Document:

Exhibit 10.6

 

 

 

WARRANT AGREEMENT

 

BETWEEN

 

THE HOWARD HUGHES CORPORATION

 

AND

 

MELLON INVESTOR SERVICES LLC,

 

as WARRANT
AGENT

 

 

Dated as of November [      ], 2010

 

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  DEFINITIONS

  	
   

  
	
  2.

  	
  ORIGINAL ISSUE OF WARRANTS

  	
   

  
	
   

  	
  2.1

  	
  Form of
  Warrant Certificates

  	
  8

  
	
   

  	
  2.2

  	
  Execution
  and Delivery of Warrant Certificates; Vesting

  	
  9

  
	
  3.

  	
  EXERCISE PRICE; EXERCISE OF
  WARRANTS AND EXPIRATION OF WARRANTS

  	
   

  
	
   

  	
  3.1

  	
  Exercise
  Price

  	
  9

  
	
   

  	
  3.2

  	
  Exercise
  of Warrants

  	
  10

  
	
   

  	
  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 AND PROCEDURES
  AND LISTING

  	
   

  
	
   

  	
  4.1

  	
  Applicability;
  Registration

  	
  14

  
	
   

  	
  4.2

  	
  Expenses
  of Registration

  	
  14

  
	
   

  	
  4.3

  	
  Obligations
  of the Company

  	
  15

  
	
   

  	
  4.4

  	
  Suspension
  of Sales

  	
  22

  
	
   

  	
  4.5

  	
  Termination
  of Registration Rights

  	
  23

  
	
   

  	
  4.6

  	
  Furnishing
  Information

  	
  23

  
	
   

  	
  4.7

  	
  Indemnification

  	
  23

  
	
   

  	
  4.8

  	
  Contribution

  	
  25

  
	
   

  	
  4.9

  	
  Representations,
  Warranties and Indemnities to Survive

  	
  25

  
	
   

  	
  4.10

  	
  Lock-Up
  Agreements

  	
  25

  
	
   

  	
  4.11

  	
  Rule 144
  Reporting

  	
  26

  
	
   

  	
  4.12

  	
  Obtaining
  Exchange Listing

  	
  26

  
	
   

  	
  4.13

  	
  The
  Warrant Agent

  	
  26

  
	
  5.

  	
  ADJUSTMENTS AND OTHER RIGHTS

  	
   

  
	
   

  	
  5.1

  	
  Stock
  Dividend; Subdivision or Combination of Common Stock

  	
  15

  
	
   

  	
  5.2

  	
  Other
  Dividends and Distributions

  	
  15

  
	
   

  	
  5.3

  	
  Rights
  Offerings

  	
  16

  

 

i

 

	
   

  	
  5.4

  	
  Issuer
  Tender or Exchange Offers

  	
  17

  
	
   

  	
  5.5

  	
  Reorganization,
  Reclassification, Consolidation, Merger or Sale

  	
  17

  
	
   

  	
  5.6

  	
  Other
  Adjustments

  	
  18

  
	
   

  	
  5.7

  	
  Notice
  of Adjustment

  	
  18

  
	
  6.

  	
  CHANGE OF CONTROL

  	
   

  
	
   

  	
  6.1

  	
  Redemption
  in Connection with a Change of Control Event

  	
  19

  
	
   

  	
  6.2

  	
  Public
  Stock Merger

  	
  19

  
	
   

  	
  6.3

  	
  Mixed
  Consideration Merger

  	
  19

  
	
   

  	
  6.4

  	
  The
  Warrant Agent

  	
  20

  
	
  7.

  	
  WARRANT TRANSFER BOOKS

  	
   

  
	
  8.

  	
  WARRANT HOLDERS

  	
   

  
	
   

  	
  8.1

  	
  No
  Voting Rights

  	
  21

  
	
   

  	
  8.2

  	
  Right
  of Action

  	
  21

  
	
  9.

  	
  WARRANT AGENT

  	
   

  
	
   

  	
  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

  	
   

  
	
   

  	
  10.1

  	
  Representations and Warranties of the Company

  	
  25

  
	
  11.

  	
  COVENANTS

  	
   

  
	
   

  	
  11.1

  	
  Reservation
  of Common Stock for Issuance on Exercise of Warrants

  	
  26

  
	
   

  	
  11.2

  	
  Notice
  of Distributions

  	
  26

  
	
  12.

  	
  MISCELLANEOUS

  	
   

  
	
   

  	
  12.1

  	
  Money
  and Other Property Deposited with the Warrant Agent

  	
  26

  
	
   

  	
  12.2

  	
  Payment
  of Taxes

  	
  26

  
	
   

  	
  12.3

  	
  Surrender
  of Certificates

  	
  27

  
	
   

  	
  12.4

  	
  Mutilated,
  Destroyed, Lost and Stolen Warrant Certificates

  	
  27

  
	
   

  	
  12.5

  	
  Removal
  of Legends

  	
  27

  
	
   

  	
  12.6

  	
  Notices

  	
  28

  

 

ii

 

	
   

  	
  12.7

  	
  Applicable
  Law; Jurisdiction

  	
  29

  
	
   

  	
  12.8

  	
  Persons
  Benefiting

  	
  29

  
	
   

  	
  12.9

  	
  Counterparts

  	
  29

  
	
   

  	
  12.10

  	
  Amendments

  	
  30

  
	
   

  	
  12.11

  	
  Headings

  	
  30

  
	
   

  	
  12.12

  	
  Entire
  Agreement

  	
  30

  
	
   

  	
  12.13

  	
  Specific
  Performance

  	
  30

  

 

iii

 

	
  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

  	
   

  

 

iv

 

WARRANT AGREEMENT

 

WARRANT AGREEMENT, dated as of [INSERT CLOSING DATE], 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 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 November [    ], 2010, by
and among the Company, Blackstone Real Estate Partners VI L.P. (the “Blackstone
Purchaser” and each of the Blackstone Purchaser, Brookfield Purchaser (as
defined herein), the Fairholme Purchasers and Pershing Square Purchasers, a “Purchaser”)
and each of Brookfield Retail Holdings LLC (formerly known as REP Investments
LLC), the Fairholme Purchasers and the Pershing Square Purchasers (the “Blackstone
Designations” and, together with the Blackstone Purchase Agreements, the “Blackstone
Agreements”) pursuant to each of which each Purchaser 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:

 

 

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
Agreements:  the meaning
set forth in the recitals hereto.

 

Blackstone
B Warrant:  means a
Warrant (whether held by a Blackstone Investor or by any transferee or any
other Person) that was initially issued to a Blackstone Investor pursuant to
the Brookfield Purchase Agreement (and the corresponding Blackstone
Designation) or its designees in accordance with the last sentence of Section 2.2(a).

 

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

 

Blackstone
F/P Warrant:  means a
Warrant (whether held by a Blackstone Investor or by any transferee or any
other Person) that was initially issued to a Blackstone Investor pursuant to
either the Fairholme Purchase Agreement or the Pershing Purchase Agreement (and
the corresponding Blackstone Designations) or its designees in accordance with
the last sentence of Section 2.2(a).

