-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UTmy/Nuut+oQD2+kw9XWjQ+lzzw0GbtLWFh9ekuCH4AEZL7GR5m+bKGS6Ddxm63u QwSV+U3F92CuVVxdMmR7Cg== 0000890319-99-000022.txt : 19991117 0000890319-99-000022.hdr.sgml : 19991117 ACCESSION NUMBER: 0000890319-99-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TAUBMAN CENTERS INC CENTRAL INDEX KEY: 0000890319 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 382033632 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11530 FILM NUMBER: 99754105 BUSINESS ADDRESS: STREET 1: 200 E LONG LAKE RD STREET 2: SUITE 300 P O BOX 200 CITY: BLOOMFIELD HILLS STATE: MI ZIP: 48303-0200 BUSINESS PHONE: 2482586800 10-Q 1 FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 1999 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended: September 30, 1999 Commission File No. 1-11530 Taubman Centers, Inc. -------------------------------------------------------- (Exact name of registrant as specified in its charter) Michigan 38-2033632 - -------------------------------------- ------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 200 East Long Lake Road, Suite 300, P.O. Box 200, Bloomfield Hills, Michigan - -------------------------------------------------------------------------------- (Address of principal executive offices) 48303-0200 ------------- (Zip Code) (248)258-6800 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . ----- ----- As of November 11, 1999, there were outstanding 53,277,693 shares of the Company's common stock, par value $0.01 per share. PART 1. FINANCIAL INFORMATION Item 1. Financial Statements. The following consolidated financial statements of Taubman Centers, Inc. (the Company) are provided pursuant to the requirements of this item. Consolidated Balance Sheet as of September 30, 1999 and December 31, 1998.......................................................................... 2 Consolidated Statement of Operations for the three months ended September 30, 1999 and 1998................................................................. 3 Consolidated Statement of Operations for the nine months ended September 30, 1999 and 1998................................................................. 4 Consolidated Statement of Cash Flows for the nine months ended September 30, 1999 and 1998................................................................. 5 Notes to Consolidated Financial Statements................................... 6 1 TAUBMAN CENTERS, INC. CONSOLIDATED BALANCE SHEET (in thousands, except share data) September 30 December 31 ------------ ----------- 1999 1998 ---- ---- Assets: Properties, net $ 1,373,360 $ 1,308,642 Investment in Unconsolidated Joint Ventures 84,137 98,350 Cash and cash equivalents 14,795 19,045 Accounts and notes receivable, less allowance for doubtful accounts of $1,557 and $333 in 1999 and 1998 25,348 20,595 Accounts receivable from related parties 4,760 7,092 Deferred charges and other assets 52,012 27,139 ------------ ------------- $ 1,554,412 $ 1,480,863 ============ ============= Liabilities: Mortgage notes payable $ 856,975 $ 243,352 Unsecured notes payable 11,145 531,946 Accounts payable and accrued liabilities 108,358 171,669 Dividends payable 12,787 12,719 ------------ ------------- $ 989,265 $ 959,686 Commitments and Contingencies (Note 5) Series C Preferred Equity of TRG (Notes 1 and 6) $ 72,900 Partners' Equity of TRG allocable to minority partners (Note 1) Shareowners' Equity: Series A Cumulative Redeemable Preferred Stock, $0.01 par value, 50,000,000 shares authorized, $200 million liquidation preference, 8,000,000 shares issued and outstanding at September 30, 1999 and December 31, 1998 $ 80 $ 80 Series B Non-Participating Convertible Preferred Stock, $0.001 par and liquidation value, 40,000,000 shares authorized and 31,399,913 shares issued and outstanding at September 30, 1999 andd December 31, 1998 31 28 Series C Cumulative Redeemable Preferred Stock $0.01 par value, 1,000,000 shares authorized, $75 million liquidation preference, none issued (Note 6) Common Stock, $0.01 par value, 250,000,000 shares authorized, 53,277,693 and 52,995,904 issued and outstanding at September 30, 1999 and December 31, 1998 533 530 Additional paid-in capital 701,006 697,965 Dividends in excess of net income (209,403) (177,426) ------------ -------------- $ 492,247 $ 521,177 ------------ -------------- $ 1,554,412 $ 1,480,863 ============ ============== See notes to consolidated financial statements. 2 TAUBMAN CENTERS, INC. CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except share data) Three Months Ended September 30 ------------------------------- 1999 1998 ---- ---- Income: Minimum rents $ 35,575 $ 25,612 Percentage rents 1,422 1,195 Expense recoveries 19,329 14,721 Revenues from management, leasing and development services 6,402 1,827 Other 4,038 6,002 Revenues - transferred centers (Note 1) 41,611 ----------- ----------- $ 66,766 $ 90,968 ----------- ----------- Operating Expenses: Recoverable expenses $ 17,689 $ 13,913 Other operating 8,761 8,301 Management, leasing and development services 4,286 1,026 General and administrative 4,411 5,378 Restructuring 10,698 Expenses other than interest, depreciation and amortization - transferred centers (Note 1) 14,807 Interest expense 13,543 22,076 Depreciation and amortization (including $8.0 million in 1998 relating to the transferred centers) 13,569 16,111 ----------- ----------- $ 62,259 $ 92,310 ----------- ----------- Income (loss) before equity in net income of Unconsolidated Joint Ventures, extraordinary item, minority and preferred interests $ 4,507 $ (1,342) Equity in net income of Unconsolidated Joint Ventures 9,317 12,836 ----------- ----------- Income before extraordinary item, minority and preferred interests $ 13,824 $ 11,494 Extraordinary item (Note 3 ) (49,817) Minority interest: TRG income allocable to minority partners (4,166) 24,197 Distributions in excess of earnings allocable to minority partners (3,342) TRG Series C preferred distributions (Note 1) (525) ----------- ----------- Net income (loss) $ 5,791 $ (14,126) Series A preferred dividends (4,150) (4,150) ----------- ----------- Net income (loss) available to common shareowners $ 1,641 $ (18,276) =========== =========== Basic earnings per common share: Income before extraordinary item $ .03 $ .03 =========== =========== Net income (loss) $ .03 $ (.35) =========== =========== Diluted earnings per common share: Income before extraordinary item $ .03 $ .03 =========== =========== Net income (loss) $ .03 $ (.34) =========== =========== Cash dividends declared per common share $ .24 $ .235 =========== ============ Weighted average number of common shares outstanding 53,277,693 52,899,013 =========== =========== See notes to consolidated financial statements. 3 TAUBMAN CENTERS, INC. CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except share data) Nine Months Ended September 30 ------------------------------ 1999 1998 ---- ---- Income: Minimum rents $ 103,874 $ 76,647 Percentage rents 4,200 2,995 Expense recoveries 58,306 43,134 Revenues from management, leasing and development services 18,078 5,604 Other 12,345 12,179 Revenues - transferred centers (Note 1) 129,714 ----------- ----------- $ 196,803 $ 270,273 ----------- ----------- Operating Expenses: Recoverable expenses $ 52,115 $ 39,404 Other operating 28,009 22,144 Management, leasing and development services 13,141 3,307 General and administrative 13,560 19,527 Restructuring 10,698 Expenses other than interest, depreciation and amortization - transferred centers (Note 1) 44,260 Interest expense 38,231 66,662 Depreciation and amortization (including $22.8 million in 1998 relating to the transferred centers) 38,661 46,688 ----------- ----------- $ 183,717 $ 252,690 ----------- ----------- Income before equity in income before extraordinary item of Unconsolidated Joint Ventures, extraordinary items, minority and preferred interests $ 13,086 $ 17,583 Equity in income before extraordinary item of Unconsolidated Joint Ventures 29,051 35,512 ----------- ----------- Income before extraordinary items, minority and preferred interests $ 42,137 $ 53,095 Extraordinary items (Note 3) (301) (50,774) Minority interest: TRG income allocable to minority partners (13,093) 1,499 Distributions in excess of earnings allocable to minority partners (9,430) TRG Series C preferred distributions (Note 1) (525) ----------- ----------- Net income $ 18,788 $ 3,820 Series A preferred dividends (12,450) (12,450) ----------- ----------- Net income (loss) available to common shareowners $ 6,338 $ (8,630) =========== =========== Basic earnings per common share: Income before extraordinary items $ .12 $ .22 =========== =========== Net income (loss) $ .12 $ (.17) =========== =========== Diluted earnings per common share: Income before extraordinary items $ .12 $ .22 =========== =========== Net income (loss) $ .11 $ (17) =========== =========== Cash dividends declared per common share $ .72 $ .705 =========== ============ Weighted average number of common shares outstanding 53,163,145 51,949,256 =========== =========== See notes to consolidated financial statements. 4 TAUBMAN CENTERS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) Nine Months Ended September 30 ------------------------------ 1999 1998 ---- ---- Cash Flows from Operating Activities: Income before extraordinary items, minority and preferred interests $ 42,137 $ 53,095 Adjustments to reconcile income before extraordinary items, minority and preferred interests to net cash provided by operating activities: Depreciation and amortization 38,661 46,688 Provision for losses on accounts receivable 2,337 1,077 Amortization of deferred financing costs 3,410 2,129 Other 254 621 Gains on sales of land (1,363) (2,905) Increase (decrease) in cash attributable to changes in assets and liabilities: Receivables, deferred charges and other assets (9,461) (8,601) Accounts payable and other liabilities (9,453) 22,153 ----------- ----------- Net Cash Provided By Operating Activities $ 66,522 $ 114,257 ----------- ----------- Cash Flows from Investing Activities: Additions to properties $ (149,663) $ (206,675) Proceeds from sales of land 1,433 4,302 Purchase of interest in Fashionmall.com, Inc.(Note 8) (7,417) Contributions to Unconsolidated Joint Ventures (37,881) (29,140) Distributions from Unconsolidated Joint Ventures in excess of income before extraordinary item 47,794 54,913 ----------- ----------- Net Cash Used In Investing Activities $ (145,734) $ (176,600) ----------- ----------- Cash Flows from Financing Activities: Debt proceeds $ 607,123 $ 1,558,716 Debt payments (514,301) (130,913) Early extinguishment of debt (1,167,746) Debt issuance costs (10,325) (2,790) Redemption of partnership units (77,698) GMPT Exchange (9,737) (15,177) Distributions to minority and preferred interests (23,048) (58,366) Issuance of stock 3,047 26,658 Issuance of TRG Series C Preferred Equity (Note 1) 72,900 Cash dividends to common shareowners (38,247) (36,302) Cash dividends to Series A preferred shareowners (12,450) (12,450) ----------- ----------- Net Cash Provided By Financing Activities $ 74,962 $ 83,932 ----------- ----------- Net Increase (Decrease) In Cash $ (4,250) $ 21,589 Cash and Cash Equivalents at Beginning of Period 19,045 8,965 Effect of consolidating TRG in connection with the GMPT Exchange (TRG's cash balance at Beginning of Period) (Note 1) 3,250 ----------- ----------- Cash and Cash Equivalents at End of Period $ 14,795 $ 33,804 =========== =========== Interest on mortgage notes and other loans paid during the nine months ended September 30, 1999 and 1998, net of amounts capitalized of $10,570 and $12,830, was $34,096 and $69,077, respectively. See notes to consolidated financial statements. 5 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Nine months ended September 30, 1999 Note 1 - Interim Financial Statements Taubman Centers, Inc. (the Company or TCO), a real estate investment trust, or REIT, is the managing general partner of The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG). The Operating Partnership is an operating subsidiary that engages in the ownership, management, leasing, acquisition, development, and expansion of regional retail shopping centers. The Operating Partnership's portfolio as of September 30, 1999 includes 17 urban and suburban shopping centers in seven states. Four additional centers are under construction in Florida and Texas. On September 30, 1998, the Company obtained a majority and controlling interest in the Operating Partnership as a result of a transaction in which the Operating Partnership transferred interests in 10 shopping centers, together with $990 million of its debt, for all of the partnership units owned by two General Motors pension trusts (GMPT), representing approximately 37% of the Operating Partnership's equity (the GMPT Exchange). The consolidated financial statements of the Company include all accounts of the Company, the Operating Partnership and its consolidated subsidiaries; all intercompany balances have been eliminated. Investments in joint ventures not unilaterally controlled by ownership or contractual obligation (Unconsolidated Joint Ventures) are accounted for under the equity method. In September 1999, the Operating Partnership completed the private placement of $75 million of 9% Cumulative Redeemable Preferred Partnership Equity (the Series C Preferred Equity), which was purchased by an institutional investor. At September 30, 1999, the Operating Partnership's equity included two classes of Preferred Equity (Series A and Series C) and the net equity of the partnership unitholders. Net income and distributions of the Operating Partnership are allocable first to the preferred equity interests, and the remaining amounts to the general and limited partners in the Operating Partnership in accordance with their percentage ownership. The Series A Preferred Equity is owned by the Company and is eliminated in consolidation. Because the net equity of the unitholders is less than zero, the interest of the noncontrolling unitholders is presented as a zero balance in the balance sheet as of September 30, 1999 and December 31, 1998. Also, for periods subsequent to the GMPT Exchange, the income allocated to the noncontrolling unitholders is equal to their share of distributions. The net equity of the Operating Partnership unitholders is less than zero because of accumulated distributions in excess of net income and not as a result of operating losses. Distributions to partners are usually greater than net income because net income includes non-cash charges for depreciation and amortization. The Company's ownership in the Operating Partnership at September 30, 1999 consisted of a 62.9% managing general partnership interest (53,277,693 of the 84,677,606 units of partnership interest outstanding), as well as the Series A Preferred Equity interest. The Company's average ownership percentage in the Operating Partnership for the three months ended September 30, 1999 and 1998 was 62.9% and 39.5%, respectively. The Company's average ownership percentage in the Operating Partnership for the nine months ended September 30, 1999 and 1998 was 62.9% and 39.0%, respectively. The unaudited interim financial statements should be read in conjunction with the audited financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made. The results of interim periods are not necessarily indicative of the results for a full year. 6 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Note 2 - Investments in Unconsolidated Joint Ventures Following are the Company's investments in various real estate Unconsolidated Joint Ventures which own regional retail shopping centers. The Operating Partnership is generally the managing general partner of these Unconsolidated Joint Ventures. The Operating Partnership's interest in each Unconsolidated Joint Venture is as follows: Ownership as of Unconsolidated Joint Venture Shopping Center September 30, 1999 ---------------------------- --------------- ------------------ Arizona Mills, L.L.C. Arizona Mills 37% Dolphin Mall Associates Limited Partnership Dolphin Mall (under construction) 50 Fairfax Company of Virginia L.L.C. Fair Oaks 50 Lakeside Mall Limited Partnership Lakeside 50 Rich-Taubman Associates Stamford Town Center 50 Taubman-Cherry Creek Limited Partnership Cherry Creek 50 Twelve Oaks Mall Limited Partnership Twelve Oaks Mall 50 West Farms Associates Westfarms 79 Woodland Woodland 50 In September 1999, the Company entered into a partnership agreement with Swerdlow Real Estate Group (Note 8) to jointly develop Dolphin Mall, a 1.4 million square foot value regional center under construction in Miami, Florida, expected to open in March 2001. During the three months ended March 31, 1998, an Unconsolidated Joint Venture incurred an extraordinary charge related to the extinguishment of debt, primarily consisting of a prepayment premium. The Company's carrying value of its Investment in Unconsolidated Joint Ventures differs from its share of the deficiency in assets reported in the combined balance sheet of the Unconsolidated Joint Ventures due to (i) the Company's cost of its investment in excess of the historical net book values of the Unconsolidated Joint Ventures and (ii) intercompany profits on sales of services that are capitalized by the Unconsolidated Joint Ventures. The Company reduces its investment in Unconsolidated Joint Ventures to eliminate the intercompany profits and amortizes such amounts over the useful lives of the related assets. The Company's additional basis allocated to depreciable assets is recognized on a straight-line basis over 40 years. Combined balance sheet and results of operations information is presented below (in thousands) for all Unconsolidated Joint Ventures, followed by the Operating Partnership's beneficial interest in the combined information. Beneficial interest is calculated based on the Operating Partnership's ownership interest in each of the Unconsolidated Joint Ventures. The accounts of Woodfield Associates, formerly a 50% Unconsolidated Joint Venture transferred to GMPT (Note 1), are included in these results for the three and nine months ended September 30, 1998. 7 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30 December 31 ------------ ----------- 1999 1998 ---- ---- Assets: Properties, net $ 670,618 $ 572,149 Other assets 67,310 73,046 ------------- ------------- $ 737,928 $ 645,195 ============= ============= Liabilities and partners' accumulated deficiency in assets: Debt $ 884,104 $ 825,927 Capital lease obligations 4,092 5,187 Other liabilities 48,478 47,622 TRG's accumulated deficiency in assets (108,613) (103,545) Unconsolidated Joint Venture Partners' accumulated deficiency in assets (90,133) (129,996) ------------- ------------- $ 737,928 $ 645,195 ============= ============= TRG's accumulated deficiency in assets (above) $ (108,613) $ (103,545) Elimination of intercompany profit (6,183) (4,846) TCO's additional basis 198,933 206,741 ------------- ------------- Investment in Unconsolidated Joint Ventures $ 84,137 $ 98,350 ============= ============= Three Months Ended Nine Months Ended ------------------ ----------------- September 30 September 30 ------------ ------------ 1999 1998 1999 1998 ---- ---- ---- ---- Revenues $ 62,712 $ 76,193 $ 185,364 $ 220,651 ----------- ------------ ----------- ----------- Recoverable and other operating expenses $ 22,139 $ 26,831 $ 64,733 $ 78,078 Interest expense 16,114 18,431 46,561 53,788 Depreciation and amortization 7,394 8,508 22,324 25,168 ----------- ------------ ----------- ----------- Total operating costs $ 45,647 $ 53,770 $ 133,618 $ 157,034 ----------- ------------ ----------- ----------- Income before extraordinary item $ 17,065 $ 22,423 $ 51,746 $ 63,617 Extraordinary item (1,913) ----------- ------------ ----------- ----------- Net income $ 17,065 $ 22,423 $ 51,746 $ 61,704 =========== ============ =========== =========== Net income allocable to TRG $ 9,298 $ 11,917 $ 28,795 $ 32,398 Extraordinary item allocable to TRG 957 Realized intercompany profit 1,162 1,901 3,763 4,994 Depreciation of TCO's additional basis (1,143) (982) (3,507) (2,837) ----------- ------------ ----------- ----------- Equity in income before extraordinary item of Unconsolidated Joint Ventures $ 9,317 $ 12,836 $ 29,051 $ 35,512 =========== ============ =========== =========== Beneficial interest in Unconsolidated Joint Ventures' operations: Revenues less recoverable and other operating expenses $ 23,107 $ 28,036 $ 69,410 $ 79,902 Interest expense (8,745) (9,820) (25,177) (28,731) Depreciation and amortization (5,045) (5,380) (15,182) (15,659) ----------- ------------ ----------- ----------- Income before extraordinary item $ 9,317 $ 12,836 $ 29,051 $ 35,512 =========== ============ =========== =========== 8 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Note 3 - Beneficial Interest in Debt and Interest Expense During the nine months ended September 30, 1999, the following debt transactions occurred: A ten-year financing of $270 million with an all-in rate of approximately 6.9% secured by The Mall at Short Hills was completed in April 1999. Also, a ten-year financing of $80 million with an all-in rate of approximately 7.8% secured by Biltmore Fashion Park was completed in June 1999. The Company used the net proceeds from these financings to pay off the balance on its $340 million bridge loan. A three-year $170 million loan, secured by Great Lakes Crossing, was finalized. The loan agreement provides for an option to extend the maturity date one year. The loan bears interest at one-month LIBOR plus 1.50%. Proceeds from the loan were used to repay the balance of the existing construction facility. Payment of principal and interest are guaranteed by the Operating Partnership. The loan agreement provides for a reduction of the interest rate and the amount guaranteed as certain center performance and valuation criteria are met. In addition, the Company finalized an amendment to the MacArthur Center construction facility. The total availability under the facility is $120 million with interest at one-month LIBOR plus 1.35%. The balance at September 30, 1999 was $115.2 million. In June 1999, the Operating Partnership's $200 million line of credit facility was securitized, with interests in Fairlane, LaCumbre, Paseo Nuevo, and Regency Square serving as collateral. The rate on the line was decreased to LIBOR plus 0.90%. In August 1999, the 50% owned Unconsolidated Joint Venture that owns Cherry Creek completed a $177 million, secured financing. The financing has an all-in rate of 7.8% and matures in August 2006. The proceeds were used to repay the existing $130 million mortgage and transaction costs. The remaining net proceeds of approximately $45.2 million were distributed to the Operating Partnership, which had contributed all of the funding for the 1998 expansion of Cherry Creek. The Operating Partnership used the distribution to pay down its line of credit. In September 1999, the Operating Partnership used the net proceeds from a $75 million private placement of 9% Cumulative Redeemable Preferred Partnership Equity (Series C Preferred Equity)to pay down lines of credit. During the nine months ended September 30, 1999, extraordinary charges to income of $0.3 million were recognized in connection with the extinguishment of debt. During the nine months ended September 30, 1998, extraordinary charges of $50.8 million were recognized related to the extinguishment of debt, primarily in connection with the GMPT Exchange. The Operating Partnership's beneficial interest in the debt, capital lease obligations, capitalized interest, and interest expense of its consolidated subsidiaries and its Unconsolidated Joint Ventures is summarized in the following table. The Operating Partnership's beneficial interest excludes debt and interest relating to the 30% minority interest in MacArthur Center, and subsequent to the refinancing relating to Great Lakes Crossing, the 20% minority interest in that center. 9 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Unconsolidated Share Joint of Unconsolidated Consolidated Beneficial Ventures Joint Ventures Subsidiaries Interest --------------- ----------------- ------------ ---------- Debt as of: September 30, 1999 $ 884,104 $ 468,196 $ 868,120 $ 1,267,753 December 31, 1998 825,927 439,271 775,298 1,186,192 Capital lease obligations: September 30, 1999 $ 4,092 $ 2,254 -- $ 2,254 December 31, 1998 5,187 2,858 -- 2,858 Capitalized interest: Nine months ended September 30,1999 $ 1,110 $ 555 $ 10,570 $ 11,125 Nine months ended September 30,1998 1,748 869 12,830 12,575 Interest expense (Net of capitalized interest): Nine months ended September 30,1999 $ 46,561 $ 25,177 $ 38,231 $ 60,998 Nine months ended September 30,1998 53,788 28,731 66,662 95,393
Note 4 - Incentive Option Plan The Operating Partnership may issue options for up to 7.7 million units of partnership interest under its incentive option plan for employees of its subsidiary partnership, The Taubman Company Limited Partnership (the Manager). The per unit exercise price of an option is the fair market value of a unit on the date of grant. Incentive options generally vest in one-third increments on the third, fourth, and fifth anniversaries (and expire on the tenth anniversary) of the grant date. Options for 281,789 units and 135,628 units were exercised during the first nine months of 1999 and 1998 at weighted average exercise prices of $10.80 and $11.04, respectively. During the nine months ended September 30, 1999, the Operating Partnership granted options for 1.0 million units at $12.25 per unit and canceled options for 89,544 units at a weighted average exercise price of $12.88 per unit. As of September 30, 1999, there were vested options for 6.1 million units with a weighted exercise price of $11.24 per unit and outstanding options (including unvested options) for a total of 7.4 million units with a weighted average exercise price of $11.36 per unit. Note 5 - Commitments and Contingencies At the time of the Company's initial public offering (IPO) and acquisition of its partnership interest in the Operating Partnership, the Company entered into an agreement (the Cash Tender Agreement) with A. Alfred Taubman, who is the Company's chairman and owns an interest in the Operating Partnership, whereby he has the annual right to tender to the Company units of partnership interest in the Operating Partnership (provided that the aggregate value is at least $50 million) and cause the Company to purchase the tendered interests at a purchase price based on a market valuation of the Company on the trading date immediately preceding the date of the tender. The Company will have the option to pay for these interests from available cash, borrowed funds or from the proceeds of an offering of the Company's common stock. Generally, the Company expects to finance these purchases through the sale of new shares of its stock. The tendering partner will bear all market risk if the market price at closing is less than the purchase price and will bear the costs of sale. Any proceeds of the offering in excess of the purchase price will be for the sole benefit of the Company. At A. Alfred Taubman's election, his family and Robert C. Larson and his family may participate in tenders. Based on a market value at September 30, 1999 of $11.50 per common share, the aggregate value of interests in the Operating Partnership that may be tendered under the Cash Tender Agreement was approximately $277.5 million. The purchase of these interests at September 30, 1999 would have resulted in the Company owning an additional 28% interest in the Operating Partnership. 10 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company has made a continuing, irrevocable offer to all present holders (other than certain excluded holders, including A. Alfred Taubman), assignees of all present holders, those future holders of partnership interests in the Operating Partnership as the Company may, in its sole discretion, agree to include in the continuing offer, and all existing and future optionees under the Operating Partnership's incentive option plan to exchange shares of common stock for partnership interests in the Operating Partnership (the Continuing Offer). Under the Continuing Offer agreement, one unit of partnership interest is exchangeable for one share of the Company's common stock. Shares of common stock that were acquired by GMPT and the AT&T Master Pension Trust in connection with the IPO may be sold through a registered offering. Pursuant to a registration rights agreement with the Company, the owners of each of these shares have the annual right to cause the Company to register and publicly sell their shares of common stock (provided that the shares have an aggregate value of at least $50 million and subject to certain other restrictions). All expenses of such a registration are to be borne by the Company, other than the underwriting discounts or selling commissions, which will be borne by the exercising party. Note 6 - Preferred Equity The Operating Partnership's Series C Preferred Equity has a fixed 9.0% coupon rate, no stated maturity, sinking fund or mandatory redemption requirements. The Series C Preferred Equity is exchangeable for Taubman Centers Series C Cumulative Redeemable Preferred Stock beginning in 2009 at substantially similar terms. The Series C Preferred Equity is callable by the Operating Partnership beginning in 2004. Note 7 - Earnings Per Share Basic earnings per common share are calculated by dividing earnings available to common shareowners by the average number of common shares outstanding during each period. For diluted earnings per common share, the Company's ownership interest in the Operating Partnership (and therefore earnings) are adjusted assuming the exercise of all options for units of partnership interest under the Operating Partnership's incentive option plan having exercise prices less than the average market value of the units using the treasury stock method. For the three months ended September 30, 1999 and 1998, options for 0.4 million and 0.2 million units of partnership interest with average exercise prices of $13.57 and $13.89 per unit, respectively, were excluded from the computation of diluted earnings per unit because the exercise prices were greater than the average market price for the period calculated. For the nine months ended September 30, 1999 and 1998, options for 0.3 million units of partnership interest with average exercise prices of $13.68 and $13.79, respectively, were excluded from the computation of diluted earnings per unit because the exercise prices were greater than the average market price for the period calculated.
