<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<C> <C> <C>
DELAWARE 6512/6513 75-2531304
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
777 MAIN STREET, SUITE 2100
FORT WORTH, TEXAS 76102
TELEPHONE: (817) 877-0477
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
---------------------
GERALD W. HADDOCK
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
777 MAIN STREET, SUITE 2100
FORT WORTH, TEXAS 76102
TELEPHONE: (817) 877-0477
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
---------------------
Copies to:
<TABLE>
<S> <C>
ROBERT B. ROBBINS, ESQ. DAVID M. DEAN, ESQ.
SYLVIA M. MAHAFFEY, ESQ. CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
SHAW PITTMAN POTTS & TROWBRIDGE 777 MAIN STREET, SUITE 2100
2300 N STREET, N.W. FORT WORTH, TEXAS 76102
WASHINGTON, D.C. 20037
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TYPE OF EACH CLASS OF BEING OFFERING PRICE PER AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT OFFERING PRICE FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 5/8% Notes due 2002 $150,000,000 100% $150,000,000 $ 44,250
- ------------------------------------------------------------------------------------------------------------------
7 1/8% Notes due 2007 $250,000,000 100% $250,000,000 $ 73,750
- ------------------------------------------------------------------------------------------------------------------
Total $400,000,000 100% $400,000,000 $118,000
==================================================================================================================
</TABLE>
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS
SUBJECT TO COMPLETION, DATED DECEMBER 15, 1997
[LOGO]
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
OFFER TO EXCHANGE
6 5/8% NOTES DUE 2002 FOR ANY AND ALL OUTSTANDING 6 5/8% NOTES DUE 2002
7 1/8% NOTES DUE 2007 FOR ANY AND ALL OUTSTANDING 7 1/8% NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
, 1998 UNLESS EXTENDED.
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), is hereby offering (the "Exchange
Offer"), upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange its 6 5/8% Notes due 2002 (the "2002 Exchange Notes")
and its 7 1/8% Notes due 2007 (the "2007 Exchange Notes" and, together with the
2002 Exchange Notes, the "Exchange Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
registration statement of which this Prospectus is a part (together with all
amendments and exhibits thereto, the "Registration Statement"), for an equal
principal amount of its outstanding 6 5/8% Notes due 2002 (the "2002 Private
Notes") and its outstanding 7 1/8% Notes due 2007 (the "2007 Private Notes" and,
together with the 2002 Private Notes, the "Private Notes"), respectively, of
which $150 million and $250 million, respectively, aggregate principal amount
were issued on September 22, 1997 and are outstanding on the date hereof. The
Private Notes and the Exchange Notes are sometimes collectively referred to as
the "Notes."
The Private Notes were sold by the Operating Partnership in an offering by
the Operating Partnership (the "Initial Offering") exempt from the registration
requirements of the Securities Act, which was consummated on September 22, 1997
(the "Closing Date") and are subject to certain restrictions upon transfer
thereof. The Exchange Offer is designed to provide holders of the Private Notes,
subject to certain exceptions described below, an opportunity to acquire the
Exchange Notes, which generally will be transferable without compliance with the
registration and prospectus delivery requirements of the Securities Act.
The form and terms of the 2002 Exchange Notes and the 2007 Exchange Notes
are identical in all material respects to those of the 2002 Private Notes and
the 2007 Private Notes, respectively, except for certain transfer restrictions
and registration rights relating to the Private Notes and except for certain
interest provisions related to such registration rights. The 2002 Exchange Notes
and the 2007 Exchange Notes will evidence the same indebtedness as the 2002
Private Notes and the 2007 Private Notes, respectively (which they replace), and
will be entitled to the benefits of an indenture, dated as of September 22, 1997
(the "Indenture"), between State Street Bank and Trust Company of Missouri,
N.A., as trustee (the "Trustee"), and the Operating Partnership, governing the
Private Notes and the Exchange Notes. The 2002 Exchange Notes will mature on
September 15, 2002, and the 2007 Exchange Notes will mature on September 15,
2007. The Exchange Notes may be redeemed, at the option of the Operating
Partnership, at any time at a redemption price equal to the sum of (i) the
principal amount of the Exchange Notes being redeemed plus accrued and unpaid
interest, if any, to the redemption date and (ii) the Make-Whole Amount (as
defined in "Description of the Exchange Notes -- Optional Redemption"), if any.
The Exchange Notes are not subject to any mandatory sinking fund.
Interest on the Exchange Notes will be payable semi-annually in arrears on
each September 15 and March 15, commencing March 15, 1998. The Exchange Notes
will bear interest from September 22, 1997. In the Letter of Transmittal,
holders of Private Notes whose Private Notes are accepted for exchange will
waive the right to receive any payment in respect of interest on the Private
Notes accrued from September 22, 1997 to the date of the issuance of the
Exchange Notes. The interest rate on each series of the Exchange Notes is
subject to adjustment in the event that, prior to September 22, 1998, the Notes
in such series are assigned a rating that is not an Investment Grade Rating, do
not continue to be assigned such a rating or are not assigned a rating by the
Rating Agencies (as such terms are defined in "Summary -- The Exchange Offer").
See "The Exchange Offer" and "Description of the Exchange Notes."
[Cover page continued on next page]
SEE "RISK FACTORS" COMMENCING ON PAGE 15 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN THE
EXCHANGE NOTES.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER , 1997
<PAGE> 3
[Cover page continued from prior page]
The Exchange Notes will be senior unsecured obligations of the Operating
Partnership and will rank pari passu with each other and with the Operating
Partnership's other unsecured and unsubordinated indebtedness. The Exchange
Notes will be effectively subordinated to mortgages and other secured
indebtedness of the Operating Partnership as well as to indebtedness and other
liabilities of the Operating Partnership's subsidiaries.
The Operating Partnership will accept for exchange any and all validly
tendered Private Notes not withdrawn prior to 5:00 p.m., New York City time, on
, 1998 (the "Expiration Date"), unless the Exchange Offer is
extended by the Operating Partnership in its sole discretion, in which case the
term "Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended. Tenders of Private Notes may be withdrawn at any time prior
to the Expiration Date. Private Notes may be tendered only in integral multiples
of $1,000 principal amount. The Exchange Offer is subject to certain customary
conditions, any of which may be waived by the Operating Partnership. The
Exchange Offer is not conditioned upon any minimum principal amount of Private
Notes being tendered for exchange. See "The Exchange Offer."
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Operating Partnership under the Registration Rights
Agreement, dated as of September 22, 1997 (the "Registration Rights Agreement"),
among the Operating Partnership and Merrill Lynch, Pierce Fenner & Smith
Incorporated and Salomon Brothers Inc (the "Initial Purchasers"). The Operating
Partnership believes that the Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Private Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than (i) a broker-dealer who
purchased the Private Notes directly from the Operating Partnership or (ii) a
person that is an affiliate of the Operating Partnership within the meaning of
Rule 405 under the Securities Act, neither of whom may participate in the
Exchange Offer) without compliance with the registration and prospectus delivery
requirements of the Securities Act provided that the holder is acquiring
Exchange Notes in the ordinary course of its business and is not participating,
does not intend to participate, and has no arrangement or understanding with any
person to participate, in the distribution of the Exchange Notes. Holders of
Private Notes wishing to accept the Exchange Offer must represent to the
Operating Partnership that such conditions have been met. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Private Notes,
where such Private Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes, and such prospectus must
contain a plan of distribution with respect to such resale transactions. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with any resale of the Exchange Notes received for Private Notes
where such Private Notes were acquired by a broker-dealer as a result of
market-making or other trading activities. The Operating Partnership has agreed
that for a period of 120 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resales. See "Plan of Distribution."
The Private Notes have been designated eligible for trading in the Private
Initial Offerings, Resales and Trading through Automated Linkages ("PORTAL")
Market of the National Association of Securities Dealers, Inc. (the "NASD"). The
Operating Partnership does not intend to apply for listing of the Exchange Notes
on any securities exchange or to seek approval through any automated quotation
system. The Initial Purchasers have advised the Operating Partnership that they
currently intend to make a market in the Exchange Notes after the Exchange Offer
as permitted by applicable laws and regulations, although they are not obligated
to do so and may discontinue any market making activity at any time without
notice. There can be no assurance regarding the future development of a market
for the Exchange Notes, the ability of holders of the Exchange Notes to sell
their Exchange Notes or the price at which such holders may be able to sell
their Exchange Notes. If such a market were to develop, the Exchange Notes could
trade at prices that may be higher or lower than the initial public offering
price of the Private Notes depending on many factors, including prevailing
interest rates, the Operating Partnership's operating results and the market for
similar securities. See "Risk Factors -- Absence of Public Market for Exchange
Notes."
Holders of Private Notes whose Private Notes are not tendered and accepted
in the Exchange Offer will continue to hold such Private Notes and will be
entitled to the rights and preferences and will be subject to the limitations
applicable thereto under the Indenture. Following consummation of the Exchange
Offer, the holders of Private Notes which were eligible to participate in the
Exchange Offer will continue to be subject to the existing restrictions upon
transfer thereof and the Operating Partnership will have no further obligation
to such holders to provide for the registration under the Securities Act of any
offering of the Private Notes held by them.
The Operating Partnership will not receive any proceeds from and has agreed
to bear the expenses of the Exchange Offer. No underwriter is being used in
connection with the Exchange Offer. See "The Exchange Offer -- Resale of the
Exchange Notes."
<PAGE> 4
[ADD APPROPRIATE STATE LEGENDS]
-i-
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, appearing elsewhere in this
Prospectus. The offer by the Operating Partnership to exchange the 6 5/8% Notes
due 2002 (the "2002 Exchange Notes") and 7 1/8% Notes due 2007 (the "2007
Exchange Notes" and, together with the 2002 Exchange Notes, the "Exchange
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), for an equal principal amount of its outstanding 6 5/8%
Notes due 2002 (the "2002 Private Notes") and its outstanding 7 1/8% Notes due
2007 (the "2007 Private Notes" and, together with the 2002 Private Notes, the
"Private Notes") is herein referred to as the "Exchange Offer." The Private
Notes and the Exchange Notes are sometimes collectively referred to as the
"Notes." All references to the "Operating Partnership" include Crescent Real
Estate Equities Limited Partnership, a Delaware limited partnership, and those
entities in which Crescent Real Estate Equities Limited Partnership has a
substantial ownership interest or control, unless the context indicates
otherwise. The Operating Partnership is controlled by Crescent Real Estate
Equities Company (the "Company"), a self-administered and self-managed equity
real estate investment trust, through the Company's ownership of all of the
outstanding stock of Crescent Real Estate Equities, Ltd., a Delaware corporation
(the "General Partner"), which is the sole general partner of the Operating
Partnership. The Company, which is based in Fort Worth, Texas, operates as a
real estate investment trust for federal income tax purposes (a "REIT").
THE OPERATING PARTNERSHIP
The Operating Partnership owns a portfolio of real estate assets (the
"Properties") consisting primarily of 79 office properties (the "Office
Properties") located in 27 metropolitan submarkets in Texas, Colorado, Arizona,
Louisiana, Nebraska, New Mexico, California and Florida, with an aggregate of
approximately 27.9 million net rentable square feet, which were approximately
87% leased (or 91% leased based on executed leases that have not yet commenced)
to approximately 1,915 tenants as of September 30, 1997 including Properties
acquired subsequent to September 30, 1997. Based on annualized base rental
revenues from office leases in place as of September 30, 1997 including
Properties acquired subsequent to September 30, 1997, no single tenant accounted
for more than 4% of the Operating Partnership's total annualized office property
rental revenues for 1997.
The Properties also include 91 behavioral healthcare facilities (the
"Behavioral Healthcare Facilities"), five full-service hotels with a total of
1,900 rooms and two destination health and fitness resorts (collectively, the
"Hotel Properties"), real estate mortgages relating to and non-voting common
stock in five residential development corporations (the "Residential Development
Corporations"), which in turn, through joint venture or partnership
arrangements, own interests in 14 residential development properties (the
"Residential Development Properties"), and seven retail properties with an
aggregate of approximately 771,000 net rentable square feet (the "Retail
Properties"). In addition, the Company owns an indirect 40% interest in each of
two corporations that currently own and operate approximately 79 refrigerated
warehouses with an aggregate of approximately 368 million cubic feet (the
"Refrigerated Warehouse Investment").
-1-
<PAGE> 6
INVESTMENT STRATEGY
The Operating Partnership believes that it will be able to identify
substantial opportunities for future real estate investments from a variety of
sources, including life insurance companies and pension funds seeking to reduce
their direct real estate investments, public and private real estate companies,
corporations divesting of nonstrategic real estate assets and private sellers
requiring complex disposition structures. The Operating Partnership intends to
continue utilizing its extensive network of relationships, its ability to
identify underperforming assets, its market reputation and its ready access to
capital to achieve favorable returns on invested capital and growth in cash flow
by:
- acquiring high-quality office properties at prices significantly below
their estimated replacement cost in selected core markets and submarkets
that management expects to experience above-average population and
employment growth; and
- employing the corporate, transactional and financial skills of the
Operating Partnership's management team to structure innovative
investments in other types of real estate assets (including destination
resort and luxury hotel properties and residential land developments).
The Operating Partnership believes that its proven ability to structure
innovative transactions provides it with a unique competitive advantage in
making real estate investments and enhances its ability to execute its
investment strategy.
OPERATING AND FINANCING STRATEGIES
The Operating Partnership seeks to enhance its operating performance and
financial position by:
- applying well-defined leasing strategies in order to capture the
potential rental growth in the Operating Partnership's existing portfolio
of Office Properties as occupancy and rental rates increase with the
recovery of the markets and submarkets in which the Operating Partnership
has invested;
- achieving a high tenant retention rate at the Operating Partnership's
Office Properties through quality service, individualized attention to
its tenants and active preventive maintenance programs;
- empowering management and employing compensation formulas linked directly
with enhanced operating performance of the Operating Partnership and its
Properties; and
- optimizing the use of debt and other sources of financing to create a
flexible and conservative capital structure that will allow the Operating
Partnership to continue its investment strategy.
The Company has contributed to the Operating Partnership approximately $1.9
billion in net proceeds derived from public offerings of its common shares, in
exchange for an increased limited partner interest. The Operating Partnership's
sources of debt financing include its credit facility (the "Credit Facility"),
which the Operating Partnership converted from a secured facility to an
unsecured facility in October 1996 and which was increased from $350 million to
$450 million in September 1997. As of September 30, 1997, after giving pro forma
effect to transactions completed subsequent to September 30, 1997, and related
financing, the Operating Partnership and its Subsidiaries (as defined in
"Description of the Exchange Notes -- Certain Covenants") collectively had total
indebtedness of $1,809.3 million, which consisted of $722.5 million of secured
indebtedness (of which $160.6 million was secured indebtedness of the Operating
Partnership and $561.9 million was secured indebtedness of its Subsidiaries) and
$1,086.8 million of unsecured indebtedness (all of which was unsecured
indebtedness of the Operating Partnership). As of September 30, 1997, after
giving pro forma effect to transactions completed subsequent to September 30,
1997, and related financing, the ratio of debt of the Operating Partnership to
market capitalization of the Company (based on the closing stock price on
December 11, 1997 of $37.25 per common share, $.01 par value (the "Common
Shares"), after the full conversion of all Units (as defined in
"Management -- Executive Compensation") and including total indebtedness and
minority interests in joint ventures) was approximately 27.8%.
-2-
<PAGE> 7
PROPERTIES
The following table sets forth for the nine months ended September 30,
1997, the EBIDA of the Operating Partnership, on a percentage basis, by type of
Property, after giving effect to the 1997 Acquisitions (as defined in "Business
and Properties") as if they had occurred on January 1, 1997.
<TABLE>
<CAPTION>
PERCENT
OF
PROPERTY TYPE EBIDA
------------- -------
<S> <C>
Office Properties........................................... 60%
Behavioral Healthcare Facilities............................ 13
Hotel Properties............................................ 10
Refrigerated Warehouse Properties........................... 9
Residential Development Properties.......................... 6
Retail Properties........................................... 2
---
100%
===
</TABLE>
OFFICE PROPERTIES
The following table provides an overview of the Office Properties as of
September 30, 1997 and the states, cities and submarkets in which they are
located, after giving effect to the 1997 Acquisitions as if they had occurred on
January 1, 1997.
<TABLE>
<CAPTION>
PERCENT
OF PERCENT
PERCENT OPERATING LEASED AT
TOTAL OF TOTAL PARTNERSHIP OPERATING
OPERATING OPERATING ANNUALIZED PARTNERSHIP
NUMBER OF PARTNERSHIP PARTNERSHIP RENTAL OFFICE
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) REVENUES(2) PROPERTIES
- ---------------------------------------------------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
TEXAS
DALLAS
Central Business District ("CBD")(3)............ 3 3,859,554 14% 13% 81%(4)
Far North Dallas................................ 8 1,938,220 7 7 97(4)
Uptown/Turtle Creek............................. 4 1,929,471 7 10 89(4)
Las Colinas..................................... 4 1,273,662 5 6 98
Richardson/Plano................................ 5 719,267 3 3 100
LBJ Freeway..................................... 3 697,897 3 2 83(4)
Stemmons Freeway................................ 1 634,381 2 2 89
Central Expressway.............................. 2 413,721 1 1 85
-- ----------- --- --- ---
Subtotal/Weighted Average..................... 30 11,466,173 42% 44% 89%
-- ----------- --- --- ---
FORT WORTH
CBD............................................. 1 954,895 3% 2% 54%(4)
-- ----------- --- --- ---
HOUSTON
Richmond/Buffalo Speedway....................... 10 4,286,277 15% 15% 82%(4)
CBD............................................. 3 2,764,418 10 10 92
The Woodlands................................... 12 812,227 3 3 94
Katy Freeway.................................... 1 414,251 1 1 100
West Loop/Galleria(3)........................... 1 399,777 1 1 87
-- ----------- --- --- ---
Subtotal/Weighted Average..................... 27 8,676,950 30% 30% 87%
-- ----------- --- --- ---
AUSTIN
CBD............................................. 3 1,240,865 4% 5% 88%
Northwest....................................... 1 232,301 1 1 79(4)
Southwest....................................... 1 99,792 0 0 94
-- ----------- --- --- ---
Subtotal/Weighted Average..................... 5 1,572,958 5% 6% 87%
-- ----------- --- --- ---
COLORADO
DENVER
Cherry Creek.................................... 4 794,273 3% 3% 85%(4)
CBD............................................. 2 720,417 3 3 97
Denver Technology Center ("DTC")................ 1 309,862 1 1 86
-- ----------- --- --- ---
Subtotal/Weighted Average..................... 7 1,824,552 7% 7% 90%
-- ----------- --- --- ---
COLORADO SPRINGS.................................. 1 252,857 1% 1% 100%
-- ----------- --- --- ---
FLORIDA
MIAMI
Downtown/CBD.................................... 1 782,686 3% 3% 78%
-- ----------- --- --- ---
ARIZONA
PHOENIX
Downtown/CBD.................................... 1 476,373 2% 2% 89%
Camelback Corridor.............................. 1 86,451 0 0 67
-- ----------- --- --- ---
Subtotal/Weighted Average..................... 2 562,824 2% 2% 85%
-- ----------- --- --- ---
</TABLE>
-3-
<PAGE> 8
<TABLE>
<CAPTION>
PERCENT
OF PERCENT
PERCENT OPERATING LEASED AT
TOTAL OF TOTAL PARTNERSHIP OPERATING
OPERATING OPERATING ANNUALIZED PARTNERSHIP
NUMBER OF PARTNERSHIP PARTNERSHIP RENTAL OFFICE
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) REVENUES(2) PROPERTIES
- ---------------------------------------------------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
LOUISIANA
NEW ORLEANS
CBD............................................. 1 508,741 2% 1% 75%
-- ----------- --- --- ---
NEBRASKA
OMAHA
CBD............................................. 1 409,850 2% 1% 100%
-- ----------- --- --- ---
NEW MEXICO
ALBUQUERQUE
CBD............................................. 1 366,236 1% 1% 94%
-- ----------- --- --- ---
CALIFORNIA
SAN FRANCISCO
South of Market/CBD............................. 1 276,420 1% 1% 83%
-- ----------- --- --- ---
SAN DIEGO
University Tower Centre ("UTC")................. 1 195,733 1% 1% 86%(4)
-- ----------- --- --- ---
TOTAL/WEIGHTED AVERAGE...................... 79 27,850,875 100% 100% 87%(4)
== =========== === === ===
</TABLE>
- ---------------
(1) NRA means net rentable area in square feet.
(2) Represents percent of annualized office property rental revenues based on
October 1997 rental revenues.
(3) Includes two properties acquired in the Dallas CBD submarket and one
property acquired in the Houston West Loop/Galleria submarket subsequent to
September 30, 1997.
(4) Leases have been executed at certain Properties in these submarkets but had
not commenced as of September 30, 1997. If such leases had commenced as of
September 30, 1997, the percent leased for all Office Properties in the
Operating Partnership's submarkets would have been 91%. The total percent
leased at the Operating Partnership's Office Properties would have been as
follows: Dallas CBD -- 83%; Far North Dallas -- 98%; Dallas Uptown/Turtle
Creek -- 98%; Dallas LBJ Freeway -- 96%; Fort Worth CBD -- 100%; Houston
Richmond/Buffalo Speedway -- 85%; Austin Northwest -- 100%; Denver Cherry
Creek -- 94%; and San Diego UTC -- 91%.
LEASE EXPIRATIONS OF OFFICE PROPERTIES
The following table sets forth a schedule of lease expirations for leases
in place at the Office Properties owned as of September 30, 1997(1), for each of
the 10 years beginning with the remainder of 1997, assuming that none of the
tenants exercises renewal options and excluding an aggregate of 3,658,320 square
feet of unleased space.
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
ANNUAL ANNUAL
NET RENTABLE FULL-SERVICE FULL-SERVICE
AREA PERCENTAGE OF ANNUAL RENT RENT PER
NUMBER OF REPRESENTED LEASED NET FULL-SERVICE REPRESENTED NET
TENANTS WITH BY EXPIRING RENTABLE AREA RENT UNDER BY RENTABLE
YEAR OF LEASE EXPIRING LEASES REPRESENTED BY EXPIRING EXPIRING AREA
EXPIRATION LEASES (SQUARE FEET) EXPIRING LEASES LEASES(2) LEASES EXPIRING(2)
------------- ------------ ------------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1997........................ 191 777,229 3.2% $13,483,710 3.1% $17.35
1998........................ 438 2,268,787 9.4 34,624,456 7.9 15.26
1999........................ 371 3,128,239 13.0 52,925,219 12.1 16.92
2000........................ 298 3,153,189 13.1 53,026,487 12.1 16.82
2001........................ 250 3,257,894 13.5 58,065,366 13.3 17.82
2002........................ 179 2,709,274 11.2 51,344,706 11.8 18.95
2003........................ 60 1,394,045 5.8 23,958,246 5.5 17.19
2004........................ 50 2,350,490 9.8 47,058,459 10.8 20.02
2005........................ 31 1,770,288 7.3 32,623,881 7.5 18.43
2006........................ 17 408,645 1.7 8,491,956 1.9 20.78
2007 and thereafter......... 30 2,876,916 12.0 60,936,279 14.0 21.18
</TABLE>
- ---------------
(1) Includes three Properties acquired subsequent to September 30, 1997.
(2) Calculated based on base rent payable as of the expiration date of the lease
for net rentable square feet expiring, without giving effect to free rent or
scheduled rent increases that would be taken into account under generally
accepted accounting principles and including adjustments for expenses
payable by or reimbursable from tenants based on current levels.
-4-
<PAGE> 9
BEHAVIORAL HEALTHCARE FACILITIES
On June 17, 1997, the Operating Partnership acquired substantially all of
the real estate assets of the domestic hospital provider business of Magellan
Health Services, Inc., as previously owned and operated by a wholly owned
subsidiary of Magellan Health Services, Inc. The transaction involved various
components, the principal component of which was the acquisition of the 91
Behavioral Healthcare Facilities (and one additional behavioral healthcare
facility which subsequently was sold) for approximately $399.7 million. The
Behavioral Healthcare Facilities, which are located in 28 states, are leased to
a single tenant (and its subsidiaries) under a triple-net lease. The tenant,
Charter Behavioral Health Systems, LLC ("CBHS"), is a newly formed Delaware
limited liability company owned 50% by a subsidiary of Magellan Health Services,
Inc. and 50% by Crescent Operating, Inc.
HOTEL PROPERTIES
The following table sets forth certain information about the Hotel
Properties for the nine months ended September 30, 1997 and 1996. The
information for the Hotel Properties is based on available rooms, except for
Canyon Ranch-Tucson and Canyon Ranch-Lenox, which are destination health and
fitness resorts that measure performance based on available guest nights.