 

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:  the meaning
set forth in the recitals hereto.

 

Blackstone
Purchaser Group:  means the
Blackstone Purchaser, its investment manager 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.

 

2

 

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.

 

Brookfield
Warrant:  means a Warrant (whether held
by Brookfield Purchaser or a Brookfield Consortium Member or by any transferee
or any other Person) that was initially issued to [Brookfield Purchaser [Revise as appropriate if the Brookfield warrants are issued to another
Brookfield Consortium Member or to BAM, etc.]] pursuant to the
Investment Agreement or its designees in accordance with the last sentence of Section 2.2(a).

 

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.

 

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

 

3

 

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 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/Pershing
Warrant:  means a Warrant (whether held
by a Fairholme Investor,  Pershing
Investor or by any transferee or any other Person) that was initially issued to
a 

 

4

 

Fairholme
Investor or Pershing Investor pursuant to one of the Stock Purchase Agreements
or any of their designees in accordance with the last sentence of Section 2.2(a).

 

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,
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.

 

5

 

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.

 

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.

 

6

 

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, (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:  the meaning set forth in the recitals hereto.

 

Registration
Rights Agreements:   means those certain registration
rights agreements, dated as of November [    ], 2010, between the Company, and separately, each of (i) the Pershing
Investors and [    ](1), (ii) the Fairholme Investors and (iii) [Brookfield
Retail Holdings LLC (formerly known as REP Investments LLC) and any other Brookfield Consortium Members that hold Common Stock](2).

 

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.

 

(1)  Blackstone parties to be added once
finalized.

 

(2)  To be revised based on actual parties to
agreement.

 

7

 

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.

 

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 

 

8

 

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 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 

 

9

 

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.(3)

 

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).

 

(3)  These provisions are pending agreement on
revisions to the Non-Control Agreements.

 

10

 

(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 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

 

11

 

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.

 

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

 

12

 

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:

 

(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.

 

13

 

(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.

 

(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

 

14

 

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 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

 

15

 

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 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

 

16

 

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 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

 

17

 

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).

 

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

 

18

 

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
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

 

19

 

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 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

 

20

 

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.

 

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

 

21

 

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 (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

 

22

 

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 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

 

23

 

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.

 

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, 

 

24

 

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.

 

(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 

 

25

 

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 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 

 

26

 

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.

 

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

 

27

 

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 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

 

28

 

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

 

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.

 

29

 

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,
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

 

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:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MELLON
  INVESTOR SERVICES LLC,

  
	
   

  	
  as
  Warrant Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  

 

31

 

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
  and Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name
  and Title:

  
	
   

  	
   

  	
   

  
	
  Countersigned:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Mellon
  Investor Services LLC, as Warrant Agent

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:
  

  	
   

  	
   

  	
   

  
	
   

  	
  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

  

 

 

	
   

  	
  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 * T)

 

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

 

 

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:(4)

 

(4)          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
  * T)

  
	
   

  	
   

  
	
   

  	
  = (-0.1149)

  
	
   

  	
   

  
	
   

  	
   

  
	
  D2

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

  
	
   

  	
   

  
	
   

  	
  =
  (-0.4684)

  

 

 

Black-Scholes Formula

 

	
  W

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

  
	
   

  	
   

  
	
   

  	
  =
  $4.99

  

 

 

Total Warrant Value

 

	
  Value

  	
  = W * Z

  
	
   

  	
   

  
	
   

  	
  = $499

  

 

 

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

  

 

 

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.Exhibit 10.7

 

 

The Howard Hughes Corporation

2010 Long-Term Incentive Plan

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE 1.

  	
  ESTABLISHMENT &
  PURPOSE

  	
  1

  
	
   

  	
   

  	
   

  
	
  1.1

  	
  Establishment

  	
  1

  
	
  1.2

  	
  Purpose
  of the Plan

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2.

  	
  DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3.

  	
  ADMINISTRATION

  	
  4

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Authority
  of the Committee

  	
  4

  
	
  3.2

  	
  Delegation

  	
  4

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4.

  	
  ELIGIBILITY
  AND PARTICIPATION

  	
  4

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Eligibility

  	
  4

  
	
  4.2

  	
  Type
  of Awards

  	
  5

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5.

  	
  SHARES
  SUBJECT TO THE PLAN AND MAXIMUM AWARDS

  	
  5

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  General

  	
  5

  
	
  5.2

  	
  Annual
  Award Limits

  	
  5

  
	
  5.3

  	
  Additional
  Shares

  	
  5

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6.

  	
  STOCK
  OPTIONS

  	
  5

  
	
   

  	
   

  	
   

  
	
  6.1

  	
  Grant
  of Options

  	
  5

  
	
  6.2

  	
  Terms
  of Option Grant

  	
  6

  
	
  6.3

  	
  Option
  Term

  	
  6

  
	
  6.4

  	
  Method
  of Exercise

  	
  6

  
	
  6.5

  	
  Limitations
  on Incentive Stock Options

  	
  6

  
	
  6.6

  	
  Performance
  Goals

  	
  6

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7.

  	
  STOCK
  APPRECIATION RIGHTS

  	
  7

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  Grant
  of Stock Appreciation Rights

  	
  7

  
	
  7.2

  	
  Terms
  of Stock Appreciation Right

  	
  7

  
	
  7.3

  	
  Tandem
  Stock Appreciation Rights and Options

  	
  7

  
	
   

  	
   

  	
   

  
	
  ARTICLE 8.

  	
  RESTRICTED
  STOCK

  	
  7

  
	
   

  	
   

  	
   

  
	
  8.1

  	
  Grant
  of Restricted Stock

  	
  7

  
	
  8.2

  	
  Terms
  of Restricted Stock Awards

  	
  7

  
	
  8.3

  	
  Voting
  and Dividend Rights

  	
  7

  
	
  8.4

  	
  Performance
  Goals

  	
  8

  
	
  8.5

  	
  Section 83(b) Election

  	
  8

  

 

i

 

TABLE OF CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE 9.

  	
  OTHER
  STOCK-BASED AWARDS

  	
  8

  
	
   

  	
   

  	
   

  
	
  ARTICLE 10.

  	
  PERFORMANCE-BASED
  COMPENSATION

  	
  8

  
	
   

  	
   

  	
   

  
	
  10.1

  	
  Grant
  of Performance-Based Compensation

  	
  8

  
	
  10.2

  	
  Performance
  Measures

  	
  8

  
	
  10.3

  	
  Establishment
  of Performance Goals for Covered Employees

  	
  9

  
	
  10.4

  	
  Adjustment
  of Performance-Based Compensation

  	
  9

  
	
  10.5

  	
  Certification
  of Performance

  	
  9

  
	
  10.6

  	
  Interpretation

  	
  9

  
	
   

  	
   

  	
   

  
	
  ARTICLE 11.

  	
  COMPLIANCE
  WITH SECTION 409A OF THE CODE AND SECTION 457A OF THE CODE

  	
  9

  
	
   

  	
   

  	
   

  
	
  11.1

  	
  General

  	
  9

  
	
  11.2

  	
  Payments
  to Specified Employees

  	
  9

  
	
  11.3

  	
  Separation
  from Service

  	
  10

  
	
  11.4

  	
  Section 457A

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE 12.