Three Months Nine Months Ended September 30 Ended September 30 ---------------------- --------------------- 1999 1998 1999 1998 ---- ---- ---- ---- (in thousands, except share data) Income before extraordinary items allocable to common shareowners (Numerator): Net income (loss) available to common shareowners $ 1,641 $ (18,276) $ 6,338 $ (8,630) Common shareowners' share of extraordinary items 19,699 189 20,066 ---------- ---------- ---------- ---------- Basic income before extraordinary items $ 1,641 $ 1,423 $ 6,527 $ 11,436 Effect of dilutive options (71) (35) (238) (157) ---------- ---------- ---------- ---------- Diluted income before extraordinary items $ 1,570 $ 1,388 $ 6,289 $ 11,279 ========== ========== ========== ========== Shares (Denominator) - basic and diluted 53,277,693 52,899,013 53,163,145 51,949,256 ========== ========== ========== ========== Income before extraordinary items per common share - basic and diluted $ .03 $ .03 $ .12 $ .22 ========== ========== ========== ==========
11 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Note 8 - Investments in Fashionmall.com, Inc. and Swerdlow Real Estate Group In June 1999, the Company made an investment in an e-commerce company that markets and sells fashion apparel, footwear, and beauty products over the Internet. The Company obtained 824,084 convertible preferred shares of Fashionmall.com, Inc., a 9.9 percent interest in the company, for $7.4 million. In connection with this investment, the Company received an option, exercisable during a 60-day period commencing March 2000, to purchase an additional 924,898 shares of common stock at the initial public offering price of $13.00 per share. The investment in Fashionmall.com, Inc. is accounted for under the cost method. In September 1999, the Company acquired an approximately 5% interest in Swerdlow Real Estate Group, a privately held real estate investment trust, for approximately $10 million. The investment in Swerdlow is accounted for under the cost method. The acquisition of this interest represents a non-cash investing activity for the nine month period ended September 30, 1999, as the purchase price is not payable until December 1999. Note 9 - Subsequent Events In October 1999,the 50% owned Unconsolidated Joint Venture that is developing Dolphin Mall (Note 2) closed on a $200 million, three-year construction facility. The rate on the facility is LIBOR plus 2%, decreasing to LIBOR plus 1.75% when a certain coverage ratio is met. The Operating Partnership has guaranteed the payment of 50% of any outstanding principal balance and 100% of all accrued and unpaid interest. The guaranty will be reduced as certain performance conditions are met. The Operating Partnership has the option to extend the maturity date one year. In November 1999, the Operating Partnership acquired Lord Associates, a retail leasing firm based in Alexandria, Virginia, for $2.5 million in cash and $5 million in partnership units, which are subject to certain contingencies. In addition, approximately $1.0 million of the purchase price is contingent upon profits achieved on acquired leasing contracts. Of the cash purchase price, $750,000 was paid at closing and $1.75 million will be paid over five years. The acquisition will be accounted for as a purchase. In November 1999, the joint venture that is developing International Plaza in Tampa, Florida closed on a $193.5 million, three-year construction financing, with a one-year extension option. The rate on the facility is LIBOR plus 1.90%. The Operating Partnership has guaranteed the payment of 100% of the principal and interest. The loan agreement provides for reductions of the rate and the amount guaranteed as certain center performance criteria are met. 12 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - --------------------------------------------- The following discussion should be read in conjunction with the accompanying Financial Statements of Taubman Centers, Inc. and the Notes thereto. General Background and Performance Measurement The Company owns a managing general partner's interest in The Taubman Realty Group Limited Partnership (the Operating Partnership), through which the Company conducts all of its operations. The Operating Partnership owns, develops, acquires and operates regional shopping centers nationally. The Consolidated Businesses consist of shopping centers that are controlled by ownership or contractual agreement, development projects for future regional shopping centers and The Taubman Company Limited Partnership (the Manager). Shopping centers that are not controlled and that are owned through joint ventures with third parties (Unconsolidated Joint Ventures) are accounted for under the equity method. The operations of the shopping centers are best understood by measuring their performance as a whole, without regard to the Company's ownership interest. Consequently, in addition to the discussion of the operations of the Consolidated Businesses, the operations of the Unconsolidated Joint Ventures are presented and discussed as a whole. On September 30, 1998, the Operating Partnership exchanged interests in 10 shopping centers (nine Consolidated Businesses and one Unconsolidated Joint Venture) and a share of the Operating Partnership's debt for all of the partnership units owned by two General Motors pension trusts (GMPT) (the GMPT Exchange). See Results of Operations -- GMPT Exchange and Related Transactions below. Performance statistics presented below exclude these ten centers (transferred centers). Because the Company's portfolio changed significantly as a result of the GMPT Exchange, the results of operations of the transferred centers have been separately classified within the Consolidated Businesses and Unconsolidated Joint Ventures for purposes of analyzing and understanding the historical results of the current portfolio. Since the Company's interest in the Operating Partnership has been its sole material asset throughout all periods presented, references in the following discussion to "the Company" include the Operating Partnership, except where intercompany transactions are discussed or as otherwise noted, even though the Operating Partnership did not become a consolidated subsidiary until September 30, 1998. Seasonality The regional shopping center industry is seasonal in nature, with mall tenant sales highest in the fourth quarter due to the Christmas season, and with lesser, though still significant, sales fluctuations associated with the Easter holiday and back-to-school events. While minimum rents and recoveries are generally not subject to seasonal factors, most leases are scheduled to expire in the first quarter, and the majority of new stores open in the second half of the year in anticipation of the Christmas selling season. Accordingly, revenues and occupancy levels are generally highest in the fourth quarter. The following table summarizes certain quarterly operating data for 1998 and the first three quarters of 1999:
1st 2nd 3rd 4th 1st 2nd 3rd Quarter Quarter Quarter Quarter Total Quarter Quarter Quarter 1998 1998 1998 1998 1998 1999 1999 1999 ---------------------------------------------------------------------------------------------------- (in thousands) Mall Tenant Sales $ 467,698 $ 505,732 $ 507,098 $ 852,198 $ 2,332,726 $ 533,730 $ 598,956 $ 610,520 Revenues 98,960 99,993 106,250 126,424 431,627 117,901 129,173 126,715 Occupancy: Average (1) 88.7% 89.3% 89.5% 90.0% 89.4% 88.5% 88.1% 88.9% Ending 88.6% 89.3% 89.6% 90.2% 90.2% 87.5% 88.0% 89.5% Leased Space 91.7% 92.0% 92.4% 92.3% 92.3% 91.3% 91.7% 92.8%
(1) Average occupancy for centers that were owned and open for all of 1998 and 1999 was 89.8% and 88.7%, respectively, for the first quarter of 1999 and 1998, 89.3% for both the second quarters of 1999 and 1998, and 89.7% and 89.5%, respectively, for the third quarter of 1999 and 1998. 13 Because the seasonality of sales contrasts with the generally fixed nature of minimum rents and recoveries, mall tenant occupancy costs (the sum of minimum rents, percentage rents and expense recoveries) relative to sales are considerably higher in the first three quarters than they are in the fourth quarter. The following table summarizes occupancy costs, excluding utilities, for mall tenants as a percentage of sales for 1998 and for the first three quarters of 1999:
1st 2nd 3rd 4th 1st 2nd 3rd Quarter Quarter Quarter Quarter Total Quarter Quarter Quarter 1998 1998 1998 1998 1998 1999 1999 1999 ---------- ---------- ---------- ---------- ----------- ----------- ----------- ------------ Minimum Rents 11.6% 10.9% 11.0% 7.2% 9.7% 11.8% 10.8% 10.7% Percentage Rents 0.2 0.2 0.2 0.4 0.3 0.2 0.4 0.3 Expense Recoveries 4.5 4.5 4.7 3.4 4.1 4.7 4.9 4.5 ---- ---- ---- ---- ---- ---- ---- ---- Mall Tenant Occupancy Costs 16.3% 15.6% 15.9% 11.0% 14.1% 16.7% 16.1% 15.5% ==== ==== ==== ==== ==== ==== ==== ====
Rental Rates Average base rent per square foot for all mall tenants at the 10 centers owned and open for at least five years was $44.07 for the twelve months ended September 30, 1999, compared to $41.98 for the twelve months ended September 30, 1998. As leases have expired in the shopping centers, the Company has generally been able to rent the available space, either to the existing tenant or a new tenant, at rental rates that are higher than those of the expired leases. In a period of increasing sales, rents on new leases will tend to rise as tenants' expectations of future growth become more optimistic. In periods of slower growth or declining sales, rents on new leases will grow more slowly or will decline for the opposite reason. However, center revenues nevertheless increase as older leases roll over or are terminated early and replaced with new leases negotiated at current rental rates that are usually higher than the average rates for existing leases. Results of Operations The following represent significant debt and equity transactions, new center openings and expansions which affect the operating results described under Comparison of Three Months Ended September 30, 1999 to the Three Months Ended September 30, 1998 and Comparison of Nine Months Ended September 30, 1999 to the Nine Months Ended September 30, 1998. GMPT Exchange and Related Transactions On September 30, 1998, the Operating Partnership exchanged interests in 10 shopping centers (nine wholly owned and one Unconsolidated Joint Venture), together with $990 million of debt, for all of GMPT's partnership units (approximately 50 million units with a fair value of $675 million), providing the Company with a majority and controlling interest in the Operating Partnership. The Operating Partnership continues to manage the centers exchanged under management agreements with GMPT that expire December 31, 1999. Renewal of the management agreements is currently under negotiation. Certain costs of providing services under these agreements, including administrative and certain other fixed costs, would not necessarily be eliminated if the contracts were not renewed. The actual reduction of costs would be affected by whether all or a portion of the contracts were not renewed, and actual or anticipated changes in the Operating Partnership's owned or managed portfolio. In anticipation of the GMPT Exchange, the Operating Partnership used the $1.2 billion proceeds from two bridge loans bearing interest at one-month LIBOR plus 1.30% to extinguish $1.1 billion of debt, including substantially all of the Operating Partnership's public unsecured debt, its outstanding commercial paper, and borrowings on its existing line of credit. The remaining proceeds were used primarily to pay prepayment premiums and transaction costs. GMPT's share of debt received in the exchange included the $902 million balance on the first bridge loan, $86 million representing 50% of the debt on the Joint Venture owned shopping center, and $1.6 million of assessment bond obligations. Concurrently with the GMPT Exchange, the Operating Partnership committed to a restructuring of its operations, expecting to reduce its annual general and administrative expense. During 1998, the Company recognized a $10.7 million charge related to this restructuring. During the nine months ended September 30, 1999, general and administrative expense has been reduced to $13.6 million, a decrease of $6.0 million from the corresponding period in 1998. 14 Other Debt and Equity Transactions In April 1999, a ten-year financing of $270 million with an all-in rate of approximately 6.9% secured by The Mall at Short Hills was completed. Also, in June 1999, a ten-year financing of $80 million with an all-in rate of approximately 7.8% secured by Biltmore Fashion Park was completed. The net proceeds of these financings were used to pay off the entire $340 million balance on the bridge loan. In April 1999, a three-year $170 million loan secured by Great Lakes Crossing was finalized, with proceeds used to repay the balance of the existing construction facility. The loan bears interest at one-month LIBOR plus 1.50%. In addition, the Company finalized an amendment to the MacArthur Center construction facility, with total availability under the facility of $120 million at an interest rate of one-month LIBOR plus 1.35%. In June 1999, the Operating Partnership's $200 million line of credit facility was securitized, with interests in Fairlane, LaCumbre, Paseo Nuevo, and Regency Square serving as collateral. The rate on the line was decreased to LIBOR plus 0.90%. In August 1999, a seven-year secured financing of $177 million with an all-in rate of 7.8% was completed by the 50% owned Unconsolidated Joint Venture that owns Cherry Creek. The proceeds were used to repay the existing $130 million mortgage and transaction costs. The remaining net proceeds of approximately $45.2 million were distributed to the Operating Partnership, which had contributed all the funding for the 1998 expansion of Cherry Creek. The Operating Partnership used the distribution to pay down lines of credit. In September 1999, the Operating Partnership completed a $75 million private placement of 9% Cumulative Redeemable Preferred Partnership Equity (Series C Preferred Equity), which was purchased by an institutional investor. The net proceeds were used to pay down lines of credit. In November 1999, the Operating Partnership acquired Lord Associates, a retail leasing firm based in Alexandria, Virginia, for $2.5 million in cash and $5 million in partnership units, which are subject to certain contingencies. In addition, approximately $1.0 million of the purchase price is contingent upon profits achieved on acquired leasing contracts. Of the cash purchase price, $750,000 was paid at closing and $1.75 million will be paid over five years. The acquisition will be accounted for as a purchase. Openings and Expansions In March 1999, MacArthur Center, a 70% owned enclosed super-regional mall, opened in Norfolk, Virginia. In November 1998, Great Lakes Crossing, an 80% owned enclosed value super-regional mall, opened in Auburn Hills, Michigan. Both Great Lakes Crossing and MacArthur Center are owned by joint ventures in which the Operating Partnership has a controlling interest, and consequently the results of these centers are consolidated in the Company's financial statements. The Operating Partnership is entitled to a preferred return on its equity contributions to these centers. The contributed capital was used to fund construction costs. The income effect of the cumulative preferred return net of the interest on the Operating Partnership's associated borrowings was approximately $0.5 million and $1.5 million for the three and nine months ended September 30, 1999, respectively, and is expected to total approximately $2 million in 1999. The net effect in 2000 of any recurring preference is expected to be minimal. At Cherry Creek, a 132,000 square foot expansion opened in stages throughout the fall of 1998. Presentation of Operating Results In order to facilitate the analysis of the ongoing business for periods prior to the GMPT Exchange, the following tables contain the combined operating results of the Company and the Operating Partnership and also present separately the revenues and expenses, other than interest, depreciation and amortization, of the transferred centers. Income allocated to the noncontrolling partners and preferred interests is deducted to arrive at the results allocable to the Company's common shareowners. Because the net equity of the Operating Partnership's unitholders is less than zero, for periods subsequent to the GMPT Exchange, the income allocated to the noncontrolling partners is equal to their share of distributions. The net equity of these minority partners is less than zero due to accumulated distributions in excess of net income and not as a result of operating losses. Distributions to partners are usually greater than net income because net income includes non-cash charges for depreciation and amortization. The Company's average ownership percentage of the Operating Partnership was 62.9% for the three and nine months ended September 30, 1999 and 39.5% and 39.0% for the three and nine months ended September 30, 1998. 15 Comparison of the Three Months Ended September 30, 1999 to the Three Months Ended September 30, 1998 The following table sets forth operating results for the three months ended September 30, 1999 and September 30, 1998, showing the results of the Consolidated Businesses and Unconsolidated Joint Ventures:
Three Months Ended September 30, 1999 Three Months Ended September 30, 1998 ------------------------------------- ------------------------------------- UNCONSOLIDATED UNCONSOLIDATED CONSOLIDATED JOINT CONSOLIDATED JOINT BUSINESSES(1) VENTURES(2) TOTAL BUSINESSES(1) VENTURES(2) TOTAL ---------------------------------------------- --------------------------------------------- (in millions of dollars) REVENUES: Minimum rents 33.6 39.3 72.9 23.7 37.2 60.9 Percentage rents 1.3 1.1 2.4 0.9 0.8 1.8 Expense recoveries 18.7 20.8 39.5 14.1 19.7 33.8 Management, leasing and development 6.4 6.4 1.8 1.8 Other 4.0 1.6 5.5 6.0 2.0 8.0 Revenues - transferred centers 41.6 16.2 57.8 ----- ----- ----- ---- ----- ----- Total revenues 63.9 62.8 126.7 88.1 75.9 164.1 OPERATING COSTS: Recoverable expenses 16.6 17.3 33.9 12.9 16.8 29.7 Other operating 6.8 3.5 10.3 6.3 2.4 8.6 Management, leasing and development 4.3 4.3 1.0 1.0 Expenses other than interest, depreciation and amortization -transferred centers 14.8 6.0 20.9 General and administrative 4.4 4.4 5.4 5.4 Interest expense 13.5 16.4 29.9 22.1 18.5 40.6 Depreciation and amortization 13.4 7.4 20.8 16.0 8.4 24.4 ----- ----- ----- ----- ----- ----- Total operating costs 59.0 44.5 103.6 78.5 52.0 130.5 Net results of Memorial City (1) (0.4) (0.4) (0.3) (0.3) ----- ----- ----- ----- ----- ----- 4.5 18.3 22.8 9.4 23.9 33.3 ===== ===== ===== ===== Equity in net income of Unconsolidated Joint Ventures 9.3 12.8 Restructuring loss (10.7) ----- ----- Income before extraordinary item, minority and preferred interests 13.8 11.5 Extraordinary item (49.8) TRG preferred distributions (0.5) TRG income allocable to minority partners (7.5) 24.2 ----- ----- Net income (loss) 5.8 (14.1) Series A preferred dividends (4.2) (4.2) ----- ----- Net income (loss) available to common shareowners 1.6 (18.3) ===== ===== SUPPLEMENTAL INFORMATION (3): EBITDA contribution 30.4 23.1 53.5 47.7 28.0 75.7 Beneficial Interest Expense (12.3) (8.7) (21.1) (22.1) (9.8) (31.9) Non-real estate depreciation (0.7) (0.7) (0.5) (0.5) Preferred dividends and distributions (4.7) (4.7) (4.2) (4.2) ----- ----- ----- ----- ----- ----- Funds from Operations contribution 12.7 14.4 27.1 20.9 18.2 39.1 ===== ===== ===== ===== ===== =====
(1) The results of operations of Memorial City are presented net in this table. (2) With the exception of the Supplemental Information, amounts represent 100% of the Unconsolidated Joint Ventures. Amounts are net of intercompany profits. (3) EBITDA represents earnings before interest and depreciation and amortization. Funds from Operations is defined and discussed in Liquidity and Capital Resources. (4) Amounts in the table may not add due to rounding. (5) Certain 1998 amounts have been reclassified to conform to 1999 classifications. 16 Consolidated Businesses Total revenues for the three months ended September 30, 1999 were $63.9 million, a $17.4 million, or 37.4%, increase over the comparable period in 1998, excluding revenues of the transferred centers. Minimum rents increased $9.9 million primarily due to the opening of MacArthur Center and Great Lakes Crossing. Expense recoveries increased primarily due to the new centers. Revenues from management, leasing, and development services increased primarily due to the management agreements with GMPT. Other revenue decreased primarily due to a decrease in gains on the sale of peripheral land, partially offset by an increase in garage revenue. Total operating costs were $59.0 million, a $4.7 million, or 7.4% decrease over the comparable period in 1998, excluding expenses other than depreciation, amortization and interest of the transferred centers. Recoverable expenses increased primarily due to Great Lakes Crossing and MacArthur Center. Other operating expense increased due to the new centers and an increase in bad debt expense, partially offset by a decrease in center professional fees. Costs of management, leasing and development services increased primarily due to the management agreements with GMPT. General and administrative expense decreased primarily due to decreases in payroll costs, travel and professional fees. Interest expense decreased primarily due to the assumption of debt by GMPT as part of the GMPT Exchange, partially offset by an increase in debt used to finance Great Lakes Crossing and MacArthur Center and a decrease in capitalized interest related to these centers. Depreciation and amortization expense decreased due to the transferred centers, offset by an increase due to the new centers. During 1998, a $10.7 million loss on the restructuring was recognized, which primarily represented the cost of certain involuntary terminations of personnel. Unconsolidated Joint Ventures Total revenues for the three months ended September 30, 1999 were $62.8 million, a $3.1 million, or 5.2%, increase from the comparable period of 1998, excluding revenues of the transferred center. Minimum rents increased due to the expansion at Cherry Creek and to tenant rollovers. Expense recoveries increased because of the Cherry Creek expansion and an increase in property taxes at certain centers. Total operating costs decreased by $7.5 million (of which $6.0 million represented the expenses other than interest, depreciation, and amortization of the transferred center), to $44.5 million for the three months ended September 30, 1999. Recoverable expenses increased primarily due to the Cherry Creek expansion and an increase in property taxes at certain centers. Other operating expense increased primarily due to increases in bad debt expense. Interest expense decreased primarily due to the assumption of debt by GMPT as part of the GMPT Exchange. Depreciation and amortization decreased due to the transferred center, offset by an increase due to the Cherry Creek expansion. Net income of the Unconsolidated Joint Ventures decreased by $5.6 million, or 23.4%, to $18.3 million. The Company's equity in net income of the Unconsolidated Joint Ventures was $9.3 million, a 27.3% decrease from the comparable period in 1998. Net Income As a result of the foregoing, the Company's income before extraordinary items, minority and preferred interests increased $2.3 million, or 20.0%, to $13.8 million for the three months ended September 30, 1999. During the three months ended September 30, 1998, an extraordinary charge was recognized related to the extinguishment of debt in connection with the GMPT Exchange. The income (loss) of the Operating Partnership allocable to minority partners increased to $7.5 million, from $(24.2) million in 1998, primarily reflecting the Company's increased ownership in the Operating Partnership due to the GMPT Exchange and the results of operations discussed above. Distributions of $0.5 million to the Operating Partnership's Series C Preferred Equity owners were made in 1999. After payment of $4.2 million in Series A preferred dividends, net income (loss) available to common shareowners for 1999 was $1.6 million compared to $(18.3) million in 1998. 17 Comparison of the Nine Months Ended September 30, 1999 to the Nine Months Ended September 30, 1998 The following table sets forth operating results for the nine months ended September 30, 1999 and September 30, 1998, showing the results of the Consolidated Businesses and Unconsolidated Joint Ventures:
Nine Months Ended September 30, 1999 Nine Months Ended September 30, 1998 ------------------------------------ ------------------------------------ UNCONSOLIDATED UNCONSOLIDATED CONSOLIDATED JOINT CONSOLIDATED JOINT BUSINESSES(1) VENTURES(2) TOTAL BUSINESSES(1) VENTURES(2) TOTAL ---------------------------------------------- --------------------------------------------- (in millions of dollars) REVENUES: Minimum rents 98.1 116.6 214.7 70.9 108.8 179.7 Percentage rents 3.9 2.8 6.7 2.5 2.2 4.8 Expense recoveries 56.2 61.1 117.3 41.1 56.3 97.5 Management, leasing and development 18.1 18.1 5.6 5.6 Other 12.1 4.9 17.0 11.9 5.8 17.7 Revenues - transferred centers 129.7 47.2 177.0 ----- ----- ----- ----- ----- ----- Total revenues 188.3 185.5 373.8 261.8 220.4 482.2 OPERATING COSTS: Recoverable expenses 48.9 50.4 99.3 36.4 47.0 83.5 Other operating 22.1 10.1 32.2 16.1 8.8 24.9 Management, leasing and development 13.1 13.1 3.3 3.3 Expenses other than interest, depreciation and amortization - transferred centers 44.3 17.7 62.0 General and administrative 13.6 13.6 19.5 19.5 Interest expense 38.2 46.9 85.2 66.7 54.0 120.7 Depreciation and amortization 38.4 22.1 60.4 46.4 24.3 70.8 ----- ----- ----- ----- ----- ----- Total operating costs 174.3 129.5 303.8 232.7 151.9 384.6 Net results of Memorial City (1) (0.9) (0.9) (0.7) (0.7) ----- ----- ----- ----- ----- ----- 13.1 55.9 69.0 28.3 68.5 96.8 ===== ===== ===== ===== Equity in income before extraordinary item of Unconsolidated Joint Ventures 29.1 35.5 Restructuring loss (10.7) ----- ----- Income before extraordinary items, minority and preferred interests 42.1 53.1 Extraordinary items (0.3) (50.8) TRG preferred distributions (0.5) TRG income allocable to minority partners (22.5) 1.5 ----- ----- Net income 18.8 3.8 Series A preferred dividends (12.5) (12.5) ----- ----- Net income (loss) available to common shareowners 6.3 (8.6) ===== ===== SUPPLEMENTAL INFORMATION (3): EBITDA contribution 87.6 69.4 157.0 142.1 79.9 222.0 Beneficial Interest Expense (35.8) (25.2) (61.0) (66.7) (28.7) (95.4) Non-real estate depreciation (1.9) (1.9) (1.6) (1.6) Preferred dividends and distributions (13.0) (13.0) (12.5) (12.5) ----- ----- ----- ----- ----- ----- Funds from Operations contribution 36.9 44.2 81.1 61.4 51.2 112.6 ===== ===== ===== ===== ===== =====
(1) The results of operations of Memorial City are presented net in this table. (2) With the exception of the Supplemental Information, amounts represent 100% of the Unconsolidated Joint Ventures. Amounts are net of intercompany profits. (3) EBITDA represents earnings before interest and depreciation and amortization. Funds from Operations is defined and discussed in Liquidity and Capital Resources. (4) Amounts in the table may not add due to rounding. (5) Certain 1998 amounts have been reclassified to conform to 1999 classifications. 18 Consolidated Businesses Total revenues for the nine months ended September 30, 1999 were $188.3 million, a $56.2 million, or 42.5%, increase over the comparable period in 1998, excluding revenues of the transferred centers. Minimum rents increased $27.2 million of which $23.7 million was caused by the opening of MacArthur Center and Great Lakes Crossing. Minimum rents also increased due to tenant rollovers. Percentage rent increased because of an increase in tenant sales. Expense recoveries increased primarily due to the new centers. Revenues from management, leasing, and development services increased primarily due to the management agreements with GMPT. Other revenue increased primarily due to increases in lease cancellation and garage revenues, offset by a decrease in gains on sales of peripheral land. Total operating costs were $174.3 million, a $14.1 million, or 7.5% decrease over the comparable period in 1998, excluding expenses other than depreciation, amortization and interest of the transferred centers. Recoverable expenses increased primarily due to Great Lakes Crossing and MacArthur Center. Other operating expense increased due to an increase in the charge to operations for costs of unsuccessful and potentially unsuccessful pre-development activities, the new centers, and bad debt expense. Costs of management, leasing and development services increased primarily due to the management agreements with GMPT. General and administrative expense decreased $5.9 million primarily due to decreases in payroll costs, travel and professional fees. Interest expense decreased primarily due to the assumption of debt by GMPT as part of the GMPT Exchange, partially offset by an increase in debt used to finance Great Lakes Crossing and MacArthur Center and a decrease in capitalized interest related to these centers. Depreciation and amortization expenses decreased due to the transferred centers, partially offset by an increase due to the new centers. During 1998, a $10.7 million loss on the restructuring was recognized, which primarily represented the cost of certain involuntary terminations of personnel Unconsolidated Joint Ventures Total revenues for the nine months ended September 30, 1999 were $185.5 million, a $12.3 million, or 7.1%, increase from the comparable period of 1998, excluding revenues of the transferred center. Minimum rents increased due to the expansion at Cherry Creek and tenant rollovers. Expense recoveries also increased because of the Cherry Creek expansion and an increase in property taxes at certain centers. Other revenue decreased by $0.9 million primarily due to a decrease in gains on sales of peripheral land. Total operating costs decreased by $22.4 million (of which $17.7 million represented the expenses other than interest, depreciation, and amortization of the transferred center), to $129.5 million for the nine months ended September 30, 1999. Recoverable expenses increased primarily due to the Cherry Creek expansion and an increase in property taxes at certain centers. Other operating expense increased primarily due to increases in bad debt expense. Interest expense decreased primarily due to the assumption of debt by GMPT as part of the GMPT Exchange. Depreciation and amortization decreased due to the tranferred center, offset by an increase due to the Cherry Creek expansion. Income before extraordinary item of the Unconsolidated Joint Ventures decreased by $12.6 million, or 18.4%, to $55.9 million. The Company's equity in income before extraordinary item of the Unconsolidated Joint Ventures was $29.1 million, an 18.0% decrease from the comparable period in 1998. Net Income As a result of the foregoing, the Company's income before extraordinary items, minority and preferred interests decreased $11.0 million, or 20.7%, to $42.1 million for the nine months ended September 30, 1999. The Company recognized a $0.3 extraordinary loss related to the extinguishment of debt during 1999, while an extraordinary charge for the extinguishment of debt, primarily related to the GMPT Exchange, was recognized in 1998. The income of the Operating Partnership allocable to minority partners increased to $22.5 million, from $1.5 million in 1998, primarily reflecting the Company's increased ownership in the Operating Partnership due to the GMPT Exchange and the results of operations discussed above. Distributions of $0.5 million to the Operating Partnership's Series C Preferred Equity owners were made in 1999. After payment of $12.5 million in Series A preferred dividends, net income (loss) available to common shareowners for 1999 was $6.3 million compared to $(8.6) million in 1998. 19 Liquidity and Capital Resources On September 30, 1998, the Company obtained a majority and controlling interest in the Operating Partnership as a result of the GMPT Exchange (See Results of Operations - GMPT Exchange and Related Transactions above). As of that date the Company consolidated the accounts of the Operating Partnership in the Company's financial statements. Prior to that date the Company accounted for its investment in the Operating Partnership under the equity method. In the following discussion, references to beneficial interest represent the Operating Partnership's share of the results of its consolidated and unconsolidated businesses. The Company does not have and has not had any parent company indebtedness; all debt discussed represents obligations of the Operating Partnership or its subsidiaries and joint ventures. The Company believes that its net cash provided by operating activities, distributions from its joint ventures, the unutilized portion of its credit facilities, and its ability to access the capital markets, assures adequate liquidity to conduct its operations in accordance with its dividend and financing policies. As of September 30, 1999, the Company had a consolidated cash balance of $14.8 million. Additionally, the Company has a secured $200 million line of credit. The line had $73 million of borrowings as of September 30, 1999 and expires in September 2001. The Company also has available an unsecured bank line of credit of up to $40 million. The line had $9.0 million of borrowings as of September 30, 1999. The maturity of the line has been extended while the Company finalizes an agreement, which is expected to extend the maturity to November 2000 and to securitize the line. Debt In April 1999, a ten-year financing of $270 million with an all-in rate of approximately 6.9% secured by The Mall at Short Hills was completed. Also, a ten-year financing of $80 million with an all-in rate of approximately 7.8% secured by Biltmore Fashion Park was completed in June 1999. The net proceeds from these financings were used to pay off the $340 million bridge loan that was established in September of 1998 to facilitate the GMPT transaction. In April 1999, a three-year $170 million loan secured by Great Lakes Crossing was finalized. The loan agreement provides for an option to extend the maturity date one year. The loan bears interest at one-month LIBOR plus 1.50%. Proceeds from the loan were used to repay the balance of the existing construction facility. Payment of principal and interest are guaranteed by the Operating Partnership. The loan agreement provides for a reduction of the interest rate and the amount guaranteed as certain center performance and valuation criteria are met. In addition, the Company finalized an amendment to the MacArthur Center construction facility. The total availability under the facility is $120 million with interest at one-month LIBOR plus 1.35%. The balance at September 30, 1999 was $115.2 million. In June 1999, the Operating Partnership's $200 million line of credit facility was securitized, with interests in Fairlane, LaCumbre, Paseo Nuevo, and Regency Square serving as collateral. The rate on the line was decreased to LIBOR plus 0.90%. In August 1999, the 50% owned Unconsolidated Joint Venture that owns Cherry Creek completed a $177 million, secured financing. The financing has an all-in rate of 7.8% and matures in August 2006. The proceeds were used to repay the existing $130 million mortgage and transaction costs. The remaining net proceeds of approximately $45.2 million were distributed to the Operating Partnership, which had contributed all of the funding for the 1998 expansion of Cherry Creek. The Operating Partnership used the distribution to pay down its line of credit. Proceeds from additional borrowings provided funding of $200.9 million for the first nine months of 1999 compared to $373.4 million of borrowings and equity issuances in the comparable period of 1998 (including $77.7 million for the redemption of 6.1 million units of partnership interest in January 1998). Additionally, the proceeds were used to fund capital expenditures for the Consolidated Businesses and contributions to Unconsolidated Joint Ventures for construction costs. In September 1999, the net proceeds from the Operating Partnership's $75 million private placement of 9% Cumulative Redeemable Preferred Partnership Equity (Series C Preferred Equity), were used to pay down lines of credit. 