<TABLE>
<CAPTION>
AVERAGE AVERAGE REVENUE PER
OCCUPANCY DAILY AVAILABLE
RATE RATE ROOM
------------- ------------- -------------
NINE NINE NINE
MONTHS MONTHS MONTHS
ENDED ENDED ENDED
YEAR SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
COMPLETED/ ------------- ------------- -------------
HOTEL PROPERTY(1) LOCATION RENOVATED ROOMS 1997 1996 1997 1996 1997 1996
----------------- -------- -------------- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FULL-SERVICE/LUXURY HOTELS
Denver Marriott City Center Denver, CO 1982/1994 613 84% 83% $117 $107 $ 98 $ 89
Four Seasons Hotel Houston, TX 1982 399 68 65 159 144 108 93
Hyatt Regency Albuquerque Albuquerque, NM 1990 395 75 79 99 92 74 72
Hyatt Regency Beaver Creek Avon, CO 1989 295 70 72 231 212 162 151
Sonoma Mission Inn & Spa(6) Sonoma, CA 1927/1987&1997 198 90 93 205 177 185 165
----- -- -- ---- ---- ---- ----
TOTAL/WEIGHTED AVERAGE 1,900 77% 77% $147 $133 $113 $103
===== == == ==== ==== ==== ====
DESTINATION HEALTH AND FITNESS RESORTS
Canyon Ranch-Tucson Tucson, AZ 1980 240(2) 84%(3) 80%(3) $486(4) $467(4) $385(5) $354(5)
Canyon Ranch-Lenox Lenox, MA 1989 202(2) 81 (3) 83(3) 446(4) 401(4) 353(5) 322(5)
----- -- -- ---- ---- ---- ----
TOTAL/WEIGHTED AVERAGE 442 83% 81% $468 $436 $370 $339
===== == == ==== ==== ==== ====
</TABLE>
- ---------------
(1) Because of the Company's status as a REIT for federal income tax purposes,
the Operating Partnership does not operate the Hotel Properties and has
leased the Hotel Properties to subsidiaries of Crescent Operating, Inc.
pursuant to long-term leases. See "Properties -- Hotel Properties."
(2) Represents available guest nights, which is the maximum number of guests
that the resort can accommodate per night.
(3) Represents the number of paying and complimentary guests for the period,
divided by the maximum number of available guest nights for the period.
(4) Represents the average daily "all-inclusive" guest package charges for the
period, divided by the average daily number of paying guests for the period.
(5) Represents the total "all-inclusive" guest package charges for the period,
divided by the maximum number of available guest nights for the period.
(6) Includes, for the period from July 1, 1997 through September 30, 1997, 30
additional rooms completed in July 1997.
-5-
<PAGE> 10
RESIDENTIAL DEVELOPMENT PROPERTIES
The Operating Partnership owns economic interests in five Residential
Development Corporations through the real estate mortgages (the "Residential
Development Property Mortgages") relating to and the non-voting common stock in
these Residential Development Corporations. The Residential Development
Corporations in turn, through joint ventures or partnership arrangements, own
interests in the 14 Residential Development Properties. The Residential
Development Corporations are responsible for the continued development and the
day to day operations of the Residential Development Properties.
CRESCENT OPERATING, INC.
In April 1997, the Operating Partnership established a new Delaware
corporation, Crescent Operating, Inc. All of the outstanding common stock of
Crescent Operating, Inc. was distributed, effective June 12, 1997, to those
persons who were limited partners of the Operating Partnership or shareholders
of the Company on May 30, 1997.
Crescent Operating, Inc. was formed to become a lessee and operator of
various assets and to perform an agreement (the "Intercompany Agreement")
between Crescent Operating, Inc. and the Operating Partnership, pursuant to
which each has agreed to provide the other with rights to participate in certain
transactions. As a result of the formation of Crescent Operating, Inc. and the
execution of the Intercompany Agreement, persons who own equity interests in
both Crescent Operating, Inc. and the Operating Partnership have the opportunity
to participate in the benefits of both the real estate investments of the
Operating Partnership (including ownership of real estate assets) and the lease
of certain of such assets and the ownership of other non-real estate assets by
Crescent Operating, Inc. Crescent Operating, Inc.'s certificate of
incorporation, as amended and restated, generally prohibits Crescent Operating,
Inc., for so long as the Intercompany Agreement remains in effect, from engaging
in activities or making investments that a REIT could make, unless the Operating
Partnership was first given the opportunity but elected not to pursue such
activities or investments.
REFRIGERATED WAREHOUSE INVESTMENT
On October 31, 1997, the Company completed the Refrigerated Warehouse
Investment pursuant to which the Company acquired an indirect 40% interest in
each of two corporations that currently own and operate approximately 79
refrigerated warehouses with an aggregate of approximately 368 million cubic
feet. The aggregate purchase price for the 100% interest in the corporations was
approximately $1,004 million (including transaction costs associated with the
acquisition).
THE EXCHANGE OFFER
THE EXCHANGE OFFER The Operating Partnership is hereby offering to
exchange 2002 Exchange Notes and 2007 Exchange
Notes for an equal principal amount of 2002 Private
Notes and 2007 Private Notes, respectively, that
are properly tendered and accepted. The Operating
Partnership will issue Exchange Notes on or as
promptly as practicable after the Expiration Date.
As of the date hereof, there are $150 million
aggregate principal amount of 2002 Private Notes
and $250 million aggregate principal amount of 2007
Private Notes outstanding. The Operating
Partnership will not receive any proceeds from and
has agreed to bear the expenses of the Exchange
Offer. See "The Exchange Offer."
Based on interpretations set forth in no-action
letters issued to third parties by the staff of the
Securities and Exchange Commission (the
"Commission"), the Operating Partnership believes
that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Private Notes may be
offered for resale, resold and otherwise
transferred by a holder thereof without compliance
with the registration and prospectus
-6-
<PAGE> 11
delivery provisions of the Securities Act, provided
that the holder is acquiring Exchange Notes in the
ordinary course of its business, is not
participating, does not intend to participate and
has no arrangement or understanding with any person
to participate in the distribution of the Exchange
Notes and is not an "affiliate" of the Operating
Partnership within the meaning of Rule 405 under
the Securities Act.
This Prospectus, as it may be amended or
supplemented from time to time, may be used by a
broker-dealer in connection with resales of
Exchange Notes received in exchange for Private
Notes that were acquired by such broker-dealer as a
result of market-making or other trading
activities, and each such broker-dealer must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
By so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. Any holder of Private Notes who
tenders in the Exchange Offer with the intention of
participating in a distribution of the Exchange
Notes must comply, in the absence of an exemption
under the Securities Act, with the registration and
prospectus delivery requirements therein in
connection with any resale transaction. Failure to
comply with such requirements in the absence of an
available exemption could result in liability of
such holder under the Securities Act for which the
holder is not indemnified by the Operating
Partnership. See "The Exchange Offer -- Resale of
the Exchange Notes."
REGISTRATION RIGHTS The Private Notes were sold by the Operating
Partnership on September 22, 1997 to Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Salomon
Brothers Inc (together, the "Initial Purchasers")
pursuant to a Purchase Agreement, dated as of
September 19, 1997 (the "Purchase Agreement"),
between the Operating Partnership and the Initial
Purchasers. Pursuant to the Purchase Agreement, the
Operating Partnership entered into a Registration
Rights Agreement, dated as of September 22, 1997
(the "Registration Rights Agreement"), with the
Initial Purchasers granting the holders of Private
Notes certain exchange and registration rights. The
Exchange Offer is intended to satisfy such rights
as to all Private Notes held by holders who are not
the Initial Purchasers or affiliates of the
Operating Partnership, and such rights will
terminate upon the consummation of the Exchange
Offer. The holders of the Exchange Notes will not
be entitled to any exchange or registration rights
with respect to the Exchange Notes. See "The
Exchange Offer -- Termination of Certain Rights."
In the event that applicable interpretations of the
staff of the Commission do not permit the Operating
Partnership to effect the Exchange Offer or in
certain other circumstances, the Operating
Partnership has agreed to file a shelf registration
statement ("Shelf Registration Statement") to cover
resales of the Private Notes by the holders thereof
and to use its reasonable best efforts to cause
such Shelf Registration Statement to be declared
effective under the Securities Act and, subject to
certain exceptions, to keep such Shelf Registration
Statement effective until two years after the
effectiveness date of such Shelf Registration
Statement. If the Operating Partnership fails to
consummate the Exchange Offer or, if applicable,
fails to obtain and maintain effectiveness of the
Shelf Registration Statement, within and during the
time periods specified in the Registration Rights
Agreement, the interest rate for the Private Notes
otherwise eligible for
-7-
<PAGE> 12
exchange in the Exchange Offer or, as applicable,
for registration on the Shelf Registration
Statement will be increased by 50 basis points.
EXPIRATION DATE The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998 (the
"Expiration Date"), unless the Exchange Offer is
extended by the Operating Partnership in its sole
discretion, in which case the term "Expiration
Date" shall mean the latest date and time to which
the Exchange Offer is extended. See "The Exchange
Offer -- Expiration Date; Extensions; Amendments."
PROCEDURES FOR TENDERING
PRIVATE
NOTES Each holder of Private Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with such Private Notes and any other required
documentation to State Street Bank and Trust
Company of Missouri, N.A., as Exchange Agent (the
"Exchange Agent"), at the address set forth herein.
By executing the Letter of Transmittal, the holder
will represent to and agree with the Operating
Partnership that, among other things, (i) any
Exchange Notes acquired in exchange for Private
Notes tendered thereby are being acquired in the
ordinary course of business of the person receiving
such Exchange Notes, (ii) the person receiving such
Exchange Notes is not engaging in and does not
intend to engage in a distribution of the Exchange
Notes, (iii) the person receiving such Exchange
Notes does not have an arrangement or understanding
with any person to participate in the distribution
of such Exchange Notes, and (iv) neither the holder
nor any other person receiving the Exchange Notes
is an "affiliate," as defined in Rule 405 under the
Securities Act, of the Operating Partnership. If
the holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange for
Private Notes that were acquired as a result of
market-making or other trading activities, such
holder will be required to acknowledge in the
Letter of Transmittal that such holder will deliver
a prospectus in connection with any resale of such
Exchange Notes. See "The Exchange Offer --
Procedures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS Any beneficial owner whose Private Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender such Private Notes in the
Exchange Offer should contact such registered
holder promptly and instruct such registered holder
to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal
and delivering such owner's Private Notes, either
make appropriate arrangements to register ownership
of the Private Notes in such owner's name or obtain
a properly completed bond power from the registered
holder. The transfer of registered ownership may
take considerable time and may not be able to be
completed prior to the Expiration Date. See "The
Exchange Offer -- Procedures for Tendering."
GUARANTEED DELIVERY
PROCEDURES Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any
other documentation required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Private Notes
according to the
-8-
<PAGE> 13
guaranteed delivery procedures set forth under "The
Exchange Offer -- Guaranteed Delivery Procedures."
ACCEPTANCE OF THE PRIVATE
NOTES AND DELIVERY OF
THE EXCHANGE NOTES
Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Operating
Partnership will accept for exchange any and all
Private Notes that are properly tendered in the
Exchange Offer prior to the Expiration Date. The
Exchange Notes issued pursuant to the Exchange
Offer will be delivered on the earliest practicable
date following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange Offer."
WITHDRAWAL RIGHTS Tenders of Private Notes may be withdrawn at any
time prior to the Expiration Date. See "The
Exchange Offer -- Withdrawal of Tenders."
CERTAIN TAX
CONSIDERATIONS
For a discussion of certain tax considerations
relating to the Exchange Offer and the Exchange
Notes, see "Certain U.S. Federal Income Tax
Considerations."
EXCHANGE AGENT State Street Bank and Trust Company of Missouri,
N.A. is serving as the Exchange Agent in connection
with the Exchange Offer. State Street Bank and
Trust Company of Missouri, N.A. also serves as
trustee (the "Trustee") under the Indenture.
THE EXCHANGE NOTES
The Exchange Offer applies to the $150 million aggregate principal amount
of the 2002 Private Notes and to the $250 million aggregate principal amount of
the 2007 Private Notes. The form and terms of the 2002 Exchange Notes and the
2007 Exchange Notes are identical in all material respects to the form and terms
of the 2002 Private Notes and the 2007 Private Notes, respectively, except that
the Exchange Notes will not bear legends restricting the transfer thereof and
the holders of the Exchange Notes will not be entitled to any of the
registration rights of holders of the Private Notes under the Registration
Rights Agreement, which rights will terminate upon consummation of the Exchange
Offer. The 2002 Exchange Notes and the 2007 Exchange Notes will evidence the
same indebtedness as the 2002 Private Notes and the 2007 Private Notes,
respectively (which they replace), and will be issued under, and be entitled to
the benefits of, an indenture, dated as of September 22, 1997 (the "Indenture"),
between the Operating Partnership and the Trustee. For further information and
for definitions of certain capitalized terms, see "Description of the Exchange
Notes."
ISSUER Crescent Real Estate Equities Limited Partnership
EXCHANGE NOTES $150 million aggregate principal amount of 6 5/8%
Notes due 2002, and $250 million aggregate
principal amount of 7 1/8% Notes due 2007.
MATURITY The 2002 Exchange Notes will mature on September
15, 2002, and the 2007 Exchange Notes will mature
on September 15, 2007.
INTEREST PAYMENT DATES Interest on the Exchange Notes is payable
semi-annually in arrears on each September 15 and
March 15, commencing March 15, 1998, through
maturity. The Exchange Notes will bear interest
from September 22, 1997. In the Letter of
Transmittal, holders of Private Notes whose Private
Notes are accepted for exchange will waive the
right to receive any payment in respect of interest
on the Private Notes accrued from September 22,
1997 to the date of the issuance of the Exchange
Notes. In certain circumstances, the interest rate
on the Exchange Notes is subject to adjustment. See
"-- Rating," below.
-9-
<PAGE> 14
RANKING The Exchange Notes are senior unsecured obligations
of the Operating Partnership and will rank pari
passu with each other and with all other unsecured
and unsubordinated obligations of the Operating
Partnership, including Private Notes that remain
outstanding following the Exchange Offer. The
Exchange Notes will be effectively subordinated to
the claims of any secured mortgage lender to the
extent of the value of the property securing such
indebtedness. The Exchange Notes also will be
effectively subordinated to all existing and future
third-party indebtedness and other liabilities of
the Subsidiaries. As of September 30, 1997, after
giving pro forma effect to transactions completed
subsequent to September 30, 1997 and related
financing, the Operating Partnership and its
Subsidiaries collectively had total indebtedness of
$1,809.3 million, which consisted of $722.5 million
of secured indebtedness (of which $160.6 million
was secured indebtedness of the Operating
Partnership and $561.9 million was secured
indebtedness of its Subsidiaries) and $1,086.8
million of unsecured indebtedness (all of which was
unsecured indebtedness of the Operating
Partnership). See "Capitalization."
LIMITATIONS ON INCURRENCE The Indenture contains various covenants, including
OF DEBT the following:
(1) The Operating Partnership and its Subsidiaries
will not incur any Debt if, after giving effect
thereto, the aggregate principal amount of all
outstanding Debt of the Operating Partnership
and its Subsidiaries is greater than 60% of the
sum of (i) the Total Assets of the Operating
Partnership and its Subsidiaries as of the end
of the most recent fiscal quarter and (ii) the
increase or decrease in the Total Assets of the
Operating Partnership and its Subsidiaries
since the end of such quarter, including any
increase in the Total Assets of the Operating
Partnership and its Subsidiaries resulting from
the incurrence of such additional Debt (such
increase or decrease together with the Total
Assets of the Operating Partnership and its
Subsidiaries is referred to as "Adjusted Total
Assets"). As of September 30, 1997, on a pro
forma basis after giving effect to transactions
completed subsequent to September 30, 1997 and
related financing, the aggregate principal
amount of all outstanding Debt of the Operating
Partnership and its Subsidiaries was 45% of the
Adjusted Total Assets of the Operating
Partnership and its Subsidiaries.
(2) The Operating Partnership and its Subsidiaries
will not incur any Secured Debt if, after
giving effect thereto, the aggregate amount of
all outstanding Secured Debt of the Operating
Partnership and its Subsidiaries would be
greater than 40% of Adjusted Total Assets. As
of September 30, 1997, on a pro forma basis
after giving effect to transactions completed
subsequent to September 30, 1997 and related
financing, the aggregate amount of all
outstanding Secured Debt of the Operating
Partnership and its Subsidiaries was 19% of the
Adjusted Total Assets of the Operating
Partnership and its Subsidiaries.
(3) The Operating Partnership and its Subsidiaries
will not incur any Debt if Consolidated Income
Available for Debt Service for the four
consecutive fiscal quarters most recently ended
prior to the date of the incurrence of such
Debt, on a pro forma basis, would be less than
1.5 times the Annual Debt Service Charge on all
Debt
-10-
<PAGE> 15
outstanding immediately after the incurrence of
such additional Debt. As of September 30, 1997,
on a pro forma basis after giving effect to
transactions completed subsequent to September
30, 1997 and related financing, the
Consolidated Income Available for Debt Service
for the four consecutive fiscal quarters most
recently ended was 2.9 times the Annual Debt
Service Charge on all Debt outstanding.
(4) The Operating Partnership and its Subsidiaries
will maintain Total Unencumbered Assets of not
less than 150% of the aggregate outstanding
principal amount of the Unsecured Debt of the
Operating Partnership and its Subsidiaries. As
of September 30, 1997, on a pro forma basis
after giving effect to transactions completed
subsequent to September 30, 1997 and related
financing, the Total Unencumbered Assets of the
Operating Partnership and its Subsidiaries
equaled 250.7% of the Unsecured Debt of the
Operating Partnership and its Subsidiaries.
OPTIONAL REDEMPTION The Exchange Notes are redeemable at any time at
the option of the Operating Partnership, in whole
or in part, at a redemption price equal to the sum
of (i) the principal amount of the Exchange Notes
being redeemed plus accrued and unpaid interest, if
any, to the redemption date and (ii) the Make-Whole
Amount, if any. See "Description of the Exchange
Notes -- Optional Redemption."
RATING The Operating Partnership has agreed to obtain a
rating of the Private Notes and/or the Exchange
Notes from Standard & Poor's Rating Services, a
division of the McGraw-Hill Companies, and Moody's
Investors Services, Inc. (each a "Rating Agency,"
and together, the "Rating Agencies"). If, prior to
September 22, 1998, (i) either Rating Agency at any
time (a) assigns a rating to a series of the
Private Notes or the Exchange Notes that is not in
one of such Rating Agency's generic rating
categories which signifies investment grade (an
"Investment Grade Rating"), or (b) withdraws any
rating for a series of the Private Notes or the
Exchange Notes and does not promptly assign a new
rating, or (ii) either Rating Agency fails to
assign any rating to a series of the Private Notes
or the Exchange Notes, then the interest rate for
such series shall increase by 37.5 basis points
(the "Rating Adjustment") commencing on the date on
which such series is rated with other than an
Investment Grade Rating, the date a rating for any
series is withdrawn, or September 22, 1998 if no
rating is assigned, as the case may be. In the case
of clause (i) above, from and after such date, if
any, until September 22, 1998, if such series
becomes rated by such Rating Agency with an
Investment Grade Rating, then the Rating Adjustment
shall be eliminated, until such time as it would
otherwise again be applicable. The interest rate
for each series of Private Notes or Exchange Notes,
as the case may be, shall be fixed on September 22,
1998 for the remainder of the term of such series.
Notwithstanding anything to the contrary, if at any
time within the period from September 22, 1997 to
September 22, 1998, both Rating Agencies shall have
rated any series of Private Notes or Exchange Notes
with an Investment Grade Rating, the Rating
Adjustment shall be eliminated for the remainder of
the term of such series of Private Notes or
Exchange Notes.
-11-
<PAGE> 16
NO CASH PROCEEDS TO THE OPERATING PARTNERSHIP
This Exchange Offer is intended to satisfy certain obligations of the
Operating Partnership under the Registration Rights Agreement. The Operating
Partnership will not receive any proceeds from the issuance of the Exchange
Notes offered hereby and has agreed to pay the expenses of the Exchange Offer.
In consideration of its issuance of the 2002 Exchange Notes and the 2007
Exchange Notes as contemplated in this Prospectus, the Operating Partnership
will receive the 2002 Private Notes and the 2007 Private Notes, respectively,
representing an equal aggregate principal amount. The form and terms of the 2002
Exchange Notes and the 2007 Exchange Notes are identical in all material
respects to the form and terms of the 2002 Private Notes and the 2007 Private
Notes, respectively, except for certain transfer restrictions and registration
rights relating to the Private Notes and except for certain interest provisions
related to such registration rights. See "The Exchange Offer -- Terms of the
Exchange Offer." The Private Notes surrendered in exchange for Exchange Notes
will be retired and canceled and cannot be reissued. Accordingly, issuance of
the Exchange Notes will not result in any increase in the outstanding
indebtedness of the Operating Partnership.
-12-
<PAGE> 17
SUMMARY SELECTED FINANCIAL DATA
The following table sets forth certain summary financial information for
the Operating Partnership on a pro forma and historical basis and for the
Rainwater Property Group (the Operating Partnership's predecessor) on a combined
historical basis, which consists of the combined financial statements of the
entities that contributed Properties in exchange for Units or Common Shares of
the Company in connection with the formation of the Company and the Operating
Partnership. Such information should be read in conjunction with "Selected
Financial Data."
The pro forma information for the year ended December 31, 1996 assumes
completion, in each case as of January 1, 1996 in determining operating and
other data, of (i) the Company's public offering of its Common Shares that
closed on October 2, 1996 (the "October 1996 Offering") and the additional
public offering of 450,000 Common Shares that closed on October 9, 1996 and
these net proceeds were contributed to the Operating Partnership, which used the
net proceeds to repay approximately $168 million of indebtedness and to fund
approximately $289 million of Property acquisitions in the fourth quarter of
1996 and the first quarter of 1997, (ii) the Company's public offering of its
Common Shares in April 1997 (the "April 1997 Offering") and the additional
public offering of 500,000 Common Shares that closed on May 14, 1997 and these
net proceeds were contributed to the Operating Partnership, which used the net
proceeds to fund approximately $593.5 million of Property acquisitions and other
investments in the second quarter of 1997, (iii) the Company's offering of
4,700,000 Common Shares to an affiliate of Union Bank of Switzerland (the "UBS
Offering") and these net proceeds were contributed to the Operating Partnership,
which used the net proceeds to repay approximately $145 million of indebtedness
under the Credit Facility, (iv) the Operating Partnership's offering of the
Private Notes and the use of the net proceeds therefrom to fund approximately
$337.6 million of the purchase price of two Properties and to repay
approximately $57.2 million of indebtedness incurred under the Credit Facility
and other short-term indebtedness, (v) the Company's public offering of its
Common Shares in October 1997 (the "October 1997 Offering") and these net
proceeds were contributed to the Operating Partnership, which used the net
proceeds to fund approximately $45 million of the purchase price of one Property
and to repay approximately $325.1 million of short-term indebtedness and
indebtedness incurred under the Credit Facility, (vi) the assumption of
indebtedness of $97.1 million in connection with the purchase of one Property
and (vii) Property acquisitions, other investments and share issuances during
1996 and 1997.
The pro forma information for the nine months ended September 30, 1997
assumes completion, in each case as of January 1, 1997 in determining operating
and other data, and, in each case as of September 30, 1997 in determining
balance sheet data, of (i) the April 1997 Offering and the additional public
offering of 500,000 Common Shares that closed on May 14, 1997 and these net
proceeds were contributed to the Operating Partnership, which used the net
proceeds to fund approximately $593.5 million of Property acquisitions and other
investments in the second quarter of 1997, (ii) the UBS Offering and these net
proceeds were contributed to the Operating Partnership, which used the net
proceeds to repay approximately $145 million of indebtedness under the Credit
Facility, (iii) the Operating Partnership's offering of the Private Notes and
the use of the net proceeds therefrom to fund approximately $337.6 million of
the purchase price of two Properties and to repay approximately $57.2 million of
indebtedness incurred under the Credit Facility and other short-term
indebtedness, (iv) the October 1997 Offering and these net proceeds were
contributed to the Operating Partnership, which used the net proceeds to fund
approximately $45 million of the purchase price of one Property and to repay
approximately $325.1 million of short-term indebtedness and indebtedness
incurred under the Credit Facility, (v) the assumption of indebtedness of $97.1
million in connection with the purchase of one Property and (vi) Property
acquisitions, other investments and share issuances during 1997.
