hereafter have other business interests, activities and investments, some of which may be in conflict or competition with the business or properties of the Company, and that such Persons are entitled to carry on such other business interests, activities and investments. The Members (including the Managing Member) and their Affiliates may engage in or possess an interest in any other business or venture of any kind, independently or with others, on their own behalf or on behalf of other entities with which they
are affiliated or associated, and such persons may engage in any activities, whether or not competitive with the Company, without any obligation to offer any interest in such activities to the Company or to any Member. Neither the Company nor any Member shall have any right, by virtue of this Agreement, in or to such activities, or the income or profits derived therefrom, and the pursuit of such activities, even if competitive with the business of the Company, shall not be deemed wrongful or improper. Without limiting the foregoing, each Member recognizes that (a) the Managing Member and/or its Affiliates (other than the Company and its Subsidiaries) own, independently and/or with others, direct and/or indirect interests in Shopping Center Projects in which the Company and its Subsidiaries have no interest and which may be in conflict or competition with the business or properties of the Company and its Subsidiaries, (b) the Managing Member intends to continue to conduct and expand such business and activities and (c) the Managing Member and its Affiliates (other than the Company and its Subsidiaries) are entitled to carry on such other business and activities and own such properties without any obligation to offer any interest in such business, activities or properties to the Company or to any Member.
ARTICLE VII
Dissolution, Liquidation and Winding-Up
7.1 Accounting . In the event of the dissolution, liquidation and winding-up of the Company, a proper accounting (which shall be certified) shall be made of the Capital Account of each Member and of the Net Profits or Net Losses of the Company from the date of the last previous accounting to the date of dissolution. Financial statements presenting such accounting shall include a report of a certified public accountant selected by the Liquidating Trustee.
7.2 Distribution on Dissolution . In the event of the dissolution and liquidation of the Company for any reason, the assets of the Company shall be liquidated for distribution in the following rank and order:
(a) Payment of creditors of the Company (other than Members) in the order of priority as provided by law;
(b) Establishment of reserves as provided by the Managing Member to provide for contingent liabilities, if any;
(c) Payment of debts of the Company to Members, if any, in the order of priority provided by law; and
(d) Payment to holders of Units in accordance with their Capital Accounts.
Whenever the Liquidating Trustee reasonably determines that any reserves established pursuant to paragraph (b) above are in excess of the reasonable requirements of the Company, the amount determined to be excess shall be distributed to the Members in accordance with the above provisions.
7.3 Timing Requirements . In the event that the Company is liquidated within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations, any and all distributions to the
Members pursuant to Section 7.2(d) hereof shall be made no later than the later to occur of (i) the last day of the taxable year of the Company in which such liquidation occurs or (ii) ninety (90) days after the date of such liquidation.
7.4 Sale of Company Assets . In the event of the liquidation of the Company in accordance with the terms of this Agreement, the Liquidating Trustee may sell Company or Property Partnership property if the Liquidating Trustee has in good faith solicited bids from unrelated third parties and obtained independent appraisals before making any such sale; provided, however, all sales, leases, encumbrances or transfers of Company assets shall be made by the Liquidating Trustee solely on an arms-length basis, at the best price and on the best terms and conditions as the Liquidating Trustee in good faith believes are reasonably available at the time and under the circumstances and on a non-recourse basis to the Members. The liquidation of the Company shall not be deemed finally terminated until the Company shall have received cash payments in full with respect to obligations such as notes, installment sale contracts or other similar receivables received by the Company in connection with the sale of Company assets and all obligations of the Company have been satisfied. The Liquidating Trustee shall continue to act to enforce all of the rights of the Company pursuant to any such obligations until paid in full.
7.5 Distributions in Kind . In the event that it becomes necessary to make a distribution of Company property in kind, the Managing Member may transfer and convey such property to the distributees as tenants in common, subject to any liabilities attached thereto, so as to vest in them undivided interests in the whole of such property in proportion to their respective rights to share in the proceeds of the sale of such property (other than as a creditor) in accordance with the provisions of Section 7.2 hereof.
7.6 Documentation of Liquidation . Upon the completion of the dissolution and liquidation of the Company, the Company shall terminate and the Liquidating Trustee shall have the authority to execute and record any and all documents or instruments required to effect the dissolution, liquidation and termination of the Company.
7.7 Negative Capital Accounts . No Member shall be liable to the Company or to any other Member for any deficit or negative balance which may exist in its Capital Account.
7.8 DAI Contribution Obligation . Notwithstanding any other provision of this Agreement (including Schedule B to this Agreement):
(a) Upon liquidation of the Company, in the event that the Gross Asset Value Available to Pay Recourse Liabilities and Exculpatory Liabilities is less than One Hundred Million Dollars ($100,000,000), DAI shall make a Capital Contribution to the Company of cash in immediately available funds equal to the least of (i) One Hundred Million Dollars ($100,000,000), (ii) the amount by which One Hundred Million Dollars ($100,000,000) exceeds the Gross Asset Value Available to Pay Recourse Liabilities and Exculpatory Liabilities and (iii) the aggregate amount of Recourse Liabilities and Exculpatory Liabilities outstanding immediately prior to the liquidation of the Company. Such amount shall be used to pay Recourse Liabilities and/or Exculpatory Liabilities or
shall be distributed to Members other than DAI in accordance with their positive Capital Account balances.
(b) DAI shall make any Capital Contribution required to be made by it pursuant to this Section 7.8 no later than the later to occur of (i) the last day of the taxable year of the Company in which such liquidation occurs or (ii) 90 days after the date of such liquidation.
(c) Any Capital Contribution made by DAI pursuant to this Section 7.8 and the associated Capital Account credit shall be taken into account in allocating Net Income and Net Loss and other items of income, gain, loss and deduction for the taxable year of liquidation.
(d) DAI shall not be subrogated to the rights of any creditor or other person receiving the proceeds of the Capital Contribution made by DAI pursuant to this Section 7.8 against the Managing Member, the Company, another Member or any person. DAI hereby waives any right to reimbursement, contribution or similar right to which DAI might otherwise be entitled as a result of the performance of its obligations under this Section 7.8.
(e) Section 4.4 and Section 4.6 hereof shall not apply with respect to DAIs obligations pursuant to this Section 7.8.
(f) The parties intend that DAI shall bear the economic risk of loss within the meaning of Section 1.752-2(a) of the Regulations with respect to an amount of Exculpatory Liabilities and/or Recourse Liabilities equal to the lesser of One Hundred Million Dollars ($100,000,000) and the aggregate amount of Recourse Liabilities and Exculpatory Liabilities, and this Section 7.8 and other relevant provisions of this Agreement shall be interpreted and applied in a manner consistent therewith.
(g) Notwithstanding any other provision of this Agreement, at any time on or after June 1, 2005, DAI may terminate the DAI Contribution Obligation by providing twelve (12) months prior written notice to the Company, provided however that the DAI Contribution Obligation shall not terminate if during the twelve (12) month period following such notice there has been:
(i) An entry of a decree or order for relief in respect of the Company by a court having jurisdiction over a substantial part of the Companys assets, or the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or ordering the winding up or liquidation of the Companys affairs, in an involuntary case under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law; or
(ii) The commencement against the Company of an involuntary case under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law; or
(iii) The commencement by the Company of a voluntary case under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, or the consent by it to the entry of an order for relief in an involuntary case under any such law or the consent by it to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of a general assignment for the benefit of creditors, or the failure of Company generally to pay its debts as such debts become due or the taking of any action in furtherance of any of the foregoing;
provided that, after the passage of such 12 months, DAI shall cease to be liable for the DAI Contribution Obligation, at the first time, if any, that the appointment, case or proceeding referred to in Section 7.8(g)(i) through (iii) above has terminated.
(h) As a result of the transfer of all or a portion of the Series C Preferred Units to a Permitted DAI Transferee (as defined in Schedule B ) pursuant to Section 7 of Schedule B , the transferor shall continue to be obligated for the entire amount of the DAI Contribution Obligation except to the extent that such Permitted DAI Transferee agrees to assume all or a portion of such transferors obligation under the DAI Contribution Obligation. In the event of such a transfer to and assumption by the Permitted DAI Transferee, (1) the transferor and the Permitted DAI Transferee assuming the obligation under the DAI Contribution Obligation shall notify the Company that the Permitted DAI Transferee has assumed all or a portion of the DAI Contribution Obligation in connection with such transfer, and (2) this Agreement shall be amended to reflect such Permitted DAI Transferees assumption of all or a portion of the DAI Contribution Obligation. Except to the extent that the Permitted DAI Transferee assumes all or a portion of the obligation under the DAI Contribution Obligation in accordance with this Section 7.8(h), the transferor shall not be relieved of such obligation and shall continue to be obligated under the DAI Contribution Obligation notwithstanding the transfer and to the same extent as if the transfer had not occurred. Following the transfer of Series C Preferred Units to GGPI or the Managing Member pursuant to Section 6 of Schedule B , the transferor shall continue to be obligated for the entire amount of the DAI Contribution Obligation in accordance with its terms and neither GGPI nor the Managing Member shall have any liability therefor.
ARTICLE VIII
Transfer of Units
8.1 Managing Member Transfer . The Managing Member shall not withdraw from the Company and shall not sell, assign, pledge, encumber or otherwise dispose of all or any portion of its Units without the Consent of the Holders of Common Units (except that the Managing Member may sell, assign or transfer its interest to an Affiliate without the consent of the Members). Upon any transfer of Units in accordance with the provisions of this Section 8.1, the transferee Managing Member shall become vested with the powers and rights of the transferor Managing Member, and shall be liable for all obligations and responsible for all duties of the Managing Member, once such transferee has executed such instruments as may be
necessary to effectuate such admission and to confirm the agreement of such transferee to be bound by all the terms and provisions of this Agreement with respect to the Units so acquired. It is a condition to any transfer otherwise permitted hereunder that the transferee assumes by operation of law or express agreement all of the obligations of the transferor Managing Member under this Agreement with respect to such transferred Units and no such transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor Managing Member are assumed by a successor corporation by operation of law) shall relieve the transferor Managing Member of its obligations under this Agreement without the Consent of the Holders of the Common Units, in their reasonable discretion. In the event the Managing Member withdraws from the Company, in violation of this Agreement or otherwise, or dissolves or terminates, a Majority in Interest of the Common Units may elect to continue the Company business by selecting a substitute Managing Member.
8.2 Transfers in Other Members . Except as otherwise provided herein, no Member (other than the Managing Member) shall have the right to transfer all or a portion of its Units to any Person without the written consent of the Managing Member, which consent may be given or withheld in the sole discretion of the Managing Member. It is a condition to any transfer otherwise permitted hereunder that the transferee assumes by operation of law or express agreement all of the obligations of the transferor Member under this Agreement with respect to such transferred Units and no such transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor Member are assumed by a successor corporation by operation of law) shall relieve the transferor Member of its obligations under this Agreement without the approval of the Managing Member, which may be given or withheld in its sole discretion. Upon such transfer, the transferee shall be admitted as a substituted member of the Company (the Substituted Member ) and shall succeed to all of the rights of the transferor Member under this Agreement in the place and stead of such transferor Member. Any transferee, whether or not admitted as a Substituted Member, shall take subject to the obligations of the transferor hereunder. Unless admitted as a Substituted Member, no transferee, whether by a voluntary transfer, by operation of law or otherwise, shall have rights hereunder, other than to receive such portion of the distributions made by the Company as are allocable to the Units transferred.
8.3 Restrictions on Transfer . In addition to any other restrictions on transfer herein contained, in no event may any transfer or assignment of Units by any Member be made (a) to any Person who lacks the legal right, power or capacity to own Units; (b) in violation of any provision of any mortgage or trust deed (or the note or bond secured thereby) constituting a Lien against a Property or any part thereof, or other instrument, document or agreement to which the Company or any Property Partnership is a party or otherwise bound; (c) in violation of applicable law; (d) unless such assignment or transfer is made pursuant to an effective registration statement under the Securities Act of 1933, as amended, or is exempt from registration thereunder; (e) of any component portion of a Unit, such as the Capital Account, or rights to Net Operating Cash Flow, separate and apart from all other components of such Unit, (f) in the event such transfer would cause GGPI and the REIT Subsidiaries to cease to comply with the REIT Requirements, (g) if such transfer would cause a termination of the Company for federal income tax purposes, (h) if such transfer would, in the opinion of counsel to the Company, cause the Company to cease to be classified as a partnership for Federal income tax purposes, cause the Company to fail to satisfy the safe harbor requirements of Section 1.7704-1(j) of the Regulations during 2002
or cause the Company to have more than 100 partners within the meaning of Reg. §1.7704-1(h), or (i) if such transfer would, in the opinion of counsel to the Company, cause any assets of the Company to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.3-101, as modified by Section 3(42) of the Employee Retirement Income Security Act of 1974, as amended.
8.4 Bankruptcy of a Member . The Bankruptcy of any Member (other than the Managing Member) shall not cause a dissolution of the Company, but the rights of such Member to share in the Net Profits or Net Losses of the Company and to receive distributions of Company funds shall, on the happening of such event, devolve on its successors or assigns, subject to the terms and conditions of this Agreement, and the Company shall continue as a limited liability company. However, in no event shall such assignee(s) become a Substituted Member without the written consent of the Managing Member.
ARTICLE IX
Arbitration of Disputes
9.1 Arbitration . Notwithstanding anything to the contrary contained in this Agreement, all claims, disputes and controversies between the parties hereto (including, without limitation, any claims, disputes and controversies between the Company and any one or more of the Members and any claims, disputes and controversies between any one or more Members) arising out of or in connection with this Agreement or the Company shall be resolved by binding arbitration in Chicago, Illinois, in accordance with this Article IX and, to the extent not inconsistent herewith, the Expedited Procedures and Commercial Arbitration Rules of the American Arbitration Association,
9.2 Procedures . Any arbitration called for by this Article IX shall be conducted in accordance with the following procedures:
(a) The Company or any Member (the Requesting Party ) may demand arbitration pursuant to Section 9.1 at any time by giving written notice of such demand (the Demand Notice ) to all other Members and (if the Requesting Party is not the Company) to the Company which Demand Notice shall describe in reasonable detail the nature of the claim, dispute or controversy.
(b) Within fifteen (15) days after the giving of a Demand Notice, the Requesting Party, on the one hand, and each of the other Members and/or the Company against whom the claim has been made or with respect to which a dispute has arisen (collectively, the Responding Party ), on the other hand, shall select and designate in writing to the other party one reputable, disinterested individual (a Qualified Individual ) willing to act as an arbitrator of the claim, dispute or controversy in question. Each of the Requesting Party and the Responding Party shall use their best efforts to select a lawyer or retired judge having no affiliation with any of the parties as their respective Qualified Individual. Within fifteen (15) days after the foregoing selections have been made, the arbitrators so selected shall jointly select a lawyer or retired judge having no affiliation with any of the parties as the third Qualified Individual
willing to act as an arbitrator of the claim, dispute or controversy in question. In the event that the two arbitrators initially selected are unable to agree on a third arbitrator within the second fifteen (15) day period referred to above, then, on the application of either party, the American Arbitration Association shall promptly select and appoint a lawyer or retired judge having no affiliation with any of the parties as the Qualified Individual to act as the third arbitrator. The three arbitrators selected pursuant to this subsection (b) shall constitute the arbitration panel for the arbitration in question.
(c) The presentations of the parties hereto in the arbitration proceeding shall be commenced and completed within sixty (60) days after the selection of the arbitration panel pursuant to subsection (b) above, and the arbitration panel shall render its decision in writing within thirty (30) days after the completion of such presentations. Any decision concurred in by any two (2) of the arbitrators shall constitute the decision of the arbitration panel, and unanimity shall not be required.
(d) The arbitration panel shall have the discretion to include in its decision a direction that all or part of the attorneys fees and costs of any party or parties and/or the costs of such arbitration be paid by any other party or parties. On the application of a party before or after the initial decision of the arbitration panel, and proof of its attorneys fees and costs, the arbitration panel shall order the other party to make any payments directed pursuant to the preceding sentence.
9.3 Binding Character . Any decision rendered by the arbitration panel pursuant to this Article IX shall be final and binding on the parties hereto, and judgment thereon may be entered by any state or federal court of competent jurisdiction.
9.4 Exclusivity . Arbitration shall be the exclusive method available for resolution of claims, disputes and controversies described in Section 9.1, and the Company and its Members stipulate that the provisions hereof shall be a complete defense to any suit, action, or proceeding in any court or before any administrative or arbitration tribunal with respect to any such claim, controversy or dispute. The provisions of this Article IX shall survive the dissolution of the Company. Notwithstanding the foregoing, the parties may seek injunctive relief or similar relief from a court of competent jurisdiction in New York, New York before an arbitration panel has been appointed.
9.5 No Alteration of Agreement . Nothing contained herein shall be deemed to give the arbitrators any authority, power or right to alter, change, amend, modify, add to, or subtract from any of the provisions of this Agreement.
ARTICLE X
General Provisions
10.1 Notices . Except as otherwise provided herein, all notices, offers or other communications required or permitted to be given pursuant to this Agreement shall be in writing and may be personally served, delivered by nationally recognized overnight courier, telecopied or sent by registered or certified United States mail, postage prepaid and properly addressed, and
shall be deemed to have been given when delivered in person or by nationally recognized courier or registered or certified U.S. mail or upon receipt of telecopy by the appropriate party. For purposes of this Section 10.1, the addresses of the parties hereto shall be as set forth opposite their names on the signature pages thereto. The address of any party hereto may be changed by a notice in writing given in accordance with the provisions hereof.
10.2 Successors . This Agreement and all the terms and provisions hereof shall be binding upon and shall inure to the benefit of all Members, and their legal representatives, heirs, successors and permitted assigns, except as expressly herein otherwise provided.
10.3 Effect and Interpretation . This Agreement shall be governed by and construed in conformity with the laws of the State of Delaware (without regard to its conflicts of law principles, which might result in the application of the laws of any other jurisdiction).
10.4 Counterparts . This Agreement may be executed in counterparts, each of which shall be an original, but all of which shall constitute one and the same document and all signatures need not appear on the same page.
10.5 Members Not Agents . Nothing contained herein shall be construed to constitute any Member the agent of another Member, except as specifically provided herein, or in any manner to limit the Members in the carrying on of their own respective businesses or activities.
10.6 Entire Understanding; Etc . This Agreement constitutes the entire agreement and understanding among the Members and supersedes any prior understandings and/or written or oral agreements among them respecting the subject matter within (including without limitation the Original Agreement).
10.7 Amendments . Except as otherwise provided herein (including the provisions of Section 4.3), this Agreement may not be amended, and no provision may be waived, except by a written instrument signed by the holders of a Majority in Interest of the Common Units.
10.8 Severability . If any provision of this Agreement, or the application of such provision to any person or circumstance, shall be held invalid by a court of competent jurisdiction, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those to which it is held invalid by such court, shall not be affected thereby.
10.9 Trust Provision . This Agreement, to the extent executed by the trustee of a trust, is executed by such trustee solely as trustee and not in a separate capacity. Nothing herein contained shall create any liability on, or require the performance of any covenant by, any such trustee individually, nor shall anything contained herein subject the individual personal property of any trustee to any liability.
10.10 Issuance of Certificates Representing Units . The Managing Member may, in its sole discretion, issue certificates representing all or a portion of the Units of one or more Members and, in such event, the Managing Member shall establish such rules and regulations relating to issuances and reissuances of certificates upon transfer of Units, the division of Units
among multiple certificates and the loss, theft, destruction or mutilation of certificates as the Managing Member reasonably deems appropriate.
10.11 Specific Performance . The parties agree that irreparable damage will result in the event that this Agreement is not specifically enforced, and the parties agree that any damages available at law for a breach of this Agreement would not be an adequate remedy. Therefore, the provisions hereof and the obligations of the parties hereunder shall be enforceable in a court of equity or other tribunal with jurisdiction by a decree of specific performance, and appropriate injunctive relief may be applied for and granted in connection therewith. Such remedies shall, however, be cumulative and not exclusive and shall be in addition to any other remedies which a party may have under this Agreement or otherwise.
10.12 Power of Attorney . Each Member hereby irrevocably constitutes and appoints the Managing Member his or its true and lawful attorney-in-fact, in his or its name, place and stead with full power of substitution, to consent to, make, execute, sign, acknowledge, swear to, record and file, on behalf of such Member and/or on behalf of the Company, the following:
(a) this Agreement, any certificate of foreign limited liability company, any certificate of doing business under an assumed name, and any other certificates or instruments which may be required to be filed by the Company or such Member under the laws of the State of Delaware or any other jurisdiction the laws of which may be applicable;
(b) a certificate of cancellation of the Certificate of Formation of the Company and such other instruments or documents as may be deemed necessary or desirable by said attorneys upon the termination of the Company;
(c) any and all amendments or restatements of the documents described in subsections (a) and (b) above, provided such amendments are either required by law, are necessary to correct statements herein or therein, or are consistent with this Agreement (including without limitation any amendments referred to in Sections 4.1 and 4.2); and
(d) any and all such other documents as may be deemed necessary or desirable by said attorney to carry out fully the provisions of this Agreement and as are consistent with the terms hereof.
The foregoing grant of authority: (i) is a special power of attorney coupled with an interest, is irrevocable and shall survive the death or incapacity of each member and (ii) shall survive the delivery of an assignment by a Member of the whole or any portion of his or its Units.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, and GGPI has executed this Agreement solely for the purpose of binding itself under Section 6 of Schedule B , as of the date and year first above written.
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GGP LIMITED PARTNERSHIP , a Delaware limited partnership |
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By: [General Growth Properties, Inc.,] a Delaware corporation, its general partner |
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110 North Wacker Drive |
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Chicago, Illinois 60606 |
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GGPI : |
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GENERAL GROWTH PROPERTIES, INC., a Delaware corporation |
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[Signature Page to Third Amended and Restated Operating Agreement]
SCHEDULE A
TO THE
THIRD AMENDED AND RESTATED OPERATING AGREEMENT
OF
GGPLP L.L.C.
Member |
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Common Units |
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Preferred Units |
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GGP Limited Partnership |
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DA Retail Investments, LLC |
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20,000 Series C Preferred Units(2) |
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Total |
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(1) Represents 100% of all Common Units
(2) Represents 100% of all Series C Preferred Units
SCHEDULE B
TO THE
THIRD AMENDED AND RESTATED OPERATING AGREEMENT
OF
GGPLP L.L.C.
Designation, Preferences and Rights of Series C Preferred Units
1. Designation and Number; Etc. The Series C Preferred Units have been established and shall have such rights, preferences, limitations and qualifications as are described herein (in addition to the rights, preferences, limitations and qualifications contained in the Agreement to the extent applicable). The authorized number of Series C Preferred Units shall be 20,000. Notwithstanding anything to the contrary contained herein, in the event of a conflict between the provisions of this Schedule B and any other provision of the Agreement, the provisions of this Schedule B shall control. Series C Preferred Units shall not have any relative, participating, optional or other special rights and powers other than as set forth herein.
2. Rank of the Series C Preferred Units . The Series C Preferred Units shall, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Company, rank as follows:
(a) senior to all classes or series of Common Units and all series of Preferred Units that are not referred to in Section 2(b) or (c) of this Schedule B (the Common Units and the Preferred Units ranking junior to the Series C Preferred Units with respect to distribution rights and rights upon liquidation, dissolution and winding up, collectively, Series C Junior Units );
(b) on parity with each other series of Preferred Units that is hereafter created and that provides by its express terms that it ranks on parity with the Series C Preferred Units as to distribution rights and rights upon liquidation, dissolution and winding-up of the Company (the Series C Parity Units ); and
(c) junior to any class or series of Preferred Units that is hereafter established, that provides by its express terms that it ranks senior to the Series C Preferred Units and that is approved in accordance with the provisions of Section 3 of this Schedule B .
3. Voting . The Company shall not, without the affirmative vote or consent of the holders of at least fifty-one percent (51%) of the Series C Preferred Units outstanding at such time, (a) reclassify any Common Units into Preferred Units ranking senior to or on parity with the Series C Preferred Units with respect to the payment of distributions or distribution of assets upon liquidation, dissolution or winding-up of the Company, (b) issue additional Series C Preferred Units or (c) amend, alter or repeal this Section 3 or any other provisions of this Schedule B or the Agreement, whether by merger, consolidation or otherwise (a Series C Event ), so as to negate the provisions of clause (a) or (b) of this paragraph or materially and adversely affect any special right, preference, privilege or voting power of the holders of the Series C Preferred Units. Notwithstanding anything to the contrary contained herein, each of the following shall be deemed not to materially and adversely affect such rights, preferences, privileges or voting power and shall not require the vote or consent of the holders of the Series C
Preferred Units: (A) the occurrence of any of the Series C Events set forth in clause (c) of this paragraph so long as Series C Preferred Units remain outstanding with the terms thereof materially unchanged (taking into account that, upon the occurrence of such Series C Event, the Company may not be the surviving entity) and the surviving entity is a Qualified Entity, (B) the authorization or creation of, or the increase in the authorized or issued amount of, the Common Units or any other series of Preferred Units, whether ranking senior or junior to or on parity with the Series C Preferred Units (and any amendments to the Agreement to effect such increase, creation or issuance), provided that no such action alters the parity of the Series C Preferred Units with each other series of Preferred Units that is hereafter created and that provides by its express terms that it ranks on parity with the Series C Preferred Units, and (C) the liquidation, dissolution and winding-up of the Company.
For purposes of the provisions of this Section 3, each Series C Preferred Unit shall have one (1) vote.
Notwithstanding anything to the contrary contained herein, the foregoing voting provisions shall not apply if, prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series C Preferred Units shall have been exchanged or redeemed.
Except as provided herein, the holders of Series C Preferred Units shall have no voting or consent rights or other rights to participate in the management of the Company or to receive notices of meetings.
4. Distributions .
(a) Payment of Distributions . Each holder of Series C Preferred Units will be entitled to receive, when, as and if declared by the Managing Member, out of Net Operating Cash Flow and subject to the right to payment of the holders of Preferred Units ranking senior to or on parity with the Series C Preferred Units, cumulative preferential cash distributions per Series C Preferred Unit at the rate per annum of 8.25% of the $250 base liquidation preference thereof (or $5.15625 per quarter) (the Series C Preferred Unit Distribution ). Series C Preferred Unit Distributions with respect to any Series C Preferred Units shall be cumulative, shall accrue from the date of the issuance of such Series C Preferred Units and will be payable (i) quarterly when, as and if authorized and declared by the Managing Member, in arrears, on the 15th day of January, April, July and October of each year and (ii) in the event of an exchange or redemption of Series C Preferred Units, on the exchange or redemption date, as applicable (each a Series C Preferred Unit Distribution Payment Date ), commencing on the first of such payment dates to occur following their original date of issuance. The amount of distribution per Series C Preferred Unit accruing in each full quarterly distribution period shall be computed by dividing the annual distribution rate by four. The amount of distributions payable for the initial distribution period or any other period shorter or longer than a full quarterly distribution period on the Series C Preferred Units will be computed on the basis of twelve 30-day months and a 360-day year and the actual number of days elapsed in such a thirty (30) day month. If any Series C Preferred Unit Distribution Payment Date is not a Business Day, then payment of the Series C Preferred Unit Distribution to be made on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of
such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day (without any deduction), in each case with the same force and effect as if made on such date. Series C Preferred Unit Distributions will be made to the holders of Series C Preferred Units of record on the relevant record dates, which will be fifteen (15) days prior to the relevant Series C Preferred Unit Distribution Payment Date.
(b) Distributions Cumulative . Notwithstanding the foregoing, Series C Preferred Unit Distributions will accrue whether or not the terms and provisions of the Agreement or any other agreement of the Company at any time prohibit the current payment of distributions, whether or not the Company has revenues, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are authorized. Accrued but unpaid Series C Preferred Unit Distributions will accumulate as of the Series C Preferred Unit Distribution Payment Date on which they first become payable. Any accrued but unpaid Series C Preferred Unit Distributions that are not paid on or prior to the date that they first become payable are hereinafter referred to as Series C Accumulated Preferred Unit Distributions . No interest or sum of money in. lieu of interest will be payable in respect of any Series C Accumulated Preferred Unit Distributions. Series C Accumulated Preferred Unit Distributions may be declared and paid at any time, without reference to any regular Series C Preferred Unit Distribution Payment Date.
(c) Priority as to Distributions .
(i) So long as any Series C Preferred Units are outstanding, no distribution of cash or other property shall be authorized, declared, paid or set apart for payment on or with respect to any Series C Parity Units, nor shall any cash or other property be set aside for or applied to the purchase, redemption or other acquisition for consideration of any Series C Parity Units, unless, in each case, all Series C Accumulated Preferred Unit Distributions have been paid in full (or have been declared and a sum sufficient for such payment has been set aside therefor) or when Series C Accumulated Preferred Unit Distributions are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all distributions declared upon Series C Preferred Units and all distributions declared upon any other series or class or classes of Series C Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated and unpaid on the Series C Preferred Units and such Series C Parity Units.
(ii) So long as any Series C Preferred Units are outstanding, no distribution of cash or other property (other than distributions paid solely in Series C Junior Units or options, warrants or other rights to subscribe for or purchase Series C Junior Units) shall be authorized, declared, paid or set apart for payment on or with respect to any class or series of Series C Junior Units nor shall any cash or other property be set aside for or applied to the purchase, redemption or other acquisition for consideration of any Series C Junior Units (other than consideration paid solely in Series C Junior Units or options, warrants or other rights to subscribe for or purchase Series C Junior Units) unless, in each case, all Series C Accumulated Preferred Unit Distributions have been paid in full or have been declared and a sum sufficient for payment thereof has been set aside therefor.
(iii) So long as there are Series C Accumulated Preferred Unit Distributions (and a sum sufficient for full payment of Series C Accumulated Preferred Unit Distributions is not so set apart), all future Series C Preferred Unit Distributions shall be authorized and declared so that the amount of Series C Preferred Unit Distributions per Series C Preferred Unit shall in all cases bear to each other the same ratio that Series C Accumulated Preferred Unit Distributions per Series C Preferred Unit bear to each other.
(iv) Notwithstanding anything to the contrary set forth herein, distributions on Units held by the Managing Member ranking junior to or on parity with the Series C Preferred Units may be made, without preserving the priority of distributions described in Sections 4(c)(i) and (ii) of this Schedule B , but only to the extent such distributions are required to preserve the REIT status of GGPI and the REIT Subsidiaries.
(d) No Further Rights . Except as provided in Section 5 hereof, holders of Series C Preferred Units shall not be entitled to any distributions, whether payable in cash, other property or otherwise, in excess of the Series C Preferred Unit Distributions (and any Series C Accumulated Preferred Unit Distributions) described herein.
5. Liquidation Preference .
(a) Payment to Holders of Series C Preferred Units . In the event of any liquidation., dissolution or winding up of the Company, whether voluntary or involuntary, and subject to the right to payment of holders of Preferred Units ranking senior to or on parity with the Series C Preferred Units, before any payment or distribution of the assets of the Company shall be made to or set apart for the holders of Series C Junior Units, each holder of the Series C Preferred Units shall be entitled to receive an amount equal to such holders Capital Account in respect of its Series C Preferred Units, but the holders of Series C Preferred Units shall not be entitled to any further payment in respect of their Series C Preferred Units. If, upon any such liquidation, dissolution or winding up of the Company, the assets of the Company, or proceeds thereof, distributable to the holders of Series C Preferred Units shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other Series C Parity Units, then such assets, or the proceeds thereof, shall be distributed among the holders of the Series C Preferred Units and the holders of any such other Series C Parity Units ratably in accordance with the respective amounts that would be payable on such Series C Preferred Units and any such other Series C Parity Units if all amounts payable thereon were paid in full. For the purposes of this Section 5, none of a consolidation or merger of the Company with or into one or more entities, a merger of an entity with or into the Company, a statutory share exchange by the Company or a sale, lease or conveyance of all or substantially all of the Companys assets shall be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Company.
(b) Payments to Holders of Series C Junior Units . Subject to the rights of the holders of Series C Parity Units, after payment shall have been made in full to the holders of the Series C Preferred Units as provided in this Section 5, any series or class or classes of Series C Junior Units shall, subject to any respective terms and provisions applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series C Preferred Units shall not be entitled to share therein.
6. Exchange Rights .
(a) Right to Exchange .
(i) Subject to the other terms and conditions of this Section 6, Series C Preferred Units will be exchangeable in whole but not in part with GGPI at any time on or after June 1, 2012, at the option of the holders of at least fifty-one percent (51%) of all outstanding Series C Preferred Units, for authorized but previously unissued Common Shares (and in the event such option is exercised, such exercise and the Series C Exchange Notice (as defined below) given in connection therewith shall be deemed to apply to all issued and outstanding Series C Preferred Units and the holders thereof). Each holder of Series C Preferred Units will be entitled to receive for each Series C Preferred Unit held by it a number of Common Shares equal to the quotient of the Capital Account relating to such Series C Preferred Unit (adjusted and booked up or down to reflect fair market value of Company assets through the exchange closing date) (the amount of such Capital Account, the Series C Exchange Price ) divided by the Current Per Share Market Price as of the Trading Day immediately preceding the exchange closing date. This exchange right is only exercisable if, at the time of exercise, the fair market value of the Companys assets exceeds the Companys liabilities (and any preferred security claims senior to the Series C Preferred Units) by an amount at least equal to twice the sum of (1) the aggregate Capital Accounts of all holders of Series C Preferred Units plus (2) the aggregate Capital Accounts of all holders of Series C Parity Units.
(ii) Notwithstanding anything to the contrary set forth in Section 6(a)(i) of this Schedule B , if a Series C Exchange Notice has been delivered to the Managing Member and GGPI, then the Managing Member or GGPI may at its option, within ten (10) Business Days after receipt of the Series C Exchange Notice, elect to purchase or cause the Company to redeem all or a portion of the outstanding Series C Preferred Units for cash at the Series C Exchange Price per Series C Preferred Unit. If such election by GGPI is made with respect to fewer than all of the outstanding Series C Preferred Units, the number of Series C Preferred Units held by each holder of Series C Preferred Units to be redeemed or purchased shall equal such holders pro rata share (based on the percentage of the aggregate number of outstanding Series C Preferred Units that the total number of Series C Preferred Units held by such holder of Series C Preferred Units represents) of the aggregate number of Series C Preferred Units being redeemed or purchased. An election by the Managing Member or GGPI under this Section shall be effected by delivering notice thereof to the holders identified in the Series C Exchange Notice.
(iii) If an exchange of all Series C Preferred Units pursuant to Section 6(a)(i) of this Schedule B would violate the provisions on ownership limitation of GGPI set forth in its Charter and such ownership limitation is not waived by GGPI, each holder of Series C Preferred Units shall be entitled to exchange the maximum number of Series C Preferred Units which would comply with the provisions on the ownership limitation of GGPI, and any Series C Preferred Units not so exchanged shall be purchased by GGPI
or redeemed by the Company for cash in an amount determined in the manner set forth in subsection (ii) of this Section 6(a).
(iv) If an exchange of all Series C Preferred Units pursuant to Section 6(a)(i) of this Schedule B is prohibited by virtue of the holder of the Series C Preferred Units being unable to make such customary representations and warranties as may be reasonably necessary for the Managing Member or GGPI to establish that the issuance of Common Shares pursuant to the exchange shall not be required to be registered under the Securities Act or any applicable state securities laws pursuant to Section 6(b)(i) below, any Series C Preferred Units not so exchanged shall be purchased by GGPI or redeemed by the Company for cash in an amount determined in the manner set forth in subsection (ii) of this Section 6(a).
(b) Procedure for Exchange and/or Redemption of Series C Preferred Units .
(i) The exchange right only may be exercised pursuant to a written notice of exchange (the Series C Exchange Notice ) delivered to the Managing Member and GGPI by holders of Series C Preferred Units owning at least fifty-one percent (51%) of the outstanding Series C Preferred Units by fax and certified mail postage prepaid. The closing of the exchange, purchase and/or redemption pursuant to this Section 6 shall occur within fifteen (15) Business Days following the giving of the Series C Exchange Notice. At the closing, the exchanging holder(s) shall deliver such instruments of transfer and other documents as GGPI or the Managing Member may reasonably request, and GGPI and/or the Company shall deliver to the exchanging holder(s) certificates representing the Common Shares and/or the cash redemption and/or purchase price. Notwithstanding anything to the contrary contained herein, any and all Series C Preferred Units to be exchanged for Common Shares pursuant to this Section shall be so exchanged in a single transaction at one time. As a condition to the exercise of the rights contained in this Section 6, each holder of Series C Preferred Units shall make such customary representations and warranties as may be reasonably necessary for the Managing Member or GGPI to establish that the issuance of Common Shares pursuant to the exchange shall not be required to be registered under the Securities Act or any applicable state securities laws, including without limitation representations and warranties that such holder is an accredited investor as such term is defined in Rule 501 of Regulation D promulgated pursuant to the Securities Act and that such holder is acquiring such Common Shares for investment, solely for its own account and not with a view to or for the resale or distribution thereof (other than pursuant to the Registration Statement, as defined below); provided, however, that in the event a holder is unable to make such representations, the condition shall be deemed satisfied with respect to such holder by virtue of Section 6(a)(iv). Any Common Shares issued pursuant to this Section to a holder of Series C Preferred Units shall be delivered as shares which are duly authorized, validly issued, fully paid and nonassessable, free of any pledge, lien, encumbrance or restriction other than those provided in the Charter or the by-laws of GGPI, the Securities Act or relevant state securities or blue sky laws or created by, through or under such holder, and any Series C Preferred Units as to which the exchange right has been exercised shall be free of any pledge, lien, encumbrance or restriction other than those provided in the Agreement, the Securities Act and relevant state securities or blue sky laws (and the
parties shall make representations and warranties to the other to such effect). Subject to the provisions of Section 6(c) of this Schedule B , the certificates representing the Common Shares issued upon exchange of the Series C Preferred Units shall, in addition to any legend required by the Charter, contain the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT ) OR (B) IF THE CORPORATION HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER OF THE SHARES REPRESENTED HEREBY, OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION, THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS THEREUNDER.
(ii) In the event of an exchange of Series C Preferred Units, an amount equal to the Series C Accumulated Preferred Unit Distributions to the date of exchange on any Series C Preferred Units tendered for exchange shall continue to accrue on such Series C Preferred Units, which remain outstanding following such exchange, with the Managing Member as the holder of such Series C Preferred Units (GGPI having contributed the Series C Preferred Units to the Managing Member). Fractional Common Shares are not to be issued upon exchange but, in lieu thereof, the Managing Member will pay a cash adjustment based upon the Current Per Share Market Price as of the exchange closing date.
(iii) During the thirty day period ending on the closing of any exchange, purchase and/or redemption pursuant to this Section 6, the holders of Series C Preferred Units shall not, directly or indirectly, buy or sell (including without limitation short-sell) any Common Shares, whether in the open market or in a negotiated transaction.
(c) Registration of Common Shares .
(i) As soon as practicable following the issuance of Common Shares pursuant to this Section 6 (but, subject to the provisions of the last sentence of Section 6(c)(ii) of this Schedule B , in no event more than 90 days following such issuance), GGPI shall file a Registration Statement on Form S-3 or other appropriate registration form (the Registration Statement ) with the SEC covering the resale by the initial holders of such Common Shares (the Initial Holders ) and shall use its reasonable best efforts to cause the Registration Statement to become effective as soon as practicable thereafter. Following the effective date of the Registration Statement and until the Common Shares covered by the Registration Statement have been sold or are eligible for resale under Rule 144(k) promulgated under the Securities Act, GGPI shall keep the Registration Statement current, effective and available for the resale by the Initial Holders of the Common
Shares delivered to them pursuant to this Section 6. GGPI shall bear all expenses relating to filing such Registration Statement and keeping such Registration Statement current, effective and available; provided , however , that GGPI shall not be responsible for any brokerage fees or underwriting commissions due and payable by any holder of such Common Shares.
(ii) During the time period when the Registration Statement is required to be current, effective and available under Section 6(c)(i) of this Schedule B , GGPI also shall:
(1) prepare and file with the SEC such amendments and supplements to the Registration Statement and the prospectus constituting a part thereof, as amended or supplemented (the Prospectus ), as may be necessary to keep such Registration Statement effective and to comply with the provisions of the Securities Act with respect to the sale of the Common Shares covered by such Registration Statement whenever any Initial Holder shall desire to sell or otherwise dispose of the same but in no event beyond the period in which the Registration Statement is required to be kept in effect under Section 6(c)(i) of this Schedule B ;
(2) furnish to each Initial Holder, without charge, such number of authorized copies of the Prospectus, and any amendments or supplements to the Prospectus, in conformity with the requirements of the Securities Act, and such other documents as any Initial Holder may reasonably request in order to facilitate the public sale or other disposition of the Common Shares owned by the Initial Holders.
(3) register or qualify the securities covered by the Registration Statement under state securities or blue sky laws of such jurisdictions as are reasonably required to effect a sale thereof and do any and all other acts and things which may be necessary or appropriate under such state securities or blue sky laws to enable the Initial Holders to consummate the public sale or other disposition in such jurisdictions of such securities;
(4) before filing any amendments or supplements to the Registration Statement or the Prospectus, furnish copies of all such documents proposed to be filed to the Initial Holders who shall be afforded a reasonable opportunity to review and comment thereon; provided , however , that all such documents shall be subject to the approval of the Initial Holders insofar as they relate to information concerning the Initial Holders (including, without limitation, the proposed method of distribution of any Initial Holders securities);
(5) notify the Initial Holders promptly (A) when any such Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (B) of any request by the SEC or any state securities authority for amendments and supplements to such Registration Statement and the Prospectus or for additional information, (C) of the issuance by the SEC or any state securities authority of any stop order suspending the
effectiveness of any such Registration Statement or the initiation of any proceedings for the purpose, (D) it between the effective date of any such Registration Statement and the sale of the Common Shares to which it relates, GGPI receives any notification with respect to the suspension of the qualification of the Common Shares or initiation of any proceeding for such purpose, and (E) of the happening of any event during the period such Registration Statement is effective which in the judgment of GGPI makes any statement made in the Registration Statement or the Prospectus untrue in any material respect or which requires the making of any changes in the Registration Statement or the Prospectus in order to make the statements therein not misleading;
(6) use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest practicable time;
(7) cooperate with each Initial Holder to facilitate the timely preparation and delivery of certificates representing Common Shares being sold, which certificates shall not bear any restrictive legends, provided the Common Shares evidenced thereby have been sold in a manner permitted by the Prospectus; and
(8) upon the occurrence of any event contemplated by Section 6(c)(ii)(5)(E) hereof, promptly prepare and file a supplement or post-effective amendment to the Registration Statement or the Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Common Shares, the Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein in light of the circumstances under which they were made, not misleading.