  	
  ADJUSTMENTS

  	
  10

  
	
   

  	
   

  	
   

  
	
  12.1

  	
  Adjustments
  in Authorized Shares

  	
  10

  
	
  12.2

  	
  Change
  of Control

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE 13.

  	
  DURATION,
  AMENDMENT, MODIFICATION, SUSPENSION AND TERMINATION

  	
  11

  
	
   

  	
   

  	
   

  
	
  13.1

  	
  Duration
  of the Plan

  	
  11

  
	
  13.2

  	
  Amendment,
  Modification, Suspension and Termination of Plan

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE 14.

  	
  GENERAL
  PROVISIONS

  	
  11

  
	
   

  	
   

  	
   

  
	
  14.1

  	
  No
  Right to Service

  	
  11

  
	
  14.2

  	
  Settlement
  of Awards; Fractional Shares

  	
  11

  
	
  14.3

  	
  Tax
  Withholding

  	
  12

  
	
  14.4

  	
  No
  Guarantees Regarding Tax Treatment

  	
  12

  
	
  14.5

  	
  Non-Transferability
  of Awards

  	
  12

  
	
  14.6

  	
  Conditions
  and Restrictions on Shares

  	
  12

  
	
  14.7

  	
  Compliance
  with Law

  	
  12

  
	
  14.8

  	
  Rights
  as a Shareholder

  	
  13

  
	
  14.9

  	
  Severability

  	
  13

  
	
  14.10

  	
  Unfunded
  Plan

  	
  13

  

 

ii

 

TABLE OF CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  14.11

  	
  No
  Constraint on Corporate Action

  	
  13

  
	
  14.12

  	
  Successors

  	
  13

  
	
  14.13

  	
  Governing
  Law

  	
  13

  
	
  14.14

  	
  Data
  Protection

  	
  13

  
	
  14.15

  	
  Effective
  Date

  	
  14

  

 

iii

 

The Howard Hughes Corporation

Long-Term Incentive Plan

 

Article 1.               Establishment &
Purpose

 

1.1          Establishment.  The Howard Hughes Corporation, a Delaware
corporation  hereby establishes The
Howard Hughes Corporation 2010 Equity Incentive Plan (hereinafter referred to
as the “Plan”) as set forth in this document.

 

1.2          Purpose
of the Plan.  The purpose
of this Plan is to attract, retain and motivate officers, employees, and
non-employee directors providing services to the Company, any of its
Subsidiaries, or Affiliates and to promote the success of the Company’s
business by providing the participants of the Plan with appropriate incentives.

 

Article 2.               Definitions

 

Whenever capitalized in the
Plan, the following terms shall have the meanings set forth below.

 

2.1          “Affiliate” means any
entity that the Company, either directly or indirectly, is in common control
with, is controlled by or controls, or any entity in which the Company has a
substantial equity interest, direct or indirect; provided, however, to the extent
that Awards must cover “service recipient stock” in order to comply with Section 409A
of the Code, “Affiliate” shall be limited to those entities which could qualify
as an “eligible issuer” under Section 409A of the Code.

 

2.2          “Annual
Award Limit” shall have the meaning set forth in Section 5.2.

 

2.3          “Award” means any
Option, Stock Appreciation Right, Restricted Stock, Other Stock-Based Award, or
Performance-Based Compensation Award that is granted under the Plan.

 

2.4          “Award
Agreement” means either (a) a written agreement entered
into by the Company and a Participant setting forth the terms and provisions
applicable to an Award granted under this Plan, or (b) a written statement
issued by the Company, a Subsidiary, or Affiliate to a Participant describing
the terms and conditions of the actual grant of such Award.

 

2.5          “Beneficial
Owner” or “Beneficial Ownership”
shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act.

 

2.6          “Board” means the
Board of Directors of the Company.

 

2.7          “Change
of Control” unless otherwise specified in the Award Agreement,
means the occurrence of any of the following events:

 

(a)           any consolidation,
amalgamation, or merger of the Company with or into any other Person, or any
other corporate reorganization, business combination, transaction or transfer
of securities of the Company by its stockholders, or a series of transactions
(including the acquisition of capital stock of the Company), whether or not the
Company is a party thereto, in which the stockholders of the Company
immediately prior to such consolidation, merger, reorganization, business
combination or transaction, collectively have Beneficial Ownership, directly or
indirectly, of capital stock representing directly, or indirectly through one
or more entities, less than fifty percent (50%) of the equity (measured by 

 

1

 

economic value or voting
power (by contract, share ownership or otherwise) of the Company or other
surviving entity immediately after such consolidation, merger, reorganization,
business combination or transaction;

 

(b)           the sale or disposition, in
one transaction or a series of related transactions, of all or substantially
all of the assets of the Company to any Person;

 

(c)           during any period of twelve
consecutive months commencing on or after the Effective Date, individuals who
as of the beginning of such period constituted the entire Board (together with
any new directors whose election by such Board or nomination for election by
the Company’s shareholders was approved by a vote of at least two-thirds of the
directors of the Company, then still in office, who were directors at the
beginning of the period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority thereof;
or

 

(d)           approval by the shareholders
of the Company of a complete liquidation or dissolution of the Company.

 

2.8          “Code” means the U.S.
Internal Revenue Code of 1986, as amended from time to time.

 

2.9          “Committee” means the
Compensation Committee of the Board or any other committee designated by the
Board to administer this Plan.  To the
extent applicable, the Committee shall have at least two members, each of whom
shall be (i) a Non-Employee Director, (ii) an Outside Director, and (iii) an
“independent director” within the meaning of the listing requirements of any
exchange on which the Company is listed.

 

2.10        “Company” means The
Howard Hughes Corporation, a Delaware corporation, and any successor thereto.

 

2.11        “Covered Employee” means for any
Plan Year, a Participant designated by the Company as a potential “covered
employee” as such term is defined in Section 162(m) of the Code.

 

2.12        “Director” means a member
of the Board who is not an Employee.

 

2.13        “Effective Date” means the date
set forth in Section 14.15.

 

2.14        “Employee” means an
officer or other employee of the Company, a Subsidiary or Affiliate, including
a member of the Board who is an employee of the Company, a Subsidiary or
Affiliate.

 

2.15        “Exchange Act” means the
Securities Exchange Act of 1934, as amended from time to time.

 

2.16        “Fair Market Value” means, as of
any date, the per Share value determined as follows, in accordance with
applicable provisions of Section 409A of the Code:

 

(a)           The
closing price of a Share on a recognized national exchange or any established
over-the-counter trading system on which dealings take place, or if no trades
were made on any such day, the immediately preceding day on which trades were
made; or

 

2

 

(b)           In the absence of an
established market for the Shares of the type described in (a) above, the
per Share Fair Market Value thereof shall be determined by the Committee in good
faith and in accordance with applicable provisions of Section 409A of the
Code.

 

2.17        “Incentive
Stock Option” means an Option intended to meet the requirements
of an incentive stock option as defined in Section 422 of the Code and
designated as an Incentive Stock Option.