-13-
<PAGE> 18
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
PRO FORMA AND HISTORICAL FINANCIAL DATA AND
RAINWATER PROPERTY GROUP COMBINED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER PARTNER INTEREST DATA)
<TABLE>
<CAPTION>
OPERATING PARTNERSHIP
----------------------------------------------------------------------------------------------------
FOR THE
PERIOD FROM
PRO FORMA MAY 5, 1994
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED YEAR ENDED YEAR ENDED TO
---------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996 1996 1996 1995 1994
----------- ------------ ----------- ------------ ------------ ------------ ------------
PRO FORMA ACTUAL ACTUAL (UNAUDITED)
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue............ $ 421,291 $ 303,260 $ 137,427 $ 524,894 $ 208,861 $ 129,960 $ 50,343
Operating income
(loss).................. 95,772 81,148 23,668 102,877 44,101 30,858 10,864
Income (loss) before
minority interest and
extraordinary item...... 110,020 84,266 26,735 116,897 47,951 36,358 12,595
BALANCE SHEET DATA (AT
PERIOD END):
Total assets............. $ 4,017,564 $ 3,615,064 $ 1,216,515 $ -- $ 1,733,540 $ 965,232 $ 538,354
Total debt............... 1,809,304 1,776,904 664,483 -- 667,808 444,528 194,642
Total partners'
capital................. 2,091,634 1,721,534 487,213 -- 988,005 479,517 328,448
OTHER DATA:
Funds from Operations
before minority
interests(1)............ $ 203,289 $ 134,615 $ 55,741 $ 239,164 $ 87,616 $ 64,475 $ 32,723
Distribution per partner
interest................ -- $ .92 $ .83 -- $ 1.16 $ 1.05 $ .65
Weighted average partner
interests............... 125,031,047 100,592,573 58,116,124 125,031,047 64,684,842 54,182,186 44,997,716
Cash flow provided by
(used in):
Operating activities.... $ --(2) $ 134,730 $ 49,590 $ --(2) $ 77,384 $ 64,877 $ 21,614
Investing activities.... --(2) (1,865,984) (221,498) --(2) (513,033) (421,306) (260,666)
Financing activities.... --(2) 1,752,410 169,336 --(2) 444,315 343,079 265,608
EBIDA(3)................. 280,213 191,950 89,000 342,335 134,224 85,699 31,266
Total Debt to Total
Assets(4)............... 45% 47% 49% -- 39% 47% 37%
Total Secured Debt to
Total Assets(4)......... 19% 17% 35% -- 37% 47% 37%
Ratio of Consolidated
Income Available for
Debt Service to Annual
Debt Service
Charge(4)............... 2.9 3.0 2.8 2.6 3.1 4.6 9.0
Ratio of earnings to
fixed charges(5)........ 2.1 2.4 1.8 1.9 2.0 2.6 3.9
Ratio of Funds from
Operations before fixed
charges to fixed
charges(6).............. 3.0 3.3 2.6 2.8 2.9 3.9 8.4
<CAPTION>
RAINWATER PROPERTY GROUP
---------------------------------
FOR THE
PERIOD
FROM
JANUARY 1, YEAR ENDED
1994 TO DECEMBER 31,
MAY 4, --------------------
1994 1993 1992
---------- -------- ---------
<S> <C> <C> <C>
OPERATING DATA:
Total revenue............ $ 21,185 $ 57,168 $ 49,586
Operating income
(loss).................. (1,599) (53,024) (36,612)
Income (loss) before
minority interest and
extraordinary item...... (1,599) (53,024) (36,612)
BALANCE SHEET DATA (AT
PERIOD END):
Total assets............. -- $290,869 $ 296,291
Total debt............... -- 278,060 548,517
Total partners'
capital................. -- 2,941 (328,240)
OTHER DATA:
Funds from Operations
before minority
interests(1)............ -- -- --
Distribution per partner
interest................ -- -- --
Weighted average partner
interests............... -- -- --
Cash flow provided by
(used in):
Operating activities.... $ 2,455 $ 9,313 $ (640)
Investing activities.... (2,379) (20,572) (8,924)
Financing activities.... (21,310) 28,861 14,837
EBIDA(3)................. 11,061 (5,717) 17,823
Total Debt to Total
Assets(4)............... -- -- --
Total Secured Debt to
Total Assets(4)......... -- -- --
Ratio of Consolidated
Income Available for
Debt Service to Annual
Debt Service
Charge(4)............... -- -- --
Ratio of earnings to
fixed charges(5)........ -- -- --
Ratio of Funds from
Operations before fixed
charges to fixed
charges(6).............. -- -- --
</TABLE>
- ---------------
(1) Funds from Operations ("FFO"), based on the revised definition adopted by
the Board of Governors of the National Association of Real Estate Investment
Trusts ("NAREIT"), and as used herein, means net income (loss) (determined
in accordance with generally accepted accounting principles), excluding
gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization of real estate assets, and after adjustments
for unconsolidated partnerships and joint ventures. For a more detailed
description of FFO, see "Selected Financial Data."
(2) Pro forma information relating to operating, investing and financing
activities has not been included because management believes that the data
would not be meaningful due to the number of assumptions required in order
to calculate this data.
(3) EBIDA means earnings before interest expense, depreciation, amortization and
minority interests. For a more detailed description of EBIDA, see "Selected
Financial Data."
(4) See "Description of the Notes" for the definitions of capitalized terms.
(5) Ratio of earnings to fixed charges is computed as income from operations
before minority interests and extraordinary items plus fixed charges
(excluding capitalized interest) divided by fixed charges. For a more
detailed description of ratio of earnings to fixed charges, see "Selected
Financial Data."
(6) Ratio of FFO before fixed charges to fixed charges is computed as FFO plus
fixed charges (excluding capitalized interest), divided by fixed charges.
For a more detailed description of ratio of FFO before fixed charges to
fixed charges, see "Selected Financial Data".
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<PAGE> 19
RISK FACTORS
Prospective investors should carefully consider the following information
in conjunction with the other information contained in this Prospectus before
deciding whether or not to tender Private Notes in exchange for Exchange Notes
pursuant to the Exchange Offer.
CONCENTRATION OF ASSETS
A significant portion of the Operating Partnership's assets are, and
revenues are derived from, Properties located in the metropolitan areas of
Dallas-Fort Worth and Houston, Texas. Due to this geographic concentration, any
deterioration in economic conditions in the Dallas-Fort Worth or Houston
metropolitan areas or other geographic markets in which the Operating
Partnership in the future may acquire substantial assets could have an adverse
effect on the financial condition and results of operations of the Operating
Partnership.
RISKS ASSOCIATED WITH THE ACQUISITION OF SUBSTANTIAL NEW ASSETS
From the time it commenced operations in May 1994 through September 30,
1997, the Operating Partnership has experienced rapid growth, increasing its
total assets by approximately 1,075%, after giving pro forma effect to
transactions completed subsequent to September 30, 1997. There can be no
assurance that the Operating Partnership will be able to manage its growth
effectively and the failure to do so may have an adverse effect on the financial
condition and results of operations of the Operating Partnership.
PURCHASES FROM FINANCIALLY DISTRESSED SELLERS
Implementation of the Operating Partnership's strategy of investing in real
estate assets in distressed circumstances has resulted in the acquisition of
certain Properties from owners that were in poor financial condition, and such
strategy is expected to result in the purchase of additional properties under
similar circumstances in the future. In addition to general real estate risks,
properties acquired in distressed situations present risks related to inadequate
maintenance, negative market perception and continuation of circumstances which
precipitated the distress originally.
CHANGES IN POLICIES
The Company is the sole shareholder of the General Partner of the Operating
Partnership. The Board of Trust Managers of the Company elects the sole director
of the General Partner and provides guidance to the senior management of the
Operating Partnership regarding operating and financial policies and strategies,
including its policies and strategies with respect to acquisitions, growth,
operations, indebtedness and capitalization. These policies and strategies of
the Operating Partnership and the Company may change from time to time and such
changes may have an adverse effect on the holders of the Notes.
RELIANCE ON KEY PERSONNEL
The Operating Partnership is dependent on the efforts of senior management
personnel of the Company and the General Partner. These senior management
personnel include Richard E. Rainwater, Chairman of the Board of Trust Managers
of the Company, John C. Goff, Vice Chairman of the Board of Trust Managers of
the Company, and Gerald W. Haddock, President, Chief Executive Officer and Trust
Manager of the Company, and President, Chief Executive Officer and sole Director
of the General Partner. While the Operating Partnership believes that it would
be possible to find replacements for these key executives, the loss of their
services could have an adverse effect on the operations of the Operating
Partnership. Mr. Rainwater has no employment agreement with the Company and,
therefore, is not obligated to remain with the Company for any specified term.
Each of Messrs. Goff and Haddock has entered into employment agreements with the
Company, and Messrs. Rainwater, Goff and Haddock each has entered into a
noncompetition agreement with the Company. Neither the Company nor the General
Partner has obtained key-man insurance for any of its senior management
personnel.
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<PAGE> 20
RISKS RELATING TO DEBT
The Operating Partnership is subject to the risks normally associated with
debt financing, including the risk that the Operating Partnership's net
operating income will be insufficient to meet required payments of principal and
interest, risks associated with possible increases in variable interest rates,
the risk that the Operating Partnership will not be able to refinance existing
indebtedness or, if necessary, to obtain additional financing for necessary
capital expenditures such as renovations and other improvements on favorable
terms or at all. A default under secured indebtedness could result in a transfer
of the secured asset to the mortgagee, with a consequent loss of income and
asset value to the Operating Partnership.
The Operating Partnership's organizational documents do not limit the level
or amount of debt that it may incur. The Indenture, however, contains
limitations on the Operating Partnership's ability to incur indebtedness. See
"Description of the Exchange Notes." It is the Operating Partnership's current
policy to pursue a strategy of conservative use of leverage, generally with a
ratio of debt to total market capitalization of the Company targeted at
approximately 40 percent, although this policy is subject to reevaluation and
modification and could be increased above 40 percent. The debt policy is based
on the relationship between the debt of the Operating Partnership and the total
market capitalization of the Company, rather than the book value of its assets
or other historical measures, because management believes that market
capitalization more accurately reflects the ability of the Operating Partnership
to borrow money and to meet its debt service requirements. Market capitalization
is, however, more variable than book value of assets or other historical
measures. There can be no assurance that the ratio of indebtedness to market
capitalization (or any other measure of asset value) or the incurrence of debt
at any particular level would not adversely affect the financial condition and
results of operations of the Operating Partnership.
SUBORDINATION RISKS
The Operating Partnership derives the majority of its operating income from
its Subsidiaries. The Holders of the Notes will have no direct claim against the
Subsidiaries for payment under the Notes. The Operating Partnership must rely on
distributions and other payments from its Subsidiaries and the contribution of
the net proceeds raised in public or private equity or debt offerings by the
Company, or must raise funds in public or private equity or debt offerings or
sell assets, to generate the funds necessary to meet its obligations, including
the payment of principal and interest on the Notes. If the distributions and
other payments from Subsidiaries and the contribution of the net proceeds raised
in public or private equity or debt offerings by the Company are insufficient to
meet such obligations, there can be no assurance that the Operating Partnership
will be able to obtain such funds on acceptable terms or at all.
The Notes will be effectively subordinated in right of payment to all
existing and future liabilities of the Subsidiaries. Consequently, in the event
of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding
with respect to any of the Subsidiaries, the holders of any indebtedness of such
Subsidiary will be entitled to payment thereof from the assets of such
Subsidiary prior to the holders of any general unsecured obligations of the
Operating Partnership, including the Notes.
The Notes also will be unsecured and will be effectively subordinated to
any secured indebtedness of the Operating Partnership to the extent of the value
of the assets securing such indebtedness. The Indenture permits the Operating
Partnership and its Subsidiaries to incur additional secured indebtedness
provided certain conditions are satisfied. See "Description of the Exchange
Notes -- Certain Covenants." Consequently, in the event of a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding with respect to
the Operating Partnership, the holders of any secured indebtedness will be
entitled to proceed against the collateral that secures such secured
indebtedness and such collateral will not be available for satisfaction of any
amounts owed under the Notes.
FAILURE TO EXCHANGE PRIVATE NOTES
The Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly completed
and duly executed Letter of Transmittal and all other required documentation.
Therefore, holders of Private Notes desiring to tender such Private Notes in
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<PAGE> 21
exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. Neither the Exchange Agent nor the Operating Partnership is under any
duty to give notification of defects or irregularities with respect to tenders
of Private Notes for exchange. Private Notes that are not tendered or are
tendered but not accepted will, following consummation of the Exchange Offer,
continue to be subject to the existing restrictions upon transfer thereof. In
addition, any holder of Private Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes will be
required, in the absence of an applicable exemption, to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer who holds Private
Notes acquired for its own account as a result of market making or other trading
activities and who receives Exchange Notes for its own account in exchange for
such Private Notes pursuant to the Exchange Offer, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. See
"The Exchange Offer."
The Private Notes are eligible for trading in PORTAL. To the extent,
however, that Private Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Private Notes could be
adversely affected due to the limited amount, or "float," of the Private Notes
that are expected to remain outstanding following the Exchange Offer. A lower
"float" of a security could result in less demand to purchase such security and
could, therefore, result in lower prices for such security.
ABSENCE OF PUBLIC MARKET FOR EXCHANGE NOTES
The Operating Partnership does not intend to apply for listing of the
Exchange Notes on any securities exchange or to seek approval through any
automated quotation system. The Initial Purchasers have advised the Operating
Partnership that they currently intend to make a market in the Exchange Notes
after the Exchange Offer as permitted by applicable laws and regulations,
although they are not obligated to do so and may discontinue any market making
activity at any time without notice. There can be no assurance regarding the
future development of a market for the Exchange Notes, the ability of holders of
the Exchange Notes to sell their Exchange Notes or the price at which such
holders may be able to sell their Exchange Notes. If such a market were to
develop, the Exchange Notes could trade at prices that may be higher or lower
than the initial public offering price of the Private Notes depending on many
factors, including prevailing interest rates, the Operating Partnership's
operating results and the market for similar securities. Further, to the extent
that a large amount of Private Notes are not tendered or are tendered and not
accepted in the Exchange Offer, the trading market for the Exchange Notes could
be adversely affected. See "Plan of Distribution."
RISKS RELATING TO CONTROL OF CERTAIN INVESTMENTS
Hotel Risks. The Operating Partnership has leased the Hotel Properties to
subsidiaries of Crescent Operating, Inc., and such subsidiaries, rather than the
Operating Partnership, are entitled to exercise all rights of the owner of the
respective hotel. The Operating Partnership will receive both base rent and a
percentage of gross sales above a certain minimum level pursuant to the leases,
which expire between the years 2004 and 2007. As a result, the Operating
Partnership will participate in the economic operations of the Hotel Properties
only through its indirect participation in gross sales. To the extent that
operations of the Hotel Properties may affect the ability of such subsidiaries
to pay rent, the Operating Partnership also may indirectly bear the risks
associated with any increases in expenses. Each of the Hotel Properties is
managed pursuant to a management agreement. The amount of rent payable to the
Operating Partnership under the leases with respect to the Hotel Properties will
depend on the ability of such subsidiaries and the managers of the Hotel
Properties to maintain and increase revenues from the Hotel Properties.
Accordingly, the Operating Partnership's results of operations will be affected
by such factors as changes in general economic conditions, the level of demand
for rooms and related services at the Hotel Properties, the ability of such
subsidiaries and the managers of the Hotel Properties to maintain and increase
gross revenues at the Hotel Properties, competition in the hotel industry and
other factors relating to the operation of the Hotel Properties. In addition,
the Operating Partnership expects, in accordance with the terms of the
Intercompany Agreement, to lease any hotel properties that it may acquire in the
future to Crescent Operating, Inc. or any of its subsidiaries which, as lessees
of any such hotel properties, will be entitled to exercise all rights of the
owner.
-17-
<PAGE> 22
Lack of Control of Residential Development Corporations. The Operating
Partnership is not able to elect the boards of directors of the Residential
Development Corporations and does not have the authority to control the
management and operation of the Residential Development Corporations. As a
result, the Operating Partnership does not have the right to control the timing
or amount of dividends paid by the Residential Development Corporations and,
therefore, does not have the authority to require that funds be distributed to
it by any of these entities.
Lack of Control of Americold and URS Partnerships. The Company owns,
through two subsidiaries, a 40% interest in each of two partnerships, one of
which owns Americold Corporation ("Americold") and the other of which owns URS
Logistics, Inc. ("URS"). The remaining 60% interest in the partnerships is owned
by two subsidiaries of Vornado Realty Trust (collectively, "Vornado"). Under the
terms of the existing partnership agreements for each of the partnerships,
Vornado has the right to make all decisions relating to the management and
operation of the partnerships other than certain major decisions that require
the approval of both the Company and Vornado. The partnership agreement for each
of the partnerships provides for a buy-sell arrangement upon a failure of the
Company and Vornado to agree on any of the specified major decisions which,
until November 1, 2000, can only be exercised by Vornado. In addition, the
Company has offered to Crescent Operating, Inc., and expects to transfer, its
voting interests in the two subsidiaries that hold the interests in the
partnerships to Crescent Operating, Inc. (or to another entity if Crescent
Operating, Inc. does not accept the offer), and thereafter the owner of the
voting interests, rather than the Company, will be entitled to approve certain
major decisions relating to the partnerships. See "-- Real Estate Risks Specific
to the Operating Partnership's Business -- Risks of Joint Ownership of Assets."
GENERAL REAL ESTATE RISKS
Uncontrollable Factors Affecting Performance and Value. The economic
performance and value of the Operating Partnership's real estate assets will be
subject to all of the risks incident to the ownership and operation of real
estate. These include the risks normally associated with changes in national,
regional and local economic and market conditions. Such local real estate market
conditions may include excess supply and competition for tenants, including
competition based on rental rates, attractiveness and location of the property
and quality of maintenance and management services. In addition, other factors
may affect the performance and value of a property adversely, including changes
in laws and governmental regulations (including those governing usage, zoning
and taxes), changes in interest rates (including the risk that increased
interest rates may result in decreased sales of lots in any residential
development properties) and the availability of financing.
Illiquidity of Real Estate Investments. Because real estate investments
are relatively illiquid, the Operating Partnership's ability to vary its
portfolio promptly in response to economic or other conditions will be limited.
In addition, certain significant expenditures, such as debt service (if any),
real estate taxes and operating and maintenance costs, generally are not reduced
in circumstances resulting in a reduction in income from the investment. The
foregoing and any other factor or event that would impede the ability of the
Operating Partnership to respond to adverse changes in the performance of its
investments could have an adverse effect on the Operating Partnership's
financial condition and results of operations.
Environmental Matters. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real property may become
liable for the costs of removal or remediation of certain hazardous or toxic
substances released on or in its property, as well as certain other costs
relating to hazardous or toxic substances. Such liability may be imposed without
regard to whether the owner or operator knew of, or was responsible for, the
release of such substances. The presence of, or the failure to remediate
properly, such substances, may adversely affect the owner's ability to sell the
affected real estate or to borrow using such real estate as collateral. Such
costs or liabilities could exceed the value of the affected real estate. The
Operating Partnership has not been notified by any governmental authority of any
non-compliance, liability or other claim in connection with any of the
Properties and the Operating Partnership is not aware of any other environmental
condition with respect to any of the Properties that management believes would
have a material adverse effect on the Operating Partnership's business, assets
or results of operations. Prior to the Operating Partnership's acquisition of
its Properties, independent environmental consultants conducted or updated
-18-
<PAGE> 23
Phase I environmental assessments (which generally do not involve invasive
techniques such as soil or ground water sampling) on the Properties. None of
these Phase I assessments or updates revealed any materially adverse
environmental condition not known to the Operating Partnership or the
independent consultants preparing the assessments. There can be no assurance,
however, that environmental liabilities have not developed since such
environmental assessments were prepared, or that future uses or conditions
(including, without limitation, changes in applicable environmental laws and
regulations) will not result in imposition of environmental liability.
REAL ESTATE RISKS SPECIFIC TO THE OPERATING PARTNERSHIP'S BUSINESS
Investment Risks. In implementing its investment strategies, the Operating
Partnership has invested in a broad range of real estate assets, and in the
future, may invest in additional types of real estate assets not currently
included in its portfolio. There can be no assurance, however, that the
Operating Partnership will be able to implement its investment strategies
successfully in the future. As a result of its real estate investments, the
Operating Partnership will be subject to risks, in addition to general real
estate risks, relating to the specific assets and asset types in which it
invests. For example, the Operating Partnership is subject to the risks that,
upon expiration, leases for space in the Office Properties and Retail Properties
may not be renewed, the space may not be re-leased, or the terms of renewal or
re-lease (including the cost of required renovations or concessions to tenants)
may be less favorable than current lease terms. Similarly, the Operating
Partnership is subject to the risk that the success of its investment in the
Hotel Properties will be highly dependent upon their ability to compete in such
features as access, location, quality of accommodations, room rate structure
and, to a lesser extent, the quality and scope of other amenities such as food
and beverage facilities. In addition, the Operating Partnership is subject to
risks relating to the Behavioral Healthcare Facilities, including the effect of
any failure of CBHS to make the required lease payments (which equal more than
10% of the Operating Partnership's current base rental revenues); the effects of
factors, such as regulation of the healthcare industry and limitations on
government reimbursement programs, on the ability of CBHS to make the required
lease payments; and the limited number of replacement tenants in the event of a
default under, or non-renewal of, the lease.
Risks of Joint Ownership of Assets. The Operating Partnership has the
right to invest, and in certain cases has invested, in properties and assets
jointly with other persons or entities. Joint ownership of properties, under
certain circumstances, may involve risks not otherwise present, including the
possibility that the Operating Partnership's partners or co-investors might
become bankrupt, that such partners or co-investors might at any time have
economic or other business interests or goals which are inconsistent with the
business interests or goals of the Operating Partnership, and that such partners
or co-investors may be in a position to take action contrary to the instructions
or the requests of the Operating Partnership or contrary to the Operating
Partnership's policies or objectives. See "-- Risks Relating to Control of
Certain Investments -- Lack of Control of Americold and URS Partnerships."
Potential Conflicts of Interest. The Operating Partnership has entered
into the Intercompany Agreement with Crescent Operating, Inc., pursuant to which
each has agreed to provide the other with rights to participate in certain
transactions. The certificate of incorporation of Crescent Operating, Inc., as
amended and restated, generally prohibits Crescent Operating, Inc., for so long
as the Intercompany Agreement remains in effect, from engaging in activities or
making investments that a REIT could make, unless the Operating Partnership was
first given the opportunity, but elected not to pursue such activities or
investments. See "Business and Properties -- Recent Acquisitions" for a
description of certain investment opportunities which the Operating Partnership
has elected to offer to Crescent Operating, Inc. In addition, subsidiaries of
Crescent Operating, Inc. are the lessees of each of the Hotel Properties, and
Crescent Operating, Inc. owns a 50% interest in the entity which is the lessee
of the Behavioral Healthcare Facilities and the Operating Partnership's largest
tenant in terms of current base rental revenues. Richard E. Rainwater and John
C. Goff are, respectively, the Chairman of the Board and the Vice Chairman of
the Board of both the Company and Crescent Operating, Inc., and Gerald W.
Haddock also serves as the President, Chief Executive Officer and a director of
Crescent Operating, Inc., the General Partner and the Company. Senior management
of the Company and the General Partner and Messrs. Rainwater and Goff
beneficially own an approximately 14.9%
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<PAGE> 24
equity interest in the Operating Partnership, both directly through their Units
in the Operating Partnership and indirectly through their ownership of Common
Shares of the Company, and approximately the same percentage of the outstanding
common stock of Crescent Operating, Inc. The common management and ownership
among these entities may lead to conflicts of interest in connection with
transactions between the Operating Partnership and Crescent Operating, Inc.
THE OPERATING PARTNERSHIP
The Operating Partnership is controlled by the Company through the
Company's ownership of all of the outstanding stock of the General Partner,
which is the sole general partner of the Operating Partnership and owns a 1%
general partner interest in the Operating Partnership. In addition, the Company
owns an approximately 89% limited partner interest in the Operating Partnership.
The remaining limited partner interests are owned by senior members of
management of the Company and the General Partner and certain outside investors.
The Operating Partnership holds substantially all of the Company's assets,
including interests in the Properties, and conducts substantially all of the
Company's operations, including providing management, leasing and development
services for certain of the Properties.
The Operating Partnership owns a portfolio of Properties consisting
primarily of 79 Office Properties located in 27 metropolitan submarkets in
Texas, Colorado, Arizona, Louisiana, Nebraska, New Mexico, California and
Florida, with an aggregate of approximately 27.9 million net rentable square
feet, which were approximately 87% leased (or 91% leased based on executed
leases that have not yet commenced) to approximately 1,915 tenants as of
September 30, 1997 including Properties acquired subsequent to September 30,
1997. Based on annualized base rental revenues from office leases in place as of
September 30, 1997 including Properties acquired subsequent to September 30,
1997, no single tenant accounted for more than 4% of the Operating Partnership's
total annualized office property rental revenues for 1997.
The Properties also include 91 Behavioral Healthcare Facilities, five
full-service Hotel Properties with a total of 1,900 rooms and two destination
health and fitness resort Hotel Properties that can accommodate up to 442 guests
daily, Residential Development Property Mortgages relating to and non-voting
common stock in five Residential Development Corporations, which in turn,
through joint venture or partnership arrangements, own interests in 14
Residential Development Properties, and seven Retail Properties with an
aggregate of approximately 771,000 net rentable square feet. In addition, the
Company owns an indirect 40% interest in each of two corporations that currently
own and operate approximately 79 refrigerated warehouses with an aggregate of
approximately 368 million cubic feet.