Notwithstanding anything to the contrary contained herein, the obligation to prepare and file the Registration Statement or any supplement or post-effective amendment thereto and any other obligations of GGPI hereunder shall be suspended if GGPI, relying upon advice of counsel, determines that disclosure of any information required to be included therein would be adverse to its interests, but such suspension shall not extend beyond 120 days with respect to any such specified event.
(iii) GGPI hereby agrees to indemnify and hold harmless each Initial Holder and each person, if any, who controls such Initial Holder (within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act) from and against any and all losses, claims, damages, costs and expenses (including reasonable attorneys fees) ( Claims ) to which such Initial Holder or such controlling person may become subject, under the Securities Act or otherwise, caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus or any amendment or supplement thereto, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to Make the statements therein not misleading, and shall reimburse such Initial Holder and each such
controlling person for any legal or other expenses reasonably incurred by such Initial Holder in connection with investigating or defending any such loss as such expenses are incurred; provided , however , that GGPI shall not be liable insofar as any such losses, claims, damages, costs and expenses (including reasonable attorneys fees) are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information furnished in writing to GGPI by any Initial Holder expressly for use therein. Each Initial Holder agrees to indemnify and hold harmless GGPI and each person, if any, who controls GGPI (within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act) from and against any and all Claims to which GGPI or such controlling person may become subject, under the Securities Act or otherwise, caused by any untrue statement or omission or alleged untrue statement or omission based upon such information furnished in writing to GGPI by such Initial Holder.
(iv) Each Initial Holder agrees that, upon receipt of any notice from GGPI of the happening of any event of the kind described in Section 6(c)(ii)(5)(E), such Initial Holder will forthwith discontinue disposition of securities pursuant to the Registration Statement until such Initial Holders receipt of the copies of the supplemented or amended Prospectus contemplated by Section 6(c)(ii)(8).
(d) No Other Exchange Rights . The Series C Preferred Units are not convertible into or redeemable or exchangeable for any other property or securities. of GGPI, the Managing Member, the Company or any other Person at the option of any holder of Series C Preferred Units except as expressly provided in this Section 6 or in that certain Debt Maintenance Agreement by and between the Company and DAI of even date herewith.
7. Transfers . Notwithstanding anything to the contrary contained in the Agreement, DAI, and any Permitted DAI Transferee (hereinafter defined) pursuant to this Section 7, may sell, assign or otherwise transfer all but not part of its Series C Preferred Units to a single Permitted DAI Transferee, without the consent of the Managing Member; provided , however , that (i) no such sale, conveyance or other transfer may be made unless the requirements of Section 8.3 of the Agreement (other than Section 8.3(b) thereof) and the second and fourth sentences of Section 8.2 of the Agreement are satisfied with respect to such sale, conveyance or other transfer, (ii) such Series C Preferred Units are held by one person for purposes of Treasury Regulation § 1.7704-1(h)(1)(ii), taking into account the look-through rules of Treas. Reg. § 1.7704-1(h)(3), (iii) the transferor and transferee provide the Company with representations and covenants reasonably satisfactory to the Company to assure the Company that the requirements described in (ii) above will be satisfied immediately after the transfer and at all times thereafter and (iv) the organizational documents of the proposed transferee prohibit the issuance or the transfer of any membership or other equity interests in such transferee if such transferee would thereafter be treated as owned by more than 14 persons under Treas. Reg. § 1.7704-1(h)(1), taking into account the look through rules of Treas. Reg. § 1.7704-1(h)(3). For this purpose, a Permitted DAI Transferee shall mean a transferee pursuant to this Section 7 that is any Person or Entity that is an Affiliate of DAI or a transferee pursuant to this Section 7 that is any Person or Entity that is an Affiliate of a Permitted DAI Transferee who was the transferee of Series C Preferred Units pursuant to this Section 7 by virtue of having itself constituted an Affiliate of DAI. In addition, DAI and each Permitted DAI Transferee respectively covenants on
behalf of themselves and their respective direct or indirect equity owners that no issuances of membership or equity interests or transfers of membership or equity interests in DAI or any DAI Permitted Transferee or any Person owning a direct or indirect equity interest in either shall be made or effective if the Series C Preferred Units held by DAI or the DAI Permitted Transferee would thereafter be treated as owned by more than 14 persons under Treas. Reg. § 1.7704-1(h)(1), taking into account the look through rules of Treas. Reg. § 1.7704-1(h)(3).
EXHIBIT A
TO THE
THIRD AMENDED AND RESTATED
OPERATING AGREEMENT
OF
GGPLP L.L.C.
Allocations
1. Allocation of Net Income and Net Loss .
(a) Net Income . Except as otherwise provided herein, Net Income for any fiscal year or other applicable period shall be allocated in the following order and priority:
(1) First, to each Member holding Common Units in proportion to, and to the extent of, the excess of (i) the cumulative amount of Net Loss allocated with respect to such Common Units pursuant to paragraph (b)(5) below for all prior periods over (ii) the cumulative amount of Net Income allocated with respect to such Common Units pursuant to this paragraph (a)(1) for all prior periods;
(2) Second, to each Member holding Preferred Units until the cumulative Net Income allocated with respect to each Preferred Unit pursuant to this paragraph (a)(2) for such period and all prior periods equals the cumulative Net Loss allocated with respect to each such Preferred Unit pursuant to paragraph (b)(4) below for all prior periods (such allocation to be among the Members holding Preferred Units in the reverse order that such Net Loss was allocated to them);
(3) Third, to each Member holding Preferred Units in proportion to, and to the extent of, the excess of (i) the cumulative amount of accrued distributions with respect to such Preferred Units for such period and all prior periods (whether or not declared or paid) over (ii) the cumulative amount of Net Income allocated with respect to such Preferred Units pursuant to this paragraph (a)(3) for all prior periods (net of the cumulative Net Loss, if any, allocated with respect to such Preferred Units pursuant to paragraph (b)(3) hereof for all prior periods);
(4) Fourth, to each Member holding Common Units until the cumulative Net Income allocated with respect to each Common Unit pursuant to this paragraph (a)(4) for such period and all prior periods equals the cumulative Net Loss allocated with respect to each such Common Unit pursuant to paragraph (b)(2) below for all prior, periods (such allocation to be among the Members holding Common Units in the reverse order that such Net Loss was allocated to them); and
(5) Thereafter, the balance of the Net Income, if any, shall be allocated among the Members holding Common Units in proportion to the number of Common Units held by them.
(b) Net Loss . Except as otherwise provided herein, Net Loss of the Company for each fiscal year or other applicable period shall be allocated as follows:
(1) First, to the Members holding Common Units, until the cumulative amount of Net Loss allocated with respect to each Common Unit under this paragraph (b)(1) for such period and all prior periods equals the cumulative amount of Net Income allocated to such Common Unit pursuant to paragraph (a)(5) for all prior periods;
(2) Second, to the holders of Common Units in proportion to the number of Common Units held by them (provided, however, that to the extent any Net Loss allocated to a Member holding Common Units under this paragraph (b)(2) would cause such Member (hereinafter, a Restricted Member ) to have an Adjusted Capital Account Deficit as of the end of the fiscal year to which such Net Loss relates, such Net Loss shall not be allocated to such Restricted Member but shall instead, to the extent possible, be allocated to the other Member(s) holding Common Units (hereinafter, the Permitted Members ) pro rata in accordance with the Common Units held by all Permitted Members (for this purpose, a Members Adjusted Capital Account Deficit shall be determined by considering only those adjustments to such Members capital account (including any adjustments for capital contributed) that were made in respect of the Members Common Units));
(3) Third, to the Members holding Preferred Units in proportion to, and to the extent of, the excess of (i) the cumulative Net Income allocated with respect to each Preferred Unit pursuant to paragraph (a)(3) hereof for all prior periods over (ii) the cumulative distributions made with respect to each such Preferred Unit pursuant to Section 5.2(b) of the Agreement for the current and all prior periods;
(4) Fourth, to the Members holding Preferred Units in proportion to the number of Preferred Units held by them (provided, however, that to the extent any Net Loss allocated to a Member holding Preferred Units under this paragraph (b)(2) would cause such Member (hereinafter, a Restricted Preferred Member ) to have an Adjusted Capital Account Deficit as of the end of the fiscal year to which such Net Loss relates, such Net Loss shall not be allocated to such Restricted Preferred Member but shall instead, to the extent possible, be allocated to the other Member(s) holding Preferred Units (hereinafter, the Permitted Preferred Members ) pro rata in accordance with the Preferred Units held by all Permitted Preferred Members (for this purpose, a Members Adjusted Capital Account Deficit shall be determined by considering only those adjustments to such Members capital account (including any adjustments for capital contributed) that were made in respect of the Members Preferred Units)); and
(5) Fifth, to the holders of Common Units in proportion to the number of Common Units held by them.
2. Special Allocations .
Notwithstanding any provisions of paragraph 1 of this Exhibit A , the following special allocations shall be made in the following order:
(a) Minimum Gain Chargeback (Nonrecourse Liabilities) . If there is a net decrease in Partnership Minimum Gain for any Company fiscal year (except as a result of conversion or
refinancing of Company indebtedness, certain capital contributions or revaluation of the Company property as further outlined in Regulation Sections 1.704-2(d)(4), (f)(2) or (f)(3)), each Member shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to that Members share of the net decrease in Partnership Minimum Gain. The items to be so allocated shall be determined in accordance with Regulation Section 1.704-2(f). This paragraph (a) is intended to comply with the minimum gain chargeback requirement in said section of the Regulations and shall be interpreted consistently therewith. Allocations pursuant to this paragraph (a) shall be made in proportion to the respective amounts required to be allocated to each Member pursuant hereto.
(b) Minimum Gain Attributable to Partner Nonrecourse Debt . If there is a net decrease in Minimum Gain Attributable to Partner Nonrecourse Debt during any fiscal year (other than due to the conversion, refinancing or other change in the debt instrument causing it to become partially or wholly nonrecourse, certain capital contributions, or certain revaluations of Company property as further outlined in Regulation Section 1.704-2(i)(4)), each Member shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to that Members share of the net decrease in the Minimum Gain Attributable to Partner Nonrecourse Debt. The items to be so allocated shall be determined in accordance with Regulation Section 1.704-2(i)(4) and (j)(2). This paragraph (b) is intended to comply with the minimum gain chargeback requirement with respect to Partner Nonrecourse Debt contained in said section of the Regulations and shall be interpreted consistently therewith. Allocations pursuant to this paragraph (b) shall be made in proportion to the respective amounts required to be allocated to each Member pursuant hereto.
(c) Qualified Income Offset . In the event a Member unexpectedly receives any adjustments, allocations or distributions described in Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), and such Member has an Adjusted Capital Account Deficit, items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit as quickly as possible. This paragraph (c) is intended to constitute a qualified income offset under Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(d) Nonrecourse Deductions . Nonrecourse Deductions for any fiscal year or other applicable period shall be allocated among the Members holding Common Units in proportion to the number of Common Units held.
(e) Partner Nonrecourse Deductions . Partner Nonrecourse Deductions for any fiscal year or other applicable period shall be specially allocated to the Member that bears the economic risk of loss for the debt (i.e., the Partner Nonrecourse Debt) to which such Partner Nonrecourse Deductions are attributable (as determined under Regulation Section 1.704-2(b)(4) and (i)(1)).
(f) Curative Allocations . The Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss and deduction among the Members so that, to the extent possible, the cumulative net amount of allocations of Company items under paragraphs 1 and 2 of this Exhibit A shall be equal to the net amount that would have been allocated to each Member if the Regulatory Allocations had not occurred. This paragraph (f) is intended to
minimize to the extent possible and to the extent necessary any economic distortions which may result from application of the Regulatory Allocations and shall be interpreted in a manner consistent therewith. For purposes hereof, Regulatory Allocations shall mean the allocations provided for by subsections (a) through (e) of this Section 2.
3. Tax Allocations .
(a) Generally . Subject to paragraphs (b) and (c) hereof, items of income, gain, loss, deduction and credit to be allocated for income tax purposes (collectively, Tax Items) shall be allocated among the Members on the same basis as their respective book items.
(b) Sections 1245/1250 Recapture . If any portion of gain from the sale of property is treated as ordinary income by virtue of the application of Code Sections 1245 or 1250 (Affected Gain), then (A) such Affected Gain shall be allocated among the Members in the same proportion that the depreciation and amortization deductions giving rise to the Affected Gain were allocated and (B) other Tax Items of gain of the same character that would have been recognized, but for the application of Code Sections 1245 and/or 1250, shall be allocated away from those Members who are allocated Affected Gain pursuant to Clause (A) so that, to the extent possible, the other Members are allocated the same amount, and type, of capital gain that would have been allocated to them had Code Sections 1245 and/or 1250 not applied. For purposes hereof, in order to determine the proportionate allocations of depreciation and amortization deductions for each fiscal year or other applicable period, such deductions shall be deemed allocated on the same basis as Net Income and Net Loss for such respective period.
(c) Allocations Respecting Section 704(c) and Revaluations; Curative Allocations Resulting from the Ceiling Rule . Notwithstanding paragraph (b) hereof, Tax Items with respect to Company property that is subject to Code Section 704(c) and/or Regulation Section 1.704-3 (collectively Section 704(c) Tax Items) shall be allocated in accordance with said Code Section and/or Regulation Section 1,704-3, as the case may be. The allocation of Tax Items shall be in accordance with the traditional method set forth in Regulation Section 1.704-3(b)(1), unless otherwise determined by the Managing Member, and shall be subject to the ceiling rule stated in Regulation Section 1.704-3(b)(1). The Managing Member is authorized to specially allocate Tax Items (other than the Section 704(c) Tax Items) to cure for the effect of the ceiling rule.
Exhibit 10.53
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the Agreement ) is made as of the day of November, 2010 by and between General Growth Properties, Inc., a Delaware corporation (the Company ), and (the Indemnitee ).
WHEREAS, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself;
WHEREAS, highly competent persons have become more reluctant to serve corporations as directors, officers or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;
WHEREAS, the Board of Directors of the Company (the Board of Directors ) has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Companys stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;
WHEREAS, although the Amended and Restated Certificate of Incorporation of the Company (the Certificate ) and the Amended and Restated Bylaws of the Company (the Bylaws ) require indemnification of the officers and directors of the Company under the circumstances specified therein, and Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware ( DGCL ), the Certificate, the Bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and authorize the Company to enter into contracts between the Company and members of the board of directors, officers and other persons with respect to indemnification; and
WHEREAS, this Agreement is a supplement to and in furtherance of the Certificate and the Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.
NOW, THEREFORE, in consideration of Indemnitees agreement to serve or continue serving as a director or officer, or both, of the Company after the date hereof, the parties hereto agree as follows:
1. Definitions . For purposes of this Agreement:
(a) Change in Control shall mean a change in control of the Company occurring after the date hereof of a nature that would be required to be reported in response to Item 6(e) on Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the Act ), whether or not the Company is then subject to such reporting requirement; provided , however , that, without limitation, a Change in Control shall include: (i) the acquisition (other than acquisition by or from the Company) after the date hereof by any person, entity or group, within the meaning of Section 13(d)(3) or 14(d)(2) of the Act (excluding, for this purpose, the Company or its subsidiaries, any employee benefit plan of the Company or its subsidiaries that acquires beneficial ownership of voting securities of the Company, and any qualified institutional investor that meets the requirements of Rule 13d-1(b)(1) promulgated under the Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act), of 50% or more of either the then-outstanding shares of common stock or the combined voting power of the Companys then-outstanding capital stock entitled to vote generally in the election of directors; (ii) individuals who, as of the date hereof, constitute the Board of Directors (the Incumbent Board ) ceasing for any reason to constitute at least a majority of the Board of Directors, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Companys stockholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iii) approval by the stockholders of the Company of (A) a reorganization, merger or consolidation, in each case, with respect to which persons who were the stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged, consolidated or other surviving corporations then-outstanding voting securities, (B) a liquidation or dissolution of the Company, or (C) the sale of all or substantially all of the assets of the Company.
(b) Corporate Status describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving in a similar capacity at the written request of the Company.
(c) Disinterested Director means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification or advancement is sought by Indemnitee.
(d) Enterprise shall mean the Company and any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the written request of the Company as a director, officer, employee, agent or fiduciary.
(e) Expenses shall include all reasonable attorneys fees, retainers, disbursements of counsel, court costs, filing fees, transcript costs, fees and expenses of experts, witness fees and expenses, travel expenses, duplicating and imaging costs, printing and binding costs, telephone charges, facsimile transmission charges, computer legal research costs, postage, delivery service fees and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, as well as all other expenses within the meaning of that term as used in Section 145 of the General Corporation Law of the State of Delaware and all other disbursements or expenses of types customarily and reasonably incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, actions, suits, or proceedings similar to or of the same type as the Proceeding with respect to which such disbursements or expenses were incurred; but, notwithstanding anything in the foregoing to the contrary, Expenses shall not include amounts of judgments, penalties, or fines actually levied against the Indemnitee in connection with any Proceeding. Expenses also shall include the foregoing incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent.
(f) Independent Counsel means a law firm, a member of a law firm or an independent practitioner that is experienced in matters of corporation law and indemnification issues and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement.
(g) Proceeding includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation (including any internal investigation), inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was an officer or director of the Company, by reason of any action taken by Indemnitee or of any inaction on such Indemnitees part while acting as an officer or director of the Company, or by reason of the fact that such Indemnitee is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other Enterprise; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement, but excluding one initiated by an Indemnitee pursuant to Section 8 of this Agreement to enforce such Indemnitees rights under this Agreement.
(h) References herein to fines shall not include any excise tax assessed with respect to any employee benefit plan.
(i) References herein to a director of another Enterprise or a director of an other Enterprise shall include, in the case of any entity that is not managed by a board of directors, such other position, such as manager or trustee or member of the governing body of such entity, that entails responsibility for the management and direction of such entitys affairs, including, without limitation, the general partner of any partnership (general or limited) and the manager or managing member of any limited liability company.
(j) (i) References herein to serving at the request of the Company as a director, officer, employee, agent, or fiduciary of another Enterprise shall include any service as a director, officer, employee, or agent of the Company that imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan of the Company or any of its affiliates, other than solely as a participant or beneficiary of such a plan; and (ii) if the Indemnitee has acted in good faith and in a manner the Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, the Indemnitee shall be deemed to have acted in a manner not opposed to the best interests of the Company for purposes of this Agreement.
2. Indemnity of Indemnitee . The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by applicable law, as such may be amended from time to time. In furtherance of the foregoing indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of the Company . Except as provided in Section 10 hereof, Indemnitee shall be entitled to the rights of indemnification provided in this Section 2(a) if, by reason of Indemnitees Corporate Status, the Indemnitee is or was, or is or was threatened to be made, a party to or is otherwise involved in any Proceeding other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 2(a) , Indemnitee shall be indemnified against all Expenses, judgments, penalties, fines, liabilities and amounts paid in settlement actually and reasonably incurred by Indemnitee, or on Indemnitees behalf, in connection with such Proceeding or any claim, issue or matter therein, but only if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe the Indemnitees conduct was unlawful.
(b) Proceedings by or in the Right of the Company . Except as provided in Section 10 hereof, Indemnitee shall be entitled to the rights of indemnification provided in this Section 2(b) if, by reason of Indemnitees Corporate Status, the Indemnitee is or was, or is or was threatened to be made, a party to or is or was otherwise involved in any Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 2(b) , Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee, or on the Indemnitees behalf, in connection with such Proceeding or any claim, issue or matter therein, but only if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company;
provided , however , if applicable law so provides, no indemnification for such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which the Indemnitee shall have been adjudged liable to the Company unless (and only to the extent that) the Court of Chancery of the State of Delaware or the court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such Expenses that the Court of Chancery or such other court shall deem proper.
(c) Overriding Right to Indemnification if Successful on the Merits . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is or was, by reason of Indemnitees Corporate Status or otherwise, a party to and is or was successful, on the merits or otherwise, in any Proceeding, he shall be indemnified to the maximum extent permitted by applicable law, as such may be amended from time to time, against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitees behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee to the maximum extent permitted by applicable law, as such may be amended from time to time, against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitees behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
3. Additional Indemnity . In addition to, and without regard to any limitations on, the indemnification provided for in Section 2 of this Agreement, the Company shall and hereby does, to the fullest extent permissible under applicable law, indemnify and hold harmless Indemnitee against all Expenses, judgments, penalties, fines, liabilities and amounts paid in settlement actually and reasonably incurred by Indemnitee or on Indemnitees behalf if, by reason of Indemnitees Corporate Status, he is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, all liability arising out of the negligence or active or passive wrongdoing of Indemnitee. The only limitation that shall exist upon the Companys obligations pursuant to this Agreement shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Section 7 and Section 8 hereof) to be unlawful.
4. Contribution .
(a) To the fullest extent permissible under applicable law, whether or not the indemnification provided in Section 2 and Section 3 hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring Indemnitee to contribute to such payment, and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not enter into any settlement of any action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.
(b) To the fullest extent permissible under applicable law, without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of Expenses, judgments, fines, liabilities and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such action, suit or proceeding arose; provided , however , that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such Expenses, judgments, fines, liabilities or settlement amounts, as well as any other equitable considerations which the law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.
(c) The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claim of contribution brought by officers, directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.
(d) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, liabilities, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as the Board of Directors deems fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company (together with its directors, officers, employees and agents) and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).
5. Indemnification for Expenses of a Witness . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is or was, by reason of Indemnitees Corporate Status or otherwise, a witness, or is or was made (or asked) to respond to discovery requests, in
any Proceeding to which Indemnitee is not a party, he shall be indemnified to the fullest extent permissible under applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitees behalf in connection therewith.
6. Advancement of Expenses . Notwithstanding any other provision of this Agreement, but subject to Section 9(e) hereof, the Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitees Corporate Status or otherwise within thirty (30) calendar days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by or on behalf of Indemnitee and for which advancement is requested, and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall finally be determined (under the procedures, and subject to the presumptions, set forth in Section 7 and Section 8 hereof) that Indemnitee is not entitled to be indemnified against such Expenses. Such undertaking shall be sufficient for purposes of this Section 6 if it is substantially in the form attached hereto as Exhibit A . Any advances and undertakings to repay pursuant to this Section 6 shall be unsecured and interest-free. The Indemnitee shall be entitled to advancement of Expenses as provided in this Section 6 regardless of any determination by or on behalf of the Company that the Indemnitee has not met the standards of conduct set forth in Sections 2(a) and 2(b) hereof.
7. Procedures and Presumptions for Determination of Entitlement to Indemnification . It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under the DGCL and public policy of the State of Delaware. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) Indemnitee shall give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. To obtain indemnification under this Agreement, the Indemnitee shall submit to the Company a written request for indemnification, including therein or therewith, except to the extent previously provided to the Company in connection with a request or requests for advancement pursuant to Section 6 hereof, a statement or statements reasonably evidencing all Expenses incurred or paid by or on behalf of the Indemnitee and for which indemnification is requested, together with such documentation and information as is reasonably available to Indemnitee and as is reasonably necessary for the Company to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification. Failure to provide any notice required hereby shall not impair Indemnitees rights of indemnification and contribution under this Agreement except to the extent that such failure to provide notice actually and materially prejudices the rights of the Company to defend any action or proceeding which is the basis of the claimed indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to the second sentence of Section 7(a) hereof, a determination with respect to Indemnitees entitlement thereto shall be made by the following person or persons, who shall be empowered to make such determination: (i) if a Change in Control shall have occurred, by Independent Counsel (unless Indemnitee shall request in writing that such determination be made by the Board of Directors (or a committee thereof) in the manner provided for in clause (ii) of this Section 7(b) ) in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control shall not have occurred, (A) (1) by Independent Counsel, if Indemnitee shall request in writing that such determination be made by Independent Counsel upon making Indemnitees request for indemnification pursuant to the second sentence of Section 7(a) , (2) by the Board of Directors of the Company, by a majority vote of Disinterested Directors even though less than a quorum, or (3) by a committee of Disinterested Directors designated by majority vote of Disinterested Directors, even though less than a quorum, or (B) if there are no such Disinterested Directors or, even if there are such Disinterested Directors, if the Board of Directors, by the majority vote of Disinterested Directors, so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee.
(c) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 7(b) hereof, the Independent Counsel shall be selected by the Board of Directors and approved by Indemnitee. Upon failure of the Board of Directors to so select, or upon the failure of Indemnitee to so approve, such Independent Counsel within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 7(a) hereof, the Independent Counsel shall be selected by the Court of Chancery of the State of Delaware or such other person or body as the Indemnitee and the Company may agree in writing. Such determination of entitlement to indemnification shall be made not later than forty-five (45) days after receipt by the Company of a written request for indemnification. If the person making such determination shall determine that Indemnitee is entitled to indemnification as to part (but not all) of the application for indemnification, such person shall reasonably pro-rate such part of indemnification among such claims, issues or matters. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 7(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 7(c) , regardless of the manner in which such Independent Counsel was selected or appointed.
(d) In connection with any determination (including a determination by the Court of Chancery of the State of Delaware (or other court of competent jurisdiction)) with respect to entitlement to indemnification hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not entitled to indemnification and any decision that Indemnitee is not entitled to indemnification must be supported by clear and convincing evidence. The failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, or an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall not
be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
(e) In making a determination with respect to whether Indemnitee acted in good faith and in a manner that Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, the person or persons or entity making such determination shall presume that Indemnitee acted in good faith and in a manner that Indemnitee reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and any decision that Indemnitee is not entitled to indemnification must be supported by clear and convincing evidence. In addition, and in no way limiting the provisions of this Section 7, Indemnitee shall be deemed to have acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Enterprise, or with respect to any criminal action or proceeding to have had no reasonable cause to believe Indemnitees conduct was unlawful, if Indemnitees action is based on (i) the records or books of account of the Enterprise, (ii) information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, (iii) the advice of legal counsel for the Enterprise or (iv) information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise; provided , however , that any failure by Indemnitee to act on the advice of legal counsel for the Enterprise shall not, in and of itself, constitute grounds for an adverse determination with respect to whether Indemnitee acted in good faith and in a manner that Indemnitee reasonably believed to be in or not opposed to the best interests of the Company. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.
(f) If the person, persons or entity empowered or selected under this Section 7 to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided , however , that such sixty (60) day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto and so notifies the Indemnitee.
(g) Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitees entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Independent Counsel or member of the Board of Directors shall act reasonably and in good faith in making a determination regarding the Indemnitees entitlement to indemnification under this Agreement. Any costs or expenses (including attorneys fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitees entitlement to indemnification) and the Company hereby agrees to indemnify and hold Indemnitee harmless therefrom.
(h) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any Proceeding to which Indemnitee is or becomes a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such Proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
(i) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification under this Agreement or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that Indemnitees conduct was unlawful.
8. Remedies of Indemnitee .
(a) In the event that (i) a determination is made pursuant to Section 7 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 6 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 7(b) of this Agreement within ninety (90) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within fifty-five (55) days after receipt by the Company of a written request therefor or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 7 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of Indemnitees entitlement to such indemnification and/or advancement of Expenses. The Company shall not oppose Indemnitees right to seek any such adjudication.
(b) In the event that a determination shall have been made pursuant to Section 7(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 8 shall be conducted in all respects as a de novo trial on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 7(b) .
(c) If a determination shall have been made pursuant to Section 7(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 8 , absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees misstatement not materially misleading in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) In the event that (a) the Indemnitee commences a proceeding seeking (1) to establish or enforce the Indemnitees entitlement to indemnification or advancement pursuant to this Agreement, (2) to otherwise enforce Indemnitees rights under or to interpret the terms of this Agreement, (3) to recover damages for breach of this Agreement, (4) to establish or enforce Indemnitees entitlement to indemnification or advancement pursuant to the Certificate or the Bylaws, or (5) to enforce or interpret the terms of any liability insurance policy maintained by the Company (each such proceeding an Indemnitee Enforcement Proceeding ), or (b) the Company commences a proceeding against the Indemnitee seeking (1) to recover, pursuant to an undertaking or otherwise, amounts previously advanced to Indemnitee, (2) to enforce the Companys rights under or to interpret the terms of this Agreement, or (3) to recover damages for breach of this Agreement (each such proceeding a Company Enforcement Proceeding and together with each form of Indemnitee Enforcement Proceeding, an Enforcement Proceeding ), then the Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all Expenses actually and reasonably incurred by or on behalf of such Indemnitee in connection with such Enforcement Proceeding, provided , however , if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding on which Indemnitee does not prevail, unless (and only to the extent that) the Court of Chancery of the State of Delaware or the court in which such Proceeding was brought shall determine upon application that, despite the adjudication in respect of such claim, issue or matter but in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such Expenses that the Court of Chancery or such other court shall deem proper. The Company also shall be required to advance all Expenses actually and reasonably incurred by or on behalf of the Indemnitee in connection with any Enforcement Proceeding in advance of the final disposition of such Enforcement Proceeding within thirty (30) days after the receipt by the Company of a written request for such advance or advances from time to time, which request shall include or be accompanied by a statement or statements reasonably evidencing the Expenses incurred by or on behalf of the Indemnitee and for which advancement is requested; provided , however , that any such advancement shall be made only after the Company receives an undertaking by or on behalf of the Indemnitee to repay any Expenses so advanced if it shall be finally determined that Indemnitee is not entitled to be indemnified against such Expenses.
(e) The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 8 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement.
(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.
9. Non-Exclusivity; Survival of Rights; Insurance; Subrogation .
(a) The rights of indemnification as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate, the Bylaws, any agreement, a vote of stockholders, a resolution of directors or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in Indemnitees Corporate Status or otherwise prior to such amendment, alteration or repeal. To the extent that a change in the DGCL or applicable law, whether by statute or judicial decision, permits greater indemnification or advancement than would be afforded currently under the Certificate, the Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy. Notwithstanding anything in this Agreement to the contrary, the indemnification and contribution provided for in this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of Indemnitee or any of Indemnitees agents.
(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents or fiduciaries of the Company or of any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other Enterprise that such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any director, officer, employee, agent or fiduciary under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability or other applicable insurance in effect, the Company shall give prompt notice of the commencement of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.
(c) Subject to Section 9(f) , except as otherwise agreed between the Company, on the one hand, and Indemnitee or another indemnitor of Indemnitee, on the other, in the event of any payment to or on behalf of the Indemnitee under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers reasonably required and take all action reasonably necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(d) Subject to Section 9(f) , except as otherwise agreed between the Company, on the one hand, and Indemnitee or another indemnitor of Indemnitee, on the other, the Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such
payment under any Company insurance policy, Company contract, Company agreement or otherwise (except to the extent that Indemnitee is required (by court order or otherwise) to return such payment or to surrender it to the Company).
(e) Subject to Section 9(f) , except as otherwise agreed between the Company, on the one hand, and Indemnitee or another indemnitor of Indemnitee, on the other, the Companys obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise (except to the extent that Indemnitee is required (by court order or otherwise) to return such payment or to surrender it to the Company).
(f) The Company hereby acknowledges that Indemnitee is serving as a director or officer of the Company at the request of the Company or its Board of Directors. The Company hereby further acknowledges that Indemnitee might have certain rights to indemnification, advancement of Expenses and/or insurance coverage provided by one or more third parties other than the Company and its insurers (collectively, the Third Party Indemnitors ). The Company hereby agrees that: (i) as between the Company and any Third Party Indemnitor, the Company is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of any Third Party Indemnitor to advance Expenses or to provide indemnification or insurance coverage for the same Expenses or liabilities incurred by Indemnitee are secondary); (ii) it shall be required to advance the full amount of Expenses incurred by or on behalf of Indemnitee and shall be liable for the full amount of all judgments or amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement, the Certificate or the Bylaws (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against any Third Party Indemnitor; and (iii) it hereby irrevocably and unconditionally waives, relinquishes and releases any and all Third Party Indemnitors from any and all claims against the Third Party Indemnitors (or any of them) for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by any Third Party Indemnitor on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing in any respect and the Third Party Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Third Party Indemnitors are express third party beneficiaries of the terms of this Section 9.
10. Exception to Right of Indemnification . Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:
(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy, or other indemnity provision or otherwise, except with respect to any
excess beyond the amount so paid, and except as may otherwise be agreed between the Company, on the one hand, and Indemnitee or another indemnitor of Indemnitee, on the other;
(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Act, as amended, or similar provisions of state statutory law or common law; or
(c) in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or any of its direct or indirect subsidiaries or the directors, officers, employees or other indemnitees of the Company or its direct or indirect subsidiaries (other than any Proceeding initiated by Indemnitee pursuant to Section 8(d) , which shall be governed by the terms of such section), unless (i) the Board of Directors of the Company authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.
11. Successors . This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.
12. Security . To the extent requested by Indemnitee and approved by the Board of Directors of the Company, the Company may at any time and from time to time provide security to Indemnitee for the Companys obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee.
13. Enforcement .
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumes the obligations imposed on it hereby in order to induce Indemnitee to serve or continue serving as an officer or director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as an officer or director of the Company.
(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.
(c) The Company represents that this Agreement has been approved by the Companys Board of Directors.
14. Severability . The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision hereof. Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee
indemnification rights to the fullest extent permitted by applicable laws. In the event any provision hereof conflicts with any applicable law, such provision shall be deemed modified, consistent with the aforementioned intent, to the extent necessary to resolve such conflict.
15. Modification and Waiver . No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
16. Notice By Indemnitee . Indemnitee agrees to promptly notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company.
17. Disclosure of Payments . Except as expressly required by any law, neither party shall publicly disclose any payments under this Agreement unless prior approval of the other party is obtained.
18. Notices . Unless otherwise provided herein, any notice required or permitted under this Agreement shall be deemed effective upon the earlier of (a) actual receipt, or (b) (i) one (1) business day after the date of delivery by confirmed facsimile transmission, (ii) one (1) business day after the business day of deposit with a nationally recognized overnight courier service for next day delivery, freight prepaid, or (iii) three (3) business days after deposit with the United States Post Office for delivery by registered or certified mail, postage prepaid. Any such notice shall be in writing and shall be addressed to the party to be notified at the address indicated for such party indicated on the signature pages or exhibits hereto, as otherwise set forth in this Section 1 8, or at such other address as such party may designate by ten (10) days advance written notice to the other parties. All communications shall be sent:
(a) To Indemnitee at the address set forth below Indemnitees signature hereto;
(b) To the Company at:
General Growth Properties, Inc.
110 N. Wacker Drive
Chicago, IL 60606
Attention: General Counsel
Facsimile: (312) 960-5485
or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
19. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile or electronic signature.
20. Headings . The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
21. Governing Law and Consent to Jurisdiction . This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the Delaware Court ), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) consent to service of any summons and complaint and any other process that may be served in any action, suit, or proceeding arising out of or relating to this Agreement by mailing by certified or registered mail, with postage prepaid, copies of such process to such party at its address for receiving notice pursuant to Section 18 hereof, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum. Nothing herein shall preclude service of process by any other means permitted by applicable law.
22. Assignment . Neither party hereto may assign this Agreement without the prior written consent of the other party; provided , however , that the Company may assign this Agreement upon a Change in Control.
23. Construction . The parties acknowledge that both parties have contributed to the drafting of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.
[ signature page follows ]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
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[Signature Page to Holdings Indemnification Agreement]
Exhibit A
UNDERTAKING
Reference is hereby made to that certain Indemnification Agreement, by and between General Growth Properties, Inc., a Delaware corporation (the Company ), and the undersigned, dated as of November , 2010 (the Indemnification Agreement ). All initially capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Indemnification Agreement.
Pursuant to the Indemnification Agreement, I, , agree to reimburse the Company for all Expenses paid to me or on my behalf by the Company in connection with my involvement in [name or description of proceeding or proceedings] , in the event, and to the extent, that it shall ultimately be determined (pursuant to the terms of the Indemnification Agreement) that I am not entitled to be indemnified by the Company for such Expenses.
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Typed Name |
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Before me , on this day personally appeared , known to me to be the person whose name is subscribed to the foregoing instrument, and who, after being duly sworn, stated that the contents of said instrument is to the best of his/her knowledge and belief true and correct and who acknowledged that he/she executed the same for the purpose and consideration therein expressed.
GIVEN under my hand and official seal at , this day of , 20 .
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Notary Public |
My commission expires:
Exhibit 10.57
SEPARATION AGREEMENT
BY AND BETWEEN
GENERAL GROWTH PROPERTIES, INC.
AND
THE HOWARD HUGHES CORPORATION
Dated [ · ], 2010
TABLE OF CONTENTS
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Page |
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ARTICLE I |
DEFINITIONS |
2 |
1.1 |
Certain Definitions |
2 |
1.2 |
Other Terms |
12 |
ARTICLE II |
THE RESTRUCTURING |
13 |
2.1 |
Transfer of Assets; Assumption of Liabilities |
13 |
2.2 |
Spinco Assets |
15 |
2.3 |
Spinco Liabilities |
16 |
2.4 |
Approvals and Notifications of Spinco Assets and Liabilities |
18 |
2.5 |
Transfer of Non-Transferred Assets; Assumption of Non-Transferred Liabilities |
19 |
2.6 |
Novation of Liabilities |
21 |
2.7 |
Termination of Agreements and Arrangements |
22 |
2.8 |
Bank Accounts; Cash Balances |
22 |
2.9 |
Replacement of Letters of Credit Relating to the Spinco Business |
24 |
2.10 |
Payment of Certain Ordinary Course, Pre-Petition Obligations |
24 |
2.11 |
Payment of Certain Legal Fees of K&L Gates LLP |
24 |
2.12 |
Mechanics and Materialmans Liens |
24 |
2.13 |
Disclaimer of Representations and Warranties |
24 |
ARTICLE III |
THE DISTRIBUTION |
25 |
3.1 |
Actions on or Prior to the Plan Effective Date |
25 |
3.2 |
Conditions Precedent to Distribution |
26 |
3.3 |
The Distribution |
27 |
3.4 |
GGP Authorization of Agreement |
27 |
ARTICLE IV |
ACCESS TO INFORMATION |
28 |
4.1 |
Agreement for Exchange of Information; Archives |
28 |
4.2 |
Ownership of Information |
29 |
4.3 |
Compensation for Providing Information |
29 |
4.4 |
Record Retention |
29 |
4.5 |
Liability |
30 |
4.6 |
Other Agreements Providing for Exchange of Information |
30 |
TABLE OF CONTENTS
(continued)
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4.7 |
Production of Witnesses; Records; Cooperation |
31 |
4.8 |
Privileged Matters |
32 |
ARTICLE V |
RELEASE; INDEMNIFICATION; AND GUARANTEES |
34 |
5.1 |
Release of Pre-Distribution Claims |
34 |
5.2 |
General Indemnification by Spinco |
36 |
5.3 |
General Indemnification by GGP |
37 |
5.4 |
Disclosure Indemnification |
37 |
5.5 |
Indemnification Obligations Net of Insurance Proceeds and Other Amounts |
38 |
5.6 |
Procedures for Indemnification of Third Party Claims |
38 |
5.7 |
Additional Matters |
40 |
5.8 |
Remedies Cumulative; Limitations of Liability |
41 |
5.9 |
Survival of Indemnities |
41 |
5.10 |
Guarantees |
41 |
ARTICLE VI |
OTHER AGREEMENTS |
43 |
6.1 |
Further Assurances |
43 |
6.2 |
Confidentiality |
43 |
6.3 |
Insurance Matters |
46 |
6.4 |
Allocation of Costs and Expenses |
49 |
6.5 |
Litigation; Cooperation |
49 |
6.6 |
Tax Matters |
50 |
6.7 |
Employment Matters |
51 |
6.8 |
Real Estate Agreements |
51 |
ARTICLE VII |
DISPUTE RESOLUTION |
51 |
7.1 |
General Provisions |
51 |
7.2 |
Consideration by Senior Executives |
52 |
7.3 |
Arbitration |
52 |
7.4 |
Specific Performance |
54 |
ARTICLE VIII |
MISCELLANEOUS |
54 |
8.1 |
Corporate Power |
54 |
TABLE OF CONTENTS
(continued)
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8.2 |
Governing Law |
55 |
8.3 |
Survival of Covenants |
55 |
8.4 |
Force Majeure |
55 |
8.5 |
Notices |
55 |
8.6 |
Termination |
56 |
8.7 |
Severability |
56 |
8.8 |
Entire Agreement |
56 |
8.9 |
Assignment; No Third-Party Beneficiaries |
56 |
8.10 |
Public Announcements |
57 |
8.11 |
Amendment |
57 |
8.12 |
Rules of Construction |
57 |
8.13 |
Counterparts |
57 |
EXHIBITS
A-1 |
Form of Ala Moana Condominium Declaration |
A-2 |
Form of Ala Moana Development Agreement |
B |
Form of Arizona 2 Promissory Note |
C |
Form of Assumption Agreement |
D |
Form of Columbia Development Agreement |
E |
Form of Employee Leasing Agreement |
F |
Form of Employee Matters Agreement |
G |
Form of Fashion Show Core Principles |
H |
Form of Registration Rights Agreement |
I-1 |
Form of REP Investments Stockholders Agreement |
I-2 |
Form of Fairholme Stockholders Agreement |
I-3 |
Form of Pershing Square Stockholders Agreement |
J-1 |
Form of 110 N. Wacker (Chicago Headquarters) Sublease Term Sheet |
J-2 |
Form of 10,000 W. Charleston (Las Vegas Headquarters) Sublease Term Sheet |
J-3 |
Form of Columbia Headquarters Sublease Term Sheet |
K |
Form of Surety Bond Indemnity Agreement |
L |
Form of Tax Matters Agreement |
M-1 |
Form of Transition Services Agreement |
M-2 |
Form of Reverse Transition Services Agreement |
N |
Form of Warrant and Registration Rights Agreement |
SCHEDULES
2.1(a) |
Spinoff Plan |
6.5(a) |
Assumed Actions |
SEPARATION AGREEMENT
This SEPARATION AGREEMENT (this Agreement ), dated as of [ · ], 2010, is by and between General Growth Properties, Inc., a Delaware corporation ( GGP ), and The Howard Hughes Corporation, a Delaware corporation ( Spinco ). Capitalized terms used herein shall have the meanings assigned to them in Article I hereof or as otherwise expressly set forth herein.