 

2.18        “Joint
Plan of Reorganization”
means that certain Joint Plan of Reorganization under Chapter 11 of the
Bankruptcy Code by the Company and certain of its Subsidiaries filed with the
United States Bankruptcy Court for the Southern District of New York on [·].

 

2.19        “Non-Employee Director” means a person
defined in Rule 16b-3(b)(3) promulgated by the Securities and
Exchange Commission under the Exchange Act, or any successor definition adopted
by the Securities and Exchange Commission.

 

2.20        “Nonqualified Stock Option” means an
Option that is not an Incentive Stock Option.

 

2.21        “Other Stock-Based Award” means any
right granted under Article 9 of the Plan.

 

2.22        “Option” means any
stock option granted under Article 6 of the Plan.

 

2.23        “Option Price” means the
purchase price per Share subject to an Option, as determined pursuant to Section 6.2
of the Plan.

 

2.24        “Outside Director” means a member
of the Board who is an “outside director” within the meaning of Section 162(m) of
the Code and the regulations promulgated thereunder.

 

2.25        “Participant” means any
eligible person as set forth in Section 4.1 to whom an Award is granted.

 

2.26        “Performance-Based
Compensation” means compensation under an Award that is intended
to constitute “qualified performance-based compensation” within the meaning of
the regulations promulgated under Section 162(m) of Code or any
successor provision.

 

2.27        “Performance Measures” means measures
as described in Section 10.2 on which the performance goals are based in
order to qualify Awards as Performance-Based Compensation.

 

2.28        “Performance Period” means the
period of time during which the performance goals must be met in order to
determine the degree of payout and/or vesting with respect to an Award.

 

2.29        “Person” shall have the
meaning ascribed to such term in Section 3(a)(9) of the Exchange Act
and used in Sections 13(d) and 14(d) thereof, including a “group”
as defined in Section 13(d) thereof.

 

2.30        “Plan” means The
Howard Hughes Corporation 2010 Equity Incentive Plan.

 

2.31        “Plan Year” means the
applicable fiscal year of the Company.

 

2.32        “Restricted Stock” means any
Award granted under Article 8 of the Plan.

 

3

 

2.33        “Restriction Period” means the
period during which Restricted Stock awarded under Article 8 of the Plan
is subject to forfeiture.

 

2.34        “Service” means service
as an Employee or Director.

 

2.35        “Share” means a share
of common stock of the Company, par value $0.01 per share, or such other class
or kind of shares or other securities resulting from the application of Article 12
hereof.

 

2.36        “Stock Appreciation Right” means any
right granted under Article 7 of the Plan.

 

2.37        “Subsidiary” means any
corporation, partnership, limited liability company or other legal entity of
which the Company, directly or indirectly, owns stock or other equity interests
possessing fifty percent (50%) or more of the total combined voting power of
all classes of stock or other equity interests (as determined in a manner consistent
with Section 409A of the Code).

 

2.38        “Ten Percent Shareholder” means a person
who on any given date owns, either directly or indirectly (taking into account
the attribution rules contained in Section 424(d) of the Code),
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or a Subsidiary or Affiliate.

 

Article 3.               Administration

 

3.1          Authority of the Committee.  The Plan shall be administered by the
Committee, which shall have full power to interpret and administer the Plan and
Award Agreements and full authority to select the Employees and Directors to
whom Awards will be granted, and to determine the type and amount of Awards to
be granted to each such Employee or Director, and the terms and conditions of
Awards and Award Agreements.  Without limiting the generality of the foregoing,
the Committee may, in its sole discretion but subject to the limitations in Article 13,
clarify, construe or resolve any ambiguity in any provision of the Plan or any
Award Agreement, extend the term or period of exercisability of any Awards, or
waive any terms or conditions applicable to any Award.  Awards may, in the discretion of the
Committee, be made under the Plan in assumption of, or in substitution for,
outstanding awards previously granted by the Company or any of its Subsidiaries
or Affiliates or a company acquired by the Company or with which the Company
combines.  The Committee shall
have full and exclusive discretionary power to adopt rules, forms, instruments,
and guidelines for administering the Plan as the Committee deems necessary or
proper.  All actions taken and all
interpretations and determinations made by the Committee or by the Board (or
any other committee or sub-committee thereof), as applicable, shall be final
and binding upon the Participants, the Company, and all other interested
individuals.

 

3.2          Delegation.  The Committee may delegate to one or more of
its members or one or more executive officers of the Company such administrative
duties or powers as it may deem advisable; provided that
no delegation shall be permitted under the Plan that is prohibited by
applicable law.

 

Article 4.               Eligibility
and Participation

 

4.1          Eligibility.  Participants will consist of such Employees and
Directors as the Committee in its sole discretion determines and whom the
Committee may designate from time to time to receive Awards.  Designation of a Participant in any year
shall not require the Committee to designate such person to receive an Award in
any other year or, once designated, to receive the same type or amount of Award
as granted to the Participant in any other year.

 

4

 

4.2          Type of Awards.  Awards under the Plan may be granted in any
one or a combination of:  (a) Options,
(b) Stock Appreciation Rights, (c) Restricted Stock, (d) Other
Stock-Based Awards, and (e) Performance-Based Compensation Awards.  The Plan sets forth the types of performance
goals and sets forth procedural requirements to permit the Company to design
Awards that qualify as Performance-Based Compensation, as described in Article 10
hereof.  Awards granted under the Plan
shall be evidenced by Award Agreements (which need not be identical) that
provide additional terms and conditions associated with such Awards, as
determined by the Committee in its sole discretion; provided,
however, that in the event of any
conflict between the provisions of the Plan and any such Award Agreement, the
provisions of the Plan shall prevail.

 

Article 5.               Shares
Subject to the Plan and Maximum Awards

 

5.1          General.  Subject to adjustment as provided in Article 12
hereof, the maximum number of Shares available for issuance to Participants
pursuant to Awards under the Plan shall be equal to [eight percent (8%) of the
outstanding fully diluted Shares of the
Company as of the Effective Date (including shares issuable under the Joint
Plan of Reorganization)].  The
number of Shares available for granting Incentive Stock Options under the Plan
shall not exceed [eight percent (8%) of the outstanding fully diluted Shares of the Company as of the Effective Date (including shares
issuable under the Joint Plan of Reorganization)], subject to Article 12
hereof and the provisions of Sections 422 or 424 of the Code and any successor
provisions.  The Shares available for
issuance under the Plan may consist, in whole or in part, of authorized and
unissued Shares or treasury Shares.

 

5.2          Annual
Award Limits.  The maximum number of Shares
with respect to Awards denominated in Shares (or the equivalent dollar value) that
may be granted to any Participant in any Plan Year shall be 500,000 Shares,
subject to adjustments made in accordance with Article 12 hereof (the “Annual
Award Limit”).

 

5.3          Additional Shares.  In the event that any outstanding Award
expires, is forfeited, cancelled or otherwise terminated without the issuance
of Shares or is otherwise settled for cash, the Shares subject to such Award,
to the extent of any such forfeiture, cancellation, expiration, termination or
settlement for cash, shall again be available for Awards.  If the Committee authorizes the assumption
under this Plan, in connection with any merger, consolidation, acquisition of
property or stock, or reorganization, of awards granted under another plan,
such assumption shall not (i) reduce the maximum number of Shares
available for issuance under this Plan or (ii) be subject to or counted
against a Participant’s Annual Award Limit.