On a pro forma basis, after giving effect to the 1997 Acquisitions as if
they had occurred on January 1, 1997, the Office Properties, the Behavioral
Healthcare Facilities, the Hotel Properties, the Refrigerated Warehouse
Properties, the Residential Development Properties and the Retail Properties
would have accounted for approximately 60%, 13%, 10%, 9%, 6% and 2%,
respectively of the Operating Partnership's EBIDA for the nine months ended
September 30, 1997.
The Operating Partnership was organized as a Delaware limited partnership
in February 1994. The Operating Partnership's executive offices are located at
777 Main Street, Suite 2100, Fort Worth, Texas 76102, and its telephone number
is (817) 877-0477.
INVESTMENT STRATEGY
The Operating Partnership acquires premier assets and assets that have been
undervalued by utilizing its extensive network of relationships, market
reputation, ready access to low-cost equity and debt capital and ability to
structure transactions creatively. Management believes that it will be able to
identify substantial opportunities for future real estate investments from
sources such as life insurance companies and pension funds seeking to reduce
their direct real estate investments, public and private real estate companies,
corporations divesting of nonstrategic real estate assets and sellers requiring
complex disposition structures.
The Operating Partnership's targeted investments include office properties
that can be acquired at significant discounts from replacement cost and that
provide both a favorable current return on invested
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<PAGE> 25
capital and the opportunity for significant cash flow growth through future
increases in rental rates. Integral to this investment strategy is the
identification of specific markets and submarkets that management believes will
experience significant increases in demand for office space due to the impact of
factors that management expects to have a positive effect on population and
employment growth, including (i) desirable market and submarket conditions, such
as political environments favorable to business, the availability of skilled and
competitively priced labor, favorable corporate and individual tax structures,
affordable housing and a favorable quality of life (as in markets such as
Albuquerque, Omaha and Austin), (ii) demographic shifts in the United States
(such as the relocation of businesses and the migration of people from the
Northeast and the West Coast to Texas, Colorado and Arizona) and (iii) specific
regional, national and global economic developments, such as an increase in
demand for natural resources and the resulting employment growth in markets that
have a significant presence in the oil and gas industry (as in Houston and New
Orleans) and an improvement in economic conditions as a result of growth in the
technology industry and/or international trade (as in San Francisco, San Diego
and Miami).
The markets and submarkets in which the Operating Partnership concentrates
its acquisitions of office properties are those in which, in addition to
anticipated above-average population and employment growth, replacement cost
rental rates are significantly in excess of current market rental rates.
Management believes that investment in markets and submarkets in which market
rental rates are below the level necessary to justify new construction of
competitive properties will allow the Operating Partnership to continue to
increase rental rates and cash flows as demand for available office space
increases.
Within its core office markets and submarkets, the Operating Partnership
seeks to develop or acquire substantial ownership positions which provided
distinct competitive operating advantages, including the ability (i) to
accommodate changing tenant space needs within a particular submarket, (ii) to
influence rental rates through the Operating Partnership's ownership of a
significant portion of high-quality office space in these markets and submarkets
and (iii) to achieve superior operating expense efficiencies through
arrangements with local and regional providers of office services.
The Operating Partnership also seeks innovative real estate investments
that offer superior returns on its capital investment. For example, the lease of
the Behavioral Healthcare Facilities provides the Operating Partnership, based
on its investment in the Behavioral Healthcare Facilities, with an attractive
lease payment that increases annually during the initial 12-year term of the
lease. In addition, the Operating Partnership has invested in 14 Residential
Development Properties, each of which requires relatively low capital
investments in comparison to the Operating Partnership's other real estate
investments and has substantial infrastructure in place.
The Operating Partnership has completed over $3,100 million of real estate
investments since it commenced operations in May 1994. As a result, the
Operating Partnership's investment in real estate assets have increased by
approximately 1,123% since it commenced operations. The Operating Partnership
believes that its success in completing investments is the result of several
competitive advantages, including (i) management's ability, due to its extensive
network of relationships, to identify property acquisition opportunities, often
before the property is offered for sale, (ii) the proven ability of management
to identify underperforming assets that can be acquired at market prices not
reflecting their potential value, (iii) management's skill and creativity in
consummating unusual and complex transactions, such as acquisitions of mixed-use
facilities and portfolios that include traditional real estate assets,
non-traditional real estate assets and, in certain instances, other types of
income-producing or operating assets, and transactions that satisfy the special
needs of sellers and (iv) the Operating Partnership's reputation for "certainty
of closure" as a result of its proven ability to complete large, time-sensitive
transactions based on its internal due diligence capability and expertise and
its ready access to capital. The Operating Partnership also believes that these
competitive advantages offer it increased opportunities to acquire attractive
properties, often on terms more favorable than those available to other
potential purchasers.
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<PAGE> 26
OPERATING STRATEGY
The Operating Partnership maintains a well-defined leasing strategy in
order to capture the potential rental growth in its portfolio of Office
Properties as the submarkets in which the Operating Partnership has invested
continue to recover and occupancy and rental rates increase. For Office
Properties owned as of September 30, 1997 and acquired subsequent to September
30, 1997, the weighted average full-service rental rate (i.e., including expense
recoveries) was $17.00 per square foot (including free rent and scheduled rent
increases that would be taken into account under generally accepted accounting
principles), compared to an estimated weighted average full-service replacement
cost rental rate (the rate estimated by management to be necessary to justify
new construction of comparable buildings) of $27.82 per square foot. Many of the
Operating Partnership's submarkets have experienced substantial rental rate
growth during the past two years. As a result, the Operating Partnership has
been successful in renewing or re-leasing office space in these markets at
rental rates significantly above expiring rental rates. For Office Properties
owned during the nine months ended September 30, 1997, leases were signed
renewing or re-leasing 973,108 net rentable square feet of office space at a
weighted average full-service rental rate and an FFO annual net effective rate
(calculated as weighted average full-service rental rate minus operating
expenses) of $18.64 and $11.88 per square foot, respectively, compared to
expiring leases with a weighted average full-service rental rate and an FFO
annual net effective rate of $16.06 and $9.08 per square foot, respectively
(with each of these weighted average full-service rental rates including free
rent and scheduled rent increases that would be taken into account under
generally accepted accounting principles). This represents increases in the
weighted average full-service rental rate and in the FFO annual net effective
rate of 16% and 31%, respectively.
The Operating Partnership expects to use its substantial market share in
its core office markets and submarkets to reduce Property operating expenses.
For example, in its core markets of Dallas and Denver, the Operating Partnership
successfully negotiated bulk contracts for such services as cleaning and
elevator maintenance, resulting in discounts of approximately 5% to 10% from
contracts previously in place.
The Operating Partnership focuses its operational efforts at its Office
Properties on providing quality service, individualized attention to tenants and
active preventive maintenance programs, while managing Property operating
expenses to ensure competitive pricing. Management believes that this focus on
creating and maintaining long-term relationships with its tenants will increase
tenant retention, which in turn will reduce vacancy rates and leasing costs and
enhance overall operating performance.
The Operating Partnership provides its skilled management team with
substantial flexibility in conducting its operations while offering incentives
that reward management based on compensation formulas linked directly with
enhanced operating performance. Senior management of the Company and the General
Partner and Messrs. Rainwater and Goff beneficially own an approximately 14.9%
equity interest in the Operating Partnership, both directly through their Units
in the Operating Partnership and indirectly through their ownership of Common
Shares of the Company. This ownership percentage includes the approximately
11.5% ownership position of Richard E. Rainwater, the Chairman of the Board of
Trust Managers of the Company, the approximately 2.2% ownership position of John
C. Goff, the Vice Chairman of the Board of Trust Managers of the Company, and
the approximately 1.7% ownership position of Gerald W. Haddock, the President
and Chief Executive Officer of the Company and the General Partner, and the sole
director of the General Partner.
FINANCING STRATEGY
The Operating Partnership intends to maintain a conservative capital
structure with total debt currently targeted at approximately 40% of total
market capitalization of the Company. The Operating Partnership, however,
consistently seeks to optimize its use of debt and other sources of financing to
create a flexible capital structure that will allow the Operating Partnership to
continue its innovative investment strategy.
The Company has contributed to the Operating Partnership approximately $1.9
billion in net proceeds derived from public offerings of its common shares, in
exchange for an increased limited partner interest. The Operating Partnership's
sources of debt financing include its Credit Facility, which the Operating
Partnership converted from a secured facility to an unsecured facility in
October 1996 and which was increased from
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<PAGE> 27
$350 million to $450 million in September 1997. As of September 30, 1997, after
giving pro forma effect to transactions completed subsequent to September 30,
1997 and related financing, the Operating Partnership and its Subsidiaries
collectively had total indebtedness of $1,809.3 million, which consisted of
$722.5 million of secured indebtedness (of which $160.6 million was secured
indebtedness of the Operating Partnership and $561.9 million was secured
indebtedness of its Subsidiaries) and $1,086.8 million of unsecured indebtedness
(all of which was unsecured indebtedness of the Operating Partnership). After
giving pro forma effect to transactions completed subsequent to September 30,
1997 and related financing, the ratio of debt of the Operating Partnership to
market capitalization of the Company (based on a closing stock price on December
11, 1997 of $37.25 per Common Share, after full conversion of all Units and
including total indebtedness and minority interests in joint ventures) was
approximately 27.8%.
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<PAGE> 28
NO CASH PROCEEDS TO THE OPERATING PARTNERSHIP
The Exchange Offer is intended to satisfy certain obligations of the
Operating Partnership under the Registration Rights Agreement. The Operating
Partnership will not receive any proceeds from the issuance of the Exchange
Notes offered hereby and has agreed to pay the expenses of the Exchange Offer.
In consideration of its issuance of 2002 Exchange Notes and 2007 Exchange Notes
as contemplated in this Prospectus, the Operating Partnership will receive 2002
Private Notes and 2007 Private Notes, respectively, representing an equal
aggregate principal amount. The form and terms of the 2002 Exchange Notes and
the 2007 Exchange Notes are identical in all material respects to the form and
terms of the 2002 Private Notes and the 2007 Private Notes, respectively, except
for certain transfer restrictions and registration rights relating to the
Private Notes and except for certain interest provisions related to such
registration rights. See "The Exchange Offer -- Terms of the Exchange Offer."
The Private Notes surrendered in exchange for Exchange Notes will be retired and
canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes
will not result in any increase in the outstanding indebtedness of the Operating
Partnership.
CAPITALIZATION
The following table sets forth the capitalization of the Operating
Partnership as of September 30, 1997 (i) on an historical basis and (ii) on a
pro forma basis after giving effect to transactions completed subsequent to
September 30, 1997 and related financing. Such information should be read in
conjunction with the financial statements and notes included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
------------------------
HISTORICAL PRO FORMA
---------- ----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Indebtedness
Credit Facility and Short-Term Indebtedness (Unsecured)... $ 751,500(1) $ 686,800
Mortgage Indebtedness (Secured)(2)........................ 625,404 722,504
The 2002 Notes............................................ 150,000 150,000
The 2007 Notes............................................ 250,000 250,000
---------- ----------
Total Indebtedness................................ $1,776,904 $1,809,304
---------- ----------
Partners' capital........................................... $1,721,534 $2,091,634(3)
---------- ----------
Total Capitalization.............................. $3,498,438 $3,900,938
========== ==========
</TABLE>
- ---------------
(1) Credit Facility and Short-Term Indebtedness (Unsecured) decreased to
$649,900 as of October 31, 1997 as a result of the net $325,100 of capital
contributions made by the Company from the October 1997 Offering and
borrowings obtained in connection with the acquisition of Bank One Center,
the Refrigerated Warehouse Investment and for working capital.
(2) Of these amounts, $561,904 represents total indebtedness of the Operating
Partnership's Subsidiaries, all of which is secured indebtedness.
(3) The pro forma increase in partners' capital reflects $370,100 of capital
contributions made by the Company from the October 1997 equity offering.
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<PAGE> 29
DEBT STRUCTURE
The existing indebtedness of the Operating Partnership as of October 31,
1997, is set forth in the table below:
<TABLE>
<CAPTION>
INTEREST RATE AT BALANCE
MAXIMUM OCTOBER 31, EXPIRATION OUTSTANDING
DESCRIPTION BORROWINGS 1997 DATE AT OCTOBER 31, 1997
----------- ---------- ---------------- ---------- -------------------
<S> <C> <C> <C> <C>
SECURED FIXED RATE DEBT:
LaSalle Note I(1).............. $ 239,000,000 7.83% August 2027 $ 239,000,000
LaSalle Note II(2)............. 161,000,000 7.79% March 2028 161,000,000
CIGNA Note(3).................. 63,500,000 7.47% December 2002 63,500,000
Northwestern Life Note(4)...... 26,000,000 7.66% January 2004 26,000,000
Metropolitan Life Note(5)(6)... 12,162,000 8.88% September 2001 12,162,000
Nomura Funding VI Note(6)(7)... 8,708,000 10.07% July 2020 8,708,000
-------------- ------ --------------
Subtotal/Weighted
Average.............. $ 510,370,000 7.83% $ 510,370,000
-------------- ------ --------------
SECURED VARIABLE RATE DEBT:
LaSalle Note III(6)(8)......... $ 115,000,000 7.82% July 1999 $ 115,000,000
-------------- ------ --------------
UNSECURED FIXED RATE DEBT:
The 2002 Notes(9).............. $ 150,000,000 6.63% September 2002 $ 150,000,000
The 2007 Notes(9).............. 250,000,000 7.13% September 2007 250,000,000
-------------- ------ --------------
Subtotal/Weighted
Average.............. $ 400,000,000 6.94% $ 400,000,000
-------------- ------ --------------
UNSECURED VARIABLE RATE DEBT:
Line of Credit(10)............. $ 450,000,000 6.86% June 2000 $ 449,900,000
BankBoston Note II(11)......... 200,000,000 6.86% August 1998 200,000,000
-------------- ------ --------------
Subtotal/Weighted
Average.............. $ 650,000,000 6.86% $ 649,900,000
-------------- ------ --------------
TOTAL/WEIGHTED
AVERAGE.............. $1,675,370,000 7.24% $1,675,270,000
============== ====== ==============
</TABLE>
- ---------------
(1) The note provides for the payment of interest only through August 2002,
followed by principal amortization based on a 25-year amortization schedule
through maturity. In August 2007, the interest rate increases, and the
Operating Partnership is required to remit, in addition to the monthly debt
service payment, excess property cash flow, as defined, to be applied first
against principal until the note is paid in full and thereafter, against
accrued excess interest, as defined. It is the Operating Partnership's
intention to repay the note in full at such time (August 2007) by making a
final payment of approximately $220 million. The LaSalle Note I is secured
by the Properties owned by Funding I. See "Structure of the Operating
Partnership."
(2) The note provides for the payment of interest only through March 2003,
followed by principal amortization based on a 25-year amortization schedule
through maturity. In March 2006, the interest rate increases, and the
Operating Partnership is required to remit, in addition to the monthly debt
service payment, excess property cash flow, as defined, to be applied first
against principal until the note is paid in full and thereafter, against
accrued excess interest, as defined. It is the Operating Partnership's
intention to repay the note in full at such time (March 2006) by making a
final payment of approximately $154 million. The LaSalle Note II is secured
by the Properties owned by Funding II. See "Structure of the Operating
Partnership."
(3) The note requires payments of interest only during its term. The CIGNA Note
is secured by MCI Tower and Denver Marriott City Center.
(4) The note requires payments of interest only during its term. The
Northwestern Life Note is secured by 301 Congress Avenue.
(5) The note requires monthly payments of principal and interest and is secured
by five of The Woodlands Office Properties.
(6) The note was assumed in connection with an acquisition and was not
subsequently retired by the Operating Partnership because of prepayment
penalties.
(7) Under the terms of the note, principal and interest are payable based on a
25-year amortization schedule. In July 1998, the Operating Partnership may
defease the note by purchasing Treasury obligations to pay the note without
penalty. The Nomura Funding VI Note is secured by Canyon Ranch-Lenox, the
Property owned by Funding VI. See "Structure of the Operating Partnership."
In July 2010, the interest rate due under the note will change to a 10-year
Treasury yield plus 500 basis points or, if the Company so elects, it may
repay the note without penalty.
(8) The note bears interest at the rate for 30-day LIBOR plus a weighted
average rate of 2.135% (subject to a rate cap of 10%), and requires
payments of interest only during its term. The LaSalle Note III is secured
by the Properties owned by Funding III, IV and V. See "Structure of the
Operating Partnership."
(9) The Private Notes are unsecured and require payments of interest only
during their terms. The interest rate on the Private Notes is subject to
temporary increase by 50 basis points in the event that a registered offer
to exchange the Private Notes for notes of the Operating Partnership with
terms identical in all material respects to the Private Notes is not
consummated or a shelf registration statement with respect to the resale of
the Private Notes is not declared effective by the Commission on or before
the 180th day following September 22, 1997. The interest rate on the
Private Notes also is subject to temporary or permanent increase by 37.5
basis points in the event that, within the period from September 22, 1997
to September 22, 1998, the Notes are not assigned, an investment grade
rating (as defined in the Private Notes) by specified rating agencies.
These adjustments may apply simultaneously.
(10) The Credit Facility is unsecured with an interest rate of the Eurodollar
rate plus 120 basis points.
(11) The note is unsecured with an interest rate of the Eurodollar rate plus 120
basis points. The note requires payments of interest only during its term.
-25-
<PAGE> 30
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Exchange Offer is designed to provide holders of Private Notes the
opportunity to acquire Exchange Notes which, unlike the Private Notes, will be
freely transferable at all times (subject to certain exceptions relating to the
nature of the holders, as described below in "-- Resale of Exchange Notes").
The Private Notes were sold by the Operating Partnership on September 22,
1997 to the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently sold the Private Notes to (i) "qualified institutional
buyers" ("QIBs"), as defined in Rule 144A under the Securities Act ("Rule
144A"), in reliance on Rule 144A and (ii) a limited number of institutional
"accredited investors", as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act. As a condition to the sale of the Private Notes, the Operating
Partnership and the Initial Purchasers entered into the Registration Rights
Agreement as of September 22, 1997. Pursuant to the Registration Rights
Agreement, the Operating Partnership agreed that (i) it would cause an exchange
offer registration statement under the Securities Act with respect to the
Exchange Notes to be filed with the Commission and (ii) it would use its
reasonable best efforts to cause such Registration Statement to remain effective
under the Securities Act until the closing of the Exchange Offer or such date as
is otherwise required by law and to consummate the Exchange Offer not later than
March 21, 1998. A copy of the Registration Rights Agreement has been filed as an
exhibit to the registration statement of which this Prospectus is a part (the
"Registration Statement"). The Exchange Offer is intended to satisfy the
Operating Partnership's obligations under the Registration Rights Agreement. If
(i) prior to the consummation of the Exchange Offer, the Operating Partnership
reasonably determines in good faith or holders of at least a majority in
aggregate principal amount of the Private Notes notify the Operating Partnership
that they have reasonably determined in good faith that (A) in the opinion of
counsel to the Operating Partnership or to such holders, upon which opinion the
Operating Partnership is entitled to rely, the Private Notes would not, upon
receipt, be tradeable by such holders who are not affiliates of the Operating
Partnership without restriction under the Securities Act and without
restrictions under applicable blue sky or state securities laws or (B) in the
opinion of counsel to such holders or counsel to the Operating Partnership, upon
which opinion the Operating Partnership is entitled to rely, the Commission is
unlikely to permit the consummation of the Exchange Offer and/or (ii) the
Exchange Offer is commenced and not consummated prior to March 21, 1998 for any
reason, then the Operating Partnership has agreed to file and use its reasonable
best efforts to cause the Shelf Registration Statement with respect to the
resale of the Private Notes to be declared effective and, subject to certain
exceptions set forth in the Registration Rights Agreement, keep the Shelf
Registration Statement effective until two years after the effectiveness date of
such Shelf Registration Statement. If the Operating Partnership fails to
consummate the Exchange Offer or, if applicable, fails to obtain and maintain
effectiveness the Shelf Registration Statement within and during the time
periods specified in the Registration Rights Agreement, the interest rate for
the Private Notes required to be either exchanged or registered on the Shelf
Registration Statement, as applicable, will be increased by 50 basis points.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Operating Partnership will accept any and
all Private Notes validly tendered and not withdrawn prior to the Expiration
Date.
The Operating Partnership will issue 2002 Exchange Notes and 2007 Exchange
Notes in exchange for an equal aggregate principal amount of outstanding 2002
Private Notes and 2007 Private Notes, respectively, validly tendered pursuant to
the Exchange Offer and not withdrawn prior to the Expiration Date. Private Notes
may be tendered only in integral multiples of $1,000 principal amount.
The form and terms of the 2002 Exchange Notes and the 2007 Exchange Notes
are the same as the form and terms of the 2002 Private Notes and the 2007
Private Notes, respectively, except that (i) the Exchange Notes will be
registered under the Securities Act and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) holders of the Exchange
Notes will not be entitled to any of the registration rights of holders of
Private Notes under the Registration Rights Agreement, which rights will
terminate upon the consummation of the Exchange Offer. The 2002 Exchange Notes
and the 2007 Exchange
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<PAGE> 31
Notes will evidence the same indebtedness as the 2002 Private Notes and the 2007
Private Notes (which they replace), respectively, and will be issued under, and
be entitled to the benefits of the Indenture, which also authorized the issuance
of the Private Notes, such that the 2002 Exchange Notes and the 2002 Private
Notes and the 2007 Exchange Notes and the 2007 Private Notes will each be
treated as a single series of debt securities under the Indenture. In the Letter
of Transmittal, holders of Private Notes whose Private Notes are accepted for
exchange will waive the right to receive any payment in respect of interest on
the Private Notes accrued from September 22, 1997 to the date of the issuance of
the Exchange Notes.
As of the date of this Prospectus, $150 million in aggregate principal
amount of the 2002 Private Notes is outstanding, and $250 million in aggregate
principal amount of the 2007 Private Notes is outstanding. Only a registered
holder of the Private Notes (or such holder's legal representative or
attorney-in-fact), as reflected on the records of the Trustee under the
Indenture, may participate in the Exchange Offer. There will be no fixed record
date for determining registered holders of the Private Notes entitled to
participate in the Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters'
rights under the Delaware Uniform Limited Partnership Act or the Indenture in
connection with the Exchange Offer. The Operating Partnership intends to conduct
the Exchange Offer in accordance with the provisions of the Registration Rights
Agreement and the applicable requirements of the Securities Act and the rules
and regulations of the Commission thereunder.
The Operating Partnership shall be deemed to have accepted validly tendered
Private Notes when, and if, the Operating Partnership has given oral or written
notice of acceptance to the Exchange Agent. The Exchange Agent will act as agent
for the tendering holders of Private Notes for the purposes of receiving the
Exchange Notes from the Operating Partnership.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Operating Partnership will pay all
charges and expenses, other than certain applicable taxes described below, in
connection with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1998, unless the Operating Partnership, in its sole discretion,
extends the Exchange Offer, in which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Operating Partnership will
notify the Exchange Agent of any extension by oral or written notice and will
notify the registered holders through a press release or other public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Operating Partnership reserves the right, in its sole discretion, (i)
to delay accepting any Private Notes, (ii) to extend the Exchange Offer or (iii)
if, in the opinion of counsel for the Operating Partnership, the consummation of
the Exchange Offer would violate any applicable law, rule or regulation or any
applicable interpretation of the staff of the Commission, to terminate or amend
the Exchange Offer by giving oral or written notice of such delay, extension,
termination or amendment to the Exchange Agent. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by notice thereof to the registered holders through a press release or other
public announcement. If the Exchange Offer is amended in a manner determined by
the Operating Partnership to constitute a material change, the Operating
Partnership will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered holders, and the Operating
Partnership will extend the Exchange Offer for a period of at least ten business
days, if the Exchange Offer would otherwise expire during such ten business day
period.
Without limiting the manner in which the Operating Partnership may choose
to make a public announcement of any delay, extension, amendment or termination
of the Exchange Offer, the Operating
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<PAGE> 32
Partnership shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than as required by law or by
making a timely release to an appropriate news agency.
INTEREST ON THE EXCHANGE NOTES AND ACCRUED INTEREST ON THE PRIVATE NOTES
The 2002 Exchange Notes will bear interest at an annual rate of 6 5/8%,
payable semi-annually in arrears on each September 15 and March 15, commencing
March 15, 1998. The 2007 Exchange Notes will bear interest at an annual rate of
7 1/8%, payable semi-annually in arrears on each September 15 and March 15,
commencing March 15, 1998. The Exchange Notes will bear interest from their date
of issuance. Interest on the Private Notes which are exchanged for the Exchange
Notes will cease to accrue on the day preceding the date of issuance of the
Exchange Notes. Interest payable on March 15, 1998 with respect to the Exchange
Notes will include accrued but unpaid interest due on the Private Notes (which
they replace), for the period from September 22, 1997 to the date of such
issuance and will be paid to those who are holders of record of the Exchange
Notes as of March 1, 1998.