RECITALS
WHEREAS, the board of directors of GGP has determined that it is in the best interests of GGP and its shareholders to create a new publicly traded company which shall operate the Spinco Business;
WHEREAS, Spinco has been incorporated solely for these purposes and has not engaged in activities except in preparation for its corporate restructuring and the distribution of its stock;
WHEREAS, the board of directors of GGP and the board of directors of Spinco have approved the transfer of the Spinco Assets to Spinco and its Subsidiaries and the assumption by Spinco and certain of its Subsidiaries of the Spinco Liabilities, all as more fully described in this Agreement and the other Transaction Documents;
WHEREAS, pursuant to the terms of the Order, the Bankruptcy Court approved the distribution of shares of the common stock, no par value per share, of Spinco (the Spinco Common Stock ) to the holders of issued and outstanding units of GGP LP as of the close of business on the Record Date;
WHEREAS, pursuant to the terms of the Order, the Bankruptcy Court has further approved the distribution of Spinco Common Stock to the holders of issued and outstanding common shares, $0.01 par value per share, of GGP (the GGP Common Shares ) as of the close of business on the Record Date, on the basis of 0.0983 shares of Spinco Common Stock for every one (1) GGP Common Share; provided , however , that no fractional shares shall be issued (the Distribution );
WHEREAS, GGP and Spinco have prepared, and Spinco has filed with the SEC, the Form 10, including the information statement contained therein, and which sets forth disclosure concerning Spinco and the Distribution;
WHEREAS, commencing on April 16, 2009 and continuing thereafter, GGP and certain of its Subsidiaries filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court ), Case No. 09-11977 (ALG) (collectively, the (the Bankruptcy Cases );
WHEREAS, the Distribution will be implemented in connection with the Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code by GGP and certain of its Subsidiaries filed with the United States Bankruptcy Court for the Southern District of New
York on [ · ], as it may be subsequently amended and supplemented, as approved by the Bankruptcy Court (the Plan ) and;
WHEREAS, for U.S. federal income tax purposes, certain steps of the Restructuring and the Distribution are intended to qualify for tax-free treatment under Sections 351, 355, 368(a) and related provisions of the Code;
WHEREAS, GGP has received a private letter ruling from the IRS to the effect that, among other things, (i) certain steps of the Restructuring and the Distribution, taken together, qualify as a transaction (a) that is described in Sections 355(a) and 368(a)(1)(G) of the Code, (b) in which the Spinco Common Stock distributed is qualified property under Section 361(c) of the Code and (c) in which the holders of GGP Common Shares recognize no income or gain for U.S. federal income tax purposes under Section 355 of the Code, and (ii) certain other steps of the Spinoff Plan qualify as transactions that are described in Sections 355(a) and 368(a)(1)(G) of the Code (the Private Letter Ruling );
WHEREAS, this Agreement is intended to be a plan of reorganization within the meaning of Treas. Reg. 1.368-2(g); and
WHEREAS, it is appropriate and desirable to set forth the principal corporate transactions required to effect the Restructuring and the Distribution and to set forth certain other agreements that will, following the Distribution, govern certain matters relating to the Restructuring and the Distribution and the relationship of GGP, Spinco and their respective Subsidiaries.
NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions . For purposes of this Agreement, the following terms shall have the meanings specified in this Section 1.1 :
Action means any demand, action, claim, dispute, suit, countersuit, arbitration, inquiry, subpoena, proceeding or investigation of any nature (whether criminal, civil, legislative, administrative, regulatory, prosecutorial or otherwise) by or before any federal, state, local, foreign or international Governmental Authority or any arbitration or mediation tribunal.
Affiliate (including, with a correlative meaning, affiliated ) means, when used with respect to a specified Person, a Person that directly or indirectly, through one (1) or more intermediaries, controls, is controlled by or is under common control with such specified Person. For the purpose of this definition, control (including with correlative meanings, controlled by and under common control with ), when used with respect to any specified Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting securities or other interests, by Contract, agreement, obligation, promise, arrangement or otherwise. It is expressly agreed that, from and after the Effective Time and for purposes of this Agreement and the other Transaction Documents, no member of the Spinco Group shall be deemed to be an Affiliate of any member of the GGP Group, and no member of the GGP Group shall be deemed to be an Affiliate of any member of the Spinco Group.
Ala Moana Condominium Declaration means a Declaration of Condominium Property Regime of 1555 Kapiolani Condominium in substantially the form attached hereto as Exhibit A-1 to be recorded concurrently with the execution of the Ala Moana Development Agreement.
Ala Moana Development Agreement means the Development Agreement in substantially the form attached hereto as Exhibit A-2 to be entered into by Kapiolani Retail LLC and Kapiolani Residential, LLC on or prior to the Plan Effective Date.
Ancillary Documents means the Tax Matters Agreement, the Transition Services Agreement, the Reverse Transition Services Agreement, the Employee Matters Agreement, the Employee Leasing Agreement, the Real Estate Agreements, the Transfer Documents, the Subleases, the Surety Bond Indemnity Agreement, [the Spinco Option Agreements] and the Assumption Agreement.
Approvals or Notifications means any consents, waivers, approvals, permits or authorizations to be obtained from, notices, registrations or reports to be submitted to, or other filings to be made with, any third Person, including any Governmental Authority.
Arizona 2 Promissory Note means the Promissory Note in substantially the form attached hereto as Exhibit B to be made by GGP LP on or prior to the Plan Effective Date.
Assets means, with respect to any Person, the assets, properties, claims and rights (including goodwill) held by or in the name of such Person, wherever located (including in the possession of vendors or other third Persons or elsewhere), of every kind, character and description, whether real, personal or mixed, tangible, intangible or contingent, known or unknown, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of such Person, including the following:
(a) all accounting and other books, records and files whether in paper, microfilm, microfiche, computer tape or disc, magnetic tape, electronic or any other form;
(b) all apparatus, computers and other electronic data processing and communications equipment, fixtures, machinery, equipment, furniture, office equipment, automobiles, trucks, motor vehicles and other transportation equipment and other tangible personal property;
(c) all inventories of materials, parts, raw materials, components, supplies, work-in-process and finished goods and products;
(d) all interests in real property of whatever nature, including easements, whether as owner, mortgagee or holder of a Security Interest in real property, lessor, sublessor, lessee, sublessee, licensor, licensee or otherwise;
(e) (i) all interests in any capital stock or other equity interests of any Subsidiary or any other Person, (ii) all bonds, notes, debentures or other securities issued by any Subsidiary or any other Person, (iii) all loans, advances or other extensions of credit or capital contributions to any Subsidiary or any other Person and (iv) all other investments in securities of any Person;
(f) all license agreements, leases of personal property, open purchase orders for raw materials, supplies, parts or services and other Contracts, agreements or commitments;
(g) all written (including in electronic form) or oral technical information, data, specifications, research and development information, engineering drawings and specifications, operating and maintenance manuals, and materials and analyses prepared by consultants and other third Persons;
(h) all Intellectual Property and Technology;
(i) all Software;
(j) all cost information, sales and pricing data, customer prospect lists, supplier records, customer and supplier lists, customer and vendor data, correspondence and lists, product data and literature, artwork, design, formulations and specifications, quality records and reports and other books, records, studies, surveys, reports, plans and documents;
(k) all prepaid expenses, trade accounts and other accounts and notes receivable;
(l) all rights under Contracts, agreements and entitlements, all claims or rights against any Person arising from the ownership of any Asset or otherwise, all rights in connection with any bids or offers and all claims, choses in action or similar rights, whether accrued or contingent;
(m) all rights under insurance policies and all rights in the nature of insurance, indemnification or contribution;
(n) all licenses, permits, approvals and authorizations which have been issued by any Governmental Authority; and
(o) all interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements.
Assumption Agreement means the Assumption Agreement in substantially the form attached hereto as Exhibit C to be entered into by GGP and Spinco on or prior to the Plan Effective Date.
Code means the Internal Revenue Code of 1986, as amended.
Columbia Development Agreement means the Development Agreement and Memorandum of Intent in substantially the form attached hereto as Exhibit D to be entered into by GGP LP and Spinco on or prior to the Plan Effective Date.
Contract means any contract, agreement, indenture, note, bond, mortgage, loan, instrument, lease, license, commitment or other arrangement, understanding, undertaking, commitment or obligation, whether written or oral.
Cornerstone Investment Agreement means the Amended and Restated Cornerstone Investment Agreement, effective as of March 31, 2010, by and between GGP and REP Investments LLC, as it may be further amended.
Disclosure Statement means the disclosure statement in respect of the Plan, including all exhibits and schedules thereto, as it may be amended, supplemented or otherwise modified from time to time, and as approved by the Bankruptcy Court in accordance with Section 1125 of the Bankruptcy Code.
Distribution Agent means The Bank of New York Mellon Corporation (and/or its affiliates).
Effective Time means the time at which the Distribution occurs as provided in the Order.
Employee Leasing Agreement means the Employee Leasing Agreement in substantially the form attached hereto as Exhibit E , to be entered into by and between GGP and Spinco or a Subsidiary thereof on or prior to the Plan Effective Date.
Employee Matters Agreement means the Employee Matters Agreement in substantially the form attached hereto as Exhibit F , to be entered into by and between GGP and Spinco or a Subsidiary thereof on or prior to the Plan Effective Date.
Environmental Law means any applicable Law relating to pollution, protection or restoration of or prevention of harm to the environment or natural resources, including the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials.
Exchange Act means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time that reference is made.
Fairholme Investment Agreement means the Amended and Restated Stock Purchase Agreement, effective as of March 31, 2010, by and between GGP and The Fairholme Fund, a series of Fairholme Funds, Inc., and Fairholme Focused Income Fund, a series of Fairholme Funds, Inc., as it may be further amended.
Fashion Show Core Principles means the Fashion Show Air Rights Core Principles in substantially the form attached hereto as Exhibit G to be entered into by GGP LP and Spinco on or prior to the Plan Effective Date.
Force Majeure means, with respect to a party, an event beyond the reasonable control of such party (or any Person acting on its behalf), and includes acts of God, storms, floods, riots, fires, sabotage, civil commotion or civil unrest, interference by civil or military authorities, acts of war (declared or undeclared) or armed hostilities or other national or international calamity or one (1) or more acts of terrorism or failure of energy sources or distribution facilities. Notwithstanding the foregoing, the receipt by a party of an unsolicited takeover offer or other acquisition proposal, even if unforeseen or unavoidable, and such partys response thereto shall not be deemed an event of Force Majeure.
Form 10 means the registration statement on Form 10 filed by Spinco with the SEC on August 25, 2010 to effect the registration of Spinco Common Stock pursuant to the Exchange Act in connection with the listing of Spincos common stock on the New York Stock Exchange, as such registration statement may be amended or supplemented from time to time.
GGP Accounts means the bank and brokerage accounts owned by GGP or any other member of the GGP Group.
GGP Business means the businesses and operations conducted immediately prior to the Effective Time by any member of the GGP Group that are not included in the Spinco Business.
GGP Disclosure Documents means any registration statement filed with the SEC in the name of any member of the GGP Group as registrant, and any prospectus, offering memorandum, offering circular or similar disclosure document, whether or not filed with the SEC or any other Governmental Authority, that is prepared in connection with any such registration statement.
GGP Group means GGP and each of its direct and indirect Subsidiaries immediately following implementation of the Spinoff Plan, expressly excluding the Spinco Group.
GGP Intellectual Property means (i) the GGP Name and GGP Marks and (ii) all other Intellectual Property that is owned by any member of the GGP Group immediately after the Effective Time.
GGP LP means GGP Limited Partnership, a Delaware limited partnership.
GGP Name and GGP Marks means the names, marks, trade dress, logos, monograms, domain names and other source or business identifiers of GGP or any of its Subsidiaries using or containing GGP (in block letters or otherwise), GGP either alone or in combination with other words or elements and all names, marks, trade dress, logos, monograms, domain names and other source or business identifiers confusingly similar to or embodying any of the foregoing either alone or in combination with other words or elements, together with the goodwill associated with any of the foregoing.
GGP Software means all Software that is owned by any member of the GGP Group immediately after the Effective Time.
GGP Technology means all Technology that is owned by any member of the GGP Group immediately after the Effective Time.
Governmental Authority means any nation or government, any state, municipality or other political subdivision thereof, and any entity, body, agency, commission, department, board, bureau, court, tribunal or other instrumentality, whether federal, state, local, domestic, foreign or multinational, exercising executive, legislative, judicial, regulatory, administrative or other similar functions of, or pertaining to, government and any executive official thereof.
Group means the GGP Group or the Spinco Group, as the context requires.
Hazardous Materials means any chemical, material, substance, waste, classified, regulated or otherwise classified as hazardous, toxic, pollutant or contaminant, or words of similar meaning or effect or any other material, substance or waste, that could result in liability under, or that is prohibited, limited or regulated by or pursuant to, any Environmental Law, and any natural or artificial substance (whether solid, liquid or gas, noise, ion, vapor or electromagnetic) which could cause harm to the environment, including petroleum, petroleum products and byproducts, asbestos and asbestos-containing materials, urea formaldehyde foam insulation, electronic, medical or infectious wastes, polychlorinated biphenyls, radon gas, radioactive substances, chlorofluorocarbons and all other ozone-depleting substances.
Information means information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, Contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memoranda and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data.
Insurance Policies means the insurance policies written by insurance carriers, including any self-insurance arrangements, pursuant to which Spinco or one (1) or more of its Subsidiaries (or their respective officers or directors) will be insured parties after the Effective Time.
Insurance Proceeds means those monies (i) received by an insured from an insurance carrier, (ii) paid by an insurance carrier on behalf of the insured or (iii) received (including by way of set off) from any third Person in the nature of insurance, contribution or indemnification in respect of any Liability; in any such case net of any applicable premium adjustments (including reserves and retrospectively rated premium adjustments) and net of any costs or expenses incurred in the collection thereof.
Intellectual Property means all of the following whether arising under the Laws of the United States or of any other foreign or multinational jurisdiction: (i) patents, patent applications (including patents issued thereon) and statutory invention registrations, including reissues, divisions, continuations, continuations in part, substitutions, renewals, extensions and reexaminations of any of the foregoing, and all rights in any of the foregoing provided by international treaties or conventions, (ii) trademarks, service marks, trade names, service names, trade dress, logos and other source or business identifiers, including all goodwill associated with any of the foregoing, and any and all common law rights in and to any of the foregoing, registrations and applications for registration of any of the foregoing, all rights in and to any of the foregoing provided by international treaties or conventions, and all reissues, extensions and renewals of any of the foregoing, (iii) Internet domain names, (iv) copyrightable works, copyrights, moral rights, mask work rights, database rights and design rights, in each case, other than Software, whether or not registered, and all registrations and applications for registration of any of the foregoing, and all rights in and to any of the foregoing provided by international treaties or conventions, (v) confidential and proprietary information, including trade secrets, invention disclosures, processes and know-how, in each case, other than Software, and (vi) intellectual property rights arising from or in respect of any Technology.
Investment Agreements means the Cornerstone Investment Agreement, Fairholme Investment Agreement and Pershing Investment Agreement.
IP Application means any application for the registration, issuance or perfection of any intellectual property rights, including patent applications, copyright applications and trademark applications.
IRS means the United States Internal Revenue Service.
Law means any national, supranational, federal, state, provincial, local or similar law (including common law), statute, code, order, ordinance, rule, regulation, treaty (including any income tax treaty), license, permit, authorization, approval, consent, decree, injunction, binding judicial or administrative interpretation or other requirement, in each case, enacted, promulgated, issued or entered by a Governmental Authority.
Liabilities means any and all debts, guarantees, liabilities, costs, expenses, interest and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, reserved or unreserved, or determined or determinable (now or in the future), including those arising under any Law, claim (including any third Person product liability claim), demand, Action, whether asserted or unasserted, or order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority and those arising under any Contract, agreement, obligation, indenture, instrument, lease, promise, arrangement, release, warranty, commitment or undertaking, or any fines, damages or equitable relief that is imposed, in each case, including all costs and expenses relating thereto.
Order means the order of the Bankruptcy Court approving the Distribution.
Pershing Investment Agreement means the Amended and Restated Stock Purchase Agreement, effective as of March 31, 2010, by and between GGP and Pershing Square
Capital Management, L.P. on behalf of Pershing Square, L.P., Pershing Square II, L.P., Pershing Square International, Ltd. and Pershing Square International V, Ltd., as it may be further amended.
Person means any individual, corporation, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company, Governmental Authority or other entity.
Plan Effective Date means the date on which distributions to holders of claims and equity interests commences pursuant to the Plan, or such other time as determined by GGP in accordance with Section 3.3 .
Pre-GGP Insurance Policies means third-party insurance policies held by GGP or its Subsidiaries that are in effect immediately after the Effective Time that satisfy each of the following conditions: (i) such insurance policy was acquired directly or indirectly by GGP as a result of GGPs acquisition of the holder of such insurance policy, and (ii) at the time of such acquisition, the business of the holder of such insurance policy related to some or all of the businesses comprising the Spinco Business.
Real Estate Agreements means the Ala Moana Condominium Declaration, the Ala Moana Development Agreement, the Arizona 2 Promissory Note, the Columbia Development Agreement and the Fashion Show Core Principles.
Record Date means [ · ], 2010.
Registration Rights Agreement means the Registration Rights Agreement in substantially the form attached hereto as Exhibit H , to be entered into by and between certain purchasers to be named therein and Spinco, as of the Effective Time.
Restructuring means the transfer of the Spinco Assets to Spinco and its Subsidiaries and the assumption of the Spinco Liabilities by Spinco and its Subsidiaries, and the transfer of certain Excluded Assets to GGP and its Subsidiaries and the assumption by GGP and its Subsidiaries of certain Excluded Liabilities, all as more fully described in this Agreement and the other Transaction Documents and including the steps set forth in the Spinoff Plan and the Plan.
Reverse Transition Services Agreement means the Reverse Transition Services Agreement in substantially the form attached hereto as Exhibit M-2 , to be entered into by and between GGP and Spinco, and/or any of their respective Subsidiaries, on or prior to the Plan Effective Date.
SEC means the United States Securities and Exchange Commission.
Securities Act means the United States Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time that reference is made.
Security Interest means any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer, or other encumbrance of any other nature.
Software means any and all (i) computer programs, including any and all software implementation of algorithms, models and methodologies, whether in source code, object code, human readable form or other form, (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (iii) descriptions, flow charts and other work products used to design, plan, organize and develop any of the foregoing, screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and icons, and (iv) documentation, including user manuals and other training documentation, relating to any of the foregoing.
Spinco Balance Sheet means Spincos unaudited pro forma condensed combined balance sheet in Item 2 of the Form 10.
Spinco Business means the management, operation and development of the properties and assets described in Item 1 of the Form 10, as conducted by any member of the Spinco Group immediately prior to the Effective Time.
Spinco Contracts means the following Contracts, to the extent in effect immediately prior to the Effective Time:
(a) any Contracts to which one or more members of the Spinco Group is a party; provided that no members of the GGP Group are also party to such Contracts;
(b) any Contracts that relate exclusively to the Spinco Business; and
(c) any Contract that is otherwise expressly contemplated pursuant to this Agreement or any of the other Transaction Documents to be assigned to Spinco or any member of the Spinco Group.
Spinco Disclosure Documents means any registration statement (including the Form 10) filed with the SEC in the name of any member of the Spinco Group as registrant, and any prospectus, offering memorandum, offering circular or similar disclosure document, whether or not filed with the SEC or any other Governmental Authority, that is prepared in connection with any such registration statement.
Spinco Employees means all Business Employees (as defined in the Employee Matters Agreement) and all Leased Employees (as defined in the Employee Leasing Agreement).
Spinco Group means Spinco and each of its direct and indirect Subsidiaries immediately following implementation of the Spinoff Plan.
[ Spinco Option Agreements means (i) that certain option agreement entered into between Spinco and Thomas Nolan and (ii) that certain option agreement entered into between Spinco and Adam Metz, pursuant to which Spinco will issue options to purchase Spinco
Common Stock to Thomas Nolan and Adam Metz, respectively, in accordance with the terms thereof.]
Stockholders Agreements means the letters substantially in the forms attached hereto as Exhibits I-1 I-3 , to be entered into by and between Spinco and each of REP Investments LLC (and/or its affiliates), The Fairholme Fund (and/or its affiliates) and Pershing Square Capital Management, L.P. (and/or its affiliates) on or prior to the Plan Effective Date.
Subleases means the subleases substantially in the forms attached hereto as Exhibits J-1 J-3 , to be entered into by and between GGP (and/or a Subsidiary thereof) and Spinco (and/or a Subsidiary thereof) on or prior to the Plan Effective Date.
Subsidiary or subsidiary means, with respect to any Person, any corporation, limited liability company, joint venture or partnership of which such Person (i) beneficially owns, either directly or indirectly, more than fifty percent (50%) of (A) the total combined voting power of all classes of voting securities of such Person, (B) the total combined equity interests or (C) the capital or profit interests, in the case of a partnership, or (ii) otherwise has the power to vote, either directly or indirectly, sufficient securities, or the contractual right, to elect a majority of the board of directors or similar governing body or the managing partner or managing member.
Surety Bond Indemnity Agreement means the Surety Bond Indemnity Agreement, in substantially the form attached hereto as Exhibit K , to be entered into by and between GGP and Spinco on or prior to the Plan Effective Date.
Tax has the meaning set forth in the Tax Matters Agreement.
Tax Attributes has the meaning set forth in the Tax Matters Agreement.
Tax Matters Agreement means the Tax Matters Agreement, in substantially the form attached hereto as Exhibit L , to be entered into by and between GGP and Spinco on or prior to the Plan Effective Date.
Technology means all technology, designs, formulae, algorithms, procedures, methods, discoveries, processes, techniques, ideas, know-how, research and development, technical data, tools, materials, specifications, processes, inventions (whether patentable or unpatentable and whether or not reduced to practice) apparatus, creations, improvements, works of authorship in any media, confidential, proprietary or non-public information, and other similar materials, and all recordings, graphs, drawings, reports, analyses and other writings, and other tangible embodiments of the foregoing in any form whether or not listed herein, in each case, other than Software.
Transaction Documents means this Agreement, the Ancillary Documents, the Registration Rights Agreement, the Warrant and Registration Rights Agreement and the Stockholders Agreements.
Transactions means, collectively, (i) the Restructuring, (ii) the Distribution, and (iii) all other transactions contemplated by this Agreement or any other Transaction Document.
Transition Services Agreement means the Transition Services Agreement in substantially the form attached hereto as Exhibit M-1 , to be entered into by and between GGP and Spinco, and/or any of their respective Subsidiaries, on or prior to the Plan Effective Date.
Warrant and Registration Rights Agreement means the Warrant and Registration Rights Agreement in substantially the form attached hereto as Exhibit N , to be entered into by and between Spinco and Mellon Investor Services LLC, as of the Effective Time.
1.2 Other Terms . For purposes of this Agreement, the following terms have the meanings set forth in the sections indicated.
Term |
|
Section |
|
|
|
Agreement |
|
Preamble |
Amended and Restated Bylaws |
|
3.1(c) |
Amended and Restated Certificate of Incorporation |
|
3.1(c) |
Assumed Actions |
|
6.5(a) |
Bankruptcy Cases |
|
Recitals |
Bankruptcy Closing |
|
7.1(a) |
Bankruptcy Court |
|
Recitals |
CPR |
|
7.3(a) |
CPR Arbitration Rules |
|
7.3(a) |
Dispute |
|
7.1(b) |
Distribution |
|
Recitals |
Excluded Assets |
|
2.2(b) |
Excluded Liabilities |
|
2.3(b) |
GGP |
|
Preamble |
GGP Accounts |
|
2.8(a) |
GGP Common Shares |
|
Recitals |
GGP Confidential Information |
|
6.2(b) |
GGP Indemnified Parties |
|
5.2 |
Guarantee Release |
|
5.10(b) |
Indemnified Party |
|
5.5(a) |
Indemnifying Party |
|
5.5(a) |
Indemnity Payment |
|
5.5(a) |
Initial Notice |
|
7.2 |
linked |
|
2.8(a) |
Non-Transferred Asset |
|
2.5(a) |
Non-Transferred Liability |
|
2.5(a) |
Petition Date |
|
2.10 |
Plan |
|
Recitals |
Private Letter Ruling |
|
Recitals |
Released Party |
|
2.6(a) |
Representatives |
|
6.2(a) |
Response |
|
7.2 |
Responsible Party |
|
2.6(a) |
Shared Information |
|
6.2(c) |
Term |
|
Section |
|
|
|
Special Damages |
|
5.8 |
Spinco |
|
Preamble |
Spinco Accounts |
|
2.8(a) |
Spinco Assets |
|
2.2(a) |
Spinco Common Stock |
|
Recitals |
Spinco Confidential Information |
|
6.2(a) |
Spinco Indemnified Parties |
|
5.3 |
Spinco Liabilities |
|
2.3(a) |
Spinoff Plan |
|
2.1(a) |
Third Party Claim |
|
5.6(a) |
Transfer Documents |
|
2.1(b) |
Transferee Party |
|
2.5(a) |
Transferor Party |
|
2.5(a) |
Transferred Actions |
|
6.5(b) |
ARTICLE II
THE RESTRUCTURING
2.1 Transfer of Assets; Assumption of Liabilities .
(a) Prior to the Distribution, in accordance with the plan and structure set forth on Schedule 2.1(a) (such plan and structure being referred to herein as the Spinoff Plan ) and to the extent not previously effected pursuant to the steps of the Spinoff Plan that have been completed prior to the date hereof:
(i) GGP shall, and shall cause its applicable Subsidiaries to, assign, transfer, convey and deliver to Spinco or certain of Spincos Subsidiaries designated by Spinco, and Spinco or such Subsidiaries shall accept from GGP and its applicable Subsidiaries, all of GGPs and such Subsidiaries respective direct or indirect right, title and interest in and to all Spinco Assets existing immediately prior to the Distribution in accordance with Schedule 2.1(a) ;
(ii) Spinco and certain of its Subsidiaries designated by Spinco shall accept, assume and agree faithfully to perform, discharge and fulfill all the Spinco Liabilities in accordance with their respective terms. Spinco and such Subsidiaries shall be responsible for all Spinco Liabilities, regardless of when or where such Spinco Liabilities arose or arise, or whether the facts on which they are based occurred prior to or subsequent to the Plan Effective Date, regardless of where or against whom such Spinco Liabilities are asserted or determined (including any Spinco Liabilities arising out of claims made by GGPs or Spincos respective directors, officers, employees, agents or Subsidiaries against any member of the GGP Group or the Spinco Group) or whether asserted or determined prior to the date hereof, and, except as set forth in Section 2.3(b)(iii) , regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the GGP Group or the Spinco Group, or any of their respective directors, officers, employees, agents or Subsidiaries;
(iii) GGP shall cause its applicable Subsidiaries to assign, transfer, convey and deliver to certain of its other Subsidiaries designated by GGP, and such other Subsidiaries shall accept from such applicable Subsidiaries, such applicable Subsidiaries respective right, title and interest in and to any Excluded Assets specified by GGP to be so assigned, transferred, conveyed and delivered, all as more fully set forth in the Spinoff Plan; and
(iv) GGP shall and shall cause GGP LP, as a Subsidiary of GGP, to accept and assume as designated by GGP, and agree faithfully to perform, discharge and fulfill certain Excluded Liabilities specified by GGP, and GGP and such Subsidiary shall be responsible for all Excluded Liabilities, regardless of when or where such Excluded Liabilities arose or arise, or whether the facts on which they are based occurred prior to or subsequent to the Plan Effective Date, regardless of where or against whom such Excluded Liabilities are asserted or determined (including any such Excluded Liabilities arising out of claims made by GGPs or Spincos respective directors, officers, employees, agents, Subsidiaries or Subsidiaries against any member of the GGP Group or the Spinco Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the GGP Group or the Spinco Group, or any of their respective directors, officers, employees, agents or Subsidiaries.
(b) In furtherance of the assignment, transfer, conveyance and delivery of the Assets and the assumption of the Liabilities in accordance with Section 2.1(a) , on the date that such Assets are assigned, transferred, conveyed or delivered or such Liabilities are assumed (i) GGP and Spinco, as applicable, shall execute and deliver, and shall cause their respective Subsidiaries to execute and deliver, such bills of sale, quitclaim deeds, stock powers, certificates of title, assignments of partnership interests, assignments of Contracts and other instruments of transfer, conveyance and assignment as and to the extent reasonably necessary to evidence the transfer, conveyance and assignment of all right, title and interest in and to such Assets to the applicable transferee thereof provided in the Spinoff Plan, and (ii) GGP and Spinco shall execute and deliver, and shall cause their respective Subsidiaries to execute and deliver, such assumptions of Contracts and other instruments of assumption as and to the extent necessary to evidence the valid and effective assumption of such Liabilities by the applicable assignee thereof provided in the Spinoff Plan. All of the foregoing documents contemplated by this Section 2.1(b) shall be referred to collectively herein as the Transfer Documents .
(c) Spinco hereby waives compliance by each and every member of the GGP Group with the requirements and provisions of any bulk-sale or bulk-transfer Laws of any jurisdiction that may otherwise be applicable with respect to the transfer or sale of any or all of the Spinco Assets to any member of the Spinco Group.
(d) GGP hereby waives compliance by each and every member of the Spinco Group with the requirements and provisions of any bulk-sale or bulk-transfer Laws of any jurisdiction that may otherwise be applicable with respect to the transfer or sale of any or all of the Excluded Assets to any member of the GGP Group.
2.2 Spinco Assets .
(a) For purposes of this Agreement, Spinco Assets shall mean (without duplication) the following Assets (except to the extent they constitute Excluded Assets):
(i) all Assets owned by any member of the Spinco Group immediately prior to the Effective Time, wherever such Assets may be located;
(ii) any cash and cash equivalents in the Spinco Accounts as of the Effective Time (and, for the avoidance of doubt, any cash and cash equivalents in the GGP Accounts as of the Effective Time that the parties mutually agree should have been in the Spinco Accounts as of the Effective Time pursuant to an express agreement set forth in this Agreement or any other Transaction Document), subject to Section 2.8(g) ;
(iii) any cash proceeds received directly or indirectly by GGP in respect of any sales of real property in the Summerlin master planned community in Clark County, Nevada to the extent such sales are closed by GGP or any of its then current Subsidiaries during the period beginning on September 7, 2010 and ending immediately prior to the Effective Time (net of any out-of-pocket costs, fees and expenses incurred in connection therewith);
(iv) all Spinco Contracts;
(v) subject to Section 6.3 , any rights or claims of any member of the Spinco Group under any of the Insurance Policies, including any rights or claims thereunder arising after the Effective Time in respect of any Insurance Policies;
(vi) any and all Assets reflected as Assets of Spinco and its Subsidiaries in the Spinco Balance Sheet, subject to any dispositions of such Assets subsequent to the date of the Spinco Balance Sheet;
(vii) any and all other Assets that are expressly provided by this Agreement, the Plan, the Spinoff Plan or any other Transaction Document as Assets to be transferred to Spinco or any other member of the Spinco Group; and
(viii) any and all Assets, other than Intellectual Property, Software and Technology, owned or held immediately prior to the Effective Time by GGP or any of its Subsidiaries that are used exclusively in the Spinco Business (the intention of this clause (viii) is only to rectify any inadvertent omission of transfer or conveyance of any Assets that, had the parties given specific consideration to such Asset as of the date hereof, would have otherwise been classified as a Spinco Asset; no Asset shall be deemed to be a Spinco Asset solely as a result of this clause (viii) if such Asset is within the category or type of Asset expressly covered by the terms of another Transaction Document unless the party claiming entitlement to such Asset can establish that the omission of the transfer or conveyance of such Asset was inadvertent, and no Asset shall be deemed a Spinco Asset solely as a result of this clause (viii) unless a claim with respect thereto is made by Spinco on or prior to the second (2nd) anniversary of the Plan Effective Date).
(b) For the purposes of this Agreement, Excluded Assets shall mean (without duplication):
(i) the GGP Intellectual Property, GGP Software and the GGP Technology;
(ii) any cash and cash equivalents (other than cash and cash equivalents specified in Section 2.2(a)(ii) and Section 2.2(a)(iii) );
(iii) any and all Assets that are expressly contemplated by this Agreement, the Plan, the Spinoff Plan or any other Transaction Document as Assets to be retained by GGP or any other member of the GGP Group;
(iv) any and all other Assets owned by any member of the GGP Group immediately prior to the Effective Time, wherever such Assets may be located (other than Spinco Assets); and
(v) any and all Assets owned or held immediately prior to the Effective Time by GGP or any of its Subsidiaries that are not used exclusively in the Spinco Business (the intention of this clause (v) is only to rectify any inadvertent transfer or conveyance of any Assets that, had the parties given specific consideration to such Asset as of the date hereof, would have otherwise been classified as an Excluded Asset; no Asset shall be deemed to be an Excluded Asset solely as a result of this clause (v) if such Asset is within the category or type of Asset expressly covered by the terms of another Transaction Document unless the party claiming entitlement to such Asset can establish that the transfer or conveyance of such Asset was inadvertent, and no Asset shall be deemed an Excluded Asset solely as a result of this clause (v) unless a claim with respect thereto is made by GGP on or prior to the second (2nd) anniversary of the Plan Effective Date).
2.3 Spinco Liabilities .
(a) For the purposes of this Agreement, Spinco Liabilities shall mean (without duplication) the following Liabilities (except to the extent they constitute Excluded Liabilities):
(i) any and all Liabilities of any member of the Spinco Group;
(ii) all Liabilities reflected as liabilities or obligations of Spinco or its Subsidiaries in the Spinco Balance Sheet, subject to any discharge of such Liabilities subsequent to the date of the Spinco Balance Sheet;
(iii) all other Liabilities that are expressly provided by this Agreement, the Plan, the Spinoff Plan or any other Transaction Document as Liabilities to be assumed by Spinco or any other member of the Spinco Group and all agreements or obligations of any member of the Spinco Group under this Agreement or any of the other Transaction Documents;
(iv) except as expressly provided in the Plan or this Agreement, all Liabilities to the extent relating to, arising out of or resulting from:
(A) the operation of the Spinco Business, as conducted at any time before, at or after the Effective Time (including any Liability relating to, arising out of or
resulting from any act or omission by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Persons authority));
(B) the operation of any business conducted by any member of the Spinco Group at any time before, at or after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Persons authority));
(C) any Spinco Assets (including any Liability relating to, arising out of or resulting from any Spinco Contracts); and
(D) any Liability relating to the protection or restoration of, or prevention of harm to, the environment or natural resources, the protection of human and occupational health and safety, or otherwise arising under Environmental Laws or relating to Hazardous Materials arising out of (i) the operation of the Spinco Business, as conducted at any time before, at or after, the Effective Time, (ii) any of the Spinco Assets, including any other businesses, operations or properties associated with the Spinco Assets (including any businesses, operations or properties for which a current or future owner or operator of the Spinco Assets or the Spinco Business may be alleged to be responsible as a matter of Law, contract or otherwise due to such ownership or operation of the Spinco Assets or Spinco Business), in any such case, whether arising before, at or after the Effective Time or (iii) the operation of any business conducted by any member of the Spinco Group at any time before, at or after the Effective Time; and
(v) all Liabilities arising out of any claim made by any Spinco Employee arising in the course of such employees employment against any member of the GGP Group or the Spinco Group, regardless of whether such claim arises prior to or after the Effective Time.
(b) For the purposes of this Agreement, Excluded Liabilities shall mean (without duplication):
(i) any and all Liabilities that are expressly contemplated by this Agreement, the Plan, the Spinoff Plan or any other Transaction Document as Liabilities to be retained or assumed by GGP or any other member of the GGP Group, and all agreements and obligations of any member of the GGP Group under this Agreement or any of the other Transaction Documents;
(ii) any and all Liabilities of a member of the GGP Group to the extent relating to, arising out of or resulting from any Excluded Assets;
(iii) any and all liabilities arising from a knowing violation of Law, intentional fraud or intentional misrepresentation by any member of the GGP Group or any of their respective directors, officers, employees or agents (other than any individual who at the time of such act was acting in his or her capacity as a director, officer, employee or agent of any member of the Spinco Group or on behalf of the Spinco Business);
(iv) all Liabilities arising out of any claim made by any employee of any member of the GGP Group other than a Spinco Employee arising in the course of such employees employment against any member of the GGP Group or the Spinco Group, regardless of whether such claim arises prior to or after the Effective Time;
(v) any and all Liabilities of any members of the GGP Group that are not Spinco Liabilities; and
(vi) any and all Liabilities arising from claims set forth in Class 4.2 of the Plan.
2.4 Approvals and Notifications of Spinco Assets and Liabilities .
(a) If and to the extent that the valid, complete and perfected transfer or assignment to the Spinco Group of any Spinco Assets or assumption by the Spinco Group of any Spinco Liabilities would be a violation of applicable Law or require any Approvals or Notifications in connection with the Restructuring, or the Distribution, that has not been obtained or made by the Effective Time then, unless the parties hereto mutually shall otherwise determine, the transfer or assignment to the Spinco Group of such Spinco Assets or the assumption by the Spinco Group of such Spinco Liabilities, as the case may be, shall be automatically deemed deferred and any such purported transfer, assignment or assumption shall be null and void until such time as all legal impediments are removed or such Approvals or Notifications have been obtained or made in accordance with this Section 2.4 hereof. Notwithstanding the foregoing, any such Spinco Assets or Spinco Liabilities shall continue to constitute Spinco Assets and Spinco Liabilities for all other purposes of this Agreement.
(b) If any transfer or assignment of any Spinco Asset or any assumption of any Spinco Liabilities intended to be transferred, assigned or assumed hereunder, as the case may be, is not consummated on or prior to the Plan Effective Date, whether as a result of the provisions of Section 2.4(a) or for any other reason, then, insofar as reasonably possible, the member of the GGP Group retaining such Spinco Asset or such Spinco Liability, as the case may be, shall thereafter hold such Spinco Asset or Spinco Liability, as the case may be, for the use and benefit of the member of the Spinco Group entitled thereto (at the expense of the member of the Spinco Group entitled thereto). In addition, the member of the GGP Group retaining such Spinco Asset or such Spinco Liability shall, insofar as reasonably possible and to the extent permitted by applicable Law, treat such Spinco Asset or Spinco Liability in the ordinary course of business in accordance with past practice and take such other actions as may be reasonably requested (pursuant to Section 2.5(b) and otherwise) by the member of the Spinco Group to whom such Spinco Asset is to be transferred or assigned, or which will assume such Spinco Liability, as the case may be, in order to place such member of the Spinco Group in a substantially similar position as if such Spinco Asset or Spinco Liability had been transferred, assigned or assumed as contemplated hereby and so that all the benefits and burdens relating to such Spinco Asset or Spinco Liability, as the case may be, including use, risk of loss, potential for gain, and dominion, control and command over such Spinco Asset or Spinco Liability, as the case may be, is to inure from and after the Effective Time to the Spinco Group.
(c) If and when the Approvals or Notifications, the absence of which caused the deferral of transfer or assignment of any Spinco Asset or the deferral of assumption of any Spinco Liability pursuant to Section 2.4(a) , are obtained or made, and, if and when any other legal impediments for the transfer or assignment of any Spinco Asset or the assumption of any Spinco Liability have been removed, the transfer or assignment of the applicable Spinco Asset or the assumption of the applicable Spinco Liability, as the case may be, shall be effected in accordance with the terms of this Agreement and/or the applicable Transaction Document.
(d) The reasonable out-of-pocket costs and expenses associated with any such transfers or assignments of Spinco Assets or assumption of Spinco Liabilities, including reasonable attorneys fees and all recording or similar fees, shall be borne by GGP until the six month anniversary of the date of the Distribution, and thereafter by Spinco; provided, that the GGO Promissory Note (as defined in the Investment Agreements) shall be issued, and subsequently adjusted, on the terms and conditions set forth in the Investment Agreements.
2.5 Transfer of Non-Transferred Assets; Assumption of Non-Transferred Liabilities .
(a) If at any time or from time to time following the Effective Time, any party hereto (or any member of such partys respective Group), shall receive or otherwise possess any Asset or Liability (including any Intellectual Property or Technology) that is allocated to any other Person pursuant to this Agreement or any other Transaction Document, such Person (or any member of such partys respective Group, the Transferor Party ) shall promptly transfer, or cause to be transferred, such Asset (each, a Non-Transferred Asset ) or Liability (each, a Non-Transferred Liability ), as the case may be, to the Person (or any member of such partys respective Group, the Transferee Party ) entitled to such Non-Transferred Asset or responsible for such Non-Transferred Liability, as the case may be, and the Transferee Party entitled to such Non-Transferred Asset or responsible for such Non-Transferred Liability shall accept such Non-Transferred Asset or accept, assume and agree faithfully to perform, discharge such Non-Transferred Liability, as applicable.