20 At September 30, 1999, the Operating Partnership's debt and its beneficial interest in the debt of its Consolidated and Unconsolidated Joint Ventures totaled $1,267.8 million. As shown in the following table, there was no unhedged floating rate debt at September 30, 1999. Interest rates shown do not include amortization of debt issuance costs and interest rate hedging costs. These items are reported as interest expense in the results of operations. In the aggregate, these costs added 0.39% to the effective rate of interest on beneficial interest in debt at September 30, 1999. Included in beneficial interest in debt is debt used to fund development and expansion costs. Beneficial interest in assets on which interest is being capitalized totaled $249.2 million as of September 30, 1999. Beneficial interest in capitalized interest was $3.5 million and $11.1 million for the three and nine months ended September 30, 1999. Beneficial Interest in Debt ----------------------------------------------- Amount Interest LIBOR Frequency LIBOR (in millions Rate at Cap of Rate at of dollars) 9/30/99 Rate Resets 9/30/99 ------------ --------- ------ --------- ------- Total beneficial interest in fixed rate debt $842.6 7.53%(1) Floating rate debt hedged via interest rate caps: Through December 1999 87.8 (2) 6.37 (1) 7.00% Monthly 5.40% Through August 2000 136.0 6.88 6.00 Monthly 5.40 Through October 2000 80.6 6.72 6.50 Monthly 5.40 Through October 2001 25.0 5.83 8.55 Monthly 5.40 Through January 2002 52.4 6.61 9.50 Monthly 5.40 Through July 2002 43.4 6.53 6.50 Monthly 5.40 ----- Total beneficial interest in debt $1,267.8 7.22 (1) ======== (1) Denotes weighted average interest rate. (2) This debt is additionally hedged via an interest rate cap for the period December 1999 to December 2000 at a one-month LIBOR cap rate of 7%. Certain loan agreements contain various restrictive covenants, including limitations on net worth, minimum debt service and fixed charges coverage ratios, a maximum payout ratio on distributions, and a minimum debt yield ratio, the latter being the most restrictive. The Operating Partnership is in compliance with all of such covenants. In October 1999, the 50% owned Unconsolidated Joint Venture that is developing Dolphin Mall closed on a $200 million, three-year construction facility. The rate on the facility is LIBOR plus 2%, decreasing to LIBOR plus 1.75% when a certain coverage ratio is met. The Operating Partnership has guaranteed the payment of 50% of any outstanding principal balance and 100% of all accrued and unpaid interest. The guaranty on the payment of principal will be reduced to 25% when certain performance conditions are met. The Operating Partnership has the option to extend the maturity date one year. In November 1999, the joint venture that is developing International Plaza in Tampa, Florida closed on a $193.5 million, three-year construction financing, with a one-year extension option. The rate on the facility is LIBOR plus 1.90%. The Operating Partnership has guaranteed the payment of 100% of the principal and interest. The loan agreement provides for reductions of the rate and the amount guaranteed as certain center performance criteria are met. Sensitivity Analysis The Company has exposure to interest rate risk on its debt obligations and interest rate instruments. Based on the Operating Partnership's beneficial interest in debt and interest rates in effect at September 30, 1999, a one percent increase or decrease in interest rates on floating rate debt would decrease or increase annual earnings and cash flows by approximately $3.0 million. Based on the Company's consolidated debt and interest rates in effect at September 30, 1999, a one percent increase or decrease in interest rates would decrease or increase the fair value of debt by approximately $28 million. Funds from Operations A principal factor that the Company considers in determining dividends to shareowners is Funds from Operations (FFO), which is defined as income before extraordinary and unusual items, real estate depreciation and amortization, and the allocation to the minority interest in the Operating Partnership, less preferred dividends and distributions. 21 Funds from Operations does not represent cash flows from operations, as defined by generally accepted accounting principles, and should not be considered to be an alternative to net income as an indicator of operating performance or to cash flows from operations as a measure of liquidity. However, the National Association of Real Estate Investment Trusts (NAREIT) suggests that Funds from Operations is a useful supplemental measure of operating performance for REITs. In October 1999, NAREIT approved certain clarifications of the definition of FFO, including that non-recurring items that are not defined as "extraordinary" under generally accepted accounting principles should be reflected in the calculation of FFO. The clarified definition is effective January 1, 2000 and restatement of all periods presented is recommended. Under the clarified definition, the Company would have included in FFO, for three and nine month period ended September 30, 1998, the $10.7 million restructuring charge (Results of Operations - GMPT Exchange and Related Transactions), resulting in an approximate $0.08 decrease to the Company's FFO per share reported for those periods. There would have been no change to these amounts reported for 1999. Reconciliation of Net Income to Funds from Operations Three Months Ended Three Months Ended September 30, 1999 September 30, 1998 ------------------- ------------------- (in millions of dollars) Income before extraordinary item, minority and preferred interests (1) 13.8 11.5 Restructuring loss 10.7 Depreciation and amortization (2) 13.6 16.1 Share of Unconsolidated Joint Ventures depreciation and amortization (3) 5.0 5.4 Other income/expenses, net 0.1 Non-real estate depreciation (0.7) (0.5) Preferred dividends and distributions (4.7) (4.2) ---- ---- Funds from Operations 27.1 39.1 ==== ==== Funds from Operations allocable to the Company 17.0 15.3 ==== ==== (1) Includes gains on peripheral land sales of $0.5 million and $2.9 million for the three months ended September 30, 1999 and September 30, 1998, respectively. (2) Includes $0.5 million and $0.8 million of mall tenant allowance amortization for the three months ended September 30, 1999 and September 30, 1998, respectively. (3) Includes $0.4 million of mall tenant allowance amortization for each of the three periods ended September 30, 1999 and September 30, 1998. (4) Amounts in the tables may not add due to rounding. Nine Months Ended Nine Months Ended September 30, 1999 September 30, 1998 ------------------ ------------------ (in millions of dollars) Income before extraordinary item, minority and preferred interests (1) 42.1 53.1 Restructuring loss 10.7 Depreciation and amortization (2) 38.7 46.7 Share of Unconsolidated Joint Ventures depreciation and amortization (3) 15.2 15.7 Other income/expenses, net 0.5 Non-real estate depreciation (1.9) (1.6) Preferred dividends and distributions (13.0) (12.5) ----- ----- Funds from Operations 81.1 112.6 ===== ===== Funds from Operations allocable to the Company 51.0 43.4 ===== ===== (1) Includes gains on peripheral land sales of $1.4 million and $3.3 million for the nine months ended September 30, 1999 and September 30, 1998, respectively. (2) Includes $1.5 million and $2.3 million of mall tenant allowance amortization for the nine months ended September 30, 1999 and September 30, 1998, respectively. (3) Includes $0.9 million and $1.0 million of mall tenant allowance amortization for the nine months ended September 30, 1999 and September 30, 1998, respectively. (4) Amounts in the table may not add due to rounding. 22 Dividends The Company pays regular quarterly dividends to its common and Series A preferred shareowners. Dividends to its common shareowners are at the discretion of the Board of Directors and depend on the cash available to the Company, its financial condition, capital and other requirements, and such other factors as the Board of Directors deems relevant. Preferred dividends accrue regardless of whether earnings, cash availability, or contractual obligations were to prohibit the current payment of dividends. On September 7, 1999, the Company declared a quarterly dividend of $0.24 per common share payable October 20, 1999 to shareowners of record on September 30, 1999. The Board of Directors also declared a quarterly dividend of $0.51875 per share on the Company's 8.3% Series A Preferred Stock for the quarterly dividend period ended September 30, 1999, which was paid on September 30, 1999 to shareowners of record on September 17, 1999. The tax status of total 1999 common dividends declared and to be declared, assuming continuation of a $0.24 per common share quarterly dividend, is estimated to be approximately 40% return of capital, and approximately 60% of ordinary income. The tax status of total 1999 dividends to be paid on Series A Preferred Stock is estimated to be 100% ordinary income. These are forward-looking statements and certain significant factors could cause the actual results to differ materially, including: 1) the amount of dividends declared; 2) changes in the Company's share of anticipated taxable income of the Operating Partnership due to the actual results of the Operating Partnership; 3) changes in the number of the Company's outstanding shares; 4) property acquisitions or dispositions; 5) financing transactions, including refinancing of existing debt; and 6) changes in the Internal Revenue Code or its application. The annual determination of the Company's common dividends is based on anticipated Funds from Operations available after preferred dividends and distributions, as well as financing considerations and other appropriate factors. Further, the Company has decided that the growth in common dividends will be less than the growth in Funds from Operations for the immediate future. Any inability of the Operating Partnership or its Joint Ventures to obtain financing as required to fund maturing debts, capital expenditures and changes in working capital, including development activities and expansions, may require the utilization of cash to satisfy such obligations, thereby possibly reducing distributions to partners of the Operating Partnership and funds available to the Company for the payment of dividends. Capital Spending Capital spending for routine maintenance of the shopping centers is generally recovered from tenants. The following table summarizes planned capital spending, which is not recovered from tenants and assuming no acquisitions during 1999:
1999 ----------------------------------------------------------- Beneficial Interest in Unconsolidated Consolidated Businesses Consolidated Joint and Unconsolidated Businesses Ventures(1) Joint Ventures (1)(2) ----------------------------------------------------------- (in millions of dollars) Development, renovation, and expansion 223.4(3) 145.5(4) 250.1 Mall tenant allowances 4.3 5.6 7.4 Pre-construction development and other 16.5 4.0 18.5 ----- ----- ----- Total 244.2 155.1 276.0 ===== ===== =====
(1) Costs are net of intercompany profits. (2) Includes the Operating Partnership's share of construction costs for MacArthur Center (a 70% owned consolidated joint venture), The Mall at Wellington Green (a 90% owned consolidated joint venture), International Plaza (a 50.1% owned consolidated joint venture) and Dolphin Mall (a 50% owned unconsolidated joint venture). (3) Includes costs related to MacArthur Center, The Shops at Willow Bend, The Mall at Wellington Green, and International Plaza. (4) Includes costs related to Dolphin Mall (a 50% owned unconsolidated joint venture). MacArthur Center, a new center in Norfolk, Virginia, opened in March 1999. The 930,000 square foot center is anchored by Nordstrom and Dillard's. This center is owned by a joint venture in which the Operating Partnership has a 70% controlling interest and cost approximately $157 million. 23 International Plaza, a new 1.3 million square foot center under construction in Tampa, Florida, will be anchored by Nordstrom, Lord & Taylor, Dillard's and Neiman Marcus. This project, scheduled to open on September 14, 2001, is owned by a joint venture in which the Operating Partnership has a controlling 50.1% interest. The Shops at Willow Bend, a new 1.5 million square foot center under construction in Plano, Texas, will be anchored by Neiman Marcus, Saks Fifth Avenue, Lord & Taylor, Foley's and Dillard's. The center is scheduled to open August 17, 2001; Saks Fifth Avenue will open in 2004. The Mall at Wellington Green, a 1.3 million square foot center under construction in west Palm Beach County, Florida, will be anchored by Nordstrom, Lord & Taylor, Burdine's, Dillard's and JCPenney. The center, scheduled to open on October 5, 2001, will be owned by a joint venture in which the Operating Partnership has a 90% controlling interest. In September 1999, the Company finalized a partnership agreement with Swerdlow Real Estate Group to jointly develop Dolphin Mall, a 1.4 million square foot value regional center located in Miami, Florida. The center is scheduled to open March 1, 2001. The total cost of these four projects is anticipated to be approximately $1 billion. The Company's beneficial investment in the projects will be approximately $680 million, as three of these projects are joint ventures. While the Company intends to finance approximately 75 percent of each new center with construction debt, the Company will have a greater responsibility for the project equity (approximately $210 million). Approximately $150 million of this amount has been funded through the Operating Partnership's preferred equity offering and borrowing under the Company's lines of credit. Additional sources of funding are additional borrowings under the Company's lines of credit, proceeds from the refinancings of certain centers, contributions from a potential new joint venture partner, or other equity offerings. With respect to the construction loan financing, the Company has closed on financing for Dolphin Mall, and financing for International Plaza is fully underwritten and expected to close by year-end. The financings on the two remaining projects are expected to be completed in 2000. New food courts recently opened at Fairlane Town Center and Lakeside, both in the Detroit metropolitan area. Additionally, a 30-screen theater will be added at Fairlane and is anticipated to open in the spring of 2000. At Fair Oaks in the Washington, D.C. area, Hecht's expansion will open in the spring of 2000, and a JCPenney expansion and a newly constructed Macy's store will open in the fall of 2000. The Operating Partnership's share of the cost of these projects is expected to be approximately $35 million. In 1996, the Operating Partnership entered into an agreement to lease Memorial City Mall, a 1.4 million square foot shopping center located in Houston, Texas. The lease was subject to certain provisions that enabled the Operating Partnership to explore significant redevelopment opportunities and terminate the lease obligations in the event such redevlopment opportunities were not deeemed to be sufficient. In November 1999, the Operating Partnership exercised its option to terminate the lease. Under the terms of the lease, the Operating Partnership will continue to manage the center for the ensuing six month period. The Operating Partnership is continuing to asssess the potential redevelopment opportunities of the center and is in discussion with the lessor to determine the redevelopments viability. The Operating Partnership and The Mills Corporation have formed an alliance to develop value super-regional projects in major metropolitan markets. The ten-year agreement calls for the two companies to jointly develop and own at least seven of these centers, each representing approximately $200 million of capital investment. A number of locations across the nation are targeted for future initiatives. The Operating Partnership anticipates that its share of costs for development projects, scheduled to be completed in 2001 will be as much as $258 million in 2000. The Operating Partnership's estimates of 1999 and 2000 capital spending include only projects approved by the Company's Board of Directors and, consequently, estimates will change as new projects are approved. Estimates regarding capital expenditures presented above are forward-looking statements and certain significant factors could cause the actual results to differ materially, including but not limited to: 1) actual results of negotiations with anchors, tenants and contractors; 2) changes in the scope and number of projects; 3) cost overruns; 4) timing of expenditures; 5) financing considerations; and 6) actual time to complete projects. 24 Year 2000 Matters The approach of the calendar year 2000 (Year 2000) presents issues for many financial, information, and operational systems that may not properly recognize the Year 2000. The Company implemented a plan to address the risks posed by the Year 2000 issue covering affected application and infrastructure systems. Affected systems include both informational (such as accounting and payroll) and operational (such as elevators, security and lighting). The Company's plan also addresses the effect of Year 2000 on third parties with which it conducts business, including tenants, vendors, contractors, creditors, and others. The Company has completed the assessment, inventory, planning and testing phases of its plan and has determined that substantially all of the Company's internal systems and all of its mission critical systems are Year 2000 compliant. The Company has requested information and has obtained commitments from tenants, vendors, suppliers and business partners and has developed contingency plans to minimize the impact on the Company in the event they do not meet their Year 2000 commitments. The Company's contingency plans include arrangements to have personnel available at its home office and each of the centers to respond to any operational needs as the year changes. The Company performed a full system test during the first quarter of 1999 and continues to remediate any operational issues encountered with application and infrastructure systems through repair and/or replacement. Minor operational issues remain at only a limited number of centers; these issues are non-critical in nature and are covered by the Company's contingency plans. The estimated costs of addressing the Year 2000 issue are not expected to be material to 1999 operations. The Company will also continue monitoring the progress of material third parties' responses to the Year 2000 issue. The Company believes that its most likely exposure will be the failure of third parties in comprehensively addressing the issue. For example, failure of utility companies to meet their commitments might result in temporary business interruption at centers. The Company is finalizing contingency plans in response to such exposure, and will continue to do so up until the turn of the calendar year. Failure of third parties with which the Company conducts business to successfully respond to the Year 2000 issue may have a material adverse effect on the Company. Cash Tender Agreement A. Alfred Taubman has the annual right to tender to the Company units of partnership interest in the Operating Partnership (provided that the aggregate value is at least $50 million) and cause the Company to purchase the tendered interests at a purchase price based on a market valuation of the Company on the trading date immediately preceding the date of the tender (the Cash Tender Agreement). At A. Alfred Taubman's election, his family, and Robert C. Larson and his family may participate in tenders. The Company will have the option to pay for these interests from available cash, borrowed funds, or from the proceeds of an offering of the Company's common stock. Generally, the Company expects to finance these purchases through the sale of new shares of its stock. The tendering partner will bear all market risk if the market price at closing is less than the purchase price and will bear the costs of sale. Any proceeds of the offering in excess of the purchase price will be for the sole benefit of the Company. Based on a market value at September 30, 1999 of $11.50 per common share, the aggregate value of interests in the Operating Partnership that may be tendered under the Cash Tender Agreement was approximately $277.5 million. The purchase of these interests at September 30, 1999 would have resulted in the Company owning an additional 28% interest in the Operating Partnership. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivatives and whether it qualifies for hedge accounting. This statement is not expected to have a material impact on the Company's consolidated financial statements. This statement is effective for fiscal years beginning after June 15, 2000. 25 Item 3. Quantitative and Qualitative Disclosures About Market Risk The information required by this item is included in this report at Item 2 under the caption "Liquidity and Capital Resources - Sensitivity Analysis". PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits 3(a) -- Certificate of Amendment to the Articles of Incorporation of Taubman Centers, Inc. dated September 3, 1999(incorporated herein by reference to exhibit 10(a) being filed herewith). 3(b) -- Composite copy of Articles of Incorporation of Taubman Centers, Inc., including all amendments to date. 10(a)-- Second Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of The Taubman Realty Group Limited Partnership effective as of September 3, 1999. 10(b)-- Private Placement Purchase Agreement dated as of September 3, 1999 among The Taubman Realty Group Limited Partnership, Taubman Centers, Inc. and Goldman Sachs 1999 Exchange Place Fund, L.P. 10(c)-- Registration Rights Agreement entered into as of September 3, 1999 by and between Taubman Centers, Inc. and Goldman Sachs 1999 Exchange Place Fund, L.P. 12 -- Statement Re: Computation of Taubman Centers, Inc. Ratio of Earnings to Combined Fixed Charges and Preferred Dividends and Distributions. 27 -- Financial Data Schedule. b) --Current Reports on Form 8-K. None 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TAUBMAN CENTERS, INC. Date: November 15, 1999 By: /s/ Lisa A. Payne -------------------------- Lisa A. Payne Executive Vice President and Chief Financial Officer EXHIBIT INDEX Exhibit Number 3(a) -- Certificate of Amendment to the Articles of Incorporation of Taubman Centers, Inc. dated September 3, 1999 (incorporated herein by reference to exhibit 10(a) being filed herewith). 3(b) -- Composite copy of Articles of Incorporation of Taubman Centers, Inc., including all amendments to date. 10(a) -- Second Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of The Taubman Realty Group Limited Partnership effective as of September 3, 1999. 10(b) -- Private Placement Purchase Agreement dated as of September 3, 1999 among The Taubman Realty Group Limited Partnership, Taubman Centers, Inc. and Goldman Sachs 1999 Exchange Place Fund, L.P. 10(c) -- Registration Rights Agreement entered into as of September 3, 1999 by and between Taubman Centers, Inc. and Goldman Sachs 1999 Exchange Place Fund, L.P. 12 -- Statement Re: Computation of Taubman Centers, Inc. Ratio of Earnings to Combined Fixed Charges and Preferred Dividends and Distributions. 27 -- Financial Data Schedule. EX-3.(B) 2 RESTATED ARTICLES OF INCORPORATION RESTATED ARTICLES OF INCORPORATION OF TAUBMAN CENTERS, INC. 1. These Restated Articles of Incorporation are executed on behalf of Taubman Centers, Inc. (the "Corporation") pursuant to the provisions of Section 643 of the Michigan Business Corporation Act (the "Act"). 2. The present name of the Corporation is: Taubman Centers, Inc. 3. The corporation identification number (CID) assigned by the Bureau is: 011-602. 4. Except for the Corporation's present name, the Corporation has not used any name other than Taubman Realty, Inc. 5. The date of filing the original articles of incorporation was November 21, 1973. 6. These Restated Articles of Incorporation were duly adopted by the Board of Directors of the Corporation in accordance with the provisions of Section 641(4) of the Act. 7. The following Restated Articles of Incorporation only restate and integrate (and do not further amend) the Corporation's Second Amended and Restated Articles of Incorporation, as previously amended. There is no material discrepancy between the provisions of the Corporation's Second Amended and Restated Articles of Incorporation, as amended, and the following Restated Articles of Incorporation (referred to below as "these Amended and Restated Articles of Incorporation"). ARTICLE I Name The name of the Corporation is: Taubman Centers, Inc. ARTICLE II Purpose The purpose for which the Corporation is organized is to: 1. own, hold, develop and dispose of and invest in any type of retail real property or mixed use real property having a retail component of significant value in relation to the value of the entire mixed use real property, including any entity whose material assets include such real properties including, but not limited to, partnership interests in The Taubman Realty Group Limited Partnership, a Delaware limited partnership, and any successor thereto ("TRG"); 2. act as managing general partner of TRG; 3. at such time, if ever, as TRG distributes its assets to its partners, own, hold, manage, develop and dispose of said assets and in all other respects, carry on the business of TRG; 4. qualify as a REIT (as hereinafter defined); and 5. engage in any other lawful act or activity for which corporations may be organized under the Michigan Business Corporation Act in addition to any of the foregoing purposes, that is consistent with the Corporation's qualification as a REIT. ARTICLE III Capital 1. Classes and Number of Shares. The total number of shares of all classes of stock that the Corporation shall have authority to issue is 300,000,000 shares. The classes and the aggregate number of shares of stock of each class are as follows: 250,000,000 shares of Common Stock, par value $0.01 per share (the "Common Stock"), which shall have the rights and limitations set forth below. 50,000,000 shares of preferred stock (the "Preferred Stock"), which may be issued in one or more series having such relative rights, preferences, priorities, privileges, restrictions, and limitations as the Board of Directors may determine from time to time. 2. Certain Powers, Rights, and Limitations of Capital Stock. (a) Common Stock. Subject to the rights, preferences, and limitations that the Board of Directors designates with respect to any series of Preferred Stock, a statement of certain powers, rights, and limitations of the shares of the Common Stock is as follows: (i) Dividend Rights. The holders of shares of the Common Stock shall be entitled to receive such dividends as may be declared by the Board of Directors of the Corporation with respect to the Common Stock, subject to the preferential rights of any series of Preferred Stock designated by the Corporation's Board of Directors. (ii) Rights Upon Liquidation. Subject to the provisions of Subsection (e) of this Section 2 of this Article III, 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 of the Common Stock shall be entitled to receive, ratably with each other holder of shares of the Common Stock, that portion of the assets of the Corporation available for distribution to its holders of shares of Common Stock as the number of shares of the Common Stock held by such holder bears to the total number of shares of Common Stock (including shares of Common Stock that have become Excess Stock) then outstanding. (b) Voting Rights. Subject to the provisions of Subsection (e) of this Section 2 of this Article III, the holders of shares of the Common Stock shall be entitled to vote on all matters (for which a common shareholder shall be entitled to vote thereon) at all meetings of the shareholders of the Corporation, and shall be entitled to one vote for each share of the Common Stock entitled to vote at such meeting. Any action to be taken by the shareholders, other than the election of directors or adjourning a meeting, including, but not limited to, the approval of an amendment to these Amended and Restated Articles of Incorporation (other than an amendment by the Board of Directors to establish the relative rights, preferences, priorities, privileges, restrictions, and limitations of Preferred Stock as provided in Subsection (c) of this Section 2 of this Article III, which amendment by the Board of Directors shall require no action to be taken by the 2 shareholders), shall be authorized if approved by the affirmative vote of two-thirds of the shares of Capital Stock entitled to vote thereon. Directors shall be elected if approved by a plurality of the votes cast at an election. (c) Preferred Stock. The Preferred Stock shall have such relative rights, preferences, priorities, privileges, restrictions, and limitations as the Board of Directors may determine from time to time by one or more amendments to these Amended and Restated Articles of Incorporation. (i) Series A Preferred Stock. Subject in all cases to the other provisions of this Section 2 of this Article III, including, without limitation, those provisions restricting the Beneficial Ownership and Constructive Ownership of shares of Capital Stock and those provisions with respect to Excess Stock, the following sets forth the designation, preferences, limitations as to dividends, voting and other rights, and the terms and conditions of redemption of the Series A Preferred Stock (defined below) of the Corporation. (a) There is hereby established a series of Preferred Stock designated "8.30% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share" (the "Series A Preferred Stock"),which shall consist of 8,000,000 authorized shares. (b) All shares of Series A Preferred Stock redeemed, purchased, exchanged, or otherwise acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock. (c) The Series A Preferred Stock shall, with respect to dividend rights, rights upon liquidation, winding up or dissolution, and redemption rights, rank (i) junior to any other series of Preferred Stock hereafter duly established by the Board of Directors of the Corporation, the terms of which specifically provide that such series shall rank prior to the Series A Preferred Stock as to the payment of dividends and distribution of assets upon liquidation (the "Senior Preferred Stock"), (ii) pari passu with any other series of Preferred Stock hereafter duly established by the Board of Directors of the Corporation, the terms of which specifically provide that such series shall rank pari passu with the Series A Preferred Stock as to the payment of dividends and distribution of assets upon liquidation (the "Parity Preferred Stock"), and (iii) prior to any other class or series of Capital Stock, including, without limitation, the Common Stock of the Corporation, whether now existing or hereafter created (collectively, the "Junior Stock"). (d) (1) Subject to the rights of any Senior Preferred Stock, the holders of the then outstanding shares of Series A Preferred Stock shall be entitled to receive, as and when declared by the Board of Directors, out of funds legally available for the payment of dividends, cumulative preferential cash dividends at the annual rate of 8.30% of the $25.00 per share liquidation preference (i.e., $2.075 per annum per share). Such dividends shall accrue and be cumulative from the date of original issue and shall be payable in equal quarterly amounts in arrears on or before the last day of each March, June, September, and December or, if such day is not a business day, the next succeeding business day (each, a "Dividend Payment Date") (for the purposes of this Subparagraph (1) of this Paragraph (d), a "business day" is any day, other than a Saturday, Sunday, or legal holiday, on which banks in Detroit, Michigan, are open for business). The first dividend, which shall be paid on December 31, 1997, will be for less than a full quarter. All dividends on the Series A Preferred Stock, including any dividend for any partial dividend period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be 3 payable to holders of record as they appear in the stock records of the Corporation at the close of business on the applicable record date, which shall be the 15th day of the calendar month in which the applicable Dividend Payment Date falls or on such other date designed by the Board of Directors of the Corporation for the payment of dividends that is not more than 30 nor less than ten days prior to such Dividend Payment Date (each, a "Dividend Record Date"). (2) No dividends on the Series A Preferred Stock shall be declared by the Board of Directors or paid or set apart for payment by the Corporation at such time as any agreement of the Corporation, 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 of, or a default under, such agreement or if such declaration, payment, or setting aside shall be restricted or prohibited by law. (3) Dividends on the Series A Preferred Stock shall accrue and be cumulative regardless of whether the Corporation has earnings, regardless of whether there are funds legally available for the payment of such dividends, and regardless of whether such dividends are declared. Accrued but unpaid dividends on the Series A Preferred Stock will accumulate as of the Dividend Payment Date on which they first become payable. Except as set forth below in this Subparagraph (3), no dividends shall be declared or paid or set apart for payment on any Common Stock or any other series of Preferred Stock ranking, as to dividends, on a parity with or junior to the Series A Preferred Stock (other than a dividend in shares of Junior Stock) for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series A Preferred Stock for all past dividend periods and the then current dividend period. When dividends are not paid in full (and a sum sufficient for such full payment is not so set apart) upon the Series A Preferred Stock and the shares of any other series of Preferred Stock ranking on a parity as to dividends with the Series A Preferred Stock, all dividends declared upon the Series A Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with the Series A Preferred Stock shall be declared pro rata, so that the amount of dividends declared per share of Series A Preferred Stock and such other series of Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the Series A Preferred Stock and such other series of Preferred Stock (which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such Preferred Stock does not have a cumulative dividend) bear to each other. No interest shall be payable in respect of any dividend payment on the Series A Preferred Stock that may be in arrears. Holders of shares of the Series A Preferred Stock shall not be entitled to any dividend, whether payable in cash, property, or stock, in excess of full cumulative dividends on the Series A Preferred Stock as provided above. Any dividend payment made on shares of the Series A Preferred Stock shall first be credited against the earliest accumulated but unpaid dividend due with respect to such shares that remains payable. 