-----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, K1966Z0k7/K0g44ceWWHvcaKE1f6Hhsu117tVZR8Dtux0UBD5N+LS4Bc5CUHxqQu dbTVrpyLY3FKqBWA8Z1NYQ== 0000950137-02-002919.txt : 20020513 0000950137-02-002919.hdr.sgml : 20020513 ACCESSION NUMBER: 0000950137-02-002919 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL GROWTH PROPERTIES INC CENTRAL INDEX KEY: 0000895648 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 421283895 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11656 FILM NUMBER: 02644289 BUSINESS ADDRESS: STREET 1: 110 N WACKER DRIVE STREET 2: STE 3100 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3129605000 MAIL ADDRESS: STREET 1: 110 N WACKER DRIVE STREET 2: STE 3100 CITY: CHICAGO STATE: IL ZIP: 60606 10-Q 1 c69409e10-q.txt FORM 10-Q FOR QUARTER ENDING MARCH 31, 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 Commission file number 1-11656 GENERAL GROWTH PROPERTIES, INC. ------------------------------- (Exact name of registrant as specified in its charter) Delaware 42-1283895 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 110 N. Wacker Dr., Chicago, IL 60606 ------------------------------------ (Address of principal executive offices, Zip Code) (312) 960-5000 -------------- (Registrant's telephone number, including area code) N / A (Former name, former address and former fiscal year, if changed since last report) 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 ----- ----- The number of shares of Common Stock, $.10 par value, outstanding on May 10, 2002 was 62,162,808. GENERAL GROWTH PROPERTIES, INC. ------------------------------- INDEX ----- PAGE NUMBER ------ PART I FINANCIAL INFORMATION Item 1: Financial Statements Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001............. 3 Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2002 and 2001................................ 4 Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001..... 5 Notes to Consolidated Financial Statements............. 6 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 21 Liquidity and Capital Resources of the Company......... 23 Item 3: Quantitative and Qualitative Disclosures about Market Risk.................................. 27 PART II OTHER INFORMATION. Item 6: Exhibits and Reports on Form 8-K................... 28 SIGNATURE................................................... 29 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GENERAL GROWTH PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS MARCH 31, 2002 AND DECEMBER 31, 2001 (UNAUDITED) (Dollars in thousands, except for per share and per unit amounts)
ASSETS ------ MARCH 31, 2002 DECEMBER 31, 2001 -------------- ----------------- Investment in real estate: Land $ 649,814 $ 649,312 Buildings and equipment 4,421,257 4,383,358 Less accumulated depreciation (660,712) (625,544) Developments in progress 63,882 57,436 ----------- ----------- Net property and equipment 4,474,241 4,464,562 Investment in and loans from Unconsolidated Real Estate Affiliates 632,274 617,677 ----------- ----------- Net investment in real estate 5,106,515 5,082,239 Cash and cash equivalents 115,765 160,755 Marketable securities 154,594 155,103 Tenant accounts receivable, net 97,875 93,043 Deferred expenses, net 95,722 96,656 Prepaid expenses and other assets 56,235 59,011 ----------- ----------- $ 5,626,706 $ 5,646,807 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Mortgage notes and other debt payable $ 3,390,375 $ 3,398,207 Distributions payable 62,438 62,368 Network discontinuance reserve 4,675 5,161 Accounts payable and accrued expenses 96,283 104,826 ----------- ----------- 3,553,771 3,570,562 Minority interests: Redeemable Preferred Units 175,000 175,000 Common Units 379,561 380,359 ----------- ----------- 554,561 555,359 Commitments and contingencies - - Preferred Stock: $100 par value; 5,000,000 shares authorized; 337,500 337,500 345,000 designated as PIERS (Note 1) which are convertible and carry a $1,000 liquidation value, 337,500 of which were issued and outstanding at March 31, 2002 and December 31, 2001 Stockholders' Equity: Common stock: $.10 par value; 210,000,000 shares authorized; 62,027,430 and 61,923,932 shares issued and outstanding as of March 31, 2002 and December 31, 2001, respectively 6,203 6,192 Additional paid-in capital 1,526,086 1,523,213 Retained earnings (accumulated deficit) (337,232) (328,349) Notes receivable-common stock purchase (21,994) (19,890) Accumulated other comprehensive income 7,811 2,220 ----------- ----------- Total stockholders' equity 1,180,874 1,183,386 ----------- ----------- $ 5,626,706 $ 5,646,807 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 3 of 29 GENERAL GROWTH PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED) (Dollars in thousands, except per share and per unit amounts) THREE MONTHS ENDED MARCH 31, 2002 2001 ----------- ---------- Revenues: Minimum rents $ 119,572 $ 112,060 Tenant recoveries 57,135 55,150 Overage rents 5,432 4,137 Fees 19,047 18,341 Other 2,953 2,282 ----------- ---------- Total revenues 204,139 191,970 Expenses: Real estate taxes 13,816 13,953 Property operating 63,350 56,404 Provision for doubtful accounts 2,001 1,175 General and administrative 1,241 1,517 Depreciation and amortization 38,430 33,125 ----------- ---------- Total operating expenses 118,838 106,174 ----------- ---------- Operating income 85,301 85,796 Interest income 1,096 1,333 Interest expense (48,155) (55,262) (Income) loss allocated to minority interests (13,842) (11,625) Equity in income of unconsolidated affiliates 13,183 9,829 ----------- ---------- Income (loss) before extraordinary items and cumulative effect of accounting change 37,583 30,071 Extraordinary items (32) - Cumulative effect of accounting change - (3,334) ----------- ---------- Net income (loss) 37,551 26,737 Convertible Preferred Stock Dividends (6,117) (6,117) ----------- ---------- Net income (loss) available to common stockholders $ 31,434 $ 20,620 =========== ========== Earnings (loss) before extraordinary items and cumulative effect of accounting change per share-basic $ 0.51 $ 0.46 =========== ========== Earnings (loss) before extraordinary items and cumulative effect of accounting change per share-diluted $ 0.51 $ 0.46 =========== ========== Earnings (loss) per share-basic $ 0.51 $ 0.39 =========== ========== Earnings (loss) per share-diluted $ 0.51 $ 0.39 =========== ========== Distributions declared per share $ 0.65 $ 0.53 =========== ========== Net income (loss) $ 37,551 $ 26,737 Other comprehensive income (loss): Net unrealized gains on financial instruments, net of minority interest 5,422 - Equity in unrealized gains on available-for-sale securities of unconsolidated affiliate, net of minority interest 169 267 ----------- ---------- Comprehensive income (loss) $ 43,142 $ 27,004 =========== ========== The accompanying notes are an integral part of these consolidated financial statements. 4 of 29 GENERAL GROWTH PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED) (Dollars in thousands, except for per share amounts) THREE MONTHS ENDED MARCH 31, 2002 2001 ----------- ---------- Cash flows from operating activities: Net Income $ 37,551 $ 26,737 Adjustments to reconcile net income to net cash provided by operating activities: Minority interests 13,842 11,625 Extraordinary items 32 - Cumulative effect of accounting change - 3,334 Equity in net income of unconsolidated affiliates (13,183) (9,829) Provision for doubtful accounts 2,001 1,175 Income distributions received from unconsolidated affiliates 5,387 9,829 Depreciation 35,168 30,366 Amortization 4,119 4,646 Net Changes: Tenant accounts receivable (6,833) 4,779 Prepaid expenses and other assets 9,693 (2,217) Increase in deferred expenses (3,218) (5,746) Accounts payable and accrued expenses (9,009) (40,368) ----------- ---------- Net cash provided by (used in) operating activities 75,550 34,331 ----------- ---------- Cash flows from investing activities: Acquisition/development of real estate and improvements and additions to properties (45,281) (112,267) Increase in investments in unconsolidated affiliates (11,492) (7,732) Distributions received from unconsolidated affiliates in excess of income 5,143 12,774 Loans from unconsolidated affiliates 386 - Decrease in investments in marketable securities 509 - ----------- ---------- Net cash provided by (used in) investing activities (50,735) (107,225) ----------- ---------- Cash flows from financing activities: Cash distributions paid to common stockholders (40,266) (27,744) Cash distributions paid to minority interests (12,722) (10,385) Cash distributions paid to holders of RPUs (3,916) (3,916) Payment of dividends on PIERS (6,117) (6,117) Proceeds from sale of common stock, net of issuance costs 1,048 1,221 Proceeds from issuance of mortgage notes and other debt payable - 185,926 Principal payments on mortgage notes and other debt payable (7,832) (69,310) Increase in deferred expenses - (1,915) ----------- ---------- Net cash provided by (used in) financing activities (69,805) 67,760 ----------- ---------- Net change in cash and cash equivalents (44,990) (5,134) Cash and cash equivalents at beginning of period 160,755 27,229 ----------- ---------- Cash and cash equivalents at end of period $ 115,765 $ 22,095 =========== ========== Supplemental disclosure of cash flow information Interest paid $ 47,641 $ 58,296 =========== ========== Interest capitalized 1,837 4,519 =========== ========== Non-cash investing and financing activities: Common stock issued in exchange for Operating Partnership Units $ - $ 575 Acquisition of GGMI - 66,079 Notes receivable issued for exercised stock options 2,104 1,629 Acquisition of property in exchange for tenant note receivable - 8,207 The accompanying notes are an integral part of these consolidated financial statements. 5 OF 29 GENERAL GROWTH PROPERTIES, INC. (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS) NOTE 1 ORGANIZATION Readers of this quarterly report should refer to the Company's audited financial statements for the year ended December 31, 2001 which are included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (Commission File No. 1-11656), as certain footnote disclosures which would substantially duplicate those contained in the 2001 annual audited financial statements have been omitted from this report. Capitalized terms used but not defined in this quarterly report have the same meanings as in the Company's 2001 Annual Report on Form 10-K. GENERAL General Growth Properties, Inc., a Delaware corporation ("General Growth"), was formed in 1986 to own and operate regional mall shopping centers. All references to the "Company" in these Notes to Consolidated Financial Statements include General Growth and those entities owned or controlled by General Growth (including the Operating Partnership and the LLC as described below), unless the context indicates otherwise. Proceeds from General Growth's April 15, 1993 initial public offering of common stock (the "Common Stock") were used to acquire a majority interest in GGP Limited Partnership (the "Operating Partnership") which was formed to succeed to substantially all of the interests in regional mall general partnerships owned and controlled by the Company and its original stockholders. The Company conducts substantially all of its business through the Operating Partnership, which commenced operations on April 15, 1993. During July 1999, General Growth completed a public offering of 10,000,000 shares of Common Stock and received net proceeds of approximately $330,296. During December 2001, General Growth completed a public offering of 9,200,000 shares of Common Stock (the "2001 Offering") and received net proceeds of approximately $345,000. As of March 31, 2002, the Company owned 100% of fifty-four regional shopping centers (the "Wholly-Owned Centers") and 100% of the common stock of General Growth Management, Inc. ("GGMI"). The Company also owned as of such date 50% of the common stock of GGP/Homart, Inc. ("GGP/Homart"), 50% of the membership interests in GGP/Homart II L.L.C. ("GGP/Homart II"), 51% of the common stock of GGP Ivanhoe, Inc. ("GGP Ivanhoe"), 51% of the common stock of GGP Ivanhoe III, Inc. ("GGP Ivanhoe III"), 50% of Quail Springs Mall and Town East Mall and a 50% general partnership interest in Westlake Retail Associates, Ltd. ("Circle T") (collectively, the "Unconsolidated Real Estate Affiliates"). As of such date, GGP/Homart owned interests in twenty-three shopping centers, GGP/Homart II owned interests in eight shopping centers, GGP Ivanhoe owned 100% of two shopping centers, and GGP Ivanhoe III owned 100% of eight shopping centers. These centers, together with Quail Springs Mall and Town East Mall, comprise the "Unconsolidated Centers". Circle T is currently developing a regional mall in Dallas, Texas and as it is not yet operational has been excluded from the definition of the Unconsolidated Centers. Together, the Wholly-Owned Centers and the Unconsolidated Centers comprise the "Company Portfolio" or the "Portfolio Centers". Effective January 1, 2000, General Growth established a Dividend Reinvestment and Stock Purchase Plan ("DRSP"). General Growth has reserved for issuance up to 1,000,000 shares of Common Stock for issuance under the DRSP. The DRSP will, in general, allow participants in the plan to make purchases of Common Stock from dividends received or additional cash investments. Although the purchase price of the Common Stock will be determined by the current market price, the purchases will be made without fees or commissions. General Growth has and will satisfy DRSP Common Stock purchase needs through the issuance of new shares of Common Stock or by repurchases of currently outstanding Common Stock. As of March 31, 2002, an aggregate of 62,170 shares of Common Stock had been issued under the DRSP. 6 of 29 GENERAL GROWTH PROPERTIES, INC. (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS) During May 2000, the Operating Partnership formed GGPLP L.L.C., a Delaware limited liability company ("the LLC"), by contributing its interest in a portfolio of 44 Wholly-Owned Centers to the LLC in exchange for all of the common units of membership interest in the LLC. On May 25, 2000, a total of 700,000 redeemable preferred units of membership interest in the LLC (the "RPUs") were issued to an institutional investor by the LLC. (the "2000 RPUs"). During April 2002 an additional 240,000 RPU's were issued by the LLC to an affiliate of the same institutional investor (the "2002 RPUs") yielding net proceeds of approximately $58,365 which are expected to be used for various upcoming development and acquisition needs. Holders of the RPUs are entitled to receive cumulative preferential cash distributions per RPU at a per annum rate of 8.95% of the $250 liquidation preference thereof (or $5.59375 per quarter) prior to any distributions by the LLC to the Operating Partnership. Subject to certain limitations, the RPUs may be redeemed in cash by the LLC for the liquidation preference amount plus accrued and unpaid distributions and may be exchanged by the holders of the RPUs for an equivalent amount redeemable preferred stock of General Growth. Such preferred stock provides for an equivalent 8.95% annual preferred distribution and is redeemable at the option of General Growth for cash equal to the liquidation preference amount plus accrued and unpaid distributions. The redemption right may be exercised at any time on or after May 25, 2005 with respect to the 2000 RPUs and April 23, 2007 with respect to the 2002 RPUs and the exchange right generally may be exercised at any time on or after May 25, 2010 with respect to the 2000 RPUs and April 23, 2012 with respect to the 2002 RPUs. The RPUs outstanding at March 31, 2002 and December 31, 2001 have been reflected in the accompanying consolidated financial statements as a component of minority interest at the current total liquidation preference amount of $175,000. As of March 31, 2002, General Growth owned an approximate 76% general partnership interest in the Operating Partnership (excluding its preferred units of partnership interest as discussed below). The remaining approximate 24% minority interest in the Operating Partnership is held by limited partners that include trusts for the benefit of the families of the original stockholders who initially owned and controlled the Company and subsequent contributors of properties to the Company. These minority interests are represented by common units of limited partnership interest in the Operating Partnership (the "Units"). The Units can be redeemed at the option of the holders for cash or, at General Growth's election with certain restrictions, for shares of Common Stock on a one-for-one basis. The holders of the Units also share equally with General Growth's common stockholders on a per share basis in any distributions by the Operating Partnership on the basis that one Unit is equivalent to one share of Common Stock. General Growth has issued 13,500,000 depositary shares, each representing 1/40 of a share of 7.25% Preferred Income Equity Redeemable Stock, Series A ("PIERS"), or a total of 337,500 PIERS. The PIERS are reflected on the accompanying consolidated balance sheets at their $1,000 per share liquidation or redemption value. In order to enable General Growth to comply with its obligations in respect to the PIERS, General Growth owns preferred units of limited partnership interest in the Operating Partnership (the "Preferred Units") which have rights, preferences and other privileges, including distribution, liquidation, conversion and redemption rights, that mirror those of the PIERS. Accordingly, the Operating Partnership is required to make all required distributions on the Preferred Units prior to any distribution of cash or assets to the holders of the Units. At March 31, 2002, 100% of the Preferred Units (337,500) were owned by General Growth. On January 1, 2001, the Company acquired for nominal cash consideration 100% of the common stock of GGMI. This transaction was accounted for as a purchase. In connection with the acquisition, the GGMI preferred stock owned by the Company was cancelled and approximately $40,000 of the outstanding loans owed by GGMI to the Company were contributed to the capital of GGMI. In addition, the Company and GGMI concurrently terminated the management contracts for the Wholly-Owned Centers as the management activities would thereafter be performed directly by the Company. GGMI has continued to manage, lease, and perform various other services for the Unconsolidated Centers and other properties 7 of 29 GENERAL GROWTH PROPERTIES, INC. (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS) owned by unaffiliated third parties. Fees recognized by the Company in the three months ended March 31, 2002 and 2001 from its Unconsolidated Real Estate Affiliates for services performed for the Unconsolidated Centers were $13,975 and $13,757, respectively. During 2001, the Company elected that GGMI be treated as a taxable REIT subsidiary as permitted under the Tax Relief Extension Act of 1999. BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of the Company and the Operating Partnership consisting of the fifty-four Wholly-Owned Centers (including those owned by the LLC), GGMI and the unconsolidated investments in GGP/Homart, GGP/Homart II, GGP Ivanhoe, GGP Ivanhoe III, Circle T, Quail Springs Mall and Town East Mall. All significant intercompany balances and transactions have been eliminated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. For example, significant estimates and assumptions have been made with respect to useful lives of assets, capitalization of development and leasing costs, recoverable amounts of receivables and deferred taxes and amortization periods of deferred costs and intangibles. Actual results could differ from those estimates. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the financial position of the Company as of March 31, 2002 and the results of operations for the three months ended March 31, 2002 and 2001 and cash flows for the three months ended March 31, 2002 and 2001 have been included. The results for the interim periods ended March 31, 2002 and 2001 are not necessarily indicative of the results to be obtained for the full fiscal year. Certain amounts in the 2001 consolidated financial statements have been reclassified to conform to the 2002 presentation. EARNINGS PER SHARE ("EPS") Basic per share amounts are based on the weighted average of common shares outstanding of 61,978,563 for 2002 and 52,365,352 for 2001. Diluted per share amounts are based on the total number of weighted average common shares and dilutive securities (stock options) outstanding of 62,103,775 for 2002 and 52,444,296 for 2001. However, certain options outstanding were not included in the computation of diluted earnings per share either because the exercise price of the stock options was higher than the average market price of the Common Stock for the applicable periods and therefore, the effect would be anti-dilutive or because the conditions which must be satisfied prior to the issuance of any such shares were not achieved during the applicable periods. The effect of the issuance of the PIERS is anti-dilutive with respect to the Company's calculation of diluted earnings per share for the three months ended March 31, 2002 and 2001 and therefore has been excluded. The outstanding Units have also been excluded from the Company's calculation of diluted earnings per share as there would be no net effect on the reported EPS amounts since the minority interests' share of income would also be added back to net income. 8 of 29 GENERAL GROWTH PROPERTIES, INC. (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS) The following are the reconciliations of the numerators and denominators of the basic and diluted EPS. THREE MONTHS ENDED MARCH 31, 2002 2001 ----------- ---------- Numerators: Income (loss) before extraordinary items and cumulative effect of accounting change $ 37,583 $ 30,071 Dividends on PIERS (6,117) (6,117) ----------- ---------- Income (loss) available to common stockholders before extraordinary items and cumulative effect of accounting change - for basic and diluted EPS 31,466 23,954 Extraordinary items (32) - Cumulative effect of accounting change - (3,334) ----------- ---------- Net income (loss) available to common stockholders - for basic and diluted EPS $ 31,434 $ 20,620 =========== ========== Denominators: Weighted average common shares outstanding (in thousands) - for basic EPS 61,979 52,365 Effect of dilutive securities - options 125 79 ----------- ---------- Weighted average common shares outstanding (in thousands) - for diluted EPS 62,104 52,444 =========== ========== NOTES RECEIVABLE - OFFICERS As of March 31, 2002, certain officers of the Company were indebted to the Company in the aggregate amount of $21,994 under promissory notes issued by such officers in connection with their exercise of options to purchase an aggregate of 800,000 shares of the Company's Common Stock, including approximately $2,104 advanced to officers for the purchase of 60,000 shares of Common Stock in the first three months of 2002. An additional $2,139 of advances for the purchase of approximately 75,000 shares of Common Stock were made in April 2002. The notes, which bore interest at a rate computed as a formula of a market rate, were full recourse to the officers, were collateralized by the shares of Common Stock issued upon exercise of such stock options, provided for quarterly payments of interest and were payable to the Company on demand. At March 31, 2002, the Company had also cumulatively paid approximately $2,092 representing income tax withholding for such officers. Such amounts carried the same terms as the promissory notes for the Common Stock but were reflected in prepaid and other assets in the accompanying consolidated financial statements. As of April 30, 2002, the Board of Directors of the Company decided to terminate the availability of loans to officers to exercise their options to purchase Common Stock. In conjunction with this decision, the Company and the officers restructured the terms of the promissory notes. Each of the officers repaid no less than 60% of the principal and 100% of the interest due under such officer's note as of April 30, 2002 and the remaining amounts, approximately $10,141, are represented by amended and restated promissory notes. These amended and restated, fully recourse notes are payable in monthly installments of principal and interest (at a market rate which varies monthly computed at LIBOR (1.88% at March 31, 2002) plus 125 basis points per annum) until fully repaid in May 2009 (or within 90 days of the officer's separation from the Company, if earlier). 9 of 29 GENERAL GROWTH PROPERTIES, INC. (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS) REVENUE RECOGNITION Minimum rent revenues are recognized on a straight-line basis over the term of the related leases. As of March 31, 2002, approximately $52,533 has been recognized as straight-line rents receivable (representing the current net cumulative rents recognized prior to when billed and collectible as provided by the terms of the leases), all of which is included in tenant accounts receivable, net in the accompanying consolidated financial statements. In addition, amounts collected from tenants to allow the termination of their leases have been included in minimum rents. Such termination income was approximately $1,500 and $1,200, respectively, for the three months ended March 31, 2002 and 2001. Overage rents are recognized on an accrual basis once tenant sales revenues exceed contractual tenant lease thresholds. Recoveries from tenants for taxes, insurance and other shopping center operating expenses are recognized as revenues in the period the applicable costs are incurred. The Company provides an allowance for doubtful accounts against the portion of accounts receivable which is estimated to be uncollectible. Such allowances are reviewed periodically based upon the recovery experience of the Company. COMPREHENSIVE INCOME Comprehensive income is a more inclusive financial reporting methodology that encompasses net income and all other changes in equity except those resulting from investments by and distributions to equity holders. Included in comprehensive income but not net income are unrealized gains or losses on marketable securities classified as available-for-sale and unrealized gains or losses on financial instruments designated as cash flow hedges (Note 4). In addition, one of the Company's unconsolidated affiliates received common stock of a large, publicly traded real estate company as part of a 1998 transaction. During 2001, portions of the holdings of such stocks were sold and the cumulative previously unrealized losses for the stock sold were realized. Cumulative net unrealized losses on such remaining securities through December 31, 2001 were $169, net of minority interest and were reflected as accumulated equity in other comprehensive loss of unconsolidated affiliate. For the three months ended March 31, 2001 the Company increased its carrying amount for its investment in such unconsolidated affiliate by $367 and reflected $267 as other comprehensive gain, net of minority interest of $100, as its equity in such unconsolidated affiliate's unrealized gain on such securities. During the three months ended March 31, 2002, all remaining holdings of such stock were sold and the remaining cumulative unrealized losses pertaining to such stock holdings were realized. BUSINESS SEGMENT INFORMATION The primary business of General Growth and its consolidated affiliates is owning and operating shopping centers. General Growth evaluates operating results and allocates resources on a property-by-property basis and does not distinguish or evaluate its consolidated operations on a geographic basis. Accordingly, General Growth has determined it has a single reportable segment. Further, all operations are within the United States and no customer or tenant comprises more than 10% of consolidated revenues. STOCK INCENTIVE PLANS General Growth has incentive stock plans pursuant to which certain stock incentive awards in the form of threshold-vesting stock options ("TSOs") are granted to employees. The exercise price of the TSOs to be granted to a participant will be the Fair Market Value ("FMV") of a share of Common Stock on the date the TSO is granted. The threshold price (the "Threshold Price") which must be achieved in order for the TSO to vest will be determined by multiplying the FMV on the date of grant by the Estimated Annual Growth Rate (currently set at 7%) and compounding the product over a five-year period. Shares of the Common Stock must achieve and sustain the Threshold Price for at least 20 consecutive trading days at any time over the 10 of 29 GENERAL GROWTH PROPERTIES, INC. (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS) five years following the date of grant in order for the TSO to vest. All TSOs granted will have a term of 10 years but must vest within 5 years of the grant date in order to avoid forfeiture. The following is a summary of the TSOs that have been awarded as of March 31, 2002. TSO GRANT YEAR 2002 2001 2000 1999 ---- ---- ---- ---- Exercise price $ 40.74 $ 34.73 $ 29.97 $ 31.69 Threshold Vesting Stock Price $ 57.13 $ 48.70 $ 42.03 $ 44.44 Original Grant Shares 259,675 329,996 304,349 313,964 Forfeited at March 31, 2002 (9,947) (35,736) (69,842) (93,995) Vested and exchanged for cash at March 31, 2002 - - (159,340) - Vested and exercised at March 31, 2002 - - (5,354) - -------- -------- --------- -------- Net TSO's outstanding at March 31, 2002 249,728 294,260 69,813 219,969 ======== ======== ========= ======== On March 22, 2002 the then remaining 234,507 TSOs that were granted in 2000 vested. Accordingly, additional compensation expense of approximately $3,355 was recognized for the three months ended March 31, 2002. In addition, the Company extended a limited opportunity to employees with vested TSOs to exchange such options directly for cash (computed as the net proceeds the employee would have received had he or she exercised the options and then immediately sold the resulting stock). At April 6, 2002, the expiration date of the exchange opportunity, an aggregate of 164,556 TSOs had been exchanged for cash, representing total payments of approximately $2,330 and an aggregate of 5,454 TSOs had been exercised. Additionally, on April 29, 2002, the then remaining 219,969 TSO's granted in 1999 vested and the Company will record additional compensation expense of approximately $2,800 for the three months ended June 30, 2002. In May 2002, the Company extended a similar limited exchange opportunity to employees with any vested TSOs. As of the expiration of this exchange opportunity (May 10, 2002), an aggregate of 110,585 additional TSOs are scheduled to be exchanged for cash, representing payments of approximately $1,632, and an additional 30,246 TSOs had been exercised. NOTE 2 PROPERTY ACQUISITIONS AND DEVELOPMENTS On April 8, 2002, the Company announced the execution of an agreement to acquire the stock of Victoria Ward, Limited, a privately held real estate corporation. The principal Victoria Ward assets include 65 fee simple acres in Kakaako, central Honolulu, Hawaii, currently improved with an entertainment, shopping and dining district, which includes Ward Entertainment Center, Ward Warehouse, Ward Village and Village Shops. In total, Victoria Ward currently has 17 properties subject to ground leases and 29 owned buildings containing in the aggregate approximately 878,000 square feet of retail space, as well as approximately 441,000 square feet of office, commercial and industrial leaseable area. The total acquisition price will be approximately $250,000, including the assumption of approximately $50,000 of existing debt. The $200,000 of new funding is expected to come from a combination of secured and unsecured debt. The closing of the acquisition is subject to the satisfaction of customary closing conditions and is currently anticipated to take place on or before June 15, 2002. On March 3, 2002, the Company entered into a definitive merger agreement with JP Realty, Inc. ("JP Realty"), a publicly held real estate investment trust, and its operating partnership subsidiary, Price Development Company, Limited Partnership ("PDC"), pursuant to which JP Realty and PDC will merge with wholly-owned subsidiaries of the Operating Partnership. The total acquisition price will be approximately $1,100,000 which includes assumption of approximately $460,000 in existing debt and approximately $116,000 of existing preferred operating units. Pursuant to the terms of the merger agreement, each 11 of 29 GENERAL GROWTH PROPERTIES, INC. (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS) outstanding share of JP Realty common stock will be converted into $26.10 in cash. Holders of common units of limited partnership interest in PDC will receive $26.10 per unit in cash or, at the election of the holder, .522 8.5% Series B Cumulative Preferred Units of limited partnership interest of the Operating Partnership (convertible into common units of limited partnership interest of the Operating Partnership based on a conversion price of $50 per unit). JP Realty owns or has an interest in 50 properties, including 18-enclosed regional mall centers, 25 anchored community centers, one free-standing retail property and 6 mixed-use commercial/business properties, containing an aggregate of over 15.1 million square feet of GLA in 10 western states. The cash acquisition price is expected to be funded from a combination of secured and unsecured debt, preferred units and available cash and cash equivalents. The transaction is subject to customary closing conditions including approval by the stockholders of JP Realty and is currently anticipated to close in late June or early July of 2002. During April 2001, GGP-Tucson Mall, L.L.C., a wholly-owned subsidiary of the Operating Partnership ("GGP-Tucson"), agreed to advance $20,000 to an unaffiliated developer in the form of a secured promissory note (bearing interest at 8% per annum) collateralized by such developer's ownership interest in Tucson Mall, a 1.3 million square foot enclosed regional mall in Tucson, Arizona. The promissory note was payable interest only and was due on demand. GGP-Tucson had also entered into an option agreement to purchase Tucson Mall from such developer and its co-tenants in title to the property. On August 15, 2001, the promissory note was repaid in conjunction with GGP-Tucson's completion of its acquisition of Tucson Mall pursuant to the option agreement. The aggregate consideration paid by GGP-Tucson for Tucson Mall was approximately $180,000 which was paid in the form of cash borrowed under the Operating Partnership's revolving line of credit and an approximately $150,000 short-term floating rate acquisition loan. Such acquisition loan was refinanced in December 2001 by the GGP MPTC financing as defined and further discussed in Note 4. All acquisitions completed through March 31, 2002 were accounted for utilizing the purchase method and accordingly, the results of operations are included in the Company's results of operations from the respective dates of acquisition. DEVELOPMENTS The Company has an ongoing program of renovations and expansions at its properties including significant projects currently under construction or recently completed at the Park Mall in Tucson, Arizona; Eden Prairie Mall in Eden Prairie (Minneapolis), Minnesota; Southwest Plaza in Littleton, Colorado; Fallbrook Center in West Hills, California; and Knollwood Mall in St. Louis Park (Minneapolis), Minnesota. During 1999, the Company formed the Circle T joint venture to develop a regional mall in Westlake (Dallas), Texas as further described in Note 3 below. As of March 31, 2002, the Company had invested approximately $16,600 in the joint venture. The Company is currently obligated to fund additional pre-development costs of approximately $800. Actual development costs are not finalized or committed but are anticipated to be funded from a construction loan that is expected to be obtained. The retail site, part of a planned community which is expected to contain a resort hotel, a golf course, luxury homes and corporate offices, is currently planned to contain up to 1.3 million square feet of tenant space including up to six anchor stores, an ice rink and a multi-screen theater. The construction project is currently anticipated to be completed in 2005. The Company also owns and/or is investigating certain other potential development sites (representing a net investment of approximately $21,400), including sites in Toledo, Ohio; West Des Moines, Iowa; and South Sacramento, California but there can be no assurance that development of these sites will proceed. 12 of 29 GENERAL GROWTH PROPERTIES, INC. (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS) NOTE 3 INVESTMENTS IN AND LOANS FROM UNCONSOLIDATED AFFILIATES GGP/HOMART The Company holds a 50% interest in GGP/Homart with the remaining ownership interest held by New York State Common Retirement Fund ("NYSCRF"), the Company's co-investor in GGP/Homart II (described below). At March 31, 2002, GGP/Homart owned interests in twenty-three regional shopping malls, four of which were owned jointly with venture partners. GGP/Homart has REIT status for income tax purposes. The Company shares in the profits and losses, cash flows and other matters relating to GGP/Homart in accordance with its 50% ownership percentage. NYSCRF has an exchange right under the GGP/Homart Stockholders Agreement which permits it to convert its ownership interest in GGP/Homart to shares of Common Stock of General Growth. If such exchange right is exercised, the Company may, at its election, alternatively satisfy such exchange in cash. GGP/HOMART II In November 1999, the Company, together with NYSCRF, formed GGP/Homart II, a Delaware limited liability company which is owned equally by the Company and NYSCRF. GGP/Homart II owns 100% interests in Stonebriar Centre in Frisco (Dallas), Texas, Altamonte Mall in Altamonte Springs (Orlando), Florida, Natick Mall in Natick (Boston), Massachusetts, Northbrook Court in Northbrook (Chicago), Illinois, Alderwood Mall in Lynnwood (Seattle), Washington, Carolina Place in Charlotte, North Carolina, Montclair Plaza in Los Angeles, California, and Willowbrook Mall in Houston, Texas. According to the membership agreement between the venture partners, the Company and NYSCRF share in the profits and losses, cash flows and other matters relating to GGP/Homart II in accordance with their respective 50% ownership percentages. On closing of the GGP MPTC financing, (as defined and described in note 4) approximately $94,996 of the proceeds attributable to GGP/Homart and GGP/Homart II were loaned to the Operating Partnership. The loans, which were comprised of approximately $16,596 by GGP/Homart and $78,400 by GGP/Homart II, bear interest at a rate of 5.5% per annum on the remaining outstanding balance and mature on March 30, 2003. GGP IVANHOE III GGP Ivanhoe III owns 100% interests in Landmark Mall in Alexandria, Virginia; Mayfair Mall and adjacent office buildings in Wauwatosa (Milwaukee), Wisconsin; Meadows Mall in Las Vegas, Nevada; Northgate Mall in Chattanooga, Tennessee; Oglethorpe Mall in Savannah, Georgia; Park City Center in Lancaster, Pennsylvania; Oak View Mall in Omaha, Nebraska; and Eastridge Shopping Mall in San Jose, California. GGP Ivanhoe III, which has elected to be taxed as a REIT, is owned 51% by the Company and 49% by an affiliate of Ivanhoe Cambridge of Montreal, Quebec, Canada ("Ivanhoe"), which is also the Company's joint venture partner in GGP Ivanhoe (described below). The Company and Ivanhoe share in the profits and losses, cash flows and other matters relating to GGP Ivanhoe III in accordance with their respective ownership percentages except that certain major operating and capital decisions (as defined in the stockholders' agreement) require the approval of both stockholders. Accordingly, the Company is accounting for GGP Ivanhoe III using the equity method. 13 of 29 GENERAL GROWTH PROPERTIES, INC. (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS) GGP IVANHOE GGP Ivanhoe owns The Oaks Mall in Gainesville, Florida and Westroads Mall in Omaha, Nebraska. The Company owns a 51% ownership interest in GGP Ivanhoe and Ivanhoe owns the remaining 49% ownership interest. The terms of the stockholders' agreement are similar to those of GGP Ivanhoe III. TOWN EAST MALL / QUAIL SPRINGS MALL The Company owns a 50% interest in Town East Mall, located in Mesquite, Texas and a 50% interest in Quail Springs Mall in Oklahoma City, Oklahoma. The Company shares in the profits and losses, cash flows and other matters relating to Town East Mall and Quail Springs Mall in accordance with its ownership percentage. CIRCLE T The Company, through a wholly-owned subsidiary, owns a 50% general partnership interest in Westlake Retail Associates, Ltd. ("Circle T"). AIL Investment, LP, an affiliate of Hillwood Development Company, ("Hillwood") is the limited partner of Circle T. Circle T is currently developing the Circle T Ranch Mall, a regional mall in Dallas, Texas, scheduled for completion in 2005. Development costs are expected to be funded by a construction loan to be obtained by the joint venture and capital contributions by the joint venture partners. As of March 31, 2002, the Company has made contributions of approximately $16,600 to the project for pre-development costs and Hillwood has contributed approximately $11,200, mostly in the form of land costs and related predevelopment costs. As certain major decisions concerning Circle T must be made jointly by the Company and Hillwood, the Company is accounting for Circle T using the equity method. SUMMARIZED INCOME STATEMENT INFORMATION OF UNCONSOLIDATED REAL ESTATE AFFILIATES The following is summarized income statement information of Unconsolidated Real Estate Affiliates of the Company for the three months ended March 31, 2002 and 2001. THREE MONTHS ENDED MARCH 31, 2002 2001 ---------- ---------- Total Revenues $ 165,447 $ 152,502 Operating expenses 67,826 63,191 Depreciation and amortization 31,618 29,491 ---------- ---------- Operating Income 66,003 59,820 Interest expense, net (31,981) (37,401) Equity in income of unconsolidated real estate affiliates 853 778 Gain (loss) on outparcel sales (269) 10 ---------- ---------- Net Income $ 34,606 $ 23,207 ========== ========== 14 of 29 GENERAL GROWTH PROPERTIES, INC. (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS) NOTE 4 MORTGAGE NOTES AND OTHER DEBT PAYABLE Mortgage notes and other debt payable at March 31, 2002 and December 31, 2001 consisted of the following: MARCH 31, 2002 DECEMBER 31, 2001 Fixed-Rate debt: Mortgage notes payable $2,233,628 $2,239,511 Variable-Rate debt: Mortgage notes payable 949,747 951,696 Credit facilities and bank loan 207,000 207,000 ---------- ---------- Total Variable-Rate debt 1,156,747 1,158,696 ---------- ---------- Total $3,390,375 $3,398,207 ========== ========== FIXED RATE DEBT MORTGAGE NOTES AND OTHER DEBT PAYABLE Mortgage notes and other debt payable consist primarily of fixed rate non-recourse notes collateralized by individual or groups of properties or equipment. Certain mortgage notes payable may be prepaid but are generally subject to a prepayment penalty of a yield-maintenance premium or a percentage of the loan balance. Certain loans have cross-default provisions and are cross-collateralized as part of a group of properties. Under certain cross-default provisions, a default under any mortgage notes included in a cross-defaulted package may constitute a default under all such mortgage notes and may lead to acceleration of the indebtedness due on each property within the collateral package. In general, the cross-defaulted properties are under common ownership. However, GGP Ivanhoe debt collateralized by two GGP Ivanhoe centers (totaling $125,000) is cross-defaulted and cross-collateralized with debt (totaling $435,000) collateralized by eleven Wholly-Owned centers. VARIABLE RATE DEBT MORTGAGE NOTES AND OTHER DEBT PAYABLE Variable rate mortgage notes and other debt payable at March 31, 2002 consist primarily of approximately $949,747 of collateralized mortgage-backed securities, approximately $666,619 of which are currently subject to fixed rate interest swap agreements as described below, and $207,000 outstanding on the Company's Term Loan as described below. The loans bear interest at a rate per annum equal to LIBOR plus 60 to 250 basis points. COMMERCIAL MORTGAGE-BACKED SECURITIES In August 1999, the Company issued $500,000 of commercial mortgage-backed securities, collateralized by the Ala Moana Center. The securities (the "Ala Moana CMBS") are comprised of notes which bear interest at rates per annum ranging from LIBOR plus 50 basis points to LIBOR plus 275 basis points (weighted average equal to LIBOR plus 95 basis points), calculated and payable monthly. The notes were repaid in December 2001 with a portion of the proceeds of the GGP MPTC financing described below. In conjunction with the issuance of the Ala Moana CMBS, the Company arranged for an interest rate cap agreement, the 15 of 29 GENERAL GROWTH PROPERTIES, INC. (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS) effect of which limited the maximum interest rate the Company would be required to pay on the securities to 9% per annum. In September 1999, the Company issued $700,229 of commercial mortgage-backed securities (the "GGP-Ivanhoe CMBS") cross-collateralized and cross-defaulted by a portfolio of nine regional malls and an office complex adjacent to one of the regional malls (five Wholly-Owned Centers and four properties owned by GGP Ivanhoe III). The GGP-Ivanhoe CMBS was comprised of notes which bore interest at rates per annum ranging from LIBOR plus 52 basis points to LIBOR plus 325 basis points (weighted average equal to LIBOR plus approximately 109 basis points), calculated and payable monthly. The notes were repaid in December 2001 with a portion of the proceeds of the GGP MPTC financing described below. In conjunction with the issuance of the GGP-Ivanhoe CMBS, the Company arranged for an interest rate cap agreement, the effect of which was to limit the maximum interest rate the Company would be required to pay on the securities to 9.03% per annum. No amounts were received on the cap agreement in 2001. Approximately $340,000 of the proceeds from the sale of the GGP-Ivanhoe CMBS repaid amounts collateralized by the GGP Ivanhoe III properties and the remaining approximately $360,000 repaid amounts collateralized by the Wholly-Owned Centers in the GGP-Ivanhoe CMBS portfolio of properties. In early December 2001, the Operating Partnership and certain Unconsolidated Real Estate Affiliates completed the placement of $2,550,000 of non-recourse commercial mortgage pass-through certificates (the "GGP MPTC"). The GGP MPTC is collateralized by 27 malls and one office building, including 19 malls owned by certain Unconsolidated Real Estate Affiliates. The GGP MPTC is comprised of both variable rate and fixed rate notes which require monthly payments of principal and interest. The certificates represent beneficial interests in three loan groups made by three sets of borrowers (GGP/Homart-GGP/Homart II, Wholly-Owned and GGP Ivanhoe III). The original principal amount of the GGP MPTC was comprised of $1,235,000 attributed to the Operating Partnership, $900,000 to GGP/Homart and GGP/Homart II and $415,000 to GGP Ivanhoe III. The three loan groups are comprised of variable rate notes with a 36 month initial maturity (with two no cost 12-month extension options), variable rate notes with a 51 month initial maturity (with two no cost 18-month extension options) and fixed rate notes with a 5 year maturity. The 36 month variable rate notes bear interest at rates per annum ranging from LIBOR plus 60 to 235 basis points (weighted average equal to 79 basis points), the 51 month variable rate notes bear interest at rates per annum ranging from LIBOR plus 70 to 250 basis points (weighted average equal to 103 basis points) and the 5 year fixed rate notes bear interest at rates per annum ranging from approximately 5.01% to 6.18% (weighted average equal to 5.38%). The extension options with respect to the variable rate notes are subject to obtaining extensions of the interest rate protection agreements which were required to be obtained in conjunction with the GGP MPTC. Concurrent with the issuance of the certificates, the Company purchased interest rate protection agreements (structured to limit the Company's exposure to interest rate fluctuations in a manner similar to the interest rate cap agreements purchased in connection with the Ala Moana and GGP-Ivanhoe CMBS), and simultaneously an equal amount of interest rate protection agreements were sold to fully offset the effect of these agreements and to recoup a substantial portion of the cost of such agreements. Further, to achieve a more desirable balance between fixed and variable rate debt, the Company entered into a notional amount of $666,933 of swap agreements. Approximately $575,000 of such swap agreements are with independent financial services firms and approximately $91,619 is the current amount with GGP Ivanhoe III in order to provide Ivanhoe with only variable rate debt. The notional amounts of such swap agreements decline over time to an aggregate of $25,000 at maturity of the 51 month variable rate loans (assuming both 18 month extension options are exercised). The swap agreements convert the related variable rate debt to fixed rate debt currently bearing interest at a weighted average rate of 4.85% per annum. Such swap agreements have been designated as hedges of related variable rate debt. 16 of 29 GENERAL GROWTH PROPERTIES, INC. (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS) On June 1, 1998 the FASB issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("Statement 133"). Statement 133, as amended, was effective for fiscal years beginning after June 15, 2000. The Company's only hedging activities are the cash flow hedges represented by its interest rate cap and swap agreements relating to its commercial mortgage-backed securities as described above. These agreements either place a limit on the effective rate of interest the Company will bear on such variable rate obligations or fix the effective interest rate on such obligations to a certain rate. The Company has concluded that these agreements are highly effective in achieving its objective of eliminating its exposure to variability in cash flows relating to these variable rate obligations in any interest rate environment for loans subject to swap agreements and for loans with related cap agreements, when LIBOR rates exceed the strike rates of the agreements. However, Statement 133 also requires that the Company fair value the interest rate cap and swap agreements as of the end of each reporting period. Interest rates have declined since these agreements were obtained. The Company adopted Statement 133 January 1, 2001. In accordance with the transition provisions of Statement 133, the Company recorded at January 1, 2001 a loss to earnings of $3,334 as a cumulative-effect type transition adjustment to recognize at fair value the time-value portion of all the interest rate cap agreements that were previously designated as part of a hedging relationship. Included in the $3,334 loss is $704 relating to interest rate cap agreements held by Unconsolidated Real Estate Affiliates. The Company also recorded $112 to other comprehensive income at January 1, 2001 to reflect the then fair value of the intrinsic portion of the interest rate cap agreements. Subsequent changes in the fair value of these agreements will be reflected in current earnings and accumulated other comprehensive income. During 2001, the Company recorded approximately $2,389 of additional other comprehensive income to reflect 2001 changes in the fair value of its interest rate cap and swap agreements. In conjunction with the GGP MPTC financing, all of the debt hedged by the Company's then existing interest rate cap agreements was refinanced. As the related fair values of the previous cap agreements were nominal on the refinancing date, these cap agreements were not terminated and any subsequent changes in the fair value of these cap agreements is reflected in interest expense. Further, certain caps were purchased and sold in conjunction with GGP MPTC financing. These purchased and sold caps do not qualify for hedge accounting and changes in the fair values of these agreements are reflected in interest expense. Finally, certain interest rate swap agreements were entered into to partially fix the interest rates on a portion of the GGP MPTC financing. These swap agreements have been designated as cash flow hedges on $666,619 of the Company's consolidated variable rate debt. CREDIT FACILITIES As of July 31, 2000, the Company obtained a new unsecured revolving credit facility (the "Revolver") in a maximum aggregate principal amount of $135,000 (cumulatively increased to $185,000 through December 2001). The outstanding balance of the Revolver was fully repaid in December 2001 from a portion of the proceeds of the GGP MPTC financing described above and the Revolver was terminated. The Revolver bore interest at a floating rate per annum equal to LIBOR plus 100 to 190 basis points, depending on the Company's average leverage ratio. The Revolver was subject to financial performance covenants including debt to value and net worth ratios, EBITDA ratios and minimum equity values. In January 2001, GGMI borrowed $37,500 under a new revolving line of credit obtained by GGMI and an affiliate, which was guaranteed by General Growth and the Operating Partnership. This revolving line of credit was scheduled to mature in July 2003 but was fully repaid in December 2001 from a portion of the proceeds of the GGP MPTC financing described above and the line of credit was terminated. The interest rate per annum with respect to any borrowings varied from LIBOR plus 100 to 190 basis points depending on the Company's average leverage ratio. 