(b) In furtherance of the assignment, transfer, conveyance and delivery of Non-Transferred Assets and the assumption of Non-Transferred Liabilities set forth in this Section 2.5 , (i) the Transferor Party shall execute and deliver such bills of sale, quitclaim deeds, stock powers, certificates of title, assignments of contract and other instruments of transfer, conveyance and assignment as and to the extent necessary to evidence the transfer, conveyance and assignment of all of the Transferee Partys right, title and interest in and to the Non-Transferred Assets, and (ii) the Transferee Party shall execute and deliver such assumptions of contract and other instruments of assumption as and to the extent necessary to evidence the valid and effective assumption of the Non-Transferred Liabilities.
(c) To the extent that the transfer or assignment of any Non-Transferred Assets or the assumption of any Non-Transferred Liabilities requires any Approvals or Notifications, the parties shall use their commercially reasonable efforts to obtain or make such Approvals or Notifications as soon as reasonably practicable; provided , however , that, except to the extent expressly provided in any of the other Transaction Documents, no member of the GGP Group or Spinco Group shall be obligated to contribute capital or pay any consideration in any
form (including providing any letter of credit, guaranty or other financial accommodation) to any Person in order to obtain or make such Approvals or Notifications.
(d) If and to the extent that the valid, complete and perfected transfer or assignment to the Transferee Party of any Non-Transferred Assets or the assumption by the Transferee Party of any Non-Transferred Liabilities would be a violation of applicable Law or require any material Approval or Notification that has not been made or obtained on or before the Plan Effective Date, then, unless the parties hereto mutually shall otherwise determine, the transfer or assignment to the Transferee Party of such Non-Transferred Assets or the assumption by the Transferee Party of such Non-Transferred Liabilities shall be automatically deemed deferred and any such purported transfer, assignment or assumption shall be null and void until such time as all legal impediments are removed or such Approvals or Notifications have been obtained or made. Notwithstanding the foregoing, any such Non-Transferred Assets that are Excluded Assets or Non-Transferred Liabilities that are Excluded Liabilities shall continue to constitute Excluded Assets or Excluded Liabilities for all other purposes of this Agreement, and any such Non-Transferred Assets that are Spinco Assets or Non-Transferred Liabilities that are Spinco Liabilities shall continue to constitute Spinco Assets or Spinco Liabilities for all other purposes of this Agreement.
(e) If any transfer or assignment of any Non-Transferred Asset under this Section 2.5 , is not consummated on or prior to the Plan Effective Date, whether as a result of the provisions of Section 2.5(d) or for any other reason, then, insofar as reasonably possible, the Transferor Party retaining such Non-Transferred Asset, shall thereafter hold such Non-Transferred Asset for the use and benefit of the Transferee Party entitled thereto (at the expense of the member of the Transferee Party entitled thereto). In addition, the Transferor Party retaining such Non-Transferred Asset shall, insofar as reasonably possible and to the extent permitted by applicable Law, treat such Non-Transferred Asset in the ordinary course of business in accordance with past practice and take such other actions as may be reasonably requested by the Transferee Party to whom such Non-Transferred Asset is to be transferred or assigned, in order to place such Transferee Party in a substantially similar position as if such Non-Transferred Asset had been transferred as contemplated hereby and so that all the benefits and burdens relating to such Non-Transferred Asset, including use, risk of loss, potential for gain, and dominion, control and command over such Non-Transferred Asset, is to inure from and after the Effective Time to the Transferee Party.
(f) If and when the Approvals or Notifications, the absence of which caused the deferral of transfer or assignment of any Non-Transferred Asset or the deferral of assumption of any Non-Transferred Liability, are obtained or made, and, if and when any other legal impediments for the transfer or assignment of any Non-Transferred Assets or the assumption of any Non-Transferred Liabilities have been removed, the transfer or assignment of the applicable Non-Transferred Asset or the assumption of the applicable Non-Transferred Liability, as the case may be, shall be effected in accordance with the terms of this Agreement and/or the applicable Transaction Document.
(g) The reasonable out-of-pocket costs and expenses associated with any such transfers or assignments of Non-Transferred Assets or assumption of Non-Transferred Liabilities, including reasonable attorneys fees and all recording or similar fees, shall be borne
by the party that would have been responsible for such costs and expenses if the transfer, assignment or assumption had occurred at or prior to the Effective Time.
2.6 Novation of Liabilities .
(a) Each of GGP and Spinco, at the request of the other, shall use its commercially reasonable efforts to obtain, or to cause to be obtained, as soon as reasonably practicable, any consent, substitution, approval or amendment required to novate or assign all obligations under agreements, leases, licenses and other obligations or Liabilities that constitute Excluded Liabilities or Spinco Liabilities, as applicable, or to obtain in writing the unconditional release of all parties to such arrangements other than any member of the GGP Group or the Spinco Group, as applicable (the Released Party ), so that, in any such case, the members of the GGP Group or the Spinco Group, as applicable (the Responsible Party ) will be solely responsible for such Liabilities; provided , however , that, except as otherwise expressly provided in any of the other Transaction Documents, neither GGP nor Spinco shall be obligated to contribute any capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any third Person from whom any such consent, substitution, approval, amendment or release is requested.
(b) If the Released Party is unable to obtain, or to cause to be obtained, any such required consent, substitution, approval, amendment or release, the Released Party shall continue to be bound by such agreement, lease, license or other obligation or Liability and, unless not permitted by the terms thereof or by Law, the Responsible Party shall, as agent or subcontractor for the Released Party, pay, perform and discharge fully all the obligations or other Liabilities of the Released Party thereunder from and after the Effective Time. The Responsible Party shall indemnify the Released Party and any other members of its respective Group and each of their respective directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing and hold each of them harmless against any Liabilities arising in connection therewith; provided , that pursuant hereto the Responsible Party shall have no obligation to indemnify any Person that has engaged in any knowing violation of Law, fraud or misrepresentation in connection therewith. The Released Party shall cause each member of its respective Group, without further consideration, to pay and remit, or cause to be paid or remitted, to the Responsible Party or its designee promptly all money, rights and other consideration received by it or any member of its respective Group in respect of the document, agreement, Contract, obligation or Liability that gave rise to such performance (unless any such consideration is an Asset expressly allocated to the Released Party pursuant to this Agreement). If and when any such consent, substitution, approval, amendment or release shall be obtained or the obligations under such agreement, lease, license or other obligations or Liabilities shall otherwise become assignable or able to be novated, the Released Party shall promptly assign, or cause to be assigned, all its obligations and other Liabilities thereunder or any obligations of any member of its respective Group without payment of further consideration and the Responsible Party, without the payment of any further consideration, shall, or shall cause another member of its respective Group to, assume such obligations.
2.7 Termination of Agreements and Arrangements .
(a) Except as set forth in Section 2.7(b) , in furtherance of the releases and other provisions of Section 5.1 , Spinco and each member of the Spinco Group, on the one hand, and GGP and each member of the GGP Group, on the other hand, hereby terminate, effective as of the Effective Time, any and all agreements, arrangements, commitments or understandings, whether or not in writing, solely between or among Spinco and/or any member of the Spinco Group, on the one hand, and GGP and/or any member of the GGP Group, on the other hand, effective as of the Effective Time; provided , however , to the extent that termination of any such agreement, arrangement, commitment or understanding is inconsistent with any other Transaction Document, such termination shall be determined pursuant to the applicable Transaction Document. Notwithstanding the foregoing, the Groups shall settle all intercompany receivables and payables as of the Effective Time, and after the Effective Time neither Group shall owe any further amounts to the other Group in respect of such intercompany receivables and payables. No such terminated agreement, arrangement, commitment or understanding (including any provision thereof which purports to survive termination) shall be of any further force or effect after the Effective Time (or, to the extent contemplated by the proviso to the immediately preceding sentence, after the effective date of the applicable Transaction Document). Each party shall, at the reasonable request of any other party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing.
(b) The provisions of Section 2.7(a) shall not apply to any of the following agreements, arrangements, commitments or understandings (or to any of the provisions thereof):
(i) this Agreement and the other Transaction Documents (and each other agreement or instrument expressly contemplated by this Agreement or any other Transaction Document to be entered into or continued by any of the parties hereto or any of the members of their respective Groups);
(ii) any agreements, arrangements, commitments or understandings to which any Person other than the parties hereto and their respective wholly-owned Subsidiaries is a party (it being understood that (A) directors qualifying shares, preferred or similar interests or shares issued by entities issuing such shares to satisfy REIT qualification requirements or the Code, will be disregarded for purposes of determining whether a Subsidiary is wholly owned and (B) to the extent that the rights and obligations of the parties and the members of their respective Groups under any such agreements, arrangements, commitments or understandings constitute Spinco Assets or Spinco Liabilities, they shall be assigned pursuant to Section 2.1 ); and
(iii) any other agreements, arrangements, commitments or understandings that this Agreement, the Plan, the Spinoff Plan or any other Transaction Document expressly contemplates will survive the Plan Effective Date.
2.8 Bank Accounts; Cash Balances .
Except as may be set forth in the Transition Services Agreement:
(a) GGP and Spinco each agrees to take, or cause the respective members of their respective Groups to take, to be effective at the Effective Time (or such earlier time as GGP
and Spinco may agree), all actions necessary to amend all Spinco Contracts governing each bank and brokerage account owned by Spinco or any other member of the Spinco Group (collectively, the Spinco Accounts ), so that such Spinco Accounts, if currently linked (whether by automatic withdrawal, automatic deposit or any other authorization to transfer funds from or to, hereinafter linked ) to any bank or brokerage account owned by GGP or any other member of the GGP Group (collectively, the GGP Accounts ), are de-linked from the GGP Accounts effective on the Plan Effective Date.
(b) GGP and Spinco each agrees to take, or cause the respective members of their respective Groups to take, to be effective at the Effective Time (or such earlier time as GGP and Spinco may agree), all actions necessary to amend all Spinco Contracts governing the GGP Accounts so that such GGP Accounts, if currently linked to a Spinco Account, are de-linked from the Spinco Accounts.
(c) It is intended that, following consummation of the actions contemplated by Sections 2.8(a) and 2.8(b) , there will continue to be in place a centralized cash management process pursuant to which the Spinco Accounts will be managed centrally and funds collected will be transferred into one (1) or more centralized accounts maintained by Spinco.
(d) It is intended that, following consummation of the actions contemplated by Sections 2.8(a) and 2.8(b) , there will continue to be in place a centralized cash management process pursuant to which the GGP Accounts will be managed centrally and funds collected will be transferred into one (1) or more centralized accounts maintained by GGP.
(e) With respect to any outstanding checks issued by GGP, Spinco, or any of their respective Subsidiaries prior to the Effective Time, such outstanding checks shall be honored following the Effective Time by the Person or Group owning the account on which the check is drawn with prompt reimbursement from the Person or Group that issued such check, if applicable, in each case subject to the express provisions in the Plan or the Investment Agreements regarding payment of claims.
(f) As between GGP and Spinco (and the members of their respective Groups) all payments and reimbursements received after the Effective Time by either party (or member of its Group) in the ordinary course of business that relate to a business, Asset or Liability of the other party (or member of its Group), shall be held by such party in trust for the use and benefit of the party entitled thereto and, promptly upon receipt by such party of any such payment or reimbursement, such party shall pay over, or shall cause the applicable member of its Group to pay over to the other party the amount of such payment or reimbursement without right of set-off.
(g) Each of GGP and Spinco agrees that, prior to the Effective Time, GGP or any other member of the GGP Group may withdraw any and all cash or cash equivalents (other than the cash proceeds specified in Section 2.2(a)(iii) ) from the Spinco Accounts for the benefit of GGP or any other member of the GGP Group; provided , however , that neither GGP nor any other member of the GGP Group shall be entitled to withdraw any cash or cash equivalents from any Spinco Account if, and to the extent that, the amount of such cash or cash equivalents is necessary to cover any checks or wires made from or against (or to be made from or against) a
Spinco Account as of, or prior to, the Effective Time and which has not been paid or withdrawn as of the Effective Time.
2.9 Replacement of Letters of Credit Relating to the Spinco Business . Spinco shall use its commercially reasonable efforts to replace, as promptly as practicable following the Effective Time, each letter of credit relating to the Spinco Business in effect immediately prior to the Effective Time with a new letter of credit that does not involve any recourse, contingent or otherwise, to any member of the GGP Group.
2.10 Payment of Certain Ordinary Course, Pre-Petition Obligations . Notwithstanding Section 2.3 hereof, with respect to any claims for ordinary course obligations of any member of the Spinco Group that were incurred prior to the filing of the Bankruptcy Cases (the Petition Date ) that are subject to the Plan but have been neither allowed nor disallowed as of the Plan Effective Date, GGP shall satisfy, or cause to be satisfied, such claims if and to the extent they become allowed claims; provided , however , that the aggregate Liability of the GGP Group with respect to this Section 2.10 shall not exceed a cap of $5,000,000 (it being understood that Liabilities allocated to the GGP Group in Section 2.3(b)(vi) shall not count towards such cap), and any Liabilities related to such claims in excess of such cap shall be borne by the Spinco Group.
2.11 Payment of Certain Legal Fees of K&L Gates LLP . GGP shall pay, or cause to be paid, the reasonable legal fees of K&L Gates LLP in connection with the Transactions, but only to the extent such fees are incurred on or prior to the Plan Effective Date and set forth on an itemized invoice delivered to GGP; provided , however , that the aggregate payment obligation of the GGP Group with respect to this Section 2.11 shall not exceed a cap of $600,000, and any payment obligations in excess of such cap shall be borne by the Spinco Group.
2.12 Mechanics and Materialmans Liens . In connection with any financing, sale or other transfer involving all or any portion of any Asset of any member of the Spinco Group, GGP shall, promptly following request by Spinco, bond off, cause the removal from record of or otherwise address in a commercially reasonable manner, which is reasonably acceptable to Spinco, to the applicable lender, purchaser or other transferee, and to any title insurance company involved in such financing, sale or other transfer, any mechanics or materialmans liens affecting such Asset for which GGP is responsible for payment pursuant to the terms of this Agreement. Notwithstanding the foregoing, in the event that GGP chooses to bond off any such lien, GGP may request that Spinco be responsible for such bonding process, in which event GGP agrees to promptly reimburse Spinco for all actual third party costs incurred by Spinco or by any member of the Spinco Group in connection therewith.
2.13 Disclaimer of Representations and Warranties . EACH OF GGP (ON BEHALF OF ITSELF AND EACH MEMBER OF THE GGP GROUP) AND SPINCO (ON BEHALF OF ITSELF AND EACH MEMBER OF THE SPINCO GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN ANY OTHER TRANSACTION DOCUMENT, NO PARTY TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY OTHER AGREEMENT OR DOCUMENT CONTEMPLATED BY THIS AGREEMENT, OR OTHERWISE, IS REPRESENTING OR WARRANTING TO ANY OTHER PARTY HERETO OR THERETO IN ANY WAY AS TO
THE ASSETS, BUSINESSES OR LIABILITIES TRANSFERRED OR ASSUMED AS CONTEMPLATED HEREBY OR THEREBY, AS TO ANY APPROVALS OR NOTIFICATIONS REQUIRED IN CONNECTION HEREWITH OR THEREWITH, AS TO THE VALUE OR FREEDOM FROM ANY SECURITY INTERESTS OF, OR ANY OTHER MATTER CONCERNING, ANY ASSETS OF SUCH PARTY, OR AS TO THE ABSENCE OF ANY DEFENSES OR RIGHT OF SETOFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY ACTION OR OTHER ASSET, INCLUDING ANY ACCOUNTS RECEIVABLE, OF ANY PARTY, OR AS TO THE LEGAL SUFFICIENCY OF ANY ASSIGNMENT, DOCUMENT, CERTIFICATE OR INSTRUMENT DELIVERED HEREUNDER TO CONVEY TITLE TO ANY ASSET OR THING OF VALUE UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF. EXCEPT AS MAY EXPRESSLY BE SET FORTH IN THIS AGREEMENT OR IN ANY TRANSACTION DOCUMENT, ALL SUCH ASSETS ARE BEING TRANSFERRED ON AN AS IS, WHERE IS BASIS (AND, IN THE CASE OF ANY REAL PROPERTY, BY MEANS OF A QUITCLAIM OR SIMILAR FORM DEED OR CONVEYANCE) AND THE RESPECTIVE TRANSFEREES SHALL BEAR THE ECONOMIC AND LEGAL RISKS THAT (I) ANY CONVEYANCE SHALL PROVE TO BE INSUFFICIENT TO VEST IN THE TRANSFEREE GOOD TITLE, FREE AND CLEAR OF ANY SECURITY INTEREST, AND (II) ANY NECESSARY APPROVALS OR NOTIFICATIONS ARE NOT OBTAINED OR MADE OR THAT ANY REQUIREMENTS OF LAWS OR JUDGMENTS ARE NOT COMPLIED WITH.
ARTICLE III
THE DISTRIBUTION
3.1 Actions on or Prior to the Plan Effective Date . Prior to the Distribution, the following shall occur:
(a) Listing . Spinco shall prepare, file and pursue an application to permit listing of the Spinco Common Stock on the New York Stock Exchange.
(b) Bankruptcy . The Bankruptcy Court shall have entered an order confirming the Plan and there shall not be a stay or injunction (or similar prohibition) in effect with respect to such order.
(c) Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws . (i) GGP and Spinco shall each take all necessary action that may be required to provide for the adoption by Spinco of the Amended and Restated Certificate of Incorporation of Spinco in substantially the form attached to the Plan (the Amended and Restated Certificate of Incorporation ), and the Amended and Restated Bylaws of Spinco in substantially the form attached to the Plan (the Amended and Restated Bylaws ) and (ii) Spinco shall file the Amended and Restated Certificate of Incorporation of Spinco with the Secretary of State of the State of Delaware.
(d) The Distribution Agent . GGP shall enter into a distribution agent agreement with the Distribution Agent or otherwise provide instructions to the Distribution Agent regarding the Distribution.
(e) Stock-Based Employee Benefit Plans . At or prior to the Effective Time, GGP and Spinco shall take all actions as may be necessary to approve the stock-based employee benefit plans of Spinco in order to satisfy the requirements of Rule 16b-3 under the Exchange Act and the applicable rules and regulations of the New York Stock Exchange.
3.2 Conditions Precedent to Distribution . In no event shall the Distribution occur unless each of the following conditions shall have been satisfied (or waived by GGP, in whole or in part, in its sole discretion):
(a) the Restructuring shall have been completed in accordance with the Plan;
(b) the Plan Effective Date shall have occurred;
(c) the Private Letter Ruling shall have been received and shall not have been revoked or modified in any material respect;
(d) the Form 10 filed with the SEC shall have been declared effective by the SEC, no stop order suspending the effectiveness of the Form 10 shall be in effect, no proceedings for such purpose shall be pending before or threatened by the SEC;
(e) the Spinco Common Stock to be delivered in the Distribution shall have been approved for listing on the New York Stock Exchange, subject to official notice of issuance;
(f) each of the other Transaction Documents shall have been duly executed and delivered by the parties thereto;
(g) no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing consummation of the Distribution or any of the transactions related thereto, including the Restructuring, shall be in effect;
(h) prior to the Distribution, all of GGPs representatives or designees shall have resigned or been removed as officers from all members of the Spinco Group, and all of Spincos representatives or designees shall have resigned or been removed as officers from all members of the GGP Group;
(i) the designees of REP Investments LLC (or its affiliates) and Pershing Square Capital Management, L.P. (or its affiliates), as set forth in the Cornerstone Investment Agreement and the Pershing Investment Agreement, shall have been appointed to the to the board of directors of Spinco; and
(j) no event or development shall have occurred or exist that, in the judgment of the board of directors of GGP, in its sole discretion, makes it inadvisable to effect the Restructuring, the Distribution or the other transactions contemplated hereby.
Each of the foregoing conditions is for the sole benefit of GGP and shall not give rise to or create any duty on the part of GGP or its board of directors to waive or not to waive any such condition or to effect the Restructuring and the Distribution, or in any way limit GGPs rights of
termination set forth in this Agreement. Any determination made by GGP prior to the Distribution concerning the satisfaction or waiver of any or all of the conditions set forth in this Section 3.2 shall be conclusive and binding on the parties.
3.3 The Distribution .
(a) Subject to the terms and conditions set forth in this Agreement and the Plan, (i) on or prior to the Plan Effective Date, GGP shall deliver to the Distribution Agent for the benefit of holders of record of GGP Common Shares on the Record Date, book-entry transfer authorizations for such number of the issued and outstanding shares of Spinco Common Stock necessary to effect the Distribution, (ii) the Distribution shall be effective at the Effective Time and (iii) GGP shall instruct the Distribution Agent to distribute, on or as soon as practicable after the Effective Time, to each holder of record of GGP Common Shares as of the Record Date, by means of a pro rata distribution, 0.0983 shares of Spinco Common Stock for every one (1) GGP Common Share; provided , however , that no fractional shares shall be issued. Following the Plan Effective Date, Spinco agrees to provide all book-entry transfer authorizations for shares of Spinco Common Stock that GGP or the Distribution Agent shall require (after giving effect to Section 3.4 ) in order to effect the Distribution.
(b) Notwithstanding anything to the contrary contained in this Agreement, GGP shall, in its sole and absolute discretion, determine the Plan Effective Date and all terms of the Distribution, including the form, structure and terms of any transactions and/or offerings to effect the Distribution and the timing of and conditions to the consummation thereof. In addition, GGP may at any time and from time to time until the completion of the Distribution decide to abandon the Distribution or modify or change the terms of the Distribution, including by accelerating or delaying the timing of the consummation of all or part of the Distribution.
(c) The parties agree that this Agreement constitutes a plan of reorganization within the meaning of Treasury Regulation Section 1.368-2(g).
(d) The parties agree that the steps of the Spinoff Plan shall be effected in the order and manner prescribed in the Spinoff Plan and the occurrence of each step shall be conditioned upon the completion of the preceding step.
3.4 GGP Authorization of Agreement . GGP has all requisite power, authority and legal capacity to execute and deliver this Agreement and each other Transaction Document to be executed by GGP in connection with the consummation of Distribution, and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and each of the Transaction Documents, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized and approved by all required action on the part of GGP. This Agreement has been, and each of the Transaction Documents will be at or prior to the Closing, duly and validly executed and delivered by GGP and (assuming due authorization, execution and delivery by Spinco) this Agreement constitutes, and each of the Transaction Documents when so executed and delivered will constitute, legal, valid and binding obligations of GGP, enforceable against GGP in accordance with its terms.
ARTICLE IV
ACCESS TO INFORMATION
4.1 Agreement for Exchange of Information; Archives .
(a) After the Effective Time (or such earlier time as the parties may agree) and until the fifth (5th) anniversary of the date of this Agreement, each of GGP and Spinco, on behalf of its respective Group, agrees to provide, or cause to be provided, to the other Group, as soon as reasonably practicable after written request therefor, any Information in the possession or under the control of such respective Group which the requesting party reasonably needs (i) to comply with reporting, disclosure, filing or other requirements imposed on the requesting party (including under applicable securities Laws) by a Governmental Authority having jurisdiction over the requesting party, (ii) to carry out its human resources functions or to establish, assume or administer its benefit plans or payroll functions, (iii) in order to satisfy audit, accounting or other similar requirements (except as otherwise provided in Section 4.1(d) ), or (iv) to comply with its obligations under this Agreement or any other Transaction Document; provided , however , that in the event that any party determines that any such provision of Information could be commercially detrimental, violate any Law or agreement, or waive any attorney-client privilege, the parties shall take all reasonable measures to permit the compliance with such obligations in a manner that avoids any such harm or consequence.
(b) After the Effective Time (or such earlier time as the parties may agree) and until the fifth (5th) anniversary of the date of this Agreement, (i) Spinco and its authorized accountants, counsel and other designated representatives shall have access during regular business hours (as in effect from time to time) to the documents and objects of historic significance that relate to the Spinco Business that are located in archives retained or maintained by any member of the GGP Group, and (ii) Spinco may obtain copies (but not originals unless it is a Spinco Asset) of documents for bona fide business purposes and may obtain objects for exhibition purposes for commercially reasonable periods of time if required for such bona fide business purposes; provided , that Spinco shall cause any such objects to be returned promptly in the same condition in which they were delivered to Spinco and Spinco shall comply with any rules, procedures or other requirements, and shall be subject to any restrictions (including prohibitions on removal of specified objects), that are then applicable to GGP; provided , further , that, notwithstanding any provisions of this Section 4.1(b) , any request for Information or access to Representatives in connection with any Third Party Claims shall be subject to Section 4.7 . Nothing herein shall be deemed to restrict the access of any member of the GGP Group to any such documents or objects or to impose any liability on any member of the GGP Group if any such documents or objects are not maintained or preserved by GGP.
(c) After the Effective Time (or such earlier time as the parties may agree) and until the fifth (5th) anniversary of the date of this Agreement, (i) GGP and its authorized accountants, counsel and other designated representatives shall have access during regular business hours (as in effect from time to time) to the documents and objects of historic significance that relate to the GGP Business that are located in archives retained or maintained by any member of the Spinco Group and (ii) GGP may obtain copies (but not originals unless it is not a Spinco Asset) of documents for bona fide business purposes and may obtain objects for
exhibition purposes for commercially reasonable periods of time if required for such bona fide business purposes; provided , that GGP shall cause any such objects to be returned promptly in the same condition in which they were delivered to GGP and GGP shall comply with any rules, procedures or other requirements, and shall be subject to any restrictions (including prohibitions on removal of specified objects), that are then applicable to Spinco; provided , further , that, notwithstanding any provisions of this Section 4.1(c) , any request for Information or access to Representatives in connection with any Third Party Claims shall be subject to Section 4.7 . Nothing herein shall be deemed to restrict the access of any member of the Spinco Group to any such documents or objects or to impose any liability on any member of the Spinco Group if any such documents or objects are not maintained or preserved by Spinco.
(d) Without limiting the generality of the foregoing, until the second (2nd) Spinco fiscal year end occurring after the Effective Time (and for a reasonable period of time afterwards as required for each of GGP and Spinco to prepare consolidated financial statements or complete a financial statement audit for the fiscal year during which the Plan Effective Date occurs), each of GGP and Spinco shall use its commercially reasonable efforts to cooperate with the other partys Information requests to enable (i) the other party to meet its timetable for dissemination of its earnings releases, financial statements and managements assessment of the effectiveness of its disclosure controls and procedures and its internal control over financial reporting in accordance with Items 307 and 308, respectively, of Regulation S-K, and (ii) the other partys accountants to timely complete their review of the quarterly financial statements and audit of the annual financial statements, including, to the extent applicable to such party, its auditors audit of its internal control over financial reporting and managements assessment thereof in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the SECs and Public Company Accounting Oversight Boards rules and auditing standards thereunder.
4.2 Ownership of Information . Any Information owned by one Group that is provided to a requesting party pursuant to Section 4.1 shall be deemed to remain the property of the providing party, except where such Information is an Asset of the requesting party pursuant to the provisions of this Agreement or any other Transaction Document. Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any Information requested or provided pursuant to Section 4.1 .
4.3 Compensation for Providing Information . The party requesting Information agrees to reimburse the other party for the reasonable out-of-pocket costs and expenses, if any, of creating, gathering and copying such Information (including any costs and expenses incurred in any review of Information for purposes of protecting the privileged Information of the providing party or in connection with the restoration of backup tapes for purposes of providing the requested Information), to the extent that such costs are incurred in connection with such other partys provision of Information in response to the requesting party.
4.4 Record Retention .
(a) To facilitate the possible exchange of Information pursuant to this Article IV and other provisions of this Agreement after the Effective Time, the parties agree to use their commercially reasonable efforts to retain all Information in their respective possession or control in accordance with the policies or ordinary course practices of GGP or Spinco, as
applicable, in effect on the Plan Effective Date (including any Information that is subject to a Litigation Hold issued by either party prior to the Plan Effective Date) or such other policies or practices as may be reasonably adopted by the appropriate party after the Effective Time.
(b) Except in accordance with its, or its applicable Subsidiaries, policies and ordinary course practices, no party will destroy, or permit any of its Subsidiaries to destroy, any Information that would, in accordance with such policies or ordinary course practices, be archived or otherwise filed in a centralized filing system by such party or its applicable Subsidiaries; provided , however , that (i) in the case of any Information relating to employee benefits, no party will destroy, or permit any of its Subsidiaries to destroy, any such Information until the expiration of the applicable statute of limitations (giving effect to any extensions thereof), (ii) in the case of any Information relating to a pending or threatened Action (including any pending or threatened investigation by a Governmental Authority) that is known to the members of the Group in possession of such Information, the parties shall comply with the requirements of the applicable Litigation Hold ( provided , that, with respect to any pending or threatened Action arising after the Plan Effective Date, the requirements of this clause (ii) shall apply only to the extent that whichever member of the GGP Group or the Spinco Group that is in possession of such Information has been notified in writing pursuant to a Litigation Hold by the other party of such pending or threatened Action) and (iii) no party will destroy, or permit any of its Subsidiaries to destroy, any Information required to be retained by applicable Law.
(c) In the event of either partys or any of its Subsidiaries inadvertent failure to comply with its applicable document retention policies as required under this Section 4.4 , such party shall be liable to the other party solely for the amount of any monetary fines or penalties imposed or levied against such other party by a Governmental Authority (which fines or penalties shall not include any Liabilities asserted in connection with the claims underlying the applicable Action, other than fines or penalties resulting from any claim of spoliation) as a result of such other partys inability to produce Information caused by such inadvertent failure and, notwithstanding Sections 5.2 and 5.3 , shall not be liable to such other party for any other Liabilities.
4.5 Liability . No party shall have any liability to any other party in the event that any Information exchanged or provided pursuant to this Agreement which is an estimate or forecast, or which is based on an estimate or forecast, is found to be inaccurate in the absence of willful misconduct by the party providing such Information.
4.6 Other Agreements Providing for Exchange of Information .
(a) The rights and obligations granted under this Article IV are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange, retention or confidential treatment of Information set forth in any other Transaction Document.
(b) Any party that receives, pursuant to a request for Information in accordance with this Article IV , Information that is not relevant to its request shall (i) either destroy such Information or return it to the providing party and (ii) deliver to the providing party a certificate certifying that such Information was destroyed or returned, as the case may be,
which certificate shall be signed by an officer of the requesting party holding the title of vice president or above.
(c) When any Information provided by one Group to the other (other than Information provided pursuant to Section 4.4 ) is no longer needed for the purposes contemplated by this Agreement or any other Transaction Document and is no longer required to be retained by applicable Law, the receiving party will promptly after request of the other party either return to the other party all Information in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or certify to the other party that it has destroyed such Information (and such copies thereof and such notes, extracts or summaries based thereon).
(d) The parties agree to comply with the requirements of the Health Insurance Portability and Accountability Act of 1996, as amended, in connection with the sharing of Information pursuant to this Article IV , including by entering into any business associate agreements that may be required for such compliance.
4.7 Production of Witnesses; Records; Cooperation .
(a) After the Effective Time (or such earlier time as the parties may agree), except in the case of an adversarial Action by one party against another party, each party hereto shall use its commercially reasonable efforts to make available to each other party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any Action or IP Application in which the requesting party may from time to time be involved, regardless of whether such Action or IP Application is a matter with respect to which indemnification may be sought hereunder. The requesting party shall bear all out-of-pocket costs and expenses in connection therewith.
(b) If an Indemnifying Party chooses to defend or to seek to compromise or settle any Third Party Claim, the Indemnified Party shall use commercially reasonable efforts to make available to such Indemnifying Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such persons (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with such defense, settlement or compromise, or the prosecution, evaluation or pursuit thereof, as the case may be, and shall otherwise cooperate in such defense, settlement or compromise, or such prosecution, evaluation or pursuit, as the case may be. The Indemnifying Party shall bear all out-of-pocket costs and expenses in connection therewith.
(c) In furtherance and without limiting the provisions of Sections 4.7(a) and (b) , the parties shall cooperate and consult to the extent reasonably necessary with respect to (i) any Third Party Claims and (ii) any written request for access to Information or
Representatives of the other party and members of such other partys Group in connection with any Third Party Claim; provided that such request shall sufficiently identify the applicable custodian of the requested Information and, to the extent known to the requesting party, the date of, or any applicable time periods relating to, the requested Information and any other descriptions necessary to sufficiently identify the requested Information.
(d) Without limiting any provision of this Section 4.7 , each of the parties agrees to reasonably cooperate, and to cause each member of its respective Group to reasonably cooperate, with each other in the defense of any infringement, misappropriation or similar claim with respect to any Intellectual Property and shall not claim to acknowledge, or permit any member of its respective Group to claim to acknowledge, the validity, enforceability or misappropriation of any Intellectual Property of a third Person in a manner that would hamper or undermine the defense of such infringement, misappropriation or similar claim except as required by Law.
(e) The obligation of the parties to provide witnesses pursuant to this Section 4.7 is intended to be interpreted in a manner so as to facilitate cooperation and shall include the obligation to provide as witnesses inventors and other officers without regard to whether the witness or the employer of the witness could assert a possible business conflict (subject to the exception set forth in the first (1st) sentence of Section 4.7(a) ).
(f) In connection with any matter contemplated by this Section 4.7 , the parties will enter into a mutually acceptable joint defense agreement so as to maintain to the extent practicable any applicable attorney-client privilege, work product immunity or other applicable privileges or immunities of any member of any Group.
(g) For the avoidance of doubt, the provisions of this Section 4.7 are in furtherance of the provisions of Section 4.1 and shall not be deemed to in any way limit or otherwise modify the parties rights and obligations under Section 4.1 .
4.8 Privileged Matters .
(a) The parties recognize that legal and other professional services that have been and will be provided prior to the Effective Time have been and will be rendered for the collective benefit of each of the members of the GGP Group and the Spinco Group, and that each of the members of the GGP Group and the Spinco Group should be deemed to be the client with respect to such services for the purposes of asserting all privileges which may be asserted under applicable Law in connection therewith. The parties recognize that legal and other professional services will be provided following the Effective Time, which services will be rendered solely for the benefit of the GGP Group or the Spinco Group, as the case may be.
(b) The parties agree as follows:
(i) GGP shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with any privileged Information that relates solely to the GGP Business and not to the Spinco Business, whether or not the privileged Information is in the possession or under the control of any member of the GGP Group or any member of the Spinco Group. GGP shall also be entitled, in perpetuity, to control the assertion or waiver of all
privileges in connection with any privileged Information that relates solely to any Excluded Liabilities resulting from any Actions that are now pending or may be asserted in the future, whether or not the privileged Information is in the possession or under the control of any member of the GGP Group or any member of the Spinco Group; and
(ii) Spinco shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with any privileged Information that relates solely to the Spinco Business and not to the GGP Business, whether or not the privileged Information is in the possession or under the control of any member of the Spinco Group or any member of the GGP Group. Spinco shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with any privileged Information that relates solely to any Spinco Liabilities resulting from any Actions that are now pending or may be asserted in the future, whether or not the privileged Information is in the possession or under the control of any member of the Spinco Group or any member of the GGP Group.
(c) Subject to the restrictions set forth in this Section 4.8 , the parties agree that they shall have a shared privilege, each with equal right to assert any such shared privilege, with respect to all privileges not allocated pursuant to Section 4.8(b) and all privileges relating to any Actions or other matters that involve both the GGP Group and the Spinco Group and in respect of which both parties have Liabilities under this Agreement.
(d) Subject to Sections 4.8(e) and (f) , no party may waive any privilege that could be asserted under any applicable Law, and in which the other party has a shared privilege, without the consent of the other party, which consent shall (i) not be unreasonably withheld, conditioned or delayed, (ii) be in writing and (iii) be deemed to be granted unless written objection is made within twenty (20) days after notice has been given to the other party requesting such consent.
(e) In the event of any Actions between GGP and Spinco, or any members of their respective Groups, either party may waive a privilege in which the other party or member of such other partys Group has a shared privilege, without obtaining consent pursuant to Section 4.8(d) ; provided , that such waiver of a shared privilege shall be effective only as to the use of Information with respect to the Action between the parties and/or the applicable members of their respective Groups, and shall not operate as a waiver of the shared privilege with respect to any third Person.
(f) If any dispute arises between GGP and Spinco, or any members of their respective Groups, regarding whether a privilege should be waived to protect or advance the interests of either the GGP Group or the Spinco Group, each party agrees that it shall (i) negotiate with the other party in good faith, (ii) endeavor to minimize any prejudice to the rights of the other party and (iii) not unreasonably withhold, condition or delay consent to any request for waiver by the other party. Further, each party specifically agrees that it will not withhold its consent to the waiver of a privilege for any purpose except to protect its own legitimate interests.
(g) Upon receipt by either party, or by any member of its respective Group, of any subpoena, discovery or other request that may reasonably be expected to result in the production or disclosure of Information subject to a shared privilege or as to which another party
has the sole right hereunder to assert a privilege, or if either party obtains knowledge that any of its, or any member of its respective Groups, current or former directors, officers, agents or employees have received any subpoena, discovery or other requests that may reasonably be expected to result in the production or disclosure of such privileged Information, such party shall promptly notify the other party of the existence of the request (which notice shall be delivered to such other party no later than five (5) business days following the receipt of any such subpoena, discovery or other request) and shall provide the other party a reasonable opportunity to review the Information and to assert any rights it or they may have under this Section 4.8 or otherwise to prevent the production or disclosure of such privileged Information.
(h) The transfer of all Information pursuant to this Agreement is made in reliance on the agreement of GGP and Spinco set forth in this Section 4.8 and in Section 6.2 to maintain the confidentiality of privileged Information and to assert and maintain all applicable privileges. The parties agree that their respective rights to any access to Information, witnesses and other Persons, the furnishing of notices and documents and other cooperative efforts between the parties contemplated by this Agreement, and the transfer of privileged Information between the parties and members of their respective Groups pursuant to this Agreement, shall not be deemed a waiver of any privilege that has been or may be asserted under this Agreement or otherwise.
(i) In furtherance of the parties agreement under this Section 4.8 , GGP and Spinco shall, and shall cause applicable members of their respective Group to, maintain their respective separate and joint privileges, including by executing joint defense and common interest agreements where necessary or useful for this purpose.
ARTICLE V
RELEASE; INDEMNIFICATION; AND GUARANTEES
5.1 Release of Pre-Distribution Claims .
(a) Except as provided in (i) Section 5.1(c) , (ii) any exceptions to the indemnification provisions of Sections 5.2 , 5.3 and 5.4 , and (iii) any other Transaction Document, effective as of the Effective Time, Spinco does hereby, for itself and each other member of the Spinco Group, their respective Subsidiaries, successors and assigns, and all Persons who at any time prior to the Effective Time have been directors, officers, agents or employees of any member of the Spinco Group (in each case, in their respective capacities as such), remise, release and forever discharge GGP and the other members of the GGP Group, their respective Subsidiaries, successors and assigns, and all Persons who at any time prior to the Effective Time have been stockholders, equityholders, directors, officers, agents or employees of any member of the GGP Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, from any and all Liabilities whatsoever, whether at Law or in equity (including any right of contribution), whether arising under any Contract or agreement, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Plan Effective Date, including in connection with the Bankruptcy Cases, the Plan, the transactions and all other
activities to implement the Restructuring, the Distribution and any of the other transactions contemplated hereunder and under the other Transaction Documents.
(b) Except as provided in (i) Section 5.1(c) , (ii) any exceptions to the indemnification provisions of Sections 5.2 , 5.3 and 5.4 , and (iii) any other Transaction Document, effective as of the Plan Effective Date, GGP does hereby, for itself and each other member of the GGP Group, their respective Subsidiaries, successors and assigns, and all Persons who at any time prior to the Effective Time have been stockholders, directors, officers, agents or employees of any member of the GGP Group (in each case, in their respective capacities as such), remise, release and forever discharge Spinco, the respective members of the Spinco Group, their respective Subsidiaries, successors and assigns, and all Persons who at any time prior to the Effective Time have been directors, officers, agents or employees of any member of the Spinco Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, from any and all Liabilities whatsoever, whether at Law or in equity (including any right of contribution), whether arising under any Contract or agreement, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Plan Effective Date, including in connection with the Bankruptcy Cases, the Plan, the transactions and all other activities to implement the Restructuring, the Distribution and any of the other transactions contemplated hereunder and under the other Transaction Documents.
(c) Nothing contained in Section 5.1(a) or Section 5.1(b) shall impair any right of any party to enforce this Agreement, or any other Transaction Document, in accordance with its terms. Nothing contained in Section 5.1(a) or Section 5.1(b) shall release any Person from:
(i) any Liability, contingent or otherwise, assumed, transferred, assigned or allocated to the Group of which such Person is a member in accordance with, or any other Liability of any member of any Group under, this Agreement or any other Transaction Document;
(ii) any Liability for the sale, lease, construction or receipt of goods, property or services purchased, obtained or used in the ordinary course of business by a member of one Group from a member of the other Group prior to the Effective Time;
(iii) any Liability that the parties may have with respect to indemnification or contribution pursuant to this Agreement or otherwise for claims brought against the parties by third Persons, which Liability shall be governed by the provisions of this Article V and, if applicable, the appropriate provisions of the other Transaction Documents; or
(iv) as to the GGP Group, any Liability expressly provided for in the Plan.
In addition, nothing contained in Section 5.1(a) shall release GGP from indemnifying any director, officer or employee of Spinco who was a director, officer or employee of GGP or any of its Subsidiaries on or prior to the Effective Time, to the extent such
director, officer or employee is or becomes a named defendant in any Action with respect to which he or she was entitled to such indemnification pursuant to then existing obligations, it being understood that if the underlying obligation giving rise to such Action is a Spinco Liability, Spinco shall indemnify GGP for such Liability (including GGPs costs to indemnify the director, officer or employee) in accordance with the provisions set forth in this Article V .