4 (4) Except as provided in Subparagraph (3) of this Paragraph (d) of this Item (i) of this Subsection (c) of this Section 2 of this Article III, unless full cumulative dividends on the Series A Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods and the then current dividend period: (i) no dividends (other than in shares of Junior Stock) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the Common Stock (or any other Preferred Stock ranking junior to or on a parity with the Series A Preferred Stock as to dividends or upon liquidation); and (ii) no shares of Common Stock (or any other Preferred Stock of the Corporation ranking junior to or on a parity with the Series A Preferred Stock as to dividends or upon liquidation) shall be redeemed, purchased, or otherwise acquired for any consideration (nor shall any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Corporation (except by conversion into or exchange for Junior Stock). (5) If for any taxable year the Corporation elects to designate as "capital gains dividends" (as defined in Section 857 of the Code) any portion (the "Capital Gains Amount") of the dividends paid or made available for the year to holders of all classes of Capital Stock (the "Total Dividends"), then the portion of the Capital Gains Amount that shall be allocable to the holders of Series A Preferred Stock shall be the amount that the total dividends paid or made available to the holders of the Series A Preferred Stock for the year bears to the Total Dividends. (e) Subject to the rights of any Senior Stock, upon any voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Corporation, and before any distribution of assets shall be made in respect of any Junior Stock, the holders of the Series A Preferred Stock shall be entitled to be paid out of the assets of the Corporation legally available for distribution to its shareholders a liquidation preference of $25.00 per share in cash (or property having a fair market value as determined by the Board of Directors valued at $25.00 per share), plus an amount equal to any accrued but unpaid dividends to the date of payment. After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series A Preferred Stock shall have no right or claims to any of the remaining assets of the Corporation. Neither the consolidation or merger of the Corporation with or into any other corporation, trust, or entity (or of any other corporation with or into the Corporation) nor the sale, lease, or conveyance of all or substantially all of the property or business of the Corporation shall be deemed to constitute a liquidation, dissolution or winding up of the Corporation for the purpose of this Paragraph (e) of this Item (i). (f) (1) The Series A Preferred Stock is not redeemable prior to October 3, 2002. On and after October 3, 2002, the Corporation, at its option upon not less than 30 nor more than 60 days' written notice, may redeem shares of the Series A Preferred Stock, in whole or in part, at any time and from time to time, for a cash redemption price of $25.00 per share, plus all accrued and unpaid dividends to the date fixed for redemption (except as provided below). (2) The redemption price of the Series A Preferred Stock (other than the portion thereof consisting of accrued but unpaid dividends) shall be payable solely out of the sale proceeds of other "capital stock" of the Corporation. For purposes of the preceding sentence, the term "capital stock" means any equity securities of the Corporation 5 (including Common Stock and Preferred Stock), shares, interest, participation, or other ownership interests (however designated) and any rights (other than debt securities convertible into or exchangeable for equity securities) or options to purchase any of the foregoing. Holders of Series A Preferred Stock to be redeemed shall surrender such shares at the place designated in the notice of redemption and shall be entitled to the redemption price and any accrued and unpaid dividends payable upon such redemption following such surrender. If notice of redemption has been given and if the Corporation has set aside in trust the funds necessary for the redemption, then from and after the redemption date: (i) dividends shall cease to accrue on such shares of Series A Preferred Stock; (ii) such shares of Series A Preferred Stock shall no longer be deemed outstanding; and (iii) all rights of the holders of such shares shall terminate, except the right to receive the redemption price. If less than all of the outstanding Series A Preferred Stock is to be redeemed, the Series A Preferred Stock to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method determined by the Corporation. (3) Unless full cumulative dividends on all shares of Series A Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment, no shares of Series A Preferred Stock shall be redeemed unless all outstanding shares of Series A Preferred Stock are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire directly or indirectly any shares of Series A Preferred Stock (except by exchange for Junior Stock); however, the foregoing shall not prevent the purchase or acquisition of shares of Series A Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Series A Preferred Stock. (4) Notice of redemption shall be given by publication in a newspaper of general circulation in The City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date. A similar notice shall be mailed by the Corporation, postage prepaid, not less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series A Preferred Stock to be redeemed at their respective addresses as they appear on the stock transfer records of the Corporation. No failure to give or defect in such notice shall affect the validity of the proceedings for the redemption of any shares of Series A Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the redemption date; (ii) the redemption price; (iii) the number of shares of Series A Preferred Stock to be redeemed; (iv) the place or places where the Series A Preferred Stock is to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date. If fewer than all shares of the Series A Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series A Preferred Stock to be redeemed from such holder. (5) The holders of Series A Preferred Stock at the close of business on a Dividend Record Date shall be entitled to receive the dividend payable with respect to such Series A Preferred Stock on the corresponding Dividend Payment Date notwithstanding the redemption thereof between such Dividend Record Date and the corresponding Dividend Payment Date or the Corporation's default in the payment of the dividend due. Except as provided above, the Corporation will make no payment or 6 allowance for unpaid dividends, regardless of whether in arrears, on called Series A Preferred Stock. (6) The Series A Preferred Stock has no stated maturity and shall not be subject to any sinking fund or mandatory redemption. The Series A Preferred Stock is not convertible into any other securities of the Corporation, but is subject to the Excess Stock (and all other) provisions of this Article III. (g) (1) Except as may be required by law or as otherwise expressly provided in this Item (i) of this Subsection (c) of this Section 2 of this Article III, the holders of Series A Preferred Stock shall not be entitled to vote. On all matters with respect to which the Series A Preferred Stock is entitled to vote, each share of Series A Preferred Stock shall be entitled to one vote. (2) Whenever dividends on the Series A Preferred Stock are in arrears for six or more quarterly periods, the number of directors then constituting the Board of Directors shall be increased by two, and the holders of Series A Preferred Stock (voting separately as a class with all other series of Preferred Stock upon which like voting rights have been conferred and are exercisable) ("Voting Parity Preferred") shall have the right to elect two directors of the Corporation at a special meeting called by the holders of record of at least 10% of the Series A Preferred Stock or at least 10% of any other Voting Parity Preferred so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of the shareholders) or at the next annual meeting of shareholders, and at each subsequent annual meeting, until all dividends accumulated on the Series A Preferred Stock for the past dividend periods and the then current dividend period have been fully paid or declared and a sum sufficient for the payment of such dividends has been set aside for payment. If and when all accumulated dividends and the dividend for the then current dividend period on the Series A Preferred Stock shall have been paid in full or set aside for payment in full, the holders of the Series A Preferred Stock shall be divested of the foregoing voting rights, and if all accumulated dividends and the dividend for the then current period have been paid in full or set aside for payment in full on all series of Voting Parity Preferred, the term of office of each director so elected by the holders of the Series A Preferred Stock and the Voting Parity Preferred shall terminate. (3) As long as any shares of Series A Preferred Stock remain outstanding, the Corporation shall not, without the affirmative vote or consent of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock (voting as a separate class): (i) authorize or create, or increase the authorized or issued amount of, any Capital Stock ranking senior to the Series A Preferred Stock with respect to the payment of dividends or the distribution of assets upon liquidation, dissolution, or winding up or reclassify any authorized Capital Stock of the Corporation into such shares, or create, authorize, or issue any obligation or security convertible into or evidencing the right to purchase any such shares; or (ii) amend, alter, or repeal the provisions of these Amended and Restated Articles of Incorporation, whether by merger, consolidation, or otherwise (an "Event"), so as to materially and adversely affect any right, preference, privilege, or voting power of the Series A Preferred Stock or the holders thereof; however, as long as the Series A Preferred Stock remains outstanding with its terms materially unchanged, taking into account that upon the occurrence of an Event, the Corporation may not be the surviving entity, the occurrence of an Event described in clause (ii) above of this Subparagraph (3) 7 shall not be deemed to materially and adversely affect such rights, preferences, privileges, or voting power of the holders of Series A Preferred Stock, and (x) any increase in the amount of the authorized Preferred Stock or the creation or issuance of any other series of Preferred Stock, or (y) any increase in the amount of authorized shares of the Series A Preferred Stock or any other series of Preferred Stock, in each case ranking on a parity with or junior to the Series A Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution, or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges, or voting powers. (4) Notwithstanding the foregoing, the Series A Preferred Stock shall not be entitled to vote, and 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 is effected, all outstanding shares of the Series A Preferred Stock have been redeemed or called for redemption, and sufficient funds have been deposited in trust for the benefit of the holders of the Series A Preferred Stock to effect such redemption. (ii) Series B Preferred Stock. Subject in all cases to the other provisions of this Section 2 of this Article III, including, without limitation, those provisions restricting the Beneficial Ownership and Constructive Ownership of shares of Capital Stock and those provisions with respect to Excess Stock, the following sets forth the designation, preference, limitation as to dividends, voting, and other rights of the Series B Preferred Stock (defined below) of the Corporation. Terms that are used and not otherwise defined in this Item (ii) have the meanings ascribed to them elsewhere in these Amended and Restated Articles of Incorporation or, if not so defined, their conventional meanings. (a) There is hereby established a series of Preferred Stock designated "Series B Non-Participating Convertible Preferred Stock," (the "Series B Preferred Stock"), which shall initially consist of 40,000,000 authorized shares, subject to one or more increases in the authorized shares of the series by a further amendment(s) to these Amended and Restated Articles of Incorporation to permit the issuance of additional shares upon the issuance of additional Units (defined below) to Registered Unitholders (defined below) and to accommodate stock dividends or stock splits as provided below. (b) All shares of Series B Preferred Stock purchased, exchanged, or otherwise acquired by the Corporation or that are converted into Common Stock shall be restored to the status of authorized but unissued shares of Preferred Stock. (c) Except upon the dissolution, liquidation, or winding up of the Corporation, the Series B Preferred Stock shall have no right to any assets of the Corporation, and (except as expressly set forth in this Item (ii)) shall have no right to cash dividends or distributions (from whatever source), but shall have the preference rights upon dissolution, liquidation, and winding up that are set forth in this Item (ii) of this Section 2. The Series B Preferred Stock ranks (i) junior to the Series A Preferred Stock and junior to any Parity Preferred Stock or Senior Preferred Stock (the Series A Preferred Stock, the Parity Preferred Stock, and the Senior Preferred Stock are collectively referred to as the "Series B Senior Preferred Stock"), (ii) pari passu with any other series of Preferred Stock hereafter duly established by the Board of Directors of the Corporation, the terms of which specifically provide that such series shall rank pari passu with the Series B Preferred Stock as to the distribution of assets upon liquidation (the "Series B Parity Preferred Stock"), and (iii) prior to any other class or series of Capital Stock, including, without limitation, the Common Stock of the 8 Corporation, whether now existing or hereafter created (collectively, the "Series B Junior Stock"). If shares of Common Stock or other securities are distributed on the Common Stock or other voting Capital Stock (as a stock dividend or otherwise) (a "Voting Stock Dividend"), then each share of Series B Preferred Stock shall receive a distribution of the number of shares (or warrants or rights to acquire shares, as the case may be) of Series B Preferred Stock that would then be necessary to preserve the relative voting power of the Series B Preferred Stock (i.e., in relation to the voting power of all outstanding shares of voting Capital Stock) that existed prior to the Voting Stock Dividend. (d) Subject to the rights of the Series B Senior Preferred Stock, upon any voluntary or involuntary dissolution, liquidation, or winding up of the affairs of the Corporation, and before any distribution of assets shall be made in respect of any Series B Junior Stock, the holders of the Series B Preferred Stock shall be entitled to be paid out of the assets of the Corporation legally available for distribution to its shareholders a liquidation preference of $0.001 per share in cash (or property having a fair market value as determined by the Board of Directors valued at $0.001 per share). After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series B Preferred Stock shall have no right or claims to any of the remaining assets of the Corporation. (e) The Series B Preferred Stock has no stated maturity and shall not be subject to redemption; however, the foregoing shall not be a restriction on the Corporation=s otherwise lawful redemption of shares of Series B Preferred Stock on a consensual basis with each holder of the shares to be redeemed. (f) (1) The Series B Preferred Stock is convertible, and will be automatically converted under the circumstances described below, into Common Stock at a conversion ratio of 14,000:1; i.e., each 14,000 shares of Series B Preferred Stock may be converted into one share of Common Stock. In lieu of issuing less than a full share (a "fractional share") of Common Stock upon the conversion of fewer than 14,000 shares (or an integral multiple of 14,000 shares) of Series B Preferred Stock, the Corporation shall redeem the shares of Series B Preferred Stock that would otherwise be convertible into a fractional share of Common Stock (the "Scrip Shares"), and from and after the date of the conversion, the Scrip Shares shall cease to be outstanding shares of Series B Preferred Stock, shall not constitute any other class of Capital Stock, and shall entitle the holder only to receive the cash redemption price, as provided below. (2) The Corporation will initially issue the Series B Preferred Stock to each Person who, on the initial date of issuance, is a Registered Unitholder at the rate of one share for each Unit held by such Registered Unitholder, if such Registered Unitholder subscribes for the shares and pays to the Corporation an amount equal to the product of $0.001 multiplied by the number of shares of Series B Preferred Stock to be issued to him. Shares of Series B Preferred Stock may be issued only in certificated, fully registered form and may be issued only to Registered Unitholders. The Corporation may issue fractional shares of Series B Preferred Stock. Following the initial issuance of the Series B Preferred Stock, each Registered Unitholder acquiring one or more newly issued Units shall be entitled to receive from the Corporation shares of Series B Preferred Stock equal in number to the number of newly issued Units acquired by such Registered Unitholder, provided that the Registered Unitholder subscribes for the shares and pays to the Corporation an amount equal to the product of $0.001 multiplied by the number of shares of Series B Preferred 9 Stock to be issued to him. Except as provided below, a holder of shares of Series B Preferred Stock may freely effect a transfer of the shares to any Person (subject to the Transfer being in compliance with, or (to the satisfaction of the Corporation) exempt from, applicable securities laws and regulations). Upon a Registered Unitholder's Transfer of one or more Units to another Registered Unitholder, then (to the extent of the transferring Registered Unitholder's then ownership of Series B Preferred Stock) the transferring Registered Unitholder shall be deemed to have transferred to the transferee of the Units (i) shares of Series B Preferred Stock equal in number to the number of transferred Units or if, after giving effect to the Unit Transfer, the transferring Registered Unitholder will cease to own any Units, (ii) all of the transferring Registered Unitholder's shares of Series B Preferred Stock. Notwithstanding the foregoing, a Registered Unitholder shall have the right (which shall be exercised by delivering written notice at the time of the Unit Transfer to the Corporation and the transferee of the Units) to negate the deemed simultaneous Transfer of Series B Preferred Stock. A Registered Unitholder desiring to sell (by exchange or otherwise) Units to the Corporation shall be required to surrender to the Corporation for conversion shares of Series B Preferred Stock equal in number to the number of Units being sold (by exchange or otherwise), but only if and to the extent that, after giving effect to the Corporation's proposed purchase of Units, the number of outstanding shares of Series B Preferred Stock will exceed the aggregate number of Units held by all Registered Unitholders. Shares of Series B Preferred Stock surrendered for conversion as provided in the immediately preceding sentence shall be converted into Common Stock, as provided in subparagraph (1) of this Paragraph (f), upon the Corporation's purchase of the Units of the surrendering Registered Unitholder, and the Corporation shall promptly redeem any resulting Scrip Shares for cash, as provided below. Except as provided above in this subparagraph (f)(2), a holder of Series B Preferred Stock shall have no voluntary conversion rights with respect to the Series B Preferred Stock, but shares of Series B Preferred Stock shall automatically convert into Common Stock as provided in subparagraph (3) of this Paragraph (f). (3) After giving effect to a Transfer of shares of Series B Preferred Stock to a Registered Unitholder, the transferee Registered Unitholder is permitted to own shares of Series B Preferred Stock up to (i) the number of Units then owned by such transferee Registered Unitholder or (ii) 5% of the outstanding shares of Series B Preferred Stock, whichever is greater (any shares in excess of a transferee Registered Unitholder's permitted ownership of Series B Preferred Stock are referred to as the "Disproportionate Shares"). After giving effect to a Transfer of shares of Series B Preferred Stock to any Person who is not a Registered Unitholder, the transferee is permitted to own up to 5% of the outstanding shares of Series B Preferred Stock (any shares held by a transferee of Series B Preferred Stock who is not a Registered Unitholder in excess of such 5% limit are referred to as the "Greater than 5% Shares"). Upon a Transfer of Series B Preferred Stock resulting in the transferee holding Disproportionate Shares or Greater than 5% Shares, as applicable, the Disproportionate Shares or Greater than 5% Shares, as applicable, shall automatically convert into Common Stock as provided in subparagraph (1) of this Paragraph (f) without action on the part of anyone, and the Corporation shall promptly redeem any resulting Scrip Shares for cash, as provided below. Upon any such automatic conversion, each certificate evidencing converted shares of Series B Preferred Stock shall instead represent the whole number of shares of Common Stock into which such shares of Series B Preferred Stock were converted and the right to receive the cash redemption payment for any Scrip Shares evidenced by such certificate until such certificate is surrendered to the Corporation for 10 cancellation in exchange for a Common Stock certificate and the redemption price of the Scrip Shares (if any). (4) Upon conversion of any shares of Series B Preferred Stock, no payment or adjustment shall be made on account of dividends declared and payable to holders of Common Stock of record on a date prior to the date of conversion. (5) As soon as practicable on or after the date of conversion of shares of Series B Preferred Stock and the surrender to the Corporation of the certificate(s) evidencing the converted shares, the Corporation will issue and deliver to or at the direction of the converting shareholder a certificate(s) for the whole number of shares of Common Stock issuable upon such conversion. The Corporation shall redeem Scrip Shares resulting from a voluntary or automatic conversion of Series B Preferred Stock for a cash payment equal to the fair value of the fractional share of Common Stock into which the Scrip Shares would otherwise be convertible (the fair value shall be the product of the relevant fraction multiplied by the closing price of the Common Stock on the trading date next preceding the date of conversion on the principal national securities exchange on which the Common Stock is listed (or the average of the high and low prices of the Common Stock on such date on the principal national market system on which the Common Stock is traded) or (if the Common Stock is not so listed or traded) the fair value of the Common Stock on such date as determined by the Corporation's Board of Directors). The Corporation shall be responsible for any stamp or other issuance taxes payable upon the issuance of Common Stock in exchange for surrendered or automatically converted shares of Series B Preferred Stock. (g) (1) On all matters with respect to which shareholders of the Corporation vote, each share of Series B Preferred Stock shall be entitled to one vote. On all matters with respect to which the Series B Preferred Stock is entitled to vote as a separate class, including the nomination of directors pursuant to subparagraph (2) of this Paragraph (g), the action shall be determined by the vote (which may be by non-unanimous written consent) of a majority of the outstanding shares of Series B Preferred Stock entitled to vote. On all other matters, including the election of directors, the Series B Preferred Stock will vote as a single class with all other Capital Stock entitled to vote. (2) With respect to each annual meeting of the Corporation's shareholders, commencing with the annual meeting of the Corporation's shareholders to be held in 1999 (the "1999 Annual Meeting"), the holders of shares of Series B Preferred Stock shall have the right, voting as a separate class, to designate nominees for election as directors of the Corporation and to have such nominees included as such in the Corporation's proxy statement and ballots (or, if none, in a specially prepared proxy statement and ballots) submitted to the shareholders of the Corporation entitled to vote in a timely manner prior to the annual meeting. The Corporation shall use all reasonable efforts, consistent with the Board of Directors' exercise of its fiduciary duties, to cause the election of the nominees designated by the holders of Series B Preferred Stock. With respect to the 1999 Annual Meeting, the holders of Series B Preferred Stock shall have the right to designate four nominees. With respect to each succeeding annual meeting of shareholders, the number of nominees to be designated by the holders of Series B Preferred Stock (the "Base Number of Series B Nominees") shall be equal to the difference between (i) four and (ii) the number of directors whose terms commenced prior to and will continue after such meeting and who were nominated to serve such terms by the holders of Series B 11 Preferred Stock, voting as a separate class. The Base Number of Series B Nominees calculated as set forth in the immediately preceding sentence shall be reduced (i) by one, if as of the record date for determining the shareholders entitled to vote for the election of directors at the relevant annual meeting (the "Record Date"), the Registered Unitholders collectively own less than 25% (but at least 15%) of the Fully Diluted Common Stock of the Corporation, (ii) by two, if as of the Record Date, the Registered Unitholders collectively own less than 15% (but at least 10%) of the Fully Diluted Common Stock of the Corporation, (iii) by three, if as of the Record Date, the Registered Unitholders collectively own less than 10% (but at least 5%) of the Fully Diluted Common Stock of the Corporation, and (iv) to zero, if as of the Record Date, the Registered Unitholders collectively own less than 5% of the Fully Diluted Common Stock of the Corporation. For purposes of the immediately preceding sentence, (i) "Fully Diluted Common Stock of the Corporation" means all shares of Common Stock issued and outstanding on the relevant Record Date, plus all shares of Common Stock issuable upon the exercise of vested employee stock options to acquire Common Stock and issuable upon the exchange of Units owned by the Registered Unitholders (assuming a 1:1 exchange ratio and calculated without regard to limitations imposed on the ability or rights of certain Registered Unitholders to exchange Units for Common Stock), and (ii) the Registered Unitholders shall be deemed to "collectively own" all shares of Common Stock that they own in fact, that they have the right to acquire upon the exercise of vested employee stock options, and that would be issued upon the exchange (without regard to limitations imposed on the ability or rights of certain Registered Unitholders to exchange Units for Common Stock) of all outstanding Units (and Units issuable upon the exercise of options to acquire Units) held by the Registered Unitholders. (h) At all times when the holders of Series B Preferred Stock, voting as a separate class, are entitled to designate nominees for election as directors of the Corporation, (i) the Board of Directors shall consist of nine directors (other than during any vacancy caused by the death, resignation, or removal of a director), plus the number of directors that any series of Preferred Stock, voting separately as a class, has the right to elect because of the Corporation's default in the payment of preferential dividends due on such series, and (ii) a majority of the directors shall be "independent" (for these purposes, an individual shall be deemed "independent" if such individual is neither an officer nor an employee of the Corporation or any of its direct or indirect subsidiaries). At such time as the holders of Series B Preferred Stock no longer have the right to designate any nominees for election as directors of the Corporation, the size of the Board of Directors shall be as determined in accordance with the provisions of the By-Laws of the Corporation. (i) For purposes of this Item (ii) of this Subsection (c) of this Section 2 of this Article III, the following terms have the indicated meanings: (1) "Registered Unitholder" means a Person, other than the Corporation, (i) who at the relevant time is reflected in the records of The Taubman Realty Group Limited Partnership as a partner in such partnership (or who as the result of a Transfer of Units is being admitted as a partner in such partnership) or (ii) who is (or upon completion of the relevant Transfer (including, for these purposes, the exercise of an option to acquire a Unit) will become) a beneficial owner of Units. 12 (2) "Units" means Units of Partnership Interest in The Taubman Realty Group Limited Partnership (and its successors), and any securities into which such Units of Partnership Interest (as a class) are converted or for which such Units (as a class) are exchanged, whether by merger, reclassification, or otherwise. All references in this Item (ii) of this Subsection (c) of this Section 2 of this Article III to numbers of Units shall be adjusted to reflect any splits, reverse splits, or reclassifications of Units of Partnership Interest. (j) As long as shares of Series B Preferred Stock remain outstanding, the Corporation shall not, without the affirmative vote or consent of the holders of a majority of the outstanding shares of Series B Preferred Stock (voting as a separate class): (1) create, authorize, or issue any securities or any obligation or security convertible into or evidencing the right to purchase any such securities, the issuance of which could adversely and (relative to the other outstanding Capital Stock) disparately affect the voting power or voting rights of the Series B Preferred Stock or the holders of Series B Preferred Stock (including the rights under Paragraph (g) of this Item (ii) of this Subsection (c) of this Section 2 of this Article III, and disregarding, for these purposes, the right of any series of Preferred Stock, voting as a separate class, to elect directors of the Corporation as the result of the Corporation=s default in the payment of a preferential dividend to which the holders of such series of Preferred Stock are entitled); (2) amend, alter, or repeal the provisions of these Amended and Restated Articles of Incorporation, whether by merger, consolidation, or otherwise, in a manner that could adversely affect the voting power or voting rights of the Series B Preferred Stock or the holders of Series B Preferred Stock (including the rights under Paragraph (g) of this Item (ii) of this Subsection (c) of this Section 2 of this Article III, and disregarding, for these purposes, the right of any series of Preferred Stock, voting as a separate class, to elect directors of the Corporation as the result of the Corporation=s default in the payment of a preferential dividend to which the holders of such series of Preferred Stock are entitled); (3) be a party to a material transaction (including, without limitation, a merger, consolidation, or share exchange) (a "Series B Transaction") if the Series B Transaction could adversely and (relative to the other outstanding Capital Stock) disparately affect the voting power or voting rights of the Series B Preferred Stock or the holders of Series B Preferred Stock (including the rights under Paragraph (g) of this Item (ii) of this Subsection (c) of this Section 2 of this Article III, and disregarding, for these purposes, the right of any series of Preferred Stock, voting as a separate class, to elect directors of the Corporation as the result of the Corporation=s default in the payment of a preferential dividend to which the holders of such series of Preferred Stock are entitled). The provisions of this subparagraph (3) shall apply to successive Series B Transactions; or (4) issue any shares of Series B Preferred Stock to anyone other than a Registered Unitholder as provided in Paragraph (c) or subparagraph (f)(2) of this Item (ii). 13 (iii) Series C Preferred Stock. Subject in all cases to the other provisions of this Section 2 of this Article III, including, without limitation, those provisions restricting the Beneficial Ownership and Constructive Ownership of shares of Capital Stock and those provisions with respect to Excess Stock, the following sets forth the designation, preferences, limitations as to dividends, voting and other rights, and the terms and conditions of redemption of the Series C Preferred Stock (defined below) of the Corporation. (a) There is hereby established a series of Preferred Stock designated "9% Series C Cumulative Redeemable Preferred Stock, par value $0.01 per share" (the "Series C Preferred Stock"), which shall consist of 1,000,000 authorized shares. (b) All shares of Series C Preferred Stock redeemed, purchased, exchanged, or otherwise acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock. (c) The Series C Preferred Stock shall, with respect to dividend rights, rights upon liquidation, winding up or dissolution, and redemption rights, rank (i) junior to any other series of Preferred Stock hereafter duly established by the Board of Directors of the Corporation, the terms of which specifically provide that such series shall rank prior to the Series C Preferred Stock as to the payment of dividends and distribution of assets upon liquidation (the "Senior Preferred Stock"), (ii) pari passu with the Series A and Series B Preferred Stock and any other series of Preferred Stock hereafter duly established by the Board of Directors of the Corporation, the terms of which specifically provide that such series shall rank pari passu with the Series C Preferred Stock as to the payment of dividends and distribution of assets upon liquidation (the "Parity Preferred Stock"), and (iii) prior to any other class or series of Capital Stock, including, without limitation, the Common Stock of the Corporation, whether now existing or hereafter created (collectively, the "Junior Stock"). (d) (1) Subject to the rights of any Senior Preferred Stock, the holders of the then outstanding shares of Series C Preferred Stock shall be entitled to receive, as and when declared by the Board of Directors, out of funds legally available for the payment of dividends, cumulative preferential cash dividends at the annual rate of 9% of the $75 per share liquidation preference (i.e., $6.75 per annum per share). Such dividends shall accrue and be cumulative from the date of original issue and shall be payable in equal quarterly amounts in arrears on or before the last day of each March, June, September, and December or, if such day is not a business day, the next succeeding business day except that, if such business day is in the next succeeding calendar year, such payment shall be made on the immediately preceding business day, in each case with the same force and effect as if made on such date (each, a "Dividend Payment Date") (for the purposes of this Subparagraph (1) of this Paragraph (d), a "business day" is any day, other than a Saturday, Sunday, or legal holiday, on which banks in Detroit, Michigan, are open for business). The first dividend may be for less than a full quarter. All dividends on the Series C Preferred Stock, including any dividend for any partial dividend period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as they appear in the stock records of the Corporation at the close of business on the applicable record date, which shall be the 15th day of the calendar month in which the applicable Dividend Payment Date falls or on such other date designed by the Board of Directors of the Corporation for the payment of dividends that is not more than 30 nor less than ten days prior to such Dividend Payment Date (each, a "Dividend Record Date"). 