 

Article 6.               Stock
Options

 

6.1          Grant of Options.  The Committee is hereby authorized to grant
Options to Participants.  Each Option
shall permit a Participant to purchase from the Company a stated number of
Shares at an Option Price established by the Committee, subject to the terms
and conditions described in this Article 6 and to such additional terms
and conditions, as established by the Committee, in its sole discretion, that
are consistent with the provisions of the Plan. 
Options shall be designated as either Incentive Stock Options or
Nonqualified Stock Options, provided that Options granted to Directors shall be
Nonqualified Stock Options.  An Option
granted as an Incentive Stock Option shall, to the extent it fails to qualify
as an Incentive Stock Option, be treated as a Nonqualified Stock Option.  Neither the Committee, the Company, any of
its Subsidiaries or Affiliates, nor any of their employees and representatives
shall be liable to any Participant or to any other Person if it is determined
that an Option intended to be an Incentive Stock Option does not qualify as an
Incentive Stock Option.  Each option
shall be evidenced by Award Agreements which shall state the number of Shares
covered by such Option.  Such agreements
shall conform to the requirements of the Plan, and may contain such other
provisions, as the Committee shall deem advisable.

 

5

 

6.2          Terms of Option Grant.  The Option Price shall be determined by the
Committee at the time of grant, but shall not be less than one-hundred percent
(100%) of the Fair Market Value of a Share on the date of grant.  In the case of any Incentive Stock Option
granted to a Ten Percent Shareholder, the Option Price shall not be less than
one-hundred-ten percent (110%) of the Fair Market Value of a Share on the date
of grant.

 

6.3          Option Term.  The term of each Option shall be determined
by the Committee at the time of grant and shall be stated in the Award
Agreement, but in no event shall such term be greater than ten (10) years
(or, in the case on an Incentive Stock Option granted to a Ten Percent
Shareholder, five (5) years).

 

6.4          Method of Exercise.  Except as otherwise provided in the Plan or
in an Award Agreement, an Option may be exercised for all, or from time to time
any part, of the Shares for which it is then exercisable.  For purposes of this Article 6, the
exercise date of an Option shall be the later of the date a notice of exercise
is received by the Company and, if applicable, the date payment is received by
the Company pursuant to clauses (i), (ii), (iii) or (iv) of the
following sentence (including the applicable tax withholding pursuant to Section 14.3
of the Plan).  The aggregate Option Price
for the Shares as to which an Option is exercised shall be paid to the Company
in full at the time of exercise at the election of the Participant (i) in
cash or its equivalent (e.g., by cashier’s check), (ii) to the extent
permitted by the Committee, in Shares (whether or not previously owned by the
Participant) having a Fair Market Value equal to the aggregate Option Price for
the Shares being purchased and satisfying such other requirements as may be
imposed by the Committee, (iii) partly in cash and, to the extent
permitted by the Committee, partly in such Shares (as described in (ii) above)
or (iv) if there is a public market for the Shares at such time, subject
to such requirements as may be imposed by the Committee, through the delivery
of irrevocable instructions to a broker to sell Shares obtained upon the
exercise of the Option and to deliver promptly to the Company an amount out of
the proceeds of such sale equal to the aggregate Option Price for the Shares
being purchased.  The Committee may
prescribe any other method of payment that it determines to be consistent with
applicable law and the purpose of the Plan.

 

6.5          Limitations on Incentive Stock
Options.  Incentive
Stock Options may be granted only to employees of the Company or of a “parent
corporation” or “subsidiary corporation” (as such terms are defined in Section 424
of the Code) at the date of grant.  The
aggregate Fair Market Value (generally determined as of the time the Option is
granted) of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by a Participant during any calendar year under
all plans of the Company and of any “parent corporation” or “subsidiary
corporation” shall not exceed one hundred thousand dollars ($100,000), or the
Option shall be treated as a Nonqualified Stock Option.  For purposes of the preceding sentence, Incentive
Stock Options will be taken into account generally in the order in which they
are granted.  Each provision of the Plan
and each Award Agreement relating to an Incentive Stock Option shall be
construed so that each Incentive Stock Option shall be an incentive stock
option as defined in Section 422 of the Code, and any provisions of the
Award Agreement thereof that cannot be so construed shall be disregarded.

 

6.6          Performance Goals.  The Committee may condition the grant of
Options or the vesting of Options upon the Participant’s achievement of one or
more performance goal(s) (including the Participant’s provision of
Services for a designated time period), as specified in the Award
Agreement.  If the Participant fails to
achieve the specified performance goal(s), the Committee shall not grant the
Option to such Participant or the Option shall not vest, as applicable.

 

6

 

Article 7.               Stock
Appreciation Rights

 

7.1          Grant
of Stock Appreciation Rights.  The Committee is hereby authorized to grant
Stock Appreciation Rights to Participants, including a grant of Stock
Appreciation Rights in tandem with any Option at the same time such Option is
granted (a “Tandem SAR”).  Stock
Appreciation Rights shall be evidenced by Award Agreements that shall conform
to the requirements of the Plan and may contain such other provisions, as the
Committee shall deem advisable.  Subject
to the terms of the Plan and any applicable Award Agreement, a Stock
Appreciation Right granted under the Plan shall confer on the holder thereof a
right to receive, upon exercise thereof, the excess of (a) the Fair Market
Value of a specified number of Shares on the date of exercise over (b) the
grant price of the right as specified by the Committee on the date of the
grant.  Such payment may be in the form
of cash, Shares, other property or any combination thereof, as the Committee
shall determine in its sole discretion.

 

7.2          Terms of Stock Appreciation
Right.  Subject to the terms of the
Plan and any applicable Award Agreement, the grant price (which shall not be
less than one hundred percent (100%) of the Fair Market Value of a Share on the date of grant), term, methods
of exercise, methods of settlement, and any other terms and conditions of any
Stock Appreciation Right shall be as determined by the Committee.  The Committee may impose such other
conditions or restrictions on the exercise of any Stock Appreciation Right as
it may deem appropriate.  No Stock
Appreciation Right shall have a term of more than ten (10) years from the
date of grant.

 

7.3          Tandem Stock Appreciation Rights
and Options.  A Tandem SAR
shall be exercisable only to the extent that the related Option is exercisable
and shall expire no later than the expiration of the related Option.  Upon the exercise of all or a portion of a
Tandem SAR, a Participant shall be required to forfeit the right to purchase an
equivalent portion of the related Option (and, when a Share is purchased under
the related Option, the Participant shall be required to forfeit an equivalent
portion of the Stock Appreciation Right).

 

Article 8.               Restricted
Stock

 

8.1          Grant of Restricted Stock.  An Award of Restricted Stock
is a grant by the Committee of a specified number of Shares to the Participant,
which Shares are subject to forfeiture upon the occurrence of specified events.  Restricted
Stock shall be evidenced by an Award Agreement, which shall conform to the
requirements of the Plan and may contain such other provisions, as the
Committee shall deem advisable.