(d) Spinco shall not make, and shall not permit any member of the Spinco Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against GGP or any member of the GGP Group, or any other Person released pursuant to Section 5.1(a) , with respect to any Liabilities released pursuant to Section 5.1(a) . GGP shall not, and shall not permit any member of the GGP Group, to make any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification against Spinco or any member of the Spinco Group, or any other Person released pursuant to Section 5.1(b) , with respect to any Liabilities released pursuant to Section 5.1(b) .
(e) It is the intent of each of GGP and Spinco, by virtue of the provisions of this Section 5.1 , to provide for a full and complete release and discharge of all Liabilities existing or arising from all acts and events occurring or failing to occur or alleged to have occurred or to have failed to occur and all conditions existing or alleged to have existed on or before the Plan Effective Date, between or among Spinco or any member of the Spinco Group, on the one hand, and GGP or any member of the GGP Group, on the other hand (including any contractual agreements or arrangements existing or alleged to exist between or among any such members on or before the Plan Effective Date), except as expressly set forth in Section 5.1(c) . At any time, at the request of any other party, each party shall cause each member of its respective Group to execute and deliver releases reflecting the provisions hereof.
5.2 General Indemnification by Spinco . Spinco shall, and shall cause the other members of the Spinco Group to, indemnify, defend and hold harmless each member of the GGP Group and each of their respective directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the GGP Indemnified Parties ), from and against any and all Liabilities of the GGP Indemnified Parties relating to, arising out of or resulting from any of the following items (without duplication):
(a) any Spinco Liability;
(b) the failure of Spinco or any other member of the Spinco Group or any other Person to pay, perform or otherwise promptly discharge any Spinco Liabilities or Spinco Contract in accordance with its respective terms, whether prior to or after the Effective Time;
(c) any guarantee, indemnification obligation, surety bond or other credit support agreement, arrangement, commitment or understanding by any member of the GGP Group for the benefit of any member of the Spinco Group that survives the Effective Time, except to the extent any of the foregoing is (i) expressly governed by the Surety Bond Indemnity Agreement or (ii) an Excluded Liability; and
(d) any breach (including any breach of any representation or warranty) of this Agreement or any of the other Transaction Documents by any member of the Spinco Group, or any action by Spinco in contravention of its Amended and Restated Certificate of Incorporation or Bylaws as they exist at the Effective Time;
provided , however , that the indemnification provisions of this Section 5.2 shall not apply to the Transition Services Agreement, the Tax Matters Agreement, the Employee Leasing Agreement and the Subleases, which instead shall be subject to the indemnification provisions contained therein.
5.3 General Indemnification by GGP . GGP shall, and shall cause the other members of the GGP Group to, indemnify, defend and hold harmless each member of the Spinco Group and each of their respective directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the Spinco Indemnified Parties ), from and against any and all Liabilities of the Spinco Indemnified Parties relating to, arising out of or resulting from any of the following items (without duplication):
(a) any Excluded Liability;
(b) the failure of any member of the GGP Group or any other Person to pay, perform or otherwise promptly discharge any Excluded Liabilities, whether prior to or after the Effective Time;
(c) any guarantee, indemnification obligation, surety bond or other credit support agreement, arrangement, commitment or understanding by any member of the Spinco Group for the benefit of any member of the GGP Group that survives the Effective Time, except to the extent any of the foregoing is a Spinco Liability; and
(d) any breach (including any breach of any representation or warranty) of this Agreement or any of the other Transaction Documents by any member of the GGP Group;
provided , however , that the indemnification provisions of this Section 5.3 shall not apply to the Transition Services Agreement, the Tax Matters Agreement, the Employee Leasing Agreement and the Subleases, which instead shall be subject to the indemnification provisions contained therein.
5.4 Disclosure Indemnification .
(a) Spinco agrees to indemnify and hold harmless the GGP Indemnified Parties and each Person, if any, who controls any member of the GGP Group within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all Liabilities (whether arising before or after the Effective Time) out of or based upon any untrue statement or alleged untrue statement of a material fact contained in a Spinco Disclosure Document, or arising out of or based upon any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading.
(b) GGP agrees to indemnify and hold harmless the Spinco Indemnified Parties and each Person, if any, who controls any member of the Spinco Group within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all Liabilities (whether arising before or after the Effective Time) out of or based upon any untrue statement or alleged untrue statement of a material fact contained in a GGP Disclosure Document, or arising out of or based upon any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading.
5.5 Indemnification Obligations Net of Insurance Proceeds and Other Amounts .
(a) Any Liability subject to indemnification or contribution pursuant to this Article V , will be net of Insurance Proceeds that actually reduce the amount of the Liability or Loss, as applicable. Accordingly, the amount which any party (an Indemnifying Party ) is required to pay to any Person entitled to indemnification under this Article V (an Indemnified Party ) will be reduced by any Insurance Proceeds theretofore actually recovered by or on behalf of the Indemnified Party in respect of the related Liability. If an Indemnified Party receives a payment (an Indemnity Payment ) required by this Agreement from an Indemnifying Party in respect of any Liability and subsequently receives Insurance Proceeds, then the Indemnified Party will pay to the Indemnifying Party an amount equal to such Insurance Proceeds but not exceeding the amount of the Indemnity Payment paid by the Indemnifying Party in respect of such Liability.
(b) An insurer who would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of the indemnification provisions hereof, have any subrogation rights with respect thereto. The Indemnified Party shall use its commercially reasonable efforts to seek to collect or recover any third-party Insurance Proceeds (other than Insurance Proceeds under an arrangement where future premiums are adjusted to reflect prior claims in excess of prior premiums) to which the Indemnified Party is entitled in connection with any Liability for which the Indemnified Party seeks indemnification pursuant to this Article V ; provided , that the Indemnified Partys inability to collect or recover any such Insurance Proceeds shall not limit the Indemnifying Partys obligations hereunder.
(c) Subject to Section 5.7(e) , any indemnity payment under this Article V shall be increased to take into account any inclusion in income of the Indemnified Party arising from the receipt of such indemnity payment and shall be decreased to take into account any reduction in income of the Indemnified Party arising from such indemnified Liability. For purposes hereof, any inclusion or reduction shall be determined (i) using the highest marginal rates in effect at the time of the determination and applicable to a corporate resident of Chicago, Illinois and (ii) assuming that the Indemnified Party, including any entity that qualifies as a real estate investment trust, will be liable for Taxes at such rate and has no Tax Attributes at the time of the determination.
5.6 Procedures for Indemnification of Third Party Claims .
(a) If an Indemnified Party receives written notice that a Person (including any Governmental Authority) that is not a member of GGP Group or Spinco Group has asserted any claim or commenced any Action (collectively, a Third Party Claim ) that may implicate an Indemnifying Partys obligation to indemnify pursuant to Sections 5.2 , 5.3 or 5.4 , or any other
Section of this Agreement or any other Transaction Document, the Indemnified Party shall provide the Indemnifying Party written notice thereof as promptly as practicable (and no later than twenty (20) days or sooner, if the nature of the Third Party Claim so requires) after becoming aware of the Third Party Claim. Such notice shall describe the Third Party Claim in reasonable detail and include copies of all notices and documents (including court papers) received by the Indemnified Party relating to the Third Party Claim. Notwithstanding the foregoing, the failure of an Indemnified Party to provide notice in accordance with this Section 5.6(a) shall not relieve an Indemnifying Party of its indemnification obligations under this Agreement, except to the extent to which the Indemnifying Party is actually prejudiced by the Indemnified Partys failure to provide notice in accordance with this Section 5.6(a) .
(b) Subject to this Section 5.6(b) and Section 5.6(c) , an Indemnifying Party may elect to defend (and seek to settle or compromise), at its own expense and with its own counsel, any Third Party Claim. Within thirty (30) days after the receipt of notice from an Indemnified Party in accordance with Section 5.6(a) (or sooner, if the nature of the Third Party Claim so requires), the Indemnifying Party shall notify the Indemnified Party whether the Indemnifying Party will assume responsibility for defending the Third Party Claim and shall specify any reservations or exceptions to its defense. After receiving notice of an Indemnifying Partys election to assume the defense of a Third Party Claim, whether with or without any reservations or exceptions with respect to such defense, an Indemnified Party shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise, or settlement thereof, but the Indemnified Party shall be responsible for the fees and expenses of its counsel and, in any event, shall cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party, at the Indemnifying Partys expense, all witnesses, information and materials in such Indemnified Partys possession or under such Indemnified Partys control relating thereto as are reasonably required by the Indemnifying Party. If an Indemnifying Party has elected to assume the defense of a Third Party Claim, whether with or without any reservations or exceptions with respect to such defense, then such Indemnifying Party shall be solely liable for all fees and expenses incurred by it in connection with the defense of such Third Party Claim and shall not be entitled to seek any indemnification or reimbursement from the Indemnified Party for any such fees or expenses incurred during the course of its defense of such Third Party Claim, regardless of any subsequent decision by the Indemnifying Party to reject or otherwise abandon its assumption of such defense.
(c) Notwithstanding Section 5.6(b) , if any Indemnified Party shall in good faith determine that there is an actual conflict of interest if counsel for the Indemnifying Party represented both the Indemnified Party and Indemnifying Party, then the Indemnified Party shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise, or settlement thereof, and the Indemnifying Party shall bear the reasonable fees and expenses of one (1) separate counsel for all Indemnified Parties.
(d) If an Indemnifying Party elects not to assume responsibility for defending a Third Party Claim, or fails to notify an Indemnified Party of its election within thirty (30) days after the receipt of notice from an Indemnified Party as provided in Section 5.6(b) , the Indemnified Party may defend the Third Party Claim at the cost and expense of the Indemnifying Party. If the Indemnified Party is conducting the defense against any such Third Party Claim, the Indemnifying Party shall cooperate with the Indemnified Party in such defense and make
available to the Indemnified Party, at the Indemnifying Partys expense, all witnesses, information and materials in such Indemnifying Partys possession or under such Indemnifying Partys control relating thereto as are reasonably required by the Indemnified Party.
(e) Without the prior written consent of any Indemnifying Party, which consent shall not be unreasonably withheld, conditioned or delayed, no Indemnified Party may settle or compromise, or seek to settle or compromise, any Third Party Claim; provided , however , in the event that the Indemnifying Party elects not to assume responsibility for defending a Third Party Claim or fails to notify the Indemnified Party of its election within thirty (30) days after the receipt of notice from the Indemnified Party as provided in Section 5.6(b) , the Indemnified Party shall have the right to settle or compromise such Third Party Claim in its sole discretion. Without the prior written consent of any Indemnified Party, which consent shall not be unreasonably withheld, conditioned or delayed, no Indemnifying Party shall consent to the entry of any judgment or enter into any settlement of any pending or threatened Third Party Claim if such Indemnified Party is or could have been a party to the pending or threatened Third Party Claim and could have sought indemnity pursuant to this Section 5.6 , unless such judgment or settlement is solely for monetary damages, and provides for a full, unconditional and irrevocable release of that Indemnified Party from all liability in connection with the Third Party Claim.
5.7 Additional Matters .
(a) Indemnification or contribution payments in respect of any Liabilities for which an Indemnified Party is entitled to indemnification or contribution under this Article V shall be paid by the Indemnifying Party to the Indemnified Party as such Liabilities are incurred upon reasonable demand by the Indemnified Party, including reasonably satisfactory documentation setting forth the basis for the amount of such indemnification or contribution payment, including documentation with respect to calculations made and consideration of any Insurance Proceeds that actually reduce the amount of such Liabilities. The indemnity and contribution agreements contained in this Article V shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Indemnified Party, (ii) the knowledge by the Indemnified Party of Liabilities for which it might be entitled to indemnification or contribution hereunder and (iii) any termination of this Agreement.
(b) Any claim on account of a Liability which does not result from a Third Party Claim shall be asserted by written notice given by the Indemnified Party to the applicable Indemnifying Party. Such Indemnifying Party shall have a period of thirty (30) days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such thirty (30)-day period, such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment. If such Indemnifying Party does not respond within such thirty (30)-day period or rejects such claim in whole or in part, such Indemnified Party shall be free to pursue such remedies as may be available to such party as contemplated by this Agreement and the other Transaction Documents without prejudice to its continuing rights to pursue indemnification or contribution hereunder.
(c) If payment is made by or on behalf of any Indemnifying Party to any Indemnified Party in connection with any Third Party Claim, such Indemnifying Party shall be
subrogated to and shall stand in the place of such Indemnified Party as to any events or circumstances in respect of which such Indemnified Party may have any right, defense or claim relating to such Third Party Claim against any claimant or plaintiff asserting such Third Party Claim or against any other Person. Such Indemnified Party shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim.
(d) In an Action in which the Indemnifying Party is not a named defendant, if either the Indemnified Party or Indemnifying Party shall so request, the parties shall endeavor to substitute the Indemnifying Party for the named defendant if they conclude that substitution is desirable and practical. If such substitution or addition cannot be achieved for any reason or is not requested, the named defendant shall allow the Indemnifying Party to manage the Action as set forth in this Section 5.7(d) , and the Indemnifying Party shall fully indemnify the named defendant against all costs of defending the Action (including court costs, sanctions imposed by a court, attorneys fees, experts fees and all other external expenses), the costs of any judgment or settlement, and the cost of any interest or penalties relating to any judgment or settlement.
(e) For all Tax purposes, GGP and Spinco agree to treat (i) any payment required by this Agreement (other than payments with respect to interest accruing after the Effective Time) as either a contribution by GGP to Spinco or a distribution by Spinco to GGP, as the case may be, occurring immediately prior to the Effective Time or as a payment of an assumed or retained Liability, and (ii) any payment of interest as taxable or deductible, as the case may be, to the party entitled under this Agreement to retain such payment or required under this Agreement to make such payment, in either case except as otherwise required by applicable Law.
5.8 Remedies Cumulative; Limitations of Liability . The rights provided in this Article V shall be cumulative and, subject to the provisions of Article VII , shall not preclude assertion by any Indemnified Party of any other rights or the seeking of any and all other remedies against any Indemnifying Party. Notwithstanding the foregoing, neither Spinco or its Subsidiaries, on the one hand, nor GGP or its Subsidiaries, on the other hand, shall be liable to the other for any special, indirect, punitive, exemplary, remote, speculative or similar damages in excess of compensatory damages (collectively, Special Damages ) of the other arising in connection with the Transactions ( provided , that any such liability with respect to a Third Party Claim shall be considered direct damages).
5.9 Survival of Indemnities . The rights and obligations of each of GGP and Spinco and their respective Indemnified Parties under this Article V shall survive the sale or other transfer by any party of any Assets or businesses or the assignment by it of any Liabilities.
5.10 Guarantees .
(a) Except as otherwise specified in any other Transaction Document, on or prior to the Effective Time or as soon as practicable thereafter, (i) GGP shall (with the reasonable cooperation of the applicable member(s) of the Spinco Group) use its commercially reasonable efforts to have any member(s) of the Spinco Group removed as guarantor of or obligor for any Excluded Liability, to the extent that they relate to Excluded Liabilities, and (ii)
Spinco shall (with the reasonable cooperation of the applicable member(s) of the GGP Group) use its commercially reasonable efforts to have any member(s) of the GGP Group removed as guarantor of or obligor for any Spinco Liability, to the extent that they relate to Spinco Liabilities.
(b) On or prior to the Effective Time, to the extent required to obtain a release from a guarantee (a Guarantee Release ):
(i) of any member of the GGP Group, Spinco shall execute a guarantee agreement in the form of the existing guarantee or such other form as is agreed to by the relevant parties to such guarantee agreement, except to the extent that such existing guarantee contains representations, covenants or other terms or provisions either (A) with which Spinco would be reasonably unable to comply or (B) which would be reasonably expected to be breached; and
(ii) of any member of the Spinco Group, GGP shall execute a guarantee agreement in the form of the existing guarantee or such other form as is agreed to by the relevant parties to such guarantee agreement, except to the extent that such existing guarantee contains representations, covenants or other terms or provisions either (A) with which GGP would be reasonably unable to comply or (B) which would be reasonably expected to be breached.
(c) If GGP or Spinco is unable to obtain, or to cause to be obtained, any such required removal as set forth in clauses (a) and (b) of this Section 5.10 , (i) the relevant member of the GGP Group or Spinco Group, as applicable, that has assumed the Liability with respect to such guarantee shall indemnify and hold harmless the guarantor or obligor for any Liability arising from or relating thereto (in accordance with the provisions of this Article V ) and shall or shall cause one (1) of its Subsidiaries, as agent or subcontractor for such guarantor or obligor to pay, perform and discharge fully all the obligations or other Liabilities of such guarantor or obligor thereunder, and (ii) each of GGP and Spinco, on behalf of themselves and the members of their respective Groups, agree not to renew or extend the term of, increase its obligations under, or transfer to a third Person, any loan, guarantee, lease, Contract or other obligation for which the other party or member of such partys Group is or may be liable unless all obligations of such other party and the other members of such partys Group with respect thereto are thereupon terminated by documentation reasonably satisfactory in form and substance to such party; provided , however , with respect to leases, in the event a Guarantee Release is not obtained and the relevant beneficiary wishes to extend the term of such guaranteed lease, then such beneficiary shall have the option of extending the term if it provides such security as is reasonably satisfactory to the guarantor under such guaranteed lease.
ARTICLE VI
OTHER AGREEMENTS
6.1 Further Assurances .
(a) In addition to the actions specifically provided for elsewhere in this Agreement, each of the parties hereto will cooperate with each other and use (and will cause their respective Subsidiaries to use) commercially reasonable efforts, prior to, on and after the Plan Effective Date, to take, or to cause to be taken, all actions, and to do, or to cause to be done, all things reasonably necessary on its part under applicable Law or contractual obligations to consummate and make effective the transactions contemplated by this Agreement and the other Transaction Documents.
(b) Without limiting the foregoing, prior to, on and after the Plan Effective Date, each party hereto shall cooperate with the other parties, and without any further consideration, but at the expense of the requesting party from and after the Effective Time, to execute and deliver, or use its commercially reasonable efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to obtain or make any Approvals or Notifications from or with any Governmental Authority or any other Person under any permit, license, agreement, indenture or other instrument, and to take all such other actions as such party may reasonably be requested to take by any other party hereto from time to time, consistent with the terms of this Agreement and the other Transaction Documents, in order to effectuate the provisions and purposes of this Agreement and the other Transaction Documents and the transfers of the Spinco Assets and the assignment and assumption of the Spinco Liabilities and the other transactions contemplated hereby and thereby. Without limiting the foregoing, each party will, at the reasonable request, cost and expense of any other party, take such other actions as may be reasonably necessary to vest in such other party good and marketable title to the Assets allocated to such party under this Agreement or any of the other Transaction Documents, free and clear of any Security Interest.
(c) At or prior to the Effective Time, GGP and Spinco in their respective capacities as direct and indirect stockholders of their respective Subsidiaries, shall each ratify any actions that are reasonably necessary or desirable to be taken by Spinco or any other Subsidiary of GGP or Spinco, as the case may be, to effectuate the transactions contemplated by this Agreement.
(d) Upon a partys written request of the other party regarding any pre-existing and specifically identifiable database, spreadsheet or other proprietary information that such requesting party determines in good faith is reasonably necessary to operate its business in the manner it was operated immediately prior to the Effective Time, the parties shall work in good faith to enter into a reasonable and customary cross-licensing arrangement, or another mutually agreeable arrangement, providing rights to use (but no obligation to maintain or update) such requested information.
6.2 Confidentiality .
(a) From and after the Effective Time, subject to Section 6.2(d) and except as contemplated by or otherwise provided in this Agreement or any other Transaction Document, without the prior written consent of Spinco (which may be withheld in Spincos sole discretion), GGP shall not, and shall cause its Subsidiaries and officers, directors, employees, and other agents and representatives, including attorneys, agents, customers, suppliers, contractors, consultants and other representatives of any Person providing financing (collectively,
Representatives ), not to, directly or indirectly, disclose, reveal, divulge or communicate to any Person other than Representatives of such party or of its Subsidiaries who reasonably need to know such information to provide services to any member of the GGP Group, or use or otherwise exploit for its own benefit or for the benefit of any third Person, any Spinco Confidential Information. If any disclosures are made in connection with providing services to any member of the GGP Group under this Agreement or any other Transaction Document, then the Spinco Confidential Information so disclosed shall be used for the sole purpose of performing such services. GGP shall use the same degree of care to prevent and restrain the unauthorized use or disclosure of the Spinco Confidential Information by any of its Representatives as it currently uses for its own confidential information of a like nature, but in no event less than a reasonable standard of care. For purposes of this Section 6.2(a) , any Information, material or document exclusively relating to the Spinco Business that is furnished to, or in the possession of, GGP, irrespective of the form of communication, and all notes, analyses, compilations, forecasts, data, translations, studies, memoranda or other documents prepared by GGP or its officers, directors and Subsidiaries, that contain or otherwise reflect such information, material or document, is herein referred to as Spinco Confidential Information . Spinco Confidential Information does not include, and there shall be no obligation hereunder with respect to, information that (i) is or becomes generally available to the public, other than as a result of a disclosure by GGP not otherwise permissible hereunder, (ii) GGP can demonstrate was or became available to GGP from a source other than Spinco or its Subsidiaries or (iii) is developed independently by GGP without reference to the Spinco Confidential Information; provided , however , that, in the case of clause (ii), the source of such information was not known by GGP to be bound by a confidentiality agreement with, or other contractual, legal or fiduciary obligation of confidentiality to, Spinco or any member of the Spinco Group with respect to such information.
(b) From and after the Effective Time, subject to Section 6.2(d) and except as contemplated by this Agreement or any other Transaction Document, without the prior written consent of GGP (which may be withheld in GGPs sole discretion), Spinco shall not, and shall cause its Subsidiaries and their respective Representatives, not to, directly or indirectly, disclose, reveal, divulge or communicate to any Person other than Representatives of such party or of its Subsidiaries who reasonably need to know such information to provide services to Spinco or any member of the Spinco Group, or use or otherwise exploit for its own benefit or for the benefit of any third Person, any GGP Confidential Information. If any disclosures are made in connection with providing services to any member of the Spinco Group under this Agreement or any other Transaction Document, then the GGP Confidential Information so disclosed shall be used for the sole purpose of performing such services. The Spinco Group shall use the same degree of care to prevent and restrain the unauthorized use or disclosure of the GGP Confidential Information by any of their Representatives as they currently use for their own confidential information of a like nature, but in no event less than a reasonable standard of care. For purposes of this Section 6.2(b) , any Information, material or document exclusively relating to the businesses currently or formerly conducted, or proposed to be conducted, by GGP or any of its Subsidiaries (other than any member of the Spinco Group) that is furnished to, or in the possession of, any member of the Spinco Group, irrespective of the form of communication, and all notes, analyses, compilations, forecasts, data, translations, studies, memoranda or other documents prepared by Spinco, any member of the Spinco Group or their respective officers, directors and Subsidiaries, that contain or otherwise reflect such information, material or document, is herein referred to as
GGP Confidential Information . GGP Confidential Information does not include, and there shall be no obligation hereunder with respect to, information that (i) is or becomes generally available to the public, other than as a result of a disclosure by any member of the Spinco Group not otherwise permissible hereunder, (ii) Spinco can demonstrate was or became available to Spinco from a source other than GGP and its respective Subsidiaries or (iii) is developed independently by such member of the Spinco Group without reference to the GGP Confidential Information; provided , however , that, in the case of clause (ii), the source of such information was not known by Spinco to be bound by a confidentiality agreement with, or other contractual, legal or fiduciary obligation of confidentiality to, GGP or its Subsidiaries with respect to such information.
(c) From and after the Effective Time, subject to Section 6.2(d) and except as contemplated by this Agreement or any other Transaction Document, without the prior written consent of the other party (not to be unreasonably withheld, conditioned or delayed), each party shall not, and shall cause its Subsidiaries and their respective Representatives, not to, directly or indirectly, disclose, reveal, divulge or communicate any Shared Information to any Person other than Representatives of such party or of its Subsidiaries who reasonably need to know such information for the purpose of operating such partys business in its ordinary course. The GGP Group and the Spinco Group shall use the same degree of care to prevent and restrain the unauthorized use or disclosure of the Shared Information by any of their Representatives as they currently use for their own confidential information of a like nature, but in no event less than a reasonable standard of care. For purposes of this Section 6.2(c) , any Information, material or document relating to both (i) the businesses currently or formerly conducted, or proposed to be conducted, by GGP or any of its Subsidiaries (other than any member of the Spinco Group) and (ii) the Spinco Business that is furnished to, or in the possession of, any member of the GGP Group or any member of the Spinco Group, irrespective of the form of communication, and all notes, analyses, compilations, forecasts, data, translations, studies, memoranda or other documents prepared by, for or on behalf of the party possessing such Information, material or document, is herein referred to as Shared Information . Shared Information does not include, and there shall be no obligation hereunder with respect to, information that (i) is or becomes generally available to the public, other than as a result of a disclosure by any member of the GGP Group or any member of the Spinco Group (as applicable) not otherwise permissible hereunder, (ii) GGP or Spinco (as applicable) can demonstrate was or became available to such party from a source other than the other party and its respective Subsidiaries or (iii) is developed independently without reference to the Shared Information; provided , however , that, in the case of clause (ii), the source of such information was not known by such party to be bound by a confidentiality agreement with, or other contractual, legal or fiduciary obligation of confidentiality to, the other party or its Subsidiaries with respect to such information.
(d) If GGP or its Subsidiaries, on the one hand, or Spinco or its Subsidiaries, on the other hand, are requested or required (by oral question, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) by any Governmental Authority or pursuant to applicable Law to disclose or provide any Shared Information (applicable to both parties) or Spinco Confidential Information or GGP Confidential Information (as applicable), the Person receiving such request or demand shall use commercially reasonable efforts to provide the other party with written notice of such request or demand as promptly as practicable under the circumstances so that such other party shall have an
opportunity to seek an appropriate protective order. The party receiving such request or demand agrees to take, and cause its representatives to take, at the requesting partys expense, all other reasonable steps necessary to obtain confidential treatment by the recipient. Subject to the foregoing, the party that received such request or demand may thereafter disclose or provide any Shared Information, Spinco Confidential Information or GGP Confidential Information, as the case may be, to the extent required by such Law (as so advised by counsel) or by lawful process or such Governmental Authority. This Section 6.2(d) shall not apply to any Information furnished pursuant to the provisions of Article IV of this Agreement.
(e) Each of GGP and Spinco acknowledges that it and the other members of its Group may have in their possession confidential or proprietary information of third Persons that was received under confidentiality or non-disclosure agreements with such third Person prior to the Plan Effective Date. GGP and Spinco each agrees that it will hold, and will cause the other members of its Group and their respective Representatives to hold, in strict confidence the confidential and proprietary information of third Persons to which it or any other member of its respective Group has access, in accordance with the terms of any agreements entered into prior to the Plan Effective Date between or among one (1) or more members of the applicable partys Group and such third Persons.
6.3 Insurance Matters .
(a) Except as expressly provided herein or in any of the other Transaction Documents, Spinco acknowledges and agrees, on its own behalf and on behalf of each other member of the Spinco Group, that, from and after the Effective Time, neither Spinco nor any member of the Spinco Group shall have any rights to or under any of GGPs or its Subsidiaries insurance policies, other than any insurance policies acquired prior to the Effective Time directly by and in the name of a member of the Spinco Group or as expressly provided in this Section 6.3 or in the Transition Services Agreement or the Employee Matters Agreement; provided , however , that Spinco shall be entitled to any loss recoveries paid to any member of the GGP Group subsequent to the Effective Time in respect of any insurance claims to the extent related to the Spinco Business that were formally filed and open prior to the Effective Time less the amount of (i) any Liabilities (other than Excluded Liabilities) that GGP or its Subsidiaries (including, for the avoidance of doubt, any member of the Spinco Group) incurred and paid in connection therewith prior to the Effective Time and (ii) any Liabilities incurred by any member of the GGP Group in connection with obtaining such insurance recoveries.
(b) Notwithstanding Section 6.3(a) , from and after the Effective Time, with respect to losses, damages, wrongful acts or liability incurred prior to the Effective Time, Spinco may access GGPs insurance policies as follows:
(i) to file claims against GGPs occurrence policies including Workers Compensation, Employers Liability, General Liability, Automobile Liability and Excess Umbrella Policies for losses occurring on or before the Effective Time; and
(ii) to file claims against GGPs claims made policies including Directors & Officers, Fiduciary Liability, Employment Practices Liability, Crime, and Pollution
Legal Liability coverage in force at the time the claim is made if the act giving rise to the claim occurred prior to the Effective Time;
provided , however , that, in the case of each of clause (i) and (ii), such access to, and the right to make claims under such insurance policies, shall be subject to the terms and conditions of the applicable insurance policies, including any limits on coverage or scope, any deductible and other fees and expenses, and shall be subject to:
(A) For so long as Spinco may access GGPs policies, Spinco shall report as promptly as practicable (1) claims under the Workers Compensation and Automobile Liability policy directly to the applicable insurance company in accordance with GGPs claim reporting procedures in effect immediately prior to the Effective Time and provide copies of such reported claims to GGPs Corporate Insurance and Risk Management Department and (2) claims under all other insurance policies to the GGP Corporate Insurance Department;
(B) Spinco shall indemnify, hold harmless and reimburse GGP and its Subsidiaries for any deductibles and self-insured retention incurred by GGP or its Subsidiaries to the extent resulting from any access to, any claims made by Spinco or any of its Subsidiaries under, any insurance provided pursuant to Section 6.3(b)(i) and Section 6.3(b)(ii) , including any indemnity payments, settlements, judgments, legal fees and allocated claims expenses and claim handling fees, whether such claims are made by Spinco, its employees or third Persons;
(C) Spinco shall exclusively bear and be responsible for (and GGP shall have no obligation to repay or reimburse Spinco or any of its Subsidiaries for) and pay the applicable insurers as required under the applicable insurance policies for any and all costs as a result of having access to, or making claims under, any insurance provided pursuant to Pre-GGP Insurance Policies, including any deductibles and self-insured retention associated with such claims, retrospective, retroactive or prospective premium adjustments associated with the applicable insurance policies, catastrophic coverage charges, overhead, claim handling and administrative costs, Taxes, surcharges, state assessments, reinsurance costs, other related costs and claim payments, relating to all open, closed or re-opened claims covered by the applicable policies, whether such claims are made by Spinco, its employees or third Persons; and
(D) Spinco shall exclusively bear (and GGP shall have no obligation to repay or reimburse Spinco or its Subsidiaries for) and shall be liable for all uninsured, uncovered, unavailable or uncollectible amounts of all such claims made by Spinco or any of its Subsidiaries under the policies as provided for in this Section 6.3(b) .
(c) Any payments, costs and adjustments required pursuant to Section 6.3(b) (other than payments, costs and adjustments with respect to Pre-GGP Insurance Policies, which payments, costs and adjustments shall be paid by Spinco directly to the applicable insurers) shall be billed by GGP to Spinco on a monthly basis and payable within thirty (30) days from receipt of invoice. If payment is not made within ninety (90) days of invoice, the outstanding amount will accrue interest from and including the ninetieth (90th) day following the date of the invoice to (but excluding) the date of payment at a rate per annum equal to ten percent ( 10 %) . If GGP
incurs costs to enforce Spincos obligations herein, Spinco agrees to indemnify GGP for such enforcement costs, including attorneys fees.
(d) Except as set forth in the proviso to Section 6.3(a) and the Employee Matters Agreement, Spinco acknowledges and agrees on its own behalf, and on behalf of each other member of the Spinco Group, that neither Spinco nor any member of the Spinco Group shall have any right or claim against GGP or any of its Subsidiaries for reimbursement, payment or any other obligation arising from any insurance policy covering Spinco, any Spinco Asset or any member of the Spinco Group, and hereby irrevocably releases, as of the Effective Time, GGP and its Subsidiaries from all of the duties, obligations, responsibilities and liabilities, known or unknown, reported or not reported, imposed upon GGP or any of its Subsidiaries to the extent resulting from, relating to or arising out of any such insurance policy, without recourse to GGP or any of its Subsidiaries.
(e) GGP shall retain the exclusive right to control its insurance policies and programs, including the right to exhaust, settle, release, commute, buy-back or otherwise resolve disputes with respect to any of its insurance policies and programs and to amend, modify or waive any rights under any such insurance policies and programs, notwithstanding whether any such policies or programs apply to any Spinco Liabilities and/or claims Spinco has made or could make in the future, and no member of the Spinco Group shall, without the prior written consent of GGP, erode, exhaust, settle, release, commute, buy-back or otherwise resolve disputes with GGPs insurers with respect to any of GGPs insurance policies and programs, or amend, modify or waive any rights under any such insurance policies and programs. Spinco shall cooperate with GGP and share such information as is reasonably necessary in order to permit GGP to manage and conduct its insurance matters as it deems appropriate.
(f) At the Effective Time, Spinco shall have in effect, except as contemplated by the Transition Services Agreement, all insurance programs required to comply with law or Spincos contractual obligations and such other insurance policies as reasonably necessary or customary for companies operating a business similar to Spincos.
(g) Except as otherwise provided in Section 6.3(i) , GGP and its Subsidiaries shall have no obligation to secure extended reporting for any claims under any of GGPs or its Subsidiaries claims-made or occurrence-reported liability policies for any acts or omissions by any member of the Spinco Group incurred prior to the Effective Time.
(h) GGP has obtained and shall provide for the joint benefit of GGP and Spinco, a fully paid directors and officers liability run-off insurance policy, for claims made after the Effective Time covering wrongful acts which take place after the commencement of the Bankruptcy Cases and on or prior to the Effective Time and arising out of or relating to the entities and business that are part of the Spinco Group as of immediately after the Effective Time, with a policy period of at least three (3) years from and after the Effective Time, covering (i) current as of the Effective Time and former directors and officers of GGP, (ii) current as of the Effective Time and former directors and officers of the entities and business that are part of the Spinco Group as of immediately after the Effective Time, (iii) current as of the Effective Time and former GGP employees for securities claims and (iv) GGP and its Subsidiaries and the entities and business that are part of the Spinco Group as of immediately after the Effective Time
and its Subsidiaries for securities claims. Such directors and officers liability run-off insurance policy shall be materially consistent with the directors and officers liability insurance policy currently maintained by GGP (except for the policy period and provisions excluding coverage for wrongful acts occurring after the Effective Time).
(i) This Agreement shall not be considered as an attempted assignment of any policy of insurance or as a contract of insurance and shall not be construed to waive any right or remedy of any member of the GGP Group in respect of any of the GGP insurance policies and programs or any other Contract or policy of insurance.
6.4 Allocation of Costs and Expenses . Subject to the terms of the Investment Agreements, GGP shall pay for all out-of-pocket fees, costs and expenses incurred by GGP or any of its Subsidiaries prior to the Effective Time in connection with the Transactions, including (i) the preparation and negotiation of this Agreement, each other Transaction Document (unless otherwise expressly provided therein), each of the financing transactions described in the Form 10 as occurring on or prior to the Plan Effective Date, including any financing transactions to be entered into by Spinco or any of its Subsidiaries and all other documentation related to the Transactions and all related transactions, (ii) the preparation and execution or filing of any and all other documents, agreements, forms, applications, Contracts or consents associated with the Transactions and all related transactions, (iii) the preparation and filing of Spincos and its Subsidiaries organizational documents, (iv) the preparation, printing and filing of the Form 10 and the information statement contained therein and/or any other required securities filings, including all fees and expenses of complying with applicable federal and state securities Laws and domestic securities exchange rules and regulations, together with fees and expenses of counsel retained to effect such compliance, (v) obtaining the Private Letter Ruling, (vi) the initial listing of the Spinco Common Stock on the New York Stock Exchange, (vii) the fees and expenses of Deloitte & Touche incurred in connection with the Form 10 and the information statement contained therein and/or any other required securities filings, (viii) the fees and expenses related to the bankruptcy proceeding of GGP and (ix) the fees and expenses of Weil, Gotshal & Manges LLP incurred in connection with rendering the legal opinions of outside tax counsel contemplated by Section 3.2(c) .
6.5 Litigation; Cooperation .
(a) As of the Effective Time, Spinco shall assume and thereafter, except as provided in Article V , be responsible for the administration of all Liabilities that may result from the Assumed Actions and all fees and costs relating to the defense of the Assumed Actions, including attorneys fees and costs incurred after the Effective Time. Assumed Actions means those Actions (in which any member of the GGP Group or any Subsidiary of a member of the GGP Group is a defendant or the party against whom the claim or investigation is directed) primarily relating to the Spinco Business, including the Actions listed on Schedule 6.5(a) . Spinco shall use its commercially reasonable efforts to cause each member of the GGP Group to be removed from the Assumed Actions; provided , however , that if Spinco is unable to cause each member of the GGP Group to be removed from an Assumed Action, GGP and Spinco shall cooperate and consult to the extent necessary or advisable with respect to such Assumed Action.
(b) The GGP Group shall transfer the Transferred Actions to Spinco, and Spinco shall receive and have the benefit of all of the proceeds of such Transferred Actions. Transferred Actions means those Actions (in which any member of the GGP Group or any Subsidiary of a member of the GGP Group is a plaintiff or claimant) primarily relating to the Spinco Business. Spinco shall use its commercially reasonable efforts to cause each member of the GGP Group to be removed from the Transferred Actions; provided , however , that if Spinco is unable to cause each member of the GGP Group to be removed from a Transferred Action, GGP and Spinco shall cooperate and consult to the extent necessary or advisable with respect to such Transferred Action.
(c) (i) GGP agrees that at all times from and after the Effective Time if a Third Party Claim relating primarily to the GGP Business is commenced naming both a member of the GGP Group and a member of the Spinco Group as defendants thereto, then GGP shall use its commercially reasonable efforts to cause each such member of the Spinco Group to be removed from such Third Party Claim; provided , that, if GGP is unable to cause each such member of the Spinco Group to be removed from such Third Party Claim, GGP and Spinco shall cooperate and consult to the extent necessary or advisable with respect to such Third Party Claim.
(ii) Spinco agrees that at all times from and after the Effective Time if a Third Party Claim relating primarily to the Spinco Business is commenced naming both a member of the GGP Group and a member of the Spinco Group as defendants thereto, then Spinco shall use its commercially reasonable efforts to cause each member of the GGP Group to be removed from such Third Party Claim; provided , that, if Spinco is unable to cause each member of the GGP Group to be removed from such Third Party Claim, GGP and Spinco shall cooperate and consult to the extent necessary or advisable with respect to such Third Party Claim.
(iii) GGP and Spinco agree that at all times from and after the Effective Time if a Third Party Claim which does not relate primarily to the Spinco Business or the GGP Business is commenced naming both GGP (or any member of the GGP Group) and Spinco (or any member of the Spinco Group) as defendants thereto, then GGP and Spinco shall cooperate fully with each other, maintain a joint defense (in a manner that would preserve for both parties and their respective Subsidiaries any attorney-client privilege, joint defense or other privilege with respect thereto) and consult each other to the extent necessary or advisable with respect to such Third Party Claim.
(d) GGP and Spinco agree that, with respect to any Assumed Action, Transferred Action, Third Party Claim, or any other Action to which either a member of the GGP Group or a member of the Spinco Group is a party and that is governed by this Section 6.5 , neither GGP or any member of the GGP Group, on the one hand, nor Spinco or any member of the Spinco Group, on the other hand, shall settle such Action in a manner that would reasonably be expected to result in any liability or equitable relief, contingent or otherwise, against the other.
6.6 Tax Matters . GGP and Spinco shall enter into the Tax Matters Agreement on or prior to the Plan Effective Date. To the extent any representations, warranties, covenants or agreements between the parties with respect to Taxes or other matters are set forth in the Tax
Matters Agreement, such Taxes and other matters shall be governed exclusively by the Tax Matters Agreement and not by this Agreement.
6.7 Employment Matters . GGP and Spinco shall enter into the Employee Matters Agreement concurrent with this Agreement. To the extent that any representations, warranties, covenants or agreements between the parties with respect to employment matters are set forth in the Employee Matters Agreement, such employment matters shall be governed exclusively by the Employee Matters Agreement and not by this Agreement, if applicable, with respect to Spinco Employees.
6.8 Real Estate Agreements . GGP and Spinco shall enter into the Real Estate Agreements on or prior to the Plan Effective Date. To the extent that any representations, warranties, covenants or agreements between the parties with respect to the subject matters contemplated by the Real Estate Agreements are set forth in the Real Estate Agreements, such subject matters shall be governed exclusively by the Real Estate Agreements and not by this Agreement.
ARTICLE VII
DISPUTE RESOLUTION
7.1 General Provisions .
(a) Any dispute, controversy or claim arising out of or relating to this Agreement that arises prior to the closing of the Bankruptcy Cases (such time, the Bankruptcy Closing ) shall be subject to the jurisdiction of and determination by the Bankruptcy Court, and any dispute, controversy or claim arising out of or relating to this Agreement that arises after the Bankruptcy Closing shall be subject to the procedures in this Article VII . Each of the parties hereto (i) consents to the exclusive personal jurisdiction of the Bankruptcy Court (prior to the Bankruptcy Closing) or the procedures set forth in this Article VII (after the Bankruptcy Closing) in connection with any dispute arising out of or relating to this Agreement, (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from such courts for actions brought prior to the Bankruptcy Closing and (iii) agrees that it will not bring any action relating to this Agreement in any court other than the Bankruptcy Court (prior to the Bankruptcy Closing), unless such court first determines it does not have subject matter jurisdiction or otherwise declines to hear the dispute.