14 (2) No dividends on the Series C Preferred Stock shall be declared by the Board of Directors or paid or set apart for payment by the Corporation at such time as any agreement of the Corporation, 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 of, or a default under, such agreement or if such declaration, payment, or setting aside shall be restricted or prohibited by law. (3) Dividends on the Series C Preferred Stock shall accrue and be cumulative regardless of whether the Corporation has earnings, regardless of whether there are funds legally available for the payment of such dividends, and regardless of whether such dividends are declared. Accrued but unpaid dividends on the Series C Preferred Stock will accumulate as of the Dividend Payment Date on which they first become payable. Except as set forth below in this Subparagraph (3), no dividends shall be declared or paid or set apart for payment on any Common Stock or any other series of Preferred Stock ranking, as to dividends, on a parity with or junior to the Series C Preferred Stock (other than a dividend in shares of Junior Stock) for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series C Preferred Stock for all past dividend periods and the then current dividend period. When dividends are not paid in full (and a sum sufficient for such full payment is not so set apart) upon the Series C Preferred Stock and the shares of any other series of Preferred Stock ranking on a parity as to dividends with the Series C Preferred Stock, all dividends declared upon the Series C Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with the Series C Preferred Stock shall be declared pro rata, so that the amount of dividends declared per share of Series C Preferred Stock and such other series of Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the Series C Preferred Stock and such other series of Preferred Stock (which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such Preferred Stock does not have a cumulative dividend) bear to each other. No interest shall be payable in respect of any dividend payment on the Series C Preferred Stock that may be in arrears. Holders of shares of the Series C Preferred Stock shall not be entitled to any dividend, whether payable in cash, property, or stock, in excess of full cumulative dividends on the Series C Preferred Stock as provided above. Any dividend payment made on shares of the Series C Preferred Stock shall first be credited against the earliest accumulated but unpaid dividend due with respect to such shares that remains payable. (4) Except as provided in Subparagraph (3) of this Paragraph (d) of this Item (iii) of this Subsection (c) of this Section 2 of this Article III, unless full cumulative dividends on the Series C Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods and the then current dividend period: (i) no dividends (other than in shares of Junior Stock) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the Common Stock or the Series B Preferred Stock (or any other Preferred Stock ranking junior to or on a parity with the Series C Preferred Stock as to dividends or upon liquidation); and (ii) no shares of Common Stock or the Series B Preferred Stock (or any other Preferred Stock of the Corporation ranking junior to or on a parity with the Series C Preferred Stock as to dividends or upon liquidation) shall be redeemed, purchased, or otherwise acquired for any consideration (nor shall any 15 moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Corporation (except by conversion into or exchange for Junior Stock). (5) If for any taxable year the Corporation elects to designate as "capital gains dividends" (as defined in Section 857 of the Code) any portion (the "Capital Gains Amount") of the dividends paid or made available for the year to holders of all classes of Capital Stock (the "Total Dividends"), then the portion of the Capital Gains Amount that shall be allocable to the holders of Series C Preferred Stock shall be the amount that the total dividends paid or made available to the holders of the Series C Preferred Stock for the year bears to the Total Dividends. (6) Notwithstanding anything to the contrary set forth herein, the Corporation may declare and pay a dividend on the Common Stock, without preserving the priority of distributions described in Subparagraphs 3 and 4 of this Paragraph (d) of this Item (iii) of this Subsection (c) of this Section 2 of this Article III, but only to the extent such dividends are required to preserve the Real Estate Investment Trust status of the Corporation and to avoid the imposition of an excise tax on the Corporation. (e) Subject to the rights of any Senior Stock, upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, and before any distribution of assets shall be made in respect of any Junior Stock, the holders of the Series C Preferred Stock shall be entitled to be paid out of the assets of the Corporation legally available for distribution to its shareholders a liquidation preference of $75 per share in cash (or property having a fair market value as determined by the Board of Directors valued at $75 per share), plus an amount equal to any accrued but unpaid dividends to the date of payment. After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series C Preferred Stock shall have no right or claims to any of the remaining assets of the Corporation. Neither the consolidation or merger of the Corporation with or into any other corporation, trust, or entity (or of any other corporation with or into the Corporation) nor the sale, lease, or conveyance of all or substantially all of the property or business of the Corporation shall be deemed to constitute a liquidation, dissolution or winding up of the Corporation for the purpose of this Paragraph (e) of this Item (iii). (f) (1) The Series C Preferred Stock is not redeemable prior to September 3, 2004. On and after September 3, 2004, the Corporation, at its option upon not less than 30 nor more than 60 days' written notice, may redeem shares of the Series C Preferred Stock, in whole or in part, at any time and from time to time, for a cash redemption price of $75 per share, plus all accrued and unpaid dividends to the date fixed for redemption (except as provided below). (2) The redemption price of the Series C Preferred Stock (other than the portion thereof consisting of accrued but unpaid dividends) shall be payable solely out of the sale proceeds of other "capital stock" of the Corporation. For purposes of the preceding sentence, the term "capital stock" means any equity securities of the Corporation (including Common Stock and Preferred Stock), shares, interest, participation, or other ownership interests (however designated) and any rights (other than debt securities convertible into or exchangeable for equity securities) or options to purchase any of the foregoing. Holders of Series C Preferred Stock to be redeemed shall surrender such shares at the place designated in the notice of redemption and shall be entitled to the redemption 16 price and any accrued and unpaid dividends payable upon such redemption following such surrender. If notice of redemption has been given and if the Corporation has set aside in trust the funds necessary for the redemption, then from and after the redemption date: (i) dividends shall cease to accrue on such shares of Series C Preferred Stock; (ii) such shares of Series C Preferred Stock shall no longer be deemed outstanding; and (iii) all rights of the holders of such shares shall terminate, except the right to receive the redemption price. If less than all of the outstanding Series C Preferred Stock is to be redeemed, the Series C Preferred Stock to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method determined by the Corporation. (3) Unless full cumulative dividends on all shares of Series C Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment, no shares of Series C Preferred Stock shall be redeemed unless all outstanding shares of Series C Preferred Stock are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire directly or indirectly any shares of Series C Preferred Stock (except by exchange for Junior Stock); however, the foregoing shall not prevent the purchase or acquisition of shares of Series C Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Series C Preferred Stock. (4) Notice of redemption shall be given by publication in a newspaper of general circulation in The City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date. A similar notice shall be mailed by the Corporation, postage prepaid, not less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series C Preferred Stock to be redeemed at their respective addresses as they appear on the stock transfer records of the Corporation. No failure to give or defect in such notice shall affect the validity of the proceedings for the redemption of any shares of Series C Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the redemption date; (ii) the redemption price; (iii) the number of shares of Series C Preferred Stock to be redeemed; (iv) the place or places where the Series C Preferred Stock is to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date. If fewer than all shares of the Series C Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series C Preferred Stock to be redeemed from such holder. (5) The holders of Series C Preferred Stock at the close of business on a Dividend Record Date shall be entitled to receive the dividend payable with respect to such Series C Preferred Stock on the corresponding Dividend Payment Date notwithstanding the redemption thereof between such Dividend Record Date and the corresponding Dividend Payment Date or the Corporation's default in the payment of the dividend due. Except as provided above, the Corporation will make no payment or allowance for unpaid dividends, regardless of whether in arrears, on called Series C Preferred Stock. (6) The Series C Preferred Stock has no stated maturity and no sinking fund shall be required and shall not be subject to mandatory redemption. The Series C Preferred Stock is not convertible into any other securities of the Corporation, but is subject 17 to the Excess Stock (and all other) provisions of this Article III. (g) (1) Except as may be required by law or as otherwise expressly provided in this Item (iii) of this Subsection (c) of this Section 2 of this Article III, the holders of Series C Preferred Stock shall not be entitled to vote. On all matters with respect to which the Series C Preferred Stock is entitled to vote, each share of Series C Preferred Stock shall be entitled to one vote. (2) Whenever dividends on the Series C Preferred Stock are in arrears (which shall, with respect to any quarterly dividend, mean that any such divided has not been paid in full whether or not earned or declared) for six or more quarterly periods (whether consecutive or not), the number of directors then constituting the Board of Directors shall be increased by two, and the holders of Series C Preferred Stock (voting separately as a class with all other series of Voting Parity Preferred) shall have the right to elect two directors of the Corporation at a special meeting called by the holders of record of at least 10% of the Series C Preferred Stock or at least 10% of any other Voting Parity Preferred so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of the shareholders) or at the next annual meeting of shareholders, and at each subsequent annual meeting, until all dividends accumulated on the Series C Preferred Stock for the past dividend periods and the then current dividend period have been fully paid or declared and a sum sufficient for the payment of such dividends has been set aside for payment. If and when all accumulated dividends and the dividend for the then current dividend period on the Series C Preferred Stock shall have been paid in full or set aside for payment in full, the holders of the Series C Preferred Stock shall be divested of the foregoing voting rights (but subject always to the same provision for the vesting of such voting rights in the case of any similar future arrearages in six quarterly dividends), and if all accumulated dividends and the dividend for the then current period have been paid in full or set aside for payment in full on all series of Voting Parity Preferred, the term of office of each director so elected by the holders of the Series C Preferred Stock and the Voting Parity Preferred shall terminate. (3) As long as any shares of Series C Preferred Stock remain outstanding, the Corporation shall not, without the affirmative vote or consent of the holders of at least two-thirds of the outstanding shares of Series C Preferred Stock (voting as a separate class); (i) authorize or create, or increase the authorized or issued amount of, any Capital Stock ranking senior to the Series C Preferred Stock with respect to the payment of dividends or the distribution of assets upon liquidation, dissolution, or winding up or reclassify any authorized Capital Stock of the Corporation into or exchangeable for such shares, or create, authorize, or issue any obligation or security convertible into or evidencing the right to purchase any such shares; or (ii) amend, alter, or repeal the provisions of these Amended and Restated Articles of Incorporation, whether by merger, consolidation or otherwise (an "Event"), so as to materially and adversely affect any right, preference, privilege, or voting power of the Series C Preferred Stock or the holders thereof; however, as long as the Series C Preferred Stock remains outstanding with its terms materially unchanged, taking into account that upon the occurrence of an Event, the Corporation may not be the surviving entity, the occurrence of an Event described in clause (ii) above of this Subparagraph (3) shall not be deemed to materially and adversely affect such rights, preferences, privileges, or voting power of the holders of Series C Preferred Stock, and (x) any increase in the amount of the authorized Preferred Stock or the creation or issuance of any other series of Preferred Stock, or (y) any increase in the amount of authorized shares 18 of the Series C Preferred Stock or any other series of Preferred Stock, in the case of either (x) or (y) ranking on a parity with or junior to the Series C Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution, or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges, or voting powers. (4) Notwithstanding the foregoing, the Series C Preferred Stock shall not be entitled to vote, and 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 is effected, all outstanding shares of the Series C Preferred Stock have been redeemed or called for redemption, and sufficient funds have been deposited in trust for the benefit of the holders of the Series C Preferred Stock to effect such redemption. (d) Restrictions on Transfer. (i) Definitions. The following terms shall have the following meanings for purposes of these Amended and Restated Articles of Incorporation: "Affiliate" and "Affiliates" mean, (i) with respect to any individual, any member of such individual's Immediate Family, a Family Trust with respect to such individual, and any Person (other than an individual) in which such individual and/or his Affiliate(s) owns, directly or indirectly, more than 50% of any class of Equity Security or of the aggregate Beneficial Interest of all beneficial owners, or in which such individual or his Affiliate is the sole general partner, or is the sole managing general partner, or which is controlled by such individual and/or his Affiliates; and (ii) with respect to any Person (other than an individual), any Person (other than an individual) which controls, is controlled by, or is under common control with, such Person, and any individual who is the sole general partner or the sole managing general partner in, or who controls, such Person. The terms "Affiliated" and "Affiliated with" shall have the correlative meanings. "Beneficial Interest" means an interest, whether as partner, joint venturer, cestui que trust, or otherwise, a contract right, or a legal or equitable position under or by which the possessor participates in the economic or other results of the Person (other than an individual) to which such interest, contract right, or position relates. "Beneficial Ownership" means ownership of shares of Capital Stock (including Capital Stock that may be acquired upon conversion of Debentures) (i) by a Person who owns such shares of Capital Stock in his own name or is treated as an owner of such shares of Capital Stock constructively through the application of Section 544 of the Code, as modified by Sections 856(h)(1)(B) and 856(h)(3)(A) of the Code; or (ii) by a person who falls within the definition of "Beneficial Owner" under Section 776(4) of the Act. The terms "Beneficial Owner", "Beneficially Owns" and "Beneficially Owned" shall have the correlative meanings. "Capital Stock" means the Common Stock and the Preferred Stock, including shares of Common Stock and Preferred Stock that have become Excess Stock. "Charitable Proceeds" means the amounts due from time to time to the Designated Charity, consisting of (i) dividends or other distributions, including capital gain distributions (but not including liquidating distributions not otherwise within the definition of Excess Liquidation Proceeds), paid with respect to Excess Stock, (ii) in the case of a sale of Excess Stock, the excess, if any, of the Net Sales Proceeds over the amount due to the Purported Transferee as determined 19 under Item (iii)(b) of Subsection (e) of this Section 2 of this Article III, and (iii) in the case of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the Excess Liquidation Proceeds. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Constructive Ownership" means ownership of shares of Capital Stock (including Capital Stock that may be acquired upon conversion of Debentures) by a Person who owns such shares of Capital Stock in his own name or would be treated as an owner of such shares of Capital Stock constructively 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" and "Constructively Owned" shall have the correlative meanings. "Control(s)" (and its correlative terms "Controlled By" and "Under Common Control With") means, with respect to any Person (other than an individual), possession by the applicable Person or Persons of the power, acting alone (or solely among such applicable Person or Persons, acting together), to designate and direct or cause the designation and direction of the management and policies thereof, whether through the ownership of voting securities, by contract, or otherwise. "Debentures" means any convertible debentures or other convertible debt securities issued by the Corporation from time to time. "Demand" means the written notice to the Purported Transferee demanding delivery to the Designated Agent of (i) all certificates or other evidence of ownership of shares of Excess Stock and (ii) Excess Share Distributions. Any reference to "the date of the Demand" means the date upon which the Demand is mailed or otherwise transmitted by the Corporation. "Designated Agent" means the agent designated by the Board of Directors, from time to time, to act as attorney-in-fact for the Designated Charity and to take delivery of certificates or other evidence of ownership of shares of Excess Stock and Excess Share Distributions from a Purported Transferee. "Designated Charity" means any one or more organizations described in Sections 501(c)(3) and 170(c) of the Code, as may be designated by the Board of Directors from time to time to receive any Charitable Proceeds. "Equity Security" has the meaning ascribed to it in the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations thereunder (and any successor laws, rules and regulations of similar import). "Excess Liquidation Proceeds" means, with respect to shares of Excess Stock, the excess, if any, of (i) the amount which would have been due to the Purported Transferee pursuant to Subsection (a)(ii) of this Section 2 of this Article III with respect to such stock in the case of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation if the Transfer had been valid under Item (ii) of this Subsection (d) of this Section 2 of this Article III, over (ii) the amount due to the Purported Transferee as determined under Item (iii)(b)(2) of Subsection (e) of this Section 2 of this Article III. "Excess Share Distributions" means dividends or other distributions, including, 20 without limitation, capital gain distributions and liquidating distributions, paid with respect to shares of Excess Stock. "Excess Stock" means shares of Common Stock and shares of Preferred Stock that have been automatically converted to Excess Stock pursuant to the provisions of Item (iii) of this Subsection (d) of this Section 2 of this Article III, and which are subject to the provisions of Subsection (e) of this Section 2 of this Article III. "Existing Holder" means (i) the General Motors Hourly- Rate Employes Pension Trust, (ii) the General Motors Salaried Employes Pension Trust (such trusts referred to in (i) or (ii) are hereinafter referred to as "GMPTS"), (iii) the AT&T Master Pension Trust, (iv) any nominee of the foregoing, and (v) any Person to whom an Existing Holder transfers Beneficial Interest of Regular Capital Stock if (x) the result of such transfer would be to cause the transferee to Beneficially Own shares of Regular Capital Stock in excess of the greater of the Ownership Limit or any pre-existing Existing Holder Limit with respect to such transferee (such excess being herein referred to as the "Excess Amount") and (y) the transferor Existing Holder, by notice to the Corporation in connection with such transfer, designates such transferee as a successor Existing Holder (it being understood that, upon any such transfer, the Existing Holder Limit for the transferor Existing Holder shall be reduced by the Excess Amount and the then applicable Ownership Limit or Existing Holder Limit for the transferee Existing Holder shall be increased by such Excess Amount). "Existing Holder Limit"(i) for any Existing Holder who is an Existing Holder by virtue of Clauses (i) and (ii) of the definition thereof means the greater of (x) 9.9% of the outstanding Capital Stock, reduced (but not below the Ownership Limit) by any Excess Amount transferred in accordance with clause (v) of the definition of Existing Holder and (y) 4,365,713 shares of Regular Capital Stock (as adjusted to reflect any increase in the number of outstanding shares as the result of a stock dividend or any increase or decrease in the number of outstanding shares resulting from a stock split or reverse stock split), reduced (but not below the Ownership Limit) by any Excess Amount transferred in accordance with clause (v) of the definition of Existing Holder, (ii) for any Existing Holder who is an Existing Holder by virtue of Clause (iii) of the definition thereof means the greater of (x) 13.74% of the outstanding Capital Stock, reduced (but not below the Ownership Limit) by any Excess Amount transferred in accordance with clause (v) of the definition of Existing Holder and (y) 6,059,080 shares of Regular Capital Stock (as adjusted to reflect any increase in the number of outstanding shares as the result of a stock dividend or any increase or decrease in the number of outstanding shares resulting from a stock split or reverse stock split), reduced (but not below the Ownership Limit) by any Excess Amount transferred in accordance with Clause (v) of the definition of Existing Holder, (iii) for any Existing Holder who is an Existing Holder by virtue of Clause (iv) of the definition thereof means the percentage of the outstanding Capital Stock or the number of shares of the outstanding Regular Capital Stock that the Beneficial Owner for whom the Existing Holder is acting as nominee is permitted to own under this definition, and (iv) for any Existing Holder who is an Existing Holder by virtue of Clause (v) of the definition thereof means the greater of (x) a percentage of the outstanding Capital Stock equal to the Ownership Limit or pre-existing Existing Holder Limit applicable to such Person plus the Excess Amount transferred to such Person pursuant to clause (v) of the definition of Existing Holder and (y) the number of shares of outstanding Regular Capital Stock equal to the Ownership Limit or pre-existing Existing Holder Limit applicable to such Person plus the Excess Amount transferred to such Person pursuant to clause (v) of the definition of Existing Holder. "Family Trust" means, with respect to an individual, a trust for the benefit of such 21 individual or for the benefit of any member or members of such individual's Immediate Family or for the benefit of such individual and any member or members of such individual's Immediate Family (for the purpose of determining whether or not a trust is a Family Trust, the fact that one or more of the beneficiaries (but not the sole beneficiary) of the trust includes a Person or Persons, other than a member of such individual's Immediate Family, entitled to a distribution after the death of the settlor if he, she, it, or they shall have survived the settlor of such trust and/or includes an organization or organizations exempt from federal income taxes pursuant to the provisions of Section 501(a) of the Code and described in Section 501(c)(3) of the Code, shall be disregarded); provided, however, that in respect of transfers by way of testamentary or inter vivos trust, the trustee or trustees shall be solely such individual, a member or members of such individual's Immediate Family, a responsible financial institution and/or an attorney that is a member of the bar of any state in the United States. "Immediate Family" means, with respect to a Person, (i) such Person's spouse (former or then current), (ii) such Person's parents and grandparents, and (iii) ascendants and descendants (natural or adoptive, of the whole or half blood) of such Person's parents or of the parents of such Person's spouse (former or then current). "Look Through Entity" means any Person that (i) is not an individual or an organization described in Sections 401(a), 501(c)(17), or 509(a) of the Code or a portion of a trust permanently set aside or to be used exclusively for the purposes described in Section 642(c) of the Code or a corresponding provision of a prior income tax law, and (ii) provides the Corporation with (a) a written affirmation and undertaking, subject only to such exceptions as are acceptable to the Corporation in its sole discretion, that (x) it is not an organization described in Sections 401(a), 501(c)(17) or 509(a) of the Code or a portion of a trust permanently set aside or to be used exclusively for the purposes described in Section 642(c) of the Code or a corresponding provision of a prior income tax law, (y) after the application of the rules for determining stock ownership, as set forth in Section 544(a) of the Code, as modified by Sections 856(h)(1)(B) and 856(h)(3)(A) of the Code, no "individual" would own, Beneficially or Constructively, more than the then-applicable Ownership Limit, taking into account solely for the purpose of determining such "individual's" ownership for the purposes of this clause (y) (but not for determining whether such "individual" is in compliance with the Ownership Limit for any other purpose) only such "individual's" Beneficial and Constructive Ownership derived solely from such Person and (z) it does not Constructively Own 10% or more of the equity of any tenant with respect to real property from which the Corporation or TRG receives or accrues any rent from real property, and (b) such other information regarding the Person that is relevant to the Corporation's qualifications to be taxed as a REIT as the Corporation may reasonably request. "Market Price" means, with respect to any class or series of shares of Regular Capital Stock, the last reported sales price of such class or series of shares reported on the New York Stock Exchange on the trading day immediately preceding the relevant date, or if such class or series of shares of Regular Capital Stock is not then traded on the New York Stock Exchange, the last reported sales price of such class or series of shares on the trading day immediately preceding the relevant date as reported on any exchange or quotation system over which such class or series of shares may be traded, or if such class or series of shares of Regular Capital Stock is not then traded over any exchange or quotation system, then the market price of such class or series of shares on the relevant date as determined in good faith by the Board of Directors of the Corporation. "Net Sales Proceeds" means the gross proceeds received by the Designated Agent upon a sale of Regular Capital Stock that has become Excess Stock, reduced by (i) all expenses 22 (including, without limitation, any legal expenses or fees) incurred by the Designated Agent in obtaining possession of (x) the certificates or other evidence of ownership of the Regular Capital Stock that had become Excess Stock and (y) any Excess Share Distributions, and (ii) any expenses incurred in selling or transferring such shares (including, without limitation, any brokerage fees, commissions, stock transfer taxes or other transfer fees or expenses). "Ownership Limit" means 8.23%of the value of the outstanding Capital Stock of the Corporation. "Person" means (a) an individual, corporation, partnership, estate, trust (including a trust qualified under Section 401(a) or 501(c)(17) of the Code), 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 company or other entity and (b) also includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations thereunder (and any successor laws, rules and regulations of similar import). "Purported Transferee" means, with respect to any purported Transfer which results in Excess Stock, the purported beneficial transferee for whom the shares of Regular Capital Stock would have been acquired if such Transfer had been valid under Item (ii) of this Subsection (d) of this Section 2 of this Article III. "Regular Capital Stock" means shares of Common Stock and Preferred Stock that are not Excess Stock. "REIT" means a Real Estate Investment Trust defined in Section 856 of the Code. "Transfer" means any sale, transfer, gift, assignment, devise or other disposition of Capital Stock, (including (i) the granting of any option or entering into any agreement for the sale, transfer or other disposition of Capital Stock or (ii) the sale, transfer, assignment or other disposition of any securities or rights convertible into or for Capital Stock), whether voluntary or involuntary, whether of record or beneficial ownership, and whether by operation of law or otherwise. (ii) Restriction on Transfers. (a) Except as provided in Item (viii) of this Subsection (d) of this Section 2 of this Article III, no Person (other than an Existing Holder) shall Beneficially Own or Constructively Own shares of Capital Stock having an aggregate value in excess of the Ownership Limit, and No Existing Holder shall Beneficially Own or Constructively Own shares of Capital Stock in excess of the Existing Holder Limit for such Existing Holder. (b) Except as provided in Item (viii) of this Subsection (d) of this Section 2 of this Article III, any Transfer that, if effective, would result in any Person (other than an Existing Holder) Beneficially Owning or Constructively Owning shares of Regular Capital Stock having an aggregate value in excess of the Ownership Limit shall be void ab initio as to the Transfer of such shares which would be otherwise Beneficially Owned or Constructively Owned by such Person in excess of the Ownership Limit, and the intended transferee shall acquire no rights in such shares. (c) Except as provided in Item (viii) of this Subsection (d) of this Section 2 of 23 this Article III, any Transfer that, if effective, would result in any Existing Holder Beneficially Owning or Constructively Owning shares of Regular Capital Stock in excess of the applicable Existing Holder Limit shall be void ab initio as to the Transfer of such shares which would be otherwise Beneficially Owned or Constructively Owned by such Existing Holder in excess of the applicable Existing Holder Limit, and such Existing Holder shall acquire no rights in such shares. (d) Except as provided in Item (viii) of this Subsection (d) of this Section 2 of this Article III, any Transfer that, if effective, would result in the Capital Stock being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution) shall be void ab initio as to the Transfer of such shares which would be otherwise beneficially owned by the transferee, and the intended transferee shall acquire no rights in such shares. (e) Any Transfer that, if effective, would result in the Corporation being "closely held" within the meaning of Section 856(h) of the Code shall be void ab initio as to the Transfer of the shares of Regular 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. (f) In determining the shares which any Person Beneficially Owns (or would Beneficially Own following a purported Transfer) or Constructively Owns (or would Constructively Own following a purported Transfer) for purposes of applying the limitations contained in Paragraphs (a), (b), (c), (d) and (e) of this Item (ii) of this Subsection (d) of this Article III: (1) shares of Capital Stock that may be acquired upon conversion of Debentures Beneficially Owned or Constructively Owned by such Person, but not shares of Capital Stock issuable upon conversion of Debentures held by others, are deemed to be outstanding. (2) a pension trust shall be treated as owning all shares of Capital Stock (including Capital Stock that may be acquired upon conversion of Debentures) as are (x) owned in its own name or with respect to which it is treated as an owner constructively through the application of Section 544 of the Code as modified by Section 856(h)(1)(B) of the Code but not by Section 856(h)(3)(A) of the Code and (y) owned by, or treated as owned by, constructively through the application of Section 544 of the Code as modified by Section 856(h)(1)(B) of the Code but not by Section 856(h)(3)(A) of the Code, all pension trusts sponsored by the same employer as such pension trust or sponsored by any of such employer's Affiliates. Notwithstanding the foregoing, (y) above shall not apply in the case of either Motors Insurance Corporation and its subsidiaries (collectively, "MIC") or any pension trusts sponsored by the General Motors Corporation, a Delaware corporation ("GMC"), or the American Telephone and Telegraph Company, a New York corporation ("AT&T"), or by any of their respective Affiliates, provided that with respect to MIC and each such pension trust sponsored by GMC, AT&T or any of their respective Affiliates, other than the Existing Holders described in (i) through (iii) in the definition thereof, all of the following conditions are met: (i) each such pension trust is administered, and will continue to be administered, by persons who do not serve in an administrative or other capacity to any other such pension trust sponsored by GMC or any Affiliate of GMC or AT&T or any Affiliate of AT&T, as applicable, including the Existing Holders described 24 in (i) through (iv) in the definition thereof, (it being understood that the fact that any two such pension trusts may have in common one or more, but less than a majority, of the persons having ultimate investment authority for such pension trusts shall not cause such trusts to be treated as one Person, provided that they are otherwise separately administered as hereinbefore described), (ii) day to day investment decisions with respect to MIC are made by a person or persons different than the person or persons who make such decisions for the pension trusts sponsored by GMC or its affiliates, including the Existing Holders described in (i), (ii) and, in respect of (i) and (ii), item (iv) in the definition thereof, (although MIC and the pension trusts sponsored by GMC may have in common the person or persons with ultimate investment authority for such entities), and the investment of MIC in the Corporation does not exceed 2% of the value of the outstanding Capital Stock of the Corporation, (iii) neither MIC nor any such pension trust acts or will act, in concert with MIC, any other pension trust sponsored by GMC or any Affiliate of GMC or AT&T or any Affiliate of AT&T, as applicable, including the Existing Holders described in (i) through (iv) in the definition thereof, with respect to its investment in the Corporation, and (iv) as from time to time requested by the Corporation, MIC and each pension trust shall provide the Corporation with a representation and undertaking in writing to the foregoing effect. (3) If there are two or more classes of stock then outstanding, the total value of the outstanding Capital Stock shall be allocated among the different classes and series according to the relative value of each class or series, as determined by reference to the Market Price per share of each such class or series, using the date on which the Transfer occurs as the relevant date, or the effective date of the change in capital structure as the relevant date, as appropriate. (g) If any shares are transferred resulting in a violation of the Ownership Limit or Paragraphs (b), (c), (d) or (e) of this Item (ii) of this Subsection (d) of this Section 2 of this Article III, such Transfer shall be valid only with respect to such amount of shares transferred as does not result in a violation of such limitations, and such Transfer otherwise shall be null and void ab initio. (iii) Conversion to Excess Stock. (a) If, notwithstanding the other provisions contained in this Article III, at any time there is a purported Transfer or other change in the capital structure of the Corporation such that any Person (other than an Existing Holder) would Beneficially Own or any Person (other than an Existing Holder) would Constructively Own shares of Regular Capital Stock in excess of the Ownership Limit, or that any Person who is an Existing Holder would Beneficially Own or any Person who is an Existing Holder would Constructively Own shares of Regular Capital Stock in excess of the Existing Holder Limit, then, except as otherwise provided in Item (viii) of this Subsection (d) of this Section 2 of this Article III, such shares of Common Stock or Preferred Stock, or both, in excess of the Ownership Limit or Existing Holder Limit, as the case may be, (rounded up to the nearest whole share) shall automatically become Excess Stock. Such conversion shall be effective as of the close of business on the business day prior to the date of the Transfer or change in capital structure. (b) If, notwithstanding the other provisions contained in this Article III, at any time, there is a purported Transfer or other change in the capital structure of the Corporation which, if effective, would cause the Corporation to become "closely held" within the meaning of Section 856(h) of the Code then the shares of Common Stock or Preferred 25 Stock, or both, being Transferred which would cause the Corporation to be "closely held" within the meaning of Section 856(h) of the Code or held by a Person in excess of that Person's Ownership Limit or Existing Holder Limit, as applicable (rounded up to the nearest whole share) shall automatically become Excess Stock. Such conversion shall be effective as of the close of business on the business day prior to the date of the Transfer or change in capital structure. (c) Shares of Excess Stock shall be issued and outstanding stock of the Corporation. The Purported Transferee shall have no rights in such shares of Excess Stock except as provided in Subsection (e) of this Section 2 of this Article III. (iv) Notice of Restricted Transfer. Any Person who acquires or attempts to acquire shares in violation of Item (ii) of this Subsection (d) of this Section 2 of this Article III, or any Person who is a transferee such that Excess Stock results under Item (iii) of this Subsection (d) of this Section 2 of this Article III, shall immediately give written notice to the Corporation of such event and shall provide to the Corporation such other information as the Corporation may request regarding such Person's ownership of Capital Stock. (v) Owners Required to Provide Information. (a) Every Beneficial Owner of more than 5% (or such other percentage, as provided in the applicable regulations adopted under Sections 856 through 859 of the Code) of the outstanding shares of the Capital Stock of the Corporation shall, within 30 days after January 1 of each year, give written notice to the Corporation stating the name and address of such Beneficial Owner, the number of shares Beneficially Owned and Constructively Owned, and a full description of how such shares are held. Every Beneficial Owner shall, upon demand by the Corporation, disclose to the Corporation in writing such additional information with respect to the Beneficial Ownership and Constructive Ownership of the Capital Stock as the Board of Directors deems appropriate or necessary (i) to comply with the provisions of the Code, regarding the qualification of the Corporation as a REIT under the Code, and (ii) to ensure compliance with the Ownership Limit or the Existing Holder Limit. (b) Any Person who is a Beneficial Owner or Constructive Owner of shares of Capital Stock and any Person (including the shareholder of record) who is holding Capital Stock for a Beneficial Owner or Constructive Owner, and any proposed transferee of shares, upon the determination by the Board of Directors to be reasonably necessary to protect the status of the Corporation as a REIT under the Code, shall provide a statement or affidavit to the Corporation, setting forth the number of shares of Capital Stock already Beneficially Owned or Constructively Owned by such shareholder or proposed transferee and any related person specified, which statement or affidavit shall be in the form prescribed by the Corporation for that purpose. (vi) Remedies Not Limited. Subject to Subsection (h) of this Section 2 of this Article III, nothing contained in this Article III shall limit the authority of the Board of Directors to take such other action as it deems necessary or advisable (i) to protect the Corporation and the interests of its shareholders