17 of 29 GENERAL GROWTH PROPERTIES, INC. (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS) INTERIM FINANCING As of July 31, 2000, the Company obtained an unsecured bank term loan (the "Term Loan") in a maximum principal amount of $100,000. As of September 30, 2001, the maximum principal amount of the Term Loan had been increased to $255,000 and, as of such date, all amounts available under the Term Loan were fully drawn. During the fourth quarter of 2001, approximately $48,000 of the principal amount of the Term Loan was repaid from a portion of the 2001 Offering. Term Loan proceeds were used to fund ongoing redevelopment projects and repay a portion of the remaining balance of the bank loan described in the paragraph immediately above. The Term Loan has a maturity of July 31, 2003 and bears interest at a rate per annum of LIBOR plus 100 to 170 basis points depending on the Company's average leverage ratio. In March 2001, the Company obtained a $65,000 redevelopment loan collateralized by Eden Prairie Mall. The new loan had an initial draw of approximately $19,400, required monthly payments of interest at a rate of LIBOR plus 190 basis points and was scheduled to mature in April 2004. In December 2001, this loan, with a then outstanding balance of approximately $44,079, was repaid with a portion of the proceeds of the 2001 Offering. CONSTRUCTION LOAN During April 1999, the Company received $30,000 representing the initial loan draw on a $110,000 construction loan facility. The facility was collateralized by and provided financing for the RiverTown Crossings Mall development (including outparcel development) in Grandville (Grand Rapids), Michigan. The construction loan provided for periodic funding as construction and leasing continued and bore interest at a rate per annum of LIBOR plus 150 basis points. As of July 17, 2000 additional loan draws of approximately $80,000 had been made and no further amounts were available under the construction loan facility. Interest was due monthly. The loan had been scheduled to mature on June 30, 2001 and was refinanced on June 28, 2001 with a non-recourse, long-term mortgage loan. The new $130,000 non-recourse mortgage loan bears interest at 7.53% per annum and matures on July 1, 2011. LETTERS OF CREDIT As of March 31, 2002 and December 31, 2001, the Operating Partnership had outstanding letters of credit of $14,224 and $13,200, respectively, primarily in connection with special real estate assessments and insurance requirements. 18 of 29 GENERAL GROWTH PROPERTIES, INC. (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS) NOTE 5 DISTRIBUTIONS PAYABLE The following is a chart of the previous common and preferred distributions for the Company paid in 2002 and 2001. As described in Note 1, General Growth's preferred stock dividends to its preferred stockholders were in the same amount as the Operating Partnership's distributions to General Growth on the same dates with respect to the Preferred Units held by General Growth. COMMON DISTRIBUTIONS - ------------------------------------------------------------------------------- GENERAL OPERATING GROWTH PARTNERSHIP DECLARATION AMOUNT PER RECORD PAYMENT STOCKHOLDERS LIMITED PARTNERS DATE SHARE DATE DATE AMOUNT AMOUNT ---- ----- ---- ---- ------ ------ 03/21/02 $ 0.65 04/15/02 04/30/02 $ 40,317 $ 12,722 12/10/01 0.65 01/14/02 01/31/02 40,266 12,722 09/20/01 0.65 10/15/01 10/31/01 34,262 12,722 06/23/01 0.53 07/06/01 07/31/01 27,801 10,373 03/21/01 0.53 04/06/01 04/30/01 27,778 10,373 12/12/00 0.53 01/05/01 01/31/01 27,744 10,385 PREFERRED DISTRIBUTIONS ---------------------------------- Record Payment Amount per Date Date Share ---- ---- ----- 04/05/02 04/15/02 $ 0.4531 01/04/02 01/15/02 0.4531 10/05/01 10/15/01 0.4531 07/06/01 07/13/01 0.4531 04/06/01 04/16/01 0.4531 01/05/01 01/15/01 0.4531 NOTE 6 COMMITMENTS AND CONTINGENCIES In the normal course of business, from time to time, the Company is involved in legal actions relating to the ownership and operations of its properties. In management's opinion, the liabilities if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company. The Company periodically enters into contingent agreements for the acquisition of properties. Each acquisition is subject to satisfactory completion of due diligence and, in the case of developments, completion of the project. NOTE 7 NETWORK DISCONTINUANCE COSTS AND OTHER INTERNET INITIATIVES The Company discontinued its Network Services development activities on June 29, 2001, as retailer demand for such services had not developed as anticipated. The discontinuance of the Network Services development activities resulted in a non-recurring, pre-tax charge to second quarter 2001 earnings of $65,000. In addition, the Company recognized $1,000 of net incremental discontinuance costs in the third 19 of 29 GENERAL GROWTH PROPERTIES, INC. (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS) quarter of 2001. This third quarter amount was comprised of approximately $1,366 of incremental discontinuance costs (primarily payroll and severance costs) and approximately $366 of reduction in the Network discontinuance reserve. Such reduction in the Network discontinuance reserve was primarily due to the settlement of obligations to Network Services vendors and consultants at amounts lower than originally contracted for. Minor reductions to the Network discontinuance reserve have been made in late 2001 and in the three months ended March 31, 2002 due to settlements or anticipated settlements with additional vendors and the Company will further reduce the Network discontinuance reserve as additional settlements are agreed to (expected to be finalized in the next 12 months). NOTE 8 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In April 2002, the FASB issued Statement No. 145 "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("Statement No 145"). Generally, Statement No. 145 has the effect of suspending the treatment of debt extinguishment costs as extraordinary items. Statement No. 145 is effective for the year ended December 31, 2003. Accordingly, in the comparative statements presented in the year of adoption, the Company will reclass debt extinguishment costs that are classified under current accounting standards as extraordinary items to other interest costs. 20 of 29 GENERAL GROWTH PROPERTIES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All references to numbered Notes are to specific footnotes to the Consolidated Financial Statements of the Company included in this quarterly report and which descriptions are hereby incorporated herein by reference. The following discussion should be read in conjunction with such Consolidated Financial Statements and related Notes. Capitalized terms used but not defined in this Management's Discussion and Analysis of Financial Condition and Results of Operations have the same meanings as in such Notes. FORWARD-LOOKING INFORMATION Certain statements contained in this Quarterly Report on Form 10-Q may include certain forward-looking information statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including (without limitation) statements with respect to anticipated future operating and financial performance, growth and acquisition opportunities and other similar forecasts and statements of expectation. Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates" and "should" and variations of these words and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information or otherwise. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions. Representative examples of these factors include (without limitation) general industry and economic conditions, interest rate trends, cost of capital and capital requirements, availability of real estate properties, inability to consummate acquisition opportunities, competition from other companies and venues for the sale/distribution of goods and services, changes in retail rental rates in the Company's markets, shifts in customer demands, tenant bankruptcies or store closures, changes in vacancy rates at the Company's properties, changes in operating expenses, including employee wages, benefits and training, governmental and public policy changes, changes in applicable laws, rules and regulations (including changes in tax laws), the ability to obtain suitable equity and/or debt financing, and the continued availability of financing in the amounts and on the terms necessary to support the Company's future business. USE OF ESTIMATES AND SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. For example, significant estimates and assumptions have been made with respect to useful lives of assets, capitalization of development and leasing costs, recoverable amounts of receivables and deferred taxes and amortization periods of deferred costs and intangibles. Actual results could differ from those estimates. CERTAIN INFORMATION ABOUT THE COMPANY PORTFOLIO As of March 31, 2002, the Company owns 100% of the fifty-four Wholly-Owned Centers, 50% of the common stock of GGP/Homart, 50% of the membership interest in GGP/Homart II, 51% of the common stock of GGP Ivanhoe, 51% of the common stock of GGP Ivanhoe III and 50% of Quail Springs Mall and Town East Mall. 21 of 29 GENERAL GROWTH PROPERTIES, INC. GGP/Homart owns interests in twenty-three shopping centers, GGP/Homart II owns interests in eight shopping centers, GGP Ivanhoe owns interests in two shopping centers, and GGP Ivanhoe III owns interests in eight shopping centers (collectively, with the Wholly-Owned Centers, Quail Springs Mall and Town East Mall, the "Company Portfolio"). The following data on the Company Portfolio is for 100% of the non-anchor GLA of the centers, excluding centers currently being redeveloped and/or remerchandised. On March 31, 2002, the Mall Store and Freestanding Store portions of the centers in the Company Portfolio which were not undergoing redevelopment were approximately 89.1% occupied as of such date, representing approximately the same occupancy percentage which existed on March 31, 2001 but representing a decrease in occupancy percentage of 1.9% as compared to December 31, 2001. Such minor occupancy declines are typical of the usual retail cycle and the decline in 2002 is comparable to the first quarter decline in 2001 as compared to December 31, 2000. Total annualized Mall Store sales averaged $356 per square foot for the Company Portfolio in the three months ended March 31, 2002. In the three months ended March 31, 2002, total Mall Store sales for the Company Portfolio increased by 0.2 % over the same period in 2001. Comparable Mall Store sales are sales of those tenants that were open the previous 12 months. Therefore, comparable Mall Store sales in the three months ended March 31, 2002 are of those tenants that were operating in the three months ended March 31, 2001. Comparable mall store sales in the three months ended March 31, 2002 decreased by 1.4% over the same period in 2001. The average Mall Store rent per square foot from leases that expired in the three months ended March 31, 2002 was $29.90 The Company Portfolio benefited from increasing rents inasmuch as the average Mall Store rent per square foot on new and renewal leases executed during this same period was $34.99, or $5.09 per square foot above the average for expiring leases. Company revenues are primarily derived from tenants in the form of fixed minimum rents, overage rents and recoveries of operating expenses. Inasmuch as the Company's consolidated financial statements reflect the use of the equity method to account for its investments in GGP/Homart, GGP/Homart II, GGP Ivanhoe, GGP Ivanhoe III, Quail Springs Mall and Town East Mall, the discussion of results of operations of the Company below relates primarily to the revenues and expenses of the Wholly-Owned Centers and GGMI. RESULTS OF OPERATIONS OF THE COMPANY THREE MONTHS ENDED MARCH 31, 2002 AND 2001 Total revenues for the three months ended March 31, 2002 were $204.1 million, which represents an increase of $12.1 million or approximately 6.3% from $192.0 million in the three months ended March 31, 2001. The acquisition of Tucson Mall in August 2001 (Note 2) was responsible for approximately $5.6 million of the increase in total revenues. Minimum rent for the three months ended March 31, 2002 increased by $7.5 million or 6.7% from $112.1 million in the comparable period in 2001 to $119.6 million. The net effect of the acquisition of Tucson Mall comprised $3.6 million of such increase in minimum rents and the remainder was due primarily to base rents on expansion space and specialty leasing increases at the comparable centers (properties owned for the entire time during the three months ended March 31, 2001 and 2002). Fees and Other income increased by a net $1.4 million or 6.8% from $20.6 million to $22.0 million for the three months ended March 31, 2002 primarily due to increases in leasing fees. Total expenses, including depreciation and amortization, increased by approximately $12.6 million or 11.9%, from $106.2 million in the three months ended March 31, 2001 to $118.8 million in the three months ended March 31, 2002. For the three months ended March 31, 2002, property operating expenses increased by $7.0 million or 12.4% from $56.4 million in 2001 to $63.4 million in the first quarter of 2002, approximately $1.2 22 of 29 GENERAL GROWTH PROPERTIES, INC. million of which was attributable to the net effect of the acquisition of Tucson Mall. The remainder was primarily due to approximately $5.2 million in increases in net payroll and professional services costs including approximately $3.4 million of compensation expenses recognized due to the vesting of certain of the Company's TSOs as described in Note 1. Depreciation and amortization increased by $5.3 million or 16.0% over the same period in 2002. The majority of the increase in depreciation and amortization was generated by the completion of certain renovation projects and the resulting commencement of depreciation and the net effect of the acquisition of Tucson Mall. Interest expense for the three months ended March 31, 2002 was $48.2 million, a decrease of $7.1 million or 12.8%, from $55.3 million in the three months ended March 31, 2001. This decrease was primarily due to reduced interest rates in 2002 as compared to 2001. This decrease was partially offset by the acquisition of Tucson Mall (which was responsible for an increase of approximately $1.3 million) and increased debt at the comparable centers. Equity in income of unconsolidated affiliates in the three months ended March 31, 2002 increased by approximately $3.4 million to earnings of $13.2 million in 2002, from $9.8 million in the three months ended March 31, 2001 primarily due to reduced net interest expense for such affiliates in 2002 due to reduced interest rates on their mortgage loans primarily due to refinancings in 2001. In addition, the Company's equity in the earnings of GGP Ivanhoe III increased approximately $1 million, primarily due to increases in minimum rents, tenant recoveries and specialty leasing revenues at the properties. The Company's equity in the earnings of GGP/Homart II resulted in an increase in earnings of approximately $1.2 million for the three months ended March 31, 2001 primarily due to increases in the operations of comparable centers and the acquisition of Willowbrook Mall in March 2001. LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY As of March 31, 2002, the Company held approximately $115.8 million of unrestricted cash and cash equivalents. Also at March 31, 2002, the Company held approximately $154.6 million of marketable securities. Such marketable securities represent a portion of the certificates issued through the GGP MPTC financing (Note 4) and are secured by 28 properties included in the Company Portfolio. The Company uses operating cash flow as the principal source of internal funding for short-term liquidity and capital needs such as tenant construction allowances and minor improvements made to individual properties that are not recoverable through common area maintenance charges to tenants. External funding alternatives for longer-term liquidity needs such as acquisitions, new development, expansions and major renovation programs at individual centers include construction loans, mini-permanent loans, long-term project financing, joint venture financing with institutional partners, additional Operating Partnership level or Company level equity investments and unsecured Company level debt or secured loans collateralized by individual shopping centers. In addition, the Company considers its Unconsolidated Real Estate Affiliates as potential sources of short and long-term liquidity. In such regard, the Company has borrowed approximately $95 million from GGP/Homart and GGP/Homart II (bearing interest at 5.5% per annum and due March 30, 2003). Also, in order to maintain its access to the public equity and debt markets, the Company has a currently effective shelf registration statement under which up to $2 billion in equity or debt securities could be issued from time to time. The Company also believes it could obtain, if necessary, revolving credit facilities similar to those which were fully repaid in December 2001 with a portion of the proceeds of the GGP MPTC financing. Finally, the Company has a term loan (Note 4) under which approximately $207 million has been borrowed as of March 31, 2002 which matures on July 31, 2003. 23 of 29 GENERAL GROWTH PROPERTIES, INC. At March 31, 2002, the Company had direct or indirect ("pro rata") mortgage and other debt of approximately $4,998.2 million. The following table reflects the maturity dates of the Company's pro rata debt and the related interest rates, after the effect of the current swap agreements of the Company as described in Note 4. COMPANY PORTFOLIO DEBT MATURITY AND CURRENT AVERAGE INTEREST RATE SUMMARY (a) AS OF MARCH 31, 2002 -------------------- (Dollars in Thousands)
WHOLLY-OWNED UNCONSOLIDATED COMPANY CENTERS CENTERS PORTFOLIO DEBT --------------------- --------------------- -------------------- CURRENT CURRENT AVERAGE AVERAGE AVERAGE MATURING INTEREST MATURING INTEREST MATURING INTEREST YEAR AMOUNT(a) RATE (c) AMOUNT(a) RATE(c) AMOUNT(a) RATE(c) ---- ----------- -------- ---------- -------- ---------- -------- 2002 $ - -% $ 178,897 6.00% $ 178,897 6.00% 2003 282,000 3.44% 270,315 4.98% 552,315 4.19% 2004 339,184 5.77% 87,971 4.96% 427,155 5.60% 2005 250,000 4.89% 83,318 4.89% 333,318 4.89% 2006 611,258 5.88% 305,224 5.02% 916,482 5.59% Subsequent 1,907,933 6.46% 682,144 5.81% 2,590,077 6.29% ----------- ---- ---------- ---- ---------- ---- Total $ 3,390,375 5.92% $1,607,869 5.45% $4,998,244 5.77% =========== ==== ========== ==== ========== ==== Variable Rate $ 489,815 3.01% $ 429,003 2.78% $ 918,818 2.90% Fixed Rate 2,900,560 6.41% 1,178,866 6.42% 4,079,426 6.41% ----------- ---- ---------- ---- ---------- ---- Total $ 3,390,375 5.92% $1,607,869 5.45% $4,998,244 5.77% =========== ==== ========== ==== ========== ====
(a) Excludes principal amortization. (b) Unconsolidated Centers debt reflects the Company's share of debt (based on its respective equity ownership interests in the Unconsolidated Real Estate Affiliates) relating to the properties owned by the Unconsolidated Real Estate Affiliates. (c) For variable rate loans, the interest rate reflected is the actual annualized weighted average rate for the variable rate debt outstanding during the three months ended March 31, 2002. 24 of 29 GENERAL GROWTH PROPERTIES, INC. A portion of the debt bearing interest at variable rates is subject to interest rate cap and swap agreements. Reference is made to Note 4 and Item 3 below for additional information regarding the Company's debt and the potential impact on the Company of interest rate fluctuations. The following summarizes certain significant investment and financing transactions currently planned or completed since December 31, 2001: On March 3, 2002, the Company entered into a definitive merger agreement with JP Realty, Inc. ("JP Realty"), a publicly held real estate investment trust and its operating partnership subsidiary, Price Development Company, Limited Partnership ("PDC"). The total acquisition price will be approximately $1,100 million which includes assumption of approximately $460 million in existing debt and approximately $116 million of existing preferred operating units. Pursuant to the terms of the merger agreement, each outstanding share of JP Realty common stock will be converted into $26.10 in cash. Holders of common units of limited partnership interest in PDC will receive $26.10 per unit in cash or, at the election of the holder, .522 8.5% Series B Cumulative Preferred Units of the Operating Partnership (convertible into common units of limited partnership interest of the Operating Partnership based on a conversion price of $50 per unit). JP Realty owns or has an interest in 50 properties, including 18-enclosed regional mall centers, 25 anchored community centers, one free-standing retail property and 6 mixed-use commercial/business properties, containing an aggregate of over 15.1 million square feet of GLA in 10 western states. The cash acquisition price is expected to be funded from a combination of secured and unsecured debt, preferred units and available cash and cash equivalents. The transaction is currently anticipated to close in late June or early July of 2002 and is subject to customary closing conditions including approval by the stockholders of JP Realty. On April 8, 2002 the Company executed an agreement to acquire the stock of Victoria Ward, Limited, a privately held real estate corporation. The principal Victoria Ward assets include 65 fee simple acres in Kakaako, central Honolulu, Hawaii, currently improved with an entertainment, shopping and dining district, which includes Ward Entertainment Center, Ward Warehouse, Ward Village and Village Shops. Victoria Ward is located within two blocks of Ala Moana Center, another regional mall owned by the Company, at its closest point. In total, Victoria Ward currently has 17 ground leases and 29 owned buildings containing in the aggregate approximately 878,000 square feet of retail space, as well as approximately 441,000 square feet of office, commercial and industrial leaseable area. Victoria Ward and Ala Moana Center are expected to complement each other. The total Victoria Ward acquisition price will be approximately $250 million, including the assumption of approximately $50 million of existing short-term debt. The $200 million of new funding is expected to come from a combination of secured and unsecured debt. The closing of the acquisition is subject to the satisfaction of customary closing conditions and is currently anticipated to take place on or before June 15, 2002. During April 2002 the LLC issued on additional 240,000 RPUs to an affiliate of the institutional investor to whom the LLC had issued 700,000 RPUs in May 2000 (see Note 1). The issuance of these preferred units yielded approximately $58 million in net proceeds which the Company expects to utilize to complete certain pending acquisition opportunities and for other working capital requirements. Net cash provided by operating activities was $75.6 million in the first three months of 2002, an increase of $41.3 million from $34.3 million in the same period in 2001, primarily due to 2001 being impacted by an overall reduction in accounts payable. Net cash used by investing activities was $50.7 million in the first three months of 2002 compared to $107.2 million of cash used in the first three months of 2001. Cash flows from investing activities were impacted by the higher volume of development and improvement activity for the consolidated real estate properties in the first three months of 2001 as compared to the first three months in 2002 as further described in Note 2. 25 of 29 GENERAL GROWTH PROPERTIES, INC. Financing activities represented a use of cash of $69.8 million in the first three months of 2002, compared to a source of cash of $67.8 million in 2001. A major contributing factor to the variance in the cash provided from financing activity is that financing from mortgages and other debt, net of repayments of principal on mortgage debt, had a negative impact of $7.8 million in the first three months of 2002 versus a positive impact of $116.6 million in the first three months of 2001. The additional financing in 2001 was used to fund the developments and redevelopment of real estate discussed above and in Note 2. In order to remain qualified as a real estate investment trust for federal income tax purposes, General Growth must distribute or pay tax on 100% of capital gains and at least 90% of its ordinary taxable income to stockholders. The following factors, among others, will affect operating cash flow and, accordingly, influence the decisions of the Board of Directors regarding distributions: (i) scheduled increases in base rents of existing leases; (ii) changes in minimum base rents and/or overage rents attributable to replacement of existing leases with new or renewal leases; (iii) changes in occupancy rates at existing centers and procurement of leases for newly developed centers; and (iv) General Growth's share of distributions of operating cash flow generated by the Unconsolidated Real Estate Affiliates, less oversight costs and debt service on additional loans that have been or will be incurred. General Growth anticipates that its operating cash flow, and potential new debt or equity from future offerings, new financings or refinancings will provide adequate liquidity to conduct its operations, fund general and administrative expenses, fund operating costs and interest payments and allow distributions to General Growth preferred and common stockholders in accordance with the requirements of the Internal Revenue Code of 1986, as amended, for continued qualification as a real estate investment trust and to avoid any federal income or excise tax on General Growth. During 2000 and 2001, the retail sector was experiencing declining growth due to layoffs, eroding consumer confidence, falling stock prices and the September 11th attacks. Although the 2001 holiday season was generally stronger than economist predictions, the retail sector and the economy as a whole has not recovered significantly in the three months ended March 31, 2002. Declines in the retail market adversely impacts the Company as demand for leasable space is reduced and rents computed as a percentage of tenant sales declines. In addition, a number of local, regional and national retailers, including tenants of the Company, have voluntarily closed their stores or filed for bankruptcy protection during the last few years. Most of the bankrupt retailers reorganized their operations and/or sold stores to stronger operators. Although some leases were terminated pursuant to the lease cancellation rights afforded by the bankruptcy laws, the impact on Company earnings was negligible. Over the last three years, the provision for doubtful accounts has averaged $3.3 million per year, which represents less than 1/2 of 1% of average total revenues of $704.9 million. In addition, the Company historically has generally been successful in finding new uses or tenants for retail locations that are vacated either as a result of voluntary store closing or bankruptcy proceedings. Therefore, the Company does not expect these store closings or bankruptcy reorganizations to have a material impact on its consolidated financial results of operations. The Company has over the past six months experienced a significant increase in the market price of its Common Stock. Accordingly, certain options granted under its incentive stock plans that vest based on the market price of the Common Stock have vested and certain additional options may vest in the remainder of 2002. Under current accounting standards, such vesting would cause the recognition of approximately $10.3 million of additional compensation expense in 2002, including the $3.4 million recognized in the three months ended March 31, 2002 as described above and the $2.8 million to be recognized in the second quarter as described in Note 1. The Internet and electronic retailing are growing at significant rates. Although the amount of retail sales conducted solely via the Internet is expected to rise in the future, the Company believes that traditional retailing and "e-tailing" will converge such that the regional mall will continue to be a vital part of the overall mix of shopping alternatives for the consumer. 26 of 29 GENERAL GROWTH PROPERTIES, INC. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS As described in Note 8, the FASB, have issued certain statements, which are effective for the current or subsequent year. The Company does not expect a significant impact on its annual reported operations due to the application of such new statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has not entered into any transactions using derivative commodity instruments. The Company is subject to market risk associated with changes in interest rates. Interest rate exposure is principally limited to the $1,156.7 million of debt of the Company outstanding at March 31, 2002 that is priced at interest rates that vary with the market. However, approximately $666.6 million of such floating rate consolidated debt is comprised of non-recourse commercial mortgage-backed securities which are subject to interest rate swap agreements, the effect of which is to fix the interest rate the Company is required to pay on such debt to approximately 4.85% per annum. Therefore, a 25 basis point movement in the interest rate on the remaining $490 million of variable rate debt would result in an approximately $1.2 million annualized increase or decrease in consolidated interest expense and cash flows. The remaining debt is fixed rate debt. In addition, the Company is subject to interest rate exposure as a result of the variable rate debt collateralized by the Unconsolidated Real Estate Affiliates for which similar interest rate swap agreements have not been obtained. The Company's share (based on the Company's respective equity ownership interests in the Unconsolidated Real Estate Affiliates) of such variable rate debt was approximately $429 million at March 31, 2002. similar 25 basis point annualized movement in the interest rate on the variable rate debt of the Unconsolidated Real Estate Affiliates would result in an approximately $1.1 million annualized increase or decrease in the Company's equity in the income and cash flows from the Unconsolidated Real Estate Affiliates. The Company is further subject to interest rate risk with respect to its fixed rate financing in that changes in interest rates will impact the fair value of the Company's fixed rate financing. The Company has an ongoing program of refinancing its consolidated and unconsolidated variable and fixed rate debt and believes that this program allows it to vary its ratio of fixed to variable rate debt and to stagger its debt maturities to respond to changing market rate conditions. Reference is made to Item 2 above and Note 4 for additional debt information. The Company is further subject to market risk associated with changes in interest rates with respect to its $154.6 million investment in marketable securities. A similar 25 basis point movement in interest rates would result in an approximately $.4 million annualized increase or decrease in interest income and cash flow. 27 of 29 GENERAL GROWTH PROPERTIES, INC. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 2.1 Purchase Agreement, dated April 17, 2002, among General Growth Properties, Inc., GGP Limited Partnership, GGPLP L.L.C., the Goldman Sachs 2002 Exchange Place Fund, L.P. and GSEP 2002 Realty Corp. 2.2 Purchase Agreement dated April 23, 2002, among General Growth Properties, Inc., GGP Limited Partnership, GGPLP L.L.C., the Goldman Sachs 2002 Exchange Place Fund, L.P. and GSEP 2002 Realty Corp. 4.1 Certificate of Designations Preferences and Rights creating 8.95% Cumulative Redeemable Preferred Stock, Series G. 10.1 Second Amended Operating Agreement of GGPLP L.L.C., dated April 17, 2002. 10.2 First Amendment to the Second Amended and Restated Operating Agreement of GGPLP L.L.C., dated April 23, 2002. 10.3 Registration Rights Agreement, dated April 17, 2002, between General Growth Properties, Inc. and GSEP 2002 Realty Corp. (b), (c) Reports on Form 8-K and proforma information The following report on Form 8-K has been filed by the Company during the quarter covered by this report. 1. Current Report on Form 8-K dated March 6, 2002 describing under Item 5 the definitive merger agreement entered into pursuant to which JP Realty, Inc. would merge into the Company. No financial statements were required to be filed with the report. 28 of 29 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENERAL GROWTH PROPERTIES, INC. (Registrant) Date: May 10, 2002 by: /s/ Bernard Freibaum ----------------------------------------- Bernard Freibaum Executive Vice President and Chief Financial Officer (Principal Accounting Officer) 29 of 29 EX-2.1 3 c69409ex2-1.txt PURCHASE AGREEMENT DATED APRIL 17, 2002 Exhibit 2.1 PURCHASE AGREEMENT April 17, 2002 GSEP 2002 Realty Corp. c/o Goldman, Sachs & Co. One New York Plaza, 40th Floor New York, New York 10004 Attention: Eric Lane Re: 8.95% Series B Cumulative Redeemable Preferred Units of GGPLP L.L.C. (the "Units") Ladies & Gentlemen: This Agreement provides for the purchase by GSEP 2002 Realty Corp., a Delaware corporation ("Subscriber"), of $50,000,000 aggregate amount of Units issued by GGPLP L.L.C., a Delaware limited liability company (the "Company"). The sole shareholder of the Subscriber is Goldman Sachs 2002 Exchange Place Fund, L.P. ("Subscriber's Parent"). The managing member of the Company is GGP Limited Partnership, a Delaware limited partnership ("GGP"). The general partner of GGP is General Growth Properties, Inc., a Delaware corporation ("Parent"; Parent, GGP and the Company are referred to herein individually as a "GGP Company" and collectively as the "GGP Companies"). The partnerships and limited liability companies owned wholly or in part, directly or indirectly, by the Company hereafter are referred to as the "Company Subsidiaries"; the real properties owned by the Company or by any Company Subsidiary hereafter are referred to as the "Properties." 1. Sale of Units a. The Company hereby agrees to sell to the Subscriber, and the Subscriber hereby agrees to purchase from the Company, 200,000 Units. The purchase price of each Unit is $250.00, for an aggregate purchase price of $50,000,000 in the aggregate (the "Purchase Price"). b. The sale and purchase of the 200,000 Units (the "Closing") shall take place at the offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York on April 17, 2002 (the "Closing Date"). c. On the Closing Date, Subscriber shall, if the other conditions set forth in Section 2 are satisfied on or prior to the Closing Date, pay to the Company by wire transfer of immediately available funds the Purchase Price of the Units purchased by the Subscriber. 2. Conditions of Closing The Subscriber's obligation to purchase the Units on the Closing Date and the Company's obligation to sell the Units to the Subscriber are subject to the fulfillment to the satisfaction of the Subscriber and the Company on the Closing Date of the following conditions precedent (provided that no party shall be excused by the failure to perform any of its own obligations): a. Delivery to the Subscriber of fully executed copies of each of the Transaction Documents listed on Exhibit A (the "Transaction Documents"). b. Delivery to the Subscriber of an opinion from counsel to the Company, dated the Closing Date addressed to the Subscriber substantially in the form of Exhibit B. c. The representations and warranties set forth in Sections 3 and 4 shall be true and accurate as of the Closing Date. d. Delivery to the Company of the Purchase Price in accordance with Section 1.c. above. 3. Representations and Warranties of the GGP Companies Each of the Company, GGP and the Parent hereby represents and warrants to the Subscriber and Subscriber's Parent as follows as of the date hereof and as of the Closing Date: a. The Parent has made with the Securities and Exchange Commission ("SEC") all filings required to be made by it since January 1, 2000 (the "SEC Reports"). The Company 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 the Parent included in the SEC Reports were prepared in accordance with U.S. Generally Accepted Accounting Principles applied on a consistent basis ("GAAP") (except in the case of the interim financial statements for the absence of footnotes and as may be otherwise noted therein) and fairly presented the financial condition and results of operations of the Parent 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 in the SEC Reports. b. There has been no material adverse change in the business, assets, condition (financial or otherwise) or prospects of the Parent since the most recently filed SEC Report. c. (i) The Company is a validly existing limited liability company formed under the laws of the State of Delaware. GGP is a validly existing limited partnership formed under the laws of the State of Delaware. The Parent is a validly existing corporation organized under the -2- laws of the State of Delaware. Each of the Company Subsidiaries is listed on Schedule 3j and is a validly existing general partnership, limited partnership or limited liability company. (ii) The Parent, GGP and the Company have all requisite corporate, limited partnership, or limited liability company authority and power to execute and deliver this Agreement and the Transaction Documents and to consummate the transactions contemplated thereby. The execution and delivery of this Agreement and the Transaction Documents by the GGP Companies and the consummation by them of the transactions contemplated thereby have been duly and validly authorized by all requisite corporate, limited partnership or limited liability company action on the part of the Parent, GGP and the Company, and no other proceedings on the part of the Parent, GGP or the Company are necessary to authorize this Agreement and the Transaction Documents or to consummate the transactions contemplated thereby. As of the Closing, this Agreement and the Transaction Documents will have been fully and validly executed and delivered by the Company, GGP and the Parent. As of the Closing, this Agreement and the Transaction Documents will constitute legal, valid and binding obligations of the Company, GGP and the Parent, enforceable against them in accordance with their terms. d. None of the execution, delivery or performance of this Agreement and the Transaction Documents by any GGP Company will conflict with, result in a default, right to accelerate or loss of rights under, or result in the creation of any Encumbrance (as defined below) pursuant to, any provision of any organizational documents of such GGP Company or any franchise, mortgage, deed of trust, lease, license, agreement, understanding, law, rule or regulation or any order, judgment or decree to which any GGP Company or any Company Subsidiary is a party or by which it or its properties may be bound or affected that would have a material adverse effect on the business, assets, condition (financial or otherwise) or prospects of any GGP Company ("Material Adverse Effect"). e. There is no action, suit, litigation, hearing or administrative proceeding pending against any GGP Company or any of its properties or assets or, to the Company's Knowledge (as defined below), currently threatened in or before any court or before or by any federal, state, county or municipal department, commission or agency (i) against any GGP Company or any Company Subsidiary that questions the validity of the Transaction Documents or the issuance of the Units or the right of any GGP Company to enter into any Transaction Documents or to consummate the transactions contemplated thereby or that could reasonably be expected to interfere with the ability of any GGP Company to perform its obligations or could reasonably be expected to have a Material Adverse Effect or (ii) against any GGP Company (or any of the Company Subsidiaries) or all or any portion of its properties including but not limited to alleged building code or zoning violations which are not covered by insurance which, if adversely determined, could reasonably be expected to have a Material Adverse Effect. There are no insolvency or bankruptcy proceedings, pending or, to the Company's Knowledge, contemplated to which any GGP Company (or any of the Company Subsidiaries) is a party that could reasonably be expected to have a Material Adverse Effect. -3- f. The Units when issued, sold and delivered by the Company, upon receipt of the Purchase Price and performance by Subscriber of its obligations hereunder, shall be duly and validly issued and outstanding, fully paid, and non-assessable and will be free of any liens, claims, security interests or encumbrances of third parties of any kind (collectively, "Encumbrances"), other than those created by, through or under Subscriber. On or prior to the Closing Date, the 8.95% Series G Cumulative Redeemable Preferred Shares, $100 par value per share, of the Parent (the "Preferred Shares") issuable upon exchange of the Units shall have been duly and validly reserved for issuance in accordance with this Agreement and the Parent's Certificate of Incorporation and when issued in exchange for Units, shall be duly and validly issued and authorized, delivered, fully paid, and non-assessable and will be free of any Encumbrances, other than those created by, through or under Subscriber. The shares of Common Stock, $.10 par value per share, of the Parent (the "Common Shares") issuable upon exchange of the Units, when issued in exchange for Units, shall be duly and validly issued and authorized, fully paid, and non-assessable and will be free of any Encumbrances, other than those created by, through or under Subscriber. g. The issuance, sale and delivery of the Units, the Preferred Shares and the Common Shares is not subject to any preemptive right of any person under applicable law or the LLC Agreement (as defined below), the Partnership Agreement of GGP or the Certificate of Incorporation or bylaws of the Parent, as applicable, or to any contractual right of first refusal or right in favor of any person. There are no agreements or understandings of the GGP Companies in effect (other than the Certificate of Incorporation (including the Certificate of Designations) and Bylaws of Parent and the LLC Agreement) concerning the Preferred Shares or the Units or restricting the voting rights, the distribution rights or any other rights of the holders of the Units or the Preferred Shares. h. A true and complete copy of the Company's Limited Liability Company Agreement (the "LLC Agreement") is set forth as Exhibit C. Except for the 8.95% Series A Cumulative Redeemable Preferred Units of the Company which rank on parity with the Units, there are no interests in the Company authorized, issued or outstanding that rank senior to, or on a parity with, the Units with respect to liquidation, winding up, dividends or distributions. Except for the 7.25% Preferred Income Equity Redeemable Stock, Series A, and the 8.95% Series B Cumulative Redeemable Preferred Shares which, rank on parity with the Preferred Shares, there are no equity interests in the Parent issued or outstanding nor have any such equity interests been created that rank senior to, or on parity with, the Preferred Shares with respect to liquidation, winding up, dividends or distributions. There are no Preferred Shares issuable upon exchange of partnership or limited liability company interests which are outstanding as of the date hereof. Except for the Units, no other securities are exchangeable, convertible or otherwise exercisable for Preferred Shares. i. The Parent will file a registration statement with the SEC relating to the issuance of the Preferred Shares that may be issued by the Parent to Subscriber upon exchange of the Units into such shares or the resale of all or a portion of the Preferred Shares, in accordance with the Registration Rights Agreement attached hereto as Exhibit D (the "Registration Agreement") which will be executed and delivered on the Closing Date. -4- j. Attached hereto as Schedule 3j is a true, correct and complete list of the partnership and limited liability company interests owned directly or indirectly by the Company, and a list of properties owned by those partnerships and limited liability companies. A Company Subsidiary has good and marketable fee simple and/or leasehold title to each of the Properties, free and clear of any Encumbrances or other matters affecting title, except for mortgage liens securing the repayment of the mortgage loans disclosed on Schedule 3j and for Encumbrances which do not materially and adversely affect the use of the Properties. All of the leases relating to the Properties are in full force and effect. Neither the Company nor any Company Subsidiary has delivered a notice of monetary default or material non-monetary default to any tenant which remains uncured as of the date hereof except with respect to defaults which individually or in the aggregate would not have a Material Adverse Effect, if uncured. k. All mortgages encumbering the Properties are in good standing unless noncompliance would not be material to the Company (or the Company Subsidiary which owns such Property) and all payments due thereunder as of the date hereof have been made. Neither the Company nor any of the Company Subsidiaries has received a notice of default or a written notice of any matter which, if uncured beyond any grace period set forth in such mortgage, would constitute a default thereunder unless such default would not have a Material Adverse Effect. All consents to the proposed transaction from each mortgagee required to give its consent, are listed on Schedule 3k (the "Listed Consents") and all such consents have been obtained. The GGP Companies have good relationships with each of the lenders with respect to the Listed Consents and such lenders have indicated a preliminary willingness to provide the Listed Consents without any adverse conditions or amendments to the loans. The information set forth on Schedule 3k is true and correct in all material respects as of the dates listed thereon. l. There are no condemnation or eminent domain proceedings pending, or to the Company's Knowledge, threatened, against any of the Properties that could reasonably be expected to have a Material Adverse Effect. m. Neither the Company nor any Company Subsidiary has received any notice, complaint or service alleging a violation in any material respect of the Americans with Disabilities Act at any of the Properties that has not been cured, whether such notice, complaint or service alleged a violation against the Company, any Company Subsidiary or any tenant of the Properties, which violation could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Company Subsidiary has received any written notices from any insurance company or board of fire underwriters alleging any material uncured defects or material inadequacies in any of the Properties, which defects or inadequacies could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Company Subsidiary has received any notice canceling, suspending or threatening to cancel or suspend any certificates of occupancy or permits regulating the use of the Properties, which cancellations or suspensions could reasonably be expected to have a Material Adverse Effect. -5- n. To the Company's Knowledge, (i) there are no underground storage tanks on the Properties, (ii) there are no hazardous substances or wastes beyond the limits permitted by law on or under the Properties and no hazardous substances or wastes beyond the limits permitted by law have been generated, released, discharged or disposed of from or on the Property, and (iii) there is no asbestos, PCB's or formaldehyde based insulation on or at any of the Properties beyond the limits permitted by law, in each case, the presence, generation, release, discharge or disposal of which could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Company Subsidiary has received notification of a release or discharge of any hazardous substance or hazardous waste pursuant to or any notice of any violation or non-compliance with any federal, state or local environmental law, regulation or ordinance as to any Property, which release, discharge, violations or non-compliance could reasonably be expected to have a Material Adverse Effect. As used herein the terms "hazardous substances" and "hazardous wastes" shall have the meanings set forth in CERCLA. o. Each insurance policy maintained by the GGP Companies or the Company Subsidiaries with respect to the Properties is in full force and effect and no GGP Company or Company Subsidiary has received any notice from any insurance company which issued any of the policies of any defects or inadequacies of such Properties which, if not corrected would result in the termination of such policies and could reasonably be expected to have a Material Adverse Effect. p. Immediately following the issuance of the Units, less than 17.5% of the value of the Company's gross assets (giving effect to the Subscriber's investment in the Company) will consist of "stock and securities" within the meaning of Section 351(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"). For this purpose, if the Company holds an interest in an unincorporated entity (other than an unincorporated entity taxable as a corporation), the provisions of Treasury Regulation Section 1.731-2(c)(3) apply to determine the extent to which such interest is treated as a "stock and security". The Company has no present plan to increase the value of its assets constituting "stock and securities" to a percentage equal to or greater than 17.5%. q. Interests in neither the Company nor GGP are traded on an "established securities market" as defined in Treas. Reg. Section 1.7704-1(b). r. Assuming that Subscriber's representations and warranties in Sections 4a., 4b. and 4c. are true and correct, all membership interests or other economic interests in the Company and GGP were issued in transactions that were not required to be registered under the Securities Act of 1933, as amended (the "Securities Act") or would not have been required to be so registered if the interest had been offered and sold in the United States. s. The Company would presently satisfy, and nothing has come to the attention of the Company or GGP to cause it to believe that the Company will fail to satisfy, the income and asset requirements under Sections 856(c)(2), (3) and (4) of the Code if the Company were otherwise taxable as a real estate investment trust under the Code. The Company currently intends, and GGP currently intends to cause the Company, to satisfy the income and asset requirements under Sections 856(c)(2), (3) and (4) of the Code that apply to real -6- estate investment trusts, and the Company and GGP do not know of any existing facts or circumstances that would cause the Company to fail to satisfy the income and asset requirements under Sections 856(c)(2), (3) and (4) of the Code on or before December 31, 2003, if the Company were otherwise taxable as a real estate investment trust. t. The Company and GGP are partnerships for U.S. federal income tax purposes, and have not been and are not presently publicly traded partnerships within the meaning of Section 7704(b) of the Code ("PTP"). Neither the Company nor GGP has reported or taken a position with the Internal Revenue Service or its members or partners, as the case may be, that the Company or GGP is a PTP. u. The GGP Companies do not have any present plan or intention, and the GGP Companies do not have any actual knowledge of any present plan or intention of any member in the Company, to take any action or actions that would or likely would result in the Company or GGP becoming a PTP in the foreseeable future. The GGP Companies do not have any actual knowledge of facts that reasonably would cause them to expect that the Company would or likely would become a PTP in the foreseeable future, and the GGP Companies do not have any actual knowledge of facts relating to any actions that may be taken by the Company or any partner of GGP that reasonably would cause them to expect that GGP would or likely would become a PTP in the foreseeable future. v. From the beginning of the current tax years of the Company and GGP to the date hereof, the Company and GGP have not had at any time more than 100 members and partners (including the Subscriber which, for the purposes hereof, is being counted as one member) within the meaning of Treas. Reg. Section 1.7704-1(h) on a combined basis. During the current tax year of the Company, no interests in the Company's capital or profits have been transferred, other than pursuant to transfers described in any of paragraphs (e), (f) and (g) of Treasury Regulation Section 1.7704-1 and for purposes of this paragraph and the other provisions of this Agreement, the transfer of the 8.95% Series A Cumulative Redeemable Preferred Units of the Company by Goldman Sachs 2000 Exchange Place Fund, L.P. to GSEP 2000 Realty Corp. shall be deemed to be a transfer described in such paragraphs, to the extent not already so described. w. The Company has no present plan or intention to, and each of the GGP Companies has no present plan or intention to cause the Company to: (i) liquidate or sell substantially all of the Company's assets; or (ii) make distributions to members or redeem interests in the Company in such manner as would cause the exchange right contained in the LLC Agreement of the Company relating to an imminent and substantial risk that Subscriber's interest in the Company represents or would exceed the 19.95% Limit (as defined in the LLC Agreement) to be exercisable. x. Nothing has come to the attention of the Company to cause it to believe and the Company does not believe that (i) it will fail to have sufficient cash flow to satisfy the payment of the return on the Preferred Shares (and hence cause the exchange right contained in the LLC Agreement relating to the failure to pay return in six (6) prior quarterly distribution periods to be exercisable) or (ii) the Company's income will fall to a level that would cause the exchange right contained in the LLC Agreement relating to an imminent and substantial -7- risk that the Subscriber's interest in the Company represents or would exceed the 19.95% Limit to be exercisable. y. The Net Asset FMV and the Gross Asset FMV of the Company currently constitute less than 65% of the Net Asset FMV and the Gross Asset FMV of GGP, respectively, and each of the GGP Companies has no present plan or intention to cause the Net Asset FMV or the Gross Asset FMV of the Company to constitute 65% or more of the Net Asset FMV or the Gross Asset FMV of GGP. For purposes of this representation, Net Asset FMV means with respect to the Company or GGP, the fair market value of the assets of the Company or GGP, as the case may be (for this purpose treating the fair market value of GGP's interest in the Company as equal to its direct and indirect pro rata share of the Net Asset FMV of the Company) over the liabilities of GGP or the Company, as the case may be. For purposes of this representation, Gross Asset FMV means with respect to the Company the fair market value of its assets (including for this purpose, the Company's pro rata share of the fair market value of assets of entities in which the Company directly or indirectly owns a 50% interest or more, without regard to any nominal amount of nonvoting preferred equity therein), and with respect to GGP the fair market value of its assets (exclusive of its interest in the Company and entities in which GGP directly or indirectly owns a 50% interest or more) plus GGP's direct and indirect pro rata share of the Gross Asset FMV of the Company and GGP's pro rata share of the fair market value of the assets of any entity in which GGP directly or indirectly owns a 50% interest or more (without regard to any nominal amount of nonvoting preferred equity therein). In calculating the fair market value of shopping center property in which the Company or GGP directly or indirectly owns an interest, (a) the fair market value of each such property which is open and operating was calculated by dividing Net Operating Income (as defined in the LLC Agreement) for such property for 2001 (or, if such property was acquired or opened during 2001, the 2002 budgeted Net Operating Income for such property) by a capitalization rate of 8.25% and (b) the fair market value of each such property which is under construction equals the land acquisition and construction costs for such property. The Company believes that these methodologies for calculating the fair market value of shopping center properties are a reasonable method of determining the fair market value of such properties. z. The GGP Companies expressly permit Fried, Frank, Harris, Shriver & Jacobson, as counsel to Subscriber and Subscriber's Parent, to rely upon the representations and warranties set forth in this Section 3 for the purpose of rendering legal opinions to Subscriber, Subscriber's Parent and Goldman Sachs & Co. as if such representations and warranties were made by the GGP Companies directly to Fried, Frank, Harris, Shriver & Jacobson. aa. Schedule 3.aa. attached hereto sets forth (i) each arrangement pursuant to which property or assets of any member of the Consolidated Group or any Investment Affiliate are or may be subject to Liens collateralizing Parent Indebtedness and (ii) the amount of Parent Indebtedness outstanding as of March 31, 2002 with respect to each such arrangement. No borrower may elect to borrow any additional amounts at any time in the future with respect to any such arrangement pursuant to the terms of such arrangement. All capitalized terms used in clauses aa and bb of this Section 3 or Schedule 3.aa. and not otherwise defined shall -8- have the meanings ascribed to them in the Second Amended and Restated Operating Agreement of the Company. bb. Schedule 3.aa. sets forth (i) each arrangement pursuant to which any member of the Consolidated Group or any Investment Affiliate has Guaranteed Parent Indebtedness and (ii) the amount of Parent Indebtedness outstanding as of March 31, 2002 with respect to each such arrangement. No borrower may elect to borrow any additional amounts at any time in the future with respect to any such arrangement pursuant to the terms of such arrangement. 