 

8.2          Terms of Restricted Stock Awards.  Each Award Agreement evidencing a Restricted
Stock grant shall specify the period(s) of restriction, the number of
Shares of Restricted Stock subject to the Award, the performance, employment or
other conditions (including the termination of a Participant’s Service whether
due to death, disability or other reason) under which the Restricted Stock may
be forfeited to the Company and such other provisions as the Committee shall
determine.  At the end of the Restriction
Period, the restrictions imposed hereunder and under the Award Agreement shall
lapse with respect to the number of Shares of Restricted Stock as determined by
the Committee, and the legend shall be removed and such number of Shares
delivered to the Participant (or, where appropriate, the Participant’s legal
representative).

 

8.3          Voting and Dividend Rights.  Unless otherwise provided in an Award
Agreement, Participants shall have none of the rights of a stockholder of the
Company with respect to Restricted Stock until the end of the Restricted
Period; provided, that, Participants shall have the right to vote and receive
dividends on Restricted Stock during the Restriction Period.  Dividends shall be paid to Participants at
the same time that other shareholders of common stock of the Company receive
such dividends.

 

7

 

8.4          Performance Goals.  The Committee may condition the grant of
Restricted Stock or the expiration of the Restriction Period upon the
Participant’s achievement of one or more performance goal(s) (including
the Participant’s provision of Services for a designated time period), as
specified in the Award Agreement.  If the
Participant fails to achieve the specified performance goal(s), the Committee
shall not grant the Restricted Stock to such Participant or the Participant
shall forfeit the Award of Restricted Stock to the Company, as applicable.

 

8.5          Section 83(b) Election.  If a Participant makes an election pursuant
to Section 83(b) of the Code concerning Restricted Stock, the
Participant shall be required to file promptly a copy of such election with the
Company.

 

Article 9.               Other
Stock-Based Awards

 

The Committee, in its sole
discretion, may grant Awards of Shares and Awards that are valued, in whole or
in part, by reference to, or are otherwise based on the Fair Market Value of,
Shares (the “Other Stock-Based Awards”), including without limitation, restricted stock units and other phantom
awards.  Such Other Stock-Based
Awards shall be in such form, and dependent on such conditions, as the
Committee shall determine, including, without limitation, the right to receive
one or more Shares (or the equivalent cash value of such Shares) upon the
completion of a specified period of Service, the occurrence of an event and/or
the attainment of performance objectives. 
Other Stock-Based Awards may be granted alone or in addition to any
other Awards granted under the Plan. 
Subject to the provisions of the Plan, the Committee shall determine to
whom and when Other Stock-Based Awards will be made, the number of Shares to be
awarded under (or otherwise related to) such Other Stock-Based Awards, whether
such Other Stock-Based Awards shall be settled in cash, Shares or a combination
of cash and Shares, and all other terms and conditions of such Awards
(including, without limitation, the vesting provisions thereof and provisions
ensuring that all Shares so awarded and issued shall be fully paid and
non-assessable).

 

Article 10.            Performance-Based
Compensation

 

10.1        Grant
of Performance-Based Compensation.  To the extent permitted by Section 162(m) of
the Code, the Committee is authorized to design any Award so that the amounts
or Shares payable or distributed pursuant to such Award are treated as “qualified
performance-based compensation” within the meaning of Section 162(m) of
the Code and related regulations.

 

10.2        Performance
Measures.  The vesting,
crediting and/or payment of Performance-Based Compensation shall be based on
the achievement of objective performance goals based on one or more of the
following Performance Measures:  (i) consolidated
earnings before or after taxes (including earnings before interest, taxes,
depreciation and amortization); (ii) net income; (iii) operating
income; (iv) earnings per Share; (v) book value per Share; (vi) return
on shareholders’ equity; (vii) expense management; (viii) return on
investment; (ix) improvements in capital structure; (x) profitability
of an identifiable business unit or product; (xi) maintenance or
improvement of profit margins; (xii) stock price; (xiii) market
share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow; (xvii) working
capital; (xviii) return on assets; (xix) store openings or
refurbishment plans; (xx) staff training; and (xxi) corporate social
responsibility policy implementation.

 

Any Performance Measure may
be (i) used to measure the performance of the Company and/or any of its
Subsidiaries or Affiliates as a whole, any business unit thereof or any
combination thereof against any goal including past performance or (ii) compared
to the performance of a group of comparable companies, or a published or
special index, in each case that the Committee, in its sole discretion, deems
appropriate.  Subject to Section 162(m) of
the Code, the Committee
may adjust the 

 

8

 

performance goals (including to prorate goals and
payments for a partial Plan Year) in the event of the following
occurrences:  (a) non-recurring
events, including divestitures, spin-offs, or changes in accounting standards
or policies; (b) mergers and acquisitions; and (c) financing
transactions, including selling accounts receivable.

 

10.3        Establishment of Performance
Goals for Covered Employees.  No later than ninety (90) days after the
commencement of a Performance Period (but in no event after twenty-five percent
(25%) of such Performance Period has elapsed), the Committee shall establish in
writing:  (i) the performance goals
applicable to the Performance Period; (ii) the Performance Measures to be
used to measure the performance goals in terms of an objective formula or
standard; (iii) the formula
for computing the amount of compensation payable to the Participant if such
performance goals are obtained; and (iv) the Participants or class of
Participants to which such performance goals apply.  The outcome of such performance goals must be
substantially uncertain when the Committee establishes the goals.

 

10.4        Adjustment of Performance-Based
Compensation.  Awards that
are designed to qualify as Performance-Based Compensation may not be adjusted
upward.  The Committee shall retain the
discretion to adjust such Awards downward, either on a formula or discretionary
basis or any combination, as the Committee determines.

 

10.5        Certification of Performance.  Except for Awards that pay compensation
attributable solely to an increase in the value of Shares, no Award designed to
qualify as Performance-Based Compensation shall be vested, credited or paid, as
applicable, with respect to any Participant until the Committee certifies in
writing that the performance goals and any other material terms applicable to
such Performance Period have been satisfied.

 

10.6        Interpretation.  Each provision of the Plan and each Award
Agreement relating to Performance-Based Compensation shall be construed so that
each such Award shall be “qualified performance-based compensation” within the
meaning of Section 162(m) of the Code and related regulations, and
any provisions of the Award Agreement thereof that cannot be so construed shall
be disregarded.

 

Article 11.            Compliance
with Section 409A of the Code and Section 457A of the Code

 

11.1        General.  The Company intends that any Awards be structured
in compliance with, or to satisfy an exemption from, Section 409A of the
Code and all regulations, guidance, compliance programs and other
interpretative authority thereunder (“Section 409A”),
such that there are no adverse tax consequences, interest, or penalties as a
result of the Awards.  Notwithstanding
the Company’s intention, in the event any Award is subject to Section 409A,
the Committee may, in its sole discretion and without a Participant’s prior
consent, amend the Plan and/or Awards, adopt policies and procedures, or take
any other actions (including amendments, policies, procedures and actions with
retroactive effect) as are necessary or appropriate to (i) exempt the Plan
and/or any Award from the application of Section 409A, (ii) preserve
the intended tax treatment of any such Award, or (iii) comply with the
requirements of Section 409A, including without limitation any such
regulations guidance, compliance programs and other interpretative authority
that may be issued after the date of grant of an Award.