in the preservation of the Corporation's status as a REIT, and (ii) to insure compliance with the Ownership Limit and the Existing Holder Limit. (vii) Determination. Any question regarding the application of any of the provisions of 26 this Subsection (d) of this Section 2 of this Article III, including any definition contained in Item (i) of this Subsection (d) of this Section 2 of this Article III, shall be determined or resolved by the Board of Directors and any such determination or resolution shall be final and binding on the Corporation, its shareholders, and all parties in interest. (viii) Exceptions. The Board of Directors, upon advice from, or an opinion from, Counsel, may exempt a Person from the Ownership Limit if such Person is a Look Through Entity, provided, however, in no event may any such exception cause such Person's ownership, direct or indirect (without taking into account such Person's ownership of interests in TRG), to exceed 9.9% of the value of the outstanding Capital Stock. For a period of 90 days following the purchase of Regular Capital Stock by an underwriter that (i) is a Look Through Entity and (ii) participates in a public offering of the Regular Capital Stock, such underwriter shall not be subject to the Ownership Limit with respect to the Regular Capital Stock purchased by it as a part of such public offering. (e) Excess Stock. (i) Surrender of Excess Stock to Designated Agent. Within thirty business days of the date upon which the Corporation determines that shares have become Excess Stock, the Corporation, by written notice to the Purported Transferee, shall demand that any certificate or other evidence of ownership of the shares of Excess Stock be immediately surrendered to the Designated Agent (the "Demand"). (ii) Excess Share Distributions. The Designated Agent shall be entitled to receive all Excess Share Distributions. The Purported Transferee of Regular Capital Stock that has become Excess Stock shall not be entitled to any dividends or other distributions, including, without limitation, capital gain distributions, with respect to the Excess Stock. Any Excess Share Distributions paid to a Purported Transferee shall be remitted to the Designated Agent within thirty business days after the date of the Demand. (iii) Restrictions on Transfer; Sale of Excess Stock. (a) Excess Stock shall be transferable by the Designated Agent as attorney-in-fact for the Designated Charity. Excess Stock shall not be transferable by the Purported Transferee. (b) Upon delivery of the certificates or other evidence of ownership of the shares of Excess Stock to the Designated Agent, the Designated Agent shall immediately sell such shares in an arms-length transaction (over the New York Stock Exchange or such other exchange over which the shares of the applicable class or series of Regular Capital Stock may then be traded, if practicable), and the Purported Transferee shall receive from the Net Sales Proceeds, the lesser of: (1) the Net Sales Proceeds; or (2) the price per share that such Purported Transferee paid for the Regular Capital Stock in the purported Transfer that resulted in the Excess Stock, or if the Purported Transferee did not give value for such shares (because the Transfer was, for example, through a gift, devise or other transaction), a price per share equal to the Market 27 Price determined using the date of the purported Transfer that resulted in the Excess Stock as the relevant date. (c) If some or all of the shares of Excess Stock have been sold prior to receiving the Demand, such sale shall be deemed to been made for the benefit of and as the agent for the Designated Charity. The Purported Transferee shall pay to the Designated Agent, within thirty business days of the date of the Demand, the entire gross proceeds realized upon such sale. Notwithstanding the preceding sentence, the Designated Agent may grant written permission to the Purported Transferee to retain an amount from the gross proceeds equal to the amount the Purported Transferee would have been entitled to receive had the Designated Agent sold the shares as provided in Item (iii)(b) of this Subsection (e) of this Section 2 of this Article III. (d) The Designated Agent shall promptly pay to the Designated Charity any Excess Share Distributions recovered by the Designated Agent and the excess, if any, of the Net Sales Proceeds over the amount due to the Purported Transferee as provided in Item (iii)(b) of this Subsection (e) of this Section 2 of this Article III. (iv) Voting Rights. The Designated Agent shall have the exclusive right to vote all shares of Excess Stock as the attorney-in-fact for the Designated Charity. The Purported Transferee shall not be entitled to vote such shares (except as required by applicable law). Notwithstanding the foregoing, votes erroneously cast by a Prohibited Transferee shall not be invalidated in the event that the Corporation has already taken irreversible corporate action to effect a reorganization, merger, sale or dissolution of the Corporation. (v) 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, a Purported Transferee shall be entitled to receive the lesser of (i) that amount which would have been due to such Purported Transferee had the Designated Agent sold the shares of Excess Stock as provided in Item (iii)(b) of this Subsection (e) of this Section 2 of this Article III and (ii) that amount which would have been due to the Purported Transferee if the Transfer had been valid under Item (ii) of Subsection (d) of this Section 2 of this Article III, determined (A) in the case of Common Stock, pursuant to Subsection (a)(ii) of this Section 2 of this Article III, and (B) in the case of Preferred Stock, pursuant to the provisions of these Amended and Restated Articles of Incorporation, amended as authorized by Section 1 of this Article III, which sets forth the liquidation rights of such class or series of Preferred Stock. With respect to shares of Excess Stock, a Purported Transferee shall not have any rights to share in the assets of the Corporation upon the liquidation, dissolution or winding up of the Corporation other than the right to receive the amount determined in the preceding sentence and shall not be entitled to any preference or priority (as a creditor of the Corporation) over the holders of the shares of Regular Capital Stock. Any Excess Liquidation Proceeds shall be paid to the Designated Charity. (vi) Action by Corporation to Enforce Transfer Restrictions. If the Purported Transferee fails to deliver the certificates or other evidence of ownership and all Excess Share Distributions to the Designated Agent within thirty business days of the date of Demand, the Corporation shall take such legal action to enforce the provisions of this Article III as may be permitted under applicable law. (f) Legend. Each certificate for Capital Stock shall bear the following legend: "The Amended and Restated Articles of Incorporation, as the same may be 28 amended (the "Articles"), impose certain restrictions on the transfer and ownership of the shares represented by this Certificate based upon the percentage of the outstanding shares owned by the shareholder. At no charge, any shareholder may receive a written statement of the restrictions on transfer and ownership that are imposed by the Articles." (g) Severability. If any provision of this Article III 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. (h) New York Stock Exchange Settlement. Nothing contained in these Amended and Restated Articles of Incorporation shall preclude the settlement of any transaction entered into through the facilities of the New York Stock Exchange or of any other stock exchange on which shares of the Common Stock or class or series of Preferred Stock may be listed, or of the Nasdaq National Market (if the shares are quoted on such Market) and which has conditioned such listing or quotation on the inclusion in the Corporation's Amended and Restated Articles of Incorporation of a provision such as this Subsection (h). The fact that the settlement of any transaction is permitted shall not negate the effect of any other provision of this Article III and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this Article III. ARTICLE IV Registered Office and Registered Agent 1. Registered Office. The address and mailing address of the registered office of the Corporation is 500 North Woodward Avenue, Suite 100, Bloomfield Hills, Michigan 48304. 2. Resident Agent. The resident agent for service of process on the Corporation at the registered office is Jeffrey H. Miro. ARTICLE V Plan of Compromise or Reorganization When a compromise or arrangement or a plan of reorganization of the Corporation is proposed between the Corporation and its creditors or any class of them or between the Corporation and its shareholders or any class of them, a court of equity jurisdiction within the State of Michigan, on application of the Corporation or of a creditor or shareholder thereof, or on application of a receiver appointed for the Corporation, may order a meeting of the creditors or class of creditors or of the shareholders or class of shareholders to be affected by the proposed compromise or arrangement or reorganization, to be summoned in such manner as the court directs. If a majority in number representing 75% in value of the creditors or class of creditors, or of the shareholders or class of shareholders to be affected by the proposed compromise or arrangement or a reorganization, agree to a compromise or arrangement or a reorganization of the Corporation as a consequence of the compromise or arrangement, the compromise or arrangement and the reorganization, if sanctioned by the court to which the application has been made, shall be binding on all the creditors or class of creditors, or on all the shareholders or class of shareholders and also on the Corporation. 29 ARTICLE VI Directors For so long as the Corporation has the right to designate, pursuant to The Amended and Restated Agreement of Limited Partnership of TRG (as the same may be amended, the Partnership Agreement"), members of the committee of TRG that have the power to approve or propose all actions, decisions, determinations, designations, delegations, directions, appointments, consents, approvals, selections, and the like to be taken, made or given, with respect to TRG, its business and its properties as well as the management of all affairs of TRG (the "Partnership Committee"), the Board of Directors shall consist of, except during the period of any vacancy between annual meetings of the shareholders, that number of members as are set forth in the By-Laws of the Corporation of which, except during the period of any vacancy between annual meetings of the shareholders, not less than 40% (rounded up to the next whole number) of the members shall be Independent Directors (as hereinafter defined), and, thereafter, the Board of Directors shall consist of, except during the period of any vacancy between annual meetings of the shareholders, that number of members as are set forth in the By-Laws of the Corporation. For purposes of this Article VI, "Independent Director" shall mean an individual who is neither one of the following named persons nor an employee, beneficiary, principal, director, officer or agent of, or a general partner in, or limited partner (owning in excess of 5% of the Beneficial Interest) or shareholder (owning in excess of 5% of the Beneficial Interest) in, any such named Person: (i) for so long as TG Partners Limited Partnership, a Delaware limited partnership, has the right to appoint one or more Partnership Committee members, A. Alfred Taubman and any Affiliate of A. Alfred Taubman or any member of his Immediate Family, (ii) for so long as Taub-Co Management, Inc., a Michigan corporation (formerly The Taubman Company, Inc. ("T-Co")) has the right to appoint one or more Partnership Committee members, T-Co or an Affiliate of T-Co, (iii) for so long as a Taubman Transferee (as hereinafter defined) has the right to appoint one or more Partnership Committee members, a Taubman Transferee, or an Affiliate of such Taubman Transferee, (iv) for so long as GMPTS has the right to appoint one or more Partnership Committee members, GMPTS, General Motors Corporation, or an Affiliate of GMPTS or of General Motors Corporation, and (v) for so long as a GMPTS Transferee (as hereinafter defined) has the right to appoint one or more Partnership Committee members, a GMPTS Transferee or an Affiliate of such GMPTS Transferee. "Taubman Transferee" means a single Person that acquires, pursuant to Section 8.1(b) or Section 8.3(a) of The Partnership Agreement, or upon the foreclosure or like action in respect of a pledge of a partnership interest in TRG, the then (i.e., at the time of such acquisition) entire partnership interest in TRG (excluding, in the case of an acquisition pursuant to Section 8.3(a) of the Partnership Agreement or pursuant to a foreclosure or like action in respect of a pledge of a partnership interest in TRG, the ability of such Person to act as a substitute partner) of A. Alfred Taubman, and any Affiliate of A. Alfred Taubman or any member of his Immediate Family, from one or more such persons or from any Taubman Transferee; provided that the percentage interest in TRG being transferred exceeds 7.7%. "GMPTS Transferee" means a single Person that acquires, pursuant to Section 8.1(b) or Section 8.3(a) of the Partnership Agreement, or upon the foreclosure or like action in respect of a pledge of a partnership interest in TRG, the then (i.e., at the time of such acquisition) entire such partnership interest in TRG (excluding, in the case of an acquisition pursuant to Section 8.3(a) of the Partnership Agreement or pursuant to a foreclosure or like action in respect of a pledge of partnership interests in TRG, the ability of such Person to act as a substitute partner) of GMPTS or of any GMPTS Transferee; provided that the percentage interest in TRG being transferred exceeds 7.7%. For so long as the Corporation has the right to designate, pursuant to the Partnership Agreement, any members of the Partnership Committee, the affirmative vote of both a majority of the Independent Directors who do not have a beneficial financial interest in the action before the Board of Directors and a majority of all members of the Board of Directors who do not have a beneficial financial interest in the action before the Board of Directors is required for the approval of all actions to be taken by the Board of Directors; provided, however, the Corporation may not appoint to the Partnership Committee as a Corporation appointee an individual who does not satisfy the definition of Independent Director in one or more respects without the 30 affirmative vote of all of the Independent Directors then in office. Thereafter, the affirmative vote of a majority of all members of the Board of Directors who do not have a beneficial financial interest in the action before the Board of Directors is required for the approval of all actions to be taken by the Board of Directors. The establishment of reasonable compensation of Directors for services to the Corporation as Directors or officers shall not constitute action in which any Director has a beneficial financial interest. Subject to the foregoing, a Director shall be deemed and considered in all respects and for all purposes to be a Director of the Corporation, including, without limitation, having the authority to vote or act on all matters, including, without limitation, matters submitted to a vote at any meeting of the Board of Directors or at any meeting of a committee of the Board of Directors, and the application to such Director of Articles VII and VIII of these Amended and Restated Articles of Incorporation, notwithstanding a Purported Transferee's unauthorized exercise of voting rights with respect to such Director's election. ARTICLE VII Limited Liability of Directors No director of the Corporation shall be liable to the Corporation or its shareholders for monetary damages for a breach of the director's fiduciary duty; provided, however, the foregoing provision shall not be deemed to limit a director's liability to the Corporation or its shareholders resulting from: (i) a breach of the director's duty of loyalty to the Corporation or its shareholders; (ii) acts or omissions of the director not in good faith or which involve intentional misconduct or knowing violation of law; (iii) a violation of Section 551(1) of the Act or; (iv) a transaction from which the director derived an improper personal benefit. ARTICLE VIII Indemnification of Officers, Directors, Etc. 1. Indemnification of Directors. The Corporation shall and does hereby indemnify a person (including the heirs, executors, and administrators of such person) who is or was a party to, or who is threatened to be made a party to, a threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal, including, without limitation, an action by or in the right of the Corporation, by reason of the fact that he or she is or was a director of the Corporation, or is or was serving at the request of the Corporation as a director (or in a similar capacity, including serving as a member of the Partnership Committee and of any other committee of TRG) or in any other representative capacity of another foreign or domestic corporation or of or with respect to any other entity (including TRG), whether for profit or not, against expenses, attorneys' fees, judgments, penalties, fines, and amounts paid in settlement actually and reasonably incurred by him or her in connection with the action, suit, or proceeding. This Section 1 of this Article VIII is intended to grant the persons herein described with the fullest protection not prohibited by existing law in effect as of the date of filing this Amended and Restated Articles of Incorporation or such greater protection as may be permitted or not prohibited under succeeding provisions of law. 31 2. Indemnification of Officers, Etc. The Corporation has the power to indemnify a person (including the heirs, executors, and administrators of such person) who is or was a party to, or who is threatened to be made a party to, a threatened, pending, or contemplated action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal, including an action by or in the right of the Corporation, by reason of the fact that he or she is or was an officer, employee, or agent of the Corporation or is or was serving at the request of the Corporation as an officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership (including TRG), joint venture, trust or other enterprise, whether for profit or not, against expenses, including attorneys' fees, judgments, penalties, fines, and amounts paid in settlement actually and reasonably incurred by him or her in connection with the action, suit, or proceeding, if the person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation or its shareholders, and with respect to a criminal action or proceeding, if the person had no reasonable cause to believe his or her conduct was unlawful. Unless ordered by a court, an indemnification under this Section 2 of this Article VIII shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the officer, employee, or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in this Section 2 of this Article VIII. 3. Advancement of Expenses. The Corporation shall pay the expenses incurred by a person described in Section 1 of this Article VIII in defending a civil or criminal action, suit, or proceeding described in such Section 1 in advance of the final disposition of the action, suit, or proceeding. The Corporation shall pay the expenses incurred by a person described in Section 2 of this Article VIII in defending a civil or criminal action, suit, or proceeding described in such Section 2 in advance of the final disposition of the action, suit, or proceeding upon receipt of an undertaking by or on behalf of such person to repay the expenses if it is ultimately determined that the person is not entitled to be indemnified by the Corporation. Such undertaking shall be by unlimited general obligation of the person on whose behalf advances are made but need not be secured. Signed and certified as a true and complete composite as of the 15th day of November, 1999. /s/ ROBERT S. TAUBMAN Robert S. Taubman President and Chief Executive Officer Through amendment filed September 10, 1999. 32 EX-10.(A) 3 SECOND AMENDMENT AND RESTATEMENT OF AGREEMENT SECOND AMENDMENT TO THE SECOND AMENDMENT AND RESTATEMENT OF AGREEMENT OF LIMITED PARTNERSHIP OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP THIS SECOND AMENDMENT (this "Amendment") TO THE SECOND AMENDMENT AND RESTATEMENT OF AGREEMENT OF LIMITED PARTNERSHIP OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP (the "Second Amended and Restated Partnership Agreement"), is entered into effective as of September 3, 1999, and is made by, between, and among TAUBMAN CENTERS, INC., a Michigan corporation ("TCO"), TG PARTNERS LIMITED PARTNERSHIP, a Delaware limited partnership ("TG"), and TAUB-CO MANAGEMENT, INC., a Michigan corporation ("Taub-Co"), who, as the Appointing Persons, pursuant to Section 13.11 of the Second Amended and Restated Partnership Agreement, have the full power and authority to amend the Second Amended and Restated Partnership Agreement on behalf of all of the partners of The Taubman Realty Group Limited Partnership, a Delaware limited partnership (the "Partnership") with respect to the matters herein provided. (Capitalized terms used herein that are not herein defined, shall have the meanings ascribed to them in the Second Amended and Restated Partnership Agreement.) Recitals: A. On September 30,1998, TCO, TG, and Taub-Co entered into the Second Amended and Restated Partnership Agreement as an amendment and restatement of the then-existing partnership agreement (the "Amended and Restated Partnership Agreement"), as authorized under Section 13.11 of the Amended and Restated Partnership Agreement. B. On March 4, 1999, TCO, TG, and Taub-Co entered into a First Amendment to the Second Amended and Restated Partnership Agreement to facilitate a proposed pledge of Units of Partnership Interest in the Partnership (the Second Amended and Restated Partnership Agreement, as so amended, is herein referred to as the "Partnership Agreement"). C. As authorized under Section 13.11 of the Partnership Agreement, the parties hereto wish to further amend the Partnership Agreement to provide for the contribution of preferred capital in exchange for a preferred equity interest, and for certain other purposes. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Article II of the Partnership Agreement is hereby amended by inserting the following new definitions therein, in alphabetical order: "Adjusted Capital Account Balance" means a Partner's Capital Account balance increased by the sum of (i) any amount of cash or property such Partner is unconditionally obligated to restore upon liquidation of the Partnership and (ii) such Partner's share of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain. "Designation, Distribution, Redemption, Exchange, and Consent Provisions" means those certain provisions to be set forth in an Annex attached hereto and incorporated herein by reference, which Annex serves as a further amendment to the Partnership Agreement. "Parity Preferred Equity" means, on any date, an amount equal to the aggregate contributions to the capital of the Partnership made pursuant to Section 4.1(c) hereof, to the extent such Parity Preferred Equity has not been redeemed or converted to Additional Interests pursuant to Section 8.1(c) hereof. Each contribution of Parity Preferred Equity shall be designated as a separate series, e.g., the 9% Series C Cumulative Redeemable Preferred Equity is called "Series C" because such series is convertible into Series C Preferred Stock (as defined in the Restated Articles of Incorporation of TCO). "Parity Preferred Equity Balances" means, on any date and as to any series of Parity Preferred Equity, an amount equal to the then aggregate Capital Account balances of the Parity Preferred Partners of such series. Reference to a Parity Preferred Equity Balance includes any one of the Parity Preferred Equity Balances. "Parity Preferred Partner" and "Parity Preferred Partners" are (i) that Person or those Persons who shall contribute Parity Preferred Equity to the Partnership pursuant to Section 4.1(c) hereof, and (ii) TCO in the event that it acquires any portion or all of the Partnership Interest(s) of the Person(s) identified in clause (i) hereof. 2 "Parity Preferred Return" means, as to each series of Parity Preferred Equity, the cumulative return to a series based upon the product of the Parity Preferred Rate for such series and the amount of capital contributed with respect to such series (taking into account any redemptions or conversions to Additional Interests, pursuant to Section 8.1(c) hereof) during the period to which the Parity Preferred Return relates, commencing on the date of the contribution of such Parity Preferred Equity pursuant to Section 4.1(c) hereof, determined on the basis of a year of three hundred sixty (360) Days, consisting of twelve (12), 30-day months, cumulative to the extent not paid in any given quarter pursuant to Section 5.2(a)(i) hereof. Any Unpaid Parity Preferred Return shall not itself bear interest or be subject to any Parity Preferred Rate. Reference to Parity Preferred Returns includes each Parity Preferred Return. "Parity Preferred Rate" means a fixed rate per annum (together with all other provisions), specified by the Appointing Persons in the Designation, Distribution, Redemption, Exchange, and Consent Provisions, as to a given series. "Parity Related Issue" means the series of preferred shares of TCO into which a series of Parity Preferred Equity may be converted in accordance with the Designation, Distribution, Redemption, Exchange, and Consent Provisions for such series. "Unallocated Parity Preferred Return" means, with respect to a series of Parity Preferred Equity, the excess of the Parity Preferred Return with respect to such series over the cumulative amount of allocations pursuant to Section 5.1(b)(1)(B) hereof with respect to such series. "Unpaid Parity Preferred Return" means, with respect to a series of Parity Preferred Equity, the excess of the Parity Preferred Return with respect to such series of Parity Preferred Equity over the cumulative amount of distributions pursuant to Section 5.2(a)(i) with respect to such series." 2. Article II of the Partnership Agreement is hereby further amended by deleting the definitions of "Indemnified Person", "Limited Partner" and "Limited Partners", "Non-Managing Partners", "Partner" and "Partners", "Partnership Interest Ledger", "Qualified Institutional Transferee", and "Record Partner" in their entirety, and by inserting the following new definitions in the place thereof: "Indemnified Person" means each Partner (other than a Parity Preferred Partner), each officer, each member of the TCO Board, each member of any committee established by the TCO Board, each Person designated or delegated by a Partner (other than a Parity Preferred Partner), an officer, 3 the TCO Board, or a member of a committee established by the TCO Board, and each employee, partner, principal, shareholder, agent, director, or officer of a Partner (other than a Parity Preferred Partner). "Limited Partner" and "Limited Partners" are (i) those Persons identified as such on Schedule A hereto, in their capacities as limited partners of the Partnership, (ii) the successors to any portion or all of the Partnership Interest of those Persons identified as Limited Partners on Schedule A hereto who are admitted to the Partnership as limited partners pursuant to Section 8.2 hereof, (iii) any Parity Preferred Partner, and (iv) any Person or Persons to whom an Additional Interest as a limited partner is issued pursuant to Section 8.4 hereof and who is admitted to the Partnership as a limited partner pursuant to Section 8.4 hereof. "Non-Managing Partners" means all of the Partners other than the Managing General Partner and other than any Parity Preferred Partner. "Partner" and "Partners" are (i) those Persons named in the Preamble to this Agreement, (ii) the successors to any portion or all of the Partnership Interest of those Persons named in the Preamble to this Agreement who are admitted as a Partner or Partners pursuant to Section 8.2 hereof, (iii) any Parity Preferred Partner, and (iv) any Person or Persons to whom a Partnership Interest has been issued pursuant to Section 8.4 hereof. "Partnership Interest Ledger" means a ledger maintained at the principal office of the Partnership that shall set forth, among other things, the name and address of each Partner and the nature of the Partnership Interest of each Partner, the number of Units of Partnership Interest held by each Partner, if any, and the current Percentage Interest of each Partner, if any. "Qualified Institutional Transferee" means (a) so long as its ownership interest in the Partnership consists solely of a Partnership Interest as a Parity Preferred Partner, any Parity Preferred Partner, and (b) any transferee of a Partnership Interest that is or are (i) a pension fund, profit-sharing fund or similar fund, or an organization or organizations exempt from federal income taxes pursuant to the provisions of Section 501(a) of the Code and described in Section 501(c)(3) of the Code, in each such case possessing more than Fifty Million Dollars ($50,000,000) in assets, (ii) an organization described in Section 509 of the Code, and having a Partner as a "substantial contributor" (as defined in Section 507(d)(2) of the Code), (iii) pooled funds for Keogh plans, individual retirement plans, profit-sharing plans, pension plans or similar tax-exempt plans, in each such case possessing more than One Hundred Million Dollars ($100,000,000) in assets, (iv) insurance companies or banks, in each such case possessing more than Two Billion Dollars ($2,000,000,000) in assets, (v) a domestic entity organized as a mutual fund or registered investment company in each case possessing more than One Hundred Million Dollars ($100,000,000) in assets, (vi) any other Person (a "QIT Entity"), all the Beneficial Interests in which at the time of such Transfer and thereafter are owned by one or more of the foregoing, or (vii) a QIT Entity that has as one (1) or more of its constituent partners, a foreign entity that is organized as a 4 mutual fund or investment company that is not Primarily Engaged and, in each such case, that possesses more than One Hundred Million Dollars ($100,000,000) in assets, provided that such QIT Entity is at no time a nonresident alien, foreign corporation, foreign trust, or foreign estate, within the meaning of Section 7701 of the Code; provided that a Transfer to such transferee will not cause a prohibited transaction (as defined in Section 4975(c) of the Code or Section 406 of ERISA) to occur. "Record Partner" means a Person set forth as a Partner on the books and records of the Partnership. No Person other than a Person that was a Partner on the Effective Date shall be a Record Partner until such Person has become a substitute Partner in the Partnership pursuant to Section 8.2 hereof, or has acquired an Additional Interest or an Incentive Interest pursuant to Section 8.4 hereof and has become a Partner in the Partnership pursuant to Section 8.4 hereof. Notwithstanding the foregoing, a Parity Preferred Partner is a Record Partner." 3. Section 3.3 of the Partnership Agreement is hereby amended by inserting the following new paragraph (e) therein, and by relettering the succeeding paragraph accordingly: "(e) Each Parity Preferred Partner owning a series of Parity Preferred Equity covenants and agrees that it will not Transfer its rights to a Parity Preferred Return or the corresponding Parity Preferred Equity other than as set forth in Section 8.1(c) hereof and in accordance with and only to the extent permitted by the Designation, Distribution, Redemption, Exchange, and Consent Provisions relating to the applicable series." 4. Section 4.1 of the Partnership Agreement is hereby amended by deleting paragraph (c) thereof in its entirety, and by inserting the following new paragraphs (c) and (d) in the place thereof: (c) With the approval of the Appointing Persons, a Person may contribute, from time to time, amounts to the capital of the Partnership as Parity Preferred Equity. 5 (d) The Capital Account balances of the Partners as of September 3, 1999 shall be as set forth opposite their respective names on Schedule C attached hereto." 5. Section 4.6 of the Partnership Agreement is hereby deleted in its entirety, and the following new Section 4.6 is inserted in the place thereof: "Section 4.6 Partnership Interests; Units of Partnership Interest; Percentage Interests. (a) For the purpose of this Agreement, the term "Partnership Interest" means, with respect to a Partner, such Partner's right to the allocations (and each item thereof) specified in Section 5.1 hereof and distributions from the Partnership, its share of expenditures of the Partnership described in Section 705(a)(2)(B) of the Code (or treated as such under Regulations Section 1.704-1(b)(2)(iv)(i)) and its rights of management, consent, approval, or participation, if any, as provided in this Agreement. Each Partner's (other than TCO's Preferred Equity and other than a Parity Preferred Partner's Parity Preferred Equity) Partnership Interest shall be divided into units (herein referred to collectively as the "Units of Partnership Interest" and individually as a "Unit of Partnership Interest") and shall be represented by that number of Units of Partnership Interest set forth opposite such Partner's name on Schedule A attached hereto, as such Schedule may be amended from time to time pursuant to Section 4.8, Article VIII or Article X hereof. The Partnership may issue additional Units of Partnership Interest in accordance with Section 8.4 hereof. The Partnership and TCO shall conduct their respective operations, to the extent they are able to do so, so that one Unit of 6 Partnership Interest will be equal in value to one (1) share of TCO's common stock. (b) For the purpose of this Agreement, the term "Percentage Interest" means, with respect to each Partner (other than a Parity Preferred Partner), the percentage set forth opposite such Partner's name on Schedule A attached hereto, as such Schedule may be amended from time to time pursuant to Section 4.8, Article VIII or Article X hereof, and shall at any time be equal to a fraction, the numerator of which is the aggregate number of Units of Partnership Interest held by such Partner, and the denominator of which is the aggregate number of all Units of Partnership Interest that are issued and outstanding. For purposes of calculating Percentage Interests, no interest in the Partnership that is Preferred Equity or Parity Preferred Equity shall be taken into account." 6. Section 5.1 of the Partnership Agreement is hereby amended by deleting paragraph (b) thereof in its entirety, and by inserting the following new paragraph (b) in the place thereof: "(b) Except as otherwise provided in Section 5.1(d) or 5.1(f) hereof, the Profits and Losses of the Partnership (and each item thereof) for each Partnership Fiscal Year shall be allocated among the Partners in accordance with this Section 5.1(b). (1) Profits shall be allocated: (A) first, to TCO, in an amount equal to the excess, if any, of the cumulative amount of Losses allocated to TCO pursuant to Section 5.1(b)(2)(C) hereof over the cumulative amount of Profits allocated to TCO pursuant to this Section 5.1(b)(1)(A); and then 7 (B) second, to the Parity Preferred Partners, in an amount equal to the Unallocated Parity Preferred Return with respect to each series (proportionate as to such Unallocated Parity Preferred Return among each series); and then (C) third, to the Parity Preferred Partners, in an amount equal to the excess, if any, of the cumulative amount of Losses allocated to the Parity Preferred Partners pursuant to Section 5.1(b)(2)(B) hereof over the cumulative amount of Profits allocated to the Parity Preferred Partners pursuant to this Section 5.1(b)(1)(C) (proportionate as to the amount of such excess among each series); and then (D) fourth, to the Partners in an amount equal to the excess, if any, of the cumulative amount of Losses allocated to the Partners pursuant to Section 5.1(b)(2)(D) hereof over the cumulative amount of Profits allocated to the Partners pursuant to this Section 5.1(b)(1)(D) (proportionate as to such excess amounts); and then (E) fifth, to the Partners holding Units of Partnership Interest in accordance with their respective Percentage Interests; provided, however, that Profits for any Partnership Fiscal Year allocated to the Parity Preferred Partners may be limited if so provided in the Designation, Distribution, Redemption, Exchange, and Consent Provisions of the applicable series. (2) Losses shall be allocated: (A) first, to Partners holding Units of Partnership Interest until the Adjusted Capital Account Balances of all such 8 Partners are reduced to zero, excluding, for purposes of calculating TCO's Adjusted Capital Account Balance, the Preferred Equity (in proportion to such positive Adjusted Capital Account Balances (excluding the Preferred Equity)); and then (B) second, to the Parity Preferred Partners until the Adjusted Capital Account Balances of the Parity Preferred Partners are reduced to zero (in proportion to such positive Adjusted Capital Account Balances); and then (C) third, to TCO until the Adjusted Capital Account Balance of TCO, including the Preferred Equity, is reduced to zero; and then (D) fourth, to the General Partners or any Limited Partner which has made an election under Section 11.1(d) hereof, in proportion to their respective Percentage Interests." 