(b) Subject to Section 7.1(a) , any dispute, controversy or claim arising out of or relating to this Agreement or the other Transaction Documents (other than the Transition Services Agreement and the Tax Matters Agreement, which shall be subject to the dispute resolution provisions contained therein), or the validity, interpretation, breach or termination thereof that arises after the final determination of the Bankruptcy Cases (a Dispute ), shall be resolved in accordance with the procedures set forth in this Article VII , which shall be the sole and exclusive procedures for the resolution of any such Dispute unless otherwise specified in the applicable Transaction Document or in this Article VII below.
(c) Commencing with a request contemplated by Section 7.2 set forth below, all communications between the parties or their representatives in connection with the attempted resolution of any Dispute shall be deemed to have been delivered in furtherance of a Dispute settlement and shall be exempt from discovery and production, and shall not be admissible into evidence for any reason (whether as an admission or otherwise), in any arbitral or other proceeding for the resolution of any Dispute.
(d) THE PARTIES EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO (I) SPECIAL DAMAGES, AS DEFINED HEREIN ( PROVIDED , THAT LIABILITY FOR ANY SUCH SPECIAL DAMAGES, AS DEFINED HEREIN, WITH RESPECT TO ANY THIRD PARTY CLAIM SHALL BE CONSIDERED DIRECT DAMAGES) AND (II) TRIAL BY JURY.
(e) The specific procedures set forth in this Article VII below, including the time limits referenced therein, may be modified by agreement of both of the parties in writing.
(f) All applicable statutes of limitations and defenses based upon the passage of time shall be tolled while the procedures specified in this Article VII are pending. The parties will take any necessary or appropriate action required to effectuate such tolling.
7.2 Consideration by Senior Executives . Following the Bankruptcy Closing, if a Dispute is not resolved in the normal course of business at the operational level, the parties shall attempt in good faith to resolve the Dispute by negotiation between the Groups executives who hold, respectively, the office of Vice President (or a more senior office). Either party may initiate the executive negotiation process by providing a written notice to the other (the Initial Notice ). Within fifteen (15) days, the receiving party shall submit to the other a written response (the Response ). The Initial Notice and the Response shall include (i) a statement of the Dispute and of each partys position and (ii) the name and title of the executive who will represent that party and of any other person who will accompany the executive. The parties agree that such executives shall have full and complete authority to resolve any Disputes submitted pursuant to this Section 7.2 . Such executives will meet in person or by teleconference or video conference within thirty (30) days (or, where the Dispute relates to the a matter controlled by the Transition Services Agreement, then within the time periods set forth therein with respect to the Transition Services Agreement, twenty-five (25) days) of the date of the Initial Notice to seek a resolution of the Dispute. In the event that the executives are unable to agree to a location or format for such meeting, the meeting shall be convened by teleconference.
7.3 Arbitration .
(a) Following the Bankruptcy Closing, if a Dispute is not resolved by negotiation as provided in Section 7.2 within forty-five (45) days (or, where the Dispute relates to the Transition Services Agreement, thirty (30) days) from the delivery of the Initial Notice, then either party shall (i) pursuant to its rights under Section 7.1 , submit a request for interim injunctive relief to the arbitrator appointed pursuant to Section 7.3(b) ( provided , that, if the tribunal shall not have been constituted, either party may seek interim relief either before a special arbitrator, as provided for in Rule 14 of the CPR Institute for Dispute Resolution (the CPR ) Arbitration Rules, or before any court of competent jurisdiction) without first complying
with the provisions of Section 7.2 if, in the reasonable opinion of such party, such interim injunctive relief is necessary to preserve its rights pending resolution of the Dispute, and (ii) if such Dispute is not finally resolved pursuant to Section 7.2 , submit such Dispute to be finally resolved by binding arbitration, in each case, pursuant to the CPR Rules for Non-Administered Arbitration as then in effect (the CPR Arbitration Rules ).
(b) The neutral organization for purposes of the CPR Arbitration Rules will be the CPR. The arbitrator will be composed of one (1) arbitrator. The one (1) arbitrator will be appointed by CPR from a list of six (6) proposed neutrals submitted by the CPR. Each party may strike no more than two (2) neutrals from the list submitted by CPR.
(c) Arbitration will take place in the Borough of Manhattan in New York, New York. Along with the arbitrator appointed, the parties will agree to a mutually convenient date and time to conduct the arbitration, but in no event will the hearing(s) be scheduled less than nine (9) months from submission of the Dispute to arbitration unless the parties agree otherwise in writing; provided , that, if injunctive or other interim relief contemplated by Section 7.3(d) below is requested, the hearing(s) will be expedited in accordance with any order entered by the court, tribunal or special arbitrator adjudicating that request.
(d) The arbitrator will have the right to award, on an interim basis, or include in the final award, money damages (with interest on unpaid amounts from the due date), injunctive relief (including specific performance) and attorneys fees and costs; provided , that the arbitrator will not award any relief not specifically requested by the parties and, in any event, will not award Special Damages. Upon appointment of the arbitrator following any grant of interim relief by a special arbitrator or court pursuant to Sections 7.3(a) and 7.4 , the tribunal may affirm or disaffirm that relief, and the parties will seek modification or rescission of the order entered by the special arbitrator or court as necessary to accord with the tribunals decision.
(e) The parties agree to be bound by the provisions of Rule 13 of the Federal Rules of Civil Procedure with respect to compulsory counterclaims (as the same may be amended from time to time); provided , that any such compulsory counterclaim shall be filed within thirty (30) days of the filing of the original claim.
(f) So long as either party has a timely claim to assert, the agreement to arbitrate Disputes set forth in this Section 7.3 will continue in full force and effect subsequent to, and notwithstanding the completion, expiration or termination of, this Agreement.
(g) A party obtaining an order of interim injunctive relief may enter judgment upon such award in any court of competent jurisdiction. The final award in an arbitration pursuant to this Article VII shall be conclusive and binding upon the parties, and a party obtaining a final award may enter judgment upon such award in any court of competent jurisdiction.
(h) It is the intent of the parties that the agreement to arbitrate Disputes set forth in this Section 7.3 shall be interpreted and applied broadly such that all reasonable doubts as to arbitrability of a Dispute shall be decided in favor of arbitration.
(i) If a Dispute includes both arbitrable and nonarbitrable claims, counterclaims or defenses, the parties shall arbitrate all such arbitrable claims, counterclaims or defenses and shall concurrently litigate all such nonarbitrable claims, counterclaims or defenses.
(j) The parties agree that any Dispute submitted to mediation and/or arbitration shall be governed by, and construed and interpreted in accordance with, Section 8.2 and, except as otherwise provided in this Article VII or mutually agreed to in writing by the parties, the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq., shall govern any arbitration between the parties pursuant to this Section 7.3 .
(k) Each party shall bear (i) its own fees, costs and expenses and (ii) an equal share of other expenses of the arbitration, including the fees, costs and expenses of the one (1) arbitrator; provided , in the case of any Disputes relating to the parties rights and obligations with respect to indemnification under Article V , the prevailing party shall be entitled to reimbursement by the other party of its reasonable out-of-pocket fees and expenses (including attorneys fees) incurred in connection with the arbitration.
7.4 Specific Performance . In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Tax Matters Agreement, the Employee Matters Agreement or any of the Real Estate Agreements, the party or parties who are or are to be thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief (on an interim or permanent basis) of its rights under such agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The parties agree that the remedies at law for any breach or threatened breach, including monetary damages, may be inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived by each of the parties to this Agreement. Notwithstanding the foregoing, except with respect to breaches of Section 6.2 of this Agreement, specific performance can only be sought and granted in proceedings before the Bankruptcy Court or the independent arbitrator pursuant to this Article VII .
ARTICLE VIII
MISCELLANEOUS
8.1 Corporate Power . GGP represents on behalf of itself and on behalf of other members of the GGP Group, and Spinco represents on behalf of itself and on behalf of other members of the Spinco Group, as of the date hereof, as follows:
(a) each such Person has the requisite corporate power and authority and has taken all corporate action necessary in order to execute, deliver and perform each of this Agreement and each other Transaction Document to which it is a party and to consummate the transactions contemplated hereby and thereby; and
(b) this Agreement and each Transaction Document to which it is a party has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms thereof.
8.2 Governing Law . This Agreement and, unless expressly provided therein, each other Transaction Document, shall be governed by and construed and interpreted in accordance with the Laws of the State of New York irrespective of the choice of Laws principles of the State of New York.
8.3 Survival of Covenants . Except as expressly set forth in any other Transaction Document, the covenants and other agreements contained in this Agreement and each other Transaction Document, and liability for the breach of any obligations contained herein or therein, shall survive each of the Restructuring and the Distribution and shall remain in full force and effect.
8.4 Force Majeure . No party hereto (or any Person acting on its behalf) shall have any liability or responsibility for failure to fulfill any obligation (other than a payment obligation) under this Agreement or, unless otherwise expressly provided therein, any other Transaction Document, so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. A party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event, (i) notify the other parties of the nature and extent of any such Force Majeure condition and (ii) use due diligence to remove any such causes and resume performance under this Agreement as soon as feasible.
8.5 Notices . All notices, requests, claims, demands and other communications under this Agreement and, to the extent applicable and unless otherwise provided therein, under each of the other Transaction Documents shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile or electronic transmission with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 8.5 ):
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General Growth Properties, Inc. |
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110 N. Wacker Drive |
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Chicago, IL 60606 |
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Attention: |
General Counsel |
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Facsimile: |
(312) 960-5485 |
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if to Spinco: |
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The Howard Hughes Corporation |
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13355 Noel Road |
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Suite 950 |
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Dallas, TX 75240 |
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Attention: |
Grant Herlitz |
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Facsimile: |
(214) 741-3021 |
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a copy of all notices should also be sent to: |
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Weil, Gotshal & Manges LLP |
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767 Fifth Avenue |
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New York, NY 10153 |
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Gary Holtzer and Marcia Goldstein |
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(212) 310-8007 |
8.6 Termination . Notwithstanding any provision to the contrary, this Agreement may be terminated and the Distribution abandoned at any time prior to the Effective Time by and in the sole discretion of GGP without the prior approval of any Person, including Spinco. In the event of such termination, this Agreement shall become void and no party, or any of its officers and directors, shall have any liability to any Person by reason of this Agreement. After the Effective Time, this Agreement may not be terminated except by an agreement in writing signed by each of the parties to this Agreement.
8.7 Severability . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced under any Law or as a matter of public policy, all other conditions and provisions of this Agreement shall remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties to this Agreement shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement be consummated as originally contemplated to the greatest extent possible.
8.8 Entire Agreement . Except as otherwise expressly provided in this Agreement, this Agreement (including the Schedules and Exhibits hereto) constitutes the entire agreement of the parties hereto with respect to the subject matter of this Agreement and supersedes all prior agreements and undertakings, both written and oral, between or on behalf of the parties hereto with respect to the subject matter of this Agreement.
8.9 Assignment; No Third-Party Beneficiaries . This Agreement shall not be assigned by either party without the prior written consent of the other party. Notwithstanding the foregoing, either party may assign (i) any or all of its rights and obligations under this Agreement to any of its Subsidiaries and (ii) any or all of its rights and obligations under this Agreement in connection with a sale or disposition of any assets or entities or lines of business; provided , however , that, in each case, no such assignment shall (i) release the assigning party from any liability or obligation under this Agreement or (ii) change any of the steps in the Spinoff Plan or the Plan. Except as provided in Article V with respect to Indemnified Parties, this Agreement is for the sole benefit of the parties to this Agreement and members of their
respective Group and their permitted successors and assigns and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
8.10 Public Announcements . From and after the Effective Time, GGP and Spinco shall consult with each other before issuing, and give each other the opportunity to review and comment upon, any press release or other public statements with respect to any matters covered by this Agreement, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable Law, court process or by obligations pursuant to any listing agreement with any national securities exchange or national securities quotation system.
8.11 Amendment . No provision of this Agreement may be amended or modified except by a written instrument signed by all the parties to this Agreement. No waiver by any party of any provision of this Agreement shall be effective unless explicitly set forth in writing and executed by the party so waiving. The waiver by any party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other subsequent breach.
8.12 Rules of Construction . Interpretation of this Agreement shall be governed by the following rules of construction: (i) in the event of any conflict between the terms and conditions of this Agreement and the terms and conditions of any Ancillary Document, the terms and conditions of the Ancillary Document shall govern and control this Agreement, unless otherwise specified herein; (ii) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires; (iii) references to the terms Article, Section, paragraph, clause, Exhibit and Schedule are references to the Articles, Sections, paragraphs, clauses, Exhibits and Schedules of this Agreement unless otherwise specified; (iv) the terms hereof, herein, hereby, hereto, and derivative or similar words refer to this entire Agreement, including the Schedules and Exhibits hereto; (v) references to $ shall mean U.S. dollars; (vi) the word including and words of similar import when used in this Agreement shall mean including, without limitation, unless otherwise specified; (vii) the word or shall not be exclusive; (viii) references to written or in writing include in electronic form; (ix) unless the context requires otherwise, references to party shall mean GGP or Spinco, as appropriate, and references to parties shall mean GGP and Spinco; (x) provisions shall apply, when appropriate, to successive events and transactions; (xi) the table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement; (xii) GGP and Spinco have each participated in the negotiation and drafting of this Agreement and if an ambiguity or question of interpretation should arise, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or burdening either party by virtue of the authorship of any of the provisions in this Agreement or any interim drafts of this Agreement; and (xiii) a reference to any Person includes such Persons successors and permitted assigns.
8.13 Counterparts . This Agreement may be executed in one (1) or more counterparts, and by the different parties to each such agreement in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this
Agreement by facsimile or portable document format (PDF) shall be as effective as delivery of a manually executed counterpart of any such Agreement.
[ The remainder of this page is intentionally left blank .]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first written above by their respective duly authorized officers.
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GENERAL GROWTH PROPERTIES, INC. |
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By: |
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THE HOWARD HUGHES CORPORATION |
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Signature Page to Separation Agreement
EXHIBIT A-1
Form of Ala Moana Condominium Declaration
See attached.
EXHIBIT A-2
Form of Ala Moana Development Agreement
See attached.
EXHIBIT B
Form of Arizona 2 Promissory Note
See attached.
EXHIBIT C
Form of Assumption Agreement
See attached.
EXHIBIT D
Form of Columbia Development Agreement
See attached.
EXHIBIT E
Form of Employee Leasing Agreement
See attached.
EXHIBIT F
Form of Employee Matters Agreement
See attached.
EXHIBIT G
Form of Fashion Show Core Principles
See attached.
EXHIBIT H
Form of Registration Rights Agreement
See attached.
EXHIBIT I-1
Form of REP Investments Stockholders Agreement
See attached.
EXHIBIT I-2
Form of Fairholme Stockholders Agreement
See attached.
EXHIBIT I-3
Form of Pershing Square Stockholders Agreement
See attached.
EXHIBIT J-1
Form of 110 N. Wacker (Chicago Headquarters) Sublease Term Sheet
See attached.
EXHIBIT J-2
Form of 10,000 W. Charleston (Las Vegas Headquarters) Sublease Term Sheet
See attached.
EXHIBIT J-3
Form of Columbia Headquarters Sublease Term Sheet
See attached.
EXHIBIT K
Form of Surety Bond Indemnity Agreement
See attached.
EXHIBIT L
Form of Tax Matters Agreement
See attached.
EXHIBIT M-1
Form of Transition Services Agreement
See attached.
EXHIBIT M-2
Form of Reverse Transition Services Agreement
See attached.
EXHIBIT N
Form of Warrant and Registration Rights Agreement
See attached.
SCHEDULE 2.1(a)
Spinoff Plan
See attached.
SCHEDULE 6.5(a)
Assumed Actions
See attached.
Exhibit 10.58
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TRANSITION SERVICES AGREEMENT
dated as of [ · ]
among
GGP LIMITED PARTNERSHIP,
GENERAL GROWTH MANAGEMENT, INC.,
and
THE HOWARD HUGHES CORPORATION
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TABLE OF CONTENTS
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ARTICLE I |
DEFINITIONS |
1 |
Section 1.01. |
Certain Defined Terms |
1 |
ARTICLE II |
SERVICES, DURATION AND SERVICE MANAGERS |
3 |
Section 2.01. |
Services |
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Section 2.02. |
Duration of Services |
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Section 2.03. |
Additional Unspecified Services |
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Section 2.04. |
Transition Service Managers |
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Section 2.05. |
Personnel |
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Section 2.06. |
No Duplication |
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ARTICLE III |
GGP MATERIALS |
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Section 3.01. |
Corporate Policies |
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Section 3.02. |
Limitation on Rights and Obligations with Respect to the GGP Materials |
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ARTICLE IV |
OTHER ARRANGEMENTS AND ADDITIONAL AGREEMENTS |
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Section 4.01. |
Software and Software Licenses |
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Section 4.02. |
GGP Computer-Based and Other Resources |
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Section 4.03. |
Spinco Computer-Based and Other Resources |
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Section 4.04. |
Access |
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Section 4.05. |
Insider Trading Policy |
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Section 4.06. |
Cooperation |
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ARTICLE V |
COSTS AND DISBURSEMENTS |
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Section 5.01. |
Costs and Disbursements |
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Section 5.02. |
Taxes |
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Section 5.03. |
No Right to Set-Off |
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ARTICLE VI |
STANDARD FOR SERVICE |
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Section 6.01. |
Standard for Service |
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Section 6.02. |
Disclaimer of Warranties |
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Section 6.03. |
Compliance with Laws and Regulations |
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ARTICLE VII |
LIMITED LIABILITY AND INDEMNIFICATION |
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Section 7.01. |
Consequential and Other Damages |
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Section 7.02. |
Limitation of Liability |
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Section 7.03. |
Obligation to Reperform and GGP Indemnity |
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Section 7.04. |
Release and Spinco Indemnity |
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Section 7.05. |
Indemnification Procedures |
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Section 7.06. |
Liability for Payment Obligations |
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Section 7.07. |
Exclusion of Other Remedies |
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ARTICLE VIII |
DISPUTE RESOLUTION |
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Section 8.01. |
Dispute Resolution |
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ARTICLE IX |
TERM AND TERMINATION |
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Section 9.01. |
Term and Termination |
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Section 9.02. |
Effect of Termination |
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Section 9.03. |
Force Majeure |
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ARTICLE X |
GENERAL PROVISIONS |
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Section 10.01. |
No Agency |
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Section 10.02. |
Subcontractors |
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Section 10.03. |
Treatment of Confidential Information |
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Section 10.04. |
Further Assurances |
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Section 10.05. |
Notices |
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Section 10.06. |
Severability |
19 |
Section 10.07. |
Entire Agreement |
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Section 10.08. |
No Third-Party Beneficiaries |
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Section 10.09. |
Governing Law |
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Section 10.10. |
Amendment |
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Section 10.11. |
Rules of Construction |
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Section 10.12. |
Counterparts |
20 |
Section 10.13. |
Assignability |
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Section 10.14. |
Waiver of Jury Trial |
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Section 10.15. |
Specific Performance |
21 |
Section 10.16. |
Non-Recourse |
22 |
TRANSITION SERVICES AGREEMENT
This Transition Services Agreement (this Agreement ), dated as of [ · ], is by and among GGP Limited Partnership, a Delaware limited partnership ( GGPLP ), General Growth Management, Inc., a Delaware corporation ( GGMI and, collectively with GGPLP, GGP ), and The Howard Hughes Corporation, a Delaware corporation ( Spinco ).
RECITALS
WHEREAS, General Growth Properties, Inc. ( GGPI ) and Spinco entered into the Separation Agreement, dated as of the date hereof (as amended, modified or supplemented from time to time in accordance with its terms, the Separation Agreement ); and
WHEREAS, pursuant to the Separation Agreement, the Parties agreed that GGPI (and/or its Subsidiaries on the date of this Agreement immediately after giving effect to, and subject to the occurrence of, the Distribution, collectively referred to as the GGP Entities ) shall provide or cause to be provided to Spinco (and/or its Subsidiaries on the date of this Agreement immediately after giving effect to, and subject to the occurrence of, the Distribution, collectively referred to as the Spinco Entities ) certain services on a transitional basis and in accordance with the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, the Separation Agreement requires execution and delivery of this Agreement by GGP and Spinco on or prior to the Plan Effective Date.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained in this Agreement, the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms . (a) Unless otherwise defined in this Agreement, all capitalized terms used in this Agreement shall have the same meaning as in the Separation Agreement.
(b) The following capitalized terms used in this Agreement shall have the meanings set forth below:
Additional Services shall have the meaning set forth in Section 2.03(a) .
Agreement shall have the meaning set forth in the Preamble.
Competitor of GGP shall mean an entity that is directly or indirectly (or whose Affiliates are directly or indirectly) in the business of owning or managing retail malls.
Confidential Information shall have the meaning set forth in Section 10.03(a) .
Cost Multiplier shall mean: 110% during the period beginning on the Plan Effective Date and ending on the last day of the 6th month after the Plan Effective Date; 150% during the period beginning on the first day of the 7th month after the Plan Effective Date and ending on the last day of the 12th month after the Plan Effective Date; and 200% during the period beginning on the first day of the 13th month after the Plan Effective Date and ending on the date that this Agreement terminates.
Direct Payroll Costs shall mean, with respect to each GGP Employee providing a particular Service, the applicable hourly rate set forth on Exhibit I .
Dispute shall have the meaning set forth in Section 8.01(a) .
GGMI shall have the meaning set forth in the Preamble.
GGP shall have the meaning set forth in the Preamble.
GGP Employee shall mean an employee of any of the GGP Entities.
GGP Entities shall have the meaning set forth in the Recitals.
GGP Indemnified Party shall have the meaning set forth in Section 7.04 .
GGP Intranet shall mean GGPIs internal computer network Intranet site generally accessible only by GGP Employees.
GGPI shall have the meaning set forth in the Recitals.
GGPLP shall have the meaning set forth in the Preamble.
GGP Materials shall have the meaning set forth in Section 3.01(a) .
GGP Overall Service Manager shall have the meaning set forth in Section 2.04(a) .
GGP Service Manager shall have the meaning set forth in Section 2.04(a) .
Interest Rate shall have the meaning set forth in Section 5.01(b) .
Out-of-Pocket Expenses shall mean, with respect to a particular Service, any out-of-pocket costs, fees and expenses that GGP or any other member of the GGP Group actually pays to an unaffiliated third party in the course of providing such Service, without any additional charge or mark up. The term Out-of-Pocket Expenses shall not include any rent, utilities, taxes, clerical support, GGP Employee compensation and benefits or any other general or administrative overhead or other similar costs or expenses.
Overall Service Managers shall mean the GGP Overall Service Manager and the Spinco Overall Service Manager.
Party shall mean GGP and Spinco individually, and Parties means GGP and Spinco collectively, and, in each case, their permitted successors and assigns.
Representative shall mean, with respect to any Person, any director, officer, employee, agent, consultant, accountant, auditor, attorney or other representative of such Person.
Schedule(s) shall have the meaning set forth in Section 2.02 .
Separation Agreement shall have the meaning set forth in the Recitals.
Service Charges shall have the meaning set forth in Section 5.01(a) .
Service Increases shall have the meaning set forth in Section 2.03(b) .
Service Resource Cost shall mean, with respect to a particular Service, (A) an amount equal to the product of (x) the Direct Payroll Cost of the GGP Employee providing the Service multiplied by (y) the number of hours such employee spent performing the Service, or (B) if a different pricing methodology is expressly provided for in the applicable Schedule with respect to such Service, an amount calculated based on such pricing methodology.
Services shall have the meaning set forth in Section 2.01 .
Spinco shall have the meaning set forth in the Preamble.
Spinco Entities shall have the meaning set forth in the Recitals.
Spinco Indemnified Party shall have the meaning set forth in Section 7.03 .
Spinco Intranet shall have the meaning set forth in Section 4.02(a) .
Spinco Overall Service Manager shall have the meaning set forth in Section 2.04(b) .
Spinco Service Manager shall have the meaning set forth in Section 2.04(b) .
ARTICLE II
SERVICES, DURATION AND SERVICE MANAGERS
Section 2.01. Services . Subject to the terms and conditions of this Agreement, GGP shall provide (or cause to be provided) to the Spinco Entities, as requested from time to time by Spinco, the services listed on Schedule A (which may be grouped by type of Services in sub-schedules) to this Agreement (the Services ). All of the Services shall be for the sole use and benefit of the Spinco Entities as constituted on the Plan Effective Date.
Section 2.02. Duration of Services . Subject to the terms of this Agreement, commencing on the Plan Effective Date, GGP shall provide or cause to be provided to the Spinco Entities each Service until the earlier to occur of, with respect to each such Service, (i) the expiration of the period of the maximum duration for such Service as set forth on the sub-
schedules attached hereto defining such Service (each a Schedule , and collectively, the Schedules ) and (ii) the date on which such Service is terminated under Section 9.01 ; provided , however , that Spinco shall use commercially reasonable efforts in good faith to transition itself to a stand-alone entity with respect to each Service during the period for such Service as set forth in the relevant Schedules. In the event that GGP sells, transfers or otherwise disposes of its interest in any of its Subsidiaries that is engaged in providing one or more Services, GGP shall (x) if requested by Spinco, use commercially reasonable efforts to cause such Subsidiary or the acquiror thereof to agree that such Subsidiary will continue to provide such Services to the same extent provided pursuant to the terms of this Agreement or (y) if requested by Spinco, or to the extent the Subsidiary or the acquiror will not agree to provide such Services after GGPs exertion of commercially reasonable efforts pursuant to (x), secure such Services from a reputable and experienced third-party vendor at substantially equivalent service levels for the remaining term of such Services.
Section 2.03. Additional Unspecified Services . (a) After the Plan Effective Date, if Spinco (i) identifies a service that the GGP Entities provided to the Spinco Business prior to the Plan Effective Date that is reasonably necessary in order for the Spinco Business to continue to operate in substantially the same manner in which the Spinco Business operated prior to the Plan Effective Date and is otherwise material to operations of the Spinco Business, and such service was not included on the Schedules, and (ii) provides written notice to GGP within one hundred twenty (120) days following the Plan Effective Date requesting such additional service, then GGP shall, subject to the negotiation of mutually acceptable terms of the applicable Schedule (as described in the next sentence), provide such requested additional service provided that (i) the GGP Entities have adequate resources to provide such service, (ii) such service can be provided without unreasonable disruption to the GGP Entities businesses and (iii) the provision of such service will not violate (whether directly or by virtue of a cross-default) a material contract or agreement of a GGP Entity or result in a violation of applicable Law (such additional services, the Additional Services ). In connection with any request for Additional Services in accordance with this Section 2.03(a) , the GGP Service Manager and the Spinco Service Manager shall in good faith negotiate the terms of a supplemental Schedule, which terms shall be consistent with the terms of, and the pricing methodology used for, similar Services provided under this Agreement. The Parties shall agree to the applicable Service Charge and the supplemental Schedule shall describe in reasonable detail the nature, scope, service period(s), termination provisions and other terms applicable to such Additional Services. Each supplemental Schedule, as agreed to in writing by the Parties, shall be deemed part of this Agreement as of the date of such Schedule and the Additional Services set forth therein shall be deemed Services provided under this Agreement, in each case subject to the terms and conditions of this Agreement.
(b) After the Plan Effective Date, if (i) (x) Spinco requests GGP to increase, relative to historical levels prior to the Plan Effective Date, the volume, amount, level or frequency, as applicable, of any Service provided by GGP and (ii) such increase is reasonably determined by Spinco as necessary for Spinco to operate its businesses (such increases, the Service Increases ), then GGP shall, subject to the negotiation of mutually acceptable terms of the applicable Schedule (as described in the next sentence), provide the Service Increases in accordance with such request; provided , that GGP shall not be obligated to provide any Service Increase if it does not, in its reasonable judgment, have adequate resources to provide such
Service Increase or if the provision of such Service Increase would significantly disrupt the operation of any of its businesses or violate an existing material contract or agreement or applicable Law. In connection with any request for Service Increases in accordance with this Section 2.03(b) , the GGP Service Manager and the Spinco Service Manager shall in good faith negotiate the terms of an amendment to the applicable Schedule, which amendment shall be consistent with the terms of, and the pricing methodology used for, the applicable Service. Each amended Schedule, as agreed to in writing by the Parties, shall be deemed part of this Agreement as of the date of such amendment to the Schedule and the Service Increases set forth therein shall be deemed a part of the Services provided under this Agreement, in each case subject to the terms and conditions of this Agreement.
Section 2.04. Transition Service Managers . (a) GGP hereby appoints and designates the individual holding the GGP position set forth on Exhibit II to act as its initial service manager (the GGP Overall Service Manager ), who will be directly responsible for coordinating and managing the delivery of the Services and have authority to act on GGPs behalf with respect to matters relating to this Agreement. In addition, GGP hereby appoints, with respect to each Service, the individual set forth on the applicable Schedule as its initial service manager (each such manager, a GGP Service Manager ) with respect to such Service, who will be directly responsible for coordinating and managing the delivery of such Service on a day-to-day basis. The GGP Service Managers will work with the personnel of the GGP Entities to periodically address issues and matters raised by Spinco relating to this Agreement. The GGP Overall Service Manager will oversee the GGP Service Managers and will be responsible for coordinating the overall delivery of the Services. Notwithstanding the notice requirements of Section 10.05 , all communications from Spinco to GGP pursuant to this Agreement regarding routine matters involving the Services set forth on the Schedules shall be made through the applicable GGP Service Manager, or such other individual as specified by the applicable GGP Service Manager in writing and delivered to Spinco by email or facsimile transmission with receipt confirmed. GGP shall notify Spinco of the appointment of a different GGP Overall Service Manager or GGP Service Manager, if necessary, in accordance with Section 10.05 .
(b) Spinco hereby appoints and designates the individual holding the Spinco position set forth on Exhibit II to act as its initial service manager (the Spinco Overall Service Manager ), who will be directly responsible for coordinating and managing the receipt of the Services and have authority to act on Spincos behalf with respect to matters relating to this Agreement. In addition, Spinco hereby appoints, with respect to each Service, the individual set forth on the applicable Schedule as its initial service manager (each such manager, a Spinco Service Manager ) with respect to such Service, who will be directly responsible for coordinating and managing the receipt of such Service on a day-to-day basis. The Spinco Service Managers will work with the personnel of Spinco Entities to periodically address issues and matters raised by GGP relating to this Agreement. The Spinco Overall Service Manager will oversee the Spinco Service Managers and will be responsible for coordinating the overall receipt of the Services. Notwithstanding the notice requirements of Section 10.05 , all communications from GGP to Spinco pursuant to this Agreement regarding routine matters involving the Services set forth on the Schedules shall be made through the applicable Spinco Service Manager or such other individual as specified by the applicable Spinco Service Manager in writing and delivered to GGP by email or facsimile transmission with receipt confirmed. Spinco shall notify GGP of
the appointment of a different Spinco Overall Service Manager or Spinco Service Manager, if necessary, in accordance with Section 10.05 .
Section 2.05. Personnel . (a) GGP will make available such appropriately qualified personnel as may be reasonably necessary to provide the Services, and will use reasonable efforts to make available personnel specifically requested by Spinco. Notwithstanding the foregoing, GGP will have the right, in its sole reasonable discretion, to (i) designate which personnel it will assign to perform each Service, and (ii) remove and replace such personnel at any time with personnel of similar qualifications and experience levels, if such action would not reasonably be expected to cause a material increase in costs and/or a material decrease in level of service for Spinco with respect to such Service; provided , however , that GGP will use its commercially reasonable efforts to limit the disruption to Spinco in the transition of the Services to different personnel.
(b) In the event that the provision of any Service by GGP requires, as set forth in the Schedules, the cooperation and services of the applicable personnel of Spinco, Spinco will make available to GGP such personnel (who shall be appropriately qualified for purposes of the provision of such Service by GGP) as may be necessary for GGP to provide such Service.
Section 2.06. No Duplication .
(a) GGP shall not charge any Service Charges under this Agreement or any other amounts for any Services performed by any GGP Employees if, and to the extent that, the employees performing such Services are doing so pursuant to the Employee Leasing Agreement, and the costs of such employees are being reimbursed pursuant thereto.
(b) GGP shall not charge any Service Charges or other amounts for any Services if, and to the extent that, such Service Charges are duplicative of services performed under the Employee Leasing Agreement or the Employee Matters Agreement.
ARTICLE III
GGP MATERIALS
Section 3.01. Corporate Policies . (a) At the Plan Effective Date or reasonably promptly thereafter, GGP shall make available to Spinco its then existing policies and manuals that GGP determines in good faith are reasonably necessary for the operation of the Spinco Business (the GGP Materials ). Subject to the terms and conditions of this Agreement, GGP grants to Spinco a non-exclusive, royalty-free, fully paid-up, worldwide license to create or have created any derivative works or materials based on the GGP Materials for distribution to employees and suppliers of Spinco and use such materials in the operation of the Spinco Business in substantially the same manner as the GGP Materials were used by GGP prior to the Distribution. It is understood and agreed that GGP makes no representation or warranty, express or implied, as to the accuracy or completeness of any of the GGP Materials, as to the noninfringement of any of the GGP Materials or as to the suitability of any of the GGP Materials for use by Spinco in respect of its business or otherwise. Access to any GGP Materials shall be
limited to those Representatives of Spinco who need access in order to perform their responsibilities.
(b) Notwithstanding the foregoing, the text of any materials related to or based upon any of the GGP Materials created by, for or on behalf of Spinco may not contain any references to the GGP Entities (or any use of the GGP Entities marks, names, trade dress, logos or other source or business identifiers, including the GGP Name and GGP Marks), the GGP Entities publications, the GGP Entities personnel (including senior management), the GGP Entities management structures or any other indication that in each instance such materials are based upon any of the GGP Materials.
Section 3.02. Limitation on Rights and Obligations with Respect to the GGP Materials .
(a) Spinco acknowledges and agrees that, except as expressly set forth above, GGP reserves all rights (including all Intellectual Property rights) in, to and under the GGP Materials and no rights with respect to ownership or use, except as otherwise expressly provided in this Agreement, shall vest in Spinco.
(b) GGP shall have no obligation to (i) notify Spinco of any changes or proposed changes to any of the GGP Materials, (ii) include Spinco in any consideration of proposed changes to any of the GGP Materials, (iii) provide draft changes of any of the GGP Materials to Spinco for review and/or comment or (iv) provide Spinco with any updated materials relating to any of the GGP Materials except to the extent such changes would affect the provision of Services in accordance with the terms hereof. The Parties acknowledge and agree that the GGP Materials are the Confidential Information of GGP. Spinco shall use at least the same degree of care to prevent and restrain the unauthorized use or disclosure of any materials created by, for or on behalf of Spinco that are based upon any of the GGP Materials as it uses for its other confidential information of a like nature, but in no event less than a reasonable degree of care. Spinco will allow GGP reasonable access to its personnel and information as reasonably necessary to determine Spincos compliance with the provisions set forth above; provided , however , such access shall not unreasonably interfere with any of the business or operations of Spinco. Subject to Section 8.01 , in the event that GGP determines that Spinco has not materially complied with some or all of its obligations with respect to any or all of the GGP Materials, and such noncompliance is not cured within thirty (30) days following Spincos receipt of written notice thereof from GGP, GGP may terminate Spincos rights with respect to such GGP Materials upon written notice to Spinco and, in such case, GGP shall be entitled to require such GGP Materials to be returned to GGP or destroyed and any materials created by or for Spinco that are based upon such GGP Materials to be destroyed (with such destruction certified by Spinco in writing to GGP promptly after such termination).
(c) If Spinco determines to cease to avail itself of any of the GGP Materials or upon expiration or termination of any period during which Spinco is permitted to use any of the GGP Materials, GGP and Spinco shall cooperate in good faith to take reasonable and appropriate actions to effectuate such determination, expiration or termination, to arrange for the return to GGP or destruction of such GGP Materials and to protect GGPs rights and interests in such GGP Materials.
ARTICLE IV
OTHER ARRANGEMENTS AND ADDITIONAL AGREEMENTS
Section 4.01. Software and Software Licenses . If and to the extent requested by Spinco, GGP shall use commercially reasonable efforts to (x) obtain permission from third-party licensors of computer software to allow GGP to provide services to Spinco as required hereunder and (y) assist Spinco in its efforts to obtain licenses (or other appropriate rights) to use, duplicate and distribute, as necessary and applicable, certain computer software necessary for GGP to provide, or Spinco to receive, Services (which assistance shall include to the extent appropriate providing Spinco the opportunity to receive a copy of, or participate in, any communication between GGP and the applicable third party licensor in connection therewith); provided , however , that GGP and Spinco shall mutually agree upon the specific types and quantities of any such software licenses; provided , further , that GGP shall not be required to pay any fees or other payments unless such fees and payments are reimbursed fully by Spinco or incur any obligations or liabilities to enable GGP to provide such services or enable Spinco to obtain any such license or rights; provided , further , that GGP shall not be required to seek broader rights or more favorable terms for Spinco than those applicable to GGP prior to the date of this Agreement or as may be applicable to GGP from time to time hereafter; and, provided , further , that Spinco shall bear only those costs that relate directly to obtaining such licenses (or other appropriation rights), which shall not include any payments relating to the discharge of Excluded Liabilities which are not related to the provision of Services. The Parties acknowledge and agree that there can be no assurance that GGPs efforts will be successful or that Spinco will be able to obtain such licenses or rights on acceptable terms or at all and, where GGP enjoys rights under any enterprise or site license or similar license, the Parties acknowledge that such license typically precludes partial transfers or assignments or operation of a service bureau on behalf of unaffiliated entities. In the event that Spinco is unable to obtain such software licenses, the Parties shall work together using commercially reasonable efforts to obtain an alternative software license or modification to an existing GGP license to allow GGP to provide, or Spinco to receive, such Services, and the Parties shall negotiate in good faith an amendment to the applicable Schedule to reflect any such new arrangement, which amended Schedule shall not require Spinco to pay for any fees, expenses or costs relating to the software license that Spinco was unable to obtain pursuant to the provisions of this Section 4.01 .
Section 4.02. GGP Computer-Based and Other Resources .
(a) As of the Plan Effective Date, except as otherwise expressly provided in the Separation Agreement, in any Schedule hereto, or in any other Transaction Documents, Spinco and its Subsidiaries shall have no further access to, and GGP shall have no obligation to otherwise provide access to, the GGP Intranet, and Spinco shall have no access to, and GGP shall have no obligation to otherwise provide access to, computer-based resources (including access to GGPIs or its Subsidiaries computer networks and databases) that require a password or are available on a secured access basis only. Notwithstanding the foregoing, from and after the Plan Effective Date, GGP shall use reasonable efforts to make available to Spinco an intranet (the Spinco Intranet ) accessible by Spinco and its Subsidiaries that contains (i) the GGP Materials and (ii) any materials that GGP determines in good faith that any member of the Spinco Group needs to access in connection with the performance or delivery of any Service.
(b) From and after the Plan Effective Date, Spinco and its Subsidiaries shall cause all of their personnel having access to the GGP Intranet or such other computer software, networks, hardware, technology or computer-based resources pursuant to the Separation Agreement, any Transaction Document or in connection with performance, receipt or delivery of a Service to comply with all reasonable security guidelines (including physical security, network access, Internet security, confidentiality and personal data security guidelines) of GGPI and its Subsidiaries (of which GGP provides Spinco notice). Spinco shall ensure that the access contemplated by this Section 4.02 shall be used by such personnel only for the purposes contemplated by, and subject to the terms of, this Agreement.
Section 4.03. Spinco Computer-Based and Other Resources . From and after the date of this Agreement, GGP and its Subsidiaries shall cause all of their personnel having access to the Spinco Intranet or such other computer software, networks, hardware, technology or computer based resources pursuant to the Separation Agreement, any Transaction Document or in connection with performance, receipt or delivery of a Service to comply with all reasonable security guidelines (including physical security, network access, internet security, confidentiality and personal data security guidelines) of Spinco and its Subsidiaries (of which Spinco provides GGP notice). GGP shall ensure that the access contemplated by this Section 4.03 shall be used by such personnel only for the purposes contemplated by, and subject to the terms of, this Agreement.
Section 4.04. Access . (a) Spinco shall, and shall cause its Subsidiaries to, allow GGP and its Representatives reasonable access to the facilities of Spinco necessary for GGP to fulfill its obligations under this Agreement.
(b) Notwithstanding the other rights of access of the Parties under this Agreement, each Party shall, and shall cause its Subsidiaries to, afford the other Party, its Subsidiaries and Representatives reasonable access, upon reasonable notice, during normal business hours to the facilities, information, systems, infrastructure, and personnel of the other Party as reasonably necessary for the other Party to verify the adequacy of internal controls over information technology, reporting of financial data and related processes employed in connection with the Services, including in connection with verifying compliance with Section 404 of the Sarbanes-Oxley Act of 2002; provided , however , such access shall not unreasonably interfere with any of the business or operations of such Party or its Subsidiaries.
Section 4.05. Insider Trading Policy . Each of the Parties hereby agrees that it will instruct its Representatives that it is a violation of applicable Law for any Representative to purchase or sell securities of the other Party based on non-public information obtained in connection with the performance of this Agreement.
Section 4.06. Cooperation . It is understood that it will require the significant efforts of both Parties to implement this Agreement and to ensure performance of this Agreement by the Parties at the agreed upon levels in accordance with all of the terms and conditions of this Agreement. The Parties will cooperate, acting in good faith and using commercially reasonable efforts, to effect a smooth and orderly transition of the Services provided under this Agreement from GGP to Spinco (including repairs and maintenance Services and the assignment or transfer of the rights and obligations under any third-party contracts relating to the Services) and Spinco
agrees that it will use commercially reasonable efforts to eliminate its need for the Services as quickly as practicable; provided , however , that this Section 4.06 shall not require either Party to incur any out-of-pocket costs or expenses unless and except as expressly provided in this Agreement or otherwise agreed to in writing by the Parties (acknowledging that Spinco will be required to incur costs and expenses in conjunction with eliminating its need for the Services).