RESALE OF THE EXCHANGE NOTES
Based upon interpretations by the staff of the Commission set forth in
certain no-action letters issued to third parties, the Operating Partnership
believes that a holder who exchanges Private Notes for Exchange Notes in the
ordinary course of business, who is not participating, does not intend to
participate, and has no arrangement with any person to participate, in a
distribution of the Exchange Notes, and who is not an "affiliate" of the
Operating Partnership within the meaning of Rule 405 of the Securities Act, will
be allowed to resell Exchange Notes to the public without further registration
under the Securities Act and without delivering to the purchasers of the
Exchange Notes a prospectus that satisfies the requirements of Section 10 of the
Securities Act. If, however, any holder acquires Exchange Notes in the Exchange
Offer for the purpose of distributing or participating in the distribution of
the Exchange Notes, such holder cannot rely on the position of the staff of the
Commission enumerated in certain no-action letters issued to third parties and
instead must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction, unless an
exemption from registration is otherwise available. In addition, each
broker-dealer that receives Exchange Notes for its own account in exchange for
Private Notes acquired by such broker-dealer as a result of market-making or
other trading activities must acknowledge that it will deliver a prospectus in
connection with any resale of Exchange Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Such broker-dealer may use this Prospectus, as it may be amended
or supplemented from time to time, in connection with resales of any Exchange
Notes received in exchange for Private Notes acquired by such broker-dealer
(other than Private Notes acquired directly from the Operating Partnership) as a
result of market-making or other trading activities. Pursuant to the
Registration Rights Agreement, the Operating Partnership has agreed to make this
Prospectus, as it may be amended or supplemented from time to time, available to
any such broker-dealer that requests copies of such Prospectus in the Letter of
Transmittal for use in connection with any such resale for a period not to
exceed 120 days after the closing of the Exchange Offer. See "Plan of
Distribution."
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of Transmittal,
and mail or otherwise deliver such Letter of Transmittal or such facsimile to
the Exchange Agent at the address set forth below under "-- Exchange Agent" for
receipt prior to the Expiration Date. In addition, prior to the Expiration Date,
either (i) certificates for such Private Notes must be received by the Exchange
Agent along with the Letter of Transmittal, (ii) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Private Notes, if such
procedure is available, into the Exchange Agent's account at the Depository
pursuant to the procedure for book-entry transfer described below must be
received by the Exchange Agent or (iii) the holder must comply with the
guaranteed delivery procedures described below.
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<PAGE> 33
A tender of Private Notes by a holder that is not withdrawn prior to the
Expiration Date will constitute an agreement between such holder and the
Operating Partnership in accordance with the terms and subject to the conditions
set forth herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. DO NOT SEND THE LETTER OF TRANSMITTAL OR ANY PRIVATE
NOTES TO THE OPERATING PARTNERSHIP. HOLDERS MAY REQUEST THEIR RESPECTIVE
BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE
ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wish(es) to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner either must make appropriate arrangements to register
ownership of the Private Notes in such owner's name or must obtain a properly
completed bond power from the registered holder prior to completing and
executing the Letter of Transmittal and delivering such owner's Private Notes.
The transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes tendered
pursuant thereto are tendered (i) by a registered holder to whom Exchange Notes
are to be issued directly and who has not completed the box titled "Special
Delivery Instructions" nor the box titled "Special Registration Instructions" on
the Letter of Transmittal or (ii) for the account of an Eligible Institution. In
the event that signatures on a Letter of Transmittal or a notice of withdrawal,
as the case may be, are required to be guaranteed, such guarantee must be made
by a member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Private Notes listed therein, such Private Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered holder exactly as such registered holder's name appears on such
Private Notes.
If the Letter of Transmittal or any Private Notes are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Operating
Partnership, evidence satisfactory to the Operating Partnership of their
authority to so act must be submitted with the Letter of Transmittal.
The Exchange Agent and the Depository have confirmed that any financial
institution that is a participant in the Depository's system may utilize the
Depository's Automated Tender Offer Program ("ATOP") to tender Private Notes.
Accordingly, participants in the Depository's ATOP may, in lieu of physically
completing and signing the Letter of Transmittal and delivering it to the
Exchange Agent, electronically transmit their acceptance of the Exchange Offer
by causing the Depository to transfer the Private Notes to the Exchange Agent in
accordance with the Depository's ATOP procedures for transfer. The Depository
will then send an Agent's Message to the Exchange Agent.
The term "Agent's Message" means a message transmitted by the Depository,
received by the Exchange Agent and forming part of the Book-Entry Confirmation,
which states that the Depository has received an express acknowledgement from a
participant in the Depository's ATOP that is tendering Private Notes which are
the subject of such book-entry confirmation, that such participant has received
and agrees to be bound by the terms of the Letter of Transmittal (or, in the
case of an Agent's Message relating to guaranteed delivery, that such
participant has received and agrees to be bound by the applicable notice of
guaranteed delivery (the "Notice of Guaranteed Delivery")), and that the
agreement may be enforced against such participant.
-29-
<PAGE> 34
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be determined
by the Operating Partnership in its sole discretion, which determination will be
final and binding. The Operating Partnership reserves the absolute right to
reject any and all Private Notes not properly tendered or any Private Notes the
Operating Partnership's acceptance of which would, in the opinion of counsel for
the Operating Partnership, be unlawful. The Operating Partnership also reserves
the right to waive any defects, irregularities or conditions of tender as to
particular Private Notes. The Operating Partnership's interpretation of the
terms and conditions of the Exchange Offer (including the instructions in the
Letter of Transmittal) will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Private Notes must
be cured within such time as the Operating Partnership shall determine. Although
the Operating Partnership intends to notify holders of defects or irregularities
with respect to tenders of Private Notes, none of the Operating Partnership, the
Exchange Agent or any other person shall incur any liability for failure to give
such notification. Tenders of Private Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived.
While the Operating Partnership has no present plan to acquire any Private
Notes that are not tendered in the Exchange Offer, the Operating Partnership
reserves the right in its sole discretion to purchase or make offers for any
Private Notes that remain outstanding subsequent to the Expiration Date and, to
the extent permitted by applicable law, to purchase Private Notes in the open
market, in privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer.
By tendering, each holder of Private Notes will represent to the Operating
Partnership that, among other things, (i) any Exchange Notes acquired in
exchange for Private Notes tendered thereby are being acquired in the ordinary
course of business of the person receiving such Exchange Notes, (ii) the person
receiving such Exchange Notes is not engaging in and does not intend to engage
in a distribution of the Exchange Notes, (iii) the person receiving such
Exchange Notes does not have an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, and (iv) neither the
holder nor any other person receiving the Exchange Notes is an "affiliate," as
defined in Rule 405 under the Securities Act, of the Operating Partnership. If
the holder is a broker-dealer that will receive Exchange Notes for its own
account in exchange for Private Notes that were acquired as a result of
market-making activities or other trading activities, such holder will be
required to acknowledge in the Letter of Transmittal that such holder will
deliver a prospectus in connection with any resale of such Exchange Notes. Such
acknowledgement and prospectus delivery by such holder will not be deemed to
constitute an admission by such holder that it is an "underwriter" within the
meaning of the Securities Act. By tendering, each holder of Private Notes will
be required to acknowledge that if it is participating in the Exchange Offer for
the purpose of distributing the Exchange Notes (i) it cannot rely on the
position of the staff of the Commission in certain no-action letters and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the Exchange Notes, in which case the
registration statement must contain the selling security holder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Securities Act and (ii) failure to comply with such requirements in such
instance could result in such holder incurring liability under the Securities
Act for which it is not indemnified by the Operating Partnership.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are
withdrawn, such unaccepted, withdrawn or non-exchanged Private Notes will be
returned without expense to the tendering holder thereof (or, in the case of
Private Notes tendered by book-entry transfer into the Exchange Agent's account
at the Depository pursuant to the book-entry transfer procedures described
below, such Private Notes will be credited to an account maintained with the
Depository) as promptly as practicable.
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<PAGE> 35
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes with the Depository for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depository's systems may make
book-entry delivery of Private Notes by causing the Depository to transfer such
Private Notes into the Exchange Agent's account at the Depository in accordance
with the Depository's procedures for transfer. However, although delivery of
Private Notes may be effected through book-entry transfer at the Depository, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address set forth below under
"-- Exchange Agent" on or prior to the Expiration Date or pursuant to the
guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available, (ii) who cannot deliver their Private Notes, the
Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date or (iii) who are unable to complete the procedure
for book-entry transfer on a timely basis, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Operating
Partnership (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the holder, the certificate number(s) of such
Private Notes and the principal amount of Private Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
(3) New York Stock Exchange, Inc. ("NYSE") trading days after the
Expiration Date, either (x) the Letter of Transmittal (or facsimile
thereof) together with the Private Notes (or a Book-Entry Confirmation) in
proper form for transfer will be deposited by the Eligible Institution with
the Exchange Agent or (y) an Agent's Message will be properly transmitted
to the Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) for all physically tendered shares
of Private Notes, in proper form for transfer, or Book-Entry Confirmation,
as the case may be, and all other documents required by the Letter of
Transmittal or a properly transmitted Agent's Message, are received by the
Exchange Agent within three (3) NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date. To withdraw a tender of
Private Notes in the Exchange Offer, a written or facsimile transmission notice
of withdrawal must be received by the Exchange Agent at its address set forth
herein prior to the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Private Notes to be
withdrawn, (ii) identify the Private Notes to be withdrawn (including the
certificate number or numbers) and (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Private Notes were tendered (including any required signature guarantees). All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Operating Partnership, in its sole
discretion, whose determination shall be final and binding on all parties. Any
Private Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer, and no Exchange Notes will be issued with
respect thereto unless the Private Notes so withdrawn are validly retendered.
Properly withdrawn Private Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time prior
to the Expiration Date.
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<PAGE> 36
TERMINATION OF CERTAIN RIGHTS
All registration rights under the Registration Rights Agreement accorded to
holders of the Private Notes eligible to participate in the Exchange Offer (and
all rights to receive additional interest due to failure to consummate the
Exchange Offer on a timely basis, if the Exchange Offer is not consummated by
March 21, 1998) will terminate upon consummation of the Exchange Offer except
with respect to the Operating Partnership's duty to keep the Registration
Statement effective until the closing of the Exchange Offer and, for a period of
120 days after the closing of the Exchange Offer, to provide copies of the
latest version of the Prospectus to any broker-dealer that requests copies of
such Prospectus in the Letter of Transmittal for use in connection with any
resale by such broker-dealer of Exchange Notes received for its own account
pursuant to the Exchange Offer in exchange for Private Notes that were acquired
for its own account as a result of market-making or other trading activities.
EXCHANGE AGENT
State Street Bank and Trust Company of Missouri, N.A. has been appointed as
Exchange Agent for the Exchange Offer. Questions and requests for assistance,
requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notice of Guaranteed Delivery should be directed to
the Exchange Agent addressed as follows:
<TABLE>
<CAPTION>
<C> <C> <C>
By Facsimile Transmission:
(For Eligible Institutions
Only)
(617) 664-5232
Confirm by Telephone:
(617) 664-5590
By Mail: By Overnight Delivery: By Hand:
State Street Bank and Trust State Street Bank and Trust State Street Bank and Trust
Company Company Company
P.O. Box 778 Two International Place Two International Place
Boston, Massachusetts 4th Floor 4th Floor
02102-0778 Boston, Massachusetts 02110 Boston, Massachusetts 02110
Attention: Corporate Trust Attention: Corporate Trust Attention: Corporate Trust
Window Window Window
</TABLE>
State Street Bank and Trust Company of Missouri, N.A. also serves as
Trustee under the Indenture.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Operating
Partnership. The principal solicitation is being made by mail; however,
additional solicitations may be made by telegraph, facsimile transmission,
telephone or in person by officers and regular employees of the Operating
Partnership and their affiliates.
The Operating Partnership has not retained any dealer-manager in connection
with the Exchange Offer and will not make any payments to brokers, dealers or
others soliciting acceptances of the Exchange Offer. The Operating Partnership,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable, out-of-pocket expenses in
connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Operating Partnership and are estimated in the aggregate to be
approximately $500,000. Such expenses include registration fees, fees and
expenses of the Exchange Agent and the Trustee, accounting and legal fees and
printing costs, among others.
The Operating Partnership will pay all transfer taxes, if any, applicable
to the exchange of Private Notes pursuant to the Exchange Offer. If, however, a
transfer tax is imposed for any reason other than the exchange of the Private
Notes pursuant to the Exchange Offer, then the amount of any such transfer tax
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory
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<PAGE> 37
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
Private Notes that are not exchanged for the Exchange Notes pursuant to the
Exchange Offer will remain "restricted securities" within the meaning of Rule
144(a)(3)(iv) of the Securities Act. Accordingly, such Private Notes may not be
offered, sold, pledged or otherwise transferred except (i) to a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act or
to a person whom the seller reasonably believes is a qualified institutional
buyer purchasing for its own account in a transaction meeting the requirements
of Rule 144A, (ii) in an offshore transaction complying with Rule 903 or Rule
904 of Regulation S under the Securities Act, (iii) pursuant to an exemption
from registration under the Securities Act provided by Rule 144 thereunder (if
available), (iv) pursuant to an effective registration statement under the
Securities Act or (v) to institutional accredited investors in a transaction
exempt from the registration requirements of the Securities Act, and, in each
case, in accordance with all other applicable securities laws and the transfer
restrictions set forth in the Indenture.
ACCOUNTING TREATMENT
For accounting purposes, the Operating Partnership will recognize no gain
or loss as a result of the Exchange Offer. The expenses of the Exchange Offer
will be amortized over the remaining term of the Notes.
-33-
<PAGE> 38
SELECTED FINANCIAL DATA
The following table sets forth certain summary financial information for
the Operating Partnership on a pro forma and historical basis and for the
Rainwater Property Group (the Operating Partnership's predecessor) on a combined
historical basis, which consists of the combined financial statements of the
entities that contributed Properties in exchange for Units or Common Shares of
the Company in connection with the formation of the Company and the Operating
Partnership. Such information should be read in conjunction with "Selected
Financial Data."
The pro forma information for the year ended December 31, 1996 assumes
completion, in each case as of January 1, 1996 in determining operating and
other data, of (i) the Company's public offering of its Common Shares that
closed on October 2, 1996 (the "October 1996 Offering") and the additional
public offering of 450,000 Common Shares that closed on October 9, 1996 and
these net proceeds were contributed to the Operating Partnership, which used the
net proceeds to repay approximately $168 million of indebtedness and to fund
approximately $289 million of Property acquisitions in the fourth quarter of
1996 and the first quarter of 1997, (ii) the Company's public offering of its
Common Shares in April 1997 (the "April 1997 Offering") and the additional
public offering of 500,000 Common Shares that closed on May 14, 1997 and these
net proceeds were contributed to the Operating Partnership, which used the net
proceeds to fund approximately $593.5 million of Property acquisitions and other
investments in the second quarter of 1997, (iii) the Company's offering of
4,700,000 Common Shares to an affiliate of Union Bank of Switzerland (the "UBS
Offering") and these net proceeds were contributed to the Operating Partnership,
which used the net proceeds to repay approximately $145 million of indebtedness
under the Credit Facility, (iv) the Operating Partnership's offering of the
Private Notes and the use of the net proceeds therefrom to fund approximately
$337.6 million of the purchase price of two Properties and to repay
approximately $57.2 million of indebtedness incurred under the Credit Facility
and other short-term indebtedness, (v) the Company's public offering of its
Common Shares in October 1997 (the "October 1997 Offering") and these net
proceeds were contributed to the Operating Partnership, which used the net
proceeds to fund approximately $45 million of the purchase price of one Property
and to repay approximately $325.1 million of short-term indebtedness and
indebtedness incurred under the Credit Facility, (vi) the assumption of
indebtedness of $97.1 million in connection with the purchase of one Property
and (vii) Property acquisitions, other investments and share issuances during
1996 and 1997.
The pro forma information for the nine months ended September 30, 1997
assumes completion, in each case as of January 1, 1997 in determining operating
and other data, and, in each case as of September 30, 1997 in determining
balance sheet data, of (i) the April 1997 Offering and the additional public
offering of 500,000 Common Shares that closed on May 14, 1997 and these net
proceeds were contributed to the Operating Partnership, which used the net
proceeds to fund approximately $593.5 million of Property acquisitions and other
investments in the second quarter of 1997, (ii) the UBS Offering and these net
proceeds were contributed to the Operating Partnership, which used the net
proceeds to repay approximately $145 million of indebtedness under the Credit
Facility, (iii) the Operating Partnership's offering of the Private Notes and
the use of the net proceeds therefrom to fund approximately $337.6 million of
the purchase price of two Properties and to repay approximately $57.2 million of
indebtedness incurred under the Credit Facility and other short-term
indebtedness, (iv) the October 1997 Offering and these net proceeds were
contributed to the Operating Partnership, which used the net proceeds to fund
approximately $45 million of the purchase price of one Property and to repay
approximately $325.1 million of short-term indebtedness and indebtedness
incurred under the Credit Facility, (v) the assumption of indebtedness of $97.1
million in connection with the purchase of one Property and (vi) Property
acquisitions, other investments and share issuances during 1997.
-34-
<PAGE> 39
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
PRO FORMA AND HISTORICAL FINANCIAL DATA AND
RAINWATER PROPERTY GROUP COMBINED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER PARTNER INTEREST DATA)
<TABLE>
<CAPTION>
OPERATING PARTNERSHIP
-------------------------------------------------------------------------
PRO FORMA
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED YEAR ENDED
------------------------------------------ DECEMBER 31, DECEMBER 31,
1997 1997 1996 1996 1996
------------ ------------ ----------- ------------ ------------
PRO FORMA ACTUAL ACTUAL (UNAUDITED)
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue --
Rental property................ $ 401,577 $ 233,825 $ 133,855 $ 503,532 $ 202,003
Interest and other income...... 19,714 13,508 3,572 21,362 6,858
Residential developments(1).... -- -- -- -- --
Operating expenses --
Rental property operating(2)... 145,471 104,573 47,996 186,579 73,813
Corporate general and
administrative............... 9,855 9,855 3,498 10,000 4,674
Residential developments(1).... -- -- -- -- --
Interest expense................ 96,902 54,687 30,861 129,902 42,926
Depreciation and amortization... 70,595 50,840 29,339 92,005 40,535
Amortization of deferred
financing costs................ 2,696 2,157 2,065 3,531 2,812
Writedown of investment
property....................... -- -- -- -- --
------------ ------------ ----------- ------------ -----------
Operating income (loss)......... 95,772 81,148 23,668 102,877 44,101
Reorganization costs............ -- -- -- -- --
Equity in net income of
unconsolidated companies(1).... 14,248 3,118 3,067 14,020 3,850
------------ ------------ ----------- ------------ -----------
Income (loss) before minority
interests and extraordinary
item........................... $ 110,020 $ 84,266 $ 26,735 $ 116,897 $ 47,951
============ ============ =========== ============ ===========
BALANCE SHEET DATA (AT PERIOD END):
Real estate, before accumulated
depreciation................... $ 3,272,743 $ 3,113,743 $ 1,238,417 -- $ 1,732,626
Total assets.................... 4,017,564 3,615,064 1,216,515 -- 1,733,540
Mortgages and other secured
notes
payable........................ 722,504 625,505 491,983 -- 627,808
Credit Facility and other
unsecured obligations(3)....... 1,086,800 751,500 172,500 -- 40,000
Total liabilities............... 1,897,534 1,865,134 694,781 -- 716,270
Partners' capital............... 2,091,634 1,721,534 487,213 -- 988,005
OTHER DATA:
Funds from Operations before
minority interests(4).......... $ 203,289 $ 134,615 $ 55,741 $ 239,164 $ 87,616
Distribution per partner
interest....................... -- $ .92 $ .83 -- $ 1.16
Weighted average partner
interests...................... 125,031,047 100,592,573 58,116,124 125,031,047 64,684,842
Cash flow provided by (used in):
Operating activities........... --(9) $ 134,730 $ 49,590 --(9) $ 77,384
Investing activities........... --(9) (1,865,984) (221,498) --(9) (513,033)
Financing activities........... --(9) 1,752,410 169,336 --(9) 444,315
EBIDA(5)........................ 280,213 191,950 89,000 342,335 134,224
Total Debt to Total Assets(6)... 45% 47% 49% -- 39%
Total Secured Debt to Total
Assets(6)...................... 19% 17% 35% -- 37%
Ratio of Consolidated Income
Available for Debt Service to
Annual Debt Service
Charge(6)...................... 2.9 3.0 2.8 2.6 3.1
Ratio of earnings to fixed
charges(7)..................... 2.1 2.4 1.8 1.9 2.0
Ratio of FFO before fixed
charges to fixed charges(8).... 3.0 3.3 2.6 2.8 2.9
Number of Properties (at period
end):
Office Properties.............. 79 76 47 79 53
Hotel Properties............... 7 7 4 7 6
Behavioral Healthcare
Facilities................... 91 91 0 91 0
Retail Properties.............. 7 7 2 7 6
Residential Development
Properties................... 14 14 9 14 9
<CAPTION>
OPERATING PARTNERSHIP RAINWATER PROPERTY GROUP
------------------------------ ---------------------------------
FOR THE
PERIOD
FOR THE FROM
PERIOD FROM JANUARY 1, YEAR ENDED
YEAR ENDED MAY 5, 1994 1994 TO DECEMBER 31,
DECEMBER 31, TO DECEMBER 31, MAY 4, --------------------
1995 1994 1994 1993 1992
------------ --------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue --
Rental property................ $ 123,489 $ 49,075 $ 18,550 $ 48,232 $ 41,946
Interest and other income...... 6,471 1,268 42 605 425
Residential developments(1).... -- -- 2,593 8,331 7,215
Operating expenses --
Rental property operating(2)... 45,949 18,993 8,696 21,230 20,104
Corporate general and
administrative............... 3,812 1,815 -- -- --
Residential developments(1).... -- -- 1,428 4,077 5,714
Interest expense................ 18,781 3,493 4,867 29,226 36,245
Depreciation and amortization... 28,060 14,255 7,793 18,081 18,190
Amortization of deferred
financing costs................ 2,500 923 -- -- --
Writedown of investment
property....................... -- -- -- 37,578 5,945
----------- ----------- -------- -------- ---------
Operating income (loss)......... 30,858 10,864 (1,599) (53,024) (36,612)
Reorganization costs............ -- 1,900 -- -- --
Equity in net income of
unconsolidated companies(1).... 5,500 3,631 -- -- --
----------- ----------- -------- -------- ---------
Income (loss) before minority
interests and extraordinary
item........................... $ 36,358 $ 12,595 $ (1,599) $(53,024) $ (36,612)
=========== =========== ======== ======== =========
BALANCE SHEET DATA (AT PERIOD EN
Real estate, before accumulated
depreciation................... $ 1,006,706 $ 557,675 -- $358,400 $ 336,923
Total assets.................... 965,232 538,354 -- 290,869 296,291
Mortgages and other secured
notes
payable........................ 424,528 -- -- 278,060 548,517
Credit Facility and other
unsecured obligations(3)....... 20,000 194,642 -- -- --
Total liabilities............... 476,234 209,900
Partners' capital............... 479,517 328,448 -- 2,941 (328,240)
OTHER DATA:
Funds from Operations before
minority interests(4).......... $ 64,475 $ 32,723 -- -- --
Distribution per partner
interest....................... $ 1.05 $ .65 -- -- --
Weighted average partner
interests...................... 54,182,006 44,997,716 -- -- --
Cash flow provided by (used in):
Operating activities........... $ 64,877 $ 21,614 $ 2,455 $ 9,313 $ (640)
Investing activities........... (421,306) (260,666) (2,379) (20,572) (8,924)
Financing activities........... 343,079 265,608 (21,310) 28,861 14,837
EBIDA(5)........................ 85,699 31,266 -- -- --
Total Debt to Total Assets(6)... 47% 37% -- -- --
Total Secured Debt to Total
Assets(6)...................... 47% 37% -- -- --
Ratio of Consolidated Income
Available for Debt Service to
Annual Debt Service
Charge(6)...................... 4.6 9.0 -- -- --
Ratio of earnings to fixed
charges(7)..................... 2.6 3.9 -- -- --
Ratio of FFO before fixed
charges to fixed charges(8).... 3.9 8.4 -- -- --
Number of Properties (at period
end):
Office Properties.............. 30 10 4 4 3
Hotel Properties............... 3 0 0 0 0
Behavioral Healthcare
Facilities................... 0 0 0 0 0
Retail Properties.............. 2 2 2 2 2
Residential Development
Properties................... 9 3 3 2 1
</TABLE>
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<PAGE> 40
- ---------------
(1) The Operating Partnership accounts for its investments in the Residential
Development Property Mortgages and non-voting common stock of the
Residential Development Corporations under the equity method of accounting
as a result of the noncontrolling interests held. The Operating Partnership
also accounts for its investment in Woodlands Commercial Properties Company,
L.P. and the Refrigerated Warehouse Investment under the equity method of
accounting.