 

11.2        Payments
to Specified Employees. 
Notwithstanding any contrary provision in the Plan or Award Agreement,
any payment(s) of nonqualified deferred compensation (within the meaning
of Section 409A) that are otherwise required to be made under the Plan to
a “specified employee” (as defined under Section 409A) as a result of his
or her separation from service (other than a payment that is not subject to Section 409A)
shall be delayed for the first six (6) months following such separation
from service (or, if earlier, the date of death of the specified employee) and
shall instead be paid (in a manner 

 

9

 

set
forth in the Award Agreement) on the payment date that immediately follows the
end of such six-month period or as soon as administratively practicable within
90 days thereafter, but in no event later than the end of the applicable
taxable year.

 

11.3        Separation
from Service.  A
termination of employment shall not be deemed to have occurred for purposes of
any provision of the Plan or any Award Agreement providing for the payment of
any amounts or benefits that are considered nonqualified deferred compensation
under Section 409A upon or following a termination of employment, unless
such termination is also a “separation from service” within the meaning of Section 409A
and the payment thereof prior to a “separation from service” would violate Section 409A.  For purposes of any such provision of the
Plan or any Award Agreement relating to any such payments or benefits,
references to a “termination,” “termination of employment” or like terms shall
mean “separation from service.”

 

11.4        Section 457A.  In the event any Award is subject to Section 457A
of the Code (“Section 457A”), the Committee may, in its sole
discretion and without a Participant’s prior consent, amend the Plan and/or
Awards, adopt policies and procedures, or take any other actions (including
amendments, policies, procedures and actions with retroactive effect) as are
necessary or appropriate to (i) exempt the Plan and/or any Award from the
application of Section 457A, (ii) preserve the intended tax treatment
of any such Award, or (iii) comply with the requirements of Section 457A,
including without limitation any such regulations, guidance, compliance
programs and other interpretative authority that may be issued after the date
of the grant.

 

Article 12.            Adjustments

 

12.1        Adjustments
in Authorized Shares.  In the
event of any corporate event or transaction involving the Company, a Subsidiary
and/or an Affiliate (including, but not limited to, a change in the Shares of
the Company or the capitalization of the Company) such as a merger,
consolidation, reorganization, recapitalization, separation, stock dividend,
stock split, reverse stock split, split up, spin-off, combination of Shares,
exchange of Shares, dividend in kind, amalgamation, or other like change in
capital structure (other than regular cash dividends to shareholders of the
Company), or any similar corporate event or transaction, the Committee, to
prevent dilution or enlargement of Participants’ rights under the Plan, shall
substitute or adjust, in its sole discretion, the number and kind of Shares or
other property that may be issued under the Plan or under particular forms of
Awards, the number and kind of Shares or other property subject to outstanding
Awards, the Option Price, grant price or purchase price applicable to
outstanding Awards, the Annual Award Limits, and/or other value determinations
applicable to the Plan or outstanding Awards.

 

12.2        Change
of Control.  Upon the
occurrence of a Change of Control after the Effective Date, unless otherwise
specifically prohibited under applicable laws or by the rules and
regulations of any governing governmental agencies or national securities
exchanges, or unless the Committee shall determine otherwise in the Award
Agreement, the Committee shall make one or more of the following adjustments to
the terms and conditions of outstanding Awards: 
(i) continuation or assumption of such outstanding Awards under the
Plan by the Company (if it is the surviving company or corporation) or by the
surviving company or corporation or its parent; (ii) substitution by the
surviving company or corporation or its parent of awards with substantially the
same terms for such outstanding Awards; (iii) accelerated exercisability,
vesting and/or lapse of restrictions under outstanding Awards immediately prior
to the occurrence of such event; (iv) upon written notice, provide that
any outstanding Awards must be exercised, to the extent then exercisable,
during a reasonable period of time immediately prior to the scheduled
consummation of the event, or such other period as determined by the Committee
(contingent upon the consummation of the event), and at the end of such period,
such Awards shall terminate to the extent not so exercised within the relevant
period; and (v) cancellation of all or any portion of outstanding 

 

10

 

Awards
for fair value (as determined in the sole discretion of the Committee and which
may be zero) which, in the case of Options and Stock Appreciation Rights or
similar Awards, if the Committee so determines, may equal the excess, if any,
of the value of the consideration to be paid in the Change of Control
transaction to holders of the same number of Shares subject to such Awards (or,
if no such consideration is paid, Fair Market Value of the Shares subject to
such outstanding Awards or portion thereof being canceled) over the aggregate
Option Price or grant price, as applicable, with respect to such Awards or
portion thereof being canceled (which may be zero).

 

Article 13.            Duration,
Amendment, Modification, Suspension and Termination

 

13.1        Duration of the Plan.  Unless sooner terminated as provided in Section 13.2,
the Plan shall terminate on the tenth (10th) anniversary of the Effective Date.

 

13.2        Amendment, Modification,
Suspension and Termination of Plan.  The Committee may amend, alter, suspend,
discontinue, or terminate (for purposes of this Section 13.2, an “Action”)
the Plan or any portion thereof or any Award (or Award Agreement) thereunder at
any time; provided that no such Action shall be
made, other than as permitted under Article 11 or 12, (i) without
shareholder approval (A) if such approval is necessary to comply with any
tax or regulatory requirement applicable to the Plan, (B) if such Action
increases the number of Shares available under the Plan (other than an increase
permitted under Article 5 absent shareholder approval), (C) if such
Action results in a material increase in benefits permitted under the Plan (but
excluding increases that are immaterial or that are minor and to benefit the
administration of the Plan, to take account of any changes in applicable law, or
to obtain or maintain favorable tax, exchange, or regulatory treatment for the
Company, a Subsidiary, and/or an Affiliate) or a change in eligibility
requirements under the Plan, or (D) for any Action that results in a
reduction of the Option Price or grant price per Share, as applicable, of any
outstanding Options or Stock Appreciation Rights or cancellation of any
outstanding Options or Stock Appreciation Rights in exchange for cash, or for
other Awards, such as other Options or Stock Appreciation Rights, with an
Option Price or grant price per Share, as applicable, that is less than such
price of the original Options or Stock Appreciation Rights, and (ii) without the written consent of the affected
Participant, if such Action would materially diminish the rights of any
Participant under any Award theretofore granted to such Participant under the
Plan; provided, further,
that the Committee may amend the Plan,
any Award or any Award Agreement without such consent of the Participant in
such manner as it deems necessary to comply with applicable laws, including
without limitation, the Dodd-Frank Wall Street Reform and Consumer
Protection Act.