ARTICLE V
COSTS AND DISBURSEMENTS
Section 5.01. Costs and Disbursements . (a) Spinco shall pay to GGP a fee for each Service (such fee constituting a Service Charge and, the fees for all Services collectively, Service Charges ) equal to the sum of (A) the product of (i) the Cost Multiplier multiplied by (ii) the applicable Service Resource Cost plus (B) the amount of any Out-of-Pocket Expenses incurred with respect to such Service; provided , however , that the Cost Multiplier shall be held constant at 110% for the term of this Agreement with respect to Services in support of the JD Edwards application (including, for the avoidance of doubt, the applicable Services set forth in Schedule A-7: Accounting and Schedule A-10: Information Technology Services), in each case solely to the extent such Services are in support of the JD Edwards application.
(b) GGP shall invoice Spinco for the Service Charges monthly in arrears; provided that the Service Charges shall be pro rated for any partial month. Spinco shall pay the amount of each such invoice by wire transfer or check to GGP within thirty (30) days of the receipt of each such invoice. If Spinco fails to pay such amount (other than any portion of such amount being disputed in good faith in accordance with the terms of this Agreement) by such date, Spinco shall be obligated to pay to GGP, in addition to the amount due, interest thereon at an annual percentage rate of ten percent (10%) (the Interest Rate ) accruing from the date the payment was due through the date of actual payment. Each invoice shall specify, for each type of Service, (A) (i) the aggregate number of hours GGP Employees in each group level set forth on Exhibit I spent performing such Service and (ii) the Direct Payroll Costs for each such group level (or the calculation under a different pricing methodology, as applicable), (B) the Cost Multiplier in effect and (C) any Out-of-Pocket Expenses incurred with respect to such Service. Together with any invoice for Service Charges, GGP shall provide Spinco with data and documentation (including documentation of Out-of-Pocket Expenses) as reasonably requested by Spinco for the purpose of verifying the accuracy of the calculation of such Service Charges; provided , however , that GGP shall provide Spinco with copies of all applicable third-party invoices as soon as reasonably practicable following receipt by GGP, it being understood that GGPs receipt of applicable third-party invoices may be delayed for thirty (30) or more days.
(c) At any time during the term of this Agreement, and for two (2) years after the expiration or termination of this Agreement, Spinco or its auditors or other reputable accounting firm, upon ten (10) business days prior written notice to GGP, may audit the books and records of the GGP Group relating to this Agreement for the purpose of verifying the Service Charges (at Spincos sole expense). GGP shall, and shall cause its Affiliates to, reasonably cooperate in such audit, make available on a timely basis the information reasonably required to conduct the review, and assist the designated representatives of Spinco or its auditors as reasonably necessary. GGP shall, and shall cause its Affiliates to, retain all such books and
records relating to this Agreement and the performance of the Services for two (2) years after the expiration or termination of this Agreement or such longer period as may be required by applicable law. GGP shall refund any overcharges or other amounts owed to Spinco, occurring at any time during the term of this Agreement, disclosed by such audit, within thirty (30) days after the completion of such audit.
Section 5.02. Taxes .
(a) Without limiting any provisions of this Agreement, Spinco shall pay any sales, use and other similar taxes imposed on, or payable with respect to, any Services provided to it under this Agreement; provided , however , that Spinco shall not pay, or be responsible for, any applicable income, franchise or gross receipts taxes imposed on, or payable with respect to, the income derived by GGP from providing these Services to Spinco.
(b) Notwithstanding anything to the contrary in Section 5.02(a) or elsewhere in this Agreement, Spinco shall be entitled to withhold from any payments to GGP any such taxes that Spinco is required by law to withhold and shall pay over such taxes to the applicable taxing authority.
Section 5.03. No Right to Set-Off . Spinco shall pay the full amount of Service Charges and shall not set-off, counterclaim or otherwise withhold any amount owed to GGP under this Agreement on account of any obligation owed by GGP to Spinco that has not been finally adjudicated, settled or otherwise agreed upon by the Parties in writing.
ARTICLE VI
STANDARD FOR SERVICE
Section 6.01. Standard for Service . Except where GGP is restricted by an existing Contract with a third party or by Law, GGP agrees (i) to perform the Services such that the nature, quality, standard of care and the service levels at which such Services are performed are no less than that which are substantially similar to the nature, quality, standard of care and service levels at which the same or similar services were performed by or on behalf of GGP prior to the Plan Effective Date (or, if not so previously provided, then substantially similar to that which are applicable to similar services provided to GGPs Subsidiaries or other business components), but in any event, in at least a good and workmanlike manner in accordance with past practice; (ii) upon receipt of written notice from Spinco identifying any outage, interruption or other failure of any Service, to respond to such outage, interruption or other failure of any Services in a manner that is no less than that which is substantially similar to the manner in which GGP or its Subsidiaries responded to any outage, interruption or other failure of the same or similar services prior to the Plan Effective Date (the Parties acknowledge that an outage, interruption or other failure of any Service shall not be deemed to be a breach of the provisions of this Section 6.01 so long as GGP complies with this clause (ii)). As of or following the date of this Agreement, if GGP is or becomes aware of any restriction on GGP by an existing Contract with a third-party that would restrict the nature, quality, standard of care or service levels applicable to delivery of the Services to be provided by GGP to Spinco, GGP shall (x) promptly notify Spinco of any such restriction (which notice shall in any event promptly
follow any change to, or reduction in, the nature, quality, standard of care or service levels applicable to delivery of the Services resulting from such restriction), (y) use commercially reasonable efforts to negotiate an amendment to the Contract to remove such restriction or otherwise obtain the third partys consent to allow the Services to be performed to the standards described in this Section 6.01 , and (z) use commercially reasonable efforts to provide such Services in a manner as closely as possible to the standards described in this Section 6.01 while attempting to secure the amendment or consent contemplated by (y). To the extent that GGP is unable to obtain the amendment or consent described above, the Parties shall negotiate in good faith an amendment to the applicable Schedule to reflect any such new arrangement.
Section 6.02. Disclaimer of Warranties . Except as expressly set forth in this Agreement or any Schedule, the Parties acknowledge and agree that the Services are provided as-is, that Spinco assumes all risks and liability arising from or relating to its use of and reliance upon the Services and GGP makes no representation or warranty with respect thereto. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, GGP HEREBY EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES REGARDING THE SERVICES, WHETHER EXPRESS OR IMPLIED, INCLUDING ANY REPRESENTATION OR WARRANTY IN REGARD TO QUALITY, PERFORMANCE, NONINFRINGEMENT, COMMERCIAL UTILITY, MERCHANTABILITY OR FITNESS OF THE SERVICES FOR A PARTICULAR PURPOSE.
Section 6.03. Compliance with Laws and Regulations . Each Party shall be responsible for its own compliance with any and all Laws applicable to its performance under this Agreement. No Party will knowingly take any action in violation of any such applicable Law that results in liability being imposed on the other Party.
ARTICLE VII
LIMITED LIABILITY AND INDEMNIFICATION
Section 7.01. Consequential and Other Damages . Notwithstanding anything to the contrary contained in the Separation Agreement or this Agreement, neither Spinco or its Subsidiaries, on the one hand, nor GGP or its Subsidiaries, on the other hand, shall be liable to the other Party or any of its Subsidiaries or Representatives, whether in contract, tort (including negligence and strict liability) or otherwise, at law or equity, for any special, indirect, incidental or consequential damages whatsoever (including lost profits or damages calculated on multiples of earnings approaches), which in any way arise out of, relate to or are a consequence of, the performance or nonperformance by the Party (including any Subsidiaries and Representatives of such Party and, in the case of GGP, any third-party providers providing the applicable Services) under this Agreement or the provision of, or failure to provide, or termination of, any Services under this Agreement, including with respect to loss of profits, business interruptions or claims of customers (provided, that any liability with respect to a Third Party Claim shall be considered direct damages).
Section 7.02. Limitation of Liability . Subject to Section 7.03 , the Liabilities of GGP and its Subsidiaries and Representatives, collectively, under this Agreement for any act or failure to act in connection herewith (including the performance or breach of this Agreement), or
from the sale, delivery, provision, use or termination of any Services provided under or contemplated by this Agreement, whether in contract, tort (including negligence and strict liability) or otherwise, shall not exceed the greater of (a) the total aggregate Service Charges (excluding any Out-of-Pocket Expenses included in such Service Charges) actually paid to GGP by Spinco pursuant to this Agreement and (b) $10,000,000.
Section 7.03. Obligation to Reperform and GGP Indemnity . In the event of any breach of this Agreement by GGP with respect to the provision of any Services, GGP shall (a) promptly correct in all material respects any error or defect resulting in such breach or reperform in all material respects such Services at the request of Spinco and at the sole cost and expense of GGP and (b) subject to the limitations set forth in Sections 7.01 and 7.02 , indemnify Spinco and its Subsidiaries and Representatives (each, a Spinco Indemnified Party ) for Liabilities (including direct damages, whether arising out of a Third Party Claim or otherwise) attributable to such breach by GGP; provided , however , that, to the extent any such breach can be cured through reperformance, the reperformance remedy set forth in Section 7.03(a) shall be the sole and exclusive remedy of Spinco for such portion of such breach; provided , further , however , that GGP shall indemnify each Spinco Indemnified Party to the extent any such party incurs indemnifiable losses that cannot be cured through reperformance. Any request for reperformance in accordance with Section 7.03(a) by Spinco must be in writing and specify in reasonable detail the particular error or defect resulting in such breach.
Section 7.04. Release and Spinco Indemnity . Subject to Section 7.01 , Section 7.02 and Section 7.03 , Spinco hereby releases GGP and its Subsidiaries and Representatives (each, a GGP Indemnified Party ), and Spinco hereby agrees to indemnify, defend and hold harmless each such GGP Indemnified Party from and against any and all Liabilities arising from, relating to or in connection with the use of any Services by Spinco or any of its Subsidiaries, Representatives or other Persons using such Services, except to the extent that such Liabilities arise out of, relate to or are a consequence of the applicable GGP Indemnified Partys bad faith, gross negligence or willful misconduct.
Section 7.05. Indemnification Procedures . The provisions of Article V of the Separation Agreement shall govern claims for indemnification under this Agreement.
Section 7.06. Liability for Payment Obligations . Nothing in this Article VII shall be deemed to eliminate or limit, in any respect, Spincos express obligation in this Agreement to pay Service Charges for Services rendered in accordance with this Agreement.
Section 7.07. Exclusion of Other Remedies . The provisions of Sections 7.03 and 7.04 of this Agreement shall be the sole and exclusive remedies for any claim, loss, damage, expense or liability, whether arising from statute, principle of common or civil law, principles of strict liability, tort, contract or otherwise under this Agreement.
ARTICLE VIII
DISPUTE RESOLUTION
Section 8.01. Dispute Resolution .
(a) In the event of any dispute, controversy or claim arising out of or relating to the transactions contemplated by this Agreement, or the validity, interpretation, breach or termination of any provision of this Agreement, or calculation or allocation of the costs of any Service, including claims seeking redress or asserting rights under any Law (each, a Dispute ), GGP and Spinco agree that the GGP Overall Service Manager and the Spinco Overall Service Manager (or such other Persons as GGP and Spinco may designate) shall negotiate in good faith in an attempt to resolve such Dispute amicably. If such Dispute has not been resolved to the mutual satisfaction of the Overall Service Managers within fifteen (15) days after the initial written notice of the Dispute by one Party to another Party (or such longer period as the Parties may agree), then the respective Chief Executive Officers of GGPI and Spinco shall negotiate in good faith in an attempt to resolve such Dispute amicably. If such Dispute has not been resolved to the mutual satisfaction of the Chief Executive Officers of GGPI and Spinco within fifteen (15) days after the Dispute was referred to them for negotiation (or such longer period as the Parties may agree), then the Dispute shall be resolved in accordance with the dispute resolution process set forth in Sections 7.3 and 7.4 of the Separation Agreement; provided , that such dispute resolution process shall not modify or add to the remedies available to the Parties under this Agreement.
(b) Notwithstanding anything to the contrary in this Agreement, either Party may immediately seek equitable relief (without the necessity of posting a bond) including, without limitation, temporary injunctive relief, against the other Party with respect to any and all equitable remedies sought in connection with this Agreement in accordance with Article VII of the Separation Agreement.
(c) In any Dispute regarding the amount of a Service Charge, if after such Dispute is finally resolved pursuant to the dispute resolution process set forth or referred to in Section 8.01(a) , it is determined that the Service Charge that GGP has invoiced Spinco, and that Spinco has paid to GGP, is greater or less than the amount that the Service Charge should have been, then (a) if it is determined that Spinco has overpaid the Service Charge, GGP shall within ten (10) business days after such determination reimburse Spinco an amount of cash equal to such overpayment, plus interest thereon at the Interest Rate accruing from the date of such overpayment to the time of reimbursement by GGP, and (b) if it is determined that Spinco has underpaid the Service Charge, Spinco shall within ten (10) business days after such determination pay GGP an amount of cash equal to such underpayment, plus interest thereon at the Interest Rate accruing from the date of such underpayment (or when such payment was due if not paid at all) to the time of payment by Spinco.
ARTICLE IX
TERM AND TERMINATION
Section 9.01. Term and Termination . (a) This Agreement shall commence immediately upon the Plan Effective Date and shall terminate upon the earlier to occur of: (i) the last date on which either Party is obligated to provide any Service to the other Party and the completion of all other obligations hereunder in accordance with the terms of this Agreement and (ii) the mutual written agreement of the Parties to terminate this Agreement in its entirety. Notwithstanding anything to the contrary contained in this Agreement or any Schedule,
(i) GGPs obligation to provide, or cause to be provided, Services to the Spinco Entities shall terminate, at GGPs sole option, with respect to any Spinco Entity that Spinco, directly or indirectly, sells, or otherwise transfers ownership and control of, to a non-Spinco Entity (e.g., pursuant to equity sale, asset sale, merger or otherwise) and (ii) in no event shall the provision of any Service extend beyond the date that is twenty-four (24) months from the Plan Effective Date.
(b) Without prejudice to Spincos rights with respect to a Force Majeure, Spinco may from time to time terminate this Agreement with respect to the entirety of any individual Service but not a portion thereof, (A) for any reason or no reason upon providing to GGP the requisite prior written notice for such termination as specified in the applicable Schedule or, if no such notice period is provided in the applicable Schedule, on five (5) days prior written notice, or (B) if GGP has failed to perform any of its material obligations under this Agreement with respect to such Service, and such failure shall continue to exist thirty (30) days after receipt by GGP of written notice of such failure from Spinco; and (ii) GGP may terminate this Agreement with respect to one or more Services, in whole but not in part, at any time upon prior written notice to Spinco if Spinco has failed to perform any of its material obligations under this Agreement relating to such Services, including making payment of any Service Charges when due, and such failure shall be continued uncured for a period of thirty (30) days after receipt by Spinco of a written notice of such failure from GGP. The relevant Schedule shall be updated to reflect any terminated Service. In the event that any Service is terminated other than at the end of a month, the Service Charge associated with such Service shall be pro-rated as applicable. In the event that Spinco terminates any Service pursuant to clause (A) of this Section 9.01(b) , the GGP Group shall have the right to (i) terminate or discontinue any contract or other arrangement with an unaffiliated third party to the extent such contract or arrangement relates to such terminated Service, and any charges and out-of-pocket costs, fees and expenses payable by any member of the GGP Group in connection with the exercise of such right (other than severance obligations or other amounts payable to any GGP Employee) shall be reimbursed by Spinco promptly upon GGPs presentation to Spinco of the applicable third party invoice therefor and (ii) charge Spinco for any applicable Service Charges incurred in connection with the orderly unwinding and transfer of such terminated Service.
(c) Without prejudice to the rights and obligations of the Parties in Section 2.03 and Section 4.06 , either Party may from time to time request a reduction in part of the scope or amount of any Service. If requested to do so by the other Party, each Party agrees to discuss in good faith appropriate reductions to the relevant Service Charges in light of all relevant factors including the costs and benefits to the Parties of any such reductions. If, after such discussions, Spinco and GGP do not agree to any requested reduction of the scope or amount of any Service and the relevant Service Charges in connection therewith, then there shall be no change to the scope or amount of any Services or Service Charges under this Agreement. In the event that Spinco and GGP agreed to any reduction of Service and the relevant Service Charges, the relevant Schedule shall be updated to reflect such reduced Service and relevant Service Charges if any. In the event that any Service is reduced other than at the end of a month, the Service Charge associated with such Service for the month in which such Service is reduced shall be pro-rated appropriately.
Section 9.02. Effect of Termination . Upon termination of any Service pursuant to this Agreement, GGP will have no further obligation to provide the terminated Service, and
Spinco will have no obligation to pay any future Service Charges relating to any such Service; provided , that Spinco shall remain obligated to GGP for the Service Charges owed and payable in respect of Services provided prior to the effective date of termination as set forth in the Schedule relating to such Service. In connection with termination of any Service, the provisions of this Agreement not relating solely to such terminated Service shall survive any such termination, and in connection with a termination of this Agreement, Article I , Article VII (including liability in respect of any indemnifiable Liabilities under this Agreement arising or occurring on or prior to the date of termination), Article VIII , Article IX , Article X , all confidentiality obligations under this Agreement and liability for all due and unpaid Service Charges shall continue to survive indefinitely.
Section 9.03. Force Majeure . (a) GGP (and any Person acting on its behalf) shall not have any liability or responsibility for failure to fulfill any obligation under this Agreement so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure; provided , that (i) GGP (or such Person) shall have exercised commercially reasonable efforts to minimize the effect of Force Majeure on its obligations; and (ii) the nature, quality and standard of care that GGP shall provide in delivering a Service after a Force Majeure shall be substantially the same as the nature, quality and standard of care that GGP provides to its Subsidiaries and its other business components with respect to such Service. In the event of an occurrence of a Force Majeure, GGP shall give notice of suspension as soon as reasonably practicable to the other Party stating the date and extent of such suspension and the cause thereof, and GGP shall resume the performance of such obligations as soon as reasonably practicable after the removal of such cause.
(b) During the period of a Force Majeure, Spinco shall be entitled to seek an alternative service provider with respect to such Service(s) and shall be entitled to permanently terminate such Service(s) (and shall be relieved of the obligation to pay Service Charges for such Services(s) throughout the duration of such Force Majeure) if a Force Majeure shall continue to exist for more than fifteen (15) consecutive days, it being understood that Spinco shall not be required to provide any advance notice of such termination to GGP in connection therewith.
ARTICLE X
GENERAL PROVISIONS
Section 10.01. No Agency . Nothing in this Agreement shall be deemed in any way or for any purpose to constitute any Party an agent of another unaffiliated Party in the conduct of such other Partys business. GGP shall act as an independent contractor and not as the agent of Spinco in performing such Services, maintaining control over GGP Employees, GGPs subcontractors and their employees and complying with all withholding of income and other requirements of Law, whether federal, state, local or foreign and no member of the GGP Group shall have any authority to bind any member of the Spinco Group by contract or otherwise.
Section 10.02. Subcontractors . GGP may hire or engage one or more subcontractors to perform any or all of its obligations under this Agreement; provided , that
(i) GGP shall use the same degree of care in selecting any such subcontractor as it would if such contractor was being retained to provide similar services to GGP, (ii) GGP shall in all cases remain primarily responsible for all of its obligations under this Agreement with respect to the scope of the Services, the standard for services as set forth in Article VI and the content of the Services provided to Spinco and (iii) without the prior written consent of the applicable Spinco Service Manager (not to be unreasonably withheld, conditioned or delayed), GGP shall not remove and/or replace any subcontractor if such action would reasonably be expected to cause a material increase in cost with respect to the applicable Service. Notwithstanding the foregoing, (x) Spinco (or any other member of the Spinco Group) shall have the right to hire or engage any subcontractor directly and (y) if GGP does hire or engage any subcontractor to provide any Service hereunder, then, notwithstanding any provision of this Agreement or any other Transaction Document to the contrary, the applicable Service Charge for the provision of such Service performed by such subcontractor shall be only the amount actually paid to such subcontractor for providing such Service, without any additional charge or mark up.
Section 10.03. Treatment of Confidential Information .
(a) The Parties shall not, and shall cause their respective Representatives and all other Persons providing Services or having access to information of the other Party that is known to such Party as confidential or proprietary ( Confidential Information ) not to, disclose to any other Person or use, except for purposes of this Agreement, any Confidential Information of the other Party; provided , however , that each Party may disclose Confidential Information of the other Party and to the extent permitted by applicable Law: (i) to its Representatives on a need-to-know basis in connection with the performance of such Partys obligations under this Agreement; (ii) in any report, statement, testimony or other submission required to be made to any Governmental Authority having jurisdiction over the disclosing Party; or (iii) in order to comply with applicable Law, or in response to any summons, subpoena or other legal process or formal or informal investigative demand issued to the disclosing Party in the course of any litigation, investigation or administrative proceeding. In the event that a Party becomes legally compelled (based on advice of counsel) by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar judicial or administrative process to disclose any Confidential Information of the other Party, such disclosing Party shall provide the other Party with prompt prior written notice of such requirement, and, to the extent reasonably practicable, cooperate with the other Party (at such other Partys expense) to obtain a protective order or similar remedy to cause such Confidential Information not to be disclosed, including interposing all available objections thereto, such as objections based on settlement privilege. In the event that such protective order or other similar remedy is not obtained, the disclosing Party shall furnish only that portion of the Confidential Information that has been legally compelled, and shall exercise its commercially reasonable efforts (at such other Partys expense) to obtain assurance that confidential treatment will be accorded such Confidential Information.
(b) Each Party shall, and shall cause its Representatives to protect the Confidential Information of the other Party by using the same degree of care to prevent the unauthorized disclosure of such as the Party uses to protect its own confidential information of a like nature but in any event not less than reasonable means.
(c) Each Party shall cause its Representatives to agree to be bound by the same restrictions on use and disclosure of Confidential Information as are binding upon such Party in advance of the disclosure of any such Confidential Information to them.
(d) The restrictions set forth in Sections 10.03(a) and (b) shall not prevent either Party from disclosing Confidential Information which belongs to that Party or (a) is in or enters the public domain without breach of this Agreement or any other Transaction Document, (b) the receiving Party was lawfully and demonstrably in possession of prior to first receiving it from the disclosing Party, (c) the receiving Party can demonstrate was developed by the receiving Party independently and without use of or reference to the disclosing Partys Confidential Information, (d) the receiving Party receives from a third party without restriction on disclosure and without breach of a nondisclosure obligation, or (e) is approved by the other Party for disclosure.
(e) Each Party shall comply with all applicable state, federal and foreign privacy and data protection Laws that are or that may in the future be applicable to the provision of Services under this Agreement.
Section 10.04. Further Assurances . Each Party covenants and agrees that, without any additional consideration, it shall execute and deliver any further legal instruments and perform any acts that are or may become necessary to effectuate this Agreement.
Section 10.05. Notices . Except with respect to routine communications by the GGP Service Managers and Spinco Service Managers under Section 2.04 , all notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile or electronic transmission with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 10.05 ):
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General Growth Properties, Inc. |
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110 N. Wacker Drive |
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Chicago, IL 60606 |
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General Counsel |
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The Howard Hughes Corporation |
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13355 Noel Road |
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Suite 950 |
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Dallas, TX 75240 |
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Attention: |
Grant Herlitz |
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(214) 741-3021 |
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in each case, with a copy to: |
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Weil, Gotshal & Manges LLP |
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767 Fifth Avenue |
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New York, NY 10153 |
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Attention: |
Gary Holtzer and Marcia Goldstein |
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(212) 310-8007 |
Section 10.06. Severability . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced under any Law or as a matter of public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement be consummated as originally contemplated to the greatest extent possible.
Section 10.07. Entire Agreement . Except as otherwise expressly provided in this Agreement, this Agreement, the Separation Agreement and the other Transaction Documents constitute the entire agreement of the Parties with respect to the subject matter of this Agreement and supersede all prior agreements and undertakings, both written and oral, between or on behalf of the Parties with respect to the subject matter of this Agreement.
Section 10.08. No Third-Party Beneficiaries . Except as provided in Article VII with respect to GGP Indemnified Parties, this Agreement is for the sole benefit of the Parties and their permitted successors and assigns and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person, including any union, any current or former GGP Employee or any current or former employee of Spinco, any legal or equitable right, benefit or remedy of any nature whatsoever, including any rights of employment for any specified period, under or by reason of this Agreement.
Section 10.09. Governing Law . This Agreement (and any claims or disputes arising out of or related to this Agreement or to the transactions contemplated by this Agreement or to the inducement of any Party to enter into this Agreement or the transactions contemplated by this Agreement, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall in all respects be governed by, and construed in accordance with, the Laws of the State of New York, including all matters of construction, validity and performance, in each case without reference to any conflict of Law rules that might lead to the application of the Laws of any other jurisdiction.
Section 10.10. Amendment . No provision of this Agreement, including any Schedules to this Agreement, may be amended, supplemented or modified except by a written instrument making specific reference to this Agreement or any such Schedules to this Agreement, as applicable, signed by all the Parties.
Section 10.11. Rules of Construction . Interpretation of this Agreement shall be governed by the following rules of construction: (a) words in the singular shall be held to include the plural and vice versa, and words of one gender shall be held to include the other gender as the context requires; (b) references to the terms Article, Section, paragraph and Schedule are references to the Articles, Sections, paragraphs and Schedules of this Agreement unless otherwise specified; (c) references to $ shall mean U.S. dollars; (d) the word including and words of similar import when used in this Agreement shall mean including without limitation, unless otherwise specified; (e) the word or shall not be exclusive; (f) references to written or in writing include in electronic form; (g) provisions shall apply, when appropriate, to successive events and transactions; (h) 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; (i) GGP and Spinco have each participated in the negotiation and drafting of this Agreement and if an ambiguity or question of interpretation should arise, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or burdening either Party by virtue of the authorship of any of the provisions in this Agreement or any interim drafts of this Agreement; (j) a reference to any Person includes such Persons successors and permitted assigns; (k) any reference to days means calendar days unless business days are expressly specified; and (l) when calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded, if the last day of such period is not a business day, the period shall end on the next succeeding business day.
Section 10.12. Counterparts . This Agreement may be executed in one or more counterparts, and by each Party in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or portable document format (PDF) shall be as effective as delivery of a manually executed counterpart of this Agreement.
Section 10.13. Assignability . (a) This Agreement shall not be assigned by operation of Law or otherwise without the prior written consent of GGP and Spinco, except that each Party may:
(i) assign all of its rights and obligations under this Agreement to any of its Subsidiaries; provided , that no such assignment shall release GGP or Spinco, as the case may be, from any liability or obligation under this Agreement;
(ii) in connection with the divestiture of any Subsidiary or business of Spinco to an acquiror that is not a Competitor of GGP, assign to the acquiror of such Subsidiary or business its rights and obligations as a recipient with respect to the Services provided to such divested Subsidiary or business under this Agreement; provided , that (i) no such assignment shall release GGP or Spinco, as the case may be, from any liability or obligation under this Agreement, (ii) any and all costs and expenses incurred by either Party in connection with such assignment (including in connection with clause (iii) of this proviso) shall be borne solely by the assigning Party, and (iii) the Parties shall in good faith negotiate any amendments to this
Agreement, including the Annexes and Schedules to this Agreement, that may be necessary or appropriate in order to assign such Services; and
(iii) in connection with the divestiture of any Subsidiary or business of Spinco to an acquiror that is a Competitor of GGP, assign to the acquiror of such Subsidiary or business its rights and obligations as a recipient with respect to the Services provided to such divested Subsidiary or business under this Agreement; provided , that (i) no such assignment shall release GGP or Spinco, as the case may be, from any liability or obligation under this Agreement, (ii) any and all costs and expenses incurred by either Party in connection with such assignment (including in connection with clause (iii) of this proviso) shall be borne solely by the assigning Party, (iii) the Parties shall in good faith negotiate any amendments to this Agreement, including the Annexes and Schedules to this Agreement, that may be necessary or appropriate in order to ensure that such assignment will not (x) materially and adversely affect the businesses and operations of each of the Parties and their respective Subsidiaries or (y) create a competitive disadvantage for GGP with respect to an acquiror that is a Competitor of GGP, and (iv) GGP shall not be obligated to provide any such assigned Services to an acquiror that is a Competitor of GGP if the provision of such assigned Services to such acquiror would disrupt the operation of GGPs businesses or create a competitive disadvantage for GGP with respect to such acquiror.
(b) In the event of the (i) merger, amalgamation or consolidation of Spinco and another Person, (ii) sale of all or substantially all of the assets of Spinco to another Person, (iii) the acquisition of a majority of the voting stock of Spinco by any Person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) or (iv) the election of, or appointment to, the board of directors of Spinco of directors constituting a majority of the directors then serving if such elected or appointed directors have not been nominated as directors by the Nominating Committee of the board of directors prior to their election or appointment, then the requirement of GGP to provide Services hereunder shall automatically terminate without further action by the Parties thirty (30) days after the occurrence of such event.
Section 10.14. Waiver of Jury Trial . EACH PARTY TO THIS AGREEMENT WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER; AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTY TO THIS AGREEMENT HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER TRANSACTION AGREEMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.14 .
Section 10.15. Specific Performance . The provisions of Section 7.4 of the Separation Agreement shall govern specific performance under this Agreement.
Section 10.16. Non-Recourse . Other than the GGP Group and the Spinco Group, no past, present or future director, officer, employee, incorporator, member, partner, stockholder, Affiliate, agent, attorney or representative of either GGP or Spinco or their Subsidiaries shall have any liability for any obligations or liabilities of GGP or Spinco, respectively, under this Agreement or for any claims based on, in respect of, or by reason of, the transactions contemplated by this Agreement.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed on the date first written above by their respective duly authorized officers.
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GGP LIMITED PARTNERSHIP |
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GENERAL GROWTH MANAGEMENT, INC. |
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THE HOWARD HUGHES CORPORATION |
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Signature Page to Transition Services Agreement
Exhibit 10.59
TAX MATTERS AGREEMENT
by and between
General Growth Properties, Inc.
and
The Howard Hughes Corporation
Dated as of []
TAX MATTERS AGREEMENT
THIS TAX MATTERS AGREEMENT (this Agreement ), dated as of [], is by and between General Growth Properties, Inc., a Delaware corporation ( GGP ) and The Howard Hughes Corporation, a Delaware corporation ( Spinco ). Each of GGP and Spinco is sometimes referred to herein as a Party and, collectively, as the Parties .
WHEREAS, the board of directors of GGP has determined that it is in the best interests of GGP and its shareholders to create a new publicly traded company which shall operate the Spinco Business;
WHEREAS, the board of directors of GGP and the board of directors of Spinco have approved (i) the Restructuring, and (ii) the Distribution, all as more fully described in the Separation Agreement and the other Transaction Documents;
WHEREAS, for U.S. federal income tax purposes, certain steps of the Restructuring and the Distribution are intended to qualify for tax-free treatment under Sections 351, 355, 368(a) and related provisions of the Code;
WHEREAS, GGP has received the Private Letter Ruling from the IRS to the effect that, among other things, (i) certain steps of the Restructuring and the Distribution, taken together, qualify as a transaction (a) that is described in Sections 355(a) and 368(a)(1)(G) of the Code, (b) in which the Spinco Common Stock distributed is qualified property under Section 361(c) of the Code and (c) in which the holders of GGP Common Shares recognize no income or gain for U.S. federal income tax purposes under Section 355 of the Code, and (ii) certain other steps of the Spinoff Plan qualify as transactions that are described in Sections 355(a) and 368(a)(1)(G) of the Code;
WHEREAS, as a result of the Restructuring and Distribution, the Parties desire to enter into this Agreement to provide for certain Tax matters, including the assignment of responsibility for the preparation and filing of Tax Returns, the payment of and indemnification for Taxes (including any Taxes incurred in connection with the Restructuring and Distribution), entitlement to refunds of Taxes, and the prosecution and defense of any Tax controversies;
NOW, THEREFORE, in consideration of the foregoing and the terms, conditions, covenants and provisions of this Agreement, each of the Parties mutually covenants and agrees as follows:
ARTICLE I
DEFINITIONS
Section 1.01. General . As used in this Agreement, the following terms shall have the following meanings:
Accounting Firm has the meaning set forth in Section 9.01.
Adjusted CDND has the meaning ascribed to it in the Investment Agreements.
Adjustment means any proposed or final change in the Tax liability of a taxpayer.
Agreement has the meaning set forth in the preamble to this Agreement.
Common Parent means (i) for U.S. federal income tax purposes, the common parent corporation of an affiliated group (in each case, within the meaning of Section 1504 of the Code) filing a U.S. federal consolidated income Tax Return, or (ii) for state, local or foreign Tax purposes, the common parent (or the equivalent thereof) of a Tax Group.
Consolidated Return means, with respect to the GGP Group and Spinco Group, respectively, the U.S. federal income Tax Return required to be filed by (i) a GGP Entity as the Common Parent or (ii) a Spinco Entity as the Common Parent.
Cornerstone Investment Agreement means that certain Cornerstone Investment Agreement effective as of March 31, 2010 between REP Investments LLC and GGP, as amended to the date hereof.
Disqualifying Action means a GGP Disqualifying Action or a Spinco Disqualifying Action.
Due Date means (i) with respect to a Tax Return, the date (taking into account all valid extensions) on which such Tax Return is required to be filed under applicable Law and (ii) with respect to a payment of Taxes, the date on which such payment is required to be made to avoid the incurrence of interest, penalties and/or additions to Tax.
Effective Date means the date of the Distribution.
Excess Surplus Amount has the meaning ascribed to it in the Investment Agreements.
Final Determination means the final resolution of liability for any Tax for any taxable period, by or as a result of (i) a final decision, judgment, decree or other order by any court of competent jurisdiction that can no longer be appealed; (ii) a final settlement with the IRS, a closing agreement or accepted offer in compromise under Sections 7121 or 7122 of the Code, or a comparable agreement under the Laws of other jurisdictions, which resolves the entire Tax liability for any taxable period; (iii) any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund or credit may be recovered by the jurisdiction imposing the Tax; or (iv) any other final resolution, including by reason of the expiration of the applicable statute of limitations or the execution of a pre-filing agreement with the IRS or other Taxing Authority.
GGP has the meaning set forth in the preamble to this Agreement.
GGP Disqualifying Action means (i) any action (or the failure to take any action) within its control by any GGP Entity (including entering into any agreement, understanding or arrangement or any negotiations with respect to any transaction or series of transactions) that, (ii) any event (or series of events) involving the capital stock of GGP or any assets of any GGP Entity that, or (iii) any breach by any GGP Entity of any representation, warranty or covenant made by them in the Transaction Documents that, in each case, would reasonably be expected to negate the Tax-Free Status of the Transactions; provided , however , the term GGP Disqualifying Action shall not include any action required by the Separation Agreement or any other Transaction Document or that is undertaken pursuant to the Restructuring or the Distribution.
GGP Entity means any member of the GGP Group.
GGP Liability Percentage means the quotient, expressed as a percentage and rounded to two (2) decimal points, of (i) the GGP Market Capitalization, divided by (ii) the sum of the GGP Market Capitalization plus the Spinco Market Capitalization.
GGP Market Capitalization means the product of (i) the volume-weighted average trading price per share of GGP Common Shares for the twenty (20) consecutive trading days beginning on and following the thirty-first (31st) trading day following the Effective Time, as quoted by Bloomberg Financial Services through its Volume at Price function, rounded to the nearest whole cent, multiplied by (ii) the arithmetic average of the number of GGP Common Shares outstanding, on a fully-diluted basis, on each of such twenty (20) trading days, rounded to two (2) decimal points.
GGP Taxes means any Taxes allocated to GGP pursuant to Article II.
Income Taxes means any Taxes based upon, measured by, or calculated with respect to net income, profits, or gains (including, but not limited to, any capital gains, minimum Tax or any Tax on items of Tax preference, but not including sales, use, real or personal property, excise, or transfer or similar Taxes).
Indemnity Cap has the meaning ascribed to it in Section 2.01(b).
Indemnifying Party means the Party from which the other Party is entitled to seek indemnification pursuant to the provisions of Article IV.
Indemnified Party means the Party which is entitled to seek indemnification from the other Party pursuant to the provisions of Article IV.
Independent Firm has the meaning set forth in Section 8.01(b).
Information has the meaning set forth in Section 8.01(a).
Information Request has the meaning set forth in Section 8.01(a).
IRS means the U.S. Internal Revenue Service or any successor thereto, including, but not limited to its agents, representatives, and attorneys.
MPC Assets means residential and commercial lots in the master planned communities owned, for federal income tax purposes, by Howard Hughes Properties, Inc. or The Hughes Corporation or related to the Emerson Master Planned Community.
MPC Taxes means all liability for Income Taxes in respect of sales of MPC assets sold prior to March 31, 2010.
New GGPI means, after the Distribution, the publicly held corporation that will indirectly acquire 100% of the outstanding common stock of GGP.
Notified Action has the meaning set forth in Section 7.02(a).
Party has the meaning set forth in the preamble to this Agreement.
Past Practice has the meaning set forth in Section 3.03(a)(i).
Pre-Closing Period means any taxable period ending on or before the Effective Date.
Post-Closing Period means any taxable period beginning after the Effective Date.
Refund means any refund (or credit in lieu thereof) of Taxes (including any overpayment of Taxes that can be refunded or, alternatively, applied to other Taxes payable), including any interest paid on or with respect to such refund of Taxes.
Restructuring/Distribution Taxes means any Taxes incurred in or by reason of the Restructuring or the Distribution, other than Spin-Off Taxes. For the avoidance of doubt, Restructuring/Distribution Taxes include Taxes by reason of deferred intercompany transactions triggered by the Restructuring or the Distribution.
Representative has the meaning set forth in Section 8.01(b).
Response Deadline has the meaning set forth in Section 8.01(b).
Separate Return means (i) in the case of the GGP Group, a Tax Return of any GGP Entity (including any Consolidated, combined, affiliated, or unitary Tax Return) that does not include, for any portion of the relevant taxable period, any Spinco Entity that is a regarded entity for U.S. federal income tax purposes and (ii) in the case of the Spinco Group, a Tax Return of any Spinco Entity (including any Consolidated, combined, affiliated, or unitary Tax Return) and that does not include, for any portion of the relevant taxable period, any GGP Entity that is a regarded entity for U.S. federal income tax purposes.
Separation Agreement means the Separation Agreement by and between the Parties dated as of [].
Spin-off Taxes means any Taxes or other Liabilities incurred solely as a result of the failure of the Tax-Free Status of the Transactions.
Spinco has the meaning set forth in the preamble to this Agreement.
Spinco Disqualifying Action means (i) any action (or the failure to take any action) within its control by any Spinco Entity (including entering into any agreement, understanding or arrangement or any negotiations with respect to any transaction or series of transactions) that, (ii) any event (or series of events) involving the capital stock of Spinco or any assets of any Spinco Entity that, or (iii) any breach by any Spinco Entity of any representation, warranty or covenant made by them in the Transaction Documents that, in each case, would reasonably be expected to negate the Tax-Free Status of the Transactions; provided , however , the term Spinco Disqualifying Action shall not include any action required by the Separation Agreement or any other Transaction Document or that is undertaken pursuant to the Restructuring or the Distribution.
Spinco Entity means any member of the Spinco Group.
Spinco Liability Percentage means the difference, expressed as a percentage, of (i) one hundred percent (100%) minus (ii) the GGP Liability Percentage.
Spinco Market Capitalization means the product of (i) the volume-weighted average trading price per share of shares of Spinco Common Stock for the twenty (20) consecutive trading days beginning on and following the thirty-first (31st) trading day following the Effective Time, as quoted by Bloomberg Financial Services through its Volume at Price function, rounded to the nearest whole cent, multiplied by (ii) the arithmetic average of the number of shares of Spinco Common Stock outstanding, on a fully-diluted basis, on each of such twenty (20) trading days, rounded to two (2) decimal points.
Spinco Taxes means any Taxes allocated to Spinco pursuant to Article II.
Straddle Period means any taxable period that begins on or before and ends after the Effective Date.
Supplemental Ruling means a private letter ruling, without substantive qualifications, of the IRS, to the effect that a transaction will not affect the Tax-Free Status of the Transactions.
Suspended Deductions means the interest deductions of The Hughes Corporation suspended by Section 163(j) of the Code and available for use as of the Effective Date. Such deductions were estimated to be approximately $406,000,000 as of December 31, 2009. The amount of Suspended Deductions available for use as of the Effective Date will be calculated based on an interim closing of the books and records of The Hughes Corporation as of the close of business on the Effective Date.
Tax means (i) all taxes, charges, fees, duties, levies, imposts, or other similar assessments, imposed by any U.S. federal, state or local or foreign governmental authority, including, but not limited to, income, gross receipts, excise, property, sales, use, license, capital stock, transfer, franchise, payroll, withholding, social security, value added and other taxes, (ii) any interest, penalties or additions attributable thereto and (iii) all liabilities in respect of any
items described in clauses (i) or (ii) payable by reason of assumption, transferee or successor liability, operation of Law or Treasury Regulation Section 1.1502-6(a) (or any predecessor or successor thereof or any analogous or similar provision under Law).
Tax Attributes means net operating losses, capital losses, earnings and profits, overall foreign losses, previously taxed income, separate limitation losses, deferred or suspended losses or deductions, foreign tax credits or other tax credits and all other Tax attributes.
Tax Detriment shall mean an increase in the Tax liability of a Person for any Taxable Period. Except as otherwise provided in this Agreement, a Tax Detriment shall be deemed to have been realized or suffered from a Tax Item or Items in a taxable period only if and to the extent that the Tax liability of such Person for such period is greater than it would have been if such Tax liability were determined without regard to such Tax Item.