4. Representations & Warranties of Subscriber and Subscriber's Parent Subscriber and Subscriber's Parent hereby represent and warrant to the GGP Companies as of the date hereof and as of the Closing Date that: a. Subscriber is purchasing the Units 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 the Securities Act. b. Subscriber understands that it may sell or otherwise transfer the Units or the Preferred Shares or Common Shares issuable upon exchange of the Units 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 Units are not a liquid investment and that no market exists or will develop for the Units. c. Subscriber is an "accredited investor" as such term is defined in Rule 501 of Regulation D promulgated pursuant to the Securities Act, and shall be such on the date any Units are issued to Subscriber; Subscriber acknowledges that Subscriber is able to bear the economic risk of losing Subscriber's entire investment in the Units and understands that an investment in the Company involves substantial risks. Each of Subscriber and Subscriber's Parent has the power and authority to enter into this Agreement, and the execution and delivery of, and performance under this Agreement, does not conflict with any organizational document, rule, regulation, judgment or agreement applicable to Subscriber or Subscriber's Parent. Each of Subscriber and Subscriber's Parent has had the opportunity to discuss the Company's affairs with the Company's officers. d. Subscriber has all requisite corporate authority and power to execute and deliver this Agreement and the Transaction Documents and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Transaction Documents and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all requisite corporate action on the part of Subscriber and no other proceedings on the part of Subscriber are necessary to authorize this Agreement and the Transaction Documents or to consummate the transactions -9- contemplated hereby and thereby. This Agreement and the Transaction Documents constitute valid and binding obligations of Subscriber enforceable against it in accordance with their terms. e. Subscriber's Parent has all requisite partnership authority and power to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all requisite action on the part of Subscriber's Parent and no other proceedings on the part of Subscriber's Parent are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement constitutes a valid and binding obligation of Subscriber's Parent enforceable against it in accordance with its terms. f. Subscriber is not a "party in interest" (as defined under Section 3(14) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or a "disqualified person" (as defined under Section 4975(e)(2) of the Internal Revenue Code of 1986, as amended (the "Code")) with respect to any "employee benefit plan," as defined under Section 3(3) of ERISA, or a "plan," as defined in Section 4975(e)(1) of the Code ("employee benefit plan" and "plan," as defined herein, shall be referred to collectively as "Plans"). The purchase of Units under this Agreement by Subscriber shall not cause the Company to be a Plan that is subject to Title I of ERISA or Section 4975 of the Code, nor will it cause the assets of the Company to constitute "plan assets" of one or more such Plans for purposes of title I of ERISA or Section 4975 of the Code. g. Subscriber shall promptly notify the Company should Subscriber reasonably anticipate becoming a party in interest or disqualified person with respect to any Plan, and Subscriber will take such steps as may be necessary to prevent the assets of the Company to be considered assets of any such Plan. h. The execution and delivery of this Agreement and the purchase of Units hereunder will not involve any non-exempt prohibited transaction within the meaning of Section 406(b)(3) of ERISA or Section 4975(c)(1)(F) of the Code. 5. General Covenants of the Parties a. So long as the Units remain outstanding, without the affirmative vote of the Majority Holders (defined below), each GGP Company hereby covenants that it will not create, authorize or issue any Preferred Shares or securities exchangeable, convertible or otherwise exercisable for Preferred Shares, if as a result of such creation, authorization or issuance, holders of Units (upon exchange thereof into Preferred Shares) would not have the right to vote a majority of all Preferred Shares issued or issuable upon exchange, conversion or exercise of any security. b. So long as the Units remain outstanding, without the affirmative vote of the Majority Holders, each of the GGP Companies hereby covenants that it will not effect amendments or modifications to the terms of the Preferred Shares which would materially and adversely affect any right, preference, privilege or voting power of the Preferred Shares or the holders -10- thereof and which would require the vote or approval of the holders thereof under the terms thereof. The term "Majority Holders" means the holders of at least 51% of the aggregate base liquidation preferences of the issued and outstanding Units and issued and outstanding Preferred Shares obtained upon exchange of the Units. 6. Tax Covenants a. From and after the Closing Date through December 31, 2002, the Company shall not issue, or enter into binding agreements to issue, any interests in the Company (i) to the extent such issuance would cause the Company to have more than 100 members immediately after such issuance or (ii) in a transaction (or transactions) that is required to be registered under the Securities Act or that would be required to be registered if the interests had been offered and sold in the United States. The Company and GGP shall ensure that the sum of the percentage interests in the Company's capital or profits transferred during the current tax year of the Company (other than transfers described in any of paragraphs (e), (f) and (g) of Treasury Regulation Section 1.7704-1) shall not exceed 2 percent of the total interests in the Company's capital or profits. The Company shall, through the end of the current tax year of the Company, take all actions reasonably available to it under the Company's LLC Agreement in effect on the date hereof to avoid treatment of the Company as a PTP. For purposes of this covenant, the number of members of the Company shall be determined in accordance with the method of determining the number of partners in Treasury Regulations Section 1.7704-1(h) and the percentage interest in the Company's capital and profits shall be determined in accordance with Treasury Regulation Section 1.7704-1(k). b. From and after the date hereof, the Company shall notify holders of the Units promptly in the event that any GGP Company (i) takes the position that the Company is, or upon consummation of an identified event in the immediate future, will be a PTP or (ii) becomes aware of any facts that will or likely will cause the Company to become a PTP. c. The Company shall notify holders of Units promptly in the event that any GGP Company anticipates or realizes that the value of the Company's assets constituting "stock and securities" within the meaning of Section 351(e)(1) of the Code will equal 17.5% or more of the value of the Company's total assets. d. The Company shall notify holders of Units promptly in the event that any GGP Company anticipates or realizes that, if the Company were taxable as a real estate investment trust, the Company would fail to satisfy the income and asset requirements under Sections 856(c)(2), (3) and (4) of the Code. e. The Company shall notify a holder of Units promptly in the event that any GGP Company anticipates or realizes that the holder's interest in the Company would exceed the 19.95% Limit (as defined in the LLC Agreement). f. The Company shall notify a holder of Units promptly in the event that any GGP Company anticipates or realizes that the holder's interest in the Company will represent 10% or more of the total capital interests in the Company. The Company shall permit such a holder to make a taxable REIT subsidiary election with respect to any corporation (other than a -11- corporation taxable as a real estate investment trust) for which the holder would be deemed to own (for purposes of Section 856(c)(4) of the Code) securities of such corporation (i) possessing more than 10% of the total voting power of or (ii) having a value of more than 10% of the total value of, the outstanding securities of such corporation, but only if such ownership arose solely as a result of the holder's interest in the Company. The Company shall cause each corporation referred to in the preceding sentence to jointly make a taxable REIT subsidiary election with such holder. g. At any time and from time to time after the Closing and prior to July 17, 2002, upon request of the Subscriber, each of the GGP Companies agrees to deliver an additional certificate to the Subscriber and Subscriber's Parent bringing down the representations and warranties made by the GGP Companies in Section 3 hereof to a date prior to July 17, 2002 reasonably requested by the Subscriber (if and to the extent, after due inquiry, such representations and warranties are true and correct as of such date), provided that such certificate is reasonably requested by the Subscriber in connection with the contribution of additional capital to the Subscriber's Parent and this paragraph shall not preclude the GGP Companies from taking actions which would render such representations or warranties untrue or incorrect. The Subscriber shall provide at least three (3) business days written notice of any request for a certification hereunder. h. The Company, GGP and Parent will not take any position inconsistent with the form of the transaction set forth in the Transaction Documents, including without limitation, any position that the Company is not a partnership for federal income tax purposes or that the Subscriber is not a partner of the Company for federal income tax purposes. i. Neither the Company nor any Company Subsidiaries will make an election under Treas. Reg. Section 301.7701-3 to be classified as an association. 7. Miscellaneous a. The representations and warranties set forth herein shall survive the Closing. When used herein, the "Company's Knowledge" includes the knowledge of the Company, any other GGP Company and the Company Subsidiaries. b. This Agreement may not be changed or terminated except by written agreement of all parties. It shall be binding on the parties and on their permitted assigns. It sets forth all agreements of the parties (except as set forth in the Transaction Documents). c. This Agreement shall be governed by the laws of the State of New York without regard (to the fullest extent permitted by law) to conflicts of law principles thereof which might result in the application of the laws of any other jurisdiction. d. 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 -12- forwarded by recognized overnight courier, in each case addressed to the respective parties at their address set forth below. Either party hereto may designate a different address by providing written notice of such new address to the other party hereto as provided above. Any GGP Company: General Growth Properties, Inc. 110 W. Wacker Drive Chicago, Illinois 60606 Attention: John Bucksbaum With a copy to: Neal, Gerber & Eisenberg Two North LaSalle Street Chicago, Illinois 60602 Attention: Marshall E. Eisenberg, Esq. Subscriber: GSEP 2002 Realty Corp. c/o Goldman, Sachs & Co. One New York Plaza, 40th Floor New York, New York 10004 Attention: Eric Lane With a copy to: Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10004 Attention: Lawrence Barshay, Esq. Subscriber's Parent: Goldman Sachs 2002 Exchange Place Fund, L.P. c/o Goldman, Sachs & Co. One New York Plaza, 40th Floor New York, New York 10004 Attention: Eric Lane With a copy to: Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10004 Attention: Lawrence Barshay, Esq.
-13- f. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same Agreement, and all signatures need not appear on any one counterpart. g. The headings and sections are inserted for convenience only. When used in this Agreement, "including" means "including without limitation." References to Sections and Exhibits refer to this Agreement unless expressly provided otherwise. -14- IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. GENERAL GROWTH PROPERTIES, INC. By: /s/ Bernard Freibaum ----------------------------------------- Name: Bernard Freibaum Title: Executive Vice President GGP LIMITED PARTNERSHIP By: General Growth Properties, Inc., its General Partner By: /s/ Bernard Freibaum ------------------------------------- Name: Bernard Freibaum Title: Executive Vice President GGPLP L.L.C. By: GGP Limited Partnership, its Managing Member By: General Growth Properties, Inc., its General Partner By: /s/ Bernard Freibaum --------------------------------- Name: Bernard Freibaum Title: Executive Vice President [Signature Page to Purchase Agreement] AGREED & ACCEPTED: GSEP 2002 REALTY CORP. By: /s/ Eric Lane -------------------------------------- Name: Eric Lane Title: President and CEO GOLDMAN SACHS 2002 EXCHANGE PLACE FUND, L.P. By: Goldman Sachs 2002 Exchange Place Advisors, L.L.C., its General Partner By: /s/ Eric Lane ---------------------------------- Name: Eric Lane Title: Authorized Person [Signature Page to Purchase Agreement] EX-2.2 4 c69409ex2-2.txt PURCHASE AGREEMENT DATED APRIL 23, 2002 Exhibit 2.2 PURCHASE AGREEMENT April 23, 2002 GSEP 2002 Realty Corp. c/o Goldman, Sachs & Co. One New York Plaza, 40th Floor New York, New York 10004 Attention: Eric Lane Re: 8.95% Series B Cumulative Redeemable Preferred Units of GGPLP L.L.C. (the "Units") Ladies & Gentlemen: This Agreement provides for the purchase by GSEP 2002 Realty Corp., a Delaware corporation ("Subscriber"), of $10,000,000 aggregate amount of Units issued by GGPLP L.L.C., a Delaware limited liability company (the "Company"). The sole shareholder of the Subscriber is Goldman Sachs 2002 Exchange Place Fund, L.P. ("Subscriber's Parent"). The managing member of the Company is GGP Limited Partnership, a Delaware limited partnership ("GGP"). The general partner of GGP is General Growth Properties, Inc., a Delaware corporation ("Parent"; Parent, GGP and the Company are referred to herein individually as a "GGP Company" and collectively as the "GGP Companies"). The partnerships and limited liability companies owned wholly or in part, directly or indirectly, by the Company hereafter are referred to as the "Company Subsidiaries"; the real properties owned by the Company or by any Company Subsidiary hereafter are referred to as the "Properties." 1. Sale of Units a. The Company hereby agrees to sell to the Subscriber, and the Subscriber hereby agrees to purchase from the Company, 40,000 Units. The purchase price of each Unit is $250.00, for an aggregate purchase price of $10,000,000 in the aggregate (the "Purchase Price"). b. The sale and purchase of the 40,000 Units (the "Closing") shall take place at the offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York on April 23, 2002 (the "Closing Date"). c. On the Closing Date, Subscriber shall, if the other conditions set forth in Section 2 are satisfied on or prior to the Closing Date, pay to the Company by wire transfer of immediately available funds the Purchase Price of the Units purchased by the Subscriber. 2. Conditions of Closing The Subscriber's obligation to purchase the Units on the Closing Date and the Company's obligation to sell the Units to the Subscriber are subject to the fulfillment to the satisfaction of the Subscriber and the Company on the Closing Date of the following conditions precedent (provided that no party shall be excused by the failure to perform any of its own obligations): a. Delivery to the Subscriber of a fully executed copy of a First Amendment to Second Amended and Restated Operating Agreement of the Company (the "Amendment"). b. Delivery to the Subscriber of an opinion from counsel to the Company, dated the Closing Date addressed to the Subscriber substantially in the form of Exhibit B. c. The representations and warranties set forth in Sections 3 and 4 shall be true and accurate as of the Closing Date. d. Delivery to the Company of the Purchase Price in accordance with Section 1.c. above. 3. Representations and Warranties of the GGP Companies Each of the Company, GGP and the Parent hereby represents and warrants to the Subscriber and Subscriber's Parent as follows as of the date hereof and as of the Closing Date: a. The Parent has made with the Securities and Exchange Commission ("SEC") all filings required to be made by it since January 1, 2000 (the "SEC Reports"). The Company 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 the Parent included in the SEC Reports were prepared in accordance with U.S. Generally Accepted Accounting Principles applied on a consistent basis ("GAAP") (except in the case of the interim financial statements for the absence of footnotes and as may be otherwise noted therein) and fairly presented the financial condition and results of operations of the Parent 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 in the SEC Reports. b. There has been no material adverse change in the business, assets, condition (financial or otherwise) or prospects of the Parent since the most recently filed SEC Report. c. (i) The Company is a validly existing limited liability company formed under the laws of the State of Delaware. GGP is a validly existing limited partnership formed under the laws of the State of Delaware. The Parent is a validly existing corporation organized under the laws of the State of Delaware. Each of the Company Subsidiaries is listed on Schedule 3j -2- and is a validly existing general partnership, limited partnership or limited liability company. (ii) The Parent, GGP and the Company have all requisite corporate, limited partnership, or limited liability company authority and power to execute and deliver this Agreement and the Amendment and to consummate the transactions contemplated thereby. The execution and delivery of this Agreement and the Amendment by the GGP Companies and the consummation by them of the transactions contemplated thereby have been duly and validly authorized by all requisite corporate, limited partnership or limited liability company action on the part of the Parent, GGP and the Company, and no other proceedings on the part of the Parent, GGP or the Company are necessary to authorize this Agreement and the Amendment or to consummate the transactions contemplated thereby. As of the Closing, this Agreement and the Amendment will have been fully and validly executed and delivered by the Company, GGP and the Parent. As of the Closing, this Agreement and the Transaction Documents listed on Exhibit A (the "Transaction Documents") will constitute legal, valid and binding obligations of the Company, GGP and the Parent, enforceable against them in accordance with their terms. d. None of the execution, delivery or performance of this Agreement and the Amendment, and the performance of the other Transaction Documents, by any GGP Company will conflict with, result in a default, right to accelerate or loss of rights under, or result in the creation of any Encumbrance (as defined below) pursuant to, any provision of any organizational documents of such GGP Company or any franchise, mortgage, deed of trust, lease, license, agreement, understanding, law, rule or regulation or any order, judgment or decree to which any GGP Company or any Company Subsidiary is a party or by which it or its properties may be bound or affected that would have a material adverse effect on the business, assets, condition (financial or otherwise) or prospects of any GGP Company ("Material Adverse Effect"). e. There is no action, suit, litigation, hearing or administrative proceeding pending against any GGP Company or any of its properties or assets or, to the Company's Knowledge (as defined below), currently threatened in or before any court or before or by any federal, state, county or municipal department, commission or agency (i) against any GGP Company or any Company Subsidiary that questions the validity of the Transaction Documents or the issuance of the Units or the right of any GGP Company to enter into any Transaction Documents or to consummate the transactions contemplated thereby or that could reasonably be expected to interfere with the ability of any GGP Company to perform its obligations or could reasonably be expected to have a Material Adverse Effect or (ii) against any GGP Company (or any of the Company Subsidiaries) or all or any portion of its properties including but not limited to alleged building code or zoning violations which are not covered by insurance which, if adversely determined, could reasonably be expected to have a Material Adverse Effect. There are no insolvency or bankruptcy proceedings, pending or, to the Company's Knowledge, contemplated to which any GGP Company (or any of the Company Subsidiaries) is a party that could reasonably be expected to have a Material Adverse Effect. -3- f. The Units when issued, sold and delivered by the Company, upon receipt of the Purchase Price and performance by Subscriber of its obligations hereunder, shall be duly and validly issued and outstanding, fully paid, and non-assessable and will be free of any liens, claims, security interests or encumbrances of third parties of any kind (collectively, "Encumbrances"), other than those created by, through or under Subscriber. On or prior to the Closing Date, the 8.95% Series G Cumulative Redeemable Preferred Shares, $100 par value per share, of the Parent (the "Preferred Shares") issuable upon exchange of the Units shall have been duly and validly reserved for issuance in accordance with this Agreement and the Parent's Certificate of Incorporation and when issued in exchange for Units, shall be duly and validly issued and authorized, delivered, fully paid, and non-assessable and will be free of any Encumbrances, other than those created by, through or under Subscriber. The shares of Common Stock, $.10 par value per share, of the Parent (the "Common Shares") issuable upon exchange of the Units, when issued in exchange for Units, shall be duly and validly issued and authorized, fully paid, and non-assessable and will be free of any Encumbrances, other than those created by, through or under Subscriber. g. The issuance, sale and delivery of the Units, the Preferred Shares and the Common Shares is not subject to any preemptive right of any person under applicable law or the LLC Agreement (as defined below), the Partnership Agreement of GGP or the Certificate of Incorporation or bylaws of the Parent, as applicable, or to any contractual right of first refusal or right in favor of any person. There are no agreements or understandings of the GGP Companies in effect (other than the Certificate of Incorporation (including the Certificate of Designations) and Bylaws of Parent, the LLC Agreement and that certain Purchase Agreement dated April 17, 2002, among the parties hereto (the "April 17 Purchase Agreement")) concerning the Preferred Shares or the Units or restricting the voting rights, the distribution rights or any other rights of the holders of the Units or the Preferred Shares. h. A true and complete copy of the Company's Limited Liability Company Agreement (the "LLC Agreement") is set forth as Exhibit C. Except for the 8.95% Series A Cumulative Redeemable Preferred Units of the Company which rank on parity with the Units and other Units held by Subscriber, there are no interests in the Company authorized, issued or outstanding that rank senior to, or on a parity with, the Units with respect to liquidation, winding up, dividends or distributions. Except for the 7.25% Preferred Income Equity Redeemable Stock, Series A, and the 8.95% Series B Cumulative Redeemable Preferred Shares which, rank on parity with the Preferred Shares, there are no equity interests in the Parent issued or outstanding nor have any such equity interests been created that rank senior to, or on parity with, the Preferred Shares with respect to liquidation, winding up, dividends or distributions. There are no Preferred Shares issuable upon exchange of partnership or limited liability company interests which are outstanding as of the date hereof (other than those held by Subscriber). Except for the Units and the other Units held by Subscriber, no other securities are exchangeable, convertible or otherwise exercisable for Preferred Shares. i. The Parent will file a registration statement with the SEC relating to the issuance of the Preferred Shares that may be issued by the Parent to Subscriber upon exchange of the Units into such shares or the resale of all or a portion of the Preferred Shares, in accordance with -4- the Registration Rights Agreement attached as Exhibit D to the April 17 Purchase Agreement (the "Registration Agreement") which has previously been executed and delivered. j. Attached hereto as Schedule 3j is a true, correct and complete list of the partnership and limited liability company interests owned directly or indirectly by the Company, and a list of properties owned by those partnerships and limited liability companies. A Company Subsidiary has good and marketable fee simple and/or leasehold title to each of the Properties, free and clear of any Encumbrances or other matters affecting title, except for mortgage liens securing the repayment of the mortgage loans disclosed on Schedule 3j and for Encumbrances which do not materially and adversely affect the use of the Properties. All of the leases relating to the Properties are in full force and effect. Neither the Company nor any Company Subsidiary has delivered a notice of monetary default or material non-monetary default to any tenant which remains uncured as of the date hereof except with respect to defaults which individually or in the aggregate would not have a Material Adverse Effect, if uncured. k. All mortgages encumbering the Properties are in good standing unless noncompliance would not be material to the Company (or the Company Subsidiary which owns such Property) and all payments due thereunder as of the date hereof have been made. Neither the Company nor any of the Company Subsidiaries has received a notice of default or a written notice of any matter which, if uncured beyond any grace period set forth in such mortgage, would constitute a default thereunder unless such default would not have a Material Adverse Effect. All consents to the proposed transaction from each mortgagee required to give its consent, are listed on Schedule 3k (the "Listed Consents") and all such consents have been obtained. The GGP Companies have good relationships with each of the lenders with respect to the Listed Consents and such lenders have indicated a preliminary willingness to provide the Listed Consents without any adverse conditions or amendments to the loans. The information set forth on Schedule 3k is true and correct in all material respects as of the dates listed thereon. l. There are no condemnation or eminent domain proceedings pending, or to the Company's Knowledge, threatened, against any of the Properties that could reasonably be expected to have a Material Adverse Effect. m. Neither the Company nor any Company Subsidiary has received any notice, complaint or service alleging a violation in any material respect of the Americans with Disabilities Act at any of the Properties that has not been cured, whether such notice, complaint or service alleged a violation against the Company, any Company Subsidiary or any tenant of the Properties, which violation could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Company Subsidiary has received any written notices from any insurance company or board of fire underwriters alleging any material uncured defects or material inadequacies in any of the Properties, which defects or inadequacies could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Company Subsidiary has received any notice canceling, suspending or threatening to cancel or suspend any certificates of occupancy or permits regulating the use of the Properties, -5- which cancellations or suspensions could reasonably be expected to have a Material Adverse Effect. n. To the Company's Knowledge, (i) there are no underground storage tanks on the Properties, (ii) there are no hazardous substances or wastes beyond the limits permitted by law on or under the Properties and no hazardous substances or wastes beyond the limits permitted by law have been generated, released, discharged or disposed of from or on the Property, and (iii) there is no asbestos, PCB's or formaldehyde based insulation on or at any of the Properties beyond the limits permitted by law, in each case, the presence, generation, release, discharge or disposal of which could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Company Subsidiary has received notification of a release or discharge of any hazardous substance or hazardous waste pursuant to or any notice of any violation or non-compliance with any federal, state or local environmental law, regulation or ordinance as to any Property, which release, discharge, violations or non-compliance could reasonably be expected to have a Material Adverse Effect. As used herein the terms "hazardous substances" and "hazardous wastes" shall have the meanings set forth in CERCLA. o. Each insurance policy maintained by the GGP Companies or the Company Subsidiaries with respect to the Properties is in full force and effect and no GGP Company or Company Subsidiary has received any notice from any insurance company which issued any of the policies of any defects or inadequacies of such Properties which, if not corrected would result in the termination of such policies and could reasonably be expected to have a Material Adverse Effect. p. Immediately following the issuance of the Units, less than 17.5% of the value of the Company's gross assets (giving effect to the Subscriber's investment in the Company) will consist of "stock and securities" within the meaning of Section 351(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"). For this purpose, if the Company holds an interest in an unincorporated entity (other than an unincorporated entity taxable as a corporation), the provisions of Treasury Regulation Section 1.731-2(c)(3) apply to determine the extent to which such interest is treated as a "stock and security". The Company has no present plan to increase the value of its assets constituting "stock and securities" to a percentage equal to or greater than 17.5%. q. Interests in neither the Company nor GGP are traded on an "established securities market" as defined in Treas. Reg. Section 1.7704-1(b). r. Assuming that Subscriber's representations and warranties in Sections 4a., 4b. and 4c. of this Agreement and Sections 4a., 4b. and 4c. of the April 17 Purchase Agreement are true and correct, all membership interests or other economic interests in the Company and GGP were issued in transactions that were not required to be registered under the Securities Act of 1933, as amended (the "Securities Act") or would not have been required to be so registered if the interest had been offered and sold in the United States. s. The Company would presently satisfy, and nothing has come to the attention of the Company or GGP to cause it to believe that the Company will fail to satisfy, the income -6- and asset requirements under Sections 856(c)(2), (3) and (4) of the Code if the Company were otherwise taxable as a real estate investment trust under the Code. The Company currently intends, and GGP currently intends to cause the Company, to satisfy the income and asset requirements under Sections 856(c)(2), (3) and (4) of the Code that apply to real estate investment trusts, and the Company and GGP do not know of any existing facts or circumstances that would cause the Company to fail to satisfy the income and asset requirements under Sections 856(c)(2), (3) and (4) of the Code on or before December 31, 2003, if the Company were otherwise taxable as a real estate investment trust. t. The Company and GGP are partnerships for U.S. federal income tax purposes, and have not been and are not presently publicly traded partnerships within the meaning of Section 7704(b) of the Code ("PTP"). Neither the Company nor GGP has reported or taken a position with the Internal Revenue Service or its members or partners, as the case may be, that the Company or GGP is a PTP. u. The GGP Companies do not have any present plan or intention, and the GGP Companies do not have any actual knowledge of any present plan or intention of any member in the Company, to take any action or actions that would or likely would result in the Company or GGP becoming a PTP in the foreseeable future. The GGP Companies do not have any actual knowledge of facts that reasonably would cause them to expect that the Company would or likely would become a PTP in the foreseeable future, and the GGP Companies do not have any actual knowledge of facts relating to any actions that may be taken by the Company or any partner of GGP that reasonably would cause them to expect that GGP would or likely would become a PTP in the foreseeable future. v. From the beginning of the current tax years of the Company and GGP to the date hereof, the Company and GGP have not had at any time more than 100 members and partners (including the Subscriber which, for the purposes hereof, is being counted as one member) within the meaning of Treas. Reg. Section 1.7704-1(h) on a combined basis. During the current tax year of the Company, no interests in the Company's capital or profits have been transferred, other than pursuant to transfers described in any of paragraphs (e), (f) and (g) of Treasury Regulation Section 1.7704-1 and for purposes of this paragraph and the other provisions of this Agreement, the transfer of the 8.95% Series A Cumulative Redeemable Preferred Units of the Company by Goldman Sachs 2000 Exchange Place Fund, L.P. to GSEP 2000 Realty Corp. shall be deemed to be a transfer described in such paragraphs, to the extent not already so described. w. The Company has no present plan or intention to, and each of the GGP Companies has no present plan or intention to cause the Company to: (i) liquidate or sell substantially all of the Company's assets; or (ii) make distributions to members or redeem interests in the Company in such manner as would cause the exchange right contained in the LLC Agreement of the Company relating to an imminent and substantial risk that Subscriber's interest in the Company represents or would exceed the 19.95% Limit (as defined in the LLC Agreement) to be exercisable. x. Nothing has come to the attention of the Company to cause it to believe and the Company does not believe that (i) it will fail to have sufficient cash flow to satisfy the payment of the -7- return on the Preferred Shares (and hence cause the exchange right contained in the LLC Agreement relating to the failure to pay return in six (6) prior quarterly distribution periods to be exercisable) or (ii) the Company's income will fall to a level that would cause the exchange right contained in the LLC Agreement relating to an imminent and substantial risk that the Subscriber's interest in the Company represents or would exceed the 19.95% Limit to be exercisable. y. The Net Asset FMV and the Gross Asset FMV of the Company currently constitute less than 65% of the Net Asset FMV and the Gross Asset FMV of GGP, respectively, and each of the GGP Companies has no present plan or intention to cause the Net Asset FMV or the Gross Asset FMV of the Company to constitute 65% or more of the Net Asset FMV or the Gross Asset FMV of GGP. For purposes of this representation, Net Asset FMV means with respect to the Company or GGP, the fair market value of the assets of the Company or GGP, as the case may be (for this purpose treating the fair market value of GGP's interest in the Company as equal to its direct and indirect pro rata share of the Net Asset FMV of the Company) over the liabilities of GGP or the Company, as the case may be. For purposes of this representation, Gross Asset FMV means with respect to the Company the fair market value of its assets (including for this purpose, the Company's pro rata share of the fair market value of assets of entities in which the Company directly or indirectly owns a 50% interest or more, without regard to any nominal amount of nonvoting preferred equity therein), and with respect to GGP the fair market value of its assets (exclusive of its interest in the Company and entities in which GGP directly or indirectly owns a 50% interest or more) plus GGP's direct and indirect pro rata share of the Gross Asset FMV of the Company and GGP's pro rata share of the fair market value of the assets of any entity in which GGP directly or indirectly owns a 50% interest or more (without regard to any nominal amount of nonvoting preferred equity therein). In calculating the fair market value of shopping center property in which the Company or GGP directly or indirectly owns an interest, (a) the fair market value of each such property which is open and operating was calculated by dividing Net Operating Income (as defined in the LLC Agreement) for such property for 2001 (or, if such property was acquired or opened during 2001, the 2002 budgeted Net Operating Income for such property) by a capitalization rate of 8.25% and (b) the fair market value of each such property which is under construction equals the land acquisition and construction costs for such property. The Company believes that these methodologies for calculating the fair market value of shopping center properties are a reasonable method of determining the fair market value of such properties. z. The GGP Companies expressly permit Fried, Frank, Harris, Shriver & Jacobson, as counsel to Subscriber and Subscriber's Parent, to rely upon the representations and warranties set forth in this Section 3 for the purpose of rendering legal opinions to Subscriber, Subscriber's Parent and Goldman Sachs & Co. as if such representations and warranties were made by the GGP Companies directly to Fried, Frank, Harris, Shriver & Jacobson. aa. Schedule 3.aa. attached hereto sets forth (i) each arrangement pursuant to which property or assets of any member of the Consolidated Group or any Investment Affiliate are or may be subject to Liens collateralizing Parent Indebtedness and (ii) the amount of Parent Indebtedness outstanding as of March 31, 2002 with respect to each such arrangement. No -8- borrower may elect to borrow any additional amounts at any time in the future with respect to any such arrangement pursuant to the terms of such arrangement. All capitalized terms used in clauses aa and bb of this Section 3 or Schedule 3.aa. and not otherwise defined shall have the meanings ascribed to them in the LLC Agreement. bb. Schedule 3.aa. sets forth (i) each arrangement pursuant to which any member of the Consolidated Group or any Investment Affiliate has Guaranteed Parent Indebtedness and (ii) the amount of Parent Indebtedness outstanding as of March 31, 2002 with respect to each such arrangement. No borrower may elect to borrow any additional amounts at any time in the future with respect to any such arrangement pursuant to the terms of such arrangement. 4. Representations & Warranties of Subscriber and Subscriber's Parent Subscriber and Subscriber's Parent hereby represent and warrant to the GGP Companies as of the date hereof and as of the Closing Date that: a. Subscriber is purchasing the Units 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 the Securities Act. b. Subscriber understands that it may sell or otherwise transfer the Units or the Preferred Shares or Common Shares issuable upon exchange of the Units 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 Units are not a liquid investment and that no market exists or will develop for the Units. c. Subscriber is an "accredited investor" as such term is defined in Rule 501 of Regulation D promulgated pursuant to the Securities Act, and shall be such on the date any Units are issued to Subscriber; Subscriber acknowledges that Subscriber is able to bear the economic risk of losing Subscriber's entire investment in the Units and understands that an investment in the Company involves substantial risks. Each of Subscriber and Subscriber's Parent has the power and authority to enter into this Agreement, and the execution and delivery of, and performance under this Agreement, does not conflict with any organizational document, rule, regulation, judgment or agreement applicable to Subscriber or Subscriber's Parent. Each of Subscriber and Subscriber's Parent has had the opportunity to discuss the Company's affairs with the Company's officers. d. Subscriber has all requisite corporate authority and power to execute and deliver this Agreement and the Amendment and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Amendment and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all requisite corporate action on the part of Subscriber and no other -9- proceedings on the part of Subscriber are necessary to authorize this Agreement and the Amendment or to consummate the transactions contemplated hereby and thereby. This Agreement and the Transaction Documents constitute valid and binding obligations of Subscriber enforceable against it in accordance with their terms. e. Subscriber's Parent has all requisite partnership authority and power to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all requisite action on the part of Subscriber's Parent and no other proceedings on the part of Subscriber's Parent are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement constitutes a valid and binding obligation of Subscriber's Parent enforceable against it in accordance with its terms. f. Subscriber is not a "party in interest" (as defined under Section 3(14) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or a "disqualified person" (as defined under Section 4975(e)(2) of the Internal Revenue Code of 1986, as amended (the "Code")) with respect to any "employee benefit plan," as defined under Section 3(3) of ERISA, or a "plan," as defined in Section 4975(e)(1) of the Code ("employee benefit plan" and "plan," as defined herein, shall be referred to collectively as "Plans"). The purchase of Units under this Agreement by Subscriber shall not cause the Company to be a Plan that is subject to Title I of ERISA or Section 4975 of the Code, nor will it cause the assets of the Company to constitute "plan assets" of one or more such Plans for purposes of title I of ERISA or Section 4975 of the Code. g. Subscriber shall promptly notify the Company should Subscriber reasonably anticipate becoming a party in interest or disqualified person with respect to any Plan, and Subscriber will take such steps as may be necessary to prevent the assets of the Company to be considered assets of any such Plan. h. The execution and delivery of this Agreement and the purchase of Units hereunder will not involve any non-exempt prohibited transaction within the meaning of Section 406(b)(3) of ERISA or Section 4975(c)(1)(F) of the Code. 5. General Covenants of the Parties a. So long as the Units remain outstanding, without the affirmative vote of the Majority Holders (defined below), each GGP Company hereby covenants that it will not create, authorize or issue any Preferred Shares or securities exchangeable, convertible or otherwise exercisable for Preferred Shares, if as a result of such creation, authorization or issuance, holders of Units (upon exchange thereof into Preferred Shares) would not have the right to vote a majority of all Preferred Shares issued or issuable upon exchange, conversion or exercise of any security. b. So long as the Units remain outstanding, without the affirmative vote of the Majority Holders, each of the GGP Companies hereby covenants that it will not effect amendments or modifications to the terms of the Preferred Shares which would materially and adversely -10- affect any right, preference, privilege or voting power of the Preferred Shares or the holders thereof and which would require the vote or approval of the holders thereof under the terms thereof. The term "Majority Holders" means the holders of at least 51% of the aggregate base liquidation preferences of the issued and outstanding Units and issued and outstanding Preferred Shares obtained upon exchange of the Units. 6. Tax Covenants a. From and after the Closing Date through December 31, 2002, the Company shall not issue, or enter into binding agreements to issue, any interests in the Company (i) to the extent such issuance would cause the Company to have more than 100 members immediately after such issuance or (ii) in a transaction (or transactions) that is required to be registered under the Securities Act or that would be required to be registered if the interests had been offered and sold in the United States. The Company and GGP shall ensure that the sum of the percentage interests in the Company's capital or profits transferred during the current tax year of the Company (other than transfers described in any of paragraphs (e), (f) and (g) of Treasury Regulation Section 1.7704-1) shall not exceed 2 percent of the total interests in the Company's capital or profits. The Company shall, through the end of the current tax year of the Company, take all actions reasonably available to it under the Company's LLC Agreement in effect on the date hereof to avoid treatment of the Company as a PTP. For purposes of this covenant, the number of members of the Company shall be determined in accordance with the method of determining the number of partners in Treasury Regulations Section 1.7704-1(h) and the percentage interest in the Company's capital and profits shall be determined in accordance with Treasury Regulation Section 1.7704-1(k). b. From and after the date hereof, the Company shall notify holders of the Units promptly in the event that any GGP Company (i) takes the position that the Company is, or upon consummation of an identified event in the immediate future, will be a PTP or (ii) becomes aware of any facts that will or likely will cause the Company to become a PTP. c. The Company shall notify holders of Units promptly in the event that any GGP Company anticipates or realizes that the value of the Company's assets constituting "stock and securities" within the meaning of Section 351(e)(1) of the Code will equal 17.5% or more of the value of the Company's total assets. d. The Company shall notify holders of Units promptly in the event that any GGP Company anticipates or realizes that, if the Company were taxable as a real estate investment trust, the Company would fail to satisfy the income and asset requirements under Sections 856(c)(2), (3) and (4) of the Code. e. The Company shall notify a holder of Units promptly in the event that any GGP Company anticipates or realizes that the holder's interest in the Company would exceed the 19.95% Limit (as defined in the LLC Agreement). f. The Company shall notify a holder of Units promptly in the event that any GGP Company anticipates or realizes that the holder's interest in the Company will represent 10% or more of the total capital interests in the Company. The Company shall permit such a holder to -11- make a taxable REIT subsidiary election with respect to any corporation (other than a corporation taxable as a real estate investment trust) for which the holder would be deemed to own (for purposes of Section 856(c)(4) of the Code) securities of such corporation (i) possessing more than 10% of the total voting power of or (ii) having a value of more than 10% of the total value of, the outstanding securities of such corporation, but only if such ownership arose solely as a result of the holder's interest in the Company. The Company shall cause each corporation referred to in the preceding sentence to jointly make a taxable REIT subsidiary election with such holder. g. At any time and from time to time after the Closing and prior to July 17, 2002, upon request of the Subscriber, each of the GGP Companies agrees to deliver an additional certificate to the Subscriber and Subscriber's Parent bringing down the representations and warranties made by the GGP Companies in Section 3 hereof to a date prior to July 17, 2002 reasonably requested by the Subscriber (if and to the extent, after due inquiry, such representations and warranties are true and correct as of such date), provided that such certificate is reasonably requested by the Subscriber in connection with the contribution of additional capital to the Subscriber's Parent and this paragraph shall not preclude the GGP Companies from taking actions which would render such representations or warranties untrue or incorrect. The Subscriber shall provide at least three (3) business days written notice of any request for a certification hereunder. h. The Company, GGP and Parent will not take any position inconsistent with the form of the transaction set forth in the Transaction Documents, including without limitation, any position that the Company is not a partnership for federal income tax purposes or that the Subscriber is not a partner of the Company for federal income tax purposes. i. Neither the Company nor any Company Subsidiaries will make an election under Treas. Reg. Section 301.7701-3 to be classified as an association. 7. Miscellaneous a. The representations and warranties set forth herein shall survive the Closing. When used herein, the "Company's Knowledge" includes the knowledge of the Company, any other GGP Company and the Company Subsidiaries. b. This Agreement may not be changed or terminated except by written agreement of all parties. It shall be binding on the parties and on their permitted assigns. It sets forth all agreements of the parties (except as set forth in the Transaction Documents). c. This Agreement shall be governed by the laws of the State of New York without regard (to the fullest extent permitted by law) to conflicts of law principles thereof which might result in the application of the laws of any other jurisdiction. d. 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 -12- 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 below. Either party hereto may designate a different address by providing written notice of such new address to the other party hereto as provided above. Any GGP Company: General Growth Properties, Inc. 110 W. Wacker Drive Chicago, Illinois 60606 Attention: John Bucksbaum With a copy to: Neal, Gerber & Eisenberg Two North LaSalle Street Chicago, Illinois 60602 Attention: Marshall E. Eisenberg, Esq. Subscriber: GSEP 2002 Realty Corp. c/o Goldman, Sachs & Co. One New York Plaza, 40th Floor New York, New York 10004 Attention: Eric Lane With a copy to: Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10004 Attention: Lawrence Barshay, Esq. Subscriber's Parent: Goldman Sachs 2002 Exchange Place Fund, L.P. c/o Goldman, Sachs & Co. One New York Plaza, 40th Floor New York, New York 10004 Attention: Eric Lane With a copy to: Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10004 Attention: Lawrence Barshay, Esq.
-13- f. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same Agreement, and all signatures need not appear on any one counterpart. g. The headings and sections are inserted for convenience only. When used in this Agreement, "including" means "including without limitation." References to Sections and Exhibits refer to this Agreement unless expressly provided otherwise. -14- IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. GENERAL GROWTH PROPERTIES, INC. By: /s/ Bernard Freibaum ----------------------------------------- Name: Bernard Freibaum Title: Executive Vice President GGP LIMITED PARTNERSHIP By: General Growth Properties, Inc., its General Partner By: /s/ Bernard Freibaum ------------------------------------- Name: Bernard Freibaum Title: Executive Vice President GGPLP L.L.C. By: GGP Limited Partnership, its Managing Member By: General Growth Properties, Inc., its General Partner By: /s/ Bernard Freibaum --------------------------------- Name: Bernard Freibaum Title: Executive Vice President [Signature Page to Purchase Agreement] AGREED & ACCEPTED: GSEP 2002 REALTY CORP. By: /s/ Eric Lane ------------------------------------- Name: Eric Lane Title: President and CEO GOLDMAN SACHS 2002 EXCHANGE PLACE FUND, L.P. By: Goldman Sachs 2002 Exchange Place Advisors, L.L.C., its General Partner By: /s/ Eric Lane --------------------------------- Name: Eric Lane Title: Authorized Person [Signature Page to Purchase Agreement] EX-4.1 5 c69409ex4-1.txt CERTIFICATE OF DESIGNATIONS PREFERENCES & RIGHTS Exhibit 4.1 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF 8.95% CUMULATIVE REDEEMABLE PREFERRED STOCK, SERIES G OF GENERAL GROWTH PROPERTIES, INC. PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE General Growth Properties, Inc., a Delaware corporation (the "Company"), hereby certifies that pursuant to the authority contained in Article IV of its Second Amended and Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation"), and in accordance with Section 151 of the General Corporation Law of the State of Delaware (the "DGCL"), its Board of Directors (the "Board"), on April 9, 2002, adopted the following resolution creating a series of its preferred stock, par value $100 per share, liquidation preference $1,000 per share, designated as the "8.95% Cumulative Redeemable Preferred Stock, Series G"; WHEREAS, the Board of Directors of the Company is authorized, within the limitations and restrictions stated in its Certificate of Incorporation, to provide for the issuance of preferred stock in series and to establish the number of shares to be included in such series and to fix the designation, powers, preferences and rights of the shares of such series and the qualifications, limitations and restrictions thereof; and WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as aforesaid, to authorize and fix the terms of the preferred stock to be designated the "8.95% Cumulative Redeemable Preferred Stock, Series G" and the number of shares constituting such preferred stock. NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized the 8.95% Cumulative Redeemable Preferred Stock, Series G on the terms and with the provisions herein set forth. I. Certain Definitions As used herein, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires: "Act" shall mean the Securities Act of 1933, as amended. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New York are not required to be open. "Capital Stock" shall mean Common Stock or Preferred Stock. The term "Capital Stock" shall not include convertible debt securities. "Common Stock" shall mean the common stock, par value $.10 per share, of the Company. "Company" shall mean General Growth Properties, Inc., a Delaware corporation. "Dividend Period" shall mean quarterly dividend periods commencing on (and including) the fifteenth day of each January, April, July and October of each year and ending on (and including) the day preceding the first day of the next succeeding Dividend Period. "GGPLP L.L.C." shall mean GGPLP L.L.C., a Delaware limited liability company. "NYSE" shall mean the New York Stock Exchange. "Ownership Limitations" shall mean the restrictions on transferability and ownership described in Article IV of the Certificate of Incorporation, specifically, that ownership of more than 7.5% of the value of the outstanding shares of Capital Stock of the Company, including the Series G Preferred Stock, is restricted. "Redemption Date" shall mean any date fixed for redemption of the shares of Series G Preferred Stock by the Company. "Preferred Stock" shall mean the preferred stock, $100 par value per share, of the Company. "Series A Preferred Stock" shall mean the 7.25% Preferred Income Equity Redeemable Stock, Series A of the Company. "Series B Preferred Stock" shall mean the 8.95% Cumulative Redeemable Preferred Stock, Series B. "Series B Preferred Units" shall mean the 8.95% Series B Cumulative Redeemable Preferred Units of membership interest in GGPLP L.L.C. "Series G Preferred Stock" shall mean the 8.95% Cumulative Redeemable Preferred Stock, Series G. "Transfer Agent" shall mean ChaseMellon Shareholder Services, L.L.C., the principal corporate trust office of which currently is located at 150 North Wacker Drive, Suite 2120, Chicago, Illinois 60606, or such other agent or agents of the Company as may be designated by the Board or its designee as the transfer agent for the Series G Preferred Stock. 2 II. Designation and Number of Shares A series of preferred stock, designated the "8.95% Cumulative Redeemable Preferred Stock, Series G" (the "Series G Preferred Stock"), is hereby established. The par value of the Series G Preferred Stock is $100 per share, which is not a change in the par value per share of the Preferred Stock as set forth in the Certificate of Incorporation. The liquidation preference per share of the Series G Preferred Stock is $1,000. The authorized number of shares of Series G Preferred Stock is 75,000. The Series G Preferred Stock shall not have any relative, participating, optional or other special rights and powers other than as set forth herein. III. Rank The Series G Preferred Stock, with respect to payment of dividends and amounts upon voluntary or involuntary liquidation, dissolution or winding-up of the Company, shall be deemed to rank: (a) senior to all classes or series of Common Stock and to all Capital Stock of the Company other than each series of Preferred Stock referred to in Section III(b) or (c); (b) on a parity with the Series A Preferred Stock, Series B Preferred Stock, and each other series of Preferred Stock issued by the Company which provides by its express terms that it ranks on parity with the Series G Preferred Stock with respect to payment of dividends or amounts upon liquidation, dissolution or winding-up of the Company; and (c) junior to any class or series of Capital Stock that is issued by the Company in accordance with Section IV(a). IV. Voting (a) So long as any shares of Series G Preferred Stock remain outstanding, the Company shall not, without the affirmative vote or consent of the holders of at least fifty-one percent (51%) of the shares of Series G Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (i) authorize or create, or increase the authorized or issued amount of, any class or series of shares of Capital Stock ranking senior to the Series G Preferred Stock with respect to the payment of dividends or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding-up of the Company or reclassify any Common Stock into Capital Stock ranking senior to or on parity with the Series G Preferred Stock with respect to the payment of dividends or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding-up of the Company, (ii) issue additional shares of Series G Preferred Stock (other than those issued in exchange for Series B Preferred Units pursuant to the operating agreement of GGPLP L.L.C.) or (iii) amend, alter or repeal the provisions of the Certificate of Incorporation or this Certificate of 3 Designations, whether by merger, consolidation or otherwise (an "Event"), so as to negate the provisions of clause (i) or (ii) of this paragraph or materially and adversely affect any special right, preference, privilege or voting power of the holders of Series G Preferred Stock; provided, however, (A) with respect to the occurrence of any of the Events set forth in clause (iii) of this paragraph, so long as shares of Series G Preferred Stock remain outstanding with the terms thereof materially unchanged, taking into account that, upon the occurrence of an Event, the Company may not be the surviving entity, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting power of holders of the Series G Preferred Stock and (B) any increase in the amount of the authorized Preferred Stock or any series of the Preferred Stock or the creation or issuance of any other series of Preferred Stock, in each case ranking on a parity with or junior to the Series G Preferred Stock with respect to payment of dividends and the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding-up of the Company, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers. (b) Notwithstanding anything to the contrary contained herein, the foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series G Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption. (c) For purposes of the foregoing provisions of this Section IV, each share of Series G Preferred Stock shall have one (1) vote per share. Except as otherwise required by applicable law or as set forth herein, the shares of Series G Preferred Stock shall not have any relative, participating, optional or other voting rights and powers or the right to receive notice of meetings and the consent of the holders thereof shall not be required for the taking of any corporate action. V. Dividends. (a) The holders of shares of the Series G Preferred Stock shall be entitled to receive, when, as and if declared by the Board, out of assets legally available for the payment of dividends and subject to the right to payment of holders of Capital Stock ranking senior to or on parity with the Series G Preferred Stock as to payment of dividends and amounts upon liquidation, dissolution or winding-up of the Company, quarterly cumulative cash dividends in an amount per share of Series G Preferred Stock equal to 8.95% of the $1,000 liquidation preference thereof per annum (or $22.375 per quarter). Dividends on the shares of the Series G Preferred Stock are cumulative and shall accrue from and after the date of issuance thereof (the "Series G Initial Issuance Date"), whether or not in any Dividend Period or Periods there shall be funds of the Company legally available for the payment of such dividends. Dividends on the shares of the Series G Preferred Stock shall be payable in arrears quarterly when, as and if declared by the Board, on the fifteenth day of each January, April, July and October or, if not a Business Day, the next succeeding Business Day, beginning on the first such date following the Initial Series G Issuance Date (each, a "Dividend Payment Date"). Each such dividend shall be payable in arrears to holders of record of shares of the Series G Preferred Stock, as such holders 4 appear in the stock records of the Company at the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Dividend Payment Date falls or such other date designated by the Board for the payment of dividends that is not more than 30 nor less than 10 days prior to such Dividend Payment Date (each, a "Dividend Record Date"). Accrued and unpaid dividends for any past Dividend Periods may be declared and paid at any time, without reference to any Dividend Payment Date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the Board. (b) The amount of dividends payable per share of Series G Preferred Stock for each full Dividend Period shall equal the quotient of 8.95% of the $1,000 liquidation preference thereof divided by four (or $22.375). The amount of dividends payable for the initial Dividend Period, or any other period shorter or longer than a full Dividend Period, on the Series G Preferred Stock, shall be prorated and computed on the basis of twelve 30-day months and a 360-day year. Holders of shares of Series G Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of cumulative dividends, as provided in this Section V, on the Series G Preferred Stock. Any dividend payment made on the Series G Preferred Stock shall first be credited against the earliest accumulated but unpaid dividend due with respect to such shares which remains payable. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series G Preferred Stock that may be in arrears. (c) Notwithstanding the foregoing, dividends on the Series G Preferred Stock shall accumulate whether or not there are funds legally available for the payment thereof and whether or not such distributions are authorized. (d) Except as provided in Section V(e) herein, so long as any shares of Series G Preferred Stock are outstanding, no dividends (other than in Common Stock or other Capital Stock of the Company ranking junior to the Series G Preferred Stock as to payment of dividends and amounts upon liquidation, dissolution or winding-up of the Company) shall be declared or paid or set apart for payment upon the Common Stock or any other class or series of Capital Stock of the Company ranking, as to payment of dividends or amounts distributable upon liquidation, dissolution or winding-up of the Company, on a parity with or junior to the Series G Preferred Stock, for any period nor shall any Common Stock or other Capital Stock of the Company ranking junior to or on a parity with the Series G Preferred Stock as to payment of dividends or amounts upon liquidation, dissolution or winding-up of the Company, be redeemed, purchased or otherwise acquired for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Capital Stock) by the Company (except by conversion into or exchange for other Capital Stock of the Company ranking junior to the Series G Preferred Stock as to payment of dividends and amounts upon liquidation, dissolution or winding-up of the Company or by redemptions for the purpose of maintaining the Company's qualification as a real estate investment trust ("REIT") for U.S. federal income tax purposes) unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series G Preferred Stock for all Dividend Periods ending on or prior to the dividend payment 5 date for such other class or series of capital stock or the date of such redemption, purchase or other acquisition, as the case may be. (e) When dividends are not paid in full (or a sum sufficient for such full payment is not set apart for such payment) upon the Series G Preferred Stock and any other Capital Stock ranking on a parity as to payment of dividends with the Series G Preferred Stock, all dividends declared upon the Series G Preferred Stock and any other Capital Stock ranking on a parity as to payment of dividends with the Series G Preferred Stock shall be declared pro rata so that the amount of dividends declared per share of Series G Preferred Stock and such other Capital Stock shall in all cases bear to each other the same ratio that accumulated dividends per share on the Series G Preferred Stock and such other Capital Stock (which shall not include any accumulation in respect of unpaid dividends for prior dividend periods if such Capital Stock does not have a cumulative dividend) bear to each other. VI. Liquidation Preference. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and subject to the rights of holders of Capital Stock ranking senior to the Series G Preferred Stock as to the distribution of assets upon the liquidation, dissolution or winding-up of the Company, before any payment or distribution of the assets of the Company (whether capital or surplus) shall be made to or set apart for the holders of Common Stock or any other Capital Stock ranking junior to the Series G Preferred Stock as to the distribution of assets upon the liquidation, dissolution or winding-up of the Company, the holders of shares of the Series G Preferred Stock shall be entitled to receive out of the assets of the Company available for distribution to stockholders remaining after payment or provisions for payment of all debts and other liabilities of the Company a liquidation preference of $1,000 per share, plus an amount equal to all dividends (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If, upon any such voluntary or involuntary liquidation, dissolution or winding-up of the Company, the assets of the Company, or proceeds thereof, distributable among the holders of the shares of Series G Preferred Stock, are insufficient to pay in full the preferential amount aforesaid on the shares of Series G Preferred Stock and liquidating payments on any other shares of any class or series of Capital Stock ranking, as to payment of amounts upon the liquidation, dissolution or winding-up of the Company, on a parity with the Series G Preferred Stock, then such assets, or the proceeds thereof, shall be distributed among the holders of shares of Series G Preferred Stock and any such other parity stock ratably in accordance with the respective amounts that would be payable on such shares of Series G Preferred Stock and such other stock if all amounts payable thereon were paid in full. For the purposes of this Section VI, none of (i) a consolidation or merger of the Company with or into another entity, (ii) a merger of another entity with or into the Company, (iii) a statutory share exchange by the Company or (iv) a sale, lease or conveyance of all or substantially all of the Company's assets, properties or business shall be deemed to be a liquidation, dissolution or winding-up of the Company. 6 (b) Written notice of such liquidation, dissolution or winding-up of the Company, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series G Preferred Stock at the respective addresses of such holders as the same shall appear on the stock transfer records of the Company. (c) After payment of the full amount of liquidating distributions to which they are entitled, the holders of Series G Preferred Stock shall have no right or claim to any of the remaining assets of the Company. VII. Redemption. (a) General. The shares of Series G Preferred Stock are not redeemable prior to April 17, 2007. To ensure that the Company remains a qualified REIT for U.S. federal income tax purposes, however, the Series G Preferred Stock shall be subject to the provisions of Article IV of the Certificate of Incorporation pursuant to which Series G Preferred Stock owned by a stockholder (i) in excess of the Ownership Limit or the Existing Holder Limit (as defined in Section VIII hereof) or (ii) that would cause the Company to become "closely held" within the meaning of Section 856(h) of the Internal Revenue Code of 1986, as amended (the "Code") shall automatically be transferred to a Trust (as defined in Article IV of the Certificate of Incorporation) and the Company shall have the right to purchase such shares, as provided in Article IV of the Certificate of Incorporation, notwithstanding the first sentence of this paragraph (a). (b) Cash Redemption Right. On and after April 17, 2007, the Company, at its option, upon giving notice as provided below, may redeem the Series G Preferred Stock, in whole or from time to time in part, at the redemption price per share of Series G Preferred Stock of $1,000, plus, in each case, all dividends accumulated and unpaid on such Series G Preferred Stock to the date of such redemption (the "Redemption Right"). (c) Limitations on Redemption. (i) If fewer than all of the outstanding shares of Series G Preferred Stock are to be redeemed pursuant to the Redemption Right, the shares to be redeemed shall be determined pro rata or by lot. If such redemption is to be by lot and, as a result of such redemption, (i) any holder of Series G Preferred Stock would become a holder of a number of shares of Series G Preferred Stock in excess of the Ownership Limit or the Existing Holder Limit or (ii) the Company would become "closely held" within the meaning of Section 856(h) of the Code because such holder's Series G Preferred Stock were not redeemed, or were only redeemed in part, then, except as otherwise provided in the Certificate of Incorporation, the Company will redeem the requisite number of shares of Series G Preferred Stock of such holder such that the holder of such shares (i) will not hold in excess of the Ownership Limit or the Existing Holder 7 Limit subsequent to such redemption or (ii) will not cause the Company to become "closely held" within the meaning of Section 856(h) of the Code. (ii) Notwithstanding anything to the contrary contained herein, unless full cumulative dividends on all outstanding shares of Series G 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 for all Dividend Periods ending on or prior to the date of redemption or purchase, no shares of Series G Preferred Stock shall be redeemed unless all outstanding shares of Series G Preferred Stock are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase or acquisition of Series G Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Series G Preferred Stock. In addition, unless full cumulative dividends on all outstanding shares of Series G Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for payment thereof set apart for payment for all past Dividend Periods, the Company shall not purchase or otherwise acquire directly or indirectly any Series G Preferred Stock, or any shares of any class or series of Capital Stock of the Company ranking, as to payment of dividends or amounts distributable upon liquidation, dissolution or winding-up of the Company, junior to or on a parity with the Series G Preferred Stock (except by conversion into or exchange for Common Stock or other Capital Stock of the Company ranking junior to or on a parity with the Series G Preferred Stock as to payment of dividends or amounts upon liquidation, dissolution or winding-up of the Company and except for redemptions for the purposes of maintaining the Company's qualification as a REIT). (iii) Immediately prior to any redemption of any Series G Preferred Stock, the Company shall pay, in cash, any accumulated and unpaid dividends with respect thereto through the Redemption Date, unless a Redemption Date falls after a Dividend Record Date and on or prior to the corresponding Dividend Payment Date, in which case each holder of shares of Series G Preferred Stock at the close of business on such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares on or prior to such Dividend Payment Date. Except as provided above, the Company will make no payment, or allowance for unpaid dividends, whether or not in arrears, on Series G Preferred Stock for which a notice of redemption has been given. (d) Procedures for Redemption. (i) Notice of redemption pursuant to the Redemption Right shall be mailed, not less than 20 nor more than 60 days prior to the Redemption Date, to each holder of record of shares of Series G Preferred Stock to be redeemed, notifying such holder of the Company's election to redeem such shares. Such notice shall be provided by first class mail, postage prepaid, at such holder's address as the same appears on the stock records of the Company, or by publication in The Wall Street Journal or The New York Times, or, if neither such newspaper is then being published, any other daily newspaper of national circulation. If the Company elects to provide such notice by publication, it shall also promptly mail notice of such redemption to holders of the shares of Series G Preferred Stock to be redeemed. No failure to give such notice or any defect thereto or in the mailing thereof, to any particular holder, shall affect the 8 sufficiency of notice or the validity of the proceedings for the redemption of any shares of Series G Preferred Stock with respect to any other holder. (ii) In addition to any information required by law or by the applicable rules of any exchange upon which the Series G Preferred Stock may be listed or admitted to trading, such notice shall state, as appropriate: (i) the Redemption Date, (ii) the cash redemption price per share of Series G Preferred Stock, (iii) the number of shares of Series G Preferred Stock to be redeemed from such holder (and, if fewer than all the shares of Series G Preferred Stock are to be redeemed from such holder, the number of shares to be redeemed from such holder), (iv) the place or places where certificates for shares of such Series G Preferred Stock are to be surrendered for payment of the redemption price in cash and (v) that dividends on the shares to be redeemed will cease to accumulate on such Redemption Date. (iii) On or after the Redemption Date, each holder of shares of Series G Preferred Stock to be redeemed shall present and surrender the certificates representing his Series G Preferred Stock to the Company at the place designated in the notice of redemption and thereupon the redemption price of such shares shall be paid to or on the order of the person whose name appears on such certificate representing shares of Series G Preferred Stock as the owner thereof and each surrendered certificate shall be canceled. If fewer than all the shares represented by any such certificate representing shares of Series G Preferred Stock are to be redeemed, a new certificate shall be issued representing the unredeemed shares. (iv) From and after the Redemption Date (unless the Company fails to make available an amount in cash necessary to effect such redemption), all dividends on the Series G Preferred Stock designated for redemption in such notice shall cease to accumulate and all rights of the holders thereof, except the right to receive the redemption price (including all accumulated and unpaid dividends up to the Redemption Date), shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Company) on the Company's books, all rights of the holders of shares of the Series G Preferred Stock shall cease (except the right to receive the cash payable upon such redemption) and such shares shall not be deemed to be outstanding for any purpose whatsoever. The Company's obligation to provide cash in accordance with this Section VII shall be deemed fulfilled if, on or before the Redemption Date, the Company elects to deposit the cash necessary for redemption of the shares of Series G Preferred Stock so called with a bank or trust company that has, or is an affiliate of a bank or trust company that has, a capital and surplus of at least $50,000,000, in trust, with irrevocable instructions that such cash be applied to the redemption of the shares of Series G Preferred Stock so called for redemption. No interest shall accrue for the benefit of the holders of Series G Preferred Stock to be redeemed on any cash so set aside by the Company. Any such cash unclaimed at the end of two years from the Redemption Date shall revert to the general funds of the Company. If the Company elects to deposit the cash necessary for redemption with a bank or trust company, in accordance with this subsection (d)(iv), the redemption notice to holders of the shares of Series G Preferred Stock to be redeemed shall (i) state the date of such deposit, (ii) specify the office of such bank or trust company as the place of redemption and (iii) require such holders to surrender the certificates 9 representing such shares at such place on or about the date fixed in such redemption notice (which may not be later than the Redemption Date) against payment of the redemption price (including all accumulated and unpaid dividends to the Redemption Date). (e) Status of Redeemed Shares of Series G Preferred Stock. Subject to the provisions of Section III, any shares of Series G Preferred Stock that shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board. VIII. Ownership Limitations. The shares of Series G Preferred Stock are subject to the restrictions on transferability and ownership provisions described in Article IV of the Certificate of Incorporation. The ownership limit as described in Article IV of the Certificate of Incorporation (the "Ownership Limit") shall mean that ownership of more than 7.5% of the value of the outstanding shares of Capital Stock of the Company, including the Series G Preferred Stock, is restricted in order to preserve the Company's status as a REIT for U.S. federal income tax purposes. Subject to certain limitations described in Article IV of the Certificate of Incorporation, the Board may modify the Ownership Limit, though the Ownership Limit may not be increased by the Board to more than 9.8%. In addition, Article IV of the Certificate of Incorporation limits the ownership of "Existing Holders" (the "Existing Holder Limit") and also limits transfers that would cause the Company to become "closely held" within the meaning of Section 856(h) of the Code. Notwithstanding anything to the contrary contained herein, the provisions hereof shall not limit or prohibit the purchase by the Company of shares of any class or series of Capital Stock pursuant to Article IV of the Certificate of Incorporation. 10 IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to be executed in its name and on its behalf and attested to by its duly authorized officers on this 16th day of April, 2002. GENERAL GROWTH PROPERTIES, INC. By: /s/ Bernard Freibaum ---------------------------------- Name: Bernard Freibaum Title: Executive Vice President 11 EX-10.1 6 c69409ex10-1.txt SECOND AMENDED OPERATING AGREEMENT OF GGPLP LLC Exhibit 10.1 SECOND AMENDED AND RESTATED OPERATING AGREEMENT OF GGPLP L.L.C. TABLE OF CONTENTS
PAGE ARTICLE I Definitions; Etc........................................... 1 1.1 Definitions................................................... 1 1.2 Exhibits, Etc................................................. 15 1.3 Pronouns and Headings......................................... 16 ARTICLE II Continuation............................................... 16 2.1 Continuation.................................................. 16 2.2 Name.......................................................... 16 2.3 Character of the Business..................................... 16 2.4 Location of the Principal Place of Business................... 17 2.5 Registered Agent and Registered Office........................ 17 ARTICLE III Term....................................................... 17 3.1 Commencement.................................................. 17 3.2 Dissolution................................................... 17 ARTICLE IV Classes of Units........................................... 17 4.1 Common Units.................................................. 17 4.2 Preferred Units............................................... 18 4.3 Establishment of Series A Preferred Units..................... 18 4.4 No Third Party Beneficiary.................................... 32 4.5 No Interest; No Return; No Withdrawal......................... 33 4.6 No Other Capital Contributions................................ 33 4.7 Establishment and Issuance of Series B Preferred Units........ 33 ARTICLE V Allocations and Other Tax and Accounting Matters........... 33 5.1 Allocations................................................... 33 5.2 Distributions................................................. 33 5.3 Books of Account.............................................. 34 5.4 Reports....................................................... 34 5.5 Tax Elections and Returns..................................... 34 5.6 Tax Matters Member............................................ 34
-i- TABLE OF CONTENTS (continued)
PAGE 5.7 Withholding................................................... 34 ARTICLE VI Rights, Duties and Restrictions of the Managing Member..... 35 6.1 Expenditures by Company....................................... 35 6.2 Powers and Duties of Managing Member.......................... 35 6.3 Proscriptions................................................. 38 6.4 Title Holder.................................................. 38 6.5 Compensation of the Managing Member........................... 38 6.6 Waiver and Indemnification.................................... 38 6.7 Operation in Accordance with REIT Requirements................ 39 6.8 Duties and Conflicts.......................................... 39 ARTICLE VII Dissolution, Liquidation and Winding-Up.................... 40 7.1 Accounting.................................................... 40 7.2 Distribution on Dissolution................................... 40 7.3 Timing Requirements........................................... 40 7.4 Sale of Company Assets........................................ 41 7.5 Distributions in Kind......................................... 41 7.6 Documentation of Liquidation.................................. 41 7.7 Negative Capital Accounts..................................... 41 ARTICLE VIII Transfer of Units.......................................... 41 8.1 Managing Member Transfer...................................... 41 8.2 Transfers by Other Members.................................... 42 8.3 Restrictions on Transfer...................................... 42 8.4 Bankruptcy of a Member........................................ 43 ARTICLE IX Arbitration of Disputes.................................... 43 9.1 Arbitration................................................... 43 9.2 Procedures.................................................... 43 9.3 Binding Character............................................. 44 9.4 Exclusivity................................................... 44
-ii- TABLE OF CONTENTS (continued)
PAGE 9.5 No Alteration of Agreement.................................... 44 ARTICLE X General Provisions......................................... 45 10.1 Notices....................................................... 45 10.2 Successors.................................................... 45 10.3 Effect and Interpretation..................................... 45 10.4 Counterparts.................................................. 45 10.5 Members Not Agents............................................ 45 10.6 Entire Understanding; Etc..................................... 45 10.7 Amendments.................................................... 45 10.8 Severability.................................................. 45 10.9 Trust Provision............................................... 45 10.10 Issuance of Certificates Representing Units................... 46 10.11 Specific Performance.......................................... 46 10.12 Power of Attorney............................................. 46
-iii- WARNING: This section retains the original formatting, including headers and footers, of the main document. If you delete the section break above this message (which is visible ONLY in Normal View), any special formatting, including headers and footers for the Table of Contents/Authorities section will be lost. If you delete the section break above the Table of Contents/Authorities, you will overwrite the headers and footers of the main document with Table of Contents/Authorities headers and footers. To delete the Table of Contents/Authorities, begin your selection at the section break above the TOC/TOA section and continue through the end of this message. B-1 SECOND AMENDED AND RESTATED OPERATING AGREEMENT OF GGPLP L.L.C. THIS SECOND AMENDED AND RESTATED OPERATING AGREEMENT is made and entered into this 17th day of April, 2002, by and among the undersigned parties. W I T N E S S E T H: WHEREAS, a Delaware limited liability company known as GGPLP L.L.C. (the "Company") exists pursuant to the Delaware Limited Liability Company Act and that certain Amended and Restated Operating Agreement dated as of May 25, 2000 (the "Original Agreement"), among GGP Limited Partnership, a Delaware limited partnership (the "Operating Partnership"), GGP American Properties Inc., a Delaware corporation, Caledonian Holding Company, Inc., a Delaware corporation, Goldman Sachs 2000 Exchange Place Fund, L.P. (the "GS 2000 Exchange Fund"), and General Growth Properties, Inc., a Delaware corporation ("GGPI"); WHEREAS, the GS 2000 Exchange Fund has previously assigned its preferred units of membership interest in the Company to GSEP 2000 Realty Corp., a Delaware corporation (the "GS 2000 REIT"); WHEREAS, concurrently herewith, GSEP 2002 Realty Corp., a Delaware corporation (the "GS 2002 REIT"), is contributing $50,000,000 to the capital of the Company and, in exchange therefor, the Company is issuing to the GS 2002 REIT Series B Preferred Units (as defined below); and WHEREAS, the parties hereto, being all of the existing members of the Company and the GS 2002 REIT, desire to amend and restate the Original Agreement in its entirety to reflect such capital contribution, to effect the creation and issuance of the Series B Preferred Units and to reflect the transfer referred to in the second recital hereof and the other understandings among the parties hereto in respect of the Company. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, do hereby amend and restate the Original Agreement to read in its entirety as follows: ARTICLE I DEFINITIONS; ETC. 1.1 DEFINITIONS. Except as otherwise herein expressly provided, the following terms and phrases shall have the meanings set forth below (such definitions to be equally applicable to the singular and plural forms of the terms so defined): 1 "Accountants" shall mean the firm or firms of independent certified public accountants selected by the Managing Member on behalf of the Company and the Property Partnerships. "Act" shall mean the Limited Liability Company Act as enacted in the State of Delaware, as the same has been amended and as the same may hereafter be amended from time to time. "Adjusted Capital Account Deficit" shall mean, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of any relevant fiscal year and after giving effect to the following adjustments: (a) credit to such Capital Account any amounts which such Member is obligated or treated as obligated to restore with respect to any deficit balance in such Capital Account pursuant to Section 1.704-1(b)(2)(ii)(c) of the Regulations, or is deemed to be obligated to restore with respect to any deficit balance pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and (b) debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations. The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the requirements of the alternate test for economic effect contained in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith "Adjusted Consolidated Tangible Net Worth" shall mean, as of the time of determination, the Consolidated Tangible Net Worth at such time less any Reserve Amount at such time. "Administrative Expenses" shall mean (i) all administrative and operating costs and expenses incurred by the Company, (ii) all administrative, operating and other costs and expenses incurred by the Property Partnerships, which expenses are being assumed by the Company pursuant to Section 6.1, (iii) a pro rata portion (as determined in the reasonable judgment of the Managing Member) of administrative costs and expenses of the Managing Member and GGPI, including salaries paid to officers of the Managing Member and GGPI and accounting and legal expenses undertaken by the Managing Member and GGPI on behalf or for the benefit of the Company, and (iv) to the extent not included in clause (iii) above, a pro rata portion (as determined in the reasonable discretion of the Managing Member) of REIT Expenses. "Affiliate" shall mean, with respect to any Member (or as to any other Person the affiliates of whom are relevant for purposes of any of the provisions of this Agreement), (i) any member of the Immediate Family of such Member; (ii) any trustee or beneficiary of a Member; (iii) any legal representative, successor, or assignee of such Member or any Person referred to in the preceding clauses (i) and (ii); (iv) any trustee of any trust for the benefit of such Member or any Person referred to in the preceding clauses (i) through (iii); or (v) any Person which directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Member or any Person referred to in the preceding clauses (i) through (iv). 2 "Agreement" shall mean this Amended and Restated Operating Agreement, as originally executed and as amended, modified, supplemented or restated from time to time, as the context requires. "Approved Replacement Property" means, with respect to a Property being sold, conveyed, transferred or otherwise disposed of, a real estate asset with a fair market value of at least 90% of the fair market value of the Property being sold, conveyed, transferred or disposed of. "Bankruptcy" shall mean, with respect to any Member or the Company, (i) the commencement by such Member or the Company of any proceeding seeking relief under any provision or chapter of the federal Bankruptcy Code or any other federal or state law relating to insolvency, bankruptcy or reorganization, (ii) an adjudication that such Member or the Company is insolvent or bankrupt; (iii) the entry of an order for relief under the federal Bankruptcy Code with respect to such Member or the Company, (iv) the filing of any such petition or the commencement of any such case or proceeding against such Member or the Company, unless such petition and the case or proceeding initiated thereby are dismissed within ninety (90) days from the date of such filing, (v) the filing of an answer by such Member or the Company admitting the allegations of any such petition, (vi) the appointment of a trustee, receiver or custodian for all or substantially all of the assets of such Member or the Company unless such appointment is vacated or dismissed within ninety (90) days from the date of such appointment but not less than five (5) days before the proposed sale of any assets of such Member or the Company, (vii) the insolvency of such Member or the Company or the execution by such Member or the Company of a general assignment for the benefit of creditors, (viii) the convening by such Member or the Company of a meeting of its creditors, or any class thereof, for purposes of effecting a moratorium upon or extension or composition of its debts, (ix) the failure of such Member or the Company to pay its debts as they mature, (x) the levy, attachment, execution or other seizure of substantially all of the assets of such Member or the Company where such seizure is not discharged within thirty (30) days thereafter, or (xi) the admission by such Member or the Company in writing of its inability to pay its debts as they mature or that it is generally not paying its debts as they become due. "Business Day" shall mean a day other than a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New York are not required to be open. "Capital Account" shall mean, with respect to any Member, the separate "book" account which the Company shall establish and maintain for such Member in accordance with Section 704(b) of the Code and Section 1.704-1(b)(2)(iv) of the Regulations and such other provisions of Section 1.704-1(b) of the Regulations that must be complied with in order for the Capital Accounts to be determined in accordance with the provisions of said Regulations. In furtherance of the foregoing, the Capital Accounts shall be maintained in compliance with Section 1.704-1(b)(2)(iv) of the Regulations; and the provisions hereof shall be interpreted and applied in a manner consistent therewith. In the event that any Units are transferred in accordance with the terms of this Agreement, the Capital Account, at the time of the transfer, of the transferor attributable to the transferred Units shall carry over to the transferee. 3 "Capital Contribution" shall mean, with respect to any Member, the amount of money and the initial Gross Asset Value of any property other than money contributed to the Company with respect to the Units held by such Member (net of liabilities to which such property is subject). "Certificate" shall mean the Certificate of Formation establishing the Company, as filed with the office of the Delaware Secretary of State, as it may be amended from time to time in accordance with the terms of this Agreement and the Act. "Charter" shall mean the certificate of incorporation of GGPI, as filed with the office of the Delaware Secretary of State, as it may be amended from time to time. "Closing Price" on any date shall mean the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Shares are listed or admitted to trading or, if the Common Shares are not listed or admitted to trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System or, if such system is no longer in use, the principal other automated quotations system that may then be in use or, if the Common Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Shares as such person is selected from time to time by the Board of Directors of GGPI. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Common Shares" shall mean the shares of the common stock, par value $.10 per share, of GGPI. "Common Unit Record Date" shall mean the record date established by the Managing Member for a distribution of Net Operating Cash Flow pursuant to Section 5.2. "Common Units" shall mean all Units other than Preferred Units. "Company" shall have the meaning set forth in the preliminary recitals hereto. "Consent of the Holders of Common Units" shall mean the written consent of the holders of a Majority-In-Interest of the Common Units, which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and may be given or withheld by the holders of a Majority-In-Interest of the Common Units, unless otherwise expressly provided herein, in their sole and absolute discretion. "Consolidated Group" means the Company and all Subsidiaries. 4 "Consolidated Group Pro Rata Share" shall mean, with respect to any Investment Affiliate, the percentage of the aggregate equity ownership interests held by the Consolidated Group in such Investment Affiliate, determined by calculating the greater of (i) the percentage of the issued and outstanding stock, partnership interests or membership interests in such Investment Affiliate held by the Consolidated Group in the aggregate and (ii) the percentage of the total book value of such Investment Affiliate that would be received by the Consolidated Group in the aggregate upon liquidation of such Investment Affiliate after repayment in full of all Indebtedness of such Investment Affiliate. "Consolidated Interest Expense" shall mean, for any period, without duplication, the sum of (a) the amount of interest expense, determined in accordance with GAAP, of the Consolidated Group for such period related to Consolidated Outstanding Indebtedness for such period plus (b) the Consolidated Group Pro Rata Share of any interest expense, determined in accordance with GAAP, of any Investment Affiliate, for such period, whether recourse or non-recourse (in the case of each of clause (a) or (b), excluding prepayment fees, premiums or penalties and net of amortization of deferred costs associated with new financings or refinancings of existing Indebtedness). "Consolidated Outstanding Indebtedness" shall mean, as of any date of determination, without duplication, the sum of (a) all Indebtedness of the Consolidated Group outstanding at such date, determined on a consolidated basis in accordance with GAAP, plus (b) the applicable Consolidated Group Pro Rata Share of any Indebtedness of each Investment Affiliate outstanding at such date other than Indebtedness of such Investment Affiliate to a member of the Consolidated Group, less (c) with respect to each Subsidiary in which the Company does not directly or indirectly hold a 100% ownership interest, a percentage of any Indebtedness of such Subsidiary which is included under clause (a) of this definition and which is not guaranteed by the Company equal to the percentage ownership interest in such consolidated Subsidiary which is not held directly or indirectly by the Company on such date. Notwithstanding anything to the contrary contained herein, Parent Indebtedness shall not be included in the calculation of Consolidated Outstanding Indebtedness. "Consolidated Tangible Net Worth" shall mean, as of any date of determination, the excess, without duplication, of (a) the total fair market value of the assets (including cash and cash equivalents) of the Consolidated Group and the applicable Consolidated Group Pro Rata Shares of the assets of the Investment Affiliates as of such date over (b) Consolidated Outstanding Indebtedness as of such date; provided, that for purposes of this definition, the determination of total assets shall exclude (a) all assets which in accordance with GAAP should be classified as intangible assets (such as goodwill, patents, trademarks, copyrights, franchises, unamortized debt discount, capitalized research and development costs, capitalized software costs and organization costs), (b) cash held in a sinking or other similar fund established for the purpose of redemption or other retirement of capital stock and (c) to the extent not already deducted from total assets, reserves for depreciation, depletion, obsolescence or amortization of properties and other reserves or appropriations of retained earnings which have been established or which a prudent owner and operator should establish in connection with the business of operating and maintaining the Company properties. For purposes of the calculation of Consolidated Tangible Net Worth, (a) the fair market value of income producing real property 5 shall be the quotient of four times the Net Operating Income of such property for the most recently completed calendar quarter divided by an 8.25% capitalization rate, (b) the fair market value of any raw land, vacant out-parcel or real estate under construction shall equal the aggregate sums expended therefor (including without limitation land acquisition costs) (provided, however, that (i) the fair market value of the land portion of those assets which are listed on Schedule 1 to the Term Loan Agreement shall be as set forth on such Schedule 1 and (ii) no amount shall be included under this clause (b) with respect to real estate under construction if the Company has included income therefrom in the calculation of Net Operating Income unless the construction in question involves renovation or expansion of a property that is otherwise completed, open for business and operational, the construction in question will not materially interrupt, limit or impair such ongoing business and operations and the inclusion of such income in the calculation of Net Operating Income and such costs and/or other amounts under this clause (b) is not duplicative) and (c) the fair market value of any other asset shall be the lesser of cost and fair market value (as determined in good faith by the Managing Member) thereof. "Control" shall have the meaning provided in the regulations promulgated under the Securities Exchange Act of 1934, as amended. "Current Per Share Market Price" shall mean, as of any date, the average of the Closing Price for the twenty consecutive Trading Days ending on such date. "Demand Notice" shall have the meaning set forth in Section 9.2. "Depreciation" shall mean, with respect to any asset of the Company for any fiscal year or other period, the depreciation, depletion or amortization, as the case may be, allowed or allowable for Federal income tax purposes in respect of such asset for such fiscal year or other period; provided, however, that if there is a difference between the Gross Asset Value and the adjusted tax basis of such asset, Depreciation shall mean "book depreciation, depletion or amortization" as determined under Section 1.704-1(b)(2)(iv)(g)(3) of the Regulations. "Entity" shall mean any general partnership, limited partnership, limited liability company, corporation, joint venture, trust, business trust, cooperative, association or other entity. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time (or any corresponding provisions of succeeding laws). "Event" shall have the meaning set forth in Section 4.3(c). "Excess Units" shall have the meaning set forth in Section 4.3(g)(i)(F). "Financial Statements" shall mean financial statements (balance sheet, statement of income, statement of partners' equity and statement of cash flows) prepared in accordance with generally accepted accounting principles. "Fixed Charges" shall mean, for any period (without duplication), the sum of (a) Consolidated Interest Expense for such period plus (b) the aggregate of all scheduled principal 6 payments on Consolidated Outstanding Indebtedness during such period (excluding balloon, bullet or similar payments of principal due upon the stated maturity of Indebtedness) plus (c) the aggregate of all dividends paid or accrued on any shares of Preferred Stock issued by members of the Consolidated Group and the Consolidated Group Pro Rata Share of all dividends paid or accrued on any shares of Preferred Stock issued by Investment Affiliates (provided that dividends paid or accrued on shares of Preferred Stock owned by the Company or any Subsidiary that is 100% owned by the Company shall be excluded from the amount calculated under clause (c) of this definition and with respect to dividends on Preferred Stock owned by a consolidated Subsidiary of the Company in which the Company does not directly or indirectly hold a 100% ownership interest, a percentage of the paid or accrued dividends attributable to such consolidated Subsidiary shall be excluded from the amount calculated under clause (c) of this definition equal to the percentage ownership interest in such consolidated Subsidiary which is held directly or indirectly by the Company). "GAAP" shall mean generally accepted accounting principles in the United States as in effect from time to time. "GGPI" shall mean General Growth Properties, Inc., a Delaware corporation and the general partner of the Managing Member. "Gross Asset Value" shall mean, with respect to any asset of the Company, such asset's adjusted basis for Federal income tax purposes, except as follows: (a) the initial Gross Asset Value of (i) the assets contributed by each Member to the Company prior to the date hereof is the gross fair market value of such contributed assets as indicated in the books and records of the Company as of the date hereof, and (ii) any asset hereafter contributed by a Member (including the Managing Member), other than money, is the gross fair market value thereof as reasonably determined by the Managing Member using such reasonable method of valuation as the Managing Member may adopt; (b) if the Managing Member reasonably determines that an adjustment is necessary or appropriate to reflect the relative economic interests of the Members, the Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values, as reasonably determined by the Managing Member, as of the following times: (i) a Capital Contribution (other than a de minimis Capital Contribution) to the Company by a new or existing Member as consideration for Units; (ii) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for the redemption of Units; and (iii) the liquidation of the Company within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations; 7 (c) the Gross Asset Values of Company assets distributed to any Member shall be the gross fair market values of such assets (taking Section 7701(g) of the Code into account) as reasonably determined by the Managing Member as of the date of distribution; and (d) the Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Sections 734(b) or 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations (See Exhibit A); provided, however, that Gross Asset Values shall not be adjusted pursuant to this paragraph to the extent that the Managing Member reasonably determines that an adjustment pursuant to paragraph (b) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this paragraph (d). At all times, Gross Asset Values shall be adjusted by any Depreciation taken into account with respect to the Company's assets for purposes of computing Net Income and Net Loss. Any adjustment to the Gross Asset Values of Company property shall require an adjustment to the Members' Capital Accounts; as for the manner in which such adjustments are allocated to the Capital Accounts, see paragraph (c) of the definition of Net Income and Net Loss in the case of adjustment by Depreciation, and paragraph (e) of said definition in all other cases. "Guarantee" shall mean, with respect to any Person and without duplication, any direct or indirect obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person in any manner. "Guaranteed" has a meaning correlative to the term "Guarantee." "Immediate Family" shall mean, with respect to any Person, such Person's spouse, parents, parents-in-law, descendants, nephews, nieces, brothers, sisters, brothers-in-law, sisters-in-law and children-in-law. "Indebtedness" shall mean, with respect to any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money including without limitation any repurchase obligation or liability of such Person with respect to securities, accounts or notes receivable sold by such Person, (b) all obligations of such Person for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), to the extent such obligations constitute indebtedness for purposes of GAAP, (c) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (d) all capitalized lease obligations of such Person, (e) all obligations of such Person in respect of acceptances issued or created for the account of such Person, (f) all guarantee obligations of such Person (excluding in any calculation of Consolidated Outstanding Indebtedness, guarantee obligations of one member of the Consolidated Group in respect of primary obligations of any other member of the Consolidated Group) (g) all reimbursement obligations of such Person for letters of credit and other contingent liabilities, and (h) all liabilities secured by any lien (other than liens for taxes not yet due and payable) on any property owned by such Person even though such Person has not 8 assumed or otherwise become liable for the payment thereof. Notwithstanding the foregoing, any indebtedness between or among the Company and any of its Subsidiaries or among the Subsidiaries and the Consolidated Group Pro Rata Share of any indebtedness between or among the Company or any Subsidiary and any Investment Affiliate or among Investment Affiliates shall not be treated as Indebtedness. "Investment Affiliate" means any Person in which the Consolidated Group, directly or indirectly, has an ownership interest, whose financial results are not consolidated under GAAP with the financial results of the Consolidated Group. "Junior Units" shall have the meaning set forth in Section 4.3(b)(i). "JV" shall mean any Subsidiary or Investment Affiliate in which both the Company and the Operating Partnership directly or indirectly have ownership interests; provided, however, that, for purposes of this definition, (a) the ownership by the Operating Partnership of an indirect interest in such Entity through the Company shall not be taken into account and (b) the ownership of any other direct and/or indirect interest of not more than 1% of the total ownership interests in such Entity shall not be taken into account. "JV Indebtedness" shall mean, with respect to any JV at any date, the Indebtedness of such JV on such date. "Lien" shall mean any liens, security interests, mortgages, deeds of trust, charges, claims, encumbrances, pledges, options, rights of first offer or first refusal and any other rights or interests of others of any kind or nature, actual or contingent, or other similar encumbrances of any nature whatsoever. "Liquidating Trustee" shall mean such individual or Entity as is selected as the Liquidating Trustee hereunder by the Managing Member, which individual or Entity may include the Managing Member or an Affiliate of the Managing Member, provided such Liquidating Trustee agrees in writing to be bound by the terms of this Agreement. The Liquidating Trustee shall be empowered to give and receive notices, reports and payments in connection with the dissolution, liquidation and/or winding-up of the Company and shall hold and exercise such other rights and powers as are necessary or required to permit all parties to deal with the Liquidating Trustee in connection with the dissolution, liquidation and/or winding-up of the Company. "Majority-In-Interest of the Common Units" shall mean holders of more than fifty percent (50%) of then issued and outstanding Common Units. "Management Agreement" shall mean a property management agreement with respect to the property management of each Property entered into (a) with respect to any Property in which the Company directly holds or acquires ownership of a fee or leasehold interest, between the Company, as owner, and the Property Manager, or such other property manager as the Managing Member shall engage, as manager, and (b) with respect to all Properties other than those described in (a) above, between each Property Partnership, as owner, and the Property Manager, or such other property manager as the Managing Member shall engage, as such agreement may be amended, modified or supplemented from time to time. 9 "Managing Member" shall mean the Operating Partnership, its duly admitted successors and assigns and any other Person who is a Managing Member of the Company at the time of reference thereto. The Managing Member may not be removed as Managing Member for any reason. "Members" shall mean the Persons listed under the caption "Members" on the signature pages hereto, their permitted successors or assigns or any Person who, at the time of reference thereto, is a member of the Company, including the holders of Common Units and Preferred Units on the date thereof. "Minimum Gain Attributable to Partner Nonrecourse Debt" shall mean "partner nonrecourse debt minimum gain" as determined in accordance with Regulation Section 1.704-2(i)(2). "Net Financing Proceeds" shall mean the cash proceeds received by the Company in connection with any borrowing or refinancing of borrowing by or on behalf of the Company or by or on behalf of any Property Partnership (whether or not secured), after deduction of all costs and expenses incurred by the Company or the Property Partnership in connection with such borrowing, and after deduction of that portion of such proceeds used to repay any other indebtedness of the Company or Property Partnerships, or any interest or premium thereon. "Net Income or Net Loss" shall mean, for each fiscal year or other applicable period, an amount equal to the Company's net income or loss for such year or period as determined for federal income tax purposes by the Accountants, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a) of the Code shall be included in taxable income or loss), with the following adjustments: (a) by including as an item of gross income any tax-exempt income received by the Company; (b) by treating as a deductible expense any expenditure of the Company described in Section 705(a)(2)(B) of the Code (including amounts paid or incurred to organize the Company (unless an election is made pursuant to Code Section 709(b)) or to promote the sale of interests in the Company and by treating deductions for any losses incurred in connection with the sale or exchange of Company property disallowed pursuant to Section 267(a)(1) or Section 707(b) of the Code as expenditures described in Section 705(a)(2)(B) of the Code); (c) in lieu of depreciation, depletion, amortization, and other cost recovery deductions taken into account in computing total income or loss, there shall be taken into account Depreciation; (d) gain or loss resulting from any disposition of Company property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of such property rather than its adjusted tax basis; and (e) in the event of an adjustment of the Gross Asset Value of any Company asset which requires that the Capital Accounts of the Company be adjusted pursuant to Regulation Section 1.704-1(b)(2)(iv)(e), (f) and (m), the amount of such adjustment is to be taken into account as additional Net Income or Net Loss pursuant to Exhibit A. "Net Operating Cash Flow" shall mean, with respect to any fiscal period of the Company, the excess, if any, of "Receipts" over "Expenditures." For purposes hereof, the term "Receipts" means the sum of all cash receipts of the Company from all sources for such period, including Net Sale Proceeds and Net Financing Proceeds but excluding Capital Contributions, and any amounts held as reserves as of the last day of such period which the Managing Member reasonably deems to 10 be in excess of necessary reserves as determined below. The term "Expenditures" means the sum of (a) all cash expenses or expenditures of the Company for such period, (b) the amount of all payments of principal and interest on account of any indebtedness of the Company, or amounts due on such indebtedness during such period (in the case of clauses (a) and (b), excluding expenses or expenditures paid from previously established reserves or deducted in computing Net Financing Proceeds or Net Sales Proceeds), and (c) such additional cash reserves as of the last day of such period as the Managing Member deems necessary for any capital or operating expenditure permitted hereunder. "Net Operating Income" shall mean, (a) with respect to any property of the Company or any Subsidiary for any calendar quarter, the sum of "net operating income" of the Consolidated Group (as determined by GAAP) attributable to such property for such calendar quarter determined without regard to any percentage rent or temporary rent, plus the product of 25% and the percentage rent and temporary rent for such calendar quarter and the immediately preceding three calendar quarters and (b) with respect to any property of an Investment Affiliate for any calendar quarter, the Consolidated Group Pro Rata Share of "Net Operating Income" of such Investment Affiliate attributable to such property, calculated in the same manner as in clause (a) of this paragraph. "Net Sale Proceeds" means the cash proceeds received by the Company in connection with a sale of any asset by or on behalf of the Company or by or on behalf of a Property Partnership after deduction of any costs or expenses incurred by the Company or a Property Partnership, or payable specifically out of the proceeds of such sale (including, without limitation, any repayment of any indebtedness required to be repaid as a result of such sale or which the Managing Member elects to repay out of the proceeds of such sale, together with accrued interest and premium, if any, thereon and any sales commissions or other costs and expenses due and payable to any Person in connection with a sale, including to a Member or its Affiliates). "19.95% Limit" shall have the meaning set forth in Section 4.3(g)(i)(D). "Nonrecourse Deductions" shall have the meaning set forth in Sections 1.704-2(b)(1) and (c) of the Regulations. "Nonrecourse Liabilities" shall have the meaning set forth in Section 1.704-2(b)(3) of the Regulations. "Original Agreement" shall have the meaning set forth in the preliminary recitals hereto. "Parent Group" shall mean the Operating Partnership, any of the subsidiaries of the Operating Partnership and any other Person in which the Operating Partnership, directly or indirectly, has an ownership interest (other than members of the Consolidated Group and the Investment Affiliates). "Parent Indebtedness" shall mean, as of the time of determination, the then outstanding aggregate Indebtedness of the Parent Group but excluding Indebtedness allocated to the members of the Consolidated Group and/or the Investment Affiliates pursuant to (a) any of the sharing agreements referred to on Schedule 3.aa to the Purchase Agreement and/or (b) the letter 11 agreement dated the date hereof, between the Company and the Operating Partnership, relating to the Term Loan Agreement. "Parity Units" shall have the meaning set forth in Section 4.3(b). "Partner Nonrecourse Deductions" shall have the meaning set forth in Section 1.704-2(i)(2) of the Regulations. "Partnership Minimum Gain" shall have the meaning set forth in Section 1.704-2(b)(2) of the Regulations. "Person" or "person" shall mean any individual or Entity. "Preferred Stock" shall mean, with respect to any Person, shares of capital stock of, or other equity interests in, such Person which are entitled to preference or priority over any other capital stock of, or other equity interest in, such Person in respect of the payment of dividends or distribution of assets upon liquidation or both. "Preferred Units" shall mean the Series A Preferred Units, the Series B Preferred Units and any other series of preferred units of membership interest in the Company that are established and issued from time to time in accordance with the terms hereof. "Prime Rate" shall mean the prime rate announced from time to time by Wells Fargo Bank, N.A. or any successor thereof. "Property" shall mean a Shopping Center Project in which the Company or any Property Partnership, directly or indirectly, acquires ownership of a fee or leasehold interest. "Property Manager" shall mean General Growth Management, Inc., a Delaware corporation, or its successors or assigns. "Property Partnership" shall mean and include any partnership, limited liability company or other Entity in which the Company directly or indirectly is or becomes a partner, member or other equity participant and which has been or is formed for the purpose of directly or indirectly acquiring, developing or owning a Property or a proposed Property. "Property Partnership Interests" shall mean and include the interest of the Company or any other Entity as a partner, member or other equity participant in any Property Partnership. "PTP" shall have the meaning set forth in Section 4.3(g)(i)(C). "Purchase Agreement" shall mean that certain Purchase Agreement dated the date hereof, among the Company, the Operating Partnership, GGPI, the GS 2002 REIT and the Goldman Sachs 2002 Exchange Place Fund, L.P. 12 "Qualified Entity" shall mean a partnership, limited liability company or other Entity that is organized under the laws of any state and that is not taxable as a corporation for U.S. federal income tax purposes. "Qualified Individual" shall have the meaning set forth in Section 9.2. "Regulations" shall mean the final, temporary or proposed Income Tax Regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "Regulatory Allocations" shall have the meaning set forth in Exhibit A. "REIT" shall mean a real estate investment trust as defined in Section 856 of the Code. "REIT Expenses" shall mean (i) costs and expenses relating to the formation and continuity of existence of GGPI and its subsidiaries (which subsidiaries shall, for purposes of this definition, be included within the definition of GGPI), including taxes, fees and assessments associated therewith, any and all costs, expenses or fees payable to any director or trustee of GGPI or such subsidiaries, (ii) costs and expenses relating to any offer or registration of securities by GGPI and all statements, reports, fees and expenses incidental thereto, including underwriting discounts and selling commissions applicable to any such offer of securities, (iii) costs and expenses associated with the preparation and filing of any periodic reports by GGPI under federal, state or local laws or regulations, including filings with the SEC, (iv)costs and expenses associated with compliance by GGPI with laws, rules and regulations promulgated by any regulatory body, including the SEC, and (v) all other operating or administrative costs of GGPI incurred in the ordinary course of its business. "REIT Preferred Shares" shall mean 8.95% Cumulative Redeemable Preferred Stock, Series B, par value $100 per share, of GGPI. "REIT Requirements" shall have the meaning set forth in Section 5.2. "Requesting Party" shall have the meaning set forth in Section 9.2. "Reserve Amount" shall mean, as at any time, without duplication, the sum of (i) the amount of all Parent Indebtedness then Guaranteed by any member of the Consolidated Group or any Investment Affiliate and (ii) the amount of all Parent Indebtedness collateralized by Liens on property or assets of any member of the Consolidated Group or any Investment Affiliate. "Responding Party" shall have the meaning set forth in Section 9.2. "SEC" shall mean the United States Securities and Exchange Commission. "Section 704(c) Tax Items" shall have the meaning set forth in Exhibit A. "Series A Accumulated Preferred Unit Distributions" shall have the meaning set forth in Section 4.3(d)(ii). 13 "Series A Common Exchange Rate" shall have the meaning set forth in Section 4.3(g)(i)(B). "Series A Exchange Price" shall have the meaning set forth in Section 4.3(g)(i)(E). "Series A Preferred Exchange Rate" shall have the meaning set forth in Section 4.3(g)(i)(A). "Series A Preferred Unit Distribution" shall have the meaning set forth in Section 4.3(d)(i). "Series A Preferred Unit Distribution Payment Date" shall have the meaning set forth in Section 4.3(d)(i). "Series A Preferred Units" shall have the meaning set forth in Section 4.3(a). "Series A Redemption Date" shall have the meaning set forth in Section 4.3(h)(iii). "Series A Redemption Price" shall have the meaning set forth in Section 4.3(h)(i). "Series A Third Party Redemption Date" shall have the meaning set forth in Section 4.3(h)(ii). "Series B Accumulated Preferred Unit Distributions" shall have the meaning set forth in Section 4(b) of Schedule B. "Series B Common Exchange Rate" shall have the meaning set forth in Section 7(a)(ii) of Schedule B. "Series B Event" shall have the meaning set forth in Section 3 of Schedule B. "Series B Excess Units" shall have the meaning set forth in Section 7(a)(vi) of Schedule B. "Series B Exchange Price" shall have the meaning set forth in Section 7(a)(v) of Schedule B. "Series B Junior Units" shall have the meaning set forth in Section 2(a) of Schedule B. "Series B Parity Units" shall have the meaning set forth in Section 2(b) of Schedule B. "Series B Preferred Exchange Rate" shall have the meaning set forth in Section 7(a)(i) of Schedule B. "Series B Preferred Unit Distribution" shall have the meaning set forth in Section 4(a) of Schedule B. 14 "Series B Preferred Unit Distribution Payment Date" shall have the meaning set forth in Section 4(a) of Schedule B. "Series B Preferred Units" shall have the meaning set forth in Section 4.7. "Series B Redemption Date" shall have the meaning set forth in Section 8(c) of Schedule B. "Series B Redemption Price" shall have the meaning set forth in Section 8(a) of Schedule B. "Series B Third Party Redemption Date" shall have the meaning set forth in Section 8(b) of Schedule B. "Series G Preferred REIT Shares" shall have the meaning set forth in Section 7(a)(i) of Schedule B. "Shopping Center Project" shall mean any shopping center, including construction and improvement activities undertaken with respect thereto and off-site improvements, on-site improvements, structures, buildings and/or related parking and other facilities. "Subsidiaries" shall mean all Entities in which the Company has a direct or indirect interest and that would be consolidated with the Company for financial accounting purposes under GAAP. "Substituted Member" shall have the meaning set forth in Section 8.2. "Tax Items" shall have the meaning set forth in Exhibit A. "Term Loan Agreement" shall mean that certain Term Loan Agreement dated as of July 31, 2000, among the Company and the Operating Partnership, as borrowers, Bankers Trust Company, as administrative agent and a lender, and the other parties thereto from time to time as agents and/or lenders. "Trading Day" shall mean a day on which the principal national securities exchange on which the Common Shares are listed or admitted to trading is open for the transaction of business or, if the Common Shares are not listed or admitted to trading on any national securities exchange, shall mean any Business Day. "Units" shall mean the units of membership interest in the Company established and issued from time to time in accordance with the terms hereof, including without limitation Common Units and Preferred Units. The number and designation of all Units held by each Member as of the date hereof is set forth opposite such Member's name on Schedule A. 1.2 EXHIBITS, ETC. References to an "Exhibit" or to a "Schedule" are, unless otherwise specified, to one of the Exhibits or Schedules attached to this Agreement, and references to an "Article" or a "Section" are, unless otherwise specified, to one of the Articles or 15 Sections of this Agreement. Each Exhibit and Schedule attached hereto and referred to herein is hereby incorporated herein by reference. 1.3 PRONOUNS AND HEADINGS. As used herein, all pronouns shall include the masculine, feminine and neuter, and all defined terms shall include the singular and plural thereof wherever the context and facts require such construction. The headings, titles and subtitles herein are inserted for convenience of reference only and are to be ignored in any construction of the provisions hereof. Any references in this Agreement to "including" shall be deemed to mean "including without limitation". ARTICLE II CONTINUATION 2.1 CONTINUATION. The Company was formed as a limited liability company under the Act on May 17, 2000 by the filing of the Certificate with the Delaware Secretary of State on such date. The Members agree that the rights and liabilities of the Members shall be as provided in this Agreement (which amends and restates and supercedes the Original Agreement in its entirety) and, to the extent not provided herein, in the Act. The Managing Member shall cause such notices, instruments, documents, or certificates as may be required by applicable law or which may be necessary to enable the Company to conduct its business and to own its properties in the Company name to be filed or recorded in all appropriate public offices. 2.2 NAME. The business of the Company shall be conducted under the name of "GGPLP L.L.C." or such other name as the Managing Member may select, and all transactions of the Company, to the extent permitted by applicable law, shall be carried on and completed in such name. 2.3 CHARACTER OF THE BUSINESS. The purpose of the Company shall be to acquire, hold, own, develop, construct, improve, maintain, operate, sell, lease, transfer, encumber, convey, exchange, and otherwise dispose of or deal with Properties; to acquire, hold, own, develop, construct, improve, maintain, operate, sell, lease, transfer, encumber, convey, exchange, and otherwise dispose of or deal with real and personal property of all kinds; to exercise all of the powers of a partner, member or other equity participant in Property Partnerships; to acquire, own, deal with and dispose of Property Partnership Interests; to undertake such other activities as may be necessary, advisable, desirable or convenient to the business of the Company, and to engage in such other ancillary activities as shall be necessary or desirable to effectuate the foregoing purposes. The Company shall have all powers necessary or desirable to accomplish the purposes enumerated. In connection with and without limiting the foregoing, but subject to all of the terms, covenants, conditions and limitations contained in this Agreement and any other agreement entered into by the Company, the Company shall have full power and authority, directly or through its interests in Property Partnerships, to enter into, perform, and carry out contracts of any kind, to borrow money and to issue evidences of indebtedness, whether or not secured by mortgage, trust deed, pledge or other Lien, and, directly or indirectly, to acquire and construct additional Properties. 16 2.4 LOCATION OF THE PRINCIPAL PLACE OF BUSINESS. The location of the principal place of business of the Company shall be at 110 North Wacker Drive, Chicago, Illinois 60606, or at such other location as shall be selected by the Managing Member from time to time in its sole discretion. 2.5 REGISTERED AGENT AND REGISTERED OFFICE. The Company shall maintain a registered agent and registered office as is required by the Act. ARTICLE III TERM 3.1 COMMENCEMENT. The Company heretofore commenced business as a limited liability company. 3.2 DISSOLUTION. The Company shall continue until dissolved upon the occurrence of the earliest of the following events: (a) The dissolution, termination, retirement or Bankruptcy of the Managing Member unless the Company is continued as provided in Section 8.1; (b) The sale or other disposition of all or substantially all the assets of the Company unless the Managing Member elects to continue the Company business for the purpose of the receipt and the collection of indebtedness or the collection of any other consideration to be received in exchange for the assets of the Company (which activities shall be deemed to be part of the winding up of the affairs of the Company); (c) Dissolution required by operation of law; or (d) December 31, 2075. ARTICLE IV CLASSES OF UNITS 4.1 COMMON UNITS. The Company has issued to the Members (other than the GS 2000 REIT and the GS 2002 REIT) the number of common units of membership interest in the Company (the "Common Units") set forth opposite their names on Schedule A, and, in exchange therefor, such Members have contributed to the Company as their Capital Contributions the cash and other property set forth in the books and records of the Company. The Common Units have such rights as are described herein. The Managing Member may, without the consent of the other Members, issue additional Common Units to itself and others from time to time for such consideration as it deems is appropriate. The Managing Member shall be authorized to amend this Agreement to reflect the issuance of Common Units in accordance with this Section 4.1 without the joinder of any other Member. 17 4.2 PREFERRED UNITS. The Managing Member shall have the right, without the consent of the other Members (except as otherwise provided herein), to establish and issue from time to time series of preferred units of membership interest in the Company ("Preferred Units") and to establish from time to time the number of Preferred Units to be included in each such series, to fix the designation, powers, preferences and rights of the Preferred Units of each such series and the qualifications, limitations and restrictions thereof and to determine the consideration to be paid from time to time for the Preferred Units in each such series. Except as otherwise provided herein, Preferred Units that are cancelled or redeemed or purchased by the Company may, at the election of the Managing Member, either (a) be reissued by the Company or (b) be cancelled. The Managing Member shall be authorized to amend this Agreement to effect the provisions of this Section 4.2 without the joinder of any other Member (except as otherwise provided herein). 4.3 ESTABLISHMENT OF SERIES A PREFERRED UNITS. (a) ESTABLISHMENT OF SERIES A PREFERRED UNITS. A series of preferred units of the Company designated as the "8.95% Series A Cumulative Redeemable Preferred Units" (the "Series A Preferred Units") was previously established and has such preferences and other rights as are described herein. The maximum number of Series A Preferred Units which may be issued by the Company from time to time shall be 700,000. The Company heretofore issued 700,000 Series A Preferred Units, the current holder of which is the GS 2000 REIT, in exchange for a Capital Contribution of $175,000,000. Series A Preferred Units shall not have any relative, participating, optional or other special rights and powers other than as set forth herein. Series A Preferred Units that are redeemed or purchased by the Company shall be cancelled and may not be reissued. (b) RANK OF THE SERIES A PREFERRED UNITS. The Series A Preferred Units shall, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Company, rank as follows: (i) senior to all classes or series of Common Units and all other series of Preferred Units other than (A) each series of Preferred Units referred to in Section 4.3(b)(iii) and (B) each series of Preferred Units the express terms of which provide that such series ranks on parity with the Series A Preferred Units (the Common Units and Preferred Units ranking junior to the Series A Preferred Units with respect to distribution rights and rights upon liquidation, dissolution and winding up, collectively, "Junior Units"); (ii) on parity with each series of Preferred Units which provides by its express terms that it ranks on parity with the Series A Preferred Units as to distribution rights and rights upon liquidation, dissolution and winding-up of the Company ("Parity Units") (and if the distribution rates, distribution payment dates or redemption or liquidation prices per Unit are different from those of the Series A Preferred Units, the units of such class or series and the Series A Preferred Units shall be entitled to the receipt of distributions and the amounts distributable upon liquidation, dissolution and 18 winding-up in proportion to their respective amounts of accrued and unpaid distributions per unit or liquidation preferences, without preference or priority one over the other); and (iii) junior to any class or series of Preferred Units that is hereafter established, that provides by its express terms that it ranks senior to the Series A Preferred Units and that is approved in accordance with the provisions of Section 4.3(c). (c) VOTING. The Company shall not, without the affirmative vote or consent of the holders of at least fifty-one percent (51%) of the Series A Preferred Units outstanding at such time, (i) authorize or create, or increase the authorized or issued amount of, any class or series of Units ranking senior to the Series A Preferred Units with respect to payments of distributions or rights upon liquidation, dissolution or winding up of the Company or reclassify any Common Units into Preferred Units ranking senior to or on parity with the Series A Preferred Units with respect to the payment of distributions or distribution of assets upon liquidation, dissolution or winding-up of the Company, (ii) issue additional Series A Preferred Units or (iii) amend, alter or repeal this Section 4.3 or any other provisions of this Agreement, whether by merger, consolidation or otherwise (an "Event") so as to negate the provisions of clause (i) or (ii) of this paragraph or materially and adversely affect any right, preference, privilege or voting power of the holders of the Series A Preferred Units. Notwithstanding anything to the contrary contained herein, (A) with respect to the occurrence of any of the Events set forth in clause (iii) of this paragraph, so long as Series A Preferred Units remain outstanding with the terms thereof materially unchanged (taking into account that, upon the occurrence of such Event, the Company may not be the surviving entity) and the surviving entity is a Qualified Entity, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting power of holders of the Series A Preferred Units and (B) the authorization or creation of, or the increase in the authorized or issued amount of, the Common Units or any other series of Preferred Units, in either case which rank junior to or on parity with the Series A Preferred Units (and any amendments to this Agreement to effect such increase, creation or issuance), shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers or otherwise require the vote or consent of the holders of the Series A Preferred Units. For purposes of the provisions of this Section 4.3(c), each Series A Preferred Unit shall have one (1) vote. Notwithstanding anything to the contrary contained herein, the foregoing voting provisions shall not apply if, prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series A Preferred Units shall have been exchanged or redeemed. Except as provided herein, the holders of Series A Preferred Units shall have no voting or consent rights or other rights to participate in the management of the Company or to receive notices of meetings. 19 (d) DISTRIBUTIONS. (i) PAYMENT OF DISTRIBUTIONS. Each holder of Series A Preferred Units will be entitled to receive, when, as and if declared by the Managing Member, out of Net Operating Cash Flow and subject to the right to payment of the holders of Preferred Units ranking senior to or on parity with the Series A Preferred Units, cumulative preferential cash distributions per Series A Preferred Unit at the rate per annum of 8.95% of the $250 base liquidation preference thereof (or $5.59375 per quarter) (the "Series A Preferred Unit Distribution"). Series A Preferred Unit Distributions with respect to any Series A Preferred Units shall be cumulative, shall accrue from the date of the issuance of such Series A Preferred Units and will be payable (A) quarterly when, as and if authorized and declared by the Managing Member, in arrears, on the 15th day of January, April, July and October of each year and (B) in the event of an exchange or redemption of Series A Preferred Units, on the exchange or redemption date, as applicable (each a "Series A Preferred Unit Distribution Payment Date"), commencing on the first of such payment dates to occur following their original date of issuance. The amount of distribution per Series A Preferred Unit accruing in each full quarterly distribution period shall be computed by dividing the annual distribution rate by four. The amount of distributions payable for the initial distribution period or any other period shorter or longer than a full quarterly distribution period on the Series A Preferred Units will be computed on the basis of twelve 30-day months and a 360-day year and the actual number of days elapsed in such a thirty (30) day month. If any Series A Preferred Unit Distribution Payment Date is not a Business Day, then payment of the Series A Preferred Unit Distribution to be made on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day (without any deduction), in each case with the same force and effect as if made on such date. Series A Preferred Unit Distributions will be made to the holders of Series A Preferred Units of record on the relevant record dates, which will be fifteen (15) days prior to the relevant Series A Preferred Unit Distribution Payment Date. (ii) DISTRIBUTIONS CUMULATIVE. Notwithstanding the foregoing, Series A Preferred Unit Distributions will accrue whether or not the terms and provisions of this Agreement or any other agreement of the Company at any time prohibit the current payment of distributions, whether or not the Company has revenues, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are authorized. Accrued but unpaid Series A Preferred Unit Distributions will accumulate as of the Series A Preferred Unit Distribution Payment Date on which they first become payable. Any accrued but unpaid Series A Preferred Unit Distributions that are not paid on or prior to the date that they first become payable are hereinafter referred to as "Series A Accumulated Preferred Unit Distributions". No interest or sum of money in lieu of interest will be payable in respect of any Series A Accumulated Preferred Unit Distributions. Series A Accumulated Preferred Unit Distributions may be declared and paid at any time, without reference to any regular Series A Preferred Unit Distribution Payment Date. 20 (iii) PRIORITY AS TO DISTRIBUTIONS. (A) So long as any Series A Preferred Units are outstanding, no distribution of cash or other property shall be authorized, declared, paid or set apart for payment on or with respect to any Parity Units, nor shall any cash or other property be set aside for or applied to the purchase, redemption or other acquisition for consideration of any Series A Preferred Units or any Parity Units, unless, in each case, all Series A Accumulated Preferred Unit Distributions have been paid in full (or have been declared and a sum sufficient for such payment has been set aside therefor) or when Series A Accumulated Preferred Unit Distributions are not paid in full or declared and a sum sufficient for such payment is not set apart, as aforesaid, all distributions declared upon Series A Preferred Units and all distributions declared upon any other series or class or classes of Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated and unpaid on the Series A Preferred Units and such Parity Units. (B) So long as any Series A Preferred Units are outstanding, no distribution of cash or other property (other than distributions paid solely in Junior Units or options, warrants or other rights to subscribe for or purchase Junior Units) shall be authorized, declared, paid or set apart for payment on or with respect to any class or series of Junior Units nor shall any cash or other property be set aside for or applied to the purchase, redemption or other acquisition for consideration of any Junior Units (other than consideration paid solely in Junior Units or options, warrants or other rights to subscribe for or purchase Junior Units) unless, in each case, all Series A Accumulated Preferred Unit Distributions have been paid in full or set apart for payment. (C) So long as there are Series A Accumulated Preferred Unit Distributions (and a sum sufficient for full payment of Series A Accumulated Preferred Unit Distributions is not so set apart), all future Series A Preferred Unit Distributions shall be authorized and declared so that the amount of Series A Preferred Unit Distributions per Series A Preferred Unit shall in all cases bear to each other the same ratio that Series A Accumulated Preferred Unit Distributions per Series A Preferred Unit bear to each other. (D) Notwithstanding anything to the contrary set forth herein, distributions on Units held by the Managing Member ranking junior to or on parity with the Series A Preferred Units may be made, without preserving the priority of distributions described in Section 4.3(d)(iii)(A) and (B), but only to the extent such distributions are required to preserve the REIT status of GGPI. (iv) NO FURTHER RIGHTS. Holders of Series A Preferred Units shall not be entitled to any distributions, whether payable in cash, other property or otherwise, in excess of the Series A Preferred Unit Distributions (and any Series A Accumulated Preferred Unit Distributions) described herein. 21 (e) LIQUIDATION PREFERENCE. (i) In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, before any payment or distribution of the assets of the Company shall be made to or set apart for the holders of Junior Units, each holder of the Series A Preferred Units shall be entitled to receive an amount equal to such holder's Capital Account in respect of its Series A Preferred Units; but the holders of Series A Preferred Units shall not be entitled to any further payment. If, upon any such liquidation, dissolution or winding up of the Company, the assets of the Company, or proceeds thereof, distributable to the holders of Series A Preferred Units, shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other Parity Units, then such assets, or the proceeds thereof, shall be distributed among the holders of the Series A Preferred Units and the holders of any such other Parity Units ratably in accordance with the respective amounts that would be payable on such Series A Preferred Units and any such other Parity Units if all amounts payable thereon were paid in full. For the purposes of this Section 4.3(e), none of (i) a consolidation or merger of the Company with or into one or more entities, (ii) a merger of an entity with or into the Company, (iii) a statutory share exchange by the Company or (iv) a sale, lease or conveyance of all or substantially all of the Company's assets shall be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Company. (ii) Subject to the rights of the holders of Parity Units, after payment shall have been made in full to the holders of the Series A Preferred Units as provided in this Section, any series or class or classes of Junior Units shall, subject to any respective terms and provisions applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series A Preferred Units shall not be entitled to share therein. (f) TRANSFER BY HOLDERS OF SERIES A PREFERRED UNITS. Notwithstanding anything to the contrary contained herein, a holder of Series A Preferred Units may sell, assign or otherwise transfer all or part of its Series A Preferred Units without the consent of the Managing Member; provided, however, that no such sale, conveyance or other transfer may be made unless the requirements of Section 8.3 (other than Section 8.3(b)) and the second and fourth sentences of Section 8.2 are satisfied with respect to such sale, conveyance or other transfer. (g) EXCHANGE RIGHTS. (i) RIGHT TO EXCHANGE. (A) Series A Preferred Units will be exchangeable in whole but not in part with GGPI at any time on or after May 25, 2010, at the option of the holders of at least fifty-one percent (51%) of all outstanding Series A Preferred Units for authorized but previously unissued REIT Preferred Shares (and in the event such option is exercised, such exercise and the Exchange Notice given in connection therewith shall be deemed to apply to all issued and outstanding Series A Preferred Units and the holders thereof). Each holder of Series A Preferred 22 Units will be entitled to receive for each Series A Preferred Unit held by it a number of REIT Preferred Shares equal to the quotient of the Capital Account per Series A Preferred Unit of such holder of Series A Preferred Units (adjusted to reflect fair market value through the exchange date) divided by $1,000 (the "Series A Preferred Exchange Rate"). This exchange right is only exercisable if, at the time of exercise, the fair market value of the Company's assets exceeds the Company's liabilities (and any preferred security claims senior to the Series A Preferred Units) by an amount at least equal to twice the sum of (1) the aggregate Capital Accounts of all holders of Series A Preferred Units plus (2) the aggregate Capital Accounts of all holders of Parity Units. The GS 2000 REIT hereby agrees to the amendment of the terms of the REIT Preferred Shares to reflect the changes reflected on Exhibit B. (B) The Series A Preferred Units will be exchangeable with GGPI at any time on or after May 25, 2005, in whole but not in part, at the option of the holders of at least fifty-one percent (51%) of all outstanding Series A Preferred Units, for authorized but previously unissued Common Shares if at any time Series A Accumulated Preferred Unit Distributions exist with respect to the Series A Preferred Units in an amount equal to the amount that should have been distributed in six (6) prior quarterly distribution periods, whether or not consecutive, at the following exchange rate: for each Series A Preferred Unit, a number of Common Shares equal to the quotient of (x) the sum of $250 and the Series A Accumulated Preferred Unit Distributions with respect thereto (but only up to an amount equal to the amount distributable for six (6) quarterly distribution periods) divided by (y) $37.25 (as adjusted to reflect any splits, combinations or the like after the date hereof) (the "Series A Common Exchange Rate") (and in the event such option is exercised, such exercise and the Exchange Notice given in connection therewith shall be deemed to apply to all issued and outstanding Series A Preferred Units and the holders thereof). (C) Series A Preferred Units will be exchangeable at any time, in whole but not in part, with GGPI at the option of the holders of at least fifty-one percent (51%) of all outstanding Series A Preferred Units for authorized but previously unissued REIT Preferred Shares at the Series A Preferred Exchange Rate upon receipt by a holder or holders of Series A Preferred Units of (A) notice from the Managing Member that the Managing Member or an Affiliate of the Managing Member has taken the position that the Company is, or upon the consummation of an identified event in the immediate future will be, a "publicly traded partnership", taxable as a corporation (a "PTP") within the meaning of Section 7704 of the Code or (B) an opinion rendered by independent counsel familiar with such matters addressed to a holder or holders of Series A Preferred Units, that the Company is or likely is, or upon the occurrence of an imminent identified event will be or likely will be, a PTP (and in the event such option is exercised, such exercise and the Exchange Notice given in connection therewith shall be deemed to apply to all issued and outstanding Series A Preferred Units 23 and the holders thereof). This exchange right is exercisable only under the circumstances described in the last sentence of Section 4.3(g)(i)(A). (D) Series A Preferred Units will be exchangeable with GGPI at any time in whole but not in part, at the option of a holder for authorized but previously unissued Common Shares at the Series A Common Exchange Rate if such holder concludes based on results or projected results that there exists (in the reasonable judgment of such holder as confirmed by an opinion of nationally recognized independent counsel or accounting firm) an imminent and substantial risk that such holder's interest in the Company represents or will represent more than nineteen and ninety-five one hundredths percent (19.95%) of the total profits or capital interests in the Company for a taxable year (the "19.95% Limit") (determined in accordance with Treasury Regulations Section 1.731-2(e)(4)) (and in the event such option is exercised, such exercise and the Exchange Notice given in connection therewith shall only apply to all issued and outstanding Series A Preferred Units of the exercising holder). (E) Notwithstanding anything to the contrary set forth in Sections 4.3(g)(i)(A) through (D), if an Exchange Notice (as defined herein) has been delivered to the Managing Member and GGPI, then the Managing Member or GGPI may at its option, within ten (10) Business Days after receipt of the Exchange Notice, elect to purchase or cause the Company to redeem all or a portion of the outstanding Series A Preferred Units (for which Exchange Notices have been delivered or are deemed to have been delivered) for cash or Common Shares, in each case at the Series A Exchange Price per Series A Preferred Unit as of the date the Exchange Notice is sent. The "Series A Exchange Price" of an outstanding Series A Preferred Unit shall equal: (1) in the event that the holders of the Series A Preferred Units are exchanging such Unit for Common Shares, the product of the number of Common Shares issued in respect of such Preferred Unit multiplied by the Current Per Share Market Price, or (2) in the event that the holders of the Series A Preferred Units are exchanging such Unit for REIT Preferred Shares, the pro rata portion of the Capital Account (as adjusted and booked up or down immediately prior to such purchase or redemption) allocable to that Series A Preferred Unit. If such election is made with respect to fewer than all of the outstanding Series A Preferred Units, the number of Series A Preferred Units held by each holder of Series A Preferred Units to be redeemed or purchased shall equal such holder's pro rata share (based on the percentage of the aggregate number of outstanding Series A Preferred Units that the total number of Series A Preferred Units held by such holder of Series A Preferred Units represents) of the aggregate number of Series A Preferred Units being redeemed. An election by the Managing Member or GGPI under this Section shall be effected by delivering notice thereof to the holders identified in the Exchange Notice. (F) If an exchange of all Series A Preferred Units pursuant to Sections 4.3(g)(i)(A) through (D) would violate the provisions on ownership 24 limitation of GGPI set forth in its Charter and such ownership limitation is not waived by GGPI, each holder of Series A Preferred Units shall be entitled to exchange that number of Series A Preferred Units which would comply with the provisions on the ownership limitation of GGPI and any Series A Preferred Units not so exchanged (the "Excess Units") shall be redeemed by the Company for cash in an amount determined in the manner set forth in subsection (E). (ii) PROCEDURE FOR EXCHANGE AND/OR REDEMPTION OF SERIES A PREFERRED UNITS. (A) Any exchange right shall be exercised pursuant to a written notice of exchange (the "Exchange Notice") delivered to the Managing Member and GGPI by holders of Series A Preferred Units owning at least fifty-one percent (51%) of the outstanding Series A Preferred Units (or by a holder of Series A Preferred Units in the case of an exchange pursuant to Section 4.3(g)(i)(D) hereof) by fax and certified mail postage prepaid. The Exchange Notice shall specify the name or names of the holders of Series A Preferred Units that are exercising (or are deemed to have exercised) the exchange rights and the number of Series A Preferred Units as to which such rights are being exercised (or are deemed to have been exercised). The closing of the exchange or redemption pursuant to this Section 4.3(g) shall occur within fifteen (15) Business Days following the giving of the Exchange Notice. At the closing, the exchanging holder(s) shall deliver such instruments of transfer and other documents as GGPI or the Managing Member may reasonably request and GGPI and/or the Company shall deliver to the exchanging holder certificates representing the REIT Preferred Shares or Common Shares and/or the cash redemption price. Notwithstanding anything to the contrary contained herein, any and all Series A Preferred Units to be exchanged for Common Shares or REIT Preferred Shares pursuant to this Section shall be so exchanged in a single transaction at one time. As a condition to exchange, each holder of Series A Preferred Units shall make such customary representations as may be reasonably necessary for the Managing Member or GGPI to establish that the issuance of Common Shares or REIT Preferred Shares pursuant to the exchange shall not be required to be registered under the Securities Act of 1933, as amended, or any applicable state securities laws. Any Common Shares or REIT Preferred Shares issued pursuant to this Section shall be delivered as shares which are duly authorized, validly issued, fully paid and nonassessable, free of any pledge, lien, encumbrance or restriction other than those provided in the Charter or the by-laws of GGPI, the Securities Act and relevant state securities or blue sky laws and any Series A Preferred Units as to which the exchange right has been exercised shall be free of any pledge, lien, encumbrance or restriction other than those provided in this Agreement, the Securities Act and relevant state securities or blue sky laws (and the parties shall make representations and warranties to the other to such effect). The certificates representing the Common Shares or REIT Preferred Shares issued upon exchange of the Series A Preferred Units shall, in addition to any legend required by the Charter, contain the following legend: 25 THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR (B) IF THE CORPORATION HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER OF THE SHARES REPRESENTED HEREBY, OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION, THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS THEREUNDER. Notwithstanding anything to the contrary contained herein and at the request of a majority of the holders of Series A Preferred Shares that have exercised (or are deemed to have exercised) the exchange right pursuant to this Section 4.3(g), GGPI shall cause depositary shares to be issued to such holders upon the closing of the exchange in lieu of REIT Preferred Shares, each depositary share (1) to have a face amount of $25 (or such other amount as may be specified by holders of a majority of the Series A Preferred Units prior to any such exchange) and (2) to represent a fraction of a REIT Preferred Share the denominator of which is $1,000 and the numerator of which is the face amount of such depositary share. At the request of holders of a majority of the Series A Preferred Units, the Company shall take such actions as are necessary to provide for such depositary shares to be issued immediately upon exchange of Series A Preferred Units for REIT Preferred Shares. (B) In the event of an exchange of Series A Preferred Units, an amount equal to the Series A Accumulated Preferred Unit Distributions to the date of exchange on any Series A Preferred Units tendered for exchange shall continue to accrue on such Series A Preferred Units, which remain outstanding following such exchange, with the Managing Member as the holder of such Series A Preferred Units (GGPI having contributed the Series A Preferred Units to the Managing Member). Fractional REIT Preferred Shares or Common Shares are not to be issued upon exchange but, in lieu thereof, the Managing Member will pay a cash adjustment based upon either (i) the fair market value of the REIT Preferred Shares on the day prior to the exchange date as determined in good faith by the Board of Directors of the Managing Member or (ii) the Current Per Share Market Price of the Common Shares as of the date immediately prior to the exchange date, as the case may be. (iii) ADJUSTMENT OF EXCHANGE PRICE. In case GGPI shall be a party to any transaction (including, without limitation, a merger, consolidation, statutory share 26 exchange, tender offer for all or substantially all of GGPI's Common Shares or sale of all or substantially all of GGPI's assets), in each case as a result of which the REIT Preferred Shares or Common Shares will be converted into the right to receive shares of capital stock, other securities or other property (including cash or any combination thereof), each Series A Preferred Unit will thereafter be exchangeable into the kind and amount of shares of capital stock and other securities and property receivable (including cash or any combination thereof) upon the consummation of such transaction by a holder of that number of REIT Preferred Shares or Common Shares or fraction thereof into which one (1) Series A Preferred Unit was exchangeable immediately prior to such transaction. GGPI may not become a party to any such transaction unless the terms thereof are consistent with the foregoing. (iv) NO OTHER EXCHANGE RIGHTS. The Series A Preferred Units are not convertible into or redeemable or exchangeable for any other property or securities of GGPI, the Managing Member, the Company or any other Person at the option of any holder of Series A Preferred Units except as expressly provided in this Section 4.3(g). (h) REDEMPTION. (i) The Series A Preferred Units shall not be redeemable prior to May 25, 2005. On and after May 25, 2005, the Managing Member may, at its option, cause the Company to redeem the Series A Preferred Units in whole or in part, as set forth herein, subject to the provisions described below, at a redemption price, payable in cash, in an amount equal to $250 per Series A Preferred Unit being redeemed (the "Series A Redemption Price"). Upon any such redemption, the Company shall also pay any accumulated and unpaid distributions owing in respect of the Series A Preferred Units being redeemed. (ii) Such Series A Preferred Units as are not held by the Managing Member may be redeemed by the Company on or after May 25, 2005, in whole or in part, at any time or from time to time, upon not less than 30 nor more than 60 days' written notice. If fewer than all of the outstanding Series A Preferred Units that are not held by the Managing Member are to be redeemed, the Series A Preferred Units to be redeemed from each holder (other than the Managing Member) shall be selected pro rata (as nearly as practicable without creating fractional units). Any notice of redemption delivered pursuant to this Section 4.3(h) will be mailed by the Company, by certified mail, postage prepaid, not less than 30 nor more than 60 days prior to the date upon which such redemption is to occur (the "Series A Third Party Redemption Date"), addressed to each holder of record of the Series A Preferred Units at their respective addresses as they appear on the records of the Company. No failure to give or defect in such notice shall affect the validity of the proceedings for the redemption of any Series A Preferred Units. In addition to any information required by law, each such notice shall state: (a) the Series A Third Party Redemption Date, (b) the amount payable per Series A Preferred Unit upon redemption, including the Series A Redemption Price and any amount payable pursuant to Section 4.3(h)(iv) hereof, (c) the aggregate number of Series A Preferred Units to be redeemed and, if fewer than all of the outstanding Series A Preferred Units 27 are to be redeemed, the number of Series A Preferred Units to be redeemed held by such holder, which number shall equal such holder's pro rata share (based on the percentage of the aggregate number of outstanding Series A Preferred Units not held by the Managing Member that the total number of Series A Preferred Units held by such holder represents and determined as nearly as practicable without creating fractional interests) of the aggregate number of Series A Preferred Units to be redeemed, (d) the place or places where the instrument of transfer is to be surrendered for payment of the amount payable upon redemption and (e) that payment of such amount will be made upon presentation and surrender of the instrument of transfer in the form provided by the Managing Member. If the Company gives a notice of redemption in respect of Series A Preferred Units pursuant to this Section 4.3(h), then, by 12:00 noon, New York City time, on the Series A Third Party Redemption Date, the Company will deposit irrevocably in trust for the benefit of the holders of Series A Preferred Units being redeemed funds sufficient to pay the applicable amount payable with respect to such Series A Preferred Units and will give irrevocable instructions and authority to pay such amount to the holders of the Series A Preferred Units upon surrender of the Series A Preferred Units and such instruments of transfer by such holders at the place designated in the notice of redemption. Any Series A Preferred Units surrendered shall be free and clear of all Liens and the holders thereof shall make representations and warranties to such effect. (iii) Such Series A Preferred Units as may be held by the Managing Member may be redeemed, in whole or in part, at the option of the Managing Member, at any time, upon payment by the Company to the Managing Member of the Series A Redemption Price and any amount payable pursuant to Section 4.3(h)(iv) hereof with respect to such Series A Preferred Units; provided that GGPI shall redeem an equivalent number of REIT Preferred Shares to the extent that there are REIT Preferred Shares issued and outstanding. Such redemption of Series A Preferred Units shall occur substantially concurrently with the redemption by GGPI of such REIT Preferred Shares (such date is herein referred to collectively with the Third Party Redemption Date as the "Series A Redemption Date"). (iv) Upon any redemption of Series A Preferred Units, the Company shall pay any accumulated and unpaid distributions for any distribution period, or any other period shorter than a full distribution period, ending on or prior to the Redemption Date. On and after the Redemption Date, distributions will cease to accumulate on the Series A Preferred Units called for redemption, unless the Company defaults in payment therefor. If any date fixed for redemption of Series A Preferred Units is not a Business Day, then payment of the Series A Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Series A Redemption Price is improperly withheld or refused and not paid by the Company, distributions on such Series A Preferred Units will continue to accumulate from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of 28 calculating the applicable Series A Redemption Price. Except as provided above, the Company shall make no payment or allowance for unpaid distributions, whether or not in arrears, on Series A Preferred Units called for redemption under this Section 4.3(h). (v) If full cumulative distributions on the Series A Preferred Units and any other Parity Units for distribution periods ending on or prior to the date of redemption have not been paid or declared and set apart for payment, the Series A Preferred Units may not be redeemed in part and the Company may not purchase, redeem or otherwise acquire Series A Preferred Units or any Parity Units other than in exchange for Junior Units. (vi) As promptly as practicable after the surrender of any such Series A Preferred Units so redeemed, such Series A Preferred Units shall be exchanged for the amount of cash (without interest thereon) payable therefor pursuant to Section 4.3(h). If fewer than all the Series A Preferred Units represented by any physical certificate are redeemed, then the Company shall issue new certificates representing the unredeemed Series A Preferred Units without cost to the holder thereof. (i) OTHER MATTERS. As long as any of the Series A Preferred Units are outstanding, the Company shall comply with the following: (i) DIVIDENDS. The Company shall not make any distributions on the Common Units or any other Junior Units or redeem any such Units unless at the time such distribution or redemption is made, and after giving effect to such distribution or redemption, each of the following conditions shall be met: (A) Consolidated Tangible Net Worth to Reserve Amount. The ratio of the Consolidated Tangible Net Worth to the Reserve Amount is at least 2.0 to 1.0; (B) Adjusted Consolidated Tangible Net Worth. The ratio of the Adjusted Consolidated Tangible Net Worth to the sum of (i) the Capital Accounts of all Preferred Units plus (ii) the amount of accrued Preferred Unit distributions (whether or not declared or paid) for which allocations have not as yet been reflected in the Capital Accounts is at least 1.0 to 1.0; (C) Loan to Value Ratio. The ratio of (x) the Consolidated Outstanding Indebtedness to (y) the Consolidated Tangible Net Worth is no greater than 0.75 to 1.0; provided, however, that the foregoing shall not prohibit the Company from making distributions (including distributions in redemption of Common Units) to the holders of Common Units in any calendar year in an aggregate amount no greater than the minimum amount a real estate investment trust would be required to distribute under Section 857(a)(1)(A) of the Code for such calendar year (in order to avoid being taxed as a Subchapter C corporation), if such real estate investment trust owned all of the Common Units and had no income from any source other than the Common Units. 29 (ii) AFFILIATE TRANSACTIONS. (A) Except as expressly provided elsewhere in this Agreement, the Company shall not, nor will it permit any of its Subsidiaries to, enter into any transaction (including, without limitation, the purchase or sale of any property or service) with, or make any payment or transfer to, any Affiliate of the Company except in the ordinary course of business and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than the Company or such Subsidiary would obtain in a comparable arms-length transaction (but this paragraph shall not restrict the making of distributions by the Company). (B) The Company shall not, and shall not permit any of its Subsidiaries or Investment Affiliates to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect thereof, pursuant to any arrangement relating to Parent Indebtedness, except for Liens arising out of any arrangement referred to on Schedule 3.aa to the Purchase Agreement (which arrangements are hereby approved) but only to the extent that the Parent Indebtedness outstanding at any time relating to such arrangement does not exceed the maximum amount of Parent Indebtedness that may be incurred in connection with such arrangement in accordance with the terms thereof as of April 17, 2002 (but nothing contained herein shall prohibit the extension of such arrangements in accordance with the existing extension options relating thereto). (C) The Company shall not, and shall not permit any of its Subsidiaries or Investment Affiliates to, incur, assume or permit to exist any Guarantee of Parent Indebtedness by any member of the Consolidated Group or any Investment Affiliate other than Guarantees arising out of any arrangement referred to on Schedule 3.aa to the Purchase Agreement (which arrangements are hereby approved) but only to the extent that the Parent Indebtedness outstanding at any time relating to such arrangement does not exceed the maximum amount of Parent Indebtedness that may be incurred in connection with such arrangement in accordance with the terms thereof as of April 17, 2002 (but nothing contained herein shall prohibit the extension of such arrangements in accordance with the existing extension options relating thereto). (D) With respect to any JV, (i) the Company shall not, and shall not permit any of its Subsidiaries or Investment Affiliates (other than such JV) to, incur, assume or permit to exist any Guarantee of JV Indebtedness by any member of the Consolidated Group or any Investment Affiliate (other than such JV) other than a Guarantee of no more than the Company's pro rata portion (based on the Company's direct or indirect percentage ownership interest in such JV) of such JV Indebtedness; (ii) the Company shall not, and shall not permit any of its Subsidiaries or Investment Affiliates (other than such JV) to, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter 30 acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect thereof, pursuant to any arrangement relating to JV Indebtedness; (iii) the Company shall not permit such JV to create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect thereof, pursuant to any arrangement relating to Indebtedness of another Entity (other than a member of the Consolidated Group or an Investment Affiliate, in either case that is not another JV); and (iv) the Company shall not permit such JV to create, incur or assume any Guaranty pursuant to any arrangement relating to Indebtedness of another Entity (other than a member of the Consolidated Group or an Investment Affiliate, in either case that is not another JV). (iii) CONSOLIDATED TANGIBLE NET WORTH. The Company shall provide the holders of Series A Preferred Units prompt written notice in the event Consolidated Tangible Net Worth is or is reasonably likely to be less than $600 million as of the last day of any quarter. (iv) ASSET TRANSFER. Without the prior written consent of the holders of at least fifty-one percent (51%) of Series A Preferred Units, the Company shall not, and shall not permit any of its Subsidiaries to sell, convey, transfer or otherwise dispose of any Property (i) to any Affiliate of the Company (other than Subsidiaries of the Company) or (ii) to any person that is not an Affiliate of the Company, unless simultaneously therewith, the Company or such Subsidiary acquires an Approved Replacement Property or the following requirements are met: (A) the net income of the Company for the most recently completed twelve months, calculated in accordance with GAAP on a pro forma basis as though such Property had been sold, transferred, conveyed or otherwise disposed of prior to the beginning of such period, would be at least $90 million; and (B) after giving effect to any such sale, conveyance, transfer or other disposition, the Consolidated Tangible Net Worth would not be less than $1 billion; and (C) after giving effect to any such sale, conveyance, transfer or other disposition, the interest of no holder of Series A Preferred Units would represent more than 17.5% of the total profits or capital interests in the Company immediately following such sale, conveyance, transfer or other disposition (determined in accordance with Treasury Regulation Section 1.731-2(e)(4)). The Company shall give the holders of the Series A Preferred Units notice of any such sale, transfer or other disposition. Notwithstanding anything to the contrary contained herein, the provisions of this Section 4.3(i)(iv) shall not apply to (i) the conveyance of any Property or any part thereof 31 to any Person in connection with a foreclosure or eminent domain proceeding or deed in lieu thereof, (ii) the sale, exchange or other disposition of all or substantially all of the properties of the Company and its Subsidiaries, (iii) the grant of an easement or right-of-way, (iv) the lease of the Properties in the ordinary course of business, (v) the sale to any department store or retailer of the portion of the property occupied or proposed to be occupied by it (including parking area and other surrounding area), (vi) the mortgage of any Property or (vii) the other sale, conveyance, transfer or other disposal of a portion of a Property or interests therein in the ordinary course of business, and no notice need be given to the holders of the Series A Preferred Units in connection with a transaction described in this sentence. (v) NET OPERATING INCOME. The Company shall provide the holders of Series A Preferred Units prompt written notice in the event aggregate Net Operating Income for any two consecutive calendar quarters from all properties owned in fee simple or ground leased by the Company, a Subsidiary, or an Investment Affiliate is, or is reasonably likely to be, less than 2.1 times the portion of the Consolidated Interest Expense for such two fiscal quarters attributable to debt, as of the last day of any fiscal quarter. (vi) FIXED CHARGE COVERAGE. The Company shall provide the holders of Series A Preferred Units prompt written notice in the event the ratio of (i) aggregate Net Operating Income for any two consecutive calendar quarters from all properties owned in fee simple or ground leased by the Company, a Subsidiary or an Investment Affiliate, to (ii) Fixed Charges determined on a consolidated basis for such two calendar-quarter period, is or is reasonably likely to be, less than 1.8 to 1 at the end of such two calendar-quarter period. (vii) EFFECT OF BREACH. In the event of any material breach of any of the covenants set forth in this Section 4.3(i), the holders of Series A Preferred Units shall have all rights at law. The occurrence of any matter for which notice is required to be given in accordance with Section 4.3(i)(iii), (v) or (vi) shall not in and of itself constitute a breach hereof; however, the failure to provide written notice in accordance with each such section is a breach of this Agreement. 4.4 NO THIRD PARTY BENEFICIARY. No creditor or other third party having dealings with the Company shall have the right to enforce the right or obligation of any Member to make Capital Contributions or loans or to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the parties hereto and their respective successors and assigns. None of the rights or obligations of the Members herein set forth to make Capital Contributions or loans to the Company shall be deemed an asset of the Company for any purpose by any creditor or other third party, nor may such rights or obligations be sold, transferred or assigned by the Company or pledged or encumbered by the Company to secure any debt or other obligation of the Company or of any of the Members. 32 4.5 NO INTEREST; NO RETURN; NO WITHDRAWAL. No Member shall be entitled to interest on its Capital Contribution or on its Capital Account. Except as provided herein or by law, no Member shall have any right to demand or receive the return of its Capital Contribution from the Company. No Member may withdraw from the Company without the prior written consent of the Managing Member, other than as expressly provided in this Agreement. 4.6 NO OTHER CAPITAL CONTRIBUTIONS. No Member shall have any obligation to make any additional Capital Contribution to the Company. 4.7 ESTABLISHMENT AND ISSUANCE OF SERIES B PREFERRED UNITS. A new series of Preferred Units designated as the "8.95% Series B Cumulative Redeemable Preferred Units" (the "Series B Preferred Units") is hereby established and shall have such rights, preferences, limitations and qualifications as are described on Schedule B, attached hereto and by this reference made a part hereof (in addition to the rights, preferences, limitations and qualifications contained elsewhere in this Agreement, to the extent applicable). The maximum number of Series B Preferred Units which may be issued by the Company from time to time shall be 200,000. Concurrently herewith, the Company is issuing to the GS 2002 REIT 200,000 Series B Preferred Units in exchange for a Capital Contribution by the GS 2002 REIT of $50,000,000. The GS 2002 REIT is hereby admitted as a Member in respect of the Series B Preferred Units issued to it, and the GS 2002 REIT hereby agrees to be bound by the provisions of this Agreement, as the same may be amended from time to time, with respect to such Series B Preferred Units. Series B Preferred Units shall not have any relative, participating, optional or other special rights and powers other than as set forth herein. Series B Preferred Units that are redeemed or purchased by the Company shall be cancelled and may not be reissued. ARTICLE V ALLOCATIONS AND OTHER TAX AND ACCOUNTING MATTERS 5.1 ALLOCATIONS. The Net Income, Net Loss and/or other Company items shall be allocated pursuant to the provisions of Exhibit A hereto. 5.2 DISTRIBUTIONS. (a) Subject to the rights of holders of Preferred Units, the Managing Member shall, from time to time as determined by the Managing Member (but in any event not less frequently than quarterly), cause the Company to distribute all or a portion of Net Operating Cash Flow to the holders of the Common Units who are such on the relevant Common Unit Record Date in such amounts as the Managing Member shall determine; provided, however, that all such distributions shall be made pro rata in accordance with the number of Common Units then owned by the Members; and provided further, that notwithstanding the foregoing, the Managing Member shall use its best efforts to cause the Company to distribute sufficient amounts to enable GGPI to pay shareholder dividends that will (a) satisfy the requirements for qualifying as a REIT under the Code and Regulations ("REIT Requirements"), and (b) avoid any federal income or excise tax liability of GGPI. 33 (b) The Company shall pay distributions in respect of each series of Preferred Units as provided in Section 4.3 hereof, Schedule B and/or any amendment hereto relating to such series of Preferred Units. 5.3 BOOKS OF ACCOUNT. At all times during the continuance of the Company, the Managing Member shall maintain or cause to be maintained full, true, complete and correct books of account in accordance with generally accepted accounting principles wherein shall be entered particulars of all monies, goods or effects belonging to or owing to or by the Company, or paid, received, sold or purchased in the course of the Company's business, and all of such other transactions, matters and things relating to the business of the Company as are usually entered in books of account kept by persons engaged in a business of a like kind and character. In addition, the Company shall keep all records as required to be kept pursuant to the Act. The books and records of account shall be kept at the principal office of the Company, and each Member shall at all reasonable times have access to such books and records and the right to inspect the same. 5.4 REPORTS. The Managing Member shall cause to be submitted to the other Members, promptly following the end of the last calendar year, copies of Financial Statements prepared on a consolidated basis for the Company and the Property Partnerships. The Company shall also cause to be prepared such reports and/or information as are necessary for GGPI to determine its qualification as a REIT and its compliance with the REIT Requirements. 5.5 TAX ELECTIONS AND RETURNS. (a) All elections required or permitted to be made by the Company under any applicable tax law shall be made by the Managing Member in its sole discretion, including without limitation an election on behalf of the Company pursuant to Section 754 of the Code to adjust the basis of the Company property in the case of transfers of Units, and the Managing Member shall not be required to make any such election. (b) The Managing Member shall cause the Accountants to prepare and file all state and federal tax returns on a timely basis. 5.6 TAX MATTERS MEMBER. The Managing Member is hereby designated as the Tax Matters Member of the Company, which has the meaning of "Tax Matters Partner" as specified in Section 6231(a)(7) of the Code; provided, however, in exercising its authority as Tax Matters Member it shall be limited by the provisions of this Agreement affecting tax aspects of the Company; 5.7 WITHHOLDING. Each Member hereby authorizes the Company to withhold or pay on behalf of or with respect to such Member any amount of federal, state, local or foreign taxes that the Managing Member determines the Company is required to withhold or pay with respect to any amount distributable or allocable to such Member pursuant to this Agreement, including without limitation any taxes required to be withheld or paid by the Company pursuant to Sections 1441, 1442, 1445 or 1446 of the Code. Any amount paid on behalf of or with respect to a Member shall constitute a loan by the Company to such Member, which loan shall be due within fifteen (15) days after repayment is demanded of such Member and shall be repaid 34 through withholding of subsequent distributions to such Member. Any amounts payable by a Member hereunder shall bear interest at the lesser of (a) the Prime Rate and (b) the maximum lawful rate of interest on such obligation, such interest to accrue from the date such amount is due (i.e., fifteen (15) days after demand) until such amount is paid in full. To the extent the payment or accrual of withholding tax results in a federal, state or local tax credit to the Company, such credit shall be allocated to the Member to whose distribution the tax is attributable. ARTICLE VI RIGHTS, DUTIES AND RESTRICTIONS OF THE MANAGING MEMBER 6.1 EXPENDITURES BY COMPANY. The Managing Member is hereby authorized to pay compensation for accounting, administrative, legal, technical, management and other services rendered to the Company. All of the aforesaid expenditures shall be made on behalf of the Company, and the Managing Member shall be entitled to reimbursement by the Company for any expenditures incurred by it on behalf of the Company which shall be made other than out of the funds of the Company. The Company also shall assume, and pay when due, all Administrative Expenses. 6.2 POWERS AND DUTIES OF MANAGING MEMBER. The Managing Member shall be responsible for the management of the Company's business and affairs. Except as otherwise herein expressly provided, the Managing Member shall have, and is hereby granted, full, complete and exclusive power, authority and discretion under all circumstances to manage the business of the Company and to take all actions for and on behalf of the Company and in its name as the Managing Member shall, in its sole and absolute discretion, deem necessary or appropriate to carry out the purposes for which the Company was organized. Except as otherwise expressly provided herein and without limiting the foregoing, the Managing Member shall have the right, power and authority: (a) To manage, control, invest, reinvest, acquire by purchase, lease or otherwise, sell, contract to purchase or sell, grant, obtain, or exercise options to purchase, options to sell or conversion rights, assign, transfer, convey, deliver, endorse, exchange, pledge, mortgage, abandon, improve, repair, maintain, insure, lease for any term and otherwise deal with any and all property of whatsoever kind and nature, and wheresoever situated, in furtherance of the purposes of the Company; (b) To acquire, directly or indirectly, interests in real estate of any kind and of any type, and any and all kinds of interests therein, and to determine the manner in which title thereto is to be held; to manage, insure against loss, protect and subdivide any of the real estate, interests therein or parts thereof; to improve, develop or redevelop any such real estate; to participate in the ownership and development of any property; to dedicate for public use, to vacate any subdivisions or parts thereof, to resubdivide, to contract to sell, to grant options to purchase or lease, to sell on any terms; to convey, to mortgage, pledge or otherwise encumber said property, or any part thereof; to lease said property or any part thereof from time to time, upon any terms and for any period of time, and to renew or extend leases, to amend, change or modify the terms and provisions of any leases and 35 to grant options to lease and options to renew leases and options to purchase; to partition or to exchange said real property, or any part thereof, for other real or personal property; to grant easements or charges of any kind; to release, convey or assign any right, title or interest in or about or easement appurtenant to said property or any part thereof; to construct and reconstruct, remodel, alter, repair, add to or take from buildings on said premises; to insure any Person having an interest in or responsibility for the care, management or repair of such property; to direct the trustee of any land trust to mortgage, lease, convey or contract to convey the real estate held in such land trust or to execute and deliver deeds, mortgages, notes, and any and all documents pertaining to the property subject to such land trust or in any matter regarding such trust; to execute assignments of all or any part of the beneficial interest in such land trust; (c) To employ, engage or contract with or dismiss from employment or engagement Persons to the extent deemed necessary by the Managing Member for the operation and management of the Company business, including but not limited to, the engagement of the Property Manager pursuant to the Management Agreements and the employment or engagement of other contractors, subcontractors, engineers, architects, surveyors, mechanics, consultants, accountants, attorneys, insurance brokers, real estate brokers and others; (d) To enter into contracts on behalf of the Company; (e) To borrow money, procure loans and advances from any Person for Company purposes, and to apply for and secure, from any Person, credit or accommodations; to contract liabilities and obligations, direct or contingent and of every kind and nature with or without security; and to repay, discharge, settle, adjust, compromise, or liquidate any such loan, advance, credit, obligation or liability; (f) To pledge, hypothecate, mortgage, assign, deposit, deliver, enter into sale and leaseback arrangements or otherwise give as security or as additional or substitute security, or for sale or other disposition any and all Company property, tangible or intangible, including, but not limited to, real estate and beneficial interests in land trusts, and to make substitutions thereof, and to receive any proceeds thereof upon the release or surrender thereof; to sign, execute and deliver any and all assignments, deeds and other contracts and instruments in writing; to authorize, give, make, procure, accept and receive moneys, payments, property, notices, demands, vouchers, receipts, releases, compromises and adjustments; to waive notices, demands, protests and authorize and execute waivers of every kind and nature; to enter into, make, execute, deliver and receive written agreements, undertakings and instruments of every kind and nature; to give oral instructions and make oral agreements; and generally to do any and all other acts and things incidental to any of the foregoing or with reference to any dealings or transactions which any attorney may deem necessary, proper or advisable; (g) To acquire and enter into any contract of insurance which the Managing Member deems necessary or appropriate for the protection of the Company, for the 36 conservation of the Company's assets or for any purpose convenient or beneficial to the Company; (h) To conduct any and all banking transactions on behalf of the Company; to adjust and settle checking, savings, and other accounts with such institutions as the Managing Member shall deem appropriate; to draw, sign, execute, accept, endorse, guarantee, deliver, receive and pay any checks, drafts, bills of exchange, acceptances, notes, obligations, undertakings and other instruments for or relating to the payment of money in, into, or from any account in the Company's name; to execute, procure, consent to and authorize extensions and renewals of the same; to make deposits and withdraw the same and to negotiate or discount commercial paper, acceptances, negotiable instruments, bills of exchange and dollar drafts; (i) To demand, sue for, receive, and otherwise take steps to collect or recover all debts, rents, proceeds, interests, dividends, goods, chattels, income from property, damages and all other property, to which the Company may be entitled or which are or may become due the Company from any Person; to commence, prosecute or enforce, or to defend, answer or oppose, contest and abandon all legal proceedings in which the Company is or may hereafter be interested; and to settle, compromise or submit to arbitration any accounts, debts, claims, disputes and matters which may arise between the Company and any other Person and to grant an extension of time for the payment or satisfaction thereof on any terms, with or without security; (j) To make arrangements for financing, including the taking of all action deemed necessary or appropriate by the Managing Member to cause any approved loans to be closed; (k) To take all reasonable measures necessary to insure compliance by the Company with applicable arrangements, and other contractual obligations and arrangements entered into by the Company from time to time in accordance with the provisions of this Agreement, including periodic reports as required to lenders and using all due diligence to insure that the Company is in compliance with its contractual obligations; (l) To maintain the Company's books and records; (m) To prepare and deliver, or cause to be prepared and delivered by the Company's Accountants, all financial and other reports with respect to the operations of the Company, and preparation and filing of all Federal and state tax returns and reports; and (n) Any and all other actions that the Managing Member, in its sole and absolute discretion, may deem necessary or appropriate in furtherance of the business of the Company. The Managing Member shall not have any obligations hereunder except to the extent that Company funds are reasonably available to it for the performance of such duties, and nothing herein 37 contained shall be deemed to authorize or require the Managing Member, in its capacity as such, to expend its individual funds for payment to third parties or to undertake any individual liability or obligation on behalf of the Company. Subject to the terms of Section 4.3 and the terms of any other Preferred Units, the merger or consolidation of the Company with or into another Entity shall be authorized by the Consent of the Holders of Common Units. 6.3 PROSCRIPTIONS. The Managing Member shall not have the authority to: (a) Do any act in contravention of this Agreement or which would make it impossible to carry on the ordinary business of the Company (other than a sale of all or substantially all of the Company assets or the dissolution of the Company, each of which is within the power and authority of the Managing Member and do not require the consent of the Members; (b) Possess any Company property or assign rights in specific Company property for other than Company purposes; or (c) Do any act in contravention of applicable law. Nothing herein contained shall impose any obligation on any Person or firm doing business with the Company to inquire as to whether or not the Managing Member has properly exercised its authority in executing any contract, lease, mortgage, deed or other instrument or document on behalf of the Company, and any such third Person shall be fully protected in relying upon such authority. 6.4 TITLE HOLDER. To the extent allowable under applicable law, title to all or any part of the properties of the Company may be held in the name of the Company or any other individual, corporation, partnership, trust or otherwise, the beneficial interest in which shall at all times be vested in the Company. Any such title holder shall perform any and all of its respective functions to the extent and upon such terms and conditions as may be determined from time to time by the Managing Member. 6.5 COMPENSATION OF THE MANAGING MEMBER. The Managing Member shall not be entitled to any compensation for services rendered to the Company solely in its capacity as Managing Member except with respect to reimbursement for those costs and expenses constituting Administrative Expenses. 6.6 WAIVER AND INDEMNIFICATION. (a) Neither the Managing Member nor any Person acting on its behalf, pursuant hereto, shall be liable, responsible or accountable in damages or otherwise to the Company or to any Member for any acts or omissions performed or omitted to be performed by them (whether on, prior to or after the date hereof) within the scope of the authority conferred upon the Managing Member by this Agreement and the Act; provided that (i) the Managing Member's or such other Person's conduct or omission to act was taken in good faith and in the belief that such conduct or omission was in the best interests of the Company and (ii) the Managing Member or such other Person shall not be guilty of fraud, willful misconduct or gross negligence. The Company shall, and hereby 38 does, indemnify and hold harmless the Managing Member and its Affiliates and any individual acting on their behalf from any loss, damage, claim or liability, including, but not limited to, reasonable attorneys' fees and expenses, incurred by them by reason of any act performed or omitted to be performed by them (whether on, prior to or after the date hereof) in accordance with the standards set forth above or in enforcing the provisions of this indemnity; provided, however, no Member shall have any personal liability with respect to the foregoing indemnification, any such indemnification to be satisfied solely out of the assets of the Company. (b) Any Person entitled to indemnification under this Agreement shall be entitled to receive, upon application therefor, advances to cover the costs of defending any proceeding against such Person; provided, however, that such advances shall be repaid to the Company, without interest, if such Person is found by a court of competent jurisdiction upon entry of a final judgment not to be entitled to such indemnification. All rights of the indemnitee hereunder shall survive the dissolution of the Company. The indemnification rights contained in this Agreement shall be cumulative of, and in addition to, any and all rights, remedies and recourse to which the person seeking indemnification shall be entitled, whether at law or at equity. Indemnification pursuant to this Agreement shall be made solely and entirely from the assets of the Company and no Member shall be liable therefor. (c) The provisions of this Section 6.6 also shall apply to the Liquidating Trustee and the Tax Matters Member. 6.7 OPERATION IN ACCORDANCE WITH REIT REQUIREMENTS. The Members acknowledge and agree that the Company shall be operated in a manner that will enable GGPI to (a) satisfy the REIT Requirements and (b) avoid the imposition of any federal income or excise tax liability. The Company shall avoid taking any action, or permitting any Property Partnership to take any action, which would result in GGPI ceasing to satisfy the REIT Requirements or would result in the imposition of any federal income or excise tax liability on GGPI. 6.8 DUTIES AND CONFLICTS. The Managing Member only shall be required to devote such time to the management of the business of the Company as it deems necessary to promote the interests of the Company. Each Member recognizes that the other Members (including the Managing Member) and their Affiliates have or may hereafter have other business interests, activities and investments, some of which may be in conflict or competition with the business or properties of the Company, and that such Persons are entitled to carry on such other business interests, activities and investments. The Members (including the Managing Member) and their Affiliates may engage in or possess an interest in any other business or venture of any kind, independently or with others, on their own behalf or on behalf of other entities with which they are affiliated or associated, and such persons may engage in any activities, whether or not competitive with the Company, without any obligation to offer any interest in such activities to the Company or to any Member. Neither the Company nor any Member shall have any right, by virtue of this Agreement, in or to such activities, or the income or profits derived therefrom, and the pursuit of such activities, even if competitive with the business of the Company, shall not be deemed wrongful or improper. Without limiting the foregoing, each Member recognizes that (a) 39 the Managing Member and/or its Affiliates (other than the Company and its Subsidiaries) own, independently and/or with others, direct and/or indirect interests in Shopping Center Projects in which the Company and its Subsidiaries have no interest and which may be in conflict or competition with the business or properties of the Company and its Subsidiaries, (b) the Managing Member intends to continue to conduct and expand such business and activities and (c) the Managing Member and its Affiliates (other than the Company and its Subsidiaries) are entitled to carry on such other business and activities and own such properties without any obligation to offer any interest in such business, activities or properties to the Company or to any Member. ARTICLE VII DISSOLUTION, LIQUIDATION AND WINDING-UP 7.1 ACCOUNTING. In the event of the dissolution, liquidation and winding-up of the Company, a proper accounting (which shall be certified) shall be made of the Capital Account of each Member and of the Net Profits or Net Losses of the Company from the date of the last previous accounting to the date of dissolution. Financial statements presenting such accounting shall include a report of a certified public accountant selected by the Liquidating Trustee. 7.2 DISTRIBUTION ON DISSOLUTION. In the event of the dissolution and liquidation of the Company for any reason, the assets of the Company shall be liquidated for distribution in the following rank and order: (a) Payment of creditors of the Company (other than Members) in the order of priority as provided by law; (b) Establishment of reserves as provided by the Managing Member to provide for contingent liabilities, if any; (c) Payment of debts of the Company to Members, if any, in the order of priority provided by law; and (d) Payment to holders of Units in accordance with their Capital Accounts. Whenever the Liquidating Trustee reasonably determines that any reserves established pursuant to paragraph (b) above are in excess of the reasonable requirements of the Company, the amount determined to be excess shall be distributed to the Members in accordance with the above provisions. 7.3 TIMING REQUIREMENTS. In the event that the Company is "liquidated" within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations, any and all distributions to the Members pursuant to Section 7.2(d) hereof shall be made no later than the later to occur of (i) the last day of the taxable year of the Company in which such liquidation occurs or (ii) ninety (90) days after the date of such liquidation. 40 7.4 SALE OF COMPANY ASSETS. In the event of the liquidation of the Company in accordance with the terms of this Agreement, the Liquidating Trustee may sell Company or Property Partnership property if the Liquidating Trustee has in good faith solicited bids from unrelated third parties and obtained independent appraisals before making any such sale; provided, however, all sales, leases, encumbrances or transfers of Company assets shall be made by the Liquidating Trustee solely on an "arm's-length" basis, at the best price and on the best terms and conditions as the Liquidating Trustee in good faith believes are reasonably available at the time and under the circumstances and on a non-recourse basis to the Members. The liquidation of the Company shall not be deemed finally terminated until the Company shall have received cash payments in full with respect to obligations such as notes, installment sale contracts or other similar receivables received by the Company in connection with the sale of Company assets and all obligations of the Company have been satisfied. The Liquidating Trustee shall continue to act to enforce all of the rights of the Company pursuant to any such obligations until paid in full. 7.5 DISTRIBUTIONS IN KIND. In the event that it becomes necessary to make a distribution of Company property in kind, the Managing Member may transfer and convey such property to the distributees as tenants in common, subject to any liabilities attached thereto, so as to vest in them undivided interests in the whole of such property in proportion to their respective rights to share in the proceeds of the sale of such property (other than as a creditor) in accordance with the provisions of Section 7.2 hereof. 7.6 DOCUMENTATION OF LIQUIDATION. Upon the completion of the dissolution and liquidation of the Company, the Company shall terminate and the Liquidating Trustee shall have the authority to execute and record any and all documents or instruments required to effect the dissolution, liquidation and termination of the Company. 7.7 NEGATIVE CAPITAL ACCOUNTS. No Member shall be liable to the Company or to any other Member for any deficit or negative balance which may exist in its Capital Account. ARTICLE VIII TRANSFER OF UNITS 8.1 MANAGING MEMBER TRANSFER. The Managing Member shall not withdraw from the Company and shall not sell, assign, pledge, encumber or otherwise dispose of all or any portion of its Units without (i) the Consent of the Holders of Common Units; and (ii) the consent of the holders of at least fifty-one percent (51%) of the outstanding Series A Preferred Units, which consent may not be unreasonably withheld (except that the Managing Member may sell, assign or transfer its interest to an Affiliate without the consent of the Members). Upon any transfer of Units in accordance with the provisions of this Section 8.1, the transferee Managing Member shall become vested with the powers and rights of the transferor Managing Member, and shall be liable for all obligations and responsible for all duties of the Managing Member, once such transferee has executed such instruments as may be necessary to effectuate such admission and to confirm the agreement of such transferee to be bound by all the terms and provisions of this Agreement with respect to the Units so acquired. It is a condition to any 41 transfer otherwise permitted hereunder that the transferee assumes by operation of law or express agreement all of the obligations of the transferor Managing Member under this Agreement with respect to such transferred Units and no such transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor Managing Member are assumed by a successor corporation by operation of law) shall relieve the transferor Managing Member of its obligations under this Agreement without the Consent of the Holders of the Common Units, in their reasonable discretion. In the event the Managing Member withdraws from the Company, in violation of this Agreement or otherwise, or dissolves or terminates or upon the Bankruptcy of the Managing Member, a Majority in Interest of the Common Units and the holders of at least fifty-one percent (51%) of the outstanding Series A Preferred Units, voting separately as separate classes, may elect to continue the Company business by selecting a substitute Managing Member. 8.2 TRANSFERS BY OTHER MEMBERS. Except as otherwise provided herein, no Member (other than the Managing Member) shall have the right to transfer all or a portion of its Units to any Person without the written consent of the Managing Member, which consent may be given or withheld in the sole discretion of the Managing Member. It is a condition to any transfer otherwise permitted hereunder that the transferee assumes by operation of law or express agreement all of the obligations of the transferor Member under this Agreement with respect to such transferred Units and no such transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor Member are assumed by a successor corporation by operation of law) shall relieve the transferor Member of its obligations under this Agreement without the approval of the Managing Member, which may be given or withheld in its sole discretion. Upon such transfer, the transferee shall be admitted as a substituted member of the Company (the "Substituted Member") and shall succeed to all of the rights of the transferor Member under this Agreement in the place and stead of such transferor Member. Any transferee, whether or not admitted as a Substituted Member, shall take subject to the obligations of the transferor hereunder. Unless admitted as a Substituted Member, no transferee, whether by a voluntary transfer, by operation of law or otherwise, shall have rights hereunder, other than to receive such portion of the distributions made by the Company as are allocable to the Units transferred. 8.3 RESTRICTIONS ON TRANSFER. In addition to any other restrictions on transfer herein contained, in no event may any transfer or assignment of Units by any Member be made (a) to any Person who lacks the legal right, power or capacity to own Units; (b) in violation of any provision of any mortgage or trust deed (or the note or bond secured thereby) constituting a Lien against a Property or any part thereof, or other instrument, document or agreement to which the Company or any Property Partnership is a party or otherwise bound; (c) in violation of applicable law; (d) unless such assignment or transfer is made pursuant to an effective registration statement under the Securities Act of 1933, as amended, or is exempt from registration thereunder; (e) of any component portion of a Unit, such as the Capital Account, or rights to Net Operating Cash Flow, separate and apart from all other components of such Unit, (f) in the event such transfer would cause GGPI to cease to comply with the REIT Requirements, (g) if such transfer would cause a termination of the Company for federal income tax purposes, (h) if such transfer would, in the opinion of counsel to the Company, cause the Company to cease to be classified as a partnership for Federal income tax purposes, cause the Company to fail to satisfy the safe harbor 42 requirements of Section 1.7704-1(j) of the Regulations during 2002 or cause the Company to have more than 100 partners within the meaning of Reg. Section1.7704-1(h), (i) if such transfer would cause the Company to become, with respect to any employee benefit plan subject to Title 1 of ERISA, a "party-in-interest" (as defined in Section 3(14) of ERISA) or a "disqualified person" (as defined in Section 4975(e)(2) of the Code), or (j) if such transfer would, in the opinion of counsel to the Company, cause any portion of the assets of the Company to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.3-101. 8.4 BANKRUPTCY OF A MEMBER. The Bankruptcy of any Member (other than the Managing Member) shall not cause a dissolution of the Company, but the rights of such Member to share in the Net Profits or Net Losses of the Company and to receive distributions of Company funds shall, on the happening of such event, devolve on its successors or assigns, subject to the terms and conditions of this Agreement, and the Company shall continue as a limited liability company. However, in no event shall such assignee(s) become a Substituted Member without the written consent of the Managing Member. ARTICLE IX ARBITRATION OF DISPUTES 9.1 ARBITRATION. Notwithstanding anything to the contrary contained in this Agreement, all claims, disputes and controversies between the parties hereto (including, without limitation, any claims, disputes and controversies between the Company and any one or more of the Members and any claims, disputes and controversies between any one or more Members) arising out of or in connection with this Agreement or the Company shall be resolved by binding arbitration in (x) New York, New York with respect to any dispute involving the Series A Preferred Units or the Series B Preferred Units and (y) with respect to all other disputes, Chicago, Illinois, in accordance with this Article IX and, to the extent not inconsistent herewith, the Expedited Procedures and Commercial Arbitration Rules of the American Arbitration Association. 9.2 PROCEDURES. Any arbitration called for by this Article IX shall be conducted in accordance with the following procedures: (a) The Company or any Member (the "Requesting Party") may demand arbitration pursuant to Section 9.1 at any time by giving written notice of such demand (the "Demand Notice") to all other Members and (if the Requesting Party is not the Company) to the Company which Demand Notice shall describe in reasonable detail the nature of the claim, dispute or controversy. (b) Within fifteen (15) days after the giving of a Demand Notice, the Requesting Party, on the one hand, and each of the other Members and/or the Company against whom the claim has been made or with respect to which a dispute has arisen (collectively, the "Responding Party"), on the other hand, shall select and designate in writing to the other party one reputable, disinterested individual (a "Qualified Individual") willing to act as an arbitrator of the claim, dispute or controversy in question. Each of the Requesting Party and the Responding Party shall use their best efforts to select a lawyer or retired judge having no affiliation with any of the parties as their respective Qualified Individual. Within fifteen (15) days after the foregoing selections have been made, the arbitrators so selected shall jointly select a lawyer or retired judge having no affiliation with any of the parties as the third Qualified Individual willing to act as an arbitrator of the claim, dispute or controversy in question. In the event that the two arbitrators initially selected are unable to agree on a third arbitrator within the second fifteen (15) day period referred to above, then, on the application of either party, the American Arbitration Association shall promptly select and appoint a lawyer or retired judge having no affiliation with any of the parties as the Qualified Individual to act as the third arbitrator. The three arbitrators selected pursuant to this subsection (b) shall constitute the arbitration panel for the arbitration in question. (c) The presentations of the parties hereto in the arbitration proceeding shall be commenced and completed within sixty (60) days after the selection of the arbitration panel pursuant to subsection (b) above, and the arbitration panel shall render its decision in writing within thirty (30) days after the completion of such presentations. Any decision concurred in by any two (2) of the arbitrators shall constitute the decision of the arbitration panel, and unanimity shall not be required. (d) The arbitration panel shall have the discretion to include in its decision a direction that all or part of the attorneys' fees and costs of any party or parties and/or the costs of such arbitration be paid by any other party or parties. On the application of a party before or after the initial decision of the arbitration panel, and proof of its attorneys' fees and costs, the arbitration panel shall order the other party to make any payments directed pursuant to the preceding sentence. 9.3 BINDING CHARACTER. Any decision rendered by the arbitration panel pursuant to this Article IX shall be final and binding on the parties hereto, and judgment thereon may be entered by any state or federal court of competent jurisdiction. 9.4 EXCLUSIVITY. Arbitration shall be the exclusive method available for resolution of claims, disputes and controversies described in Section 9.1, and the Company and its Members stipulate that the provisions hereof shall be a complete defense to any suit, action, or proceeding in any court or before any administrative or arbitration tribunal with respect to any such claim, controversy or dispute. The provisions of this Article IX shall survive the dissolution of the Company. Notwithstanding the foregoing, the parties may seek injunctive relief or similar relief from a court of competent jurisdiction in New York, New York before an arbitration panel has been appointed. 9.5 NO ALTERATION OF AGREEMENT. Nothing contained herein shall be deemed to give the arbitrators any authority, power or right to alter, change, amend, modify, add to, or subtract from any of the provisions of this Agreement. 44 ARTICLE X GENERAL PROVISIONS 10.1 NOTICES. Except as otherwise provided herein, all notices, offers or other communications required or permitted to be given pursuant to this Agreement shall be in writing and may be personally served, delivered by nationally recognized overnight courier, telecopied or sent by registered or certified United States mail, postage prepaid and properly addressed, and shall be deemed to have been given when delivered in person or by nationally recognized courier or registered or certified U.S. mail or upon receipt of telecopy by the appropriate party. For purposes of this Section 10.1, the addresses of the parties hereto shall be as set forth opposite their names on the signature pages thereto. The address of any party hereto may be changed by a notice in writing given in accordance with the provisions hereof. 10.2 SUCCESSORS. This Agreement and all the terms and provisions hereof shall be binding upon and shall inure to the benefit of all Members, and their legal representatives, heirs, successors and permitted assigns, except as expressly herein otherwise provided. 10.3 EFFECT AND INTERPRETATION. This Agreement shall be governed by and construed in conformity with the laws of the State of Delaware (without regard to its conflicts of law principles, which might result in the application of the laws of any other jurisdiction). 10.4 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be an original, but all of which shall constitute one and the same document and all signatures need not appear on the same page. 10.5 MEMBERS NOT AGENTS. Nothing contained herein shall be construed to constitute any Member the agent of another Member, except as specifically provided herein, or in any manner to limit the Members in the carrying on of their own respective businesses or activities. 10.6 ENTIRE UNDERSTANDING; ETC. This Agreement constitutes the entire agreement and understanding among the Members and supersedes any prior understandings and/or written or oral agreements among them respecting the subject matter within (including without limitation the Original Agreement). 10.7 AMENDMENTS. Except as otherwise provided herein (including the provisions of Section 4.3), this Agreement may not be amended, and no provision may be waived, except by a written instrument signed by the holders of a Majority in Interest of the Common Units. 10.8 SEVERABILITY. If any provision of this Agreement, or the application of such provision to any person or circumstance, shall be held invalid by a court of competent jurisdiction, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those to which it is held invalid by such court, shall not be affected thereby. 10.9 TRUST PROVISION. This Agreement, to the extent executed by the trustee of a trust, is executed by such trustee solely as trustee and not in a separate capacity. Nothing herein 45 contained shall create any liability on, or require the performance of any covenant by, any such trustee individually, nor shall anything contained herein subject the individual personal property of any trustee to any liability. 10.10 ISSUANCE OF CERTIFICATES REPRESENTING UNITS. The Managing Member may, in its sole discretion, issue certificates representing all or a portion of the Units of one or more Members and, in such event, the Managing Member shall establish such rules and regulations relating to issuances and reissuances of certificates upon transfer of Units, the division of Units among multiple certificates and the loss, theft, destruction or mutilation of certificates as the Managing Member reasonably deems appropriate. 10.11 SPECIFIC PERFORMANCE. The parties agree that irreparable damage will result in the event that this Agreement is not specifically enforced, and the parties agree that any damages available at law for a breach of this Agreement would not be an adequate remedy. Therefore, the provisions hereof and the obligations of the parties hereunder shall be enforceable in a court of equity or other tribunal with jurisdiction by a decree of specific performance, and appropriate injunctive relief may be applied for and granted in connection therewith. Such remedies shall, however, be cumulative and not exclusive and shall be in addition to any other remedies which a party may have under this Agreement or otherwise. 10.12 POWER OF ATTORNEY. Each Member (other than the holders of Series A Preferred Units or Series B Preferred Units) hereby irrevocably constitutes and appoints the Managing Member his or its true and lawful attorney-in-fact, in his or its name, place and stead with full power of substitution, to consent to, make, execute, sign, acknowledge, swear to, record and file, on behalf of such Member and/or on behalf of the Company, the following: (a) this Agreement, any certificate of foreign limited liability company, any certificate of doing business under an assumed name, and any other certificates or instruments which may be required to be filed by the Company or such Member under the laws of the State of Delaware or any other jurisdiction the laws of which may be applicable; (b) a certificate of cancellation of the Certificate of Formation of the Company and such other instruments or documents as may be deemed necessary or desirable by said attorneys upon the termination of the Company; (c) any and all amendments or restatements of the documents described in subsections (a) and (b) above, provided such amendments are either required by law, are necessary to correct statements herein or therein, or are consistent with this Agreement (including without limitation any amendments referred to in Sections 4.1 and 4.2); and (d) any and all such other documents as may be deemed necessary or desirable by said attorney to carry out fully the provisions of this Agreement and as are consistent with the terms hereof. 46 The foregoing grant of authority: (i) is a special power of attorney coupled with an interest, is irrevocable and shall survive the death or incapacity of each member and (ii) shall survive the delivery of an assignment by a Member of the whole or any portion of his or its Units. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 47 IN WITNESS WHEREOF, the parties hereto have executed this Agreement, and GGPI has executed this Agreement solely for the purpose of binding itself under Section 4.3(g), as of the date and year first above written. MANAGING MEMBER: GGP LIMITED PARTNERSHIP, a Delaware limited partnership By: General Growth Properties, Inc., a Delaware corporation, its general partner By: /s/ Bernard Freibaum ----------------------------------- Name: Bernard Freibaum ------------------------------ Title: Executive Vice President ---------------------------- 110 North Wacker Drive Chicago, Illinois 60606 Attention: John Bucksbaum OTHER MEMBERS: CALEDONIAN HOLDING COMPANY, INC., a Delaware corporation By: /s/ Bernard Freibaum ---------------------------------------- Name: Bernard Freibaum --------------------------------- Title: Vice President -------------------------------- 110 North Wacker Drive Chicago, Illinois 60606 Attention: John Bucksbaum 48 GGP AMERICAN PROPERTIES INC., a Delaware corporation By: /s/ Bernard Freibaum ---------------------------------------- Name: Bernard Freibaum --------------------------------- Title: Vice President -------------------------------- 110 North Wacker Drive Chicago, Illinois 60606 Attention: John Bucksbaum GSEP 2000 REALTY CORP. By: /s/ Eric Lane ---------------------------------------- Name: Eric Lane --------------------------------- Title: President and CEO -------------------------------- c/o Goldman, Sachs & Co. One New York Plaza New York, New York 10004 Attention: Eric Lane GSEP 2002 REALTY CORP. By: /s/ Eric Lane ---------------------------------------- Name: Eric Lane --------------------------------- Title: President and CEO -------------------------------- c/o Goldman, Sachs & Co. One New York Plaza, 40th Floor New York, New York 10004 Attention: Eric Lane 49 GENERAL GROWTH PROPERTIES, INC., a Delaware corporation By: /s/ Bernard Freibaum ---------------------------------------- Name: Bernard Freibaum --------------------------------- Title: Executive Vice President -------------------------------- 110 North Wacker Drive Chicago, Illinois 60606 Attention: John Bucksbaum 50 EXHIBIT A TO THE SECOND AMENDED AND RESTATED OPERATING AGREEMENT OF GGPLP L.L.C. ALLOCATIONS 1. Allocation of Net Income and Net Loss. (a) Net Income. Except as otherwise provided herein, Net Income for any fiscal year or other applicable period shall be allocated in the following order and priority: (1) First, to each Member holding Common Units in proportion to, and to the extent of, the excess of (i) the cumulative amount of Net Loss allocated with respect to such Common Units pursuant to paragraph (b)(5) below for all prior periods over (ii) the cumulative amount of Net Income allocated with respect to such Common Units pursuant to this paragraph (a)(1) for all prior periods; (2) Second, to each Member holding Preferred Units until the cumulative Net Income allocated with respect to each Preferred Unit pursuant to this paragraph (a)(2) for such period and all prior periods equals the cumulative Net Loss allocated with respect to each such Preferred Unit pursuant to paragraph (b)(4) below for all prior periods (such allocation to be among the Members holding Preferred Units in the reverse order that such Net Loss was allocated to them); (3) Third, to each Member holding Preferred Units in proportion to, and to the extent of, the excess of (i) the cumulative amount of accrued distributions with respect to such Preferred Units for such period and all prior periods (whether or not declared or paid) over (ii) the cumulative amount of Net Income allocated with respect to such Preferred Units pursuant to this paragraph (a)(3) for all prior periods (net of the cumulative Net Loss, if any, allocated with respect to such Preferred Units pursuant to paragraph (b)(3) hereof for all prior periods); (4) Fourth, to each Member holding Common Units until the cumulative Net Income allocated with respect to each Common Unit pursuant to this paragraph (a)(4) for such period and all prior periods equals the cumulative Net Loss allocated with respect to each such Common Unit pursuant to paragraph (b)(2) below for all prior periods (such allocation to be among the Members holding Common Units in the reverse order that such Net Loss was allocated to them); and (5) Thereafter, the balance of the Net Income, if any, shall be allocated among the Members holding Common Units in proportion to the number of Common Units held by them. A-1 (b) Net Loss. Except as otherwise provided herein, Net Loss of the Company for each fiscal year or other applicable period shall be allocated as follows: (1) First, to the Members holding Common Units, until the cumulative amount of Net Loss allocated with respect to each Common Unit under this paragraph (b)(1) for such period and all prior periods equals the cumulative amount of Net Income allocated to such Common Unit pursuant to paragraph (a)(5) for all prior periods; (2) Second, to the holders of Common Units in proportion to the number of Common Units held by them (provided, however, that to the extent any Net Loss allocated to a Member holding Common Units under this paragraph (b)(2) would cause such Member (hereinafter, a "Restricted Member") to have an Adjusted Capital Account Deficit as of the end of the fiscal year to which such Net Loss relates, such Net Loss shall not be allocated to such Restricted Member but shall instead, to the extent possible, be allocated to the other Member(s) holding Common Units (hereinafter, the "Permitted Members") pro rata in accordance with the Common Units held by all Permitted Members (for this purpose, a Member's Adjusted Capital Account Deficit shall be determined by considering only those adjustments to such Member's capital account (including any adjustments for capital contributed) that were made in respect of the Member's Common Units)); (3) Third, to the Members holding Preferred Units in proportion to, and to the extent of, the excess of (i) the cumulative Net Income allocated with respect to each Preferred Unit pursuant to paragraph (a)(3) hereof for all prior periods over (ii) the cumulative distributions made with respect to each such Preferred Unit pursuant to Section 5.2(b) of the Agreement for the current and all prior periods; (4) Fourth, to the Members holding Preferred Units in proportion to the number of Preferred Units held by them (provided, however, that to the extent any Net Loss allocated to a Member holding Preferred Units under this paragraph (b)(2) would cause such Member (hereinafter, a "Restricted Preferred Member") to have an Adjusted Capital Account Deficit as of the end of the fiscal year to which such Net Loss relates, such Net Loss shall not be allocated to such Restricted Preferred Member but shall instead, to the extent possible, be allocated to the other Member(s) holding Preferred Units (hereinafter, the "Permitted Preferred Members") pro rata in accordance with the Preferred Units held by all Permitted Preferred Members (for this purpose, a Member's Adjusted Capital Account Deficit shall be determined by considering only those adjustments to such Member's capital account (including any adjustments for capital contributed) that were made in respect of the Member's Preferred Units)); and (5) Fifth, to the holders of Common Units in proportion to the number of Common Units held by them. 2. Special Allocations. Notwithstanding any provisions of paragraph 1 of this Exhibit A, the following special allocations shall be made in the following order: A-2 (a) Minimum Gain Chargeback (Nonrecourse Liabilities). If there is a net decrease in Partnership Minimum Gain for any Company fiscal year (except as a result of conversion or refinancing of Company indebtedness, certain capital contributions or revaluation of the Company property as further outlined in Regulation Sections 1.704-2(d)(4), (f)(2) or (f)(3)), each Member shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to that Member's share of the net decrease in Partnership Minimum Gain. The items to be so allocated shall be determined in accordance with Regulation Section 1.704-2(f). This paragraph (a) is intended to comply with the minimum gain chargeback requirement in said section of the Regulations and shall be interpreted consistently therewith. Allocations pursuant to this paragraph (a) shall be made in proportion to the respective amounts required to be allocated to each Member pursuant hereto. (b) Minimum Gain Attributable to Partner Nonrecourse Debt. If there is a net decrease in Minimum Gain Attributable to Partner Nonrecourse Debt during any fiscal year (other than due to the conversion, refinancing or other change in the debt instrument causing it to become partially or wholly nonrecourse, certain capital contributions, or certain revaluations of Company property as further outlined in Regulation Section 1.704-2(i)(4)), each Member shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to that Member's share of the net decrease in the Minimum Gain Attributable to Partner Nonrecourse Debt. The items to be so allocated shall be determined in accordance with Regulation Section 1.704-2(i)(4) and (j)(2). This paragraph (b) is intended to comply with the minimum gain chargeback requirement with respect to Partner Nonrecourse Debt contained in said section of the Regulations and shall be interpreted consistently therewith. Allocations pursuant to this paragraph (b) shall be made in proportion to the respective amounts required to be allocated to each Member pursuant hereto. (c) Qualified Income Offset. In the event a Member unexpectedly receives any adjustments, allocations or distributions described in Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6), and such Member has an Adjusted Capital Account Deficit, items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit as quickly as possible. This paragraph (c) is intended to constitute a "qualified income offset" under Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. (d) Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year or other applicable period shall be allocated among the Members holding Common Units in proportion to the number of Common Units held. (e) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions for any fiscal year or other applicable period shall be specially allocated to the Member that bears the economic risk of loss for the debt (i.e., the Partner Nonrecourse Debt) to which such Partner Nonrecourse Deductions are attributable (as determined under Regulation Section 1.704-2(b)(4) and (i)(1)). (f) Curative Allocations. The Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss, and deduction among the Members so that, to the A-3 extent possible, the cumulative net amount of allocations of Company items under paragraphs 1 and 2 of this Exhibit A shall be equal to the net amount that would have been allocated to each Member if the Regulatory Allocations had not occurred. This paragraph (f) is intended to minimize to the extent possible and to the extent necessary any economic distortions which may result from application of the Regulatory Allocations and shall be interpreted in a manner consistent therewith. For purposes hereof, "Regulatory Allocations" shall mean the allocations provided for by subsections (a) through (e) of this Section 2. 3. Tax Allocations. (a) Generally. Subject to paragraphs (b) and (c) hereof, items of income, gain, loss, deduction and credit to be allocated for income tax purposes (collectively, "Tax Items") shall be allocated among the Members on the same basis as their respective book items. (b) Sections 1245/1250 Recapture. If any portion of gain from the sale of property is treated as ordinary income by virtue of the application of Code Sections 1245 or 1250 ("Affected Gain"), then (A) such Affected Gain shall be allocated among the Members in the same proportion that the depreciation and amortization deductions giving rise to the Affected Gain were allocated and (B) other Tax Items of gain of the same character that would have been recognized, but for the application of Code Sections 1245 and/or 1250, shall be allocated away from those Members who are allocated Affected Gain pursuant to Clause (A) so that, to the extent possible, the other Members are allocated the same amount, and type, of capital gain that would have been allocated to them had Code Sections 1245 and/or 1250 not applied. For purposes hereof, in order to determine the proportionate allocations of depreciation and amortization deductions for each fiscal year or other applicable period, such deductions shall be deemed allocated on the same basis as Net Income and Net Loss for such respective period. (c) Allocations Respecting Section 704(c) and Revaluations; Curative Allocations Resulting from the Ceiling Rule. Notwithstanding paragraph (b) hereof, Tax Items with respect to Company property that is subject to Code Section 704(c) and/or Regulation Section 1.704-3 (collectively "Section 704(c) Tax Items") shall be allocated in accordance with said Code Section and/or Regulation Section 1.704-3, as the case may be. The allocation of Tax Items shall be in accordance with the "traditional method" set forth in Regulation Section 1.704-3(b)(1), unless otherwise determined by the Managing Member, and shall be subject to the ceiling rule stated in Regulation Section 1.704-3(b)(1). The Managing Member is authorized to specially allocate Tax Items (other than the Section 704(c) Tax Items) to cure for the effect of the ceiling rule. A-4 SCHEDULE A TO THE SECOND AMENDED AND RESTATED OPERATING AGREEMENT OF GGPLP L.L.C. MEMBERS
Member Common Units Preferred Units GGP Limited Partnership 911,000 0 Caledonian Holding Company, Inc. 29,600 0 GGP American Properties Inc. 58,500 0 GSEP 2000 Realty Corp. 0 700,000 Series A Preferred Units GSEP 2002 Realty Corp. 0 200,000 Series B Preferred Units
A-1 SCHEDULE B TO THE SECOND AMENDED AND RESTATED OPERATING AGREEMENT OF GGPLP L.L.C. DESIGNATION, PREFERENCES AND RIGHTS OF SERIES B PREFERRED UNITS 1. DESIGNATION AND NUMBER; ETC. The Series B Preferred Units have been established and shall have such rights, preferences, limitations and qualifications as are described herein (in addition to the rights, preferences, limitations and qualifications contained in the Agreement to the extent applicable). The authorized number of Series B Preferred Units shall be 200,000. Notwithstanding anything to the contrary contained herein, in the event of a conflict between the provisions of this Schedule B and any other provision of the Agreement, the provisions of this Schedule B shall control. Series B Preferred Units shall not have any relative, participating, optional or other special rights and powers other than as set forth herein. 2. RANK OF THE SERIES B PREFERRED UNITS. The Series B Preferred Units shall, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Company, rank as follows: (a) senior to all classes or series of Common Units and all other series of Preferred Units other than each series of Preferred Units referred to in Section 2(b) or (c) hereof (the Common Units and the Preferred Units ranking junior to the Series B Preferred Units with respect to distribution rights and rights upon liquidation, dissolution and winding up, collectively, "Series B Junior Units"); (b) on parity with the Series A Preferred Units and each other series of Preferred Units which provides by its express terms that it ranks on parity with the Series B Preferred Units as to distribution rights and rights upon liquidation, dissolution and winding-up of the Company (the "Series B Parity Units") (and if the distribution rates, distribution payment dates or redemption or liquidation prices per Unit are different from those of the Series B Preferred Units, the units of such class or series and the Series B Preferred Units shall be entitled to the receipt of distributions and the amounts distributable upon liquidation, dissolution and winding-up in proportion to their respective amounts of accrued and unpaid distributions per unit or liquidation preferences, without preference or priority one over the other); and (c) junior to any class or series of Preferred Units that is hereafter established, that provides by its express terms that it ranks senior to the Series B Preferred Units and that is approved in accordance with the provisions of Section 3 hereof. 3. VOTING. The Company shall not, without the affirmative vote or consent of the holders of at least fifty-one percent (51%) of the Series B Preferred Units outstanding at such time, (a) authorize or create, or increase the authorized or issued amount of, any class or series of Units ranking senior to the Series B Preferred Units with respect to payments of distributions or rights upon liquidation, dissolution or winding up of the Company or reclassify any Common Units into Preferred Units ranking senior to or on parity with the Series B Preferred Units with B-1 respect to the payment of distributions or distribution of assets upon liquidation, dissolution or winding-up of the Company, (b) issue additional Series B Preferred Units or (c) amend, alter or repeal this Section 3 or any other provisions of this Schedule B or the Agreement, whether by merger, consolidation or otherwise (a "Series B Event"), so as to negate the provisions of clause (a) or (b) of this paragraph or materially and adversely affect any right, preference, privilege or voting power of the holders of the Series B Preferred Units. Notwithstanding anything to the contrary contained herein, (A) with respect to the occurrence of any of the Series B Events set forth in clause (c) of this paragraph, so long as Series B Preferred Units remain outstanding with the terms thereof materially unchanged (taking into account that, upon the occurrence of such Series B Event, the Company may not be the surviving entity) and the surviving entity is a Qualified Entity, the occurrence of any such Series B Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting power of holders of the Series B Preferred Units and (B) the authorization or creation of, or the increase in the authorized or issued amount of, the Common Units or any other series of Preferred Units, in either case which rank junior to or on parity with the Series B Preferred Units (and any amendments to the Agreement to effect such increase, creation or issuance), shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers or otherwise require the vote or consent of the holders of the Series B Preferred Units. For purposes of the provisions of this Section 3, each Series B Preferred Unit shall have one (1) vote. Notwithstanding anything to the contrary contained herein, the foregoing voting provisions shall not apply if, prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series B Preferred Units shall have been exchanged or redeemed. Except as provided herein or in the Agreement, the holders of Series B Preferred Units shall have no voting or consent rights or other rights to participate in the management of the Company or to receive notices of meetings. 4. DISTRIBUTIONS. (a) PAYMENT OF DISTRIBUTIONS. Each holder of Series B Preferred Units will be entitled to receive, when, as and if declared by the Managing Member, out of Net Operating Cash Flow and subject to the right to payment of the holders of Preferred Units ranking senior to or on parity with the Series B Preferred Units, cumulative preferential cash distributions per Series B Preferred Unit at the rate per annum of 8.95% of the $250 base liquidation preference thereof (or $5.59375 per quarter) (the "Series B Preferred Unit Distribution"). Series B Preferred Unit Distributions with respect to any Series B Preferred Units shall be cumulative, shall accrue from the date of the issuance of such Series B Preferred Units and will be payable (i) quarterly when, as and if authorized and declared by the Managing Member, in arrears, on the 15th day of January, April, July and October of each year and (ii) in the event of an exchange or redemption of Series B Preferred Units, on the exchange or redemption date, as applicable (each a "Series B Preferred Unit Distribution Payment Date"), commencing on the first of such payment dates to occur following their original date of issuance. The amount of distribution per Series B B-2 Preferred Unit accruing in each full quarterly distribution period shall be computed by dividing the annual distribution rate by four. The amount of distributions payable for the initial distribution period or any other period shorter or longer than a full quarterly distribution period on the Series B Preferred Units will be computed on the basis of twelve 30-day months and a 360-day year and the actual number of days elapsed in such a thirty (30) day month. If any Series B Preferred Unit Distribution Payment Date is not a Business Day, then payment of the Series B Preferred Unit Distribution to be made on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day (without any deduction), in each case with the same force and effect as if made on such date. Series B Preferred Unit Distributions will be made to the holders of Series B Preferred Units of record on the relevant record dates, which will be fifteen (15) days prior to the relevant Series B Preferred Unit Distribution Payment Date. (b) DISTRIBUTIONS CUMULATIVE. Notwithstanding the foregoing, Series B Preferred Unit Distributions will accrue whether or not the terms and provisions of the Agreement or any other agreement of the Company at any time prohibit the current payment of distributions, whether or not the Company has revenues, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are authorized. Accrued but unpaid Series B Preferred Unit Distributions will accumulate as of the Series B Preferred Unit Distribution Payment Date on which they first become payable. Any accrued but unpaid Series B Preferred Unit Distributions that are not paid on or prior to the date that they first become payable are hereinafter referred to as "Series B Accumulated Preferred Unit Distributions". No interest or sum of money in lieu of interest will be payable in respect of any Series B Accumulated Preferred Unit Distributions. Series B Accumulated Preferred Unit Distributions may be declared and paid at any time, without reference to any regular Series B Preferred Unit Distribution Payment Date. (c) PRIORITY AS TO DISTRIBUTIONS. (i) So long as any Series B Preferred Units are outstanding, no distribution of cash or other property shall be authorized, declared, paid or set apart for payment on or with respect to any Series B Parity Units, nor shall any cash or other property be set aside for or applied to the purchase, redemption or other acquisition for consideration of any Series B Preferred Units or any Series B Parity Units, unless, in each case, all Series B Accumulated Preferred Unit Distributions have been paid in full (or have been declared and a sum sufficient for such payment has been set aside therefor) or when Series B Accumulated Preferred Unit Distributions are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all distributions declared upon Series B Preferred Units and all distributions declared upon any other series or class or classes of Series B Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated and unpaid on the Series B Preferred Units and such Series B Parity Units. B-3 (ii) So long as any Series B Preferred Units are outstanding, no distribution of cash or other property (other than distributions paid solely in Series B Junior Units or options, warrants or other rights to subscribe for or purchase Series B Junior Units) shall be authorized, declared, paid or set apart for payment on or with respect to any class or series of Series B Junior Units nor shall any cash or other property be set aside for or applied to the purchase, redemption or other acquisition for consideration of any Series B Junior Units (other than consideration paid solely in Series B Junior Units or options, warrants or other rights to subscribe for or purchase Series B Junior Units) unless, in each case, all Series B Accumulated Preferred Unit Distributions have been paid in full or set apart for payment. (iii) So long as there are Series B Accumulated Preferred Unit Distributions (and a sum sufficient for full payment of Series B Accumulated Preferred Unit Distributions is not so set apart), all future Series B Preferred Unit Distributions shall be authorized and declared so that the amount of Series B Preferred Unit Distributions per Series B Preferred Unit shall in all cases bear to each other the same ratio that Series B Accumulated Preferred Unit Distributions per Series B Preferred Unit bear to each other. (iv) Notwithstanding anything to the contrary set forth herein, distributions on Units held by the Managing Member ranking junior to or on parity with the Series B Preferred Units may be made, without preserving the priority of distributions described in Sections 4(c)(i) and (ii) hereof, but only to the extent such distributions are required to preserve the REIT status of GGPI. (d) NO FURTHER RIGHTS. Holders of Series B Preferred Units shall not be entitled to any distributions, whether payable in cash, other property or otherwise, in excess of the Series B Preferred Unit Distributions (and any Series B Accumulated Preferred Unit Distributions) described herein. 5. LIQUIDATION PREFERENCE. (a) In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, before any payment or distribution of the assets of the Company shall be made to or set apart for the holders of Series B Junior Units, each holder of the Series B Preferred Units shall be entitled to receive an amount equal to such holder's Capital Account in respect of its Series B Preferred Units; but the holders of Series B Preferred Units shall not be entitled to any further payment. If, upon any such liquidation, dissolution or winding up of the Company, the assets of the Company, or proceeds thereof, distributable to the holders of Series B Preferred Units, shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other Series B Parity Units, then such assets, or the proceeds thereof, shall be distributed among the holders of the Series B Preferred Units and the holders of any such other Series B Parity Units ratably in accordance with the respective amounts that would be payable on such Series B Preferred Units and any such other Series B Parity Units if all amounts payable thereon were paid in full. For the purposes of this Section 5, none of (i) a consolidation or merger of the Company with or into one or more entities, (ii) a merger of an entity with or into the Company, (iii) a statutory share exchange by the Company or B-4 (iv) a sale, lease or conveyance of all or substantially all of the Company's assets shall be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Company. (b) Subject to the rights of the holders of Series B Parity Units, after payment shall have been made in full to the holders of the Series B Preferred Units as provided in this Section, any series or class or classes of Series B Junior Units shall, subject to any respective terms and provisions applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series B Preferred Units shall not be entitled to share therein. 6. TRANSFER BY HOLDERS OF SERIES B PREFERRED UNITS. Notwithstanding anything to the contrary contained herein, a holder of Series B Preferred Units may sell, assign or otherwise transfer all or part of its Series B Preferred Units without the consent of the Managing Member; provided, however, that no such sale, conveyance or other transfer may be made unless the requirements of Section 8.3 of the Agreement (other than Section 8.3(b) thereof) and the second and fourth sentences of Section 8.2 of the Agreement are satisfied with respect to such sale, conveyance or other transfer. 7. EXCHANGE RIGHTS. (a) RIGHT TO EXCHANGE. (i) Series B Preferred Units will be exchangeable in whole but not in part with GGPI at any time on or after April 17, 2012, at the option of the holders of at least fifty-one percent (51%) of all outstanding Series B Preferred Units, for authorized but previously unissued 8.95% Cumulative Redeemable Preferred Stock, Series G, par value $100 per share, of GGPI ("Series G REIT Preferred Shares") (and in the event such option is exercised, such exercise and the Series B Exchange Notice given in connection therewith shall be deemed to apply to all issued and outstanding Series B Preferred Units and the holders thereof). Each holder of Series B Preferred Units will be entitled to receive for each Series B Preferred Unit held by it a number of Series G REIT Preferred Shares equal to the quotient of the Capital Account per Series B Preferred Unit of such holder of Series B Preferred Units (adjusted to reflect fair market value through the exchange date) divided by $1,000 (the "Series B Preferred Exchange Rate"). This exchange right is only exercisable if, at the time of exercise, the fair market value of the Company's assets exceeds the Company's liabilities (and any preferred security claims senior to the Series B Preferred Units) by an amount at least equal to twice the sum of (1) the aggregate Capital Accounts of all holders of Series B Preferred Units plus (2) the aggregate Capital Accounts of all holders of Series B Parity Units. (ii) The Series B Preferred Units will be exchangeable with GGPI at any time on or after April 17, 2007, in whole but not in part, at the option of the holders of at least fifty-one percent (51%) of all outstanding Series B Preferred Units, for authorized but previously unissued Common Shares if at any time Series B Accumulated Preferred Unit Distributions exist with respect to the Series B Preferred Units in an amount equal to the amount that should have been distributed in six (6) prior quarterly distribution periods, whether or not consecutive, at the following exchange rate: for each Series B Preferred B-5 Unit, a number of Common Shares equal to the quotient of (x) the sum of $250 and the Series B Accumulated Preferred Unit Distributions with respect thereto (but only up to an amount equal to the amount distributable for six (6) quarterly distribution periods) divided by (y) $54.26 (as adjusted to reflect any splits, combinations or the like after the date hereof) (the "Series B Common Exchange Rate") (and in the event such option is exercised, such exercise and the Series B Exchange Notice given in connection therewith shall be deemed to apply to all issued and outstanding Series B Preferred Units and the holders thereof). (iii) [INTENTIONALLY OMITTED]. (iv) Series B Preferred Units will be exchangeable with GGPI at any time in whole but not in part, at the option of a holder thereof, for authorized but previously unissued Common Shares at the Series B Common Exchange Rate if such holder concludes, based on results or projected results, that there exists (in the reasonable judgment of such holder as confirmed by an opinion of nationally recognized independent counsel or accounting firm) an imminent and substantial risk that such holder's interest in the Company represents or will represent more than the 19.95% Limit (and in the event such option is exercised, such exercise and the Series B Exchange Notice given in connection therewith shall only apply to all issued and outstanding Series B Preferred Units of the exercising holder). (v) Notwithstanding anything to the contrary set forth in Sections 7(a)(i) through (iv), if a Series B Exchange Notice has been delivered to the Managing Member and GGPI, then the Managing Member or GGPI may at its option, within ten (10) Business Days after receipt of the Series B Exchange Notice, elect to purchase or cause the Company to redeem all or a portion of the outstanding Series B Preferred Units (for which Series B Exchange Notices have been delivered or are deemed to have been delivered) for cash or Common Shares, in each case at the Series B Exchange Price per Series B Preferred Unit as of the date the Series B Exchange Notice is sent. The "Series B Exchange Price" of an outstanding Series B Preferred Unit shall equal: (A) in the event that the holders of the Series B Preferred Units are exchanging such Unit for Common Shares, the product of the number of Common Shares issued in respect of such Preferred Unit multiplied by the Current Per Share Market Price, or (B) in the event that the holders of the Series B Preferred Units are exchanging such Unit for Series G REIT Preferred Shares, the pro rata portion of the Capital Account (as adjusted and booked up or down immediately prior to such purchase or redemption) allocable to that Series B Preferred Unit. If such election is made with respect to fewer than all of the outstanding Series B Preferred Units, the number of Series B Preferred Units held by each holder of Series B Preferred Units to be redeemed or purchased shall equal such holder's pro rata share (based on the percentage of the aggregate number of outstanding Series B Preferred Units that the total number of Series B Preferred Units held by such holder of Series B Preferred Units represents) of the aggregate number of Series B Preferred Units being redeemed. An election by the Managing Member or GGPI under this Section shall be effected by delivering notice thereof to the holders identified in the Series B Exchange Notice. B-6 (vi) If an exchange of all Series B Preferred Units pursuant to Sections 7(a)(i) through (iv) would violate the provisions on ownership limitation of GGPI set forth in its Charter and such ownership limitation is not waived by GGPI, each holder of Series B Preferred Units shall be entitled to exchange that number of Series B Preferred Units which would comply with the provisions on the ownership limitation of GGPI and any Series B Preferred Units not so exchanged (the "Series B Excess Units") shall be redeemed by the Company for cash in an amount determined in the manner set forth in subsection (v). (b) PROCEDURE FOR EXCHANGE AND/OR REDEMPTION OF SERIES B PREFERRED UNITS. (i) Any exchange right shall be exercised pursuant to a written notice of exchange (the "Series B Exchange Notice") delivered to the Managing Member and GGPI by holders of Series B Preferred Units owning at least fifty-one percent (51%) of the outstanding Series B Preferred Units (or by a holder of Series B Preferred Units in the case of an exchange pursuant to Section 7(a)(iv) hereof) by fax and certified mail postage prepaid. The Series B Exchange Notice shall specify the name or names of the holders of Series B Preferred Units that are exercising (or are deemed to have exercised) the exchange rights and the number of Series B Preferred Units as to which such rights are being exercised (or are deemed to have been exercised). The closing of the exchange or redemption pursuant to this Section 7 shall occur within fifteen (15) Business Days following the giving of the Series B Exchange Notice. At the closing, the exchanging holder(s) shall deliver such instruments of transfer and other documents as GGPI or the Managing Member may reasonably request and GGPI and/or the Company shall deliver to the exchanging holder certificates representing the Series G REIT Preferred Shares or Common Shares and/or the cash redemption price. Notwithstanding anything to the contrary contained herein, any and all Series B Preferred Units to be exchanged for Common Shares or Series G REIT Preferred Shares pursuant to this Section shall be so exchanged in a single transaction at one time. As a condition to exchange, each holder of Series B Preferred Units shall make such customary representations as may be reasonably necessary for the Managing Member or GGPI to establish that the issuance of Common Shares or Series G REIT Preferred Shares pursuant to the exchange shall not be required to be registered under the Securities Act of 1933, as amended, or any applicable state securities laws. Any Common Shares or Series G REIT Preferred Shares issued pursuant to this Section shall be delivered as shares which are duly authorized, validly issued, fully paid and nonassessable, free of any pledge, lien, encumbrance or restriction other than those provided in the Charter or the by-laws of GGPI, the Securities Act and relevant state securities or blue sky laws and any Series B Preferred Units as to which the exchange right has been exercised shall be free of any pledge, lien, encumbrance or restriction other than those provided in the Agreement, the Securities Act and relevant state securities or blue sky laws (and the parties shall make representations and warranties to the other to such effect). The certificates representing the Common Shares or Series G REIT Preferred Shares issued upon exchange of the Series B Preferred Units shall, in addition to any legend required by the Charter, contain the following legend: B-7 THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR (B) IF THE CORPORATION HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER OF THE SHARES REPRESENTED HEREBY, OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION, THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS THEREUNDER. Notwithstanding anything to the contrary contained herein and at the request of a majority of the holders of Series B Preferred Shares that have exercised (or are deemed to have exercised) the exchange right pursuant to this Section 7, GGPI shall cause depositary shares to be issued to such holders upon the closing of the exchange in lieu of Series G REIT Preferred Shares, each depositary share (1) to have a face amount of $25 (or such other amount as may be specified by holders of a majority of the Series B Preferred Units prior to any such exchange) and (2) to represent a fraction of a Series G REIT Preferred Share the denominator of which is $1,000 and the numerator of which is the face amount of such depositary share. At the request of holders of a majority of the Series B Preferred Units, the Company shall take such actions as are necessary to provide for such depositary shares to be issued immediately upon exchange of Series B Preferred Units for Series G REIT Preferred Shares. (ii) In the event of an exchange of Series B Preferred Units, an amount equal to the Series B Accumulated Preferred Unit Distributions to the date of exchange on any Series B Preferred Units tendered for exchange shall continue to accrue on such Series B Preferred Units, which remain outstanding following such exchange, with the Managing Member as the holder of such Series B Preferred Units (GGPI having contributed the Series B Preferred Units to the Managing Member). Fractional Series G REIT Preferred Shares or Common Shares are not to be issued upon exchange but, in lieu thereof, the Managing Member will pay a cash adjustment based upon either (i) the fair market value of the Series G REIT Preferred Shares on the day prior to the exchange date as determined in good faith by the Board of Directors of the Managing Member or (ii) the Current Per Share Market Price of the Common Shares as of the date immediately prior to the exchange date, as the case may be. (c) ADJUSTMENT OF EXCHANGE PRICE. In case GGPI shall be a party to any transaction (including, without limitation, a merger, consolidation, statutory share exchange, tender offer for all or substantially all of GGPI's Common Shares or sale of all or substantially all of GGPI's assets), in each case as a result of which the Series G REIT Preferred Shares or Common Shares will be converted into the right to receive shares of capital stock, other securities or other B-8 property (including cash or any combination thereof), each Series B Preferred Unit will thereafter be exchangeable into the kind and amount of shares of capital stock and other securities and property receivable (including cash or any combination thereof) upon the consummation of such transaction by a holder of that number of Series G REIT Preferred Shares or Common Shares or fraction thereof into which one (1) Series B Preferred Unit was exchangeable immediately prior to such transaction. GGPI may not become a party to any such transaction unless the terms thereof are consistent with the foregoing. (d) NO OTHER EXCHANGE RIGHTS. The Series B Preferred Units are not convertible into or redeemable or exchangeable for any other property or securities of GGPI, the Managing Member, the Company or any other Person at the option of any holder of Series B Preferred Units except as expressly provided in this Section 7. 8. REDEMPTION. (a) The Series B Preferred Units shall not be redeemable prior to April 17, 2007. On and after April 17, 2007, the Managing Member may, at its option, cause the Company to redeem the Series B Preferred Units in whole or in part, as set forth herein, subject to the provisions described below, at a redemption price, payable in cash, in an amount equal to $250 per Series B Preferred Unit being redeemed (the "Series B Redemption Price"). Upon any such redemption, the Company shall also pay any accumulated and unpaid distributions owing in respect of the Series B Preferred Units being redeemed. (b) Such Series B Preferred Units as are not held by the Managing Member may be redeemed by the Company on or after April 17, 2007, in whole or in part, at any time or from time to time, upon not less than 30 nor more than 60 days' written notice. If fewer than all of the outstanding Series B Preferred Units that are not held by the Managing Member are to be redeemed, the Series B Preferred Units to be redeemed from each holder (other than the Managing Member) shall be selected pro rata (as nearly as practicable without creating fractional units). Any notice of redemption delivered pursuant to this Section 8 will be mailed by the Company, by certified mail, postage prepaid, not less than 30 nor more than 60 days prior to the date upon which such redemption is to occur (the "Series B Third Party Redemption Date"), addressed to each holder of record of the Series B Preferred Units at their respective addresses as they appear on the records of the Company. No failure to give or defect in such notice shall affect the validity of the proceedings for the redemption of any Series B Preferred Units. In addition to any information required by law, each such notice shall state: (i) the Series B Third Party Redemption Date, (ii) the amount payable per Series B Preferred Unit upon redemption, including the Series B Redemption Price and any amount payable pursuant to Section 8(d) hereof, (iii) the aggregate number of Series B Preferred Units to be redeemed and, if fewer than all of the outstanding Series B Preferred Units are to be redeemed, the number of Series B Preferred Units to be redeemed held by such holder, which number shall equal such holder's pro rata share (based on the percentage of the aggregate number of outstanding Series B Preferred Units not held by the Managing Member that the total number of Series B Preferred Units held by such holder represents and determined as nearly as practicable without creating fractional interests) of the aggregate number of Series B Preferred Units to be redeemed, (iv) the place or places where the instrument of transfer is to be surrendered for payment of the amount payable B-9 upon redemption and (v) that payment of such amount will be made upon presentation and surrender of the instrument of transfer in the form provided by the Managing Member. If the Company gives a notice of redemption in respect of Series B Preferred Units pursuant to this Section 8, then, by 12:00 noon, New York City time, on the Series B Third Party Redemption Date, the Company will deposit irrevocably in trust for the benefit of the holders of Series B Preferred Units being redeemed funds sufficient to pay the applicable amount payable with respect to such Series B Preferred Units and will give irrevocable instructions and authority to pay such amount to the holders of the Series B Preferred Units upon surrender of the Series B Preferred Units and such instruments of transfer by such holders at the place designated in the notice of redemption. Any Series B Preferred Units surrendered shall be free and clear of all Liens and the holders thereof shall make representations and warranties to such effect. (c) Such Series B Preferred Units as may be held by the Managing Member may be redeemed, in whole or in part, at the option of the Managing Member, at any time, upon payment by the Company to the Managing Member of the Series B Redemption Price and any amount payable pursuant to Section 8(d) hereof with respect to such Series B Preferred Units; provided that GGPI shall redeem an equivalent number of Series G REIT Preferred Shares to the extent that there are Series G REIT Preferred Shares issued and outstanding. Such redemption of Series B Preferred Units shall occur substantially concurrently with the redemption by GGPI of such Series G REIT Preferred Shares (such date is herein referred to collectively with the Series B Third Party Redemption Date as the "Series B Redemption Date"). (d) Upon any redemption of Series B Preferred Units, the Company shall pay any accumulated and unpaid distributions for any distribution period, or any other period shorter than a full distribution period, ending on or prior to the Series B Redemption Date. On and after the Series B Redemption Date, distributions will cease to accumulate on the Series B Preferred Units called for redemption, unless the Company defaults in payment therefor. If any date fixed for redemption of Series B Preferred Units is not a Business Day, then payment of the Series B Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Series B Redemption Price is improperly withheld or refused and not paid by the Company, distributions on such Series B Preferred Units will continue to accumulate from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the applicable Series B Redemption Price. Except as provided above, the Company shall make no payment or allowance for unpaid distributions, whether or not in arrears, on Series B Preferred Units called for redemption under this Section 8. (e) If full cumulative distributions on the Series B Preferred Units and any other Parity Units for distribution periods ending on or prior to the date of redemption have not been paid or declared and set apart for payment, the Series B Preferred Units may not be redeemed in part and the Company may not purchase, redeem or otherwise acquire Series B Preferred Units or any Series B Parity Units other than in exchange for Series B Junior Units. B-10 (f) As promptly as practicable after the surrender of any such Series B Preferred Units so redeemed, such Series B Preferred Units shall be exchanged for the amount of cash (without interest thereon) payable therefor pursuant to Section 8. If fewer than all the Series B Preferred Units represented by any physical certificate are redeemed, then the Company shall issue new certificates representing the unredeemed Series B Preferred Units without cost to the holder thereof. 9. OTHER MATTERS. As long as any of the Series B Preferred Units are outstanding, the Company shall comply with the following: (a) DIVIDENDS. The Company shall not make any distributions on the Common Units or any other Series B Junior Units or redeem any such Units unless at the time such distribution or redemption is made, and after giving effect to such distribution or redemption, each of the following conditions shall be met: (i) Consolidated Tangible Net Worth to Reserve Amount. The ratio of the Consolidated Tangible Net Worth to the Reserve Amount is at least 2.0 to 1.0; (ii) Adjusted Consolidated Tangible Net Worth. The ratio of the Adjusted Consolidated Tangible Net Worth to the sum of (i) the Capital Accounts of all Preferred Units plus (ii) the amount of accrued Preferred Unit distributions (whether or not declared or paid) for which allocations have not as yet been reflected in the Capital Accounts is at least 1.0 to 1.0; (iii) Loan to Value Ratio. The ratio of (x) the Consolidated Outstanding Indebtedness to (y) the Consolidated Tangible Net Worth is no greater than 0.75 to 1.0; provided, however, that the foregoing shall not prohibit the Company from making distributions (including distributions in redemption of Common Units) to the holders of Common Units in any calendar year in an aggregate amount no greater than the minimum amount a real estate investment trust would be required to distribute under Section 857(a)(1)(A) of the Code for such calendar year (in order to avoid being taxed as a Subchapter C corporation), if such real estate investment trust owned all of the Common Units and had no income from any source other than the Common Units. (b) AFFILIATE TRANSACTIONS. (i) Except as expressly provided elsewhere in the Agreement, the Company shall not, nor will it permit any of its Subsidiaries to, enter into any transaction (including, without limitation, the purchase or sale of any property or service) with, or make any payment or transfer to, any Affiliate of the Company except in the ordinary course of business and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than the Company or such Subsidiary would obtain in a comparable arms-length transaction (but this paragraph shall not restrict the making of distributions by the Company). B-11 (ii) The Company shall not, and shall not permit any of its Subsidiaries or Investment Affiliates to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect thereof, pursuant to any arrangement relating to Parent Indebtedness, except for Liens arising out of any arrangement referred to on Schedule 3.aa to the Purchase Agreement (which arrangements are hereby approved) but only to the extent that the Parent Indebtedness outstanding at any time relating to such arrangement does not exceed the maximum amount of Parent Indebtedness that may be incurred in connection with such arrangement in accordance with the terms thereof as of April 17, 2002 (but nothing contained herein shall prohibit the extension of such arrangements in accordance with the existing extension options relating thereto). (iii) The Company shall not, and shall not permit any of its Subsidiaries or Investment Affiliates to, incur, assume or permit to exist any Guarantee of Parent Indebtedness by any member of the Consolidated Group or any Investment Affiliate other than Guarantees arising out of any arrangement referred to on Schedule 3.aa to the Purchase Agreement (which arrangements are hereby approved) but only to the extent that the Parent Indebtedness outstanding at any time relating to such arrangement does not exceed the maximum amount of Parent Indebtedness that may be incurred in connection with such arrangement in accordance with the terms thereof as of April 17, 2002 (but nothing contained herein shall prohibit the extension of such arrangements in accordance with the existing extension options relating thereto). (iv) With respect to any JV, (i) the Company shall not, and shall not permit any of its Subsidiaries or Investment Affiliates (other than such JV) to, incur, assume or permit to exist any Guarantee of JV Indebtedness by any member of the Consolidated Group or any Investment Affiliate (other than such JV) other than a Guarantee of no more than the Company's pro rata portion (based on the Company's direct or indirect percentage ownership interest in such JV) of such JV Indebtedness; (ii) the Company shall not, and shall not permit any of its Subsidiaries or Investment Affiliates (other than such JV) to, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect thereof, pursuant to any arrangement relating to JV Indebtedness; (iii) the Company shall not permit such JV to create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect thereof, pursuant to any arrangement relating to Indebtedness of another Entity (other than a member of the Consolidated Group or an Investment Affiliate, in either case that is not another JV); and (iv) the Company shall not permit such JV to create, incur or assume any Guaranty pursuant to any arrangement relating to Indebtedness of another Entity (other than a member of the Consolidated Group or an Investment Affiliate, in either case that is not another JV). B-12 (c) CONSOLIDATED TANGIBLE NET WORTH. The Company shall provide the holders of Series B Preferred Units prompt written notice in the event Consolidated Tangible Net Worth is or is reasonably likely to be less than $600 million as of the last day of any quarter. (d) ASSET TRANSFER. Without the prior written consent of the holders of at least fifty-one percent (51%) of Series B Preferred Units, the Company shall not, and shall not permit any of its Subsidiaries to sell, convey, transfer or otherwise dispose of any Property (i) to any Affiliate of the Company (other than Subsidiaries of the Company) or (ii) to any person that is not an Affiliate of the Company, unless simultaneously therewith, the Company or such Subsidiary acquires an Approved Replacement Property or the following requirements are met: (i) the net income of the Company for the most recently completed twelve months, calculated in accordance with GAAP on a pro forma basis as though such Property had been sold, transferred, conveyed or otherwise disposed of prior to the beginning of such period, would be at least $90 million; and (ii) after giving effect to any such sale, conveyance, transfer or other disposition, the Consolidated Tangible Net Worth would not be less than $1 billion; and (iii) after giving effect to any such sale, conveyance, transfer or other disposition, the interest of no holder of Series B Preferred Units would represent more than 17.5% of the total profits or capital interests in the Company immediately following such sale, conveyance, transfer of other disposition (determined in accordance with Treasury Regulation Section 1.731-2(e)(4)). The Company shall give the holders of the Series B Preferred Units notice of any such sale, transfer or other disposition. Notwithstanding anything to the contrary contained herein, the provisions of this Section 9(d) shall not apply to (i) the conveyance of any Property or any part thereof to any Person in connection with a foreclosure or eminent domain proceeding or deed in lieu thereof, (ii) the sale, exchange or other disposition of all or substantially all of the properties of the Company and its Subsidiaries, (iii) the grant of an easement or right-of-way, (iv) the lease of the Properties in the ordinary course of business, (v) the sale to any department store or retailer of the portion of the property occupied or proposed to be occupied by it (including parking area and other surrounding area), (vi) the mortgage of any Property or (vii) the other sale, conveyance, transfer or other disposal of a portion of a Property or interests therein in the ordinary course of business, and no notice need be given to the holders of the Series B Preferred Units in connection with a transaction described in this sentence. (e) NET OPERATING INCOME. The Company shall provide the holders of Series B Preferred Units prompt written notice in the event aggregate Net Operating Income for any two consecutive calendar quarters from all properties owned in fee simple or ground leased by the Company, a Subsidiary, or an Investment Affiliate is, or is reasonably likely to be, less than 2.1 times the portion of the Consolidated Interest Expense for such two fiscal quarters attributable to debt, as of the last day of any fiscal quarter. B-13 (f) FIXED CHARGE COVERAGE. The Company shall provide the holders of Series B Preferred Units prompt written notice in the event the ratio of (i) aggregate Net Operating Income for any two consecutive calendar quarters from all properties owned in fee simple or ground leased by the Company, a Subsidiary or an Investment Affiliate, to (ii) Fixed Charges determined on a consolidated basis for such two calendar-quarter period, is or is reasonably likely to be, less than 1.8 to 1 at the end of such two calendar-quarter period. (g) EFFECT OF BREACH. In the event of any material breach of any of the covenants set forth in this Section 9, the holders of Series B Preferred Units shall have all rights at law. The occurrence of any matter for which notice is required to be given in accordance with Section 9(c), (e) or (f) shall not in and of itself constitute a breach hereof; however, the failure to provide written notice in accordance with each such section is a breach of this Agreement. B-14 EX-10.2 7 c69409ex10-2.txt 1ST AMENDMENT TO AMENDED/RESTATED OPERATING AGRMT. EXHIBIT 10.2 FIRST AMENDMENT TO SECOND AMENDED AND RESTATED OPERATING AGREEMENT OF GGPLP L.L.C. THIS FIRST AMENDMENT (the "First Amendment") is made and entered into on the 23rd day of April, 2002, by and among the undersigned parties. W I T N E S S E T H: WHEREAS, a Delaware limited liability company known as GGPLP L.L.C. (the "Company") exists pursuant to the Delaware Limited Liability Company Act and that certain Second Amended and Restated Operating Agreement dated April 17, 2002, as amended (the "Restated Agreement"), among GGP Limited Partnership, a Delaware limited partnership (the "Operating Partnership"), GGP American Properties Inc., a Delaware corporation, Caledonian Holding Company, Inc., a Delaware corporation, GSEP 2000 Realty Corp., a Delaware corporation (the "GS 2000 REIT"), GS 2002 Realty Corp., a Delaware corporation ("GS 2002 REIT"), and General Growth Properties, Inc., a Delaware corporation ("GGPI"); WHEREAS, GGPI has granted certain registration rights to the GS 2002 REIT pursuant to that certain Registration Rights Agreement dated April 17, 2002 (the "Registration Rights Agreement"), between the GS 2002 REIT and GGPI; WHEREAS, concurrently herewith, the GS 2002 REIT is contributing an additional $10,000,000 to the capital of the Company and, in exchange therefor, the Company is issuing to the GS 2002 REIT additional Series B Preferred Units (as defined in the Restated Agreement); and WHEREAS, the parties hereto, being all of the members of the Company, desire to amend the Restated Agreement to reflect such capital contribution and issuance of Series B Preferred Units and to set forth certain understandings among them. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: 1. CAPITALIZED TERMS. Capitalized terms used but not defined herein shall have the definitions assigned to such terms in the Restated Agreement, as amended hereby. 2. AMENDMENT TO SECTION 1.1. Section 1.1 of the Restated Agreement is hereby amended by deleting the last sentence of the definition of "Units" and inserting the following in its place and stead: "The number and designation of all Units held by each Member as of April 23, 2002 is set forth opposite such Member's name on Schedule A." 3. AMENDMENT TO SECTION 4.7. Section 4.7 of the Restated Agreement is hereby amended by deleting the number "200,000" after the word "be" and before the period in the seventh and eighth lines thereof and inserting the number "240,000" in its place and stead. 4. AMENDMENT TO SECTION 1 OF SCHEDULE B . Section 1 of Schedule B of the Restated Agreement is hereby amended by deleting the number "200,000" after the word "be" and before the period in the fourth line thereof and inserting the number "240,000" in its place and stead. 5. AMENDMENTS TO SECTIONS 7 AND 8 OF SCHEDULE B. Sections 7 and 8 of Schedule B to the Restated Agreement are hereby amended by deleting the phrase "April 17" each time it appears therein and substituting "April 23" in its place and stead. 6. AMENDMENT TO SIGNATURE PAGE. The first signature page of the Restated Agreement is hereby amended by inserting the phrase "and Section 7 of Schedule B" after the phrase "Section 4.3(g)" and before the comma in the first paragraph thereof. 7. AMENDMENT TO SECTION 4.3(c), ETC. The word "special" is hereby inserted after the word "any" and before the word "right" in clause (iii) of the first paragraph of Section 4.3(c) of the Restated Agreement, clause (c) of the first paragraph of Section 3 of Schedule B to the Restated Agreement, clause (iii) of Section IV(a) of Exhibit B to the Restated Agreement and Section 5.b of the purchase agreements relating to the previous issuances of Series A Preferred Units and/or Series B Preferred Units. The GS 2002 REIT hereby approves the same change to the Certificate of Designations creating the Series G REIT Preferred Shares. 8. ISSUANCE OF ADDITIONAL SERIES B PREFERRED UNITS. Concurrently herewith, the Company is issuing to the GS 2002 REIT 40,000 Series B Preferred Units in exchange for a Capital Contribution by the GS 2002 REIT of $10,000,000. The GS 2002 REIT is hereby admitted as a Member in respect of such Series B Preferred Units, and the GS 2002 REIT hereby agrees to be bound by the provisions of the Restated Agreement, as the same is amended hereby and as the same may be amended from time to time, with respect to such Series B Preferred Units. The reference in the Registration Rights Agreement to "Units" shall be deemed to include the Series B Preferred Units referred to in this Section 7. 9. NEW SCHEDULE A. Schedule A to the Restated Agreement, identifying the Members and the number and type of Units owned by them, is hereby deleted in its entirety and the Schedule A in the form attached hereto is hereby inserted in its place and stead. 10. OTHER PROVISIONS UNAFFECTED. Except as expressly amended hereby, the Restated Agreement shall remain in full force and effect in accordance with its terms. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -2- IN WITNESS WHEREOF, the parties hereto have executed this First Amendment (and GGPI has executed this First Amendment solely for the purpose of binding itself under Section 4.3(g) of the Restated Agreement, as amended hereby, Section 7 of Schedule B to the Restated Agreement, as amended hereby, and the last sentence of Section 7 of this First Amendment) on the day and year first above written. MANAGING MEMBER: GGP LIMITED PARTNERSHIP, a Delaware limited partnership By: General Growth Properties, Inc., a Delaware corporation, its general partner By: /s/ Bernard Freibaum ------------------------------- Name: Bernard Freibaum ------------------------ Title: Executive Vice President ------------------------ 110 North Wacker Drive Chicago, Illinois 60606 Attention: John Bucksbaum OTHER MEMBERS: CALEDONIAN HOLDING COMPANY, INC., a Delaware corporation By: /s/ Bernard Freibaum ------------------------------------ Name: Bernard Freibaum ----------------------------- Title: Vice President ----------------------------- 110 North Wacker Drive Chicago, Illinois 60606 Attention: John Bucksbaum -3- GGP AMERICAN PROPERTIES INC., a Delaware corporation By: /s/ Bernard Freibaum ------------------------------------ Name: Bernard Freibaum ----------------------------- Title: Vice President ----------------------------- 110 North Wacker Drive Chicago, Illinois 60606 Attention: John Bucksbaum GSEP 2000 REALTY CORP. By: /s/ Eric Lane ------------------------------------ Name: Eric Lane ----------------------------- Title: President and CEO ----------------------------- c/o Goldman, Sachs & Co. One New York Plaza New York, New York 10004 Attention: Eric Lane GSEP 2002 REALTY CORP. By: /s/ Eric Lane ------------------------------------ Name: Eric Lane ----------------------------- Title: President and CEO ----------------------------- c/o Goldman, Sachs & Co. One New York Plaza, 40th Floor New York, New York 10004 Attention: Eric Lane -4- GGPI: GENERAL GROWTH PROPERTIES, INC., a Delaware corporation By: /s/ Bernard Freibaum ------------------------------------ Name: Bernard Freibaum ----------------------------- Title: Executive Vice President ----------------------------- 110 North Wacker Drive Chicago, Illinois 60606 Attention: John Bucksbaum -5- SCHEDULE A MEMBERS
Member Common Units Preferred Units ------ ------------ --------------- GGP Limited Partnership 911,000 0 Caledonian Holding Company, Inc. 29,600 0 GGP American Properties Inc. 58,500 0 GSEP 2000 Realty Corp. 0 700,000 Series A Preferred Units GSEP 2002 Realty Corp. 0 240,000 Series B Preferred Units
A-1 D-1 EX-10.3 8 c69409ex10-3.txt REGISTATION RIGHTS AGREEMENT EXHIBIT 10.3 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of April 17, 2002 by and between GENERAL GROWTH PROPERTIES, INC., a Delaware corporation (the "Company"), and GSEP 2002 REALTY CORP., a Delaware corporation (the "Holder"). WHEREAS, the Holder is receiving on the date hereof Preferred Units of limited liability company interest ("Units") in GGPLP L.L.C, a Delaware limited liability company (the "LLC"); WHEREAS, in connection therewith, the Company has agreed to grant to the 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 REIT Preferred Shares (including depositary shares representing fractions of REIT Preferred Shares) or Common Shares (each as defined in the Second Amended and Restated Operating Agreement of the LLC dated as of the date hereof (as amended from time to time, the "Operating Agreement")) of the Company upon exchange of Units (the "Covered Shares") pursuant to the Operating Agreement, then, unless such Covered Shares are issued to the 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 Covered 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 Covered 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 with respect to such Covered Shares. SECTION 3. DEMAND REGISTRATION RIGHTS 3.1 (a) Registration Procedure. Unless such Covered 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 the Holder desires to exercise Registration Rights with respect to the Covered Shares, the Holder shall deliver to the Company a written Registration Rights Agreement 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, and all additional REIT Preferred Shares and Common Shares obtainable upon exchange of Units which the Company elects to register in a registration hereunder, being referred to herein as the "Registrable Securities"). Such notice may be given at any time on or after the date a notice of exchange is delivered by the Holder to the LLC pursuant to the Operating Agreement, but must be given at least fifteen (15) Business Days prior to the date on which the Holder proposes to consummate the sale of Registrable Securities. 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. 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 the Holder) and related prospectus that the Company then 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 that may include only the Covered Shares that are the subject of the Registration Notice or, at the election of the Company, all REIT Preferred Shares and Common Shares obtainable upon exchange of Units (in which event the Company shall be deemed to have satisfied its registration obligation under this Section 3 with respect to such shares and all such shares shall constitute Registrable Securities hereunder and any person receiving such shares upon exchange of Units shall thereupon be a Holder hereunder) (a "New Registration Statement") that complies as to form in all material respects with applicable Commission rules providing for the sale by the Holder of the Registrable Securities, and agrees (subject to Section 3.2 hereof) to use its reasonable 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.) The Holder agrees to provide in writing in a timely manner information regarding the proposed plan of distribution by the 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 reasonable 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 the sale of all of the Registrable Securities registered under the Registration Statement is consummated or (ii) the date on which all of the Registrable Securities are eligible for -2- Registration Rights Agreement 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"). 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 the Holder, include all of Holder's Covered Shares or any portion thereof in any Shelf Registration Statement. In connection with any Registration Statement utilized by the Company to satisfy Holder's Registration Rights pursuant to this Section 3, Holder agrees that it will respond in writing 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 the 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, the 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 by the Holder of a Registration Right shall be with respect to a minimum of the lesser of (i) an amount of Common Shares or depositary shares of REIT Preferred Shares having a sale price of at least $350,000 or (ii) the total number of Covered Shares held by the Holder at such time, in each case plus the number of Covered Shares that may be issued upon exchange of Units by Holder. The right of the Holder to deliver a Registration Notice commences upon the first date the Holder is permitted to exchange Units pursuant to the Operating Agreement. The right of the Holder to deliver a Registration Notice shall expire on the date on which all of the Covered Shares held by the Holder or issuable upon redemption of Units held by the Holder 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 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 the Holder. 3.2 Suspension of Offering. Upon any notice by the Company, either before or after the 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 -3- Registration Rights Agreement 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 (a) it will immediately discontinue offers and sales of the Registrable Securities under the Registration Statement, until Holder receives copies of a supplemented 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 or (b) its rights to require the Company to take action with respect to the registration or sale of any Registrable Securities pursuant to the Registration Statement shall be suspended for the period described in the Materiality Notice; provided, that the Company may delay, suspend or withdraw the Registration Statement for such reason for no more than 90 days after delivery of the Materiality Notice at any one time and only once in any 180 day 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 Qualification. The Company agrees to use its reasonable 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 Actions by the Company. Whenever the Company is required to effect the registration of Covered Shares under the 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 or incorporate by reference 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 -4- Registration Rights Agreement blue sky laws of any jurisdiction, the Company shall (i) provide Holder with an adequate and appropriate opportunity to provide written comments with respect to 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 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 Covered Shares covered by such Registration Statement, in each case until such time as all of such Covered 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 Statement, such period need not extend beyond six months after the effective date of the Registration Statement; and provided further, that with respect to any Shelf Registration Statement, 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 Covered 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 exchange shares 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), and other documents, as the Holder and such underwriter may reasonably request in order to facilitate the public sale or other disposition of the Covered Shares owned by the Holder; (d) promptly notify the 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 Statement 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 the qualification of any Covered Shares for sale under -5- Registration Rights Agreement 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 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 exist 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 3.4(e), 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 Covered 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 the 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 3.4(e), the Company shall use its reasonable best efforts to remedy such matters; (e) make reasonably available for inspection by the 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 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; (f) 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 -6- Registration Rights Agreement 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 the Holder, and furnish to the Holder participating in the offering and to each underwriter, if any, a copy of such opinion and letter addressed to the underwriter; (g) 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 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); (h) use its reasonable best efforts to cause all such Covered 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 Covered 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; (i) furnish to the 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); (j) if requested by the sole or lead managing underwriter or the Holder of Covered Shares, incorporate in a prospectus supplement or post-effective amendment such information concerning the Holder, the underwriters or the intended method of distribution as the sole or lead managing underwriter or the 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 Covered Shares being sold to the underwriters, the purchase price being paid therefor by such underwriters and any other terms of the underwritten offering of the Covered Shares to be sold in such offering; and (k) use its reasonable best efforts to take all other steps necessary to expedite or facilitate the registration and disposition of the Covered 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 the Holder and any underwriters in connection with any filings required by the National Association of Securities Dealers, Inc. (the "NASD"); providing appropriate certificates not bearing -7- Registration Rights Agreement restrictive legends representing the Covered Shares; and providing a CUSIP number and maintaining a transfer agent and registrar for the Covered Shares. 3.5 Indemnification by the Company. The Company agrees to indemnify and hold harmless the Holder and each person, if any, who controls the 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 and damage 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 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 and damage 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 expenses reasonably incurred, as incurred (including reasonable fees and disbursements of counsel), 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 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 -8- Registration Rights Agreement the Holder expressly for use in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto) or (B) the 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 the Holder. The Holder (and each permitted assignee of the Holder, on a several basis) agrees to indemnify and hold harmless the Company, and each of its trustees/directors and officers (including each trustee/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 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 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; -9- Registration Rights Agreement provided, however, that the indemnity provided pursuant to this Section 3.6 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 the Holder expressly for use in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto) or (B) the 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. Notwithstanding the provisions of this Section 3.6, the Holder and any permitted assignee shall not be required to indemnify the Company, its officers, trustees/directors or control persons with respect to any amount in excess of the amount of the gross proceeds to the Holder or such permitted assignee, as the case may be, from sales of the Registrable Securities of the 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 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 -10- Registration Rights Agreement 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 the 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 the Holder, (i) in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the 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 the 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 gross 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 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, the Holder shall not be required to contribute any amount in excess of the amount of the gross proceeds to the Holder from sales of the Registrable Securities of the 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 the Holder within the -11- Registration Rights Agreement meaning of Section 15 of the Act shall have the same rights to contribution as the Holder, and each trustee/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. The Holder shall be responsible for the payment of any brokerage and sales commissions, fees and disbursements of the Holder's counsel, accountants and other advisors and any transfer taxes relating to the sale or disposition of the Registrable Securities by the Holder pursuant to Section 3 or otherwise. SECTION 5. RULE 144 COMPLIANCE The Company covenants that it will use its reasonable 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 the Holder to sell Registrable Securities pursuant to Rule 144 under the Act. In connection with any sale, transfer or other disposition by the Holder of any Registrable Securities pursuant to Rule 144 under the Act, the Company shall cooperate with the 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 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 among 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 the 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 -12- Registration Rights Agreement 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 the Holder without the written consent of the Company; provided, however, that the Holder may assign its rights and obligations hereunder, following at least ten (10) days prior written notice to the Company, (i) to Goldman Sachs 2002 Exchange Place Fund, L.P. ("Holder's Parent") or to the direct equity owners (e.g., partners or members) or beneficiaries of Holder's Parent in connection with the transfer of the Holder's Units to Holder's Parent or to the equity owners or beneficiaries of Holder's Parent (provided such transfer is made in accordance with the Operating Agreement and in compliance with applicable federal and state securities laws) and (ii) to a permitted transferee in connection with a transfer of the Holder's Units in accordance with the terms of the Operating Agreement, if, in the case of (i) and (ii) above, such persons agree in writing to be bound by all of the provisions hereof and any of such assignees shall be deemed to be a Holder hereunder. 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 Burden and Benefit. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, personal and legal representatives, successors and, subject to Section 6.3 above, assigns. 6.5 Notices. All notices called for under this Agreement shall be in writing and shall be deemed to have been delivered (i) on the date personally delivered or (ii) one Business Day after being properly sent by recognized overnight courier, addressed to the respective parties at their address set forth in this Agreement or (iii) on the day (or if not a Business Day on the first Business Day thereafter) 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 on Schedule A. Either party hereto may designate a different address by providing written notice of such new address to the other party hereto as provided above. 6.6 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 -13- Registration Rights Agreement breach of this Agreement in any court of the United States or any State thereof having jurisdiction. 6.7 Governing Law. This Agreement shall be governed by the laws of the State of New York, without regard, to the fullest extent permitted by law, to the conflict of laws rules thereof which might result in the application of the laws of any other jurisdiction. 6.8 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. 6.9 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. 6.10 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. 6.11 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. -14- 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. GENERAL GROWTH PROPERTIES, INC. By: /s/ Bernard Freibaum ----------------------------------- Name: Bernard Freibaum Title: Executive Vice President GSEP 2002 REALTY CORP. By: /s/ Eric Lane ----------------------------------- Name: Eric Lane Title: President and CEO [Signature Page to Registration Rights Agreement] SCHEDULE A General Growth Properties, Inc 110 W. Wacker Drive Chicago, Illinois 60606. Attention: John Bucksbaum With a copy to: Neal, Gerber & Eisenberg Two North LaSalle Street Chicago, Illinois 60602 Attention: Marshall E. Eisenberg, Esq. GSEP 2002 Realty Corp. c/o Goldman, Sachs & Co. One New York Plaza, 40th Floor New York, New York 10004 Attention: Eric Lane With a copy to: Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, NY 10004 Attention: Lawrence Barshay, Esq. -----END PRIVACY-ENHANCED MESSAGE-----