(2) Includes real estate taxes, repairs and maintenance and other rental
property operating expenses, including property-level general and
administrative expenses.
(3) The Credit Facility was converted from a secured facility to an unsecured
facility in October 1996.
(4) FFO, based on the revised definition adopted by the Board of Governors of
NAREIT and as used herein, means net income (loss), determined in accordance
with generally accepted accounting principles ("GAAP"), excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation and
amortization of real estate assets, and after adjustments for unconsolidated
partnerships and joint ventures. FFO was developed by NAREIT as a relative
measure of performance and liquidity of an equity REIT in order to recognize
that income-producing real estate historically has not depreciated on the
basis determined under GAAP. The Operating Partnership considers FFO an
appropriate measure of performance of a limited partnership through which an
equity REIT conducts its operations. However, FFO (i) does not represent
cash generated from operating activities determined in accordance with GAAP
(which, unlike FFO, generally reflects all cash effects of transactions and
other events that enter into the determination of net income), (ii) is not
necessarily indicative of cash flow available to fund cash needs and (iii)
should not be considered as an alternative to net income determined in
accordance with GAAP as an indication of the Operating Partnership's
operating performance, or to cash flow from operating activities determined
in accordance with GAAP as a measure of either liquidity or the Operating
Partnership's ability to make distributions. The Operating Partnership has
historically distributed an amount less than FFO, primarily due to reserves
required for capital expenditures, including leasing costs. An increase in
FFO does not necessarily result in an increase in aggregate distributions
because the Board of Trust Managers of the Company is not required to
increase distributions unless necessary in order to enable the Company to
maintain REIT status. Because the Company must distribute 95% of its real
estate investment trust taxable income (as defined in the Code), however, a
significant increase in FFO will generally require an increase in
distributions to shareholders and unitholders although not necessarily on a
proportionate basis. Accordingly, the Operating Partnership believes that in
order to facilitate a clear understanding of the consolidated historical
operating results of the Operating Partnership, FFO should be considered in
conjunction with the Operating Partnership's net income (loss) and cash
flows as reported in the consolidated financial statements and notes
included elsewhere in this Offering Memorandum. However, the Operating
Partnership's measure of FFO may not be comparable to similarly titled
measures for other REITs because these REITs may not apply the modified
definition of FFO in the same manner as the Operating Partnership.
(5) EBIDA means earnings before interest expense, depreciation, amortization and
minority interests. EBIDA is computed as income from operations before
extraordinary items plus interest expense, depreciation and amortization.
The Operating Partnership believes that in addition to cash flows and net
income, EBIDA is a useful financial performance measurement for assessing
the operating performance of a limited partnership through which an equity
REIT conducts its operations because, together with net income and cash
flows, EBIDA provides investors with an additional basis to evaluate the
ability of a limited partnership such as the Operating Partnership to incur
and service debt and to fund acquisitions and other capital expenditures. To
evaluate EBIDA and the trends it depicts, the components of EBIDA, such as
rental revenues, rental expenses, real estate taxes and general and
administrative expenses, should be considered. Excluded from EBIDA are
financing costs such as interest as well as depreciation and amortization,
each of which can significantly affect the Operating Partnership's results
of operations and liquidity and should be considered in evaluating the
Operating Partnership's operating performance. Further, EBIDA does not
represent net income or cash flows from operating, financing and investing
activities as defined by GAAP and does not necessarily indicate that cash
flows will be sufficient to fund cash needs. It should not be considered as
an alternative to net income as an indicator of the Operating Partnership's
operating performance or to cash flows as a measure of liquidity.
(6) See "Description of the Notes" for the definitions of capitalized terms.
(7) The ratio of earnings to fixed charges is computed as income from operations
before minority interests and extraordinary items plus fixed charges
(excluding capitalized interest), divided by fixed charges. Fixed charges
consist of interest costs, including amortization of debt discount and
deferred financing fees, whether capitalized or expensed.
(8) The ratio of FFO before fixed charges to fixed charges is calculated as FFO
plus fixed charges (excluding capitalized interest), divided by fixed
charges (as defined in Note (7)). The Operating Partnership believes that in
addition to the ratio of earnings to fixed charges, this ratio provides a
useful measure of the ability of the Operating Partnership to service its
debt because of the exclusion of non-cash items such as depreciation and
amortization from the definition of FFO. This ratio differs from a
GAAP-based ratio of earnings to fixed charges and should not be considered
as an alternative to that ratio. Further, funds from operations statistics
as disclosed by other limited partnerships may not be comparable to the
Operating Partnership's calculation of FFO.
(9) Pro forma information relating to operating, investing and financing
activities has not been included because management believes that the data
would not be meaningful due to the number of assumptions required in order
to calculate this data.
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<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE OPERATING PARTNERSHIP
The following discussion and analysis of the financial condition and
historical results of operations of the Operating Partnership for the three and
nine months ended September 30, 1997 and each of the years ended December 31,
1996, 1995 and 1994 should be read in conjunction with the financial statements
and notes included herein.
The changes in operating results from period to period are primarily the
result of increases in the total square feet of Office and Retail Properties and
number of hotel/resort rooms/guest nights contained in the portfolio due to
acquisitions made by the Operating Partnership. The weighted average square feet
of consolidated office and retail properties for the three and nine months ended
September 30, 1997, were approximately 21.6 and 19.8 million, respectively,
compared to 10.3 and 9.4 million for the same periods in 1996. These increases
represent an 120.4% and 110.6% increase in square feet for the three and nine
months ended September 30, 1997, respectively, compared to the same periods in
1996. The weighted average number of rooms/guest nights for consolidated hotel
properties for the three months and nine months ended September 30, 1997, were
approximately 1,939 and 1,922 compared to 1,463 and 1,356, for the same periods
in 1996. These increases represent a 32.5% and 41.7% increase in rooms/guest
nights for the three and nine months ended September 30, 1997.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
Total revenues increased approximately $70.7 million, or 143.1%, to $120.1
million for the three months ended September 30, 1997, as compared to $49.4
million for the three months ended September 30, 1996. An increase in Office and
Retail Property revenues of $48.8 million is primarily attributable to the
acquisition of: a) 23 Office Properties in 1997 which resulted in $19.7 million
of incremental revenues; b) 16 Office Properties and four Retail Properties in
the fourth quarter of 1996 which resulted in $24.0 million of incremental
revenues; and c) four Office Properties in the third quarter of 1996 which
resulted in $2.2 million of incremental revenues. An increase in Hotel Property
revenues of $4.0 million is primarily attributable to the acquisition of two
destination health and fitness resorts and one full-service hotel property in
the third and fourth quarters of 1996. The increase in Behavioral Healthcare
Facilities revenues of $13.8 million is attributable to the acquisition of the
facilities in June 1997. The increase in interest and other income of $4.1
million is primarily attributable to the $134.3 million increase in notes
receivable as a result of the acquisition of certain notes in the Carter-Crowley
transaction, loans to Crescent Operating, Inc. ("Crescent Operating"), loans to
Desert Mountain Properties Limited Partnership ("DMPLP") and the acquisition of
a note receivable secured by a hotel property.
Total expenses increased $44.6 million, or 107.0%, to $86.3 million for the
three months ended September 30, 1997, as compared to $41.7 million for the
three months ended September 30, 1996. The increase in rental property operating
expenses of $22.5 million is primarily attributable to the acquisition of: a) 23
Office Properties in 1997 which resulted in $9.7 million of incremental
expenses; b) 16 Office Properties and four Retail Properties in the fourth
quarter of 1996 which resulted in $9.8 million of incremental expenses; and c)
four Office Properties in the third quarter of 1996 which resulted in $1.0
million of incremental expenses during the period. Depreciation and amortization
increased $9.5 million due primarily to the acquisition of Office Properties and
Behavioral Healthcare Facilities. The increase in interest expense of $11.2
million is primarily attributable to: (i) $.5 million of interest payable under
the financing arrangement with Northwestern Mutual Life Insurance Company, which
was in place as of December 1996; (ii) $2.3 million payable under LaSalle Note
III, which was assumed in the acquisition of the Greenway Plaza Portfolio in
October 1996; (iii) $5.1 million of interest payable under the $200 million and
$235 million short-term notes with BankBoston, N.A. ("BankBoston") which were
obtained in June and August of 1997, respectively; (iv) $2.6 million of
incremental interest payable due to draws under the Credit Facility (average
balance outstanding for the third quarter 1997 and 1996 was $294.1 million and
$115.4 million, respectively); and (v) $.7 million of interest payable under the
senior unsecured notes aggregating $400 million ("Notes"). All of the financing
arrangements, except for LaSalle Note III, were used to fund acquisitions. The
increase in
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<PAGE> 42
corporate general and administrative expense of $1.2 million was attributable to
incremental costs associated with the corporate operations of the Operating
Partnership as a direct result of recent property additions to the Operating
Partnership's portfolio.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Total revenues increased approximately $165.9 million, or 120.7%, to $303.3
million for the nine months ended September 30, 1997, as compared to $137.4
million for the nine months ended September 30, 1996. An increase in Office and
Retail Property revenues of $127.3 million is primarily attributable to the
acquisition of: a) 23 Office Properties in 1997 which resulted in $38.4 million
of incremental revenues; b) six Office Properties during the nine months ended
September 30, 1996, which resulted in $14.8 million of incremental revenues; and
c) 16 Office Property and four Retail Properties in the fourth quarter of 1996,
which resulted in $68.9 million of incremental revenues. In addition, Office
Property revenues increased due to The Crescent's increase in rental rates and
occupancy which resulted in $1.7 million of incremental revenues. An increase in
Hotel Property revenues of $12.7 million is primarily attributable to the
acquisition of two destination health and fitness resorts and one full-service
hotel property in the third and fourth quarters of 1996, which resulted in $11.9
million of incremental revenues. The increase in Behavioral Healthcare
Facilities revenues of $16.0 million is attributable to the acquisition of the
facilities in June 1997. The increase in interest and other income of $9.9
million for the nine months ended September 30, 1997, is primarily attributable
to: a) the $3.1 million profit distribution related to the Operating
Partnership's investment in HBCLP, Inc., the primary asset of which is the
investment in Hudson Bay Partners, L.P., an investment partnership in which the
Operating Partnership holds an effective 95% economic interest; b) the $134.3
million increase in notes receivable as a result of the acquisition of certain
notes in the Carter-Crowley transaction, loans to Crescent Operating, loans to
DMPLP and the acquisition of a note receivable secured by a hotel property; and
c) interest earned on available cash from the Offerings (as defined below).
Total expenses increased $108.3 million, or 95.2%, to $222.1 million for
the nine months ended September 30, 1997, as compared to $113.8 million for the
nine months ended September 30, 1996. An increase in rental property operating
expenses of $56.6 million is primarily attributable to the acquisition of: a) 23
Office Properties in 1997 which resulted in $17.2 million of incremental
expenses; b) six Office Properties during the nine months ended September 30,
1996, which resulted in $5.7 million of incremental expenses; and c) 16 Office
Properties and four Retail Properties in the fourth quarter of 1996, which
resulted in $30.0 million of incremental expenses during the period.
Depreciation and amortization increased $21.5 million primarily due to the
acquisitions of Office Properties and Behavioral Healthcare Facilities. An
increase in interest expense of $23.8 million is primarily attributable to: (i)
$1.5 million of interest payable under the financing arrangement with
Northwestern Mutual Life Insurance Company, which was in place as of December
1996; (ii) $6.7 million of interest payable under LaSalle Note III, which was
assumed in the acquisition of the Greenway Plaza Portfolio transaction in
October 1996; (iii) $5.6 million of interest payable under the $200 million and
$235 million short-term notes with BankBoston, which were obtained in June and
August of 1997, respectively; (iv) $7.2 million of incremental interest payable
due to draws under the Credit Facility (average balance outstanding for nine
months ended September 30, 1997 and 1996 was $236.3 and $47.1, respectively);
and (v) $.7 million of interest payable under the Notes. All of the financing
arrangements, except for LaSalle Note III, were used to fund acquisitions. An
increase in corporate general and administrative expense of $6.4 million was
primarily attributable to incentive compensation awarded to the Operating
Partnership's executive officers and also to incremental costs associated with
the corporate operations of the Operating Partnership as a direct result of
recent property additions to the Operating Partnership's portfolio.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
The changes in operating results from year to year are primarily the result
of increases in the total square feet and number of rooms/guest nights of the
portfolio due to significant acquisitions made by the Operating Partnership. The
weighted average square feet of consolidated Office and Retail Properties for
the years ended December 31, 1996 and 1995, were approximately 9.5 and 6.5
million, respectively, which represents a 46.2% increase in net rentable square
feet. The weighted average number of rooms/guest nights for consolidated
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<PAGE> 43
Hotel Properties for the years ended December 31, 1996 and 1995, were
approximately 1,397 and 615, respectively, which represents a 127.2% increase in
rooms/guest nights.
The consolidated statement of operations for the year ended December 31,
1996 includes the results of operations of 53 Office Properties, six Retail
Properties, four Hotel Properties and interests in three Residential Development
Corporations for all or a portion of the year. The consolidated statement of
operations for the year ended December 31, 1995 includes the results of
operations of 30 Office Properties, two Retail Properties, three Hotel
Properties and interests in three Residential Development Corporations for all
or a portion of the year.
Revenues from rental properties increased approximately $78.5 million, or
63.6%, to $202.0 million for the year ended December 31, 1996, as compared to
$123.5 million for the year ended December 31, 1995. This increase is primarily
attributable to the acquisition of: (i) 23 Office Properties, one full-service
hotel property, and two destination health and fitness resorts during the year
ended December 31, 1996 which resulted in $35.5 million of incremental revenues;
and (ii) 20 Office Properties and three full-service hotel properties during
1995 which resulted in $43.9 million of incremental revenues; which was offset
by a $.9 million decrease in revenues from the Office Properties owned in 1994.
Total expenses increased $65.7 million, or 66.3%, to $164.8 million for the
year ended December 31, 1996, as compared to $99.1 million for the year ended
December 31, 1995. An increase in rental property operating expenses of $27.9
million, is primarily attributable to the acquisition of: (i) 23 Office
Properties, one full-service hotel, and two destination health and fitness
resorts during the year ended December 31, 1996 which resulted in $14.0 million
of incremental expenses; and (ii) 20 Office Properties and three full-service
hotel properties during 1995 which resulted in $14.1 million of incremental
expenses; which was offset by a $.2 million decrease in expense from the Office
Properties owned in 1994. Depreciation and amortization increased $12.8 million
primarily due to the property acquisitions during 1996 and 1995. An increase in
interest expense of $24.1 million is primarily attributable to $27.1 million of
interest payable under the terms of the three new long-term financing
arrangements entered into between August 1995 and March 1996, proceeds of which
were used to repay the Credit Facility and to fund property acquisitions in 1995
and 1996 and $2.1 million of interest payable under LaSalle Note III, which was
assumed in the Greenway Plaza Portfolio transaction. This increase was offset by
a $5.1 million decrease in interest expense on the Credit Facility, primarily
due to a lower average outstanding balance throughout the year. An increase in
corporate general and administrative expenses of $.9 million was attributable to
incremental costs associated with the corporate operations of the Operating
Partnership as a direct result of recent property additions to the Operating
Partnership's portfolio.
Income before minority interest and extraordinary item increased from $36.4
million for the year ended December 31, 1995 to $48.0 million for the year ended
December 31, 1996, an increase of $11.6 million, for the reasons discussed
above.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
The changes in operating results from year end December 31, 1995 to 1994
are primarily the result of increases in the total square feet of the Operating
Partnership's real estate portfolio due to significant acquisitions made
subsequent to May 5, 1994. The weighted average square feet of consolidated
properties for the year ended December 31, 1995 and 1994 were approximately 6.5
and 3.6 million, respectively, which represents an 80.6% increase.
The consolidated statement of operations for the year ended December 31,
1995 includes the results of operations of 30 Office Properties, two Retail
Properties, three Hotel Properties and interests in three Residential
Development Corporations for all or a portion of the year. The combined
statement of operations for the year ended December 31, 1994 includes the
results of operations of ten Office Properties, two Retail Properties and
interests in two Residential Development Corporations for all or a portion of
the year.
Revenues from rental properties increased approximately $55.9 million, or
82.7%, to $123.5 million for the year ended December 31, 1995, as compared to
$67.6 million for the year ended December 31, 1994. This increase is
attributable to: (i) an increase in revenue of $.8 million from the Office and
Retail Properties
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<PAGE> 44
owned as of May 5, 1994, which is offset by a $.7 million lease termination fee
received in July 1994 at Continental Plaza; (ii) the acquisition of six Office
Properties between May 5, 1994 and December 31, 1994 which resulted in $25.5
million of incremental revenue; and (iii) the acquisition of 20 Office
Properties and three Hotel Properties in 1995 which resulted in $30.3 million of
incremental revenue.
The increase in interest and other income of $5.2 million for the year
ended December 31, 1995, is primarily attributable to the $2.3 million net
profit from the sale of co-investment rights in the Ritz-Carlton Hotel Company,
interest income of $1.2 million and $.4 million due to the acquisition of the
Biltmore Note and Spectrum Center mortgage note, respectively, and interest
earned on a greater amount of short-term cash investments outstanding during
1995.
The decrease in lot sale revenue and corresponding increase in income from
investments in real estate mortgages and common stock of Residential Development
Corporations for the year ended December 31, 1995, is a result of a change in
accounting treatment resulting from the non-controlling interest held after the
Company's formation transactions. On a comparative basis, residential
development lot sale revenue increased approximately $1.0 million, or 10.4%, to
$10.6 million for the year ended December 31, 1995, compared to $9.6 million for
the year ended December 31, 1994. The increase was attributable to 150 lot
closings (Mira Vista -- 131 and Falcon Point -- 19) for the year ended December
31, 1995, as compared to 117 lot closings (Mira Vista -- 73 and Falcon
Point -- 44) for the year ended December 31, 1994. Residential development
expenses increased approximately $.7 million, or 13.2%, to $6.0 million for the
year ended December 31, 1995, as compared to $5.3 million for the year ended
December 31, 1994. The increase was attributable to the increased lot closings
discussed above and a $.5 million income tax provision incurred for the year
ended December 31, 1995, which was not required in 1994.
Total expenses increased $36.8 million, or 59.1%, to $99.1 million for the
year ended December 31, 1995, as compared to $62.3 million for the year ended
December 31, 1994. The increase in rental property operating expenses of $18.3
million is attributable to: (i) the acquisition of six Office Properties between
May 5, 1994 and December 31, 1994 which resulted in $9.6 million of incremental
expenses; (ii) the acquisition of 20 Office Properties and three Hotel
Properties in 1995 which resulted in $9.7 million of incremental expenses; and
(iii) offset by a $1.0 million decrease in expenses from the Office and Retail
Properties owned as of May 5, 1994. Depreciation and amortization increased $6.0
million due to the acquisitions in 1994 and 1995. The increase in interest
expense and amortization of deferred financing costs of $10.4 million and $1.5
million, respectively, is primarily attributable to an increase in borrowings
under the Operating Partnership's $150 million Credit Facility and the addition
of long-term debt pursuant to a financing arrangement with Nomura Asset Capital
Corporation ("Nomura"). The borrowings were used primarily to fund property
acquisitions. The increase in corporate general and administrative expenses of
$2.0 million was attributable to a complete year of Operating Partnership
operations in 1995 versus a partial year in 1994 and also, to incremental costs
associated with the corporate operations of the Operating Partnership as a
direct result of property additions to the Operating Partnership's portfolio.
These increases were offset by an aggregate decrease in cost of lot sales and
residential development operating expenses of $1.4 million as a result of the
non-controlling interest held after the Company's formation transactions.
Income before minority interest and extraordinary item increased from $11.0
million for the year ended December 31, 1994 to $36.4 million for the year ended
December 31, 1995, an increase of $25.4 million, for the reasons discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $46.7 million and $25.5 million at September
30, 1997 and December 31, 1996, respectively. The increase is attributable to
$1,752.4 million and $134.7 million of cash provided by financing and operating
activities, respectively, offset by $1,865.9 million used in investing
activities. The Operating Partnership's inflow of cash provided by financing
activities is primarily attributable to proceeds received from the Company's
offerings ($761.8 million), the net borrowings under the Credit Facility and
borrowings under the short-term BankBoston notes ($711.5 million), and proceeds
from the Notes offering ($400.0 million). These sources were partially offset by
the distributions paid to partners ($93.2 million) and the distribution of
Crescent Operating shares to partners of the Operating Partnership ($11.9
million). The
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<PAGE> 45
cash inflow from operating activities is primarily attributable to: (i) property
operations; (ii) a decrease in restricted cash reserves for payment of real
estate taxes; and (iii) an increase in accounts payable which is primarily
attributable to 1997 acquisitions. The inflows from operating activities were
partially offset by an increase in other assets which is primarily attributable
to the purchase of the Magellan warrants ($12.5 million). The Operating
Partnership utilized $1,865.9 million of cash flow primarily in the following
investing activities: (i) the acquisition of 23 Office Properties and 91
Behavioral Healthcare Facilities ($1,356.3 million); (ii) notes receivable
($134.9 million) primarily attributable to the acquisition of a note receivable
secured by a hotel property ($6.3 million), the acquisition as a part of the
Carter-Crowley transaction of certain secured and unsecured promissory notes
relating primarily to the Dallas Mavericks ($56.1 million), loans to Crescent
Operating ($37.0 million), loans to DMPLP ($26.2 million) and loans to Houston
Area Development Corporation ($3.5 million); (iii) investments in unconsolidated
companies ($328.5 million) primarily attributable to DBL Holdings, Inc. ($12.6
million), Desert Mountain Development Corporation ($210.9 million), Woodland
Commercial Properties Company, L.P. ($38.6 million), and Woodlands Land
Development Company, L.P. ($41.2 million); and (iv) capital expenditures for
rental properties ($14.5 million) primarily attributable to non-recoverable
building improvements for the Office and Retail Properties, and replacement of
furniture, fixtures and equipment for the Hotel Properties; and (v) recurring
and non-recurring tenant improvement and leasing costs for the Office and Retail
Properties ($27.1 million).
On February 14, 1997, the Company filed a shelf registration with the
Commission for an aggregate of $1.2 billion of common shares, preferred shares
and warrants exercisable for common shares. Securities issued under the
registration statement (an aggregate of $1,184 million to date) were offered
from time to time in amounts, at prices, and on terms that were determined at
the time of the offering. Net proceeds from the offerings of these securities
were used as described in the notes to the Financial Statements for the
Operating Partnership for the nine months ended September 30, 1997, included
herein, for general business purposes, including the acquisition and development
of additional properties and other acquisition transactions, the payment of
certain outstanding debt, and improvements to certain properties.
On April 28, 1997, the Company completed an offering (the "April 1997
Offering") of 24,150,000 common shares (including the underwriters'
overallotment option) at $25.375 per share. Net proceeds from the April 1997
Offering to the Company after underwriting discount of $29.2 million and other
offering costs of $3.0 million were approximately $580.6 million. On May 14,
1997, the Company completed an additional offering of 500,000 common shares to
several underwriters who participated in the April 1997 Offering. The common
shares were sold at $25.875 per share, with gross proceeds of $12.9 million
(collectively, the "Offerings"). Net proceeds from the Offerings were
contributed to the Operating Partnership in exchange for an increased limited
partner interest.
In the second quarter of 1997, the Operating Partnership used net proceeds
of $593.5 million from the Offerings and approximately $314.7 million from
borrowings under the Credit Facility and $160.0 million of short-term borrowings
from BankBoston (i) to fund approximately $30.0 million in connection with the
formation and capitalization of Crescent Operating; (ii) to repay the $150.0
million BankBoston short-term note payable; (iii) to reduce by $131.0 million
borrowings under the Credit Facility; (iv) to fund approximately $306.3 million
of the purchase price of the Carter-Crowley Portfolio acquired by the Operating
Partnership and (v) to fund the commitments of the Operating Partnership and
Crescent Operating related to the Magellan transaction totaling approximately
$419.7 million. The remaining $31.2 million has been used for working capital
purposes.
On August 12, 1997, the Company entered into two transactions with
affiliates of Union Bank of Switzerland ("UBS"). In one transaction, the Company
sold 4,700,000 common shares at $31.5625 per share to UBS Securities, LLC for
approximately $148 million (approximately $145 million of net proceeds) ("UBS
Offering"). In the other transaction, the Company entered into a forward share
purchase agreement with Union Bank of Switzerland, London Branch ("UBS-LB")
which provides that the Company will purchase 4,700,000 common shares from
UBS-LB within one year. The purchase price will be determined on the date the
Company settles the agreement and will include a forward accretion component,
minus an adjustment for the Company's distribution rate. The Company may
complete the settlement for cash or common shares at its option. The net
proceeds, which were contributed to the Operating Partnership, were used to
repay borrowings under the Credit Facility.