 

Article 14.            General
Provisions

 

14.1        No Right to Service.  The granting of an Award under the Plan shall
impose no obligation on the Company, any Subsidiary or any Affiliate to
continue the Service of a Participant and shall not lessen or affect any right
that the Company, any Subsidiary or any Affiliate may have to terminate the
Service of such Participant.  No Participant
or other Person shall have any claim to be granted any Award, and there is no
obligation for uniformity of treatment of Participants, or holders or
beneficiaries of Awards.  The terms and
conditions of Awards and the Committee’s determinations and interpretations
with respect thereto need not be the same with respect to each Participant
(whether or not such Participants are similarly situated).

 

14.2        Settlement of Awards; Fractional
Shares.  Each Award Agreement shall
establish the form in which the Award shall be settled.  The Committee shall determine whether cash,
Awards, other securities or other property shall be issued or paid in lieu of
fractional Shares or whether such fractional Shares or any rights thereto shall
be rounded, forfeited or otherwise eliminated.

 

11

 

14.3        Tax Withholding.  The Company shall have the power and the
right to deduct or withhold automatically from any amount deliverable under the
Award or otherwise, or require a Participant to remit to the Company, the
minimum statutory amount to satisfy federal, state, and local taxes, domestic
or foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of the Plan. 
With respect to required withholding, Participants may elect (subject to
the Company’s automatic withholding right set out above), subject to the
approval of the Committee, to satisfy the withholding requirement, in whole or
in part, by having the Company withhold Shares having a Fair Market Value on
the date the tax is to be determined equal to the minimum statutory total tax
that could be imposed on the transaction.

 

14.4        No Guarantees Regarding Tax Treatment.  Participants (or their beneficiaries) shall
be responsible for all taxes with respect to any Awards under the Plan.  The Committee and the Company make no
guarantees to any Person regarding the tax treatment of Awards or payments made
under the Plan.  Neither the Committee
nor the Company has any obligation to take any action to prevent the assessment
of any tax on any Person with respect to any Award under Section 409A of
the Code or Section 457A of the Code or otherwise and none of the Company,
any of its Subsidiaries or Affiliates, or any of their employees or representatives
shall have any liability to a Participant with respect thereto.

 

14.5        Non-Transferability of Awards.  Unless otherwise determined by the Committee,
an Award shall not be transferable or assignable by the Participant except in
the event of his death (subject to the applicable laws of descent and
distribution) and any such purported assignment, alienation, pledge,
attachment, sale, transfer or encumbrance shall be void and unenforceable
against the Company or any Affiliate.  No
transfer shall be permitted for value or consideration.  An award exercisable after the death of a
Participant may be exercised by the heirs, legatees, personal representatives
or distributees of the Participant.  Any
permitted transfer of the Awards to heirs, legatees, personal representatives
or distributees of the Participant shall not be effective to bind the Company
unless the Committee shall have been furnished with written notice thereof and
a copy of such evidence as the Committee may deem necessary to establish the
validity of the transfer and the acceptance by the transferee or transferees of
the terms and conditions hereof.

 

14.6        Conditions
and Restrictions on Shares.  The Committee may impose such other
conditions or restrictions on any Shares received in connection with an Award
as it may deem advisable or desirable. 
These restrictions may include, but shall not be limited to, a
requirement that the Participant hold the Shares received for a specified
period of time or a requirement that a Participant represent and warrant in
writing that the Participant is acquiring the Shares for investment and without
any present intention to sell or distribute such Shares.  The certificates for Shares may include any
legend which the Committee deems appropriate to reflect any conditions and
restrictions applicable to such Shares.

 

14.7        Compliance
with Law.  The granting
of Awards and the issuance of Shares under the Plan shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies, or any stock exchanges on which the Shares are admitted
to trading or listed, as may be required. 
The Company shall have no obligation to issue or deliver evidence of
title for Shares issued under the Plan prior to:

 

(a)           Obtaining any approvals from
governmental agencies that the Company determines are necessary or advisable;
and

 

(b)           Completion of any
registration or other qualification of the Shares under any applicable
national, state or foreign law or ruling of any governmental body that the
Company determines to be necessary or advisable.

 

12

 

The restrictions contained
in this Section 14.7 shall be in addition to any conditions or
restrictions that the Committee may impose pursuant to Section 14.6.  The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company’s counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company, its Subsidiaries and
Affiliates, and all of their employees and representatives of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

 

14.8        Rights as a Shareholder.  Except as otherwise provided herein or in the
applicable Award Agreement, a Participant shall have none of the rights of a
shareholder with respect to Shares covered by any Award until the Participant
becomes the record holder of such Shares.

 

14.9        Severability.  If any provision of the Plan or any Award is
or becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction, or as to any Person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws, or if it cannot be
so construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provision shall
be stricken as to such jurisdiction, Person, or Award, and the remainder of the
Plan and any such Award shall remain in full force and effect.

 

14.10      Unfunded Plan.  Participants shall have no right, title, or
interest whatsoever in or to any investments that the Company or any of its
Subsidiaries or Affiliates may make to aid it in meeting its obligations under
the Plan.  Nothing contained in the Plan,
and no action taken pursuant to its provisions, shall create or be construed to
create a trust of any kind, or a fiduciary relationship between the Company and
any Participant, beneficiary, legal representative, or any other Person.  To the extent that any Person acquires a
right to receive payments from the Company under the Plan, such right shall be
no greater than the right of an unsecured general creditor of the Company.  All payments to be made hereunder shall be
paid from the general funds of the Company and no special or separate fund
shall be established and no segregation of assets shall be made to assure payment
of such amounts.  The Plan is not subject
to the U.S. Employee Retirement Income Security Act of 1974, as amended from
time to time.

 

14.11      No Constraint on Corporate
Action.  Nothing in the Plan shall be
construed to (i) limit, impair, or otherwise affect the Company’s right or
power to make adjustments, reclassifications, reorganizations, or changes of
its capital or business structure, or to merge or consolidate, or dissolve,
liquidate, sell, or transfer all or any part of its business or assets, or (ii) limit
the right or power of the Company to take any action which such entity deems to
be necessary or appropriate.

 

14.12      Successors.  All obligations of the Company under the Plan
with respect to Awards granted hereunder shall be binding on any successor to
the Company, whether the existence of such successor is the result of a direct
or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business or assets of the Company.

 

14.13      Governing Law.  The Plan and each Award Agreement shall be
governed by the laws of the State of Delaware, excluding any conflicts or
choice of law rule or principle that might otherwise refer construction or
interpretation of the Plan to the substantive law of another jurisdiction.

 

14.14      Data Protection.  By participating in the Plan, the Participant
consents to the collection, processing, transmission and storage by the Company
in any form whatsoever, of any data of a professional or personal nature which
is necessary for the purposes of introducing and administering the Plan.  The Company may share such information with
any Subsidiary or Affiliate, the trustee of any employee benefit trust, its
registrars, trustees, brokers, other third party administrator or any Person
who 

 

13

 

obtains control of the Company or acquires the
Company, undertaking or part-undertaking which employs the Participant,
wherever situated.

 

14.15      Effective Date.  The Plan shall be effective as of the date on
which distributions to holders of claims and equity interests commences
pursuant to the Joint Plan of Reorganization (the “Effective Date”).

 

*              *              *

 

14

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