7. Section 5.2 of the Partnership Agreement is hereby amended by deleting that portion of paragraph (a) thereof prior to clause (i) thereof and clause (i) thereof in their entirety, by inserting the following in the place thereof, and by renumbering the succeeding clauses accordingly: "(a) Subject, on liquidation of the Partnership or on liquidation of substantially all of the assets of the Partnership to Section 11.1(a) hereof, and to Section 11.1(e) hereof on liquidation of a Partner's interest in the Partnership that is not in connection with the liquidation of the Partnership, for the term of the Partnership, as set forth in Section 1.5 hereof: (i) a cash distribution shall be made to the Parity Preferred Partners of each series in an amount equal to the Unpaid Parity Preferred 9 Return for such series, at such times as are specified in the Designation, Distribution, Redemption, Exchange, and Consent Provisions (such distributions to be proportionate among the series); provided, however, that no distribution shall be made to a Parity Preferred Partner which would reduce its Adjusted Capital Account Balance below zero." 8. The following new paragraph (c) is hereby inserted in Section 5.2 of the Partnership Agreement, immediately after paragraph (b) thereof: "(c) Except as specifically provided in Section 5.2(a)(i) or Section 11.1(a)(5) hereof and in the Designation, Distribution, Redemption, Exchange, and Consent Provisions, a Parity Preferred Partner shall have no right to any Partnership distributions." 9. Section 5.3 of the Partnership Agreement is hereby amended by deleting the last paragraph thereof in its entirety and by inserting the following new paragraph in the place thereof: "In the event of a redemption by TCO, in whole or in part, of any series of preferred shares that constitutes a Related Issue through the issuance of common equity, TCO shall convert its Preferred Equity (or a portion thereof) (exclusive of any accrued but unpaid dividends), to an Additional Interest by contributing to the capital of the Partnership all of its right, title, and interest, in and to the payment of any future Guaranteed Payment on that portion of the converted Preferred Equity, with the effect that the portion of the converted Preferred Equity and related right to the payment of any future Guaranteed Payment shall be converted to an Additional Interest in accordance with Section 8.4(a) hereof, such Additional Interest to be provided by a proportionate reduction in the Percentage Interests of all of the 10 Partners, as provided in Section 8.4(a) hereof. Any such redemption shall be effected so that, following such redemption, the number of Units of Partnership Interest then held by TCO shall equal the number of shares of TCO's common stock then outstanding. Upon and to the extent of the conversion of Preferred Equity to Additional Interests in accordance with this Section 5.3, Schedule A to this Agreement shall be amended accordingly. In the event of a redemption by TCO, in whole or in part, of any series of preferred shares that constitutes a Related Issue through the issuance of preferred equity, TCO shall convert that portion of its Preferred Equity equal to the portion of the Related Issue that was redeemed (exclusive of any accrued but unpaid dividends) by appropriate amendment, whether by Annex or otherwise, to Preferred Equity having terms equivalent to the then newly issued preferred equity through which the Related Issue was redeemed." 10. Section 6.1 of the Partnership Agreement is hereby amended by inserting the following new paragraph immediately following existing paragraph (b) thereof: "A Parity Preferred Partner as to a given series of Parity Preferred Equity shall have no voting rights or rights of consent, approval or the like as to any matter in respect of the Partnership including, without limitation, as to its constituency, properties or operations, unless and to the extent specified in the Designation, Distribution, Redemption, Exchange, and Consent Provisions relating to the applicable series." 11. Section 6.6 of the Partnership Agreement is hereby deleted in its entirety and the following new Section 6.6 is inserted in the place thereof: "Section 6.6 Absence of Authority of Non-Managing Partners; Limited Rights of Parity Preferred Partners. 11 (a) Except as specifically provided in this Agreement, the Non-Managing Partners and the Parity Preferred Partners, as such, shall take no part in, nor have the right to take part in, nor interfere in, nor have the right to interfere or participate in, in any manner, the conduct or control of the business of the Partnership or have any right or authority to act for or on behalf of the Partnership. (b) The Parity Preferred Partners shall have only the following rights as to all matters in respect of the Partnership, including, without limitation, as to its constituency, properties, and operations: (i) rights of notice, inspection, and reports as provided generally to Partners in accordance with Sections 1.2, 1.3, 1.4, 5.5, 5.7(a), and 6.10 hereof, (ii) rights of distributions and allocations as provided in Sections 5.1, 5.2(a)(i), and 11.1(a)(5) hereof, and in the Designation, Distribution, Redemption, Exchange, and Consent Provisions of the applicable series, (iv) rights of Transfer as provided in Sections 8.1(a) and 8.1(c) hereof and in the Designation, Distribution, Redemption, Exchange, and Consent Provisions of the applicable series, and (v) such other rights as are provided in the Designation, Distribution, Redemption, Exchange, and Consent Provisions of the applicable series. No Parity Preferred Partner shall have any right to Series B Preferred Stock (as defined in the Restated Articles of Incorporation of TCO, as amended)." 12. Section 8.1 of the Partnership Agreement is hereby amended by deleting paragraph (b) thereof in its entirety, by inserting the following new paragraphs (b) and (c) in the place thereof, and by relettering the succeeding paragraphs accordingly: "(b) A Partner (other than TCO and other than a Parity Preferred Partner) may Transfer all or any portion of its Partnership Interest (but not less 12 than one (1) Unit of Partnership Interest) to any other Partner (other than a Parity Preferred Partner), or to one (1) or more members of such Partner's Immediate Family, or to a Family Trust, or to any Qualified Institutional Transferee (other than a Parity Preferred Partner), or to an entity consisting of or owned entirely by one (1) or more of the foregoing Persons, or to the Partnership, or, in the event that a Partner is a partnership, or other entity (other than TCO and other than a Qualified Institutional Transferee that is not a QIT Entity), to one (1) or more of the constituent partners, or owners of such Partner or other entity, or to one (1) or more members of the respective Immediate Families or Family Trusts of the constituent partners, or owners of such Partner or other entity, or to any Qualified Institutional Transferee (other than a Parity Preferred Partner), or to an entity consisting of or owned entirely by one (1) or more of the foregoing Persons, or to the Partnership, provided that, in each case, the Managing General Partner has determined by written notification (a "Transfer Determination"), to the transferring Partner, which Transfer Determination shall not be unreasonably withheld and shall be deemed given if not refused within seven (7) Business Days of the date of notice thereof to the Partnership, that either (A) such Transfer will not cause (i) any lender of the Partnership or an Owning Entity to hold in excess of ten percent (10%) of the Percentage Interests or any other percentage of the Percentage Interests that would, pursuant to the Regulations under Section 752 of the Code or any successor provision, cause a loan by such lender to constitute Partner Nonrecourse Debt or (ii) a violation of any partnership agreement or other document forming or governing an Owning Entity, or (B) the Managing General Partner has determined to waive such requirement in its 13 reasonable discretion, after having determined that the Transfer will not materially adversely affect the Partnership, its assets or any Partner, or constitute a violation of the Partnership Law, or any other law to which the Partnership or an Owning Entity is subject. In addition to the foregoing, in the event that a Partner is a partnership or other entity (other than the Managing General Partner and other than a Qualified Institutional Transferee that is not a QIT Entity), such Partner may permit a Transfer of an interest in such Partner to any constituent partner or owner of such Partner, to one (1) or more members of any constituent partner's or owner's Immediate Family or a Family Trust with respect to any constituent partner or owner, or to any Qualified Institutional Transferee (other than a Parity Preferred Partner), or to any Partner (other than a Parity Preferred Partner), provided that, in each case, the Managing General Partner has made a Transfer Determination prior to the proposed Transfer. In addition to the foregoing, in connection with a financing transaction, any Record Partner (other than TCO) may pledge some or all of the Units of Partnership Interest that such Record Partner owns on the effective date of the pledge (the "Pledge Units") to any Person (the "Pledgee"), subject to the restrictions set forth in this paragraph of Section 8.1(b). Before effecting the pledge of any Pledge Units, the pledging Partner must first receive a Transfer Determination with respect to the pledge, and the Pledgee must irrevocably agree, pursuant to a written instrument acceptable to the Managing General Partner, that (A) unless (i) the Pledgee is a Person described in the preceding paragraphs of this Section 8.1(b) as a Person to whom a Partner may Transfer its Partnership Interest (a "Permitted 14 Transferee") and (ii) the Managing General Partner has agreed, in writing, to the admission of the Pledgee as a substitute Partner with respect to some or all of the Pledge Units upon a default under the loan to be secured by the pledge of Pledge Units, (B) the Pledgee (1) shall not, at any time, have or exercise any rights as a Partner with respect to any of the Pledge Units (including any right to consent or vote with respect to any matter affecting the Partnership), other than (a) the right to receive any distributions from the Partnership that are or may be payable with respect to the Pledge Units as and when the same become payable and (b) the right to receive the return of any contribution to which the pledging Partner would be entitled with respect to the Pledge Units, and (2) shall not, upon the pledging Partner's default or otherwise, have any right (or claim or attempt to exercise any right) to Transfer (or cause the Transfer of) the Pledge Units (or any interest in the Pledge Units) other than to TCO in exchange for Equity Shares or another Permitted Transferee. (c) The Partnership shall have the right to redeem the Parity Preferred Equity of a given series in accordance with the Designation, Distribution, Redemption, Exchange, and Consent Provisions for such series. Each Parity Preferred Partner shall have the right to exchange such Partner's Parity Preferred Equity of a given series for shares of the Parity Related Issue in accordance with the Designation, Distribution, Redemption, Exchange, and Consent Provisions relating to such series. A Parity Preferred Partner owning a series of Parity Preferred Equity may Transfer its Parity Preferred Equity and right to any Parity Preferred Return only to TRG and/or TCO pursuant to the foregoing provisions of this Section 8.1(c) and in accordance with the 15 Designation, Distribution, Redemption, Exchange, and Consent Provisions relating to the applicable series. In the event of the redemption by TCO, in whole or in part, of any series of preferred shares that constitutes a Parity Related Issue through the issuance of common equity, TCO shall convert its Parity Preferred Equity (or a portion thereof) (exclusive of any accrued but unpaid dividends), to an Additional Interest by contributing to the capital of the Partnership all of its right, title, and interest, in and to the payment of any future Parity Preferred Return on that portion of the converted Parity Preferred Equity, with the effect that the portion of the converted Parity Preferred Equity and related right to the payment of any future Parity Preferred Return shall be converted to an Additional Interest in accordance with Section 8.4(a) hereof, such Additional Interest to be provided by a proportionate reduction in the Percentage Interests of all of the Partners, as provided in Section 8.4(a) hereof. Any such redemption shall be effected so that, following such redemption, the number of Units of Partnership Interest then held by TCO shall equal in value the number of shares of TCO's common stock then outstanding. Upon and to the extent of the conversion of Preferred Equity to Additional Interests in accordance with this Section 5.3, Schedule A to this Agreement shall be amended accordingly. In the event of a redemption by TCO, in whole or in part, of any series of preferred shares that constitutes a Parity Related Issue through the issuance of preferred equity, TCO shall convert that portion of its Parity Preferred Equity equal to the portion of the Parity Related Issue that was redeemed (exclusive of any accrued but unpaid dividends) by appropriate amendment, whether by Annex or otherwise, to Parity Preferred Equity having 16 terms equivalent to the newly issued preferred equity through which the Parity Related Issue was redeemed. Upon and to the extent of the conversion of any portion of a Parity Preferred Equity Balance to Additional Interests in accordance with this Section 8.1(c), Schedule A to this Agreement shall be amended accordingly." 13. Section 10.1 of the Partnership Agreement is hereby amended by deleting paragraph (b) thereof in its entirety, and by inserting the following new paragraph (b) in the place thereof: "(b) Upon the occurrence of a Disabling Event or an Event of Withdrawal in respect of a General Partner the Partnership shall dissolve; provided, however, that the Partnership shall not be dissolved if the remaining General Partners, by an affirmative, unanimous vote of such General Partners, elect to continue the Partnership in all respects pursuant to this Agreement, and the Partnership Interest of the Disabled General Partner shall automatically become that of a limited partner except to the extent such Disabled General Partner, at such time or any time thereafter, assigns its Partnership Interest to another General Partner, subject to the provisions of Section 8.1 hereof; and such Disabled General Partner or Successor shall thereupon have the same interest in the Partnership capital, profits, losses, and distributions as the Disabled General Partner, but otherwise shall have and be subject to all the rights, obligations, restrictions, and attributes of a limited partner, all as provided in this Agreement. Upon the occurrence of a Disabling Event or an Event of Withdrawal in respect of the last remaining General Partner, the Partnership shall dissolve; provided, however, that the Partnership shall not be dissolved if within ninety (90) Days after such Disabling Event or Event of 17 Withdrawal (the "Ninety Day Period") all Partners (other than any Parity Preferred Partner) agree in writing to continue the business of the Partnership and to the appointment, effective as of the date of such Disabling Event or Event of Withdrawal, of one (1) or more general partners of the Partnership as successor general partner(s) ("Successor General Partner") to act as, and be in all respects under this Agreement, a general partner. If any such election is made, the Partnership shall continue pursuant to this Agreement for the term provided in Section 1.5 hereof, and the Partnership Interest of the Disabled General Partner in the Partnership (except to the extent such interest is held by the Successor General Partner) shall automatically become that of a limited partner; and such Representative or Successor to the Disabled General Partner (subject, in the case of a Representative or Successor, to Sections 8.1 and 8.2 hereof) shall thereupon have the same interest in the Partnership capital, profits, losses, and distributions as the Disabled General Partner, but otherwise (except to the extent a Successor to the Disabled General Partner shall be the Successor General Partner) shall have and be subject to all the rights, obligations, restrictions, and attributes of a limited partner, all as provided in this Agreement. In the event of the selection of a Successor General Partner, as provided in this Section 10.1(b), (1) each of the Partners, on behalf of itself and its permitted successors and assigns, HEREBY AGREES AND CONSENTS to the admission of any such Successor General Partner as herein provided; and (2) the then Partners shall execute and deliver such instruments and documents, and shall take such actions, as shall be necessary or advisable, in the sole and absolute discretion of the Successor General Partner to carry out the provisions of this Article X, including, but not limited 18 to, (x) the execution of conformed counterparts of this Agreement, amendments to this Agreement, and/or an amended limited partnership agreement, (y) the execution and filing of certificates of discontinuance, assumed or fictitious name certificates, certificates of co-partnership, and/or certificates of limited partnership, and/or amended certificates of limited partnership, and (z) the execution of such instruments and documents (including, but not limited to, deeds, bills of sale, and other instruments of conveyance and/or assignments of Partnership Interest) as shall be necessary or advisable to effect any necessary transfer (nominal or otherwise) of the property, assets, investments, rights, liabilities, and business of the Partnership or of a Partnership Interest and/or to accomplish the purpose and intent of this Article X. In the event that a Partner shall fail to execute any such instruments or documents or fail to take any such actions, when requested to do so by the Successor General Partner, the Successor General Partner and/or any Person designated by the Successor General Partner, as attorney-in-fact for each of the Partners, shall have the right and power for, on behalf of, and in the name of each of the Partners to execute any and all such instruments and documents and take any and all such actions." 14. Section 11.1 of the Partnership Agreement is hereby amended by deleting paragraph (a) thereof in its entirety, and by inserting the following new paragraph (a) in the place thereof: "(a) Upon the dissolution of the Partnership, the Managing General Partner, or in the event that the Managing General Partner has suffered a Disabling Event or an Event of Withdrawal and there are one or more remaining General Partners, such remaining General Partner(s), or in the event 19 that there is no remaining General Partner, a Person selected by those Partners holding in the aggregate a Percentage Interest of in excess of fifty percent (50%) (the Managing General Partner or such Person so selected is herein referred to as the "Liquidator"), shall proceed to wind up the affairs of the Partnership, liquidate the property and assets of the Partnership, and terminate the Partnership, and the proceeds of such liquidation shall be applied and distributed in the following order of priority: (1) to creditors, to the extent otherwise permitted by law, in satisfaction of liabilities of the Partnership (whether by payment or by making a reasonable provision for payment) other than obligations of the Partnership to the Partners and liabilities for distribution to Partners on account of their respective interests in the Partnership; and then (2) to the satisfaction of all obligations of the Partnership to Partners other than the Guaranteed Payment and other than any Parity Preferred Return; and then (3) to TCO in an amount equal to any accrued but unpaid Guaranteed Payment (proportionate among each series); and then (4) to TCO in an amount equal to that portion of its Capital Account attributable to its Preferred Equity (proportionate among each series); and then (5) to the Parity Preferred Partners in an amount equal to their respective Parity Preferred Equity Balances (proportionate with respect to the amount of such balances among each series); and then (6) to the Partners in accordance with and in proportion to their positive Capital Account balances. For this purpose, the 20 determination of the Partners' Capital Account balances shall be made after adjustment to reflect the allocation of all Profits, Losses, and items in the nature of income, gain, expense, or loss under Section 5.1 hereof, and all distributions to the Partners pursuant to Section 5.2(a), Section 5.2(b), Section 5.3, Section 11.1(a)(4), and Section 11.1(a)(5) hereof, in each case for all Partnership Fiscal Years through and including the Partnership Fiscal Year of liquidation. Subject to the provisions of clause (1) of this Section 11.1(a), all distributions pursuant to this Section 11.1(a) shall be made by the end of the Partnership Fiscal Year of liquidation (or if later, within ninety (90) Days after the date of such liquidation)." 15. The attached Schedule C is inserted in the Partnership Agreement in the place of the existing Schedule C. 16. Section and clause references within the Partnership Agreement are renumbered accordingly. 17. Except as expressly set forth herein, the terms and provisions of the Partnership Agreement continue unmodified and are hereby confirmed and ratified. 18. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 19. This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware. 20. This Amendment may be executed in two (2) or more counterparts, all of which as so executed shall constitute one (1) Amendment, binding on all of the parties hereto, notwithstanding that all the parties are not signatory to the original or the same counterpart; provided, however, that no provision of this Amendment shall become effective 21 and binding unless and until all parties hereto have duly executed this Amendment, at which time this Amendment shall then become effective and binding as of the date first above written. IN WITNESS WHEREOF, the undersigned Appointing Persons, in accordance with Section 13.11 hereof, on behalf of all of the Partners, have entered into this Amendment as of the date first above written. TAUBMAN CENTERS, INC., a Michigan corporation By: /s/ Lisa A. Payne Its: Executive Vice President TG PARTNERS LIMITED PARTNERSHIP, a Delaware limited partnership By: TG Michigan, Inc., a Michigan corporation, Managing General Partner By: /s/ Robert S. Taubman Its: President TAUB-CO MANAGEMENT, INC., a Michigan corporation By: /s/ Lisa A. Payne Its: Executive Vice President 22 EX-10.(B) 4 PRIVATE PLACEMENT PURCHASE AGREEMENT PRIVATE PLACEMENT PURCHASE AGREEMENT Goldman Sachs 1999 Exchange Place Fund, L.P. c/o Goldman, Sachs & Co. One New York Plaza New York, New York 10004 Attention: Elizabeth C. Groves Ladies and Gentlemen: 1. Certain Representations; Opinions of Counsel (a) The Taubman Realty Group Limited Partnership (the "Company") and Taubman Centers, Inc., the managing general partner of the Company ("TCO"), represent and warrant to the undersigned ("Subscriber") as follows: (i) TCO has made with the Securities Exchange Commission ("SEC") all filings required to be made by it (the "SEC Reports"). Since September 30, 1998, the Company has not been, and is not, required to file any reports with the SEC. The SEC Reports were prepared and filed in compliance with the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the Securities Act of 1933, as amended (the "Securities Act"), as applicable, and the rules and regulations promulgated by the SEC thereunder, and did not, as of their respective dates, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading. The financial statements and the interim financial statements of TCO included in the SEC Reports were prepared in accordance with generally accepted accounting principles (except as may be indicated in the notes thereto) and fairly presented the financial condition and results of operations of TCO and its subsidiaries as at the dates thereof and for the periods then ended, subject, in the case of the interim financial statements, to normal year-end adjustments and any other adjustments described therein. (ii) there has been no material adverse change in or affecting the business, assets or financial condition of the Company since the most recent such filing; (iii)the Company and TCO have all requisite corporate and limited partnership authority and power to execute and deliver this Private Placement Purchase Agreement, the Registration Rights Agreement (as hereinafter defined) the Certificate with Respect to Tax Matters of even date herewith executed and delivered by the Company, the Second Amendment to The Second Amendment and Restatement of Agreement of Limited Partnership of the Company and the Designation, Distribution, Redemption, Exchange, and Consent Provisions with Respect to the 9% Series C Cumulative Redeemable Preferred Equity of the Company (collectively, the "Transaction Documents") and to consummate the transactions contemplated thereby. The execution and delivery of the Transaction Documents and the consummation of the transactions contemplated thereby have been duly and validly authorized by all requisite corporate or limited partnership action on the part of the Company and TCO, and no other proceedings on the part of the Company or TCO are necessary to authorize the Transaction Documents or to consummate the transactions contemplated hereby. The Transaction Documents have been duly and validly executed and delivered by the Company and TCO. The Transaction Documents constitute valid and binding obligations of the Company and TCO, enforceable in accordance with their terms; (iv) neither the execution, delivery nor performance of the Transaction Documents by the Company or TCO will conflict with, result in a default, right to accelerate or loss of rights under, or result in the creation of any lien, charge or encumbrance pursuant to, any provision of the Company's or TCO's organizational documents or any franchise, mortgage, deed of trust, lease, license, agreement, understanding, law, rule or regulation or any order, judgement or decree to which the Company or TCO is a party or by which the Company or TCO may be bound or affected; (v) the 1998 financial statements of the Company and TCO, including the notes thereto, and supporting schedules have been prepared in conformity with GAAP applied on a consistent basis (except as otherwise noted therein) and present fairly the financial position of the Company and TCO as of the dates indicated and the results of its operations for the periods shown; (vi) there is no action, suit, proceeding or investigation pending or, to the Company's or TCO's knowledge, currently threatened against the Company or TCO that questions the validity of any of the Transaction Documents or the issuance of Parity Preferred Equity (as defined below), or the right of the Company or TCO to enter into any of the Transaction Documents or to consummate the transactions contemplated thereby or that could reasonably be expected to interfere with the ability of the Company or TCO to perform their obligations thereunder; (vii)the Equity (as defined below) when issued, sold and delivered by the Company, shall be duly and validly issued and outstanding, fully paid, and non-assessable and will be free of any liens, claims, security interests, encumbrances, restrictions or rights of third parties of any kind (collectively, "Encumbrances"). The Shares (as defined below) when issued in redemption of the Equity, shall be duly and valued issued and 2 outstanding, fully paid, and non-assessable and will be free of any Encumbrances; and (viii) a true and complete copy of the Company's Partnership Agreement is set forth as Exhibit A hereto. There are no interests in the Company authorized, issued or outstanding that rank senior to, or on a parity with, the Equity with respect to liquidation, winding up, dividends or distributions other than the Series A Preferred Equity. There are no equity interests in TCO authorized, issued or outstanding that rank senior to, or on a parity with, the Shares with respect to liquidation, winding up, dividends or distributions other than the Series A Preferred Stock of TCO and the Series B Preferred Stock of TCO, and TCO will not authorize, create or issue any such senior equity interests without the prior written consent of Subscriber. (ix) the foregoing representations and warranties will continue to be true and correct on the Closing Date (as defined below). (b) The Company will make the tax and securities representations set forth on Exhibit B on the Closing Date. (c) Counsel to the Company and TCO is concurrently herewith rendering an opinion to Subscriber attached hereto as Exhibit C. 2. Sale of Equity (a) The Company hereby agrees to sell to Subscriber, and Subscriber hereby agrees to purchase from the Company, $75,000,000 of Series C Preferred Equity of the Company (the "Equity"). The purchase price of the Equity is $75,000,000, and is payable in cash at the Closing (as defined below). (b) The sale and purchase of the Equity (the "Closing") shall take place at the offices of Subscriber on September 3, 1999 (the "Closing Date"). (c) On the Closing Date, Subscriber shall, if the condition set forth in Section 2(d) below is satisfied on the Closing Date, pay to the Company by wire transfer of immediately available funds the purchase price of the Equity purchased by such Subscriber, against delivery to the Subscriber of each of the documents set forth on Schedule A attached hereto. (d) It shall be a condition to the Closing that the Company's and TCO's representations and warranties hereunder then continue to be true and correct. 3 3. Registration (a) TCO will file a registration statement with respect to the Series C Preferred Stock to be issued to the Company upon exchange of the Equity (the "Shares"), into such shares, in accordance with the Registration Rights Agreement attached hereto as Exhibit D (the "Registration Agreement") which is being executed and delivered simultaneously herewith. 4. Covenants of the Company and TCO (a) No later than June 30, 2000, TCO shall amend its Restated Articles of Incorporation so that TCO will have the authority to issue additional shares of preferred stock. Simultaneously therewith, TCO shall amend its series designation creating the Series C Preferred Stock to increase from 1,000,000 to 2,000,000 the number of shares of Series C Preferred Stock constituting the series. Thereafter, subject to the Second Amendment and Restatement of Agreement of Limited Partnership of the Company, as amended, including the Designation, Redemption, Exchange, and Voting Provisions with Respect to the Series C Preferred Equity (the "Partnership Agreement"), the holders of the Equity will be able to convert $75 in liquidation value of the Equity for one share of Series C Preferred Stock, it being understood that the aggregate amount in liquidation value of the equity shall remain $75,000,000. 5. Subscriber's Representations. (a) Subscriber represents and warrants that it is purchasing the Equity solely for investment solely for its own account and not with a view to or for the resale or distribution thereof except as permitted under the Registration Agreement or as otherwise permitted under applicable law, including the Securities Act of 1933, as amended (the "Securities Act"). (b) Subscriber understands that it may sell or otherwise transfer the Equity or the shares issuable on conversion of the Equity only if such transaction is duly registered under the Securities Act, or if Subscriber shall have received the favorable opinion of counsel to Subscriber, which opinion shall be reasonably satisfactory to counsel to the Company, to the effect that such sale or other transfer may be made in the absence of registration under the Securities Act, and registration or qualification in every applicable state. Subscriber realizes that the Equity is not a liquid investment. Subscriber has the knowledge and experience to evaluate the Company and the risks and merits relating thereto. (c) Subscriber represents and warrants that Subscriber is an "accredited investor" as such term is defined in Rule 501 of the Regulation D promulgated pursuant to the Securities Act, and shall be such on the date any Equity is issued to Subscriber; Subscriber acknowledges that Subscriber is able to bear the economic risk of losing Subscriber's entire investment in the Equity and understands that an 4 investment in the Company involves substantial risks; Subscriber has the power and authority to enter into this Agreement, and the execution and delivery of, and performance under this Agreement, shall not conflict with any rule, regulation, judgement or agreement applicable to Subscriber. Subscriber has had the opportunity to discuss the Company's affairs with the Company's officers. (d) Subscriber represents and warrants that it was not formed with a principal purpose of permitting the Company to satisfy the 100 partner limitation of Treas. Reg. ss. 1.7704.1(h)(1)(ii). 6. Execution of Partnership Agreement By executing this Private Placement Purchase Agreement, Subscriber agrees to be bound by and subject to the terms of the Partnership Agreement as if a signatory thereto. 7. Miscellaneous This Agreement may not be changed or terminated except by written agreement of both parties. It shall be binding on the parties and on their permitted assigns. It sets forth all agreements of the parties, and may be signed in counterparts. This Agreement shall be governed by, and construed in accordance with, the laws of New York without regard to conflicts of law principles thereof. The federal and state courts sitting in New York, New York shall have exclusive jurisdiction over all matters relating to this Agreement. All notices, requests, service of process, consents, and other communications under this Agreement shall be in writing and shall be deemed to have been delivered (i) on the date personally delivered or (ii) one day after properly sent by recognized overnight courier, addressed to the respective parties at their address set forth in this Agreement or (iii) on the day transmitted by facsimile so long as a confirmation copy is simultaneously forwarded by recognized overnight courier, in each case addressed to the respective parties at their address set forth in this Agreement. Either party hereto may designate a different address by providing written notice of such new address to the other party hereto as provided above. Dated: September 3, 1999 THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP By: /s/ Lisa A. Payne Name: Lisa A. Payne Title: Executive Vice President 5 TAUBMAN CENTERS, INC. By: /s/ Lisa A. Payne Name: Lisa A. Payne Title: Executive Vice President SUBSCRIBER GOLDMAN SACHS 1999 EXCHANGE PLACE FUND, L.P. By: /s/ Elizabeth C. Groves Name: Elizabeth C. Groves Title: 6 EX-10.