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<PAGE> 46
On October 8, 1997, the Company completed an offering ("October 1997
Offering") of 10,000,000 common shares at $39.00 per share. Net proceeds from
the October 1997 Offering to the Company after underwriting discount of $19.9
million were approximately $371.1 million (with other estimated offering costs
of $1.5 million). The net proceeds of $370.1 million, which were contributed to
the Operating Partnership, were used to partially repay approximately $325.1
million of borrowings under the Credit Facility and to fund approximately $45.0
million of the purchase price of the U.S. Home Building.
On October 29, 1997, the Company filed a shelf registration with the
Commission for an aggregate of $1.5 billion of common shares, preferred shares
and warrants exercisable for common shares. Any securities issued under the
registration statement may be offered from time to time in amounts, at prices,
and on terms to be determined at the time of the offering. Management believes
this shelf registration will provide the Company with more efficient and
immediate access to the capital markets at such time as it is considered
appropriate. Net proceeds from any offering of these securities are expected to
be contributed to the Operating Partnership to be used for general business
purposes, including the acquisition and development of additional properties and
other acquisition transactions, the payment of certain outstanding debt, and
improvements to certain properties.
In September 1997, the Notes along with the Company's cumulative preferred
stock and non-cumulative and junior preferred stock issuable under the Company's
shelf registration were assigned investment grade ratings from Moody's Investors
Service.
Based on the Company's total market capitalization of $6.4 billion at
September 30, 1997 (at a $40.00 share price, which was the closing price of the
common shares on the NYSE on September 30, 1997, and including the full
conversion of all units of minority interest in the Operating Partnership plus
total indebtedness), the Operating Partnership's debt represented 28% of its
total market capitalization. The Operating Partnership currently intends to
maintain a conservative capital structure with total debt targeted at 40% of
total market capitalization.
The Operating Partnership expects to meet its short-term liquidity
requirements primarily through cash flow provided by operating activities, which
the Operating Partnership believes will be adequate to fund normal recurring
operating expenses, debt service requirements, recurring capital expenditures,
and distributions to shareholders and unitholders. To the extent the Operating
Partnership's cash flow from operating activities is not sufficient to finance
non-recurring capital expenditures, such as investment property acquisition
costs or tenant improvement and leasing costs related to previously unoccupied
space, the Operating Partnership expects to finance such activities with
proceeds available under the Credit Facility, available cash reserves and other
debt and equity financing.
The Operating Partnership expects to meet its long-term liquidity
requirements, consisting primarily of maturities under the Operating
Partnership's fixed and variable rate debt, through long-term secured and
unsecured borrowings and the issuance of debt securities and/or additional
equity securities of the Company or Operating Partnership.
The Company intends to maintain its qualification as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). As a REIT, the Company will generally not be subject to corporate
federal income taxes as long as it satisfies certain technical requirements of
the Code, including the requirement to distribute 95% of its taxable income to
its shareholders.
FUNDS FROM OPERATIONS
Funds from Operations ("FFO"), based on the definition adopted by the Board
of Governors of the National Association of Real Estate Investment Trusts
("NAREIT") and as used herein, means net income (loss) (determined in accordance
with generally accepted accounting principles or "GAAP"), excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation and
amortization of real estate assets, and after adjustments for unconsolidated
partnerships and joint ventures. FFO was developed by NAREIT as a relative
measure of performance and liquidity of an equity REIT in order to recognize
that income-producing real estate historically has not depreciated on the basis
determined under GAAP. The Operating Partnership considers FFO an appropriate
measure of performance of an equity REIT. However,
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<PAGE> 47
FFO (i) does not represent cash generated from operating activities determined
in accordance with GAAP (which, unlike FFO, generally reflects all cash effects
of transactions and other events that enter into the determination of net
income), (ii) is not necessarily indicative of cash flow available to fund cash
needs, and (iii) should not be considered as an alternative to net income
determined in accordance with GAAP as an indication of the Operating
Partnership's operating performance, or to cash flow from operating activities
determined in accordance with GAAP as a measure of either liquidity or the
Operating Partnership's ability to make distributions. The Operating Partnership
has historically distributed an amount less than FFO, primarily due to reserves
required for capital expenditures, including leasing costs. The aggregate cash
distributions paid to partners for the nine months ended September 30, 1997 and
1996 were $93.2 and $47.6 million, respectively. An increase in FFO does not
necessarily result in an increase in aggregate distributions because the General
Partner is not required to increase distributions on a quarterly basis unless
necessary in order to enable the Company to maintain REIT status. However, the
Company must distribute 95% of its real estate investment trust taxable income
(as defined in the Code). A significant increase in FFO will generally require
an increase in distributions to partners although not necessarily on a
proportionate basis. Accordingly, the Operating Partnership believes that in
order to facilitate a clear understanding of the consolidated historical
operating results of the Operating Partnership, FFO should be considered in
conjunction with the Operating Partnership's net income (loss) and cash flows as
reported in the consolidated financial statements and notes thereto. However,
the Operating Partnership's measure of FFO may not be comparable to similarly
titled measures of other REIT's because these REIT's may not apply the
definition of FFO in the same manner as the Operating Partnership.
STATEMENTS OF FUNDS FROM OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1997 1996
------------ -----------
<S> <C> <C>
Income before minority interests............................ $ 84,266 $ 26,735
Adjustments:
Depreciation and amortization of real estate assets....... 49,434 28,488
Adjustment for investments in real estate mortgages and
common stock of unconsolidated companies............... 2,107 1,473
Minority interest in joint ventures....................... (1,192) (955)
------------ -----------
Funds from operations....................................... $ 134,615 $ 55,741
============ ===========
Weighted average common shares outstanding and issuable in
exchange for units........................................ 100,592,573 58,116,124
</TABLE>
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<PAGE> 48
RECONCILIATION OF FUNDS FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1997 1996
-------- -------
<S> <C> <C>
Funds from operations....................................... $134,615 $55,741
Adjustments:
Depreciation and amortization of non-real estate assets... 905 578
Amortization of deferred financing costs.................. 2,157 2,065
Minority interest in joint ventures profit and
depreciation and amortization of real estate assets.... 1,693 1,228
Adjustment in investments in real estate mortgages and
common stock of unconsolidated companies............... (2,107) (1,473)
Change in deferred rent receivable........................ (14,432) (2,932)
Change in current assets and liabilities.................. 11,994 (5,345)
Other..................................................... (95) (272)
-------- -------
Net cash provided by operating activities................... $134,730 $49,590
======== =======
</TABLE>
RATIOS OF EARNINGS TO FIXED CHARGES
The Operating Partnership's ratio of earnings to fixed charges for the nine
months ended September 30, 1997 and for the years ended December 31, 1996 and
1995 and the period from May 4, 1994 to December 31, 1994 were 2.42, 2.01, 2.60
and 3.85, respectively.
Prior to the Operating Partnership's commencement of operations in May
1994, the Operating Partnership's predecessors, which consisted of a group of
affiliated entities owned and controlled by Mr. Rainwater, utilized traditional
single asset mortgage loans and construction loans as their principal source of
outside capital. In connection with completion of the initial public offering of
the Company's Common Shares in May 1994, the predecessor entities were
reorganized into a single consolidated entity and substantially deleveraged
their asset base. As a result of these factors, the Operating Partnership does
not consider information relating to the ratio of earnings to fixed charges for
the periods prior to the completion of the initial public offering to be
meaningful.
For the purposes of computing these ratios, earnings have been calculated
by adding fixed charges (excluding capitalized interest) to income (loss) before
taxes and extraordinary items. Fixed charges consist of interest costs,
including amortization of debt discount and deferred financing fees, whether
capitalized or expensed.
-44-
<PAGE> 49
BUSINESS AND PROPERTIES
The Company is a fully integrated real estate company operating as a REIT
for federal income tax purposes. The Operating Partnership holds substantially
all of the Company's assets, including interests in the Properties, and conducts
substantially all of the Company's operations, including providing management,
leasing and development services for certain of the Properties.
PROPERTIES
The Operating Partnership owns a portfolio of Properties consisting
primarily of 79 Office Properties located in 27 metropolitan submarkets in
Texas, Colorado, Arizona, Louisiana, Nebraska, New Mexico, California and
Florida, with an aggregate of approximately 27.9 million net rentable square
feet. The Properties also include 91 Behavioral Healthcare Facilities, five
full-service Hotel Properties with a total of 1,900 rooms and two destination
health and fitness resort Hotel Properties that can accommodate up to 442 guests
daily, Residential Development Property Mortgages relating to and non-voting
common stock in five Residential Development Corporations, which in turn,
through joint venture or partnership arrangements, own interests in 14
Residential Development Properties, and seven Retail Properties with an
aggregate of approximately 771,000 net rentable square feet. In addition, the
Company owns an indirect 40% interest in each of two corporations that currently
own and operate approximately 79 refrigerated warehouses with an aggregate of
approximately 368 million cubic feet.
Appendix A contains information concerning each Property the book value of
which amounted to 10 percent or more of the total assets of the Operating
Partnership and its Subsidiaries as of the date hereof or the gross revenue from
which for the last fiscal year amounted to 10 percent or more of the aggregate
gross revenues of the Operating Partnership and its Subsidiaries for the year
ended December 31, 1996.
OFFICE PROPERTIES
The Office Properties are located primarily in Dallas/Fort Worth and
Houston, Texas. The Operating Partnership's office properties in Dallas/Fort
Worth and Houston represent an aggregate of approximately 75% of its office
portfolio based on total net rentable square feet (45% and 30% for Dallas/Fort
Worth and Houston, respectively) and, on a pro forma basis, after giving effect
to the 1997 Acquisitions as if they had occurred on January 1, 1997, would have
accounted for approximately 76% of office property rental revenues (46% and 30%,
respectively) for the nine months ended September 30, 1997.
The following table sets forth certain information about the Office
Properties as of September 30, 1997, assuming completion of the acquisitions
completed after September 30, 1997. Based on annualized base rental revenues
from office leases in place as of September 30, 1997 and assuming completion of
the acquisitions subsequent to September 30, 1997, no single tenant would
account for more than 4% of the Operating Partnership's total annualized office
property rental revenues for 1997.
<TABLE>
<CAPTION>
Weighted
Average
Net Full-Service
Rentable Rental Rate
Year Area Percent Per Leased
State, City, Property Submarket Completed (Sq. Ft.) Leased Sq. Ft.(1) Significant Tenants(2)
- ----------------------------- ------------------ --------- ----------- ------- ------------ ----------------------------
<S> <C> <C> <C> <C> <C> <C>
TEXAS
DALLAS
The Crescent Office
Towers.................. Uptown/Turtle 1985 1,210,899 98% $ 25.86 --
Creek
Fountain Place(3)......... CBD 1986 1,200,266 94 14.90 Hunt Consolidated
Trammell Crow Center(4)... CBD 1984 1,128,331 83(5) 23.25 Jones, Day, Reavis and Pogue
Bank One(3)(6)............ CBD 1987 1,530,957 70 19.52 Bank One Texas, N.A.; Vial,
Hamilton, Koch & Knox, LLP
Stemmons Place............ Stemmons Freeway 1983 634,381 89 13.45 Aetna Life Insurance Company
Spectrum Center(7)........ Far North Dallas 1983 598,250 93 16.84 Federal Deposit Insurance
Corp.; Frito-Lay, Inc.
Waterside Commons......... Las Colinas 1986 458,739 100 13.72 Sprint Communications
Company L.P.
Caltex House.............. Las Colinas 1982 445,993 96 23.43 Caltex Petroleum Corporation
Reverchon Plaza........... Uptown/Turtle 1985 374,165 92(5) 14.75 BloomFCA!, Inc.; Pusker
Creek Gibbon Chapin, Inc.
</TABLE>
-45-
<PAGE> 50
<TABLE>
<CAPTION>
Weighted
Average
Net Full-Service
Rentable Rental Rate
Year Area Percent Per Leased
State, City, Property Submarket Completed (Sq. Ft.) Leased Sq. Ft.(1) Significant Tenants(2)
- ----------------------------- ------------------ --------- ----------- ------- ------------ ----------------------------
<S> <C> <C> <C> <C> <C> <C>
The Aberdeen.............. Far North Dallas 1986 320,629 100 17.31 Pepsico, Inc.
MacArthur Center I & II... Las Colinas 1982/1986 294,069 99 17.02 Federal Home Loan Bank of
Dallas
Stanford Corporate
Centre.................. Far North Dallas 1985 265,507 100 14.74 TENET Healthcare, Inc.
The Amberton.............. Central Expressway 1982 255,052 79 10.58 Pacific Southwest Bank,
F.S.B.
Concourse Office Park..... LBJ Freeway 1972-1986 244,879 90 11.61 --
12404 Park Central........ LBJ Freeway 1987 239,103 63(5) 15.59 Steak & Ale Restaurant
Corporation
Palisades Central II...... Richardson/Plano 1985 237,731 100 15.05 United States Data
Corporation; Northern
Telecom, Inc.; Lyons
Partnership, L.P.
3333 Lee Parkway.......... Uptown/Turtle 1983 233,484 39(5) 17.38 Keystone Home Health
Creek Management, Inc.
Liberty Plaza I & II...... Far North Dallas 1981/1986 218,813 100 12.82 Intecom, Inc.; Anthem Group
Services Corporation
The Addison............... Far North Dallas 1981 215,016 100 14,95 Comp USA, Inc.
The Meridian.............. LBJ Freeway 1984 213,915 97 12.89 OpenConnect Systems
Incorporated
Palisades Central I....... Richardson/Plano 1980 180,503 100 13.40 ITEX Corporation
Walnut Green.............. Central Expressway 1986 158,669 97 13.05 Cinemark USA, Inc.
Greenway II............... Richardson/Plano 1985 154,329 100 19.02 Northern Telecom, Inc.
Addison Tower............. Far North Dallas 1987 145,886 97 12.84 --
5050 Quorum............... Far North Dallas 1981 133,594 96(5) 14.10 --
Cedar Springs Plaza....... Uptown/Turtle 1982 110,923 89 15.00 Larkin, Meeder & Scheiwdel,
Creek Inc.
Greenway IA............... Richardson/Plano 1983 94,784 100 14.31 Northern Telecom, Inc.
Valley Centre............. Las Colinas 1985 74,861 99 13.18 --
Greenway I................ Richardson/Plano 1983 51,920 100 14.31 Northern Telecom, Inc.
One Preston Park.......... Far North Dallas 1980 40,525 87 13.37 --
----------- ---- -------
Subtotal/Weighted
Average............... 11,466,173 89% $ 17.69
----------- ---- -------
FORT WORTH
Continental Plaza......... CBD 1982 954,895 54%(5) $ 15.99 Burlington Northern Santa Fe
----------- ---- -------
Railroad
HOUSTON
Greenway Plaza Office
Portfolio(8)............ Richmond/Buffalo 1969-1982 4,286,277 82%(5) $ 13.63 The Coastal Corporation
Speedway
Houston Center(9)......... CBD 1974-1983 2,764,418 92 14.14 --
The Woodlands Office
Properties(10).......... The Woodlands 1980-1996 812,227 94 14.48 --
Three Westlake Park(11)... Katy Freeway 1983 414,251 100 13.58 Amoco Production Company
U.S. Home Building(3)..... West Loop/Galleria 1982 399,777 87 16.84 --
----------- ---- -------
Subtotal/Weighted
Average............... 8,676,950 87% $ 14.01
----------- ---- -------
AUSTIN
Frost Bank Plaza.......... CBD 1984 433,024 74% $ 16.79 --
301 Congress Avenue(12)... CBD 1986 418,338 95 22.90 IBM Corporation; Lumberman's
Investment Corporation
Bank One Tower............ CBD 1974 389,503 95 15.68 Texas Workers' Compensation
Insurance Fund
The Avallon............... Northwest 1993/1997 232,301(13) 79(5) 17.04 BMC Software, Inc.
Barton Oaks Plaza One..... Southwest 1986 99,792 94 19.30 Iguana Entertainment, Inc.
----------- ---- -------
Subtotal/Weighted
Average.............. 1,572,958 87% $ 18.34
----------- ---- -------
COLORADO
DENVER
MCI Tower................. CBD 1982 550,807 98% $ 17.10 Atlantic Richfield Company
Ptarmigan Place........... Cherry Creek 1984 418,565 82(5) 15.58 Janus Capital Corporation
Regency Plaza One......... DTC 1985 309,862 86 20.40 Nextel Communications
AT&T Building............. CBD 1982 169,610 92 13.65 AT&T Corp.
The Citadel............... Cherry Creek 1987 130,652 98 19.03 --
55 Madison................ Cherry Creek 1982 125,690 87 15.47 --
44 Cook................... Cherry Creek 1984 119,366 79(5) 17.82 Allmerica Financial
----------- ---- -------
Subtotal/Weighted
Average.............. 1,824,552 90% $ 17.06
----------- ---- -------
COLORADO SPRINGS
Briargate Office and
Research Center......... Colorado Springs 1988 252,857 100% $ 15.23 The Principal Mutual Life
----------- ---- -------
Insurance Company
FLORIDA
MIAMI
Miami Center.............. Downtown/CBD 1983 782,686 78% $ 23.50 --
----------- ---- -------
</TABLE>
-46-
<PAGE> 51
<TABLE>
<CAPTION>
Weighted
Average
Net Full-Service
Rentable Rental Rate
Year Area Percent Per Leased
State, City, Property Submarket Completed (Sq. Ft.) Leased Sq. Ft.(1) Significant Tenants(2)
- ----------------------------- ------------------ --------- ----------- ------- ------------ ----------------------------
<S> <C> <C> <C> <C> <C> <C>
ARIZONA
PHOENIX
Two Renaissance Square.... Downtown/CBD 1990 476,373 89% $ 23.31 Lewis & Roca
6225 North 24th Street.... Camelback Corridor 1981 86,451 67 21.24 Employee Solutions, Inc.
----------- ---- -------
Subtotal/Weighted
Average.............. 562,824 85% $ 22.99
----------- ---- -------
LOUISIANA
NEW ORLEANS
1615 Poydras.............. CBD 1984 508,741 75% $ 14.62 FM Service Company
----------- ---- -------
NEBRASKA
OMAHA
Central Park Plaza........ CBD 1982 409,850 100% $ 13.21 Acceptance Insurance
----------- ---- -------
Company; First National
Bank of Omaha
NEW MEXICO
ALBUQUERQUE
Albuquerque Plaza......... CBD 1990 366,236 94% $ 18.26 U.S. West Communications;
----------- ---- -------
Rodey, Dickason, Sloan,
Akin & Robb, P.A.
CALIFORNIA
SAN FRANCISCO
160 Spear Street.......... South of 1984 276,420 83% $ 22.66 Providian National
Market/CBD
----------- ---- -------
Bancorp; Sedwick
James of California, Inc.
SAN DIEGO
Chancellor Park(14)....... UTC 1988 195,733 86%(5) $ 20.64 Van Camp Seafood
----------- ---- -------
Company
TOTAL WEIGHTED
AVERAGE.............. 27,850,875 87%(5) $ 16.69
=========== ==== =======
</TABLE>
- ---------------
(1) Calculated based on base rent payable as of September 30, 1997, without
giving effect to free rent or scheduled rent increases that would be taken
into account under generally accepted accounting principles and including
adjustments for expenses payable by or reimbursable from tenants.
(2) Identifies tenants with leases that contributed 20% or more of total rental
revenue paid at the Property as of September 30, 1997, on an annualized
basis.
(3) Acquired subsequent to September 30, 1997.
(4) The Operating Partnership owns the principal economic interest in Trammell
Crow Center through its ownership of fee simple title to the Property
(subject to a ground lease and a leasehold estate regarding the building)
and two mortgage notes encumbering the leasehold interests in the land and
building.
(5) Leases have been executed at certain Properties but had not commenced as of
September 30, 1997. If such leases had commenced as of September 30, 1997,
the percent leased for Office Properties would have been 91%. The total
percent leased for such Properties would have been as follows: Trammell
Crow Center -- 87%; Reverchon Plaza -- 99%; 12404 Park Central -- 100%;
3333 Lee Parkway -- 99%; 5050 Quorum -- 99%; Continental Plaza -- 100%;
Greenway Plaza Office Portfolio -- 85%; The Avallon -- 100%; Ptarmigan
Place -- 95%; 44 Cook -- 95%; and Chancellor Park -- 91%.
(6) The Operating Partnership has a 50% general partner interest in the
partnership that owns Bank One Center.
(7) The Operating Partnership owns the principal economic interest in Spectrum
Center through an interest in Spectrum Mortgage Associates L.P., which owns
both a mortgage note secured by Spectrum Center and the ground lessor's
interest in the land underlying the office building.
(8) Consists of 10 Office Properties.
(9) Consists of three office properties.
(10) The Operating Partnership has a 75% limited partner interest and an
indirect approximately 10% general partner interest in the partnership that
owns the 12 Office Properties that comprise The Woodlands Office
Properties.
(11) The Operating Partnership owns the principal economic interest in Three
Westlake Park through its ownership of a mortgage note secured by Three
Westlake Park.
(12) The Operating Partnership has a 1% general partner and a 49% limited
partner interest in the partnership that owns 301 Congress Avenue.
(13) In August 1997, construction was completed on a 106,342 square foot office
property. The entire building is leased to BMC Software, Inc., which is
expected to occupy in stages over the next 24 months.
(14) The Operating Partnership owns Chancellor Park through its ownership of a
mortgage note secured by the building and through its direct and indirect
interests in the partnership which owns the building.
-47-
<PAGE> 52
The following table provides information for the Office Properties by
state, city and submarket as of September 30, 1997, assuming the acquisition of
the Properties acquired subsequent to September 30, 1997.