Tax-Free Status of the Transactions means the tax-free treatment accorded to certain of the transactions taken in connection with the Restructuring and the Distribution as set forth in the Private Letter Ruling.
Tax Group means any U.S. federal, state, local or foreign affiliated, consolidated, combined, unitary or similar group or fiscal unity that joins in the filing of a single Tax Return.
Taxing Authority means any governmental authority or any subdivision, agency, commission or entity thereof or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection or imposition of any Tax (including the IRS).
Tax Item shall mean any item of income, gain, loss, deduction, credit, recapture of credit, Tax Attribute, or any other item which may have the effect of increasing or decreasing Taxes paid or payable.
Tax Matter has the meaning set forth in Section 8.01(a).
Tax Package means all relevant Tax-related information relating to the operations of the GGP Business or the Spinco Business, as applicable, that is reasonably necessary to prepare and file the applicable Tax Return.
Tax Proceeding means any audit, assessment of Taxes, pre-filing agreement, other examination by any Taxing Authority, proceeding, appeal of a proceeding or litigation relating to Taxes, whether administrative or judicial, including proceedings relating to competent authority determinations.
Tax Return means any return, report, certificate, form or similar statement or document (including any related or supporting information or schedule attached thereto and any information return, or declaration of estimated Tax) supplied to, or filed with, or required to be supplied to, or filed with, a Taxing Authority with respect to Taxes.
Treasury Regulations means the final and temporary (but not proposed) income Tax regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
Unqualified Tax Opinion means a will opinion, without substantive qualifications, of a nationally recognized law firm, which law firm is reasonably acceptable to GGP and Spinco, to the effect that a transaction will not affect the Tax-Free Status of the Transactions.
Section 1.02. Additional Definitions .
(a) Capitalized terms not defined in this Agreement shall have the meaning ascribed to them in the Separation Agreement.
ARTICLE II
ALLOCATION OF TAX LIABILITIES AND REFUNDS
Section 2.01. Allocation of Tax Liabilities .
(a) Income and Other Taxes .
(i) Except as provided in Section 2.01 (d), GGP shall be liable for all Taxes of GGP Entities for all taxable periods; provided, that Spinco shall be liable for and shall indemnify GGP from and against all Taxes imposed on a GGP Entity pursuant to Treasury Regulation Section 1.1502-6(a) (or any predecessor or successor thereof or any analogous or similar provision under Law) resulting from operations of a Spinco Entity.
(ii) Except as provided in Section 2.01(b), (c) and (d), Spinco shall be liable for all Taxes of Spinco Entities for all taxable periods; provided that (A), notwithstanding any provision of any of the Investment Agreements to the contrary, if Spinco is obligated to pay in cash (after utilization of any available Tax Attributes), in the period ending 36 months after the Effective Date, any MPC Taxes and GGP is not liable for its allocable share of such MPC Taxes pursuant to Section 2.01(b) below as a consequence of the Indemnity Cap, then GGP shall loan to Spinco the amount of such MPC Taxes not payable by GGP as a consequence of the Indemnity Cap (any such loan shall have the terms and conditions described in Section 5.17(g) of the Cornerstone Investment Agreement); and (B) GGP shall be liable for and shall indemnify Spinco from and against Taxes imposed on a Spinco Entity pursuant to Treasury Regulation Section 1.1502-6(a) (or any predecessor or successor thereof or any analogous or similar provision under Law) resulting from operations of a GGP Entity.
(b) MPC Taxes . Notwithstanding any provision of any of the Investment Agreements or any provision of this Agreement or any of the other Transaction Documents to the contrary, GGP shall be liable for 93.75% of any MPC Taxes payable in cash by Spinco or any of its Subsidiaries; provided , however , that, except as provided herein with respect to interest or penalties, GGPs liability pursuant to this Section 2.01(b) shall be capped at the lesser of (i) $303,750,000 and (ii) the then effective Excess Surplus Amount (if any) (the applicable amount described in clause (i) or clause (ii) is referred to herein as the Indemnity Cap ). In the event
that any Suspended Deductions are utilized by Spinco or any of its Subsidiaries to offset taxable income or gain realized by Spinco or any of its Subsidiaries other than taxable income attributable to sales of MPC Assets sold prior to March 31, 2010, GGPs current and future liability, if any, pursuant to this Section 2.01(b) shall be reduced by an amount equal to 93.75% of the incremental Taxes that would have been payable in cash by Spinco or any of its Subsidiaries had such Suspended Deductions not been so utilized. In the event that any Tax Attributes other than Suspended Deductions are utilized by Spinco or any of its Subsidiaries to offset and reduce taxable income or gain generated with respect to sales of MPC Assets sold prior to March 31, 2010, GGP shall be liable for 93.75% of any Income Taxes payable in cash by Spinco or any of its Subsidiaries that would not have been so payable had such Tax Attributes not been so utilized. In addition, notwithstanding any provision of the Investment Agreements or any provision of this Agreement or any of the other Transaction Documents to the contrary, GGP shall also be liable for one hundred percent (100%) of any interest or penalties attributable to any MPC Taxes which interest or penalties accrue with respect to periods ending on or before the date that Spinco assumes control of all Tax Proceedings relating to MPC Taxes pursuant to Section 6.03 (it being understood and agreed by the parties hereto that, for purposes of this Agreement, all penalties are deemed to accrue as of the date that the applicable penalty has been asserted or claimed by the IRS) and GGPs liability for such interest or penalties shall not be limited by or subject to the Indemnity Cap. Spinco shall use commercially reasonable efforts to utilize the Suspended Deductions as expeditiously as possible and will not take any action, the principal purpose of which is, to cause GGPs aggregate liability pursuant to this Section 2.01(b) to be materially greater than it would have been had such action not been taken.
In order to place Spinco and GGP in the same economic position as they would have been had certain post-Effective Date determinations been made as of the Effective Date, the Indemnity Cap shall be re-calculated and adjusted to reflect any such determination using the Adjusted CDND as provided in the Investment Agreements . Additionally, to the extent any promissory note was issued by Spinco in favor of GGP pursuant to Section 2.01(a)(ii), then, in order to place Spinco and GGP in the same economic position as they would have been had the recalculated Indemnity Cap been used for purposes of calculating such note, (i) the principal amount of such note will be reduced based on the new calculation using the Adjusted CDND, and (ii) to the extent applicable, any interest payments made by Spinco to GGP on such note prior to such re-calculation shall be refunded in respect of such reductions and accrued but unpaid interest in respect of such reductions shall be eliminated. Consistent with the foregoing, this Section 2.01(b) shall be retroactively applied using the recalculated Indemnity Cap and any resulting amounts payable thereunder shall be promptly paid by GGP.
(c) Restructuring/Distribution Taxes .
(i) GGP shall be liable for all Restructuring/Distribution Taxes.
(d) Spin-Off Taxes .
(i) GGP shall be liable for any Spin-Off Taxes attributable to a GGP Disqualifying Action.
(ii) Spinco shall be liable for any Spin-Off Taxes attributable to a Spinco Disqualifying Action.
(iii) Any Spin-Off Taxes that are not the result of a Disqualifying Action shall be allocated between GGP and Spinco according to the GGP Liability Percentage and the Spinco Liability Percentage, respectively.
Section 2.02. Allocation of Refunds .
(a) Except as provided in Section 2.02(b), GGP shall be entitled to all Refunds with respect to Taxes for which GGP is or may be liable pursuant to Article II, and Spinco shall be entitled to all Refunds of Taxes for which Spinco is or may be liable pursuant to Article II. A Party receiving a Refund to which the other Party is entitled pursuant to this Agreement shall pay the amount to which such other Party is entitled (less any costs or Taxes incurred with respect to the receipt thereof) within ten (10) days after the receipt of such Refund.
(b) To the extent that the amount of any Refund under this Section 2.02 is later reduced by a Taxing Authority or a Tax Proceeding, such reduction shall be allocated to the Party to which such Refund was allocated pursuant to this Section 2.02 and an appropriate adjusting payment shall be made.
ARTICLE III
PREPARATION, FILING AND PAYMENT OF TAXES SHOWN DUE ON TAX RETURNS
Section 3.01. Preparation and Filing of Tax Returns . GGP shall prepare and file all Tax Returns of the GGP Group (including Consolidated Returns of the GGP Group) relating to any taxable period and shall pay all Taxes shown to be due and payable on such Tax Returns. Spinco shall prepare and file all Tax Returns of the Spinco Group (including Consolidated Returns of the Spinco Group) relating to any taxable period and shall pay all Taxes shown to be due and payable on such Tax Returns.
Section 3.02. Amended Tax Returns .
(a) Returns Filed by GGP . GGP shall, in its sole discretion, be permitted to amend any Tax Return that a GGP Entity is responsible for filing pursuant to Section 3.01 ; provided , however , that, unless otherwise required by Law or a Final Determination, GGP shall not amend any such Tax Return to the extent that any such amendment would reasonably be expected to cause a Spinco Entity to experience any Tax Detriment (including through an increase in Taxes or a loss or reduction of a Tax Attribute regardless of whether or when such Tax Attribute otherwise would have been used), without the prior written consent of Spinco, which consent shall not be unreasonably withheld or delayed.
(b) Returns Filed by Spinco . Spinco shall, in its sole discretion, be permitted to amend any Tax Return that a Spinco Entity is responsible for filing pursuant to Section 3.01 ; provided , however , that, unless otherwise required by Law or a Final Determination, Spinco shall not amend any such Tax Return to the extent that any such amendment would reasonably
be expected to cause a GGP Entity to experience any Tax Detriment (including through an increase in Taxes or a loss or reduction of a Tax Attribute regardless of whether or when such Tax Attribute otherwise would have been used) without the prior written consent of GGP, which consent shall not be unreasonably withheld or delayed.
Section 3.03. Tax Return Procedures .
(a) Procedures Relating to the Manner of Preparing Tax Returns .
(i) All Tax Returns prepared by GGP that include a member of the Spinco Group or by Spinco that include a member of the GGP Group shall be prepared in accordance with past practices, accounting methods, elections and conventions ( Past Practice ), unless otherwise required by Law or agreed to in writing by Spinco or GGP, as applicable.
(ii) In the event that Past Practice is not applicable to a particular item or matter arising in a Tax Return described in Section 3.03(a)(i) , GGP or Spinco, as applicable, shall determine the reporting of such item or matter provided that such reporting is more likely than not to be sustained and provided further that the other Party shall agree as to the reporting of any such item or matter which is not more likely than not to be sustained. The Parties shall attempt in good faith to mutually resolve any disagreements, including by appointing an Accounting Firm pursuant to Section 9.01, regarding such items or matters prior to the Due Date for filing the applicable Tax Return; provided , that the failure to resolve all disagreements prior to such date shall not relieve the Indemnified Party of its obligation to file (or cause to be filed) such Tax Return.
(b) Timing of Tax Return Filing and Payments . All Taxes or Tax Returns required to be paid or filed pursuant to this Article III by either GGP or Spinco to or with an applicable Taxing Authority shall be paid or filed on or before the Due Date for the payment or filing of such Taxes or Tax Returns.
(c) Review of Tax Returns . With respect to any Tax Return including Taxes subject to indemnification pursuant to Article IV, the Indemnified Party preparing such Tax Return shall, at least 10 days prior to the Due Date applicable to such Tax Return, prepare and deliver to the Indemnifying Party a schedule showing in reasonable detail the Indemnified Partys good faith calculation of any indemnification payments to be made by the Indemnifying Party. The Indemnifying Party shall have the right to review and approve (such approval shall not be unreasonably withheld) such schedule. The Parties shall attempt in good faith to mutually resolve any disagreements, including by appointing an Accounting Firm pursuant to Section 9.01, regarding such schedule prior to the Due Date for filing the applicable Tax Return; provided , however , that the failure to resolve all disagreements prior to such date shall not relieve the Indemnified Party of its obligation to file (or cause to be filed) such Tax Return.
Section 3.04. Expenses . Except as otherwise provided in this Agreement, each Party shall bear its own expenses incurred in connection with this Article III.
ARTICLE IV
INDEMNIFICATION
Section 4.01. Indemnification by GGP . GGP shall pay, and shall indemnify and hold the Spinco Indemnified Parties harmless from and against, without duplication, (i) all GGP Taxes, (ii) all Taxes incurred by Spinco or any Spinco Entity by reason of the breach by GGP of any of its representations, warranties or covenants hereunder, and (iii) any costs and expenses related to the foregoing (including reasonable attorneys fees and expenses).
Section 4.02. Indemnification by Spinco . Spinco shall pay, and shall indemnify and hold the GGP Indemnified Parties harmless from and against, without duplication, (i) all Spinco Taxes, (ii) all Taxes incurred by GGP or any GGP Entity by reason of the breach by Spinco of any of its representations, warranties or covenants hereunder, and (iii) any costs and expenses related to the foregoing (including reasonable attorneys fees and expenses).
Section 4.03. Characterization of and Adjustments to Payments . For all Tax purposes, GGP and Spinco agree to treat (i) any payment required by this Article IV (other than payments with respect to interest accruing after the Effective Date) as either a contribution by GGP to Spinco or a distribution by Spinco to GGP, as the case may be, occurring immediately prior to the Effective Date or as a payment of an assumed or retained liability and (ii) any payment of non-federal Taxes by or to a Taxing Authority or any payment of interest as taxable or deductible, as the case may be, to the Party entitled under this Agreement to retain such payment or required under this Agreement to make such payment, in either case except as otherwise required by applicable Law.
Section 4.04. Timing of Indemnification Payments . Indemnification payments in respect of any Liabilities for which an Indemnified Party is entitled to indemnification pursuant to this Article IV shall be paid by the Indemnifying Party to the Indemnified Party (i) with respect to Liabilities requiring a payment to a Taxing Authority, not later than one business day prior to the Due Date of such Liability, and (ii) with respect to any other Liabilities, as such Liabilities are incurred upon demand by the Indemnified Party, including reasonably satisfactory documentation setting forth the basis for the amount of such indemnification payment.
ARTICLE V
CARRYBACKS, AMENDMENTS AND TAX ITEMS
Section 5.01. Carrybacks .
(a) The carryback of any loss, credit or other Tax Attribute from any Post-Closing Period shall be in accordance with the provisions of the Code and Treasury Regulations (and any applicable state, local or foreign Laws).
(b) To the extent permitted by applicable Law, GGP and Spinco shall waive the right to carryback any Tax Attribute of a member of their respective Groups arising in a Post-Closing Period to a Pre-Closing or Straddle Period; provided , however , that (i) GGP and Spinco may carryback any Tax Attribute if such carryback claim is reported on a Separate Return or is
utilized to offset and reduce the liability for MPC Taxes, (ii) GGP may carryback any Tax Attribute if such carryback claim is reported on a Consolidated Return of the GGP Group, and (iii) Spinco may carryback any Tax Attribute if such carryback claim is reported on a Consolidated Return of the Spinco Group.
(c) In the event that, notwithstanding Section 5.01(b), GGP or Spinco is required to carryback Tax Attributes in order to avoid losing the benefit of such Tax Attributes, the Party responsible for filing the Tax Return on which such carryback claim is reported will cooperate with the other Party in seeking from the appropriate Taxing Authority any Refund that would be allocated to the other Party pursuant to Section 2.02 and that reasonably would result from such carryback (including by filing an amended Tax Return) at the other Partys cost and expense; provided , however , that no Party shall be required or permitted to seek such Refund to the extent that such Refund would reasonably be expected to result in a Tax Detriment to a GGP Entity or a Spinco Entity, as the case may be, (including through an increase in Taxes or a loss or reduction of a Tax Attribute regardless of whether or when such Tax Attribute otherwise would have been used), in each case, without the prior written consent of GGP or Spinco, as applicable, which consent shall not be unreasonably withheld or delayed.
Section 5.02. Tax Items .
(a) Tax Items arising in a Pre-Closing Period shall be allocated to the GGP Group and the Spinco Group in accordance with the Code and Treasury Regulations (and any applicable state, local and foreign Laws) and in accordance with the allocation of Tax Liabilities in Article II. GGP and Spinco shall jointly determine the allocation of such Tax Items arising in Pre-Closing Periods as soon as reasonably practicable following the Effective Date, and hereby agree to compute all Taxes for all Straddle Periods and Post-Closing Periods consistently with that determination unless otherwise required by Law or a Final Determination.
(b) To the extent that the amount of any Tax Item is later reduced or increased by a Taxing Authority or Tax Proceeding, such reduction or increase shall be allocated to or borne by the Party to which such Tax Item was allocated pursuant to Section 5.02(a).
Section 5.03. Treatment of Deductions Associated with Equity-Related Compensation .
(a) To the extent permitted by Law, solely GGP, New GGPI, or a GGP Entity, as the case may be, shall be entitled to claim any Tax deduction associated with the following items:
(i) The exercise of any Spinco stock options or stock appreciation rights by any GGP Employee (as defined below) and the vesting of Spinco restricted stock or the vesting or settlement of Spinco restricted stock units held by any GGP Employee and the payment of any dividends with respect to such Spinco restricted stock.
(ii) The exercise of any GGP or New GGPI stock options or stock appreciation rights by any GGP Employee and the vesting of GGP or New GGPI restricted stock or the vesting or settlement of GGP or New GGPI restricted stock units held by any GGP Employee (and payment of any dividends on such GGP restricted stock).
(b) To the extent permitted by Law, solely Spinco or a Spinco Entity, as the case may be, shall be entitled to claim any Tax deduction associated with the following items:
(i) The exercise of any GGP or New GGPI stock options or stock appreciation rights by any Spinco Employee (as defined below) and the vesting of GGP or New GGPI restricted stock or the vesting or settlement of GGP or New GGPI restricted stock units held by any Spinco Employee and the payment of any dividends on such restricted stock at any time on or after the first date any Spinco Entity employed such Spinco Employee.
(ii) The exercise of any Spinco stock options or stock appreciation rights by any Spinco Employee and the vesting of Spinco restricted stock or the vesting or settlement of Spinco restricted stock units held by any Spinco Employee and the payment of any dividends with respect to such Spinco restricted stock.
(c) The following terms shall have the following meanings:
(i) Spinco Employee means any person employed or formerly employed by any Spinco Entity at the time of the exercise, vesting, settlement, disqualifying disposition or payment, as appropriate, unless, at such time, such person is employed by a member of the GGP Group or was more recently employed by a GGP Entity than by a Spinco Entity;
(ii) GGP Employee means any person employed or formerly employed by any GGP Entity at the time of the exercise, vesting, settlement, disqualifying disposition or payment, as appropriate, unless, at such time, such person is a Spinco Employee.
ARTICLE VI
TAX PROCEEDINGS
Section 6.01. Notification of Tax Proceedings . Within ten (10) days after an Indemnified Party becomes aware of the commencement of a Tax Proceeding that may give rise to Taxes for which an Indemnifying Party is responsible pursuant to Article II, such Indemnified Party shall notify the Indemnifying Party of such Tax Proceeding, and thereafter shall promptly forward or make available to the Indemnifying Party copies of notices and communications relating to such Tax Proceeding. The failure of the Indemnified Party to notify the Indemnifying Party of the commencement of any such Tax Proceeding within such ten (10) day period or promptly forward any further notices or communications shall not relieve the Indemnifying Party of any obligation which it may have to the Indemnified Party under this Agreement except to the extent that the Indemnifying Party is actually prejudiced by such failure.
Section 6.02. Statute of Limitations . Any extension of the statute of limitations for any Taxes or a Tax Return for any Pre-Closing Period or a Straddle Period shall be made by the Party required to file such Tax Return or pay such Taxes to a Taxing Authority; provided that to the extent such Taxes or Tax Return may result in an indemnity payment pursuant to this Agreement by the Party other than the filing Party, the Indemnifying Party may, in its reasonable discretion, require that the filing Party extend the applicable statute of limitations for such period as determined by the Indemnifying Party.
Section 6.03. Tax Proceeding Procedures Generally . Except as provided herein or in Section 6.04, each Party shall be entitled to contest, compromise and settle any Adjustment proposed, asserted or assessed pursuant to any Tax Proceeding involving a Tax reported (or that, it is asserted, should have been reported) on a Tax Return that such Party is responsible for preparing and filing (or causing to be prepared and filed) pursuant to Article III; provided , however , that (A) GGP shall retain exclusive control over all Tax Proceedings relating to MPC Taxes (whether ongoing as of the date of this Agreement or not) for so long as GGP may be liable under Section 2.01(b) for more than 50% of the total MPC Taxes at issue in the relevant Tax Proceeding, (B) GGP may not enter into any closing, settlement or other similar agreement with any Taxing Authority with respect to Tax Proceedings described in the preceding clause (A) without the prior written consent of Spinco, which consent shall not be unreasonably withheld, (C) GGP shall keep Spinco informed in a timely manner of all actions proposed to be taken by GGP and shall permit Spinco to observe (at its own cost) all proceedings with respect to such Tax Proceedings, (D) GGP shall provide Spinco with written notice reasonably in advance of, and Spinco shall have the right to attend and participate in (at its own cost), any scheduled meetings with any Taxing Authority with respect to such Tax Proceedings and (E) notwithstanding the foregoing, Spinco shall have the right (but not the obligation) to immediately assume control of any and all Tax Proceedings relating to MPC Taxes, at its own cost and expense, if, at any time prior to the conclusion of such Tax Proceeding, the potential liability of GGP for MPC Taxes under the provisions set forth in Section 2.01(b) is less than fifty percent (50%) of the total liability for MPC Taxes at issue in the relevant Tax Proceeding.
Section 6.04. Tax Proceedings in Respect of Indemnified Taxes .
(a) In General . Notwithstanding Section 6.03 , if the Party entitled to control a Tax Proceeding is an Indemnified Party, any defense of the Tax Proceeding shall be conducted by such Party diligently and in good faith; provided , however , that the Indemnified Party shall keep the Indemnifying Party informed in a timely manner of all actions proposed to be taken by the Indemnified Party and shall permit the Indemnifying Party to observe (at its own cost) all proceedings with respect to such Tax Proceeding; and provided further , that, if the applicable Tax Proceeding (or any Adjustments proposed or asserted in connection therewith) reasonably would be expected to give rise to an indemnity obligation in excess of $1 million, in the aggregate, then, unless waived by the Parties in writing, the Indemnified Party shall (a) prepare all correspondence or filings to be submitted to any Taxing Authority or judicial authority in a manner consistent with the Tax Return which is the subject of such Adjustment as filed and timely provide the Indemnifying Party with copies of any such correspondence or filings for the Indemnifying Partys prior review and consent, which consent shall not be unreasonably withheld, (b) provide the Indemnifying Party with written notice reasonably in advance of, and the Indemnifying Party shall have the right to attend and participate in (at its own cost), any formally scheduled meetings with any Taxing Authority or hearings or proceedings before any judicial authority with respect to such Adjustment, (c) not enter into any closing, settlement or other similar agreement with any Taxing Authority with respect to the relevant Tax Proceeding (or any proposed Adjustment) without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld and (d) not contest any proposed or asserted Adjustment before a judicial authority unless (A) such Adjustment (separately or together with other proposed or asserted Adjustments) reasonably would be expected to give rise to Taxes payable by the Indemnified Party in an amount of $1 million or more, in the aggregate, or (B) the
Indemnified Party has received an opinion of a nationally recognized law firm that it is more likely than not to prevail on the merits.
(b) Tax Proceedings in Respect of Restructuring/Distribution Taxes and Disqualifying Actions . Notwithstanding Section 6.03, GGP and Spinco shall be entitled to jointly contest, compromise and settle any Adjustment proposed, asserted or assessed pursuant to any Tax Proceeding relating to (i) Restructuring/Distribution Taxes and (ii) any Taxes attributable to a Spinco Disqualifying Action. Notwithstanding Section 6.03, GGP shall be entitled to contest, compromise and settle any Adjustment proposed, asserted or assessed pursuant to any Tax Proceeding relating to any Taxes attributable to a GGP Disqualifying Action and shall defend such Adjustment diligently and in good faith; provided , that , unless waived by the Parties in writing, GGP shall (i) keep Spinco informed in a timely manner of all actions taken or proposed to be taken by GGP, (ii) provide copies of all correspondence or filings to be submitted to any Taxing Authority or judicial authority to Spinco for its prior review and consent, which consent shall not be unreasonably withheld and (iii) provide Spinco with written notice reasonably in advance of, and Spinco shall have the right to attend (at its own cost), any formally scheduled meetings with any Taxing Authority or hearings or proceedings before any judicial authority.
ARTICLE VII
TAX-FREE STATUS OF THE DISTRIBUTION
Section 7.01. Representations and Warranties .
(a) Tax Reporting . Each of GGP and Spinco covenants and agrees that it will not take, and will cause its respective Affiliates to refrain from taking, any position on any Tax Return that is inconsistent with the Tax-Free Status of the Transactions.
(b) Restrictions Relating to the Distribution . Neither GGP nor Spinco shall, nor shall GGP or Spinco permit any GGP Entity or any Spinco Entity, respectively, to, take or fail to take, as applicable, any action that constitutes a Disqualifying Action described in the definitions of GGP Disqualifying Action and Spinco Disqualifying Action, respectively.
(c) Ordinary Course of Business . GGP represents that neither it nor any of its Subsidiaries altered the manner in which they satisfied their respective Tax payment obligations as a result of the pendency of the Restructuring and Distribution.
Section 7.02. Procedures Regarding Opinions and Rulings .
(a) If Spinco notifies GGP that it desires to take one of the actions potentially described in Section 7.01 (a Notified Action ), GGP shall cooperate with Spinco and use its reasonable best efforts to seek to obtain, as expeditiously as possible, a Supplemental Ruling or an Unqualified Tax Opinion for the purpose of permitting Spinco to take the Notified Action unless GGP shall have waived the requirement to obtain such ruling or opinion. If such a ruling is to be sought, GGP shall apply for such ruling and GGP and Spinco shall jointly control the process of obtaining such ruling. In no event shall GGP be required to file any such request unless Spinco represents that (i) it has read such request, and (ii) all information and
representations, if any, relating to any member of the Spinco Group, contained in such request documents are (subject to any qualifications therein) true, correct and complete. Spinco shall reimburse GGP for all reasonable costs and expenses incurred by the GGP Group in obtaining a Supplemental Ruling or Unqualified Tax Opinion requested by Spinco within ten (10) days after receiving an invoice from GGP therefor.
(b) GGP shall have the right to obtain a Supplemental Ruling or an Unqualified Tax Opinion at any time in its sole and absolute discretion. If GGP determines to obtain such ruling or opinion, Spinco shall (and shall cause each Spinco Entity to) cooperate with GGP and take any and all actions reasonably requested by GGP in connection with obtaining such ruling or opinion (including by making any representation or reasonable covenant or providing any materials requested by the IRS or the law firm issuing such opinion); provided that Spinco shall not be required to make (or cause a Spinco Entity to make) any representation or covenant that is inconsistent with historical facts or as to future matters or events over which it has no control. In connection with obtaining such ruling, GGP shall apply for such ruling and shall have sole and exclusive control over the process of obtaining such ruling. GGP shall reimburse Spinco for all reasonable costs and expenses incurred by the Spinco Group in obtaining a Supplemental Ruling or Unqualified Tax Opinion requested by GGP.
(c) Except as provided in Sections 7.02(a) and (b), no Spinco Entity shall seek any guidance from the IRS or any other Tax Authority (whether written, verbal or otherwise) at any time concerning the Restructuring or Distribution (including the impact of any transaction on the Restructuring or Distribution).
ARTICLE VIII
COOPERATION
Section 8.01. General Cooperation .
(a) Subject to Section 8.03, the Parties shall each cooperate fully (and each shall cause its respective Subsidiaries to cooperate fully) with all reasonable requests in writing ( Information Request ) from another Party hereto, or from an agent, representative or advisor to such Party, in connection with the preparation and filing of Tax Returns (including the preparation of Tax Packages), claims for Refunds, Tax Proceedings, and calculations of amounts required to be paid pursuant to this Agreement, in each case, related or attributable to or arising in connection with Taxes of any of the Parties or their respective Subsidiaries covered by this Agreement and the establishment of any reserve required in connection with any financial reporting (a Tax Matter ). Such cooperation shall include the provision of any information reasonably necessary or helpful in connection with a Tax Matter ( Information ) and shall include, without limitation, at each Partys own cost:
(i) the provision of any Tax Returns of the Parties and their respective Subsidiaries, books, records (including information regarding ownership and Tax basis of property), documentation and other information relating to such Tax Returns, including accompanying schedules, related work papers, and documents relating to rulings or other determinations by Taxing Authorities;
(ii) the execution of any document (including any power of attorney) in connection with any Tax Proceedings of any of the Parties or their respective Subsidiaries, or the filing of a Tax Return or a Refund claim of the Parties or any of their respective Subsidiaries;
(iii) the use of the Partys reasonable best efforts to obtain any documentation in connection with a Tax Matter; and
(iv) the use of the Partys reasonable best efforts to obtain any Tax Returns (including accompanying schedules, related work papers, and documents), documents, books, records or other information in connection with the filing of any Tax Returns of any of the Parties or their Subsidiaries.
Each Party shall make its employees, advisors, and facilities available, without charge, on a reasonable and mutually convenient basis in connection with the foregoing matters.
(b) Subject to Section 8.03, with respect to any written request by a Party in accordance with the provisions of Section 8.01(a) for access to Information or Representatives of the other Party and members of such other Partys Tax Group in connection with any Tax Return, Tax Proceeding or otherwise in connection with this Agreement:
(i) The responding Party shall (A) make available to the requesting Party the requested Information within the deadline reasonably agreed upon by the Parties (the Response Deadline ), and (B) following the Response Deadline, promptly (and no later than five (5) days following its discovery of such Information) make available to the requesting Party any other Information it discovers that is within its possession or control which would reasonably be expected to be relevant to the Information Request.
(ii) In the event that the responding Party breaches its obligations under the preceding sentence by (A) failing to respond to the Information Request by the Response Deadline without providing a legitimate reason for such failure that is reasonably satisfactory to the requesting Party ( provided , that the provision of Information by the responding Party after the Response Deadline pursuant to paragraph (b)(i)(B) shall not be deemed to be a breach described in this clause (A)) or (B) withholding Information within its possession or control that is material to the Information Request, then the provisions of paragraph (b)(iii) shall apply.
(iii) In the event of a breach described in paragraph (b)(ii)(A) that is not cured within ten (10) days following the Response Deadline or an alleged breach described in Paragraph (b)(ii)(B), the requesting Party shall have the right to engage an independent consulting, accounting or law firm selected in its sole discretion (the Independent Firm ) to access any and all books, records and other documents of the responding Party and any applicable members of such responding Partys group or an agent, representative or advisor of the responding Party (or such members of their relevant group) ( Representative ) for purposes of identifying and extracting the Information requested by the requesting Party and the responding Party shall be required to provide to the Independent Firm access to all such books, records and other documents and Representatives; provided , that (x) the Independent Firm shall have executed, for the benefit of both parties, a non-disclosure and confidentiality agreement that
is in form and substance customary for similar engagements, (y) such access shall be provided by the responding Party only upon at least two (2) days prior written notice and during reasonable business hours, and (z) in the event of a breach described in paragraph (b)(ii)(A) that is not cured within ten (10) days following the Response Deadline or a breach described in paragraph (b)(ii)(B), as determined by the Independent Firm following its extraction of Information pursuant to this sentence, the costs and expenses of the Independent Firm shall be borne by (i) the responding Party in the event of a breach by the responding Party of paragraph (b)(i), or (ii) the requesting Party in the event there has been no breach by the responding Party of paragraph (b)(i).
Section 8.02. Retention of Records . GGP and Spinco shall retain or cause to be retained all Tax Returns, schedules and workpapers, and all material records or other documents relating thereto in their possession, until sixty (60) days after the expiration of the applicable statute of limitations (including any waivers or extensions thereof) of the taxable periods to which such Tax Returns and other documents relate or until the expiration of any additional period that any Party reasonably requests, in writing, with respect to specific material records or documents. A Party intending to destroy any material records or documents shall provide the other Party with reasonable advance notice and the opportunity to copy or take possession of such records and documents. The Parties hereto will notify each other in writing of any waivers or extensions of the applicable statute of limitations that may affect the period for which the foregoing records or other documents must be retained.
Section 8.03. Confidentiality . Notwithstanding any other provision of this Agreement or any other Transaction Document, any information obtained by either Party under this Agreement shall be kept confidential, except as may be necessary in connection with the filing of Tax Returns or claims for Refunds or in connection with any Tax Proceeding or any dispute, proceeding, suit or action concerning any issues or matters addressed in this Agreement, or unless a Party is compelled to disclose information by judicial or administrative process, or, in the opinion of its counsel, by other requirements of Law. Spinco shall not be required to make available to GGP or its representatives any books, records, documents or other information that Spinco reasonably determines to be subject to attorney-client privilege; provided , however , that Spinco shall be required to make available to GGP any information reasonably requested by GGP pursuant to Section 8.01 in connection with the preparation of any Tax Return required to be prepared by GGP pursuant to this Agreement or any Tax Proceeding in connection with such Tax Returns. GGP shall not be required to make available to Spinco or its representatives any books, records, documents or other information that GGP reasonably determines to be subject to attorney-client privilege; provided , however , that GGP shall be required to make available to Spinco any information reasonably requested by Spinco pursuant to Section 8.01 in connection with the preparation of any Tax Return required to be prepared by Spinco pursuant to this Agreement or any Tax Proceeding in connection with such Tax Returns.
ARTICLE IX
MISCELLANEOUS
Section 9.01. Dispute Resolution . Other than as set forth in Section 8.01(b)(iii), with respect to any dispute between the Parties as to any matter covered by this Agreement, the
Parties shall appoint a nationally recognized independent public accounting firm (the Accounting Firm ) to resolve such dispute. In this regard, the Accounting Firm shall make determinations with respect to the disputed items based solely on representations made by GGP and Spinco and their respective representatives, and not by independent review, and shall function only as an expert and not as an arbitrator and shall be required to make a determination in favor of one Party only. The Parties shall require the Accounting Firm to resolve all disputes no later than thirty (30) days after the submission of such dispute to the Accounting Firm, but in no event later than the Due Date for the payment of Taxes or the filing of the applicable Tax Return, if applicable, and agree that all decisions by the Accounting Firm with respect thereto shall be final and conclusive and binding on the Parties. The Accounting Firm shall resolve all disputes in a manner consistent with this Agreement and, to the extent not inconsistent with this Agreement, in a manner consistent with the Past Practices of GGP and its Subsidiaries, except as otherwise required by applicable Law. The Parties shall require the Accounting Firm to render all determinations in writing and to set forth, in reasonable detail, the basis for such determination. The fees and expenses of the Accounting Firm shall be paid by the non-prevailing Party.
Section 9.02. Tax Sharing Agreements . All Tax sharing, indemnification and similar agreements, written or unwritten, as between a GGP Entity, on the one hand, and a Spinco Entity, on the other (other than this Agreement or any other Transaction Document), shall be or shall have been terminated on or before the Effective Date and, after the Effective Date, no GGP Entity, on the one hand, or Spinco Entity, on the other, shall have any further rights or obligations with respect to each other under any such Tax sharing, indemnification or similar agreement.
Section 9.03. Interest on Late Payments . With respect to any payment between the Parties pursuant to this Agreement not made by the due date set forth in this Agreement for such payment, the outstanding amount will accrue interest at a rate per annum equal to the rate in effect for underpayments under Section 6621 of the Code from such due date to and including the earlier of the ninetieth (90th) day or the payment date and thereafter will accrue interest at a rate per annum equal to 9%.
Section 9.04. Survival of Covenants . Except as otherwise contemplated by this Agreement, all covenants and agreements of the Parties contained in this Agreement shall survive the Effective Date and remain in full force and effect in accordance with their applicable terms, provided, however, that the representations and warranties and all indemnification for Taxes shall survive until sixty (60) days following the expiration of the applicable statute of limitations (taking into account all extensions thereof), if any, of the Tax that gave rise to the indemnification, provided, further, that, in the event that notice for indemnification has been given within the applicable survival period, such indemnification shall survive until such time as such claim is finally resolved.
Section 9.05. Termination . This Agreement may not be terminated except by an agreement in writing signed by each of the Parties to this Agreement.
Section 9.06. Severability . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced under any Law or as a matter of public policy, all
other conditions and provisions of this Agreement shall remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties to this Agreement shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner.
Section 9.07. Entire Agreement . Except as otherwise expressly provided in this Agreement, this Agreement constitutes the entire agreement of the Parties hereto with respect to the subject matter of this Agreement and supersedes all prior agreements and undertakings, both written and oral, between or on behalf of the Parties hereto with respect to the subject matter of this Agreement.
Section 9.08. Assignment; No Third-Party Beneficiaries . This Agreement shall not be assigned by any Party without the prior written consent of the other Party hereto, except that GGP may assign (i) any or all of its rights and obligations under this Agreement to any of its Affiliates and (ii) any or all of its rights and obligations under this Agreement in connection with a sale or disposition of any assets or entities or lines of business of GGP; provided , however , that, in each case, no such assignment shall release GGP from any liability or obligation under this Agreement nor change any of the steps in the Spinoff Plan. Except as provided in Article IV with respect to indemnified Parties, this Agreement is for the sole benefit of the Parties to this Agreement and their respective Subsidiaries and their permitted successors and assigns and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
Section 9.09. Specific Performance . In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Party who is or is to be thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The Parties agree that the remedies at law for any breach or threatened breach, including monetary damages, may be inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived by the Parties to this Agreement.
Section 9.10. Amendment . No provision of this Agreement may be amended or modified except by a written instrument signed by the Parties to this Agreement. No waiver by any Party of any provision of this Agreement shall be effective unless explicitly set forth in writing and executed by the Party so waiving. The waiver by any Party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other subsequent breach.
Section 9.11. Rules of Construction . Interpretation of this Agreement shall be governed by the following rules of construction: (i) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires; (ii) references to the terms Article, Section, paragraph, clause, Exhibit and
Schedule are references to the Articles, Sections, paragraphs, clauses, exhibits and schedules of this Agreement unless otherwise specified; (iii) the terms hereof, herein, hereby, hereto, and derivative or similar words refer to this entire Agreement, including the Schedules and Exhibits hereto; (iv) references to $ shall mean U.S. dollars; (v) the word including and words of similar import when used in this Agreement shall mean including without limitation, unless otherwise specified; (vi) the word or shall not be exclusive; (vii) references to written or in writing include in electronic form; (viii) provisions shall apply, when appropriate, to successive events and transactions; (ix) the table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement; (x) GGP and Spinco have each participated in the negotiation and drafting of this Agreement and if an ambiguity or question of interpretation should arise, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or burdening either Party by virtue of the authorship of any of the provisions in this Agreement or any interim drafts of this Agreement; and (xi) a reference to any Person includes such Persons successors and permitted assigns.
Section 9.12. Counterparts . This Agreement may be executed in one or more counterparts each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or portable document format (PDF) shall be as effective as delivery of a manually executed counterpart of any such Agreement.
Section 9.13. Coordination with the Employee Matters Agreement . To the extent any covenants or agreements between the Parties with respect to employee withholding Taxes are set forth in the Employee Matters Agreement, such Taxes shall be governed exclusively by the Employee Matters Agreement and not by this Agreement.
Section 9.14. Coordination with the Separation Agreement . To the extent any representations, warranties, covenants or agreements between the parties with respect to Taxes or other Tax matters are set forth in this Agreement, such Taxes and other Tax matters shall be governed exclusively by this Agreement and not by the Separation Agreement.
Section 9.15. Effective Date . This Agreement shall become effective only upon the occurrence of the Distribution.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.
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Signature page Tax Matters Agreement
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Amendment No. 3 to Registration Statement No. 333-168111 of New GGP, Inc. of our report dated March 1, 2010 (July 15, 2010 as to the effects of the income statement reclassifications as described in Note 2) relating to the consolidated financial statements of General Growth Properties, Inc. (Debtor-in-Possession) and subsidiaries (the Company) (which report expresses an unqualified opinion on those consolidated financial statements and includes explanatory paragraphs regarding the Companys bankruptcy proceedings, the Companys ability to continue as a going concern, and the Companys change in methods of accounting for noncontrolling interests and convertible debt instruments) appearing in the Prospectus, which is part of this Registration Statement and of our report dated March 1, 2010 relating to the consolidated financial statement schedule of the Company appearing elsewhere in the Registration Statement.
We also consent to the reference to us under the heading Experts in such Prospectus.
/s/ Deloitte & Touche LLP
Chicago, Illinois
November 2, 2010
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Amendment No. 3 to Registration Statement No. 333-168111 of our report dated July 15, 2010 relating to the balance sheet as of July 2, 2010 (capitalization) of New GGP, Inc. appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading Experts in such Prospectus.
/s/ Deloitte & Touche LLP
Chicago, Illinois
November 2, 2010
Exhibit 23.3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Members
GGP/Homart II L.L.C.
We consent to the use of our report dated February 24, 2010, included herein, with respect to the consolidated balance sheets of GGP/Homart II L.L.C. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income and comprehensive income, changes in capital, and cash flows for each of the years in the three-year period ended December 31, 2009 (not presented separately herein), and to the reference to our firm under the heading Experts in Amendment No. 3 to the Registration Statement on Form S-11 of New GGP, Inc.
/s/ KPMG LLP
Chicago, Illinois
November 2, 2010
Exhibit 23.4
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Members
GGP-TRS L.L.C.
We consent to the use of our report dated February 24, 2010, included herein, with respect to the consolidated balance sheets of GGP-TRS L.L.C. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income and comprehensive income, changes in members capital and cash flows for each of the years in the three-year period ended December 31, 2009 (not presented separately herein), and to the reference to our firm under the heading Experts in Amendment No. 3 to the Registration Statement on Form S-11 of New GGP, Inc.
/s/ KPMG LLP
Chicago, Illinois
November 2, 2010