(C) 5 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of September 3, 1999 by and between Taubman Centers, Inc., a Michigan corporation (the "Company"), and Goldman Sachs 1999 Exchange Place Fund, L.P., a Delaware limited partnership ("Holder"). WHEREAS, Holder is receiving on the date hereof Series C Preferred Equity (the "Equity") in The Taubman Realty Group Limited Partnership, a Delaware limited partnership (the "Partnership"); WHEREAS, in connection therewith, the Company has agreed to grant to Holder the Registration Rights (as defined in Section 1 hereof); NOW, THEREFORE, the parties hereto, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, hereby agree as follows: SECTION 1. REGISTRATION RIGHTS If Holder receives 9% Series C Cumulative Redeemable Preferred Stock of the Company (the "Preferred Stock") upon exchange of the Equity (the "Exchange Shares") pursuant to the terms of the Amended and Restated Agreement of Limited Partnership of the Partnership, as the same has been and may be amended from time to time (the "Partnership Agreement"), then unless such Exchange Shares are issued to Holder pursuant to an Issuer Registration Statement as provided in Section 2 below, Holder shall be entitled to offer for sale pursuant to a shelf registration statement, the Exchange Shares, subject to the terms and conditions set forth in Section 3 hereof (the "Registration Rights"). SECTION 2. ISSUER REGISTRATION STATEMENT Anything contained herein to the contrary notwithstanding, in the event that the Exchange Shares are issued by the Company to Holder pursuant to an effective registration statement (an "Issuer Registration Statement") filed with the Securities and Exchange Commission (the "Commission"), the Company shall be deemed to have satisfied all of its registration obligations under this Agreement. SECTION 3. DEMAND REGISTRATION RIGHTS 3.1 (a) Registration Procedure. Unless such Exchange Shares are issued pursuant to an Issuer Registration Statement as provided in Section 2 hereof, then subject to Sections 3.1(c) and 3.2 hereof, if Holder desires to exercise its Registration Rights with respect to the Exchange Shares, Holder shall deliver to the Company a written notice (a "Registration Notice") informing the Company of such exercise and specifying the number of shares to be offered by such Holder (such shares to be offered being referred to herein as the "Registrable Securities"). Such notice may be given at any time on or after the date 1 a notice of exchange is delivered by Holder to the Partnership pursuant to the Partnership Agreement, but must be given at least fifteen (15) Business Days prior to the anticipated consummation of the sale of Registrable Securities, which consummation shall in any event be subject to an effective Shelf Registration Statement (as hereinafter defined) or an effective New Registration Statement (as hereinafter defined). As used in this Agreement, a "Business Day" is any Monday, Tuesday, Wednesday, Thursday or Friday other than a day on which banks and other financial institutions are authorized or required to be closed for business in the State of New York or Michigan. Upon receipt of the Registration Notice, the Company, if it has not already caused the Registrable Securities to be included as part of an existing shelf registration statement (prior to the filing of which the Company shall have given ten (10) Business Days notice to Holder) and related prospectus that the Company than has on file with the Commission (the "Shelf Registration Statement") (in which event the Company shall be deemed to have satisfied its registration obligation under this Section 3), will cause to be filed with the Commission as soon as reasonably practicable after receiving the Registration Notice a new registration statement and related prospectus (a "New Registration Statement") that complies as to form in all material respects with applicable Commission rules providing for the sale by Holder of the Registrable Securities, and agrees (subject to Section 3.2 hereof) to use its best efforts to cause such New Registration Statement to be declared effective by the Commission as soon as practicable. (As used herein, "Registration Statement" and "Prospectus" refer to the Shelf Registration Statement and related prospectus (including any preliminary prospectus) or the New Registration Statement and related prospectus (including any preliminary prospectus), whichever is utilized by the Company to satisfy Holder's Registration Rights pursuant to this Section 3, including in each case any documents incorporated therein by reference.) Holder agrees to provide in a timely manner information regarding the proposed distribution by Holder of the Registrable Securities and such other information reasonably requested by the Company in connection with the preparation of and for inclusion in the Registration Statement. The Company agrees (subject to Section 3.2 hereof) to use its best efforts to keep the Registration Statement effective (including the preparation and filing of any amendments and supplements necessary for that purpose) until the earlier of (i) the date on which Holder consummates the sale of all of the Registrable Securities registered under the Registration Statement, or (ii) the date on which all of the Registrable Securities are eligible for sale pursuant to Rule 144(k) (or any successor provision) or in a single transaction pursuant to Rule 144(e) (or any successor provision) under the Securities Act of 1933, as amended (the "Act"), provided, that except with respect to any Shelf Registration, such period need to extend beyond nine months after the effective date of the Registration Statement; and provided further, that with respect to any Shelf Registration, such period need not extend beyond the time period provided in this Section 3.1(a), and which periods, in any event, shall terminate when all the Exchange Shares covered by such Registration Statement have been sold (but not before the expiration of the time period provided in Section 4(3) of the Act and Rule 174 thereunder, if applicable). The Company agrees to provide to Holder a reasonable number of copies of the final Prospectus and any amendments or supplements thereto. Notwithstanding the foregoing, the Company may at any time, in its sole discretion and prior to receiving any Registration Notice from Holder, include all of Holder's Exchange Shares or any portion thereof in any Shelf Registration Statement. In connection with any Registration Statement utilized by the Company to satisfy Holder 2 Registration Rights pursuant to this Section 3, Holder agrees that it will respond within ten (10) Business Days to any request by the Company to provide or verify information regarding Holder or Holder's Registrable Securities as may be required to be included in such Registration Statement pursuant to the rules and regulations of the Commission. (b) Offers and Sales. All offers and sales by Holder under the Registration Statement referred to in this Section 3 shall be completed within the period during which the Registration Statement is required to remain effective pursuant to Section 3.1(a) of this Section 3, and upon expiration of such period Holder will not offer or sell any Registrable Securities under the Registration Statement. If directed by the Company, Holder will return all undistributed copies of the Prospectus in its possession upon the expiration of such period. (c) Limitations on Registration Rights. Each exercise of a Registration Right shall be with respect to a minimum of the lesser of (i) five hundred thousand (500,000) Preferred Stock or (ii) the total number of Exchange Shares held by Holder at such time plus the number of Exchange Shares that may be issued upon exchange of the Equity by Holder. The right of Holder to deliver a Registration Notice commences upon the first date Holder is permitted to exchange the Equity pursuant to the Partnership Agreement and Holder's acceptance of Partnership Agreement pursuant to that certain Private Placement Purchase Agreement of even date herewith between Holder and the Partnership. The right of Holder to deliver a Registration Notice shall expire on the date on which all of the Exchange Shares held by Holder or issuable upon exchange of the Equity held by Holder are eligible for sale pursuant to Rule 144(k) (or any successor provision) under the Act. The Registration Rights granted pursuant to this Section 3.1 may be exercised in connection with an underwritten public offering provided that the Company shall have the right to select the Underwriter or Underwriters in connection with such public offering, which shall be subject to the reasonable approval of Holder. 3.2 Suspension of Offering. Upon any notice by the Company, either before or after Holder has delivered a Registration Notice, that a negotiation or consummation of a transaction by the Company or any of its subsidiaries is pending or an event has occurred, which negotiation, consummation or event would require additional disclosure by the Company in a Registration Statement of material information which the Company has a bona fide business purpose for keeping confidential and the nondisclosure of which in the Registration Statement might cause the Registration Statement to fail to comply with applicable disclosure requirements (a "Materiality Notice"), Holder agrees that it will immediately discontinue offers and sales of the Registrable Securities under the Registration Statement until Holder receives copies of a supplemental or amended Prospectus that corrects the misstatement(s) or omission(s) referred to above and receives notice that any post-effective amendment has become effective; provided, that the Company may delay, suspend or withdraw the Registration Statement for such reason for no more than sixty (60) days after delivery of the Materiality Notice at any one time but may not do so more than two times in any twelve month period. If so directed by the Company, Holder will deliver to the Company all copies of the Prospectus covering the Registrable Securities current at the time of receipt of any Materiality Notice. 3 3.3 Qualification. The Company agrees to use its best efforts to register or qualify the Registrable Securities by the time the applicable Registration Statement is declared effective by the Commission under all applicable state securities or "blue sky" laws of such jurisdictions as Holder shall reasonably request in writing, to keep each such registration or qualification effective during the period such Registration Statement is required to be kept effective or during the period offers or sales are being made by Holder after delivery of a Registration Notice to the Company, whichever is shorter, and to do any and all other acts and things which may be reasonably necessary or advisable to enable Holder to consummate the disposition in each such jurisdiction of the Registrable Securities owned by Holder; provided, however, that the Company shall not be required to (x) qualify generally to do business in any jurisdiction or to register as a broker or dealer in such jurisdiction where it would not otherwise be required to qualify but for this Section 3.3, (y) subject itself to taxation in any such jurisdiction, or (z) submit to the general service of process in any such jurisdiction. 3. 4 Whenever the Company is required to effect the registration of Exchange Shares under the Securities Act pursuant to Section 3.1 of this Agreement, subject to Section 3.2 hereof, the Company shall: (a) prepare and file with the Commission (as soon as reasonably practical after receiving the Registration Notice, and in any event within 60 days after receipt of such Registration Notice) the requisite Registration Statement to effect such registration, which Registration Statement shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the Commission to be filed therewith, and the Company shall use its reasonable best efforts to cause such Registration Statement to become effective; provided, however, that before filing a Registration Statement or Prospectus or any amendments or supplements thereto, or comparable statements under securities or blue sky laws of any jurisdiction, the Company shall (i) provide Holder with an adequate and appropriate opportunity to participate in the preparation of such Registration Statement and each Prospectus included therein (and each amendment or supplement thereto or comparable statement) to be filed with the Commission and (ii) not file any such Registration Statement or Prospectus (or amendment or supplement thereto or comparable statement) with the Commission to which Holder's counsel or any underwriter designated by the Holder and approved by the Company, which approval shall not be unreasonably withheld (the "Underwriter"), shall have reasonably objected on the grounds that such filing does not comply in all material respects with the requirements of the Act or of the rules or regulations thereunder. (b) prepare and file with the Commission such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary (i) to keep such Registration Statement effective and (ii) to comply with the provisions of the Act with respect to the disposition of the Redemption Shares covered by such Registration Statement, in each case until such time as all of such Redemption Shares have been disposed of in accordance with the intended methods of disposition by the seller(s) thereof set forth in such Registration Statement; provided, that except with respect to any Shelf Registration, such period need not extend beyond nine months after the effective date of the Registration Statement; and provided further, that with respect to 4 any Shelf Registration, such period need not extend beyond the time period provided in Section 3.1(a), and which periods, in any event, shall terminate when all the Redemption Shares covered by such Registration Statement have been sold (but not before the expiration of the time period referred to in Section 4(3) of the Act and Rule 174 thereunder, if applicable); (c) furnish, without charge, to the Holder and each Underwriter, if any, of the securities covered by such Registration Statement, such number of copies of such Registration Statement, each amendment and supplement thereto (in each case including all exhibits), and the Prospectus included in such Registration Statement (including each preliminary Prospectus) in conformity with the requirements of the Act, and other documents, as the Holder and such Underwriter may reasonably request in order to facilitate the public sale or other disposition of the Redemption Shares owned by the Holder; (d) prior to any public offering of Redemption Shares, use its reasonable best efforts to register or qualify the Redemption Shares covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions as the Holder or the sole or lead managing Underwriter, if any, may reasonably request to enable the Holder to consummate the disposition in such jurisdictions of the Redemption Shares owned by the Holder and to continue such registration or qualification in effect in each such jurisdiction for as long as such Registration Statement remains in effect (including through new filings or amendments or renewals), and do any and all other acts and things which may be necessary or advisable to enable the Holder to consummate the disposition in such jurisdictions of the Redemption Shares owned by it, provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section, (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction; (e) Promptly notify Holder and the sole or lead managing Underwriter, if any: (i) when the Registration Statement, any pre-effective amendment, the Prospectus or any prospectus supplement related thereto or post-effective amendment to the Registration Statement has been filed, and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any state securities or blue sky authority for amendments or supplements to the Registration Statement or the Prospectus related thereto or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration or the initiation or threat of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of qualification of any Exchange Shares for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose, (v) of the existence of any fact of which the Company becomes aware or the happening of any event which results in (A) the Registration Statement containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make any statements therein not misleading, or (B) the Prospectus included in such Registration Statement containing an untrue statement of a material fact or omitting to 5 state a material fact required to be stated therein or necessary to make any statements therein, in the light of the circumstances under which they were made, not misleading, and (vi) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate or that there exists circumstances not yet disclosed to the public which make further sales under such Registration Statement inadvisable pending such disclosure and post-effective amendment; and, if the notification relates to an event described in any of the clauses (v) or (vi) of this Section, subject to Section 3.2, the Company shall promptly prepare a supplement or post-effective amendment to such Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document, so that (1) such Registration Statement shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (2) as thereafter delivered to the purchasers of the Exchange Shares being sold thereunder, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein in the light of the circumstances under which they were made not misleading (and shall furnish to Holder and each Underwriter, if any, a reasonable number of copies of such Prospectus so supplemented or amended); and if the notification relates to an event described in clauses (ii) through (iv) of this Section, the Company shall use its reasonable best efforts to remedy such matters; (f) make reasonably available for inspection by Holder, any sole or lead managing Underwriter participating in any disposition pursuant to such Registration Statement, Holder's counsel and any attorney, accountant or other agent retained by any such seller or any Underwriter material financial and other relevant information concerning the business and operations of the Company and the properties of the Company and any subsidiaries thereof as may be in existence at such time as shall be necessary, in the reasonable opinion of such Holder's and such Underwriters' respective counsel, to enable them to conduct a reasonable investigation within the meaning of the Securities Act, and cause the Company's and any subsidiaries' officers, directors and employees, and the independent public accountants of the Company, to supply such information as may be reasonably requested by any such parties in connection with such Registration Statement; (g) obtain an opinion from the Company's counsel and a "cold comfort" letter from the Company's independent public accountants who have certified the Company's financial statements included or incorporated by reference in such Registration Statement in customary form and covering such matters as are customarily covered by such opinions and "cold comfort" letters delivered to Underwriters in underwritten public offerings, which opinion and letter shall be reasonably satisfactory to the sole or lead managing Underwriter, if any, and to Holder, and furnish to Holder participating in the offering and to each Underwriter, if any, a copy of such opinion and letter addressed to Holder (in the case of the opinion) and Underwriter (in the case of the opinion and the "cold comfort" letter); (h) in the case of an underwritten offering, make generally available to its security-holders as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statement (as defined in Rule 158(c)), an 6 earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158); (i) use its reasonable best efforts to cause all such Exchange Shares to be listed (i) on the national securities exchange on which the Company's common shares are then listed or (ii) if common shares of the Company are not at the time listed on any national securities exchange (or if the listing of Exchange Shares is not permitted under the rules of such national securities exchange on which the Company's common shares are then listed), on another national securities exchange; (j) furnish to Holder and the sole or lead managing Underwriter, if any, without charge, at least one manually signed copy of the Registration Statement and any post-effective amendments thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those deemed to be incorporated by reference); (k) if requested by the sole or lead managing Underwriter or Holder of Exchange Shares, incorporate in a prospectus supplement or post-effective amendment such information concerning Holder, the Underwriters or the intended method of distribution as the sole or lead managing Underwriter or Holder reasonably requests to be included therein and as is appropriate in the reasonable judgment of the Company, including, without limitation, information with respect to the number of Exchange Shares being sold to the Underwriters, the purchase price being paid therefor by such Underwriters and with respect to any other terms of the underwritten offering of the Exchange Shares to be sold in such offering; and (l) use its reasonable best efforts to take all other steps necessary to expedite or facilitate the registration and disposition of the Exchange Shares contemplated hereby, including obtaining necessary governmental approvals and effecting required filings; entering into customary agreements (including customary underwriting agreements, if the public offering is underwritten); cooperating with Holder and any Underwriters in connection with any filings required by the NASD; providing appropriate certificates not bearing restrictive legends representing the Exchange Shares; and providing a CUSIP number and maintaining a transfer agent and registrar for the Exchange Shares. 3.5 Indemnification by the Company. The Company agrees to indemnify and hold harmless Holder and each person, if any, who controls Holder within the meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) pursuant to which the Registrable Securities were registered under the Act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated 7 therein or necessary to make the statements therein not misleading or arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto), including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including reasonable fees and disbursements of counsel), reasonably incurred in investigating, preparing or defending against any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, in each case whether or not a party, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) above; provided, however, that the indemnity provided pursuant to this Section 3.4 does not apply with respect to any loss, liability, claim, damage or expense to the extent arising out of (A) any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by Holder expressly for use in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto), or (B) Holder's failure to deliver an amended or supplemental Prospectus provided to the Holder by the Company if such loss, liability, claim, damage or expense would not have arisen had such delivery occurred. 3.6 Indemnification by Holder. Holder (and each permitted assignee of Holder, on a several basis) agrees to indemnify and hold harmless the Company, and each of its directors and officers (including each director and officer of the Company who signed a Registration Statement), and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) pursuant to which the Registrable Securities were registered under the act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto), including 8 all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of Holder; and (iii) against any and all expense whatsoever, as incurred (including reasonable fees and disbursements of counsel), reasonably incurred in investigating, preparing or defending against any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, in each case whether or not a party, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) above; provided, however, that the indemnity provided pursuant to this Section 3.5 shall only apply with respect to any loss, liability, claim, damage or expense to the extent arising out of (A) any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by Holder expressly for use in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto), or (B) Holder's failure to deliver an amended or supplemental Prospectus provided to Holder by the Company if such loss, liability, claim, damage or expense would not have arisen had such delivery occurred. Notwithstanding the provisions of this Section 3.6, Holder and any permitted assignee shall not be required to indemnify the Company, its officers, directors or control persons with respect to any amount in excess of the amount of the total proceeds to Holder or such permitted assignee, as the case may be, from sales of the Registrable Securities of Holder under the Registration Statement. 3.7 Conduct of Indemnification Proceedings. An indemnified party hereunder shall give reasonably prompt notice to the indemnifying party of any action or proceeding commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify the indemnifying party (i) shall not relieve it from any liability which it may have under the indemnity agreement provided in Section 3.5 or 3.6 above, unless and to the extent it did not otherwise learn of such action and the lack of notice by the indemnified party results in the forfeiture by the indemnifying party of substantial rights and defenses, and (ii) shall not, in any event, relieve the indemnifying party from any obligations to the indemnified party other than the indemnification obligation provided under Section 3.5 or 3.6 above. If the indemnifying party so elects within a reasonable time after receipt of such notice, the indemnifying party may assume the defense of such action or proceeding at such indemnifying party's own expense with counsel chosen by the indemnifying party and approved by the indemnified party, which approval shall not be 9 unreasonably withheld; provided, however, that the indemnifying party will not settle any such action or proceeding without the written consent of the indemnified party unless, as a condition to such settlement, the indemnifying party secures the unconditional release of the indemnified party; and provided further, that if the indemnified party reasonably determines that a conflict of interest exists where it is advisable for the indemnified party to be represented by separate counsel or that, upon advice of counsel, there may be legal defenses available to it which are different from or in addition to those available to the indemnifying party, then the indemnifying party shall not be entitled to assume such defense and the indemnified party shall be entitled to separate counsel at the indemnifying party's expense. If the indemnifying party is not entitled to assume the defense of such action or proceeding as a result of the second proviso to the preceding sentence, the indemnifying party's counsel shall be entitled to conduct the indemnifying party's defense and counsel for the indemnified party shall be entitled to conduct the defense of the indemnified party, it being understood that both such counsel will cooperate with each other to conduct the defense of such action or proceeding as efficiently as possible. If the indemnifying party is not so entitled to assume the defense of such action or does not assume such defense, after having received the notice referred to in the first sentence of this paragraph, the indemnifying party will pay the reasonable fees and expenses of counsel for the indemnified party. In such event, however, the indemnifying party will not be liable for any settlement effected without the written consent of the indemnifying party. If an indemnifying party is entitled to assume, and assumes, the defense of such action or proceeding in accordance with this paragraph, the indemnifying party shall not be liable for any fees and expenses of counsel for the indemnified party incurred thereafter in connection with such action or proceeding. 3.8 Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Sections 3.5 and 3.6 above is for any reason held to be unenforceable by the indemnified party although applicable in accordance with its terms, the Company and Holder shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement incurred by the Company and Holder, (i) in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and Holder on the other, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative fault of but also the relative benefits to the Company on the one hand and Holder on the other, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits to the indemnifying party and indemnified party shall be determined by reference to, among other things, the total proceeds received by the indemnifying party and indemnified party in connection with the offering to which such losses, claims, damages, liabilities or expenses relate. The relative fault of the indemnifying party and indemnified party shall be determined by reference to, among other things, whether the action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, the indemnifying party or the indemnified party, and 10 the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The parties hereto agree that it would not be just or equitable if contribution pursuant to this Section 3.8 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 3.8, Holder shall not be required to contribute any amount in excess of the amount of the total proceeds to Holder from sales of the Registrable Securities of Holder under the Registration Statement. Notwithstanding the foregoing, no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 3.8, each person, if any, who controls Holder within the meaning of Section 15 of the Act shall have the same rights to contribution as Holder, and each director of the Company, each officer of the Company who signed a Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Act shall have the same rights to contribution as the Company. SECTION 4. EXPENSES The Company shall pay all expenses incident to the performance by the Company of the Company's registration obligations under Sections 2 and 3, including (i) all stock exchange, Commission and state securities registration, listing and filing fees, (ii) all expenses incurred in connection with the preparation, printing and distributing of any Issuer Registration Statement or Registration Statement and Prospectus, and (iii) fees and disbursements of counsel for the Company and of the independent public accountants of the Company. Holder shall be responsible for the payment of any brokerage and sales commissions, fees and disbursements of Holder's counsel, accountants and other advisors, and any transfer taxes relating to the sale or disposition of the Registrable Securities by Holder pursuant to Section 3 or otherwise. SECTION 5. RULE 144 COMPLIANCE The Company covenants that it will use its best efforts to timely file the reports required to be filed by the Company under the Act and the Exchange Act so as to enable Holder to sell Registrable Securities pursuant to Rule 144 under the Act. In connection with any sale, transfer or other disposition by Holder of any Registrable Securities pursuant to Rule 144 under the Act, the Company shall cooperate with Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any Act legend, and enable certificates for such Registrable Securities to be for such number of shares and registered in such names as Holder may reasonably 11 request at least ten (10) Business Days prior to any sale of Registrable Securities hereunder. SECTION 6. MISCELLANEOUS 6.1 Integration; Amendment. This Agreement constitutes the entire agreement between the parties hereto with respect to the matters set forth herein and supersedes and renders of no force and effect all prior oral or written agreements, commitments and understandings among the parties with respect to the matters set forth herein. Except as otherwise expressly provided in this Agreement, no amendment, modification or discharge of this Agreement shall be valid or binding unless set forth in writing and duly executed by the Company and Holder. 6.2 Waivers. No waiver by a party hereto shall be effective unless made in a written instrument duly executed by the party against whom such waiver is sought to be enforced, and only to the extent set forth in such instrument. Neither the waiver by any of the parties hereto of a breach or a default under any of the provisions of this Agreement, nor the failure of any of the parties, on one or more occasions, to enforce any of the provisions of this Agreement or to exercise any right or privilege hereunder shall thereafter be construed as a waiver of any subsequent breach or default of a similar nature, or as a waiver of any such provisions, rights or privileges hereunder. 6.3 Assignment; Successors and Assigns. This Agreement and the rights granted hereunder may not be assigned by Holder without the written consent of the Company, provided, however, that Holder may assign its rights and obligations hereunder, following at least ten (10) days' prior written notice to the Company, to the direct equity owners (e.g., partners or members) or beneficiaries, if, such persons agree in writing to be bound by all of the provisions hereof. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of all of the parties hereto. 6.4 Notices. All notices called for under this Agreement shall be in writing and shall be deemed given upon receipt if delivered personally or by facsimile transmission and followed promptly by mail, or mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the addresses set forth below their names in the signature page hereto, or to any other address or addressee as any party entitled to receive notice under this Agreement shall designate, from time to time, to others in the manner provided in this Section 6.4 for the service of notices; provided, however, that notice of a change of address shall be effective only upon receipt thereof. Any notice delivered to the party hereto to whom it is addressed shall be deemed to have been given and received on the day it was received; provided, however, that if such day is not a Business Day then the notice shall be deemed to have been given and received on the Business Day next following such day and if any party rejects delivery of any notice attempted to be given hereunder, delivery shall be deemed given on the date of such rejection. Any notice sent by facsimile transmission shall be deemed to have been given and received on the Business Day next following the transmission. 12 6.5 Specific Performance. The Parties hereto acknowledge that the obligations undertaken by them hereunder are unique and that there would be no adequate remedy at law if either party fails to perform any of its obligations hereunder, and accordingly agree that each party, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to (i) compel specific performance of the obligations, covenants and agreements of the other party under this Agreement in accordance with the terms and conditions of this Agreement and (ii) obtain preliminary injunctive relief to secure specific performance and to prevent a breach or contemplated breach of this Agreement in any court of the United States or any State thereof having jurisdiction. 6.6 Governing Law. This Agreement, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of Michigan, but not including the choice of law rules thereof. 6.7 Headings. Section and subsection headings contained in this Agreement are inserted for convenience of reference only, shall not be deemed to be a part of this Agreement for any purpose, and shall not in any way define or affect the meaning, construction or scope of any of the provisions hereof. 6.8 Pronouns. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the person or entity may require. 6.9 Execution in Counterparts. To facilitate execution, this Agreement may be executed in as many counterparts as may be required. It shall not be necessary that the signature of or on behalf of each party appears on each counterpart, but it shall be sufficient that the signature of or on behalf of each party appears on one or more of the counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in any proof of this Agreement to produce or account for more than a number of counterparts containing the respective signatures of or on behalf of both of the parties. 6.10 Severability. If fulfillment of any provision of this Agreement, at the time such fulfillment shall be due, shall transcend the limit of validity prescribed by law, then the obligation to be fulfilled shall be reduced to the limit of such validity; and if any clause or provision contained in this Agreement operates or would operate to invalidate this Agreement, in whole or in part, then such clause or provision only shall be held ineffective, as though not herein contained, and the remainder of this Agreement shall remain operative and in full force and effect. 13 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed on its behalf as of the date first herein above set forth. TAUBMAN CENTERS, INC. By: /s/ Lisa A. Payne Name: Lisa A. Payne Title: Executive Vice President Address: 200 East Long Lake Road Suite 300 Bloomfield Hills, MI 48304 GOLDMAN SACHS 1999 EXCHANGE PLACE FUND L.P. By: /s/ Elizabeth C. Groves Name: Elizabeth C. Groves Title: Address: c/o Goldman Sachs & Co. One New York Plaza New York, New York 10004 Attn: Elizabeth C. Groves EX-12 6 TAUBMAN CENTERS, INC. RATIO OF EARNINGS Exhibit 12 TAUBMAN CENTERS, INC. Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Dividends and Distributions (in thousands, except ratios) Nine Months Ended September 30 ------------------------------ 1999 1998 ---- ---- Net Earnings from Continuing Operations $ 42,137 $ 53,095 Add back: Fixed charges 78,310 115,094 Amortization of previously capitalized interest (1) 1,617 1,842 Equity in net income in excess of distributions of less than 50% owned Unconsolidated Joint Ventures (108) Deduct: Capitalized interest (1) (11,125) (13,699) --------- --------- Earnings Available for Fixed Charges and Preferred Dividends and Distributions $ 110,831 $ 156,332 ========== =========== Fixed Charges Interest expense $ 38,231 $ 66,662 Capitalized interest 10,570 12,830 Interest portion of rent expense 3,033 5,258 Proportionate share of Unconsolidated Joint Ventures' fixed charges 26,476 30,344 ----------- ---------- Total Fixed Charges $ 78,310 $ 115,094 ----------- ---------- Preferred Dividends and Distributions 12,975 12,450 ----------- ---------- Total Fixed Charges and Preferred Dividends and Distributions $ 91,285 $ 127,544 =========== ========== Ratio of Earnings to Fixed Charges and Preferred Dividends and Distributions 1.2 1.2 - ---------------- (1) Amounts include TRG's pro rata share of capitalized interest and amortization of previously capitalized interest of the Unconsolidated Joint Ventures. EX-27 7 FDS -- ARTICLE 5, 3RD QTR 1999 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TAUBMAN CENTERS, INC. (TCO) CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND THE TAUBMAN CENTERS, INC. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000890319 TAUBMAN CENTERS, INC. 1,000 U.S. DOLLARS 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1 14,795 0 31,665 1,557 0 0 1,571,917 198,557 1,554,412 0 868,120 0 111 533 491,603 1,554,412 0 196,803 0 131,926 0 0 38,231 42,137 0 42,137 0 (301) 0 18,788 .12 .11 EXCEPT FOR PER SHARE DATA. TCO HAS AN UNCLASSIFIED BALANCE SHEET. REPRESENTS INCOME BEFORE EXTRAORDINARY ITEM AND MINORITY AND PREFERRED INTERESTS. THE DEDUCTION FOR MINORITY AND PREFERRED INTERESTS WAS $23.048 MILLION.
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