<TABLE>
<CAPTION>
WEIGHTED
PERCENT OPERATING AVERAGE
PERCENT OF LEASED AT OFFICE PARTNERSHIP QUOTED
TOTAL TOTAL OPERATING SUBMARKET SHARE OF MARKET
OPERATING OPERATING PARTNERSHIP PERCENT OFFICE RENTAL RATE
NUMBER OF PARTNERSHIP PARTNERSHIP OFFICE LEASED/ SUBMARKET PER SQUARE
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) NRA(1)(2) FOOT(2)(3)
- --------------------------------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD(6)........................ 3 3,859,554 14% 81%(7) 80% 21% $ 19.86
Uptown/Turtle Creek........... 4 1,929,471 7 89(7) 90 34 25.23
Far North Dallas.............. 7 1,897,695 7 97(7) 98 31 24.20
Las Colinas................... 4 1,273,662 5 98 96 19 25.67
Richardson/Plano.............. 5 719,267 3 100 99 21 21.07
Stemmons Freeway.............. 1 634,381 2 89 81 31 17.71
LBJ Freeway................... 2 453,018 2 79(7) 94 5 23.46
-- ----------- -- -- -- -- -------
Subtotal/Weighted Average... 26 10,767,048 40% 89% 89% 21% $ 22.39
-- ----------- -- -- -- -- -------
FORT WORTH
CBD........................... 1 954,895 3% 54%(7) 83% 23% $ 17.24
-- ----------- -- -- -- -- -------
HOUSTON
CBD........................... 3 2,764,418 10% 92% 98% 11% $ 15.63
Richmond/Buffalo Speedway..... 4 1,994,274 7 95 93 51 16.39
The Woodlands................. 7 486,140 2 95 100 100 15.01
Katy Freeway.................. 1 414,251 1 100 99 15 18.55
West Loop/Galleria(6)......... 1 399,777 1 87 94 3 18.18
-- ----------- -- -- -- -- -------
Subtotal/Weighted Average... 16 6,058,860 21% 93% 94% 13% $ 16.59
-- ----------- -- -- -- -- -------
AUSTIN
CBD........................... 3 1,240,865 4% 88% 90% 35% $ 20.89
Northwest..................... 1 232,301 1 79(7) 100 10 22.47
Southwest..................... 1 99,792 0 94 95 9 23.76
-- ----------- -- -- -- -- -------
Subtotal/Weighted Average... 5 1,572,958 5% 87% 92% 22% $ 21.88
-- ----------- -- -- -- -- -------
COLORADO
DENVER
Cherry Creek.................. 4 794,273 3% 85%(7) 93% 38% $ 19.34
CBD........................... 2 720,417 3 97 92 7 17.77
DTC........................... 1 309,862 1 86 88 8 23.20
-- ----------- -- -- -- -- -------
Subtotal/Weighted Average... 7 1,824,552 7% 90% 91% 11% $ 19.38
-- ----------- -- -- -- -- -------
COLORADO SPRINGS................ 1 252,857 1% 100% 95% 7% $ 17.30(8)
-- ----------- -- -- -- -- -------
FLORIDA
MIAMI
Downtown/CBD.................. 1 782,686 3% 78% 91% 23% $ 26.27
-- ----------- -- -- -- -- -------
ARIZONA
PHOENIX
Downtown/CBD.................. 1 476,373 2% 89% 90% 27% $ 21.21
Camelback Corridor............ 1 86,451 0 67 94 3 24.34
-- ----------- -- -- -- -- -------
Subtotal/Weighted Average... 2 562,824 2% 85% 92% 12% $ 23.18
-- ----------- -- -- -- -- -------
LOUISIANA
NEW ORLEANS
CBD........................... 1 508,741 2% 75% 87% 6% $ 15.52
-- ----------- -- -- -- -- -------
NEBRASKA
OMAHA
CBD........................... 1 409,850 2% 100% 94% 32% $ 18.29
-- ----------- -- -- -- -- -------
NEW MEXICO
ALBUQUERQUE
CBD........................... 1 366,236 1% 94% 93% 31% $ 18.40
-- ----------- -- -- -- -- -------
<CAPTION>
WEIGHTED
AVERAGE
OPERATING
OPERATING PARTNERSHIP
PARTNERSHIP FULL-
QUOTED SERVICE
RENTAL RENTAL
RATE PER RATE PER
SQUARE SQUARE
STATE, CITY, SUBMARKET FOOT(4) FOOT(5)
- --------------------------------- ----------- -----------
<S> <C> <C>
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD(6)........................ $ 22.54 $ 19.17
Uptown/Turtle Creek........... 29.22 22.06
Far North Dallas.............. 23.21 15.45
Las Colinas................... 23.18 17.85
Richardson/Plano.............. 21.01 15.34
Stemmons Freeway.............. 16.00 13.45
LBJ Freeway................... 21.24 14.32
------- -------
Subtotal/Weighted Average... $ 23.42 $ 18.08
------- -------
FORT WORTH
CBD........................... $ 17.00 $ 15.99
------- -------
HOUSTON
CBD........................... $ 15.31 $ 14.14
Richmond/Buffalo Speedway..... 16.50 15.49
The Woodlands................. 15.01 14.88
Katy Freeway.................. 18.55 13.58
West Loop/Galleria(6)......... 18.00 16.84
------- -------
Subtotal/Weighted Average... $ 16.08 $ 14.78
------- -------
AUSTIN
CBD........................... $ 20.47 $ 18.50
Northwest..................... 21.00 17.04
Southwest..................... 22.00 19.30
------- -------
Subtotal/Weighted Average... $ 20.65 $ 18.34
------- -------
COLORADO
DENVER
Cherry Creek.................. $ 19.81 $ 16.42
CBD........................... 16.87 16.29
DTC........................... 25.00 20.40
------- -------
Subtotal/Weighted Average... $ 19.51 $ 17.06
------- -------
COLORADO SPRINGS................ $ 17.50 $ 15.23
------- -------
FLORIDA
MIAMI
Downtown/CBD.................. $ 26.00 $ 23.50
------- -------
ARIZONA
PHOENIX
Downtown/CBD.................. $ 21.50 $ 23.31
Camelback Corridor............ 21.97 21.24
------- -------
Subtotal/Weighted Average... $ 21.57 $ 22.99
------- -------
LOUISIANA
NEW ORLEANS
CBD........................... $ 15.50 $ 14.62
------- -------
NEBRASKA
OMAHA
CBD........................... $ 18.50 $ 13.21
------- -------
NEW MEXICO
ALBUQUERQUE
CBD........................... $ 18.50 $ 18.26
------- -------
</TABLE>
-48-
<PAGE> 53
<TABLE>
<CAPTION>
WEIGHTED
PERCENT OPERATING AVERAGE
PERCENT OF LEASED AT OFFICE PARTNERSHIP QUOTED
TOTAL TOTAL OPERATING SUBMARKET SHARE OF MARKET
OPERATING OPERATING PARTNERSHIP PERCENT OFFICE RENTAL RATE
NUMBER OF PARTNERSHIP PARTNERSHIP OFFICE LEASED/ SUBMARKET PER SQUARE
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) NRA(1)(2) FOOT(2)(3)
- --------------------------------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CALIFORNIA
SAN FRANCISCO
South of Market/CBD........... 1 276,420 1% 83% 98% 3% $ 31.04
-- ----------- -- -- -- -- -------
SAN DIEGO
UTC........................... 1 195,733 1% 86%(7) 94% 7% $ 24.90
-- ----------- -- -- -- -- -------
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE................... 64 24,533,600 89% 88% 92% 15% $ 20.62
== =========== == == == == =======
CLASS B OFFICE PROPERTIES
TEXAS
DALLAS
Central Expressway............ 2 413,721 1% 85% 82% 11% $ 15.37
LBJ Freeway................... 1 244,879 1 90 93 2 16.94
Far North Dallas.............. 1 40,525 0 87 90 1 18.97
-- ----------- -- -- -- -- -------
Subtotal/Weighted Average... 4 699,125 2% 87% 90% 3% $ 17.37
-- ----------- -- -- -- -- -------
HOUSTON
Richmond/Buffalo Speedway..... 6 2,262,611 8% 71%(7) 73% 54% $ 15.29
The Woodlands................. 5 326,087 1 92 94 101 14.29
-- ----------- -- -- -- -- -------
Subtotal/Weighted Average... 11 2,618,090 9% 73% 74% 58% $ 15.22
-- ----------- -- -- -- -- -------
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE................... 15 3,317,215 11% 76% 87% 13% $ 16.99
== =========== == == == == =======
CLASS A AND CLASS B OFFICE
PROPERTIES TOTAL/WEIGHTED
AVERAGE................... 79 27,850,875 100% 87%(7) 91% 13% $ 19.91
== =========== == == == == =======
<CAPTION>
WEIGHTED
AVERAGE
OPERATING
OPERATING PARTNERSHIP
PARTNERSHIP FULL-
QUOTED SERVICE
RENTAL RENTAL
RATE PER RATE PER
SQUARE SQUARE
STATE, CITY, SUBMARKET FOOT(4) FOOT(5)
- --------------------------------- ----------- -----------
<S> <C> <C>
CALIFORNIA
SAN FRANCISCO
South of Market/CBD........... $ 29.30 $ 22.66
------- -------
SAN DIEGO
UTC........................... $ 24.36 $ 20.64
------- -------
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE................... $ 20.58 $ 17.30
======= =======
CLASS B OFFICE PROPERTIES
TEXAS
DALLAS
Central Expressway............ $ 17.12 $ 11.53
LBJ Freeway................... 17.00 11.61
Far North Dallas.............. 17.00 12.37
------- -------
Subtotal/Weighted Average... $ 17.07 $ 11.66
------- -------
HOUSTON
Richmond/Buffalo Speedway..... $ 14.00 $ 12.01
The Woodlands................. 14.29 13.89
------- -------
Subtotal/Weighted Average... $ 14.04 $ 12.24
------- -------
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE................... $ 14.68 $ 12.12
======= =======
CLASS A AND CLASS B OFFICE
PROPERTIES TOTAL/WEIGHTED
AVERAGE................... $ 19.87 $ 16.69
======= =======
</TABLE>
- ---------------
(1) NRA means net rentable area in square feet assuming completion of the
acquisitions subsequent to September 30, 1997.
(2) Market information is for Class A office space under the caption "Class A
Office Properties" and market information is for Class B office space under
the caption "Class B Office Properties." Sources are Jamison Research, Inc.
(for the Dallas-CBD, Uptown/Turtle Creek, Far North Dallas, Las Colinas,
Richardson/Plano, Stemmons Freeway, LBJ Freeway and Central Expressway; Fort
Worth-CBD and the New Orleans-CBD submarkets), Baca Landata, Inc. (for the
Houston-Richmond/Buffalo Speedway, CBD and West Loop/Galleria submarkets),
The Woodlands Corporation (for the Houston-The Woodlands submarket), Cushman
& Wakefield of Texas, Inc. (for the Houston-Katy Freeway submarket), CB
Commercial (for the Austin-CBD, Northwest and Southwest submarkets), Cushman
& Wakefield of Colorado, Inc. (for the Denver-Cherry Creek, CBD and DTC
submarkets), Turner Commercial Research (for the Colorado Springs market),
Grubb and Ellis Company (for the Miami-Downtown/CBD; Phoenix-Downtown/CBD
and Camelback Corridor and San Francisco-South of Market/CBD submarkets),
Pacific Realty Group, Inc. (for the Omaha-CBD submarket), Koll Market
Research (for the Albuquerque-CBD submarket) and John Burnham & Co. (for the
San Diego-UTC submarket).
(3) Represents full-service rental rates. These rates do not necessarily
represent the amounts at which available space at the Office Properties will
be leased. The weighted average subtotals and total are based on total net
rentable square feet of Operating Partnership Office Properties in the
submarket.
(4) For Office Properties, represents weighted average rental rates per square
foot quoted by the Operating Partnership as of September 30, 1997, based on
total net rentable square feet of Operating Partnership Office Properties in
the submarket, adjusted based on management estimates, to equivalent
full-service quoted rental rates to facilitate comparison to weighted
average Class A or Class B, as the case may be, quoted submarket rental
rates per square foot. For Properties acquired subsequent to September 30,
1997, represents weighted average full-service quoted market rental rates
per square feet. These rates do not necessarily represent the amounts at
which available space at the Operating Partnership Office Properties will be
leased.
(5) Calculated based on base rent payable for Operating Partnership Office
Properties and Properties acquired subsequent to September 30, 1997 in the
submarket as of September 30, 1997, without giving effect to free rent or
scheduled rent increases that would be taken into account under generally
accepted accounting principles and including adjustments for expenses
payable by tenants, divided by total net rentable square feet of Operating
Partnership Office Properties in the submarket.
(6) Includes two properties acquired in the Dallas CBD submarket and one
property acquired in the Houston West Loop/Galleria submarket subsequent to
September 30, 1997.
(7) Leases have been executed at certain Properties in these submarkets but had
not commenced as of September 30, 1997. If such leases had commenced as of
September 30, 1997, the percent leased for all Office Properties in the
Operating Partnership's submarkets would have been 91%. The total percent
leased at the Operating Partnership's Office Properties would have been as
follows: Dallas CBD -- 83%; Dallas Uptown/Turtle Creek -- 98%; Far North
Dallas -- 98%; Dallas LBJ Freeway -- 96%; Fort Worth CBD -- 100%; Austin
Northwest -- 100%; Denver Cherry Creek -- 94%; San Diego UTC -- 91%; and
Houston Richmond/Buffalo Speedway(Class B) -- 75%.
(8) Represents weighted average quoted triple-net rental rates per square foot,
adjusted based on management estimates, to equivalent full-service quoted
rental rates.
-49-
<PAGE> 54
LEASE EXPIRATIONS OF OFFICE PROPERTIES
The following table sets forth a schedule of lease expirations for leases
in place at the Office Properties owned as of September 30, 1997(1), for each of
the 10 years beginning with the remainder of 1997, assuming that none of the
tenants exercises renewal options and excluding an aggregate of 3,658,320 square
feet of unleased space.
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL ANNUAL FULL
NET RENTABLE ANNUAL SERVICE
AREA PERCENTAGE OF ANNUAL FULL FULL SERVICE RENT PER
NUMBER OF REPRESENTED LEASED NET SERVICE RENT NET
TENANTS WITH BY EXPIRING RENTABLE AREA RENT UNDER REPRESENTED RENTABLE
YEAR OF LEASE EXPIRING LEASES REPRESENTED BY EXPIRING BY EXPIRING AREA
EXPIRATION LEASES (SQUARE FEET) EXPIRING LEASES LEASES(2) LEASES EXPIRING(2)
------------- ------------ ------------- ---------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
1997........................ 191 777,229 3.2% $13,483,710 3.1% $17.35
1998........................ 438 2,268,787 9.4 34,624,456 7.9 15.26
1999........................ 371 3,128,239 13.0 52,925,219 12.1 16.92
2000........................ 298 3,153,189 13.1 53,026,487 12.1 16.82
2001........................ 250 3,257,894 13.5 58,065,366 13.3 17.82
2002........................ 179 2,709,274 11.2 51,344,706 11.8 18.95
2003........................ 60 1,394,045 5.8 23,958,246 5.5 17.19
2004........................ 50 2,350,490 9.8 47,058,459 10.8 20.02
2005........................ 31 1,770,288 7.3 32,623,881 7.5 18.43
2006........................ 17 408,645 1.7 8,491,956 1.9 20.78
2007 and thereafter......... 30 2,876,916 12.0 60,936,279 14.0 21.18
</TABLE>
- ---------------
(1) Includes three Properties acquired subsequent to September 30, 1997.
(2) Calculated based on base rent payable as of the expiration date of the lease
for net rentable square feet expiring, without giving effect to free rent or
scheduled rent increases that would be taken into account under generally
accepted accounting principles and including adjustments for expenses
payable by or reimbursable from tenants based on current levels.
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OFFICE PROPERTY MARKET INFORMATION
The following graph provides information regarding vacancy levels and
weighted average quoted market rental rates at year end for each of the years
from 1992 through 1996, and at September 30, 1997, for Class A office properties
in all submarkets in which the Operating Partnership has invested in Class A
office properties.
CLASS A OFFICE
VACANCY AND QUOTED MARKET RENT
FOR ALL OPERATING PARTNERSHIP SUBMARKETS
[CHART]
- ---------------
(1) Weighted average based on total net rentable square feet of Class A office
properties in all Operating Partnership submarkets.
Source: Compiled from third-party sources.
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BEHAVIORAL HEALTHCARE FACILITIES
On June 17, 1997, the Operating Partnership acquired substantially all of
the real estate assets of the domestic hospital provider business of Magellan
Health Services, Inc., as previously owned and operated by a wholly owned
subsidiary of Magellan Health Services, Inc. The transaction involved various
components, the principal component of which was the acquisition of the 91
Behavioral Healthcare Facilities (and one additional behavioral healthcare
facility which subsequently was sold) for approximately $399.7 million. The
Behavioral Healthcare Facilities, which are located in 28 states, are leased to
CBHS and its subsidiaries under a triple-net lease. CBHS is a newly formed
Delaware limited liability company owned 50% by a subsidiary of Magellan Health
Services, Inc. and 50% by Crescent Operating, Inc. The lease requires the
payment of annual minimum rent in the amount of approximately $41.7 million for
the period ending June 16, 1998, increasing in each subsequent year during the
12-year term at a 5% compounded annual rate. All maintenance and capital
improvement costs are the responsibility of CBHS during the term of the lease.
In addition, the obligation of CBHS to pay an approximately $78.3 million
franchise fee to Magellan Health Services, Inc. and one of its subsidiaries, as
franchisor, pursuant to a franchise agreement, is subordinated to the obligation
of CBHS to pay annual minimum rent to the Operating Partnership. The franchisor
does not have the right to terminate the franchise agreement due to any
nonpayment of the franchise fee as a result of the subordination of the
franchise fee to the annual minimum rent. The lease is designed to provide the
Operating Partnership with a secure, above-average return on its investment as a
result of the priority of annual minimum rent to the franchise fee and the
initial amount and annual escalation in the lease payments.
HOTEL PROPERTIES
The following table sets forth certain information about the Hotel
Properties for the nine months ended September 30, 1997 and 1996. The
information for the Hotel Properties is based on available rooms, except for
Canyon Ranch-Tucson and Canyon Ranch-Lenox, which are destination health and
fitness resorts that measure their performance based on available guest nights.
<TABLE>
<CAPTION>
AVERAGE AVERAGE REVENUE PER
OCCUPANCY DAILY AVAILABLE
RATE RATE ROOM
-------------- -------------- --------------
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
YEAR SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
COMPLETED/ -------------- -------------- --------------
HOTEL PROPERTY(1) LOCATION RENOVATED ROOMS 1997 1996 1997 1996 1997 1996
----------------- -------- ---------------- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FULL-SERVICE/LUXURY HOTELS
Denver Marriott City Center Denver, CO 1982/1994 613 84% 83% $117 $107 $ 98 $ 89
Four Seasons Hotel Houston, TX 1982 399 68 65 159 144 108 93
Hyatt Regency Albuquerque Albuquerque, NM 1990 395 75 79 99 92 74 72
Hyatt Regency Beaver Creek Avon, CO 1989 295 70 72 231 212 162 151
Sonoma Mission Inn & Spa(6) Sonoma, CA 1927/1987 & 1997 198 90 93 205 177 185 165
----- -- -- ---- ---- ---- ----
TOTAL/WEIGHTED AVERAGE 1,900 77% 77% $147 $133 $113 $103
===== == == ==== ==== ==== ====
DESTINATION HEALTH AND FITNESS RESORTS
Canyon Ranch-Tucson Tucson, AZ 1980 240(2) 84%(3) 80%(3) $486(4) $467(4) $385(5) $354(5)
Canyon Ranch-Lenox Lenox, MA 1989 202(2) 81(3) 83 (3) 446(4) 401(4) 353(5) 322(5)
----- -- -- ---- ---- ---- ----
TOTAL/WEIGHTED AVERAGE 442 83% 81% $468 $436 $370 $339
===== == == ==== ==== ==== ====
</TABLE>
- ---------------
(1) Because of the Company's status as a REIT for federal income tax purposes,
the Operating Partnership does not operate the Hotel Properties and has
leased the Hotel Properties to subsidiaries of Crescent Operating, Inc.
pursuant to long-term leases. See "Properties -- Hotel Properties."
(2) Represents available guest nights, which is the maximum number of guests
that the resort can accommodate per night.
(3) Represents the number of paying and complimentary guests for the period,
divided by the maximum number of available guest nights for the period.
(4) Represents the average daily "all-inclusive" guest package charges for the
period, divided by the average daily number of paying guests for the period.
(5) Represents the total "all-inclusive" guest package charges for the period,
divided by the maximum number of available guest nights for the period.
(6) Includes, for the period from July 1, 1997 through September 30, 1997, 30
additional rooms completed in July 1997.
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RESIDENTIAL DEVELOPMENT PROPERTIES
The Company owns economic interests in five Residential Development
Corporations through the Residential Development Property Mortgages relating to
and the non-voting common stock in these Residential Development Corporations.
In addition, the Operating Partnership currently owns the voting common stock of
The Woodlands Land Company, Inc. ("WLC") and Desert Mountain Development
Corporation ("DMDC"), two Residential Development Corporations formed to make
investments in The Woodlands and Desert Mountain, respectively. Crescent
Operating, Inc. owns all of the voting common stock, representing a 5% economic
interest, in each of WLC and DMDC. The Residential Development Corporations in
turn, through joint ventures or partnership arrangements, own interests in the
14 Residential Development Properties. The Residential Development Corporations
are responsible for the continued development and the day-to-day operations of
the Residential Development Properties. The Residential Development Properties
are The Highlands, The Reserve at Frisco, One Beaver Creek, Cresta, Eagle Ranch,
Market Square, Villas at Beaver Creek, Villa Montane Townhouses and Villa
Montane Club, which are located in Colorado; The Woodlands, Mira Vista, Falcon
Point and Spring Lakes, which are located in Texas; and Desert Mountain, which
is located in Arizona.
RETAIL PROPERTIES
The Operating Partnership owns seven Retail Properties, which in the
aggregate contain approximately 771,000 net rentable square feet. Four of the
Retail Properties, The Woodlands Retail Properties, with an aggregate of
approximately 356,000 net rentable square feet, are located in The Woodlands, a
master-planned development located 27 miles north of downtown Houston, Texas.
The Company has a 75% limited partner interest and an indirect approximately 10%
general partner interest in the partnership that owns The Woodlands Retail
Properties. Two of the Retail Properties, Las Colinas Plaza, with approximately
135,000 net rentable square feet, and The Crescent Atrium, with approximately
89,000 net rentable square feet, are located in submarkets of Dallas, Texas. The
remaining Retail Property, Houston Center, with an aggregate of approximately
191,000 net rentable square feet, is located in the CBD submarket of Houston,
Texas. As of September 30, 1997, the Retail Properties were 93% leased.
RECENT ACQUISITIONS
Since January 1, 1997, the Operating Partnership has completed
approximately $1,966.2 million in Property acquisitions. These acquisitions
include 26 Office Properties and one Retail Property for approximately $1,075
million, 91 Behavioral Healthcare Facilities (and one additional behavioral
healthcare facility which was subsequently sold) for approximately $387.2
million, one Hotel Property for approximately $50.0 million, two Residential
Development Properties for approximately $252.3 million, the Refrigerated
Warehouse Investment for approximately $160.0 million and a 42.5% partnership
interest in The Woodlands Commercial Properties Company, L.P. for approximately
$41.7 million (collectively, the "1997 Acquisitions").
The following briefly describes the Operating Partnership's Property
acquisitions since September 30, 1997.
U.S. Home Building. On October 15, 1997, the Operating Partnership acquired
the U.S. Home Building, a 21-story Class A office building located in the West
Loop/Galleria suburban office submarket of Houston, Texas, for approximately $45
million. The U.S. Home Building is located approximately five miles west of
downtown Houston and approximately 2.5 miles west of the Operating Partnership's
Greenway Plaza properties. Built in 1982, the building is located on
approximately 1.9 acres and contains approximately 400,000 net rentable square
feet. Major tenants of the U.S. Home Building include U.S. Home Corporation and
Nextel Communications, Inc.
Bank One Center. On October 22, 1997, the Operating Partnership, together
with affiliates of TrizecHahn Corporation ("Trizec"), acquired Bank One Center,
a 60-story Class A office building located in the CBD of Dallas, Texas, from two
unaffiliated entities. The acquisition was made through a newly formed limited
partnership in which the Operating Partnership and Trizec each own a 50%
interest, for an aggregate purchase
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price of approximately $238 million. Of the approximately $238 million purchase
price, approximately $83 million was funded through capital contributions of
$41.5 million from each of the Operating Partnership and Trizec, and the
remaining approximately $155 million was funded through two loans provided by
The Travelers Insurance Company. Construction of the office property was
completed in 1987. Situated on a 2.88-acre site, Bank One Center contains
approximately 1.5 million square feet of net rentable area with a three-level
underground parking structure that accommodates approximately 667 cars and a
seven-level offsite parking garage that accommodates approximately 885 cars.
Americold Corporation and URS Logistics, Inc. On October 31, 1997, the
Company, through two newly formed subsidiaries, acquired a 40% interest in each
of two partnerships, one of which owns Americold and one of which owns URS. The
remaining 60% interest in the partnerships is owned by Vornado. Americold and
URS are the two largest suppliers of refrigerated warehouse space in the United
States.
One of the Partnerships acquired all of the common stock of Americold
through the merger of a subsidiary of Vornado into Americold, and the other
partnership acquired all of the common stock of URS through the merger of a
separate subsidiary of Vornado into URS. As a result of the acquisition, the
Americold Partnership and the URS Partnership became the owners and operators of
approximately 79 refrigerated warehouses, with an aggregate of approximately 368
million cubic feet, that are operated pursuant to arrangements with national
food suppliers such as Tyson Foods, Kraft Foods, ConAgra and Pillsbury.
The aggregate purchase price for the acquisition of Americold and URS was
approximately $1,004 million (including transaction costs associated with the
acquisition). Of this amount, the purchase price for the acquisition of
Americold was approximately $632 million (consisting of approximately $112
million in cash for the purchase of the equity, approximately $151 million in
cash for the repayment of certain outstanding bonds issued by Americold,
approximately $367 million in retention of debt and approximately $2 million in
transaction costs), and the purchase price for the acquisition of URS was
approximately $372 million (consisting of approximately $173 million in cash for
the purchase of the equity, approximately $192 million in retention of debt and
approximately $7 million in transaction costs).
The Company currently owns all of the voting common stock, representing an
approximately 5% economic interest, and all of the nonvoting common stock,
representing an approximately 95% economic interest, in each of the two newly
formed subsidiaries. The Company has offered and expects Crescent Operating,
Inc. to accept the opportunity to acquire all of the voting common stock in the
subsidiaries. It is intended, however, that the transfer of the voting common
stock to Crescent Operating, Inc. (or, if Crescent Operating, Inc. does not
accept such offer, to another entity) will take place in the near future and in
no event later than December 31, 1997, and, in order to permit the Company to
continue to satisfy certain REIT qualification requirements, the Company will
transfer all of the voting common stock on or before January 30, 1997.
Under the terms of the existing partnership agreements for each of the
partnerships, Vornado has the right to make all decisions relating to the
management and operation of the partnerships other than certain major decisions
that require the approval of both the Company and Vornado. The partnership
agreement for each of the partnerships provides for a buy-sell arrangement upon
a failure of the Company and Vornado to agree on any of the specified major
decisions which, until November 1, 2000, can only be exercised by Vornado.
The parties have not yet determined certain matters relating to the future
ownership structure and operations of Americold and URS, including the
identification and division of the assets that will continue to be owned by one
of the partnerships and those that may be owned by one or more other entities
formed to conduct the business operations currently conducted by Americold and
URS, and the nature and terms of any lease that may be entered into between the
operating entity and the owner of the warehouses.
Fountain Place. On November 7, 1997, the Operating Partnership acquired
Fountain Place, a 60-story Class A office building located in the CBD submarket
of Dallas, Texas, approximately three blocks west of the Operating Partnership's
Trammell Crow Center Office Property, for approximately $114 million. Built in
1986 and designed by renowned architect, I.M. Pei, the building, located on
approximately 1.8 acres, contains approximately 1.2 million net rentable square
feet. Major tenants of Fountain Place include Hunt Consoli-
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dated, the United States Environmental Protection Agency, Jenkens & Gilchrist
and Principal Financial Securities, Inc.
CRESCENT OPERATING, INC.
In April 1997, the Operