Exhibit 10.8

 

EXECUTION COPY

 

 

 

WARRANT AGREEMENT

 

BETWEEN

 

THE HOWARD HUGHES CORPORATION

 

AND

 

MELLON INVESTOR SERVICES LLC,

 

as WARRANT AGENT

 

 

Dated as of November         , 2010

 

 

 

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TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

1.

DEFINITIONS.

 

2

 

 

 

 

2.

ORIGINAL ISSUE OF WARRANTS.

 

8

 

 

 

 

 

2.1

Form of Warrant Certificates

 

8

 

2.2

Execution and Delivery of Warrant Certificates; Vesting.

 

8

 

 

 

 

 

3.

EXERCISE PRICE; EXERCISE OF WARRANTS AND EXPIRATION OF WARRANTS.

 

9

 

 

 

 

 

3.1

Exercise Price

 

9

 

3.2

Exercise of Warrants

 

9

 

3.3

Expiration of Warrants

 

10

 

3.4

Method of Exercise; Settlement of Warrant

 

10

 

3.5

Transferability of Warrants and Common Stock

 

12

 

3.6

Compliance with Law

 

12

 

 

 

 

 

4.

REGISTRATION RIGHTS.

 

14

 

 

 

 

 

4.1

Rule 144 Reporting

 

14

 

4.2

Obtaining Exchange Listing

 

14

 

4.3

The Warrant Agent

 

14

 

 

 

 

 

5.

ADJUSTMENTS AND OTHER RIGHTS.

 

14

 

 

 

 

 

5.1

Stock Dividend; Subdivision or Combination of Common Stock

 

14

 

5.2

Other Dividends and Distributions

 

15

 

5.3

Rights Offerings

 

16

 

5.4

Issuer Tender or Exchange Offers

 

16

 

5.5

Reorganization, Reclassification, Consolidation, Merger or Sale

 

17

 

5.6

Other Adjustments

 

18

 

5.7

Notice of Adjustment

 

18

 

 

 

 

 

6.

CHANGE OF CONTROL.

 

18

 

 

 

 

 

6.1

Redemption in Connection with a Change of Control Event

 

18

 

6.2

Public Stock Merger

 

19

 

6.3

Mixed Consideration Merger

 

19

 

6.4

The Warrant Agent

 

20

 

 

 

 

 

7.

WARRANT TRANSFER BOOKS.

 

20

 

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8.

WARRANT HOLDERS.

 

21

 

 

 

 

 

8.1

No Voting Rights

 

21

 

8.2

Right of Action

 

21

 

 

 

 

 

9.

WARRANT AGENT

 

21

 

 

 

 

 

9.1

Nature of Duties and Responsibilities Assumed

 

21

 

9.2

Compensation and Reimbursement

 

23

 

9.3

Warrant Agent May Hold Company Securities

 

24

 

9.4

Resignation and Removal; Appointment of Successor

 

24

 

9.5

Damages

 

25

 

9.6

Force Majeure

 

25

 

9.7

Survival

 

25

 

 

 

 

 

10.

REPRESENTATIONS AND WARRANTIES.

 

25

 

 

 

 

 

10.1

Representations and Warranties of the Company

 

25

 

 

 

 

 

11.

COVENANTS.

 

25

 

 

 

 

 

11.1

Reservation of Common Stock for Issuance on Exercise of Warrants

 

25

 

11.2

Notice of Distributions

 

26

 

 

 

 

 

12.

MISCELLANEOUS.

 

26

 

 

 

 

 

12.1

Money and Other Property Deposited with the Warrant Agent

 

26

 

12.2

Payment of Taxes

 

26

 

12.3

Surrender of Certificates

 

26

 

12.4

Mutilated, Destroyed, Lost and Stolen Warrant Certificates

 

27

 

12.5

Removal of Legends

 

27

 

12.6

Notices

 

28

 

12.7

Applicable Law; Jurisdiction

 

29

 

12.8

Persons Benefiting

 

29

 

12.9

Counterparts

 

29

 

12.10

Amendments

 

29

 

12.11

Headings

 

30

 

12.12

Entire Agreement

 

30

 

12.13

Specific Performance

 

30

 

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List of Exhibits

 

EXHIBIT A-1 — Form of Series A-1 Warrant Certificate

 

EXHIBIT A-2 — Form of Series A-2 Warrant Certificate

 

EXHIBIT B — Form of Assignment

 

EXHIBIT C — Option Pricing Assumptions / Methodology

 

SCHEDULE A — Allocations of Warrants to Initial Investors

 

SCHEDULE B — Warrant Agent Compensation

 

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WARRANT AGREEMENT

 

WARRANT AGREEMENT, dated as of November       , 2010 (together with the
Warrants, this “Agreement”), by and between The Howard Hughes Corporation, a
Delaware corporation (the “Company”), and Mellon Investor Services LLC, a New
Jersey limited liability company (together with its successors and assigns, the
“Warrant Agent”).

 

WITNESSETH:

 

WHEREAS, the Company is issuing and delivering warrant certificates (the
“Warrant Certificates”) evidencing Warrants to purchase up to an aggregate of
8,000,000 shares of its Common Stock, subject to adjustment, including
(a) Series A-1 Warrants to purchase 3,833,333 shares of its Common Stock,
subject to adjustment, in connection with that certain Amended and Restated
Cornerstone Investment Agreement, effective as of March 31, 2010, by and between
Brookfield Retail Holdings LLC (formerly known as REP Investments LLC) and
General Growth Properties, Inc. (“GGP”) (as amended from time to time, the
“Investment Agreement”), (b) Series A-2 Warrants to purchase 1,916,667 shares of
its Common Stock, subject to adjustment, in connection with that certain Amended
and Restated Stock Purchase Agreement, effective as of March 31, 2010, by and
between each of The Fairholme Fund and The Fairholme Focused Income Fund (each a
“Fairholme Purchaser”, and collectively, the “Fairholme Purchasers”) and GGP (as
amended from time to time, the “Fairholme Stock Purchase Agreement”),
(c) Series A-2 Warrants to purchase 1,916,667 shares of its Common Stock in
connection with that certain Amended and Restated Stock Purchase Agreement,
effective as of March 31, 2010, by and between each of Pershing Square, L.P.,
Pershing Square II, L.P., Pershing Square International, Ltd. and Pershing
Square International V, Ltd. (each, a “Pershing Square Purchaser”, collectively,
the “Pershing Square Purchasers”) and GGP (as amended from time to time, the
“Pershing Square Stock Purchase Agreement” and, together with the Fairholme
Stock Purchase Agreement, the “Stock Purchase Agreements”) and (d) Series A-1
Warrants to purchase 333,333 shares of its Common Stock in connection with the
Blackstone Purchase Agreements (as defined herein) and those certain
designations, dated as of the date hereof, by and among the Company and each of
Brookfield Retail Holdings LLC (formerly known as REP Investments LLC), the
Fairholme Purchasers and the Pershing Square Purchasers (the “Blackstone
Designations”) pursuant to each of which each Purchaser (as defined herein) has
agreed to make an equity investment in the Company upon the terms and subject to
the conditions specified therein; and

 

WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company,
and the Warrant Agent is willing so to act, in connection with the issuance,
transfer, exchange, replacement and exercise of the Warrant Certificates and
other matters as provided herein;

 

NOW, THEREFORE, in consideration of the foregoing and for the purpose of
defining the terms and provisions of the Warrants and the respective rights and
obligations thereunder of the Company and the record holders of the Warrants,
the Company and the Warrant Agent each hereby agree as follows:

 

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1.                                      DEFINITIONS.

 

As used in this Agreement, the following terms shall have the following
meanings:

 

Affiliate:  of any particular Person means any other Person controlling,
controlled by or under common control with such particular Person.  For the
purposes of this definition, (i) “control” means the possession, directly or
indirectly, of the power to direct the management and policies of a Person
whether through the ownership of voting securities, contract or otherwise and
(ii) none of the Initial Investors or their Affiliates shall be deemed to
“control” the Company or any of the Company’s controlled Affiliates prior to
such Initial Investor or Affiliate, as applicable, acquiring or becoming part of
the acquiring group for purposes of clauses (i) or (ii) or combining with the
Company for purposes of clause (iii) of the definition of Change of Control
Event.

 

Announcement Date:  the meaning set forth in Section 5.4.

 

Blackstone Designations:  the meaning set forth in the recitals hereto.

 

Blackstone Investors:  means all members, collectively, of the Blackstone
Purchaser Group.

 

Blackstone Purchase Agreements:  means, collectively, the Brookfield Purchase
Agreement, the Fairholme Purchase Agreement and the Pershing Purchase Agreement.

 

Blackstone Purchaser:  means Blackstone Real Estate Partners VI L.P.

 

Blackstone Purchaser Group:  means the Blackstone Purchaser, Blackstone Real
Estate Partners (AIV) VI L.P., Blackstone Real Estate Partners VI.F L.P.,
Blackstone Real Estate Partners VI.TE.1 L.P., Blackstone Real Estate Partners
VI.TE.2 L.P., Blackstone Real Estate Holdings VI L.P. and Blackstone GGP
Principal Transaction Partners L.P. and their respective investment managers and
their respective “controlled Affiliates”.  For such purpose, one or more
investment funds under common investment management shall constitute “controlled
Affiliates” of their investment manager.

 

Board:  the board of directors of the Company.

 

Brookfield Consortium Member:  as defined in the Investment Agreement.

 

Brookfield Investors:  means, collectively, the Brookfield Consortium Members.

 

Brookfield Purchase Agreement:  means that certain Purchase Agreement, dated as
of August 2, 2010, by and between REP Investments LLC and the Blackstone
Purchaser.

 

Brookfield Purchaser:  the Purchaser defined in the Investment Agreement.

 

Business Day:  any day that is not a Saturday, Sunday, or a day on which banks
in the states of New York or New Jersey are required or permitted to be closed.

 

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Cash Consideration Ratio:  means, in connection with a Mixed Consideration
Merger, a fraction, (i) the numerator of which shall be the aggregate Fair
Market Value of cash and all other property (other than Public Stock) that
holders of Common Stock will receive for each such share of Common Stock in
connection with such Mixed Consideration Merger, and (ii) the denominator of
which shall be the Fair Market Value of all of the consideration holders of
Common Stock will receive for each such share of Common Stock in connection with
such Mixed Consideration Merger; provided, that, if the holders of Common Stock
have the opportunity to elect the consideration to be received in such Mixed
Consideration Merger, the Cash Consideration Ratio shall be determined by
reference to the weighted average of the types and amounts of consideration
received in such transaction in respect of shares of Common Stock held by
holders who are not affiliated with the Company or any entity acquiring the
Company.

 

Cash Redemption Value:  the meaning set forth in Section 6.1.

 

Certificate of Incorporation:  the Company’s certificate of incorporation (or
equivalent organizational document), as amended from time to time.

 

Change of Control Event:  an event or series of events, by which (i) any Person
or group of Persons shall have acquired beneficial ownership (within the meaning
of Rule 13d-3(a) promulgated by the SEC under the Exchange Act), directly or
indirectly, of fifty percent (50%) or more (by voting power) of the outstanding
shares of Voting Securities, (ii) all or substantially all of the consolidated
assets of the Company are sold, leased (other than leases to tenants in the
ordinary course of business), exchanged or transferred to any Person or group of
Persons, (iii) the Company is consolidated, merged, amalgamated, reorganized or
otherwise enters into a similar transaction in which it is combined with another
Person (in each case, other than pursuant to the Plan), unless shares of Common
Stock held by holders who are not affiliated with the Company or any entity
acquiring the Company remain unchanged or are exchanged for, converted into or
constitute solely (except to the extent of applicable appraisal rights or cash
received in lieu of fractional shares) the right to receive as consideration
Public Stock and the Persons who beneficially own the outstanding Voting
Securities of the Company immediately before consummation of the transaction
beneficially own a majority (by voting power) of the outstanding Voting
Securities of the combined or surviving entity or new parent immediately
thereafter, (iv) the Company engages in a reclassification or similar
transaction pursuant to which shares of Common Stock are converted into the
right to receive anything other than Public Stock, or (v) the holders of capital
stock of the Company have approved any plan or proposal for the liquidation or
dissolution of the Company; provided that with respect to an election by any
Holder pursuant to Section 6.1, no event or series of events shall constitute a
Change of Control Event if (x) such event or series of events is not approved by
a majority of the disinterested directors of the Company and (y) such Holder or
any of its Affiliates is the acquiror or part of the acquiring group for
purposes of clause (i) or (ii) above or is combined with the Company for
purposes of clause (iii) above.  For purposes of this definition, a “group”
means a group of Persons within the meaning of Rule 13d-5 under the Exchange
Act.

 

Closing Sale Price:  as of any date, the last reported per share sales price of
a share of Common Stock or the applicable security on such date (or, if no last
reported sale price is reported, the average of the bid and ask prices or, if
more than one in either case, the average of the average bid and the average ask
prices on such date) as reported on the New York Stock

 

3

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Exchange, or if the Common Stock or such other security is not listed on the New
York Stock Exchange, as reported by the principal U.S. national or regional
securities exchange or quotation system on which the Common Stock or such other
security is then listed or quoted; provided, however, that in the absence of
such listing or quotations, the Closing Sale Price shall be determined by an
Independent Financial Expert appointed for such purpose, using one or more
valuation methods that the Independent Financial Expert in its best professional
judgment determines to be most appropriate, assuming such Common Stock or
securities are fully distributed and are to be sold in an arm’s-length
transaction and there was no compulsion on the part of any party to such sale to
buy or sell and taking into account all relevant factors.

 

Code:  the U.S. Internal Revenue Code of 1986, as amended.

 

Common Stock:  the common stock, par value $0.01, of the Company.

 

Company:  the meaning set forth in the preamble to this Agreement and its
successors and assigns.

 

Distribution:  the meaning set forth in Section 5.2.

 

Exchange Act:  the U.S. Securities Exchange Act of 1934, as amended.

 

Exercise Date:  the meaning set forth in Section 3.4.

 

Exercise Price:  means $50.00 per share, subject to all adjustments made on or
prior to the date of exercise thereof as herein provided.

 

Expiration Date:  the meaning set forth in Section 3.3.

 

Fairholme Investors:  all members, collectively, of the Fairholme Purchaser
Group.

 

Fairholme Purchase Agreement:  means that certain Purchase Agreement, dated as
of August 2, 2010, by and between the Fairholme Purchasers and the Blackstone
Purchaser.

 

Fairholme Purchasers:  the meaning set forth in the recitals hereto.

 

Fairholme Purchaser Group:  the Purchaser Group defined in the Fairholme Stock
Purchase Agreement.

 

Fairholme Stock Purchase Agreement:  the meaning set forth in the recitals
hereto.

 

Fair Market Value:

 

(i)            in the case of shares or securities, the average of the daily
volume weighted average prices per share of such shares or securities for the
ten consecutive trading days immediately preceding the day as of which Fair
Market Value is being determined, as reported on the New York Stock Exchange, or
if such shares or securities are not listed on the New York Stock Exchange, as
reported by the principal U.S. national or regional securities exchange or
quotation system on which such shares or securities are then listed or quoted;
provided, however,

 

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if (x) such shares or securities are not listed or quoted on the New York Stock
Exchange or any U.S. national or regional securities exchange or quotations
system or (y) a transaction impacting such shares or securities makes it unjust
or inequitable to value such shares or securities in the manner provided above
as reasonably determined in good faith by the Board, then the Fair Market Value
of such securities shall be the fair market value per share or unit of such
shares or securities as determined by an Independent Financial Expert appointed
for such purpose, using one or more valuation methods that the Independent
Financial Expert in its best professional judgment determines to be most
appropriate, assuming such shares or other securities are fully distributed and
are to be sold in an arm’s-length transaction and there was no compulsion on the
part of any party to such sale to buy or sell and taking into account all
relevant factors.

 

(ii)           in the case of cash, the amount thereof.

 

(iii)          in the case of other property, the Fair Market Value of such
property shall be the fair market value thereof as determined by an Independent
Financial Expert appointed for such purpose, using one or more valuation methods
that the Independent Financial Expert in its best professional judgment
determines to be most appropriate, assuming such property is to be sold in an
arm’s-length transaction and there was no compulsion on the part of any party to
such sale to buy or sell and taking into account all relevant factors.

 

Full Physical Settlement:  the settlement method with respect to Series A-1
Warrants pursuant to which an exercising Holder shall be entitled to receive
from the Company, for each Warrant exercised, a number of shares of Common Stock
equal to the Full Physical Share Amount in exchange for payment by the Holder of
the aggregate Exercise Price applicable to such Warrant.

 

Full Physical Share Amount:  the meaning set forth in Section 3.4.

 

Holders:  from time to time, the holders of the Warrants and, unless otherwise
provided or indicated herein, the holders of the Warrant Securities, solely in
their capacity as such.

 

Independent Financial Expert:  a nationally recognized financial advisory firm
mutually agreed by the Company and the Majority Holders. If the Company and the
Majority Holders are unable to agree on an Independent Financial Expert for a
valuation contemplated herein, each of them shall choose promptly a separate
Independent Financial Expert and these two Independent Financial Experts shall
choose promptly a third Independent Financial Expert to conduct such valuation.

 

Initial Investor:  means, as applicable, (i) the Fairholme Purchasers,
(ii) Pershing Square Capital Management, L.P. and the Pershing Square
Purchasers, (iii) the Brookfield Purchaser; provided that, solely for the
purposes of this definition, in the event the Brookfield Purchaser is not in
existence, the Brookfield Purchaser shall be Brookfield Asset Management Inc. or
an Affiliate designated by Brookfield Asset Management Inc and (iv) the
Blackstone Purchaser.

 

Investment Agreement:  the meaning set forth in the recitals hereto.

 

Majority Holders:  means at any time Holders of a majority in number of the
outstanding Warrants not held by the Company or any of the Company’s Affiliates.

 

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Mixed Consideration Merger:  means an event described in clause (iii) of the
definition of Change of Control Event pursuant to which all of the outstanding
shares of Common Stock held by holders who are not affiliated with the Company
or any entity acquiring the Company are exchanged for, converted into or
constitute solely (except to the extent of applicable appraisal rights or cash
received in lieu of fractional shares) the right to receive as consideration a
combination of (i) Public Stock and (ii) other securities, cash or other
property.

 

Net Share Amount:  the meaning set forth in Section 3.4.

 

Net Share Settlement:  the settlement method for Series A-1 Warrants, if elected
in accordance with Section 3.4, and for Series A-2 Warrants pursuant to which an
exercising Holder shall be entitled to receive from the Company, for each
Warrant exercised, a number of shares of Common Stock equal to the Net Share
Amount without any payment therefor.

 

Organic Change:  the meaning set forth in Section 5.5.

 

Pershing Investors:  all members, collectively, of the Pershing Purchaser Group.

 

Pershing Square Purchasers:  the meaning set forth in the recitals hereto.

 

Pershing Purchase Agreement:  means that certain Purchase Agreement, dated as of
August 2, 2010, by and between the Pershing Purchasers and the Blackstone
Purchaser.

 

Pershing Purchaser Group:  the Purchaser Group defined in the Pershing Stock
Purchase Agreement.

 

Pershing Square Stock Purchase Agreement:  the meaning set forth in the recitals
hereto.

 

Person:  any individual, corporation, partnership, joint venture, association,
joint stock company, limited liability company, limited liability partnership,
trust, unincorporated organization or government or any agency or political
subdivision thereof.

 

Plan:  the plan of reorganization as contemplated by the Plan Term Sheet
attached as Exhibit A to the Investment Agreement and Stock Purchase Agreements.

 

Preliminary Change of Control Event:  with respect to the Company, the first
public announcement that describes the economic terms of a transaction that
results in a Change of Control Event.

 

Premium Per Post-Tender Share:  the meaning set forth in Section 5.4.

 

Public Stock:  means common stock listed on a recognized U.S. national
securities exchange with an aggregate market capitalization (held by
non-Affiliates of the issuer) in excess of $1 billion in Fair Market Value.

 

Purchaser Group:  (a) means with respect to Brookfield Purchaser, the Brookfield
Consortium Members, (b) with respect to Fairholme Purchasers, the Fairholme
Purchaser Group,

 

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(c) with respect to Pershing Square Purchasers, the Pershing Purchaser Group and
(d) with respect to the Blackstone Purchaser, the Blackstone Purchaser Group.

 

Public Stock Merger:  means an event described in clause (iii) of the definition
of Change of Control Event pursuant to which all of the outstanding shares of
Common Stock held by holders who are not affiliated with the Company or any
entity acquiring the Company are exchanged for, converted into or constitute
solely (except to the extent of applicable appraisal rights or cash received in
lieu of fractional shares) the right to receive as consideration Public Stock.

 

Purchaser:  means each of the Blackstone Purchaser, the Brookfield Purchaser,
the Fairholme Purchasers and the Pershing Square Purchasers.

 

Registration Rights Agreements:   means those certain registration rights
agreements, dated as of the date hereof, between the Company, and separately,
each of (i) the Pershing Investors and Blackstone Real Estate Partners VI L.P.,
a Delaware limited partnership, Blackstone Real Estate Partners (AIV) VI L.P., a
Delaware limited partnership, Blackstone Real Estate Partners VI.F L.P., a
Delaware limited partnership, Blackstone Real Estate Partners VI.TE.1 L.P., a
Delaware limited partnership, Blackstone Real Estate Partners VI.TE.2 L.P., a
Delaware limited partnership, Blackstone Real Estate Holdings VI L.P., a
Delaware limited partnership, and Blackstone GGP Principal Transaction Partners
L.P., a Delaware limited partnership, (ii) the Fairholme Investors and
(iii) Brookfield Retail Holdings LLC (formerly known as REP Investments LLC), a
Delaware limited liability company, Brookfield Retail Holdings II LLC, a
Delaware limited liability company, Brookfield Retail Holdings III LLC, a
Delaware limited liability company, Brookfield Retail Holdings IV-A LLC, a
Delaware limited liability company, Brookfield Retail Holdings IV-D LLC, a
Delaware limited liability company, Brookfield Retail Holdings V LP, a Delaware
limited partnership, and Brookfield US Retail Holdings LLC, a Delaware limited
liability company.

 

Rule 144:  means such rule promulgated under the Securities Act (or any
successor provision), as the same shall be amended from time to time.

 

Sale:  the meaning set forth in Section 3.6(a) of this Agreement.

 

SEC:  the U.S. Securities and Exchange Commission.

 

Securities Act:  the U.S. Securities Act of 1933, as amended.

 

Securities Exchange Act:  the U.S. Securities Exchange Act of 1934, as amended.

 

Sell: the meaning set forth in Section 3.6(a) of this Agreement.

 

Series A-1 Warrants:  the Series A-1 Warrants issued by the Company from time to
time pursuant to this Agreement.

 

Series A-2 Warrants:  the Series A-2 Warrants issued by the Company from time to
time pursuant to this Agreement.

 

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Settlement Date:  means, in respect of a Warrant that is exercised hereunder, a
reasonable time, not to exceed three Business Days, immediately following the
Exercise Date for such Warrant.

 

Stock Consideration Ratio:  means, in connection with a Mixed Consideration
Merger, 1 — the Cash Consideration Ratio for such Mixed Consideration Merger.

 

Stock Dividend:  the meaning set forth in Section 5.1.

 

Stock Purchase Agreements:  the meaning set forth in the recitals to this
Agreement.

 

Supermajority Holders:  means at any time Holders of two-thirds or greater in
number of the outstanding Warrants not held by the Company or any of the
Company’s Affiliates.

 

Underlying Common Stock:  the shares of Common Stock issuable or issued upon the
exercise of the Warrants.

 

Voting Securities:  means any securities of the Company, surviving entity or
parent, as applicable, having power generally to vote in the election of
directors of the Company, surviving entity or parent, as applicable.

 

Warrant Agent:  the meaning set forth in the preamble to this Agreement.

 

Warrant Certificates:  the meaning set forth in the recitals to this Agreement.

 

Warrant Registrar:  the meaning set forth in Article 7.

 

Warrant Securities:   the meaning set forth in Section 3.6(a).

 

Warrants:  the Series A-1 Warrants and the Series A-2 Warrants.

 

2.                                      ORIGINAL ISSUE OF WARRANTS.

 

2.1           Form of Warrant Certificates.  The Warrant Certificates shall be
in registered form only and substantially in the form attached hereto as
Exhibit A-1, with respect to Series A-1 Warrants, and Exhibit A-2, with respect
to Series A-2 Warrants, with such appropriate instructions, omissions,
substitutions and other variations as are required or permitted by this
Agreement (but which do not affect the rights, duties or responsibilities of the
Warrant Agent) shall be dated the date on which countersigned by the Warrant
Agent and may have such legends and endorsements typed, stamped, printed,
lithographed or engraved thereon as required by the Certificate of Incorporation
or as may be required to comply with any law or with any rule or regulation
pursuant thereto or with any rule or regulation of any securities exchange on
which the Warrants may be listed.

 

2.2           Execution and Delivery of Warrant Certificates; Vesting.

 

(a)           Simultaneously with the execution of this Agreement, Warrant
Certificates evidencing such total number of Warrants to be delivered to each
Initial Investor as set forth on

 

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Schedule A shall be executed by the Company and delivered to the Warrant Agent
for countersignature, by manual or facsimile signature, and the Warrant Agent
shall thereupon countersign and deliver such Warrant Certificates to each
Initial Investor (or their designee(s) in accordance with the last sentence of
this Section 2.2(a)).  The Warrant Certificates shall be executed on behalf of
the Company by its President or a Vice President, either manually or by
facsimile signature printed thereon.  Each Initial Investor, in its sole
discretion, may designate that some or all of its Warrants and Warrant
Certificates be issued in the name of, and delivered to, one or more of the
members of its Purchaser Group.

 

(b)           From time to time, the Warrant Agent shall countersign and deliver
Warrant Certificates in required denominations to Persons entitled thereto in
connection with any transfer or exchange permitted under this Agreement. The
Warrant Agent is hereby irrevocably (but subject to Article 9) authorized to
countersign and deliver Warrant Certificates as required by Section 2.2,
Section 3.4, Article 7, and Section 12.4 or otherwise as provided herein. The
Warrant Certificates shall be executed on behalf of the Company by its President
or a Vice President, either manually or by facsimile signature printed thereon.
The Warrant Certificates shall be countersigned by the Warrant Agent, either
manually or by facsimile signature, and shall not be valid for any purpose
unless so countersigned. In case any officer of the Company whose signature
shall have been placed upon any of the Warrant Certificates shall cease to be
such officer of the Company before countersignature by the Warrant Agent and
issue and delivery thereof, such Warrant Certificates may, nevertheless, be
countersigned by the Warrant Agent, either manually or by facsimile signature
printed thereon, and issued and delivered with the same force and effect as
though such Person had not ceased to be such officer of the Company

 

(c)           No Warrant Certificate shall be entitled to any benefit under this
Agreement or be valid or obligatory for any purpose, and no Warrant evidenced
thereby may be exercised, unless such Warrant Certificate has been countersigned
by the manual or facsimile signature of the Warrant Agent.  Such signature by
the Warrant Agent upon any Warrant Certificate executed by the Company shall be
conclusive evidence that such Warrant Certificate has been duly issued under the
terms of this Agreement.

 

3.                                      EXERCISE PRICE; EXERCISE OF WARRANTS AND
EXPIRATION OF WARRANTS.

 

3.1           Exercise Price.  Each Warrant Certificate shall, when
countersigned by the Warrant Agent, entitle the Holder thereof, subject to the
provisions of this Agreement, to purchase, except as provided in Section 3.3
hereof, one share of Common Stock for each Warrant represented thereby, subject
to all adjustments made on or prior to the date of exercise thereof, at the
applicable Exercise Price.

 

3.2           Exercise of Warrants.  The Warrants shall be exercisable in whole
or in part from time to time on any Business Day beginning on the date hereof
and ending on the Expiration Date, in the manner provided for herein; provided,
that solely with respect to the exercise any time prior to the date that is 180
days prior to the Expiration Date of any Warrant held at the time of exercise by
a Fairholme Investor, such Fairholme Investor must have delivered written notice
of its intent to exercise such Warrant to the Company 90 days prior to the
Exercise Date of such Warrant and no exercise of such Warrant shall be effective
until such 90-day period has lapsed.

 

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3.3           Expiration of Warrants.  Any unexercised Warrants shall expire and
the rights of the Holders of such Warrants to purchase Underlying Common Stock
shall terminate at the close of business on November       , 2017 (the
“Expiration Date”).

 

3.4           Method of Exercise; Settlement of Warrant.  In order to exercise a
Warrant, the Holder thereof must (i) surrender the Warrant Certificate
evidencing such Warrant to the Warrant Agent, with the form on the reverse of or
attached to the Warrant Certificate properly completed and duly executed (the
date of the surrender of such Warrant Certificate, the “Exercise Date”), and
(ii) with respect to Series A-1 Warrants for which Net Share Settlement is not
elected, deliver in full the aggregate Exercise Price then in effect for the
shares of Underlying Common Stock as to which a Warrant Certificate is submitted
for exercise, not later than the Settlement Date as more fully set forth
herein.  Full Physical Settlement shall apply to each Series A-1 Warrant unless
the Holder elects for Net Share Settlement to apply upon exercise of such
Warrant.  Only Net Share Settlement shall apply (and shall be automatically
deemed to have been irrevocably elected) upon exercise of each Series A-2
Warrant.  The election of Net Share Settlement shall be made in the form on the
reverse of or attached to the Warrant Certificate for each Series A-1 Warrant.

 

(a)           If Full Physical Settlement is applicable with respect to the
exercise of a Warrant, then, for each Series A-1 Warrant exercised hereunder
(i) prior to 11:00 a.m., New York City time, on the Settlement Date for such
Warrant, the Holder shall pay the aggregate Exercise Price (determined as of
such Exercise Date) for the number of shares of Common Stock obtainable upon
exercise of such Warrant at such time by federal wire or other immediately
available funds payable to the order of the Company to the account maintained by
the Warrant Agent and notified to the Holder upon request of the Holder, and
(ii) on the Settlement Date, following receipt by the Warrant Agent of such
Exercise Price, the Company shall cause to be delivered to the Holder the number
of shares of Common Stock obtainable upon exercise of each Series A-1 Warrant at
such time (the “Full Physical Share Amount”), together with cash in respect of
any fractional shares of Common Stock as provided in Section 3.4(f).

 

(b)           If Net Share Settlement is applicable with respect to the exercise
of a Warrant, then, for each Warrant exercised hereunder, on the Settlement Date
for such Warrant, the Company shall cause to be delivered to the Holder a number
of shares of Common Stock (which in no event will be less than zero) (the “Net
Share Amount”) equal to (i) the number of shares of Common Stock issuable upon
exercise of such Warrant at such time, multiplied by (ii) the Closing Sale Price
on the relevant Exercise Date, minus the Exercise Price (determined as of such
Exercise Date), divided by (iii) such Closing Sale Price, together with cash in
respect of any fractional shares of Common Stock as provided in Section 3.4(f). 
The Warrant Agent shall not take any action under this Section unless and until
the Company has provided it with written instructions containing the Net Share
Amount.  The Warrant Agent shall have no duty or obligation to investigate or
confirm whether the Company’s determination of the number of the Net Share
Amount is accurate or correct.

 

(c)           Upon surrender of a Warrant Certificate to the Warrant Agent in
conformity with the foregoing provisions and, in the event of Full Physical
Settlement of a Series A-1 Warrant, receipt by the Warrant Agent of the Exercise
Price therefor, the Warrant Agent shall thereupon promptly notify the Company,
and the Company shall instruct its transfer agent

 

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to transfer to the Holder of such Warrant Certificate appropriate evidence of
ownership of any shares of Underlying Common Stock or other securities or
property to which the Holder is entitled, registered or otherwise placed in, or
payable to the order of, such name or names as may be directed in writing by the
Holder, and shall deliver such evidence of ownership to the Person or Persons
entitled to receive the same, together with cash in respect of any fractional
shares of Common Stock as provided in Section 3.4(f), provided that if the
Holder shall direct that such securities be registered in a name other than that
of the Holder, such direction shall be tendered in conjunction with a signature
guarantee by a participant in a Medallion Signature Guarantee Program at a
guarantee level acceptable to the Company’s transfer agent, and any other
reasonable evidence of authority that may be required by the Warrant Agent. 
Upon surrender of a Warrant Certificate to the Warrant Agent in conformity with
subsection (a) above and, in the event of Full Physical Settlement of a
Series A-1 Warrant, receipt by the Warrant Agent of the Exercise Price therefor,
a Holder shall be deemed to own and have all of the rights associated with any
Underlying Common Stock or other securities or property to which such Holder is
entitled pursuant to this Agreement upon the surrender of a Warrant Certificate
in accordance with this Agreement.

 

(d)           The Company acknowledges that the bank accounts maintained by the
Warrant Agent in connection with its performance under this Agreement shall be
in the Warrant Agent’s name and that the Warrant Agent may receive investment
earnings in connection with the investment at the Warrant Agent’s risk and for
its benefit of funds held in those accounts from time to time.  The Warrant
Agent shall remit any payments received in connection with the exercise of
Warrants to the Company as soon as practicable and in any event within three
Business Days by federal wire or other immediately available funds to an account
selected by the Company and notified in writing to the Warrant Agent.

 

(e)           If fewer than all the Warrants represented by a Warrant
Certificate are surrendered, such Warrant Certificate shall be surrendered and a
new Warrant Certificate of the same tenor and for the number of Warrants that
were not surrendered shall promptly be executed and delivered to the Warrant
Agent by the Company. The Warrant Agent shall promptly countersign, by either
manual or facsimile signature, the new Warrant Certificate, register it in such
name or names as may be directed in writing by the Holder and deliver the new
Warrant Certificate to the Person or Persons entitled to receive the same.

 

(f)            The Company shall not be required to issue any fraction of a
share of Common Stock upon exercise of any Warrants; provided, that, if more
than one Warrant shall be exercised hereunder at one time by the same Holder,
the number of full shares of Common Stock which shall be issuable upon exercise
thereof shall be computed on the basis of all Warrants so exercised, and shall
include the aggregation of all fractional shares of Common Stock issuable upon
exercise of such Warrants.  If after giving effect to the aggregation of all
shares of Common Stock (and fractions thereof) issuable upon exercise of
Warrants by the same Holder at one time as set forth in the previous sentence,
any fraction of a share of Common Stock would, except for the provisions of this
Section 3.4(f), be issuable on the exercise of any Warrant or Warrants, the
Company shall pay the Holder cash in lieu of such fractional share valued at the
Closing Sale Price on the Exercise Date.

 

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3.5           Transferability of Warrants and Common Stock.  Except as any
Holder may otherwise agree in writing, any Warrants, all rights with respect
thereto and any shares of Underlying Common Stock may be sold, transferred or
disposed of, in whole or in part, without any requirement of obtaining the
consent of the Company to so sell, transfer or dispose of, provided that any
such sale, transfer or disposition shall be in accordance with the terms of this
Agreement, including, without limitation, Article 7 hereof.

 

3.6           Compliance with Law.  (a) To the extent the Warrants or Common
Stock issued upon exercise of the Warrants are “Registrable Securities” under
the Registration Rights Agreements (“Warrant Securities”), no Series A-1 Warrant
may be exercised using Full Physical Settlement (and the Warrant Agent shall be
under no obligation to process any such exercise) and no such Warrant Securities
may be sold, transferred, hypothecated, pledged or otherwise disposed of (any
such sale, transfer or other disposition, a “Sale”, and the action of making any
such sale, transfer or other disposition, to “Sell”), except in compliance with
applicable Federal and state securities and other applicable laws and this
Section 3.6.

 

(b)           A Holder may exercise its Warrants if it is an “accredited
investor” or a “qualified institutional buyer”, as defined in Regulation D and
Rule 144A under the Securities Act, respectively, and a Holder may Sell its
Warrant Securities to a transferee that is an “accredited investor” or a
“qualified institutional buyer”, as such terms are defined in Regulation D and
Rule 144A under the Securities Act, respectively, provided that each of the
following conditions is satisfied:

 

(i)            such Holder or transferee, as the case may be, provides
certification establishing to the reasonable satisfaction of the Company that it
is an “accredited investor”;

 

(ii)           such Holder or transferee represents to the Company in writing
that it is acquiring the applicable Warrant Securities for its own account and
that it is not acquiring such Warrant Securities with a view to, or for offer or
Sale in connection with, any distribution thereof (within the meaning of the
Securities Act) that would be in violation of the securities laws of the United
States or any applicable state thereof, but subject, nevertheless, to the
disposition of its property being at all times within its control;

 

(iii)          such Holder or transferee agrees to be bound by the provisions of
this Section 3.6 with respect to any exercise of the Warrants and any Sale of
the Warrant Securities; and

 

(iv)          such Holder or transferee represents and warrants in writing to
the Company that the Holder or transferee has sufficient knowledge and
experience in investment transactions of this type to evaluate the merits and
risks of its exercise or purchases, as applicable.

 

(c)           A Holder may exercise its Warrants and may Sell its Warrant
Securities in accordance with Regulation S under the Securities Act.

 

(d)           A Holder may exercise its Warrants and may Sell its Warrant
Securities if:

 

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(i)            such Holder gives written notice to the Company of its intention
to exercise or effect such Sale, which notice shall describe the manner and
circumstances of the proposed transaction in reasonable detail;

 

(ii)           such notice includes a customary opinion from internal or
external counsel to the Holder to the effect that, in either case, such proposed
exercise or Sale may be effected without registration under the Securities Act
or under applicable blue sky laws; and

 

(iii)          such Holder or transferee complies with Sections 3.6(b)(ii),
3.6(b)(iii), and 3.6(b)(iv).

 

(e)           subject to Section 12.5, each certificate representing Warrant
Securities shall bear the following legend:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS. SUCH SECURITIES MAY BE OFFERED, SOLD OR TRANSFERRED ONLY IN
COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND OF ANY APPLICABLE STATE
SECURITIES LAWS AND SUBJECT TO THE PROVISIONS OF THE WARRANT AGREEMENT DATED AS
OF NOVEMBER       , 2010 BETWEEN THE HOWARD HUGHES CORPORATION (THE “COMPANY”),
AND MELLON INVESTOR SERVICES LLC, AS WARRANT AGENT. A COPY OF SUCH WARRANT
AGREEMENT IS AVAILABLE AT THE OFFICES OF THE COMPANY.

 

(f)            [Intentionally omitted.]

 

(g)           the provisions of Section 3.6 shall not apply to, and any Holder
may exercise its Warrants or may Sell its Warrant Securities:

 

(i)            in a transaction that is registered under the Securities Act; and

 

(ii)           in a transaction pursuant to Rule 144 of the Exchange Act; and

 

(iii)          in a transaction following receipt of a legal opinion of counsel
to a Holder that the applicable Warrant Securities are eligible for resale by
the Holder without volume limitations or other limitations under Rule 144; and

 

(iv)          with respect to an exercise of a Warrant, in an exercise using Net
Share Settlement.

 

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(h)           The Warrant Agent shall not take any action with respect to a Sale
of Warrant Securities under this Section 3.6 unless and until it has received
appropriate instructions from the Company and a certification of compliance with
these provisions from the Company.

 

4.                                      REGISTRATION RIGHTS.

 

4.1           Rule 144 Reporting.  With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Warrant Securities to the public without registration,
the Company agrees, so long as it is subject to the periodic reporting
requirements of the Securities Act, to use its reasonable best efforts to:

 

(a)           make and keep public information available, as those terms are
understood and defined in Rule 144(c)(1) or any similar or analogous
rule promulgated under the Securities Act, at all times after the effective date
of this Agreement;

 

(b)           file with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act; and

 

(c)           so long as the Holders own any Warrant Securities, furnish to such
Holders forthwith upon request: a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 under the Securities Act,
and of the Exchange Act; and such other reports and documents as any Initial
Investor or Holder may reasonably request in availing itself of any rule or
regulation of the SEC allowing it to sell any such securities without
registration.

 

4.2           Obtaining Exchange Listing.  The Company will file a listing
application for listing on the exchange on which the then outstanding Common
Stock is listed with respect to the Underlying Common Stock as soon as
practicable after the date hereof.  The Company shall use reasonable best
efforts to list the Warrants, and maintain such listing, on such exchange or, if
not possible, another U.S. national securities exchange, in connection with any
proposed underwritten distribution of the Warrants that meets the applicable
listing criteria.  A copy of any opinion of counsel accompanying a listing
application by the Company with respect to the Underlying Common Stock or
Warrants shall be furnished to the Warrant Agent, together with a letter to the
effect that the Warrant Agent may rely on the statements made in such opinion.

 

4.3           The Warrant Agent.  The Warrant Agent shall have no duties or
obligations under the Registration Rights Agreements and shall have no duty to
monitor or enforce the Company’s compliance with this Article 4 or the
Registration Rights Agreements.

 

5.                                      ADJUSTMENTS AND OTHER RIGHTS.

 

5.1           Stock Dividend; Subdivision or Combination of Common Stock.  If
the Company at any time issues to holders of the Common Stock a dividend payable
solely in, or other distribution solely of, Common Stock (a “Stock Dividend”),
the Exercise Price in effect at the close of business on the record date for
such dividend or distribution shall be reduced immediately thereafter to the
price determined by multiplying such Exercise Price by the quotient of (x) the
number of shares of Common Stock outstanding at the close of business on such
record date divided by (y) the sum of such number of shares and the total number
of shares

 

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constituting such dividend or other distribution.  If the Company at any time
subdivides or combines (by stock split, reverse stock split, recapitalization or
otherwise) the outstanding Common Stock into a greater or smaller number of
shares, the Exercise Price in effect immediately prior to the time of
effectiveness of such subdivision or combination shall be adjusted at such time
of effectiveness to the price determined by multiplying such Exercise Price by
the quotient of (x) the number of shares of Common Stock outstanding immediately
prior to such time of effectiveness divided by (y) the number of shares of
Common Stock outstanding at the time of effectiveness of and after giving effect
to such subdivision or combination.  In any such event referred to in this
Section 5.1, the number of shares of Common Stock issuable upon exercise of each
Warrant as in effect immediately prior to the Exercise Price adjustment
contemplated by the foregoing shall be adjusted immediately thereafter to the
amount determined by multiplying such number by the quotient of (x) the Exercise
Price in effect immediately prior to such Exercise Price adjustment divided by
(y) the Exercise Price determined in accordance with such Exercise Price
adjustment.

 

5.2           Other Dividends and Distributions.  If at any time or from time to
time prior to the exercise of any Warrant the Company shall fix a record date
for the making of a dividend or other distribution (other than (i) as
contemplated by Section 5.5, (ii) a Stock Dividend covered by Section 5.1 or
(iii) a distribution of rights or warrants covered by Section 5.3), to the
holders of its Common Stock (collectively, a “Distribution”) of:

 

(A)          any evidences of its indebtedness, any shares of its capital stock
or any other securities or property of any nature whatsoever (including cash);
or

 

(B)           any options, warrants or other rights to subscribe for or purchase
any of the following: any evidences of its indebtedness, any shares of its
capital stock or any other securities or property of any nature whatsoever;

 

then, in each such case, the Exercise Price in effect immediately prior to the
close of business on such record date shall be reduced immediately thereafter to
the price determined by multiplying such Exercise Price by the quotient of
(x) the Fair Market Value of the Common Stock on the last trading day
immediately preceding the first date on which the Common Stock trades regular
way on the principal national securities exchange on which the Common Stock is
listed or admitted to trading without the right to receive such Distribution,
minus the amount of cash and/or the Fair Market Value of the securities,
evidences of indebtedness, assets, rights or warrants to be so distributed in
respect of one share of Common Stock divided by (y) the Fair Market Value of the
Common Stock on the last trading day immediately preceding the first date on
which the Common Stock trades regular way on the principal national securities
exchange on which the Common Stock is listed or admitted to trading without the
right to receive such Distribution; such adjustment shall be made successively
whenever such a record date is fixed. In such event, the number of shares of
Common Stock issuable upon the exercise of each Warrant as in effect immediately
prior to the close of business on such record date shall be increased
immediately thereafter to the amount determined by multiplying such number by
the quotient of (x) the Exercise Price in effect immediately prior to the
adjustment contemplated by the immediately preceding sentence divided by (y) the
new Exercise Price determined in accordance with the immediately preceding
sentence.  If the Distribution includes Common Stock as well as other items of
the sort referred to in Section 5.2(A) or (B), then instead of

 

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adjusting for the entire Distribution under this Section 5.2 the Common Stock
portion shall be treated as a Stock Dividend that triggers an adjustment to the
Exercise Price and number of shares of Common Stock obtainable upon exercise of
each Warrant under Section 5.1 and the other items in the Distribution shall
trigger a further adjustment to such adjusted Exercise Price and number of
shares under this Section 5.2.  In the event that such Distribution is not so
made, the Exercise Price and the number of shares of Common Stock issuable upon
exercise of each Warrant then in effect shall be readjusted, effective as of the
date when the Board determines not to distribute such shares, evidences of
indebtedness, assets, rights, cash or warrants, as the case may be, to the
Exercise Price that would then be in effect and the number of Shares that would
then be issuable upon exercise of this Warrant if such record date had not been
fixed.

 

5.3           Rights Offerings.  If at any time the Company shall distribute
rights or warrants to all or substantially all holders of its Common Stock
entitling them, for a period of not more than 45 days, to subscribe for or
purchase shares of Common Stock at a price per share less than the Fair Market
Value of the Common Stock on the last trading day preceding the date on which
the Board declares such distribution of rights or warrants, the Exercise Price
in effect immediately prior to the close of business on the record date for such
distribution shall be reduced immediately thereafter to the price determined by
multiplying such Exercise Price by the quotient of (x) the number of shares of
Common Stock outstanding at the close of business on such record date plus the
number of shares of Common Stock which the aggregate of the offering price of
the total number of shares of Common Stock so offered for subscription or
purchase would purchase at such Fair Market Value divided by (y) the number of
shares of Common Stock outstanding at the close of business on such record date
plus the number of shares of Common Stock so offered for subscription or
purchase.  In such event, the number of shares of Common Stock issuable upon the
exercise of each Warrant as in effect immediately prior to the close of business
on such record date shall be increased immediately thereafter to the amount
determined by multiplying such number by the quotient of (x) the Exercise Price
in effect immediately prior to the adjustment contemplated by the immediately
preceding sentence divided by (y) the new Exercise Price determined in
accordance with the immediately preceding sentence.  In case any rights or
warrants referred to in this Section 5.3 in respect of which an adjustment shall
have been made shall expire unexercised and any shares that would have been
underlying such rights or warrants shall not have been allocated pursuant to any
backstop commitment or any similar arrangement, the Exercise Price and the
number of shares of Common Stock issuable upon exercise of each Warrant then in
effect shall be readjusted at the time of such expiration to the Exercise Price
that would then be in effect and the number of Shares that would then be
issuable upon exercise of each Warrant if no adjustment had been made on account
of such expired rights or warrants.

 

5.4           Issuer Tender or Exchange Offers.  If the Company or any
subsidiary of the Company shall consummate a tender or exchange offer for all or
any portion of the Common Stock for a consideration per share with a Fair Market
Value greater than the Fair Market Value of the Common Stock on the date such
tender or exchange offer is first publicly announced (the “Announcement Date”),
the Exercise Price in effect immediately prior to the expiration date for such
tender or exchange offer shall be reduced immediately thereafter to the price
determined by multiplying such Exercise Price by the quotient of (x) the Fair
Market Value of the Common Stock on the Announcement Date minus the Premium Per
Post-Tender Share divided by (y) the Fair Market Value of the Common Stock on
the Announcement Date.  In such event, the number

 

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of shares of Common Stock issuable upon the exercise of each Warrant as in
effect immediately prior to such expiration date shall be increased immediately
thereafter to the amount determined by multiplying such number by the quotient
of (x) the Exercise Price in effect immediately prior to the adjustment
contemplated by the immediately preceding sentence divided by (y) the new
Exercise Price determined in accordance with the immediately preceding
sentence.  As used in this Section 5.4 with respect to any tender or exchange
offer, “Premium Per Post-Tender Share” means the quotient of (x) the amount by
which the aggregate Fair Market Value of the consideration paid in such tender
or exchange offer exceeds the aggregate Fair Market Value on the Announcement
Date of the shares of Common Stock purchased therein divided by (y) the number
of shares of Common Stock outstanding at the close of business on the expiration
date for such tender or exchange offer (after giving pro forma effect to the
purchase of shares being purchased in the tender or exchange offer).

 

5.5           Reorganization, Reclassification, Consolidation, Merger or Sale. 
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company’s assets or other transaction,
which in each case is effected in such a way that the shares of Common Stock are
converted into the right to receive (either directly or upon subsequent
liquidation) stock, securities, other equity interests or assets (including
cash) with respect to or in exchange for shares of Common Stock is referred to
herein as “Organic Change.”  Prior to the consummation of any Organic Change,
the Company shall make appropriate provision to ensure that each of the Holders
shall thereafter have the right to acquire and receive, in lieu of or in
addition to (as the case may be) the Common Stock immediately theretofore
acquirable and receivable upon the exercise of such Holder’s Warrants, (x) in
the case of a Mixed Consideration Merger, the Public Stock issued in such Mixed
Consideration Merger and (y) in the case of any other Organic Change, such
stock, securities, other equity interests or assets, in each case as may be
issued or payable in connection with the Organic Change with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
acquirable and receivable upon exercise of such Holder’s Warrants, for an
aggregate Exercise Price per Warrant equal to (i) in the case of a Mixed
Consideration Merger, the aggregate Exercise Price per Warrant as in effect
immediately prior to such Mixed Consideration Merger times the Stock
Consideration Ratio and (ii) in the case of any other Organic Change, the
aggregate Exercise Price per Warrant as in effect immediately prior to such
Organic Change.  In any such case, the Company shall make appropriate provision
to insure that all of the provisions of the Warrants shall thereafter be
applicable to such stock, securities, other equity interests or assets.  The
Company shall not effect any such consolidation, merger or sale of all or
substantially all of the Company’s assets where the Warrants will be assumed by
the successor entity, unless prior to the consummation thereof, the successor
entity (if other than the Company) resulting from consolidation or merger or the
entity purchasing such assets assumes by written instrument the obligation to
deliver to each such Holder upon exercise of any Warrant, such stock,
securities, equity interests or assets (including cash) as, in accordance with
Article 5, such Holder may be entitled to acquire.  This Section 5.5 shall not
apply to any Warrants or Common Stock redeemed or sold in connection with any
Organic Change pursuant to Section 6.1, Section 6.2(b), Section 6.3(a)(i) and
Section 6.3(b), provided that, for the avoidance of doubt, the adjustments set
forth in this Section 5.5 shall be applicable to any Warrants that remain
outstanding pursuant to this Agreement in connection with a Public Stock Merger
or Mixed Consideration Merger (including any adjustment applicable in connection
with such Public Stock Merger or Mixed Consideration Merger).

 

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5.6           Other Adjustments.  The Board shall make appropriate adjustments
to the amount of cash or number of shares of Common Stock, as the case may be,
due upon exercise of the Warrants, as may be necessary or appropriate to
effectuate the intent of this Article 5 and to avoid unjust or inequitable
results as determined in its reasonable good faith judgment, in each case to
account for any adjustment to the Exercise Price and the number of shares
purchasable on exercise of Warrants for the relevant Warrant Certificate that
becomes effective, or any event requiring an adjustment to the Exercise Price
and the number of shares purchasable on exercise of Warrants for the relevant
Warrant Certificate where the record date or effective date (in the case of a
subdivision or combination of the Common Stock) of the event occurs, during the
period beginning on, and including, the Exercise Date and ending on, and
including, the related Settlement Date.

 

5.7           Notice of Adjustment.  Whenever the number of shares of Common
Stock issuable upon the exercise of each Warrant is adjusted, as herein
provided, the Company shall cause the Warrant Agent promptly to mail by first
class mail, postage prepaid, to each Holder notice of such adjustment or
adjustments and shall promptly deliver to the Warrant Agent a certificate of a
firm of independent public accountants selected by the Board (who may be the
regular accountants employed by the Company) setting forth the number of shares
of Common Stock issuable upon the exercise of each Warrant after such
adjustment, setting forth a brief statement in reasonable detail of the facts
requiring such adjustment and setting forth the computation by which such
adjustment was made. The Warrant Agent shall be fully protected in relying on
such certificate, and on any adjustment contained therein, and shall not be
deemed to have any knowledge of such adjustment unless and until it shall have
received such certificate, and shall be under no duty or responsibility with
respect to any such certificate, except to exhibit the same from time to time,
to any Holder desiring an inspection thereof during reasonable business hours.
The Warrant Agent shall not at any time be under any duty or responsibility to
any Holders to determine whether any facts exist that may require any adjustment
of the number of shares of Common Stock or other stock or property issuable on
exercise of the Warrants, or with respect to the nature or extent of any such
adjustment when made, or with respect to the method employed in making such
adjustment or the validity or value (or the kind or amount) of any shares of
Common Stock or other stock or property which may be issuable on exercise of the
Warrants, or to investigate or confirm whether the information contained in the
above referenced certificate complies with the terms of this Agreement or any
other document. The Warrant Agent shall not be responsible for any failure of
the Company to make any cash payment or to issue, transfer or deliver any shares
of Common Stock or security instruments or other securities or properties upon
the exercise of any Warrant.

 

6.                                      CHANGE OF CONTROL.

 

6.1           Redemption in Connection with a Change of Control Event.  Upon the
occurrence of a Change of Control Event (other than a Public Stock Merger or
Mixed Consideration Merger), at the election of each Holder in its sole
discretion by written notice to the Company or the successor to the Company on
or prior to the Exercise Date, the Company shall pay to such Holder of
outstanding Warrants as of the date of such Change of Control Event, an amount
in immediately available funds equal to the Cash Redemption Value for such
Warrants, not later than the date which is ten (10) Business Days after such
Change of Control Event and the Warrants shall thereafter be extinguished. For
purposes of this Section 6.1, the Exercise Date

 

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shall mean (a) if the Company entered into a definitive agreement with respect
to a Change of Control Event and has provided to the Holders notice of the date
on which the Change in Control Event will become effective at least twenty (20)
Business Days prior to the effectiveness of such event, the tenth (10th)
Business Day prior to such event and (b) otherwise, the fifth (5th) Business Day
following the effectiveness of the Change of Control Event.  The “Cash
Redemption Value” for any Warrant will equal the fair value of the Warrant as of
the date of such Change of Control Event as determined by an Independent
Financial Expert, by employing a valuation based on a computation of the option
value of each Warrant using the calculation methods and making the assumptions
set forth in Exhibit C.  The Cash Redemption Value of the Warrants shall be due
and payable within ten (10) Business Days after the date of the applicable
Change of Control Event.  If a Holder of Warrants does not elect to receive the
Cash Redemption Value for such Holder’s Warrants as provided by this
Section 6.1, such Warrants will remain outstanding as adjusted pursuant to the
provisions of Article 5 hereof.

 

6.2           Public Stock Merger.  (a)  In connection with a Public Stock
Merger, the Company may by written notice to the Holders not less than ten
(10) Business Days prior to the effective date of such Public Stock Merger elect
to have all the unexercised Warrants remain outstanding after the Public Stock
Merger, in which case the Warrants will remain outstanding as adjusted pursuant
to Section 5.5 and the other provisions of Article 5 hereof.

 

(b)           In the case of any Public Stock Merger with respect to which the
Company does not make a timely election as contemplated by Section 6.2(a) above,
the Company shall pay within five (5) Business Days after the effective date of
such Public Stock Merger, to the Warrant Agent on behalf of each Holder of
outstanding Warrants as of the effective date of such Public Stock Merger, an
amount in cash in immediately available funds equal to the Cash Redemption Value
for such Warrants determined in accordance with Section 6.1 and the Warrants
shall be terminated and extinguished.

 

6.3           Mixed Consideration Merger.  (a)  In connection with a Mixed
Consideration Merger, the Company may by written notice to the Holders not less
than ten (10) Business Days prior to the effective date of such Mixed
Consideration Merger elect the following treatment with respect to each
outstanding Warrant: (i) pay to the Holder of such Warrant as of the date of
such Mixed Consideration Merger the product of the Cash Consideration Ratio
multiplied by the Cash Redemption Value for such Warrant, which amount shall be
paid in immediately available funds, not later than the date which is ten
(10) Business Days after such Mixed Consideration Merger and (ii) the Warrant
shall remain outstanding after the Mixed Consideration Merger, as further
adjusted pursuant to Section 5.5 and the other provisions of Article 5.  The
portion of the Cash Redemption Value of the Warrants payable pursuant to clause
(i) of this Section 6.3(a) shall be due and payable not later than the tenth
(10th) Business Day after the date of the Mixed Consideration Merger.

 

(b)           In the case of any Mixed Consideration Merger with respect to
which the Company does not make a timely election as contemplated by
Section 6.3(a) above, the Company shall pay, within ten (10) Business Days after
the effective date of such Mixed Consideration Merger, to the Warrant Agent on
behalf of each Holder of outstanding Warrants as of the effective date of such
Mixed Consideration Merger, an amount in cash in immediately

 

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available funds equal to the Cash Redemption Value for such Warrants determined
in accordance with Section 6.1 and the Warrants shall be terminated and
extinguished.

 

6.4           The Warrant Agent.  The Warrant Agent shall have no duty or
obligation to make any of the payments required under this Article 6 unless and
until it has been provided with available cash.

 

7.                                      WARRANT TRANSFER BOOKS.

 

The Warrant Certificates shall be issued in registered form only. The Company
shall cause to be kept at the office of the Warrant Agent designated for such
purpose a register in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of Warrant
Certificates and of transfers or exchanges of Warrant Certificates as herein
provided (the “Warrant Register”).

 

At the option of the Holder, Warrant Certificates may be exchanged at such
office, and upon payment of the charges hereinafter provided.  Whenever any
Warrant Certificates are so surrendered for exchange, the Company shall execute,
and the Warrant Agent shall countersign, by manual or facsimile signature, and
deliver, the Warrant Certificates that the Holder making the exchange is
entitled to receive.

 

All Warrant Certificates issued upon any registration of transfer or exchange of
Warrant Certificates shall be the valid obligations of the Company, evidencing
the same obligations, and entitled to the same benefits under this Agreement, as
the Warrant Certificates surrendered for such registration of transfer or
exchange.

 

Every Warrant Certificate surrendered for registration of transfer or exchange
shall (if so required by the Company or the Warrant Agent) be duly endorsed, or
be accompanied by a written instrument of transfer in the form attached hereto
as Exhibit B or otherwise satisfactory to the Warrant Agent, properly completed
and duly executed by the Holder thereof or his attorney duly authorized in
writing.  Until a Warrant Certificate is transferred in the Warrant Register,
the Company and the Warrant Agent may treat the person in whose name the Warrant
Certificate is registered as the absolute owner thereof and of the Warrants
represented thereby for all purposes, notwithstanding any notice to the
contrary.  Neither the Company nor the Warrant Agent will be liable or
responsible for any registration or transfer of any Warrants that are registered
or to be registered in the name of a fiduciary or the nominee of a fiduciary.

 

No service charge shall be made to a Holder for any registration of transfer or
exchange of Warrant Certificates. The Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Warrant
Certificates.  The Warrant Agent shall have no duty under this Section or any
Section of this Agreement requiring the payment of taxes and other governmental
charges unless and until it is satisfied that all such taxes and/or governmental
charges have been paid.  The Warrant Agent shall be deemed satisfied if it
receives a certificate from the Company stating that all required taxes and
governmental charges have been paid.

 

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8.                                      WARRANT HOLDERS.

 

8.1           No Voting Rights.  Prior to the exercise of Warrants and full
payment of the Exercise Price thereof, or in the event of Net Share Settlement,
prior to the election of a Holder for Net Share Settlement in accordance with
the terms of this Agreement, no Holder of a Warrant Certificate, in respect of
such Warrants, shall be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote, to consent, to exercise any
preemptive right (except as otherwise agreed in writing by the Company,
including the subscription rights set forth in the Investment Agreement and the
Stock Purchase Agreements), to receive any notice of meetings of stockholders
for the election of directors of the Company or any other matter or to receive
any notice of any proceedings of the Company.

 

8.2           Right of Action.  All rights of action in respect of this
Agreement are vested in the Holders of the Warrants, and any Holder of Warrants,
without the consent of the Warrant Agent or the Holder of any other Warrant,
may, on such Holder’s own behalf and for such Holder’s own benefit, enforce, and
may institute and maintain any suit, action or proceeding against the Company
suitable to enforce, or otherwise in respect of, such Holder’s right to exercise
or exchange such Holder’s Warrants in the manner provided in this Agreement or
any other obligation of the Company under this Agreement.

 

9.                                      WARRANT AGENT

 

9.1           Nature of Duties and Responsibilities Assumed.  The Company hereby
appoints the Warrant Agent to act as agent of the Company as expressly set forth
in this Agreement. The Warrant Agent hereby accepts such appointment as agent of
the Company and agrees to perform that agency upon the express terms and
conditions herein set forth (and no implied terms), by all of which the Company
and the Holders, by their acceptance thereof, shall be bound. The Warrant Agent
shall not by countersigning Warrant Certificates or by any other act hereunder
be deemed to make any representations as to validity or authorization of the
Warrants or the Warrant Certificates (except as to its countersignature thereon)
or of any securities or other property delivered upon exercise or tender of any
Warrant, or as to the accuracy of the computation of the Exercise Price or the
number or kind or amount of stock or other securities or other property
deliverable upon exercise of any Warrant, the independence of any Independent
Financial Expert or the correctness of the representations of the Company made
in such certificates that the Warrant Agent receives. The Warrant Agent shall
not have any duty to calculate or determine any adjustments with respect to the
Exercise Price and the Warrant Agent shall have no duty or responsibility in
determining the accuracy or correctness of such calculation. The Warrant Agent
shall not (a) be liable for any recital or statement of fact contained herein or
in the Warrant Certificates or for any action taken, suffered or omitted to be
taken by it in good faith on the belief that any Warrant Certificate or any
other documents or any signatures are genuine or properly authorized, (b) be
responsible for any failure on the part of the Company to comply with any of its
covenants and obligations contained in this Agreement or in the Warrant
Certificates, or (c) be liable for any act or omission in connection with this
Agreement except for its own gross negligence or willful misconduct (as each is
determined by a final, non-appealable judgment of a court of competent
jurisdiction). The Warrant Agent is hereby authorized to accept instructions
with respect to the performance of its duties hereunder from the President, any
Vice President or the Secretary of the Company and to apply to any such officer
for instructions

 

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(which instructions will be promptly given in writing when requested) and the
Warrant Agent shall not be liable and shall be indemnified and held harmless for
any action taken or suffered to be taken by it in accordance with the
instructions of any such officer, but in its discretion the Warrant Agent may in
lieu thereof accept other evidence of such or may require such further or
additional evidence as it may deem reasonable.

 

The Warrant Agent may execute and exercise any of the rights and powers hereby
vested in it or perform any duty hereunder either itself or by or through its
attorneys, agents or employees, provided reasonable care has been exercised in
the selection and in the continued employment of any such attorney, agent or
employee.  The Warrant Agent shall not be under any obligation or duty to
institute, appear in or defend any action, suit or legal proceeding in respect
hereof, unless first indemnified to its satisfaction, but this provision shall
not affect the power of the Warrant Agent to take such action as the Warrant
Agent may consider proper, whether with or without such indemnity. The Warrant
Agent shall promptly notify the Company in writing of any claim made or action,
suit or proceeding instituted against it arising out of or in connection with
this Agreement.

 

The Company will perform, execute, acknowledge and deliver or cause to be
performed, executed, acknowledged and delivered all such further acts,
instruments and assurances as may reasonably be required by the Warrant Agent in
order to enable it to carry out or perform its duties under this Agreement.  The
Warrant Agent shall be protected and shall incur no liability for or in respect
of any action taken or thing suffered by it in reliance upon any notice,
direction, consent, certificate, affidavit, statement or other paper or document
reasonably believed by it to be genuine and to have been presented or signed by
the proper parties.

 

The Warrant Agent shall act solely as agent of the Company hereunder and does
not assume any obligation or relationship of agency or trust with any of the
owners or holders of the Warrants.  The Warrant Agent shall not be liable except
for the failure to perform such duties as are specifically set forth herein, and
no implied covenants or obligations shall be read into this Agreement against
the Warrant Agent, whose duties and obligations shall be determined solely by
the express provisions hereof. Notwithstanding anything in this Agreement to the
contrary, Warrant Agent’s aggregate liability under this Agreement with respect
to, arising from, or arising in connection with this Agreement, or from all
services provided or omitted to be provided under this Agreement, whether in
contract, or in tort, or otherwise, is limited to, and shall not exceed, the
amounts paid hereunder by the Company to Warrant Agent as fees and charges, but
not including reimbursable expenses.

 

The Warrant Agent may consult with counsel satisfactory to it (which may be
counsel to the Company).

 

Whenever in the performance of its duties under this Agreement the Warrant Agent
deems it necessary or desirable that any fact or matter be proved or established
by the Company prior to taking or suffering any action hereunder, such fact or
matter may be deemed to be conclusively proved and established by a certificate
signed by any authorized officer of the Company and delivered to the Warrant
Agent; and such certificate will be full authorization to the Warrant Agent for
any action taken, suffered or omitted by it under the provisions of this
Agreement in reliance upon such certificate.  The Warrant Agent is hereby
authorized and

 

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directed to accept instructions with respect to the performance of its duties
hereunder from any one of the authorized officers of the Company, and to apply
to such officers for advice or instructions in connection with its duties, and
it will not be liable for any action taken, suffered or omitted to be taken by
it in good faith in accordance with instructions of any such officer.

 

The Warrant Agent will not be under any duty or responsibility to insure
compliance with any applicable federal or state securities laws in connection
with the issuance, transfer or exchange of Warrant Certificates.

 

The Warrant Agent shall have no duties, responsibilities or obligations as the
Warrant Agent except those which are expressly set forth herein, and in any
modification or amendment hereof to which the Warrant Agent has consented in
writing, and no duties, responsibilities or obligations shall be implied or
inferred.  Without limiting the foregoing, unless otherwise expressly provided
in this Agreement, the Warrant Agent shall not be subject to, nor be required to
comply with, or determine if any person or entity has complied with, the Warrant
Certificate or any other agreement between or among the parties hereto, even
though reference thereto may be made in this Warrant Agreement, or to comply
with any notice, instruction, direction, request or other communication, paper
or document other than as expressly set forth in this Warrant Agreement.

 

In the event the Warrant Agent believes any ambiguity or uncertainty exists
hereunder or in any notice, instruction, direction, request or other
communication, paper or document received by the Warrant Agent hereunder, the
Warrant Agent, may, in its sole discretion, refrain from taking any action, and
shall be fully protected and shall not be liable in any way to the Company or
any Holder or other person or entity for refraining from taking such action,
unless the Warrant Agent receives written instructions signed by the Company
which eliminates such ambiguity or uncertainty to the satisfaction of the
Warrant Agent.

 

9.2           Compensation and Reimbursement.  The Company agrees to pay to the
Warrant Agent from time to time compensation for all services rendered by it
hereunder in accordance with Schedule B hereto and as the Company and the
Warrant Agent may agree from time to time, and to reimburse the Warrant Agent
for reasonable expenses and disbursements actually incurred in connection with
the preparation, delivery, negotiation, amendment, execution and administration
of this Agreement (including the reasonable compensation and out of pocket
expenses of its counsel), and further agrees to indemnify the Warrant Agent for,
and to hold it harmless against, any loss, liability, suit, action, proceeding,
judgment, claim, settlement, cost or expense incurred without gross negligence,
willful misconduct or bad faith on its part, (as each is determined by a final,
non-appealable judgment of a court of competent jurisdiction), for any action
taken, suffered or omitted to be taken by the Warrant Agent in connection with
the acceptance and administration of this Agreement, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder, indirectly
or directly.  The Warrant Agent shall not be obligated to expend or risk its own
funds or to take any action which it believes would expose it to expense or
liability or to a risk of incurring expense or liability, unless it has been
furnished with assurances of repayment or indemnity satisfactory to it.

 

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9.3           Warrant Agent May Hold Company Securities.  The Warrant Agent and
any stockholder, director, officer or employee of the Warrant Agent may buy,
sell or deal in any of the Warrants or other securities of the Company or its
Affiliates or become pecuniarily interested in transactions in which the Company
or its Affiliates may be interested, or contract with or lend money to the
Company or its Affiliates or otherwise act as fully and freely as though it were
not the Warrant Agent under this Agreement. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for any other
legal entity.

 

9.4           Resignation and Removal; Appointment of Successor.  (a)  No
resignation or removal of the Warrant Agent and no appointment of a successor
warrant agent shall become effective until the acceptance of appointment by the
successor warrant agent as provided herein. The Warrant Agent may resign its
duties and be discharged from all further duties and liability hereunder (except
liability arising as a result of the Warrant Agent’s own gross negligence,
willful misconduct or bad faith) after giving written notice to the Company at
least thirty (30) days prior to the date such resignation will become effective.
The Company shall, upon written request of Holders of a majority of the
outstanding Warrants, remove the Warrant Agent upon written notice provided at
least thirty (30) days prior to the date of such removal, and the Warrant Agent
shall thereupon in like manner be discharged from all further duties and
liabilities hereunder, except as aforesaid. The Warrant Agent shall, at the
Company’s expense, cause to be mailed at the Company’s expense (by first-class
mail, postage prepaid) to each Holder of a Warrant at his last address as shown
on the register of the Company maintained by the Warrant Agent a copy of said
notice of resignation or notice of removal, as the case may be. Upon such
resignation or removal, the Person holding the greatest number of Warrants as of
the date of such event shall appoint in writing a new warrant agent reasonably
acceptable to the Company. If the Person holding the greatest number of Warrants
as of the date of such event shall fail to make such appointment within a period
of twenty (20) days after it has been notified in writing of such resignation by
the resigning Warrant Agent or after such removal, then the Company shall
appoint a new warrant agent. Any new warrant agent, whether appointed by a
Holder or by the Company, shall be a reputable bank, trust company or transfer
agent doing business under the laws of the United States or any state thereof,
in good standing and having a combined capital and surplus of not less than
$50,000,000. The combined capital and surplus of any such new warrant agent
shall be deemed to be the combined capital and surplus as set forth in the most
recent annual report of its condition published by such warrant agent prior to
its appointment, provided that such reports are published at least annually
pursuant to law or to the requirements of a Federal or state supervising or
examining authority. After acceptance in writing of such appointment by the new
warrant agent, it shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning or
removed Warrant Agent. Not later than the effective date of any such
appointment, the Company shall give notice thereof to the resigning or removed
Warrant Agent. Failure to give any notice provided for in this Section 9.4(a),
however, or any defect therein, shall not affect the legality or validity of the
resignation of the Warrant Agent or the appointment of a new warrant agent, as
the case may be.

 

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(b)           Any Person into which the Warrant Agent or any new warrant agent
may be merged or any Person resulting from any consolidation to which the
Warrant Agent or any Person resulting from any merger, conversion or
consolidation to which the Warrant Agent shall be a party or any Person to which
the Warrant Agent shall sell or otherwise transfer all or substantially all the
assets and business of the Warrant Agent or any new warrant agent shall be a
party, shall be a successor Warrant Agent under this Agreement without any
further act, provided that such Person would be eligible for appointment as
successor to the Warrant Agent under the provisions of Section 9.4(a).  Any such
successor Warrant Agent shall promptly cause notice of succession as Warrant
Agent to be mailed (by first-class mail, postage prepaid) to each Holder of a
Warrant at such Holder’s last address as shown on the register of the Company
maintained by the Warrant Agent.

 

9.5           Damages.  No party to this Agreement shall be liable to any other
party for any consequential, indirect, punitive, special or incidental damages
under any provision of this Agreement or for any consequential, indirect,
punitive, special or incidental damages arising out of any act or failure to act
hereunder even if that party has been advised of or has foreseen the possibility
of such damages.

 

9.6           Force Majeure.  In no event shall the Warrant Agent be responsible
or liable for any failure or delay in the performance of its obligations under
this Agreement arising out of or caused by, directly or indirectly, forces
beyond its reasonable control, including without limitation strikes, work
stoppages, accidents, acts of war or terrorism, civil or military disturbances,
nuclear or natural catastrophes or acts of God, and interruptions, loss or
malfunctions of utilities, communications or computer (software or hardware)
services.

 

9.7           Survival.  The provisions of this Article 9 shall survive the
termination of this Warrant Agreement and the resignation or removal of the
Warrant Agent

 

10.                               REPRESENTATIONS AND WARRANTIES.

 

10.1         Representations and Warranties of the Company.  The Company hereby
represents and warrants that the representations and warranties of the Company
set forth in Sections 3.1, 3.2, 3.3, 3.4, 3.5 and 3.6 of the Investment
Agreement and Stock Purchase Agreements and any other representations and
warranties made by the Company in Article III of the Investment Agreement and
Stock Purchase Agreements, in each case, to the extent relating to the
authorization and issuance of the Warrants and the shares of Common Stock
issuable upon exercise thereof, are true and accurate in all respects and not
misleading in any respect.

 

11.                               COVENANTS.

 

11.1         Reservation of Common Stock for Issuance on Exercise of Warrants. 
The Company covenants that it will at all times reserve and keep available, free
from preemptive rights, out of its authorized but unissued Common Stock, solely
for the purpose of issue upon exercise of Warrants as herein provided, such
number of shares of Common Stock as shall then be issuable upon the exercise of
all Warrants issuable hereunder plus such number of shares of Common Stock as
shall then be issuable upon the exercise of other outstanding warrants, options
and rights (whether or not vested), the settlement of any forward sale, swap or
other derivative

 

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contract, and the conversion of all outstanding convertible securities or other
instruments convertible into Common Stock or rights to acquire Common Stock. The
Company covenants that all shares of Common Stock which shall be issuable shall,
upon such issue, be duly and validly issued and fully paid and non-assessable.

 

11.2         Notice of Distributions.  At any time when the Company declares any
Distribution on its Common Stock, it shall give notice to the Holders of all the
then outstanding Warrants of any such declaration not less than 15 days prior to
the related record date for payment of the Distribution so declared.

 

12.                               MISCELLANEOUS.

 

12.1         Money and Other Property Deposited with the Warrant Agent.  Any
moneys, securities or other property which at any time shall be deposited by the
Company or on its behalf with the Warrant Agent pursuant to this Agreement shall
be and are hereby assigned, transferred and set over to the Warrant Agent in
trust for the purpose for which such moneys, securities or other property shall
have been deposited; but such moneys, securities or other property need not be
segregated from other funds, securities or other property except to the extent
required by law. The Warrant Agent shall distribute any money deposited with it
for payment and distribution to a Holder to an account designated by such Holder
in such amount as is appropriate. Any money deposited with the Warrant Agent for
payment and distribution to the Holders that remains unclaimed for two years
after the date the money was deposited with the Warrant Agent shall be paid to
the Company.  The Warrant Agent shall not be under any liability for interest on
any monies at any time received by it pursuant to any of the provisions of this
Agreement.

 

12.2         Payment of Taxes.  The Company shall pay all transfer, stamp and
other similar taxes that may be imposed in respect of the issuance or delivery
of the Warrants or in respect of the issuance or delivery by the Company of any
securities upon exercise of the Warrants with respect thereto. The Company shall
not be required, however, to pay any tax or other charge imposed in connection
with any transfer involved in the issue of any Warrants, certificate for shares
of Common Stock or other securities underlying the Warrants or payment of cash
to any Person other than the Holder of a Warrant Certificate surrendered upon
the exercise or purchase of a Warrant, and in case of such transfer or payment,
the Warrant Agent and the Company shall not be required to issue any security or
to pay any cash until such tax or charge has been paid or it has been
established to the Warrant Agent’s and the Company’s satisfaction that no such
tax or other charge is due.  The Company and each Initial Investor agree that
neither the issuance nor exercise of the Warrants is governed by
Section 83(a) of the Code or otherwise a compensatory transaction, and the
Company agrees that it will not deduct any amount as compensation in connection
with such issuance or exercise for federal income tax purpose.

 

12.3         Surrender of Certificates.  Any Warrant Certificate surrendered for
exercise or purchase shall, if surrendered to the Company, be delivered to the
Warrant Agent, and all Warrant Certificates surrendered or so delivered to the
Warrant Agent shall be promptly cancelled by the Warrant Agent and shall not be
reissued by the Company. The Warrant Agent shall destroy such cancelled Warrant
Certificates.

 

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12.4         Mutilated, Destroyed, Lost and Stolen Warrant Certificates.  If
(a) any mutilated Warrant Certificate is surrendered to the Warrant Agent or
(b) the Company and the Warrant Agent receive evidence to their satisfaction of
the destruction, loss or theft of any Warrant Certificate, and there is
delivered to the Company and the Warrant Agent such appropriate affidavit of
loss, applicable processing fee and a corporate bond of indemnity as may be
required by them and satisfactory to them to save each of them harmless, then,
in the absence of notice to the Company or the Warrant Agent that such Warrant
Certificate has been acquired by a bona fide purchaser, the Company shall
execute and upon its written request the Warrant Agent shall countersign and
deliver, in exchange for any such mutilated Warrant Certificate or in lieu of
any such destroyed, lost or stolen Warrant Certificate, a new Warrant
Certificate of like tenor and for a like aggregate number of Warrants.

 

Upon the issuance of any new Warrant Certificate under this Section 12.4, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and other expenses
(including the reasonable fees and expenses of the Warrant Agent and of counsel
to the Company) in connection therewith.

 

Every new Warrant Certificate executed and delivered pursuant to this
Section 12.4 in lieu of any destroyed, lost or stolen Warrant Certificate shall
constitute an original contractual obligation of the Company, whether or not the
destroyed, lost or stolen Warrant Certificate shall be at any time enforceable
by anyone, and shall be entitled to the benefits of this Agreement equally and
proportionately with any and all other Warrant Certificates of like tenor
properly completed and duly executed and delivered hereunder.

 

The provisions of this Section 12.4 are exclusive and shall preclude (to the
extent lawful) all other rights or remedies with respect to the replacement of
mutilated, destroyed lost or stolen Warrant Certificates.

 

12.5         Removal of Legends.  Certificates evidencing the Warrants and
shares of Common Stock issued upon exercise of the Warrants shall not be
required to contain any legend referenced in Sections 2.1 or 3.6(e) (A) while a
registration statement covering the resale of the Warrants or the shares of
Common Stock is effective under the Securities Act, or (B) following any sale of
any such Warrants or shares of Common Stock pursuant to Rule 144, or
(C) following receipt of a legal opinion of counsel to Holder that the remaining
Warrants or shares of Common Stock held by Holder are eligible for resale
without volume limitations or limitations on manner of sale under Rule 144.  In
addition, the Company and the Warrant Agent will agree to the removal of all
legends with respect to Warrants or shares of Common Stock deposited with DTC
from time to time in anticipation of sale in accordance with the volume
limitations and other limitations under Rule 144, subject to the Company’s
approval of appropriate procedures, such approval not to be unreasonably
withheld, conditioned or delayed.

 

Following the time at which any such legend is no longer required (as provided
above) for certain Warrants or shares of Common Stock, the Company shall
promptly, following the delivery by Holder to the Warrant Agent of a legended
certificate representing such Warrants or shares of Common Stock, as applicable,
deliver or cause to be delivered to the Holder a certificate representing such
Warrants or shares of Common Stock that is free from such legend.  In the event
any of the legends referenced in Sections 2.1 or 3.6(e) are removed from any of
the

 

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Warrants or shares of Common Stock, and thereafter the effectiveness of a
registration statement covering such Warrants or shares of Common Stock is
suspended or the Company determines that a supplement or amendment thereto is
required by applicable securities Laws, then the Company may require that such
legends, as applicable, be placed on any such applicable Warrants or shares of
Common Stock that cannot then be sold pursuant to an effective registration
statement or under Rule 144 and Holder shall cooperate in the replacement of
such legend.  Such legend shall thereafter be removed when such Warrants or
shares of Common Stock may again be sold pursuant to an effective registration
statement or under Rule 144.

 

12.6         Notices.  (a)  Any notice, demand or delivery authorized by this
Agreement shall be sufficiently given or made when mailed if sent by first-class
mail, postage prepaid, addressed to any Holder of a Warrant at such Holder’s
address shown on the register of the Company maintained by the Warrant Agent and
to the Company or the Warrant Agent as follows:

 

If to the Company, to:

 

The Howard Hughes Corporation

13355 Noel Road, Suite 950

Dallas, TX 75240

Attention:        General Counsel

Facsimile: (214) 741-3021

 

with a copy (which shall not constitute notice) to:

 

Jones Day
2727 N. Harwood St.
Dallas, Texas 75201

Attention:        James E. O’Bannon

Facsimile: (214) 969-5100

 

If to the Warrant Agent, to:

 

Mellon Investor Services LLC

200 W. Monroe Street, Suite 1590

Chicago, IL 60606

Attention: Relationship Manager

Facsimile: (312) 325-7610

 

with a copy to:

 

Mellon Investor Services LLC

Newport Office Center VII

480 Washington Blvd.

Jersey City, NJ 07310

Attention:  General Counsel

Facsimile: 201-680-4610

 

28

--------------------------------------------------------------------------------

 

or such other address as shall have been furnished to the party giving or making
such notice, demand or delivery.

 

(b)           Any notice required to be given by the Company to the Holders
pursuant to this Agreement, shall be made by mailing by registered mail, return
receipt requested, to the Holders at their respective addresses shown on the
register of the Company maintained by the Warrant Agent. The Company hereby
irrevocably authorizes the Warrant Agent, in the name and at the expense of the
Company, to mail any such notice upon receipt thereof from the Company. Any
notice that is mailed in the manner herein provided shall be conclusively
presumed to have been duly given when mailed, whether or not the Holder receives
the notice.

 

12.7         Applicable Law; Jurisdiction.  This Agreement and each Warrant
issued hereunder and all rights arising hereunder shall be governed by the
internal laws of the State of New York.  In connection with any action, suit or
proceeding arising out of or relating to this Agreement or the Warrants, the
parties hereto and each Holder irrevocably submit to (i) the exclusive
jurisdiction of the United States Bankruptcy Court for the Southern District of
New York until the chapter 11 cases of General Growth Properties, Inc. and its
Affiliates are closed, and (ii) the nonexclusive jurisdiction of any federal or
state court located within the County of New York, State of New York.

 

12.8         Persons Benefiting.  This Agreement shall be binding upon and inure
to the benefit of the Company and the Warrant Agent, and their respective
successors, assigns, beneficiaries, executors and administrators, and the
Holders from time to time of the Warrants.  The Holders of the Warrants are
express third party beneficiaries of this Agreement and each such Holder of
Warrants is hereby conferred the benefits, rights and remedies under or by
reason of the provisions of this Agreement as if a signatory hereto.  Nothing in
this Agreement is intended or shall be construed to confer upon any Person,
other than the Company, the Warrant Agent and the Holders of the Warrants, any
right, remedy or claim under or by reason of this Agreement or any part hereof.

 

12.9         Counterparts.  This Agreement may be executed in any number of
counterparts, each or which shall be deemed an original, but all of which
together constitute one and the same instrument.

 

12.10       Amendments.  (a)  The Company and the Warrant Agent may from time to
time supplement or amend this Agreement without the approval of any Holder in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
or to make any other provisions with regard to matters or questions arising
hereunder which the Company and the Warrant Agent may deem necessary or
desirable and, in each case, which shall not adversely affect the interests of
any Holder.

 

(b)           In addition to the foregoing, with the consent of the
Supermajority Holders, the Company and the Warrant Agent may modify this
Agreement for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Warrant Agreement or modifying in
any manner the rights of the Holders hereunder; provided, however, that no
modification effecting the terms upon which the Warrants are exercisable,

 

29

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redeemable or transferable, or reduction in the percentage required for consent
to modification of this Agreement, may be made without the consent of each
Holder affected thereby.

 

12.11       Headings.  The descriptive headings of the several Articles and
Sections of this Agreement are inserted for convenience and shall not control or
affect the meaning or construction of any of the provisions hereof.

 

12.12       Entire Agreement.  This Agreement constitutes the entire agreement
and supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof. In the event of
any conflict, discrepancy, or ambiguity between the terms and conditions
contained in this Agreement and any schedules or attachments hereto, the terms
and conditions contained in this Agreement shall take precedence.

 

12.13       Specific Performance.  The parties shall be entitled to specific
performance of the terms of this Agreement.  Each of the parties hereto hereby
waives (i) any defenses in any action for specific performance, including the
defense that a remedy at law would be adequate and (ii) any requirement under
any Law to post a bond or other security as a prerequisite to obtaining
equitable relief.

 

[signature page follows]

 

30

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.

 

 

 

THE HOWARD HUGHES CORPORATION

 

 

 

By:

/s/ Rael Diamond

 

 

 

 

Name:

Rael Diamond

 

 

 

 

Title:

Interim Chief Financial Officer

 

 

 

 

 

MELLON INVESTOR SERVICES LLC,

 

as Warrant Agent

 

 

 

 

 

By:

/s/ Thomas Blatchford

 

 

 

 

Name:

Thomas Blatchford

 

 

 

 

Title:

Vice President

 

[SIGNATURE PAGE TO THHC WARRANT AGREEMENT]

 

--------------------------------------------------------------------------------

 

EXHIBIT A-1

 

FORM OF FACE OF WARRANT CERTIFICATE

 

THESE WARRANTS AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS. THESE WARRANTS AND SUCH SECURITIES MAY BE
OFFERED, SOLD OR TRANSFERRED ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH
ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS AND SUBJECT TO THE PROVISIONS OF
THE WARRANT AGREEMENT DATED AS OF NOVEMBER         , 2010 BETWEEN THE HOWARD
HUGHES CORPORATION (THE “COMPANY”) AND MELLON INVESTOR SERVICES LLC, WARRANT
AGENT. A COPY OF SUCH WARRANT AGREEMENT IS AVAILABLE AT THE OFFICES OF THE
COMPANY.

 

WARRANTS TO PURCHASE COMMON STOCK
OF THE HOWARD HUGHES CORPORATION

 

No.                                   

Certificate for                                    Series A-1 Warrants

 

This certifies that [HOLDER], or registered assigns, is the registered holder of
the number of Series A-1 Warrants set forth above. Each Series A-1 Warrant
entitles the holder thereof (a “Holder”), subject to the provisions contained
herein and in the Warrant Agreement referred to below, to purchase from THE
HOWARD HUGHES CORPORATION (the “Company”) a number of shares of the Company’s
common stock, par value $0.01 (“Common Stock”), equal to $50.00 divided by the
Exercise Price (as defined in the Warrant Agreement referred to below), for a
price per share of Common Stock equal to the Exercise Price.

 

This Warrant Certificate is issued under and in accordance with the Warrant
Agreement, dated as of November         , 2010 (the “Warrant Agreement”),
between the Company and Mellon Investor Services LLC, a New Jersey limited
liability company, as warrant agent (the “Warrant Agent”, which term includes
any successor Warrant Agent under the Warrant Agreement), and is subject to the
terms and provisions contained in the Warrant Agreement, to all of which terms
and provisions the Holder of this Warrant Certificate consents by acceptance
hereof. The Warrant Agreement is hereby incorporated herein by reference and
made a part hereof. Reference is hereby made to the Warrant Agreement for a full
statement of the respective rights, limitations of rights, duties, obligations
and immunities thereunder of the Company, the Warrant Agent and the Holders of
the Warrants.

 

This Warrant Certificate shall terminate and be void as of the close of business
on November         , 2017 (the “Expiration Date”).

 

As provided in the Warrant Agreement and subject to the terms and conditions
therein set forth, the Series A-1 Warrants shall be exercisable from time to
time on any Business Day and ending on the Expiration Date.

 

--------------------------------------------------------------------------------

 

The Exercise Price and the number of shares of Common Stock issuable upon the
exercise of each Series A-1 Warrant are subject to adjustment as provided in the
Warrant Agreement.

 

All shares of Common Stock issuable by the Company upon the exercise of
Series A-1 Warrants shall, upon such issue, be duly and validly issued and fully
paid and non-assessable.

 

In order to exercise a Series A-1 Warrant, the registered holder hereof must
surrender this Warrant Certificate at the corporate trust office of the Warrant
Agent, with the Exercise Subscription Form on the reverse hereof duly executed
by the Holder hereof, with signature guaranteed as therein specified, together
with any required payment in full of the Exercise Price (unless the Holder shall
have elected Net Share Settlement, as such term is defined in the Warrant
Agreement) then in effect for the shares(s) of Underlying Common Stock as to
which the Series A-1 Warrant(s) represented by this Warrant Certificate are
submitted for exercise, all subject to the terms and conditions hereof and of
the Warrant Agreement.

 

The Company shall pay all transfer, stamp and other similar taxes that may be
imposed in respect of the issuance or delivery of the Series A-1 Warrants or in
respect of the issuance or delivery by the Company of any securities upon
exercise of the Series A-1 Warrants with respect thereto. The Company shall not
be required, however, to pay any tax or other charge imposed in connection with
any transfer involved in the issue of any Series A-1 Warrants, certificate for
shares of Common Stock or other securities underlying the Series A-1 Warrants or
payment of cash in each case to any Person other than the Holder of a Warrant
Certificate surrendered upon the exercise or purchase of a Series A-1 Warrant,
and in case of such transfer or payment, the Warrant Agent and the Company shall
not be required to issue any security or to pay any cash until such tax or
charge has been paid or it has been established to the Warrant Agent’s and the
Company’s satisfaction that no such tax or other charge is due.

 

This Warrant Certificate and all rights hereunder are transferable by the
registered holder hereof, subject to the terms of the Warrant Agreement, in
whole or in part, on the register of the Company, upon surrender of this Warrant
Certificate for registration of transfer at the office of the Warrant Agent
maintained for such purpose in the City of New York, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Warrant Agent duly executed by, the Holder hereof or his
attorney duly authorized in writing, with signature guaranteed as specified in
the attached Form of Assignment. Upon any partial transfer, the Company will
issue and deliver to such holder a new Warrant Certificate or Certificates with
respect to any portion not so transferred.

 

No service charge shall be made to a Holder for any registration of transfer or
exchange of the Warrant Certificates, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.

 

Subject to compliance with any restrictions on transfer under applicable law and
this Warrant Agreement, each taker and holder of this Warrant Certificate by
taking or holding the same, consents and agrees that this Warrant Certificate
when duly endorsed in blank shall be deemed negotiable and that when this
Warrant Certificate shall have been so endorsed, the holder hereof may be
treated by the Company, the Warrant Agent and all other Persons dealing

 

2

--------------------------------------------------------------------------------

 

with this Warrant Certificate as the absolute owner hereof for any purpose and
as the Person entitled to exercise the rights represented hereby, or to the
transfer hereof on the register of the Company maintained by the Warrant Agent,
any notice to the contrary notwithstanding, but until such transfer on such
register, the Company and the Warrant Agent may treat the registered Holder
hereof as the owner for all purposes.

 

This Warrant Certificate and the Warrant Agreement are subject to amendment as
provided in the Warrant Agreement.

 

All terms used in this Warrant Certificate that are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.

 

Copies of the Warrant Agreement are on file at the office of the Company and the
Warrant Agent and may be obtained by writing to the Company or the Warrant Agent
at the following address: Mellon Investor Services LLC, 200 W. Monroe Street,
Suite 1590, Chicago, IL 60606.

 

This Warrant Certificate shall not be valid for any purpose until it shall have
been countersigned by the Warrant Agent.

 

Dated: November         , 2010

 

 

 

 

THE HOWARD HUGHES CORPORATION

 

 

 

 

 

By:

 

 

 

Name and Title:

 

 

 

 

By:

 

 

 

Name and Title:

 

 

Countersigned:

 

 

 

Mellon Investor Services LLC, as Warrant Agent

 

 

 

By:

 

 

 

 

Name:

 

 

Authorized Officer

 

 

3

--------------------------------------------------------------------------------

 

EXHIBIT A

 

FORM OF REVERSE OF SERIES A-1 WARRANT CERTIFICATE

 

EXERCISE SUBSCRIPTION FORM

 

(To be executed only upon exercise of Warrant)

 

To:                                             

 

The undersigned irrevocably exercises
                                             of the Series A-1 Warrants for the
purchase of one share (subject to adjustment in accordance with the Warrant
Agreement) of common stock, par value $0.01, of The Howard Hughes Corporation
for each Series A-1 Warrant represented by the Warrant Certificate and herewith
(i) elects for Net Share Settlement of such Series A-1 Warrants by marking X in
the space that follows         , or (ii) makes payment of
$                               (such payment being by means permitted by the
Warrant Agreement and the within Warrant Certificate), in each case at the
Exercise Price and on the terms and conditions specified in the within Warrant
Certificate and the Warrant Agreement therein referred to, and herewith
surrenders this Warrant Certificate and all right, title and interest therein to
                                                 and directs that the shares of
Common Stock deliverable upon the exercise of such Series A-1 Warrants be
registered in the name and delivered at the address specified below.

 

Date

 

 

 

 

 

 

 

 

 

*

 

 

(Signature of Owner)

 

 

 

 

 

 

 

 

 

(Street Address)

 

 

 

 

 

 

 

 

(City)

(State) (Zip Code)

 

 

 

 

 

Signature Guaranteed by:

 

 

 

 

 

 

 

--------------------------------------------------------------------------------

*                                         The signature must correspond with the
name as written upon the face of the within Warrant Certificate in every
particular, without alteration or enlargement or any change whatever, and must
be guaranteed by a participant in a Medallion Signature Guarantee Program at a
guarantee level acceptable to the Company’s transfer agent.

 

--------------------------------------------------------------------------------

 

Securities to be issued to:

 

 

Please insert social security or identifying number:

 

 

Name:

 

 

Street Address:

 

 

City, State and Zip Code:

 

 

Any unexercised Series A-1 Warrants evidenced by the within Warrant Certificate
to be issued to:

 

 

Please insert social security or identifying number:

 

 

Name:

 

 

Street Address:

 

 

City, State and Zip Code:

 

2

--------------------------------------------------------------------------------

 

EXHIBIT A-2

 

FORM OF FACE OF WARRANT CERTIFICATE

 

THESE WARRANTS AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS. THESE WARRANTS AND SUCH SECURITIES MAY BE
OFFERED, SOLD OR TRANSFERRED ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH
ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS AND SUBJECT TO THE PROVISIONS OF
THE WARRANT AGREEMENT DATED AS OF NOVEMBER         , 2010 BETWEEN THE HOWARD
HUGHES CORPORATION (THE “COMPANY”) AND MELLON INVESTOR SERVICES LLC, WARRANT
AGENT. A COPY OF SUCH WARRANT AGREEMENT IS AVAILABLE AT THE OFFICES OF THE
COMPANY.

 

WARRANTS TO PURCHASE COMMON STOCK
OF THE HOWARD HUGHES CORPORATION

 

No.                                   

Certificate for

Series A-2 Warrants

 

This certifies that [HOLDER], or registered assigns, is the registered holder of
the number of Series A-2 Warrants set forth above. Each Series A-2 Warrant
entitles the holder thereof (a “Holder”), subject to the provisions contained
herein and in the Warrant Agreement referred to below, to purchase from THE
HOWARD HUGHES CORPORATION (the “Company”) by means of Net Share Settlement (as
defined in the Warrant Agreement defined below) a number of shares of the
Company’s common stock, par value $0.01 (“Common Stock”), equal to $50.00
divided by the Exercise Price (as defined in the Warrant Agreement referred to
below), for a price per share of Common Stock equal to the Exercise Price.

 

This Warrant Certificate is issued under and in accordance with the Warrant
Agreement, dated as of November         , 2010 (the “Warrant Agreement”),
between the Company and Mellon Investor Services LLC, a New Jersey limited
liability company, as warrant agent (the “Warrant Agent”, which term includes
any successor Warrant Agent under the Warrant Agreement), and is subject to the
terms and provisions contained in the Warrant Agreement, to all of which terms
and provisions the Holder of this Warrant Certificate consents by acceptance
hereof. The Warrant Agreement is hereby incorporated herein by reference and
made a part hereof. Reference is hereby made to the Warrant Agreement for a full
statement of the respective rights, limitations of rights, duties, obligations
and immunities thereunder of the Company, the Warrant Agent and the Holders of
the Warrants.

 

This Warrant Certificate shall terminate and be void as of the close of business
on November         , 2017 (the “Expiration Date”).

 

As provided in the Warrant Agreement and subject to the terms and conditions
therein set forth, the Series A-2 Warrants shall be exercisable from time to
time on any Business Day and ending on the Expiration Date.

 

3

--------------------------------------------------------------------------------

 

The Exercise Price and the number of shares of Common Stock issuable upon the
exercise of each Series A-2 Warrant are subject to adjustment as provided in the
Warrant Agreement.

 

All shares of Common Stock issuable by the Company upon the exercise of
Series A-2 Warrants shall, upon such issue, be duly and validly issued and fully
paid and non-assessable.

 

In order to exercise a Series A-2 Warrant, the registered holder hereof must
surrender this Warrant Certificate at the corporate trust office of the Warrant
Agent, with the Exercise Subscription Form on the reverse hereof duly executed
by the Holder hereof, with signature guaranteed as therein specified, all
subject to the terms and conditions hereof and of the Warrant Agreement.

 

The Company shall pay all transfer, stamp and other similar taxes that may be
imposed in respect of the issuance or delivery of the Series A-2 Warrants or in
respect of the issuance or delivery by the Company of any securities upon
exercise of the Series A-2 Warrants with respect thereto. The Company shall not
be required, however, to pay any tax or other charge imposed in connection with
any transfer involved in the issue of any Series A-2 Warrants, certificate for
shares of Common Stock or other securities underlying the Series A-2 Warrants or
payment of cash in each case to any Person other than the Holder of a Warrant
Certificate surrendered upon the exercise or purchase of a Series A-2 Warrant,
and in case of such transfer or payment, the Warrant Agent and the Company shall
not be required to issue any security or to pay any cash until such tax or
charge has been paid or it has been established to the Warrant Agent’s and the
Company’s satisfaction that no such tax or other charge is due.

 

This Warrant Certificate and all rights hereunder are transferable by the
registered holder hereof, subject to the terms of the Warrant Agreement, in
whole or in part, on the register of the Company, upon surrender of this Warrant
Certificate for registration of transfer at the office of the Warrant Agent
maintained for such purpose in the City of New York, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Warrant Agent duly executed by, the Holder hereof or his
attorney duly authorized in writing, with signature guaranteed as specified in
the attached Form of Assignment. Upon any partial transfer, the Company will
issue and deliver to such holder a new Warrant Certificate or Certificates with
respect to any portion not so transferred.

 

No service charge shall be made to a Holder for any registration of transfer or
exchange of the Warrant Certificates, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.

 

Subject to compliance with any restrictions on transfer under applicable law and
this Warrant Agreement, each taker and holder of this Warrant Certificate by
taking or holding the same, consents and agrees that this Warrant Certificate
when duly endorsed in blank shall be deemed negotiable and that when this
Warrant Certificate shall have been so endorsed, the holder hereof may be
treated by the Company, the Warrant Agent and all other Persons dealing with
this Warrant Certificate as the absolute owner hereof for any purpose and as the
Person entitled to exercise the rights represented hereby, or to the transfer
hereof on the register of the Company maintained by the Warrant Agent, any
notice to the contrary notwithstanding, but until

 

4

--------------------------------------------------------------------------------

 

such transfer on such register, the Company and the Warrant Agent may treat the
registered Holder hereof as the owner for all purposes.

 

This Warrant Certificate and the Warrant Agreement are subject to amendment as
provided in the Warrant Agreement.

 

All terms used in this Warrant Certificate that are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.

 

Copies of the Warrant Agreement are on file at the office of the Company and the
Warrant Agent and may be obtained by writing to the Company or the Warrant Agent
at the following address: Mellon Investor Services LLC, 200 W. Monroe Street,
Suite 1590, Chicago, IL 60606.

 

This Warrant Certificate shall not be valid for any purpose until it shall have
been countersigned by the Warrant Agent.

 

Dated: November         , 2010

 

 

 

 

 

 

THE HOWARD HUGHES CORPORATION

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

Countersigned:

 

 

 

Mellon Investor Services LLC, as Warrant Agent

 

 

 

By:

/s/

 

 

 

Name:

 

 

 

Authorized Officer

 

 

 

5

--------------------------------------------------------------------------------

 

EXHIBIT A

 

FORM OF REVERSE OF SERIES A-2 WARRANT CERTIFICATE

 

EXERCISE SUBSCRIPTION FORM

 

(To be executed only upon exercise of Warrant)

 

To:                                             

 

The undersigned irrevocably exercises
                                             of the Series A-2 Warrants for the
purchase of one share (subject to adjustment in accordance with the Warrant
Agreement) of common stock, par value $0.01, of The Howard Hughes Corporation
for each Series A-2 Warrant represented by the Warrant Certificate by means of
Net Share Settlement of such Series A-2 Warrants, at the Exercise Price and on
the terms and conditions specified in the within Warrant Certificate and the
Warrant Agreement therein referred to, and herewith surrenders this Warrant
Certificate and all right, title and interest therein to
                                                 and directs that the shares of
Common Stock deliverable upon the exercise of such Series A-2 Warrants be
registered in the name and delivered at the address specified below.

 

Date

 

 

 

 

 

 

 

 

 

*

 

 

(Signature of Owner)

 

 

 

 

 

 

 

 

 

(Street Address)

 

 

 

 

 

 

 

 

(City)

(State) (Zip Code)

 

 

 

 

 

Signature Guaranteed by:

 

 

 

 

 

 

 

--------------------------------------------------------------------------------

*                                         The signature must correspond with the
name as written upon the face of the within Warrant Certificate in every
particular, without alteration or enlargement or any change whatever, and must
be guaranteed by a participant in a Medallion Signature Guarantee Program at a
guarantee level acceptable to the Company’s transfer agent.

 

1

--------------------------------------------------------------------------------

 

Securities to be issued to:

 

 

Please insert social security or identifying number:

 

 

Name:

 

 

Street Address:

 

 

City, State and Zip Code:

 

 

Any unexercised Series A-2 Warrants evidenced by the within Warrant Certificate
to be issued to:

 

 

Please insert social security or identifying number:

 

 

Name:

 

 

Street Address:

 

 

City, State and Zip Code:

 

2

--------------------------------------------------------------------------------

 

EXHIBIT B

 

FORM OF ASSIGNMENT

 

FOR VALUE RECEIVED the undersigned registered holder of the within Warrant
Certificate hereby sells, assigns, and transfers unto the Assignee(s) named
below (including the undersigned with respect to any Warrants constituting a
part of the Warrants evidenced by the within Warrant Certificate not being
assigned hereby) all of the right of the undersigned under the within Warrant
Certificate, with respect to the number of Warrants set forth below:

 

Names of Assignees

 

Address

 

Social Security or
other Identifying
Number of
Assignee(s)

 

Series and
Number of
Warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

--------------------------------------------------------------------------------

 

and does hereby irrevocably constitute and appoint                             
the undersigned’s attorney to make such transfer on the books of
                         maintained for that purpose, with full power of
substitution in the premises.

 

Date:

 

 

 

 

 

 

 

 

 

*

 

 

(Signature of Owner)

 

 

 

 

 

 

 

 

 

(Street Address)

 

 

 

 

 

 

 

 

(City)

(State) (Zip Code)

 

 

 

 

 

Signature Guaranteed by:

 

 

 

 

 

 

 

--------------------------------------------------------------------------------

*                                         The signature must correspond with the
name as written upon the face of the within Warrant Certificate in every
particular, without alteration or enlargement or any change whatever, and must
be guaranteed by a participant in a Medallion Signature Guarantee Program at a
guarantee level acceptable to the Company’s transfer agent.

 

2

--------------------------------------------------------------------------------

 

EXHIBIT C

 

Option Pricing Assumptions / Methodology

 

For the purpose of this Exhibit C:

 

“Acquiror” means (A) the third party that has entered into definitive document
for a transaction, or (B) the offeror in the event of a tender or exchange
offer.

 

“Reference Date” means the date of consummation of a Change of Control Event.

 

The Cash Redemption Value of the Warrants shall be determined using the
Black-Scholes Model as applied to third party options (i.e., options issued by a
third party that is not affiliated with the issuer of the underlying stock). 
For purposes of the model, the following terms shall have the respective
meanings set forth below:

 

Underlying Security Price:

 

·      In the event of a merger or other acquisition,

 

(A)   that is an “all cash” deal, the cash per share of Common Stock to be paid
to the Company’s stockholders in the transaction;

 

(B)   that is an “all Public Stock” deal,

 

(1) that is a “fixed exchange ratio” transaction, a “fixed value” transaction
where as a result of a cap, floor, collar or similar mechanism the number of
Acquiror’s shares to be paid per share of Common Stock to the Company’s
stockholders in the transaction is greater or less than it would otherwise have
been or a transaction that is not otherwise described in this clause (B)(1) or
clause (B)(2) below, the product of (i) the Fair Market Value of the Acquiror’s
common stock on the day preceding the date of the Preliminary Change of Control
Event and (ii) the number of Acquiror’s shares per share of Common Stock to be
paid to the Company’s stockholders in the transaction (provided that the
Independent Financial Expert shall make appropriate adjustments to the Fair
Market Value of the Acquiror’s common stock referred to above as may be
necessary or appropriate to effectuate the intent of this Exhibit C and to avoid
unjust or inequitable results as determined in its reasonable good faith
judgment, in each case to account for any event impacting the Acquiror’s common
stock that is analogous to any of the events described in Article V of this
Agreement if the record date, ex date or effective date of that event occurs
during or after the 10 trading

 

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day period over which such Fair Market Value is measured) and

 

(2) that is a “fixed value” transaction not covered by clause (B)(1) above, the
value per share of Common Stock to be paid to the Company’s stockholders in the
transaction;

 

(C)   that is a transaction contemplating various forms of consideration for
each share of Common Stock,

 

(1) the cash portion, if any, shall be valued as described in clause (A) above,

 

(2) the Public Stock portion shall be valued as described in clause (B) above
and

 

(3) any other forms of consideration shall be valued by the Independent
Financial Expert valuing the Warrants, using one or more valuation methods that
the Independent Financial Expert in its best professional judgment determines to
be most appropriate, assuming such consideration (if securities) is fully
distributed and is to be sold in an arm’s-length transaction and there was no
compulsion on the part of any party to such sale to buy or sell and taking into
account all relevant factors and without applying any discounts to such
consideration.

 

 

 

 

 

·      In the event of all other Change of Control Event events, the Fair Market
Value per share of the Common Stock on the last trading day preceding the date
of the Change of Control Event.

 

 

 

Exercise Price:

 

The Exercise Price as adjusted and then in effect for the Warrant.

 

 

 

Dividend Rate:

 

0 (which reflects the fact that the antidilution adjustment provisions cover all
dividends).

 

 

 

Interest Rate:

 

The annual yield as of the Reference Date (expressed on a semi-annual basis in
the manner in which U.S. treasury notes are ordinarily quoted) of the U.S.
treasury note maturing approximately at the Expiration Date as selected by the
Independent Financial Expert.

 

 

 

Put or Call:

 

Call

 

--------------------------------------------------------------------------------

 

Time to Expiration

 

The number of days from the Expiration Date (as defined in Section 3.3) to the
Reference Date divided by 365.

 

 

 

Settlement Date:

 

The scheduled date of payment of the Cash Redemption Value.

 

 

 

Volatility:

 

For calculation of Cash Redemption Value in connection with a Change of Control
Event with respect to the Warrants, the lesser of (A) 30% or (B) the volatility
of the Company as determined by an Independent Financial Expert engaged to make
the calculation, who shall be instructed to assume for purposes of the
determination of volatility referred to in this clause (B) that the Change of
Control Event had not occurred; provided, however, that if the Warrants are
adjusted as a result of a Change of Control Event, volatility for purposes of
calculating Cash Redemption Value in connection with succeeding Change of
Control Events with respect to such warrants (or their successors) shall be as
determined by an Independent Financial Expert engaged to make the calculation,
who shall be instructed to assume for purposes of the calculation that such
succeeding Change of Control Event had not occurred.

 

Such valuation of the Warrant shall not be discounted in any way.

 

For illustrative purposes only, an example Black-Scholes model calculation with
respect to a hypothetical warrant appears on the following page.

 

--------------------------------------------------------------------------------

 

Illustrative Example

 

Inputs:

 

S = Underlying Security Price

 

X = Exercise Price

 

PV(X) = Present value of the Exercise Price, discounted at a rate of R = X *
(e^-(R * T))

 

V = Volatility

 

R = continuously compounded risk free rate = 2 * [ ln (1 + Interest Rate / 2) ]

 

T = Time to Expiration

 

W = warrant value per underlying share

 

Z = number of shares underlying warrants

 

Value = total warrant value

 

Formulaic inputs:

 

D1 = [ ln [ S / X ] + (R + (V^2 / 2)) * T)] ÷ (V * ÖT)

 

D2 = [ ln [ S / X ] + (R - (V^2 / 2)) * T)] ÷ (V * ÖT)

 

Black-Scholes Formula

 

W = [N(D1) * S] – [N(D2) * PV(X)]

 

Where “N” is the cumulative normal probability function

 

Value = W * Z

 

 

Example of a Hypothetical Warrant:(1)

 

--------------------------------------------------------------------------------

(1)          Note:  Amounts calculated herein may not foot due to rounding
error.  For precise calculations, decimal points should not be rounded.

 

--------------------------------------------------------------------------------

 

Inputs:

 

Interest Rate = 4.00%

 

S = $50.00

 

X = $60.00

 

PV(X) = $55.43

 

V = 25%

 

R = 3.96%

 

T = 2

 

Z = 100

 

Formulaic inputs:

 

D1                                = [ ln [ S / X ] + (R + (V^2 / 2)) * T)] ÷ (V
* ÖT)

 

= (-0.1149)

 

D2                                = [ ln [ S / X ] + (R - (V^2 / 2)) * T)] ÷ (V
* ÖT)

 

= (-0.4684)

 

Black-Scholes Formula

 

W                                   = [N(D1) * S] – [N(D2) * PV(E)]

 

= $4.99

 

Total Warrant Value

 

Value                = W * Z

 

= $499

 

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SCHEDULE A

 

ALLOCATIONS OF WARRANTS TO INITIAL INVESTORS

 

Initial Investor

 

Total Number and Series of Warrants to be
Delivered to Initial Investor (on date of Warrant
Agreement)

Blackstone Purchaser

 

333,333 Series A-1 Warrants

Brookfield Purchaser

 

3,833,333 Series A-1 Warrants

Fairholme Purchasers

 

1,916,667 Series A-2 Warrants

Pershing Square Purchasers

 

1,916,667 Series A-2 Warrants

 

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SCHEDULE B

 

WARRANT AGENT COMPENSATION

 

Service Description

 

Fees

 

 

 

 

 

Warrant Agent

 

 

 

 

 

 

 

Initial Setup (one-time charge)

 

$

2,500.00

 

 

 

 

 

Annual Administration

 

$

3,500.00

 

 

 

 

 

Warrant Conversion Agent

 

 

 

 

 

 

 

Set Up and Administrative Fee

 

$

5,000.00

 

 

 

 

 

Processing Accounts, each

 

$

50.00

 

 

 

 

 

Conversions requiring additional handling

 

$

15.00

 

 

 

 

 

(window items, deficient items, correspondence items, legal items, items not
providing a taxpayer identification number, Transfer Requests, etc), additional
each

 

 

 

 

 

 

 

Requisitioning Funds, each requisition

 

$

25.00

 

 

 

 

 

Expiration

 

$

1,000.00

 

 

 

 

 

Special Services

 

Additional

 

 

 

 

 

Out of Pocket Expenses

 

Additional

 

 

 

 

 

Including Postage, Printing, Stationery, Overtime, Transportation,
Microfilming, Imprinting, Mailing, etc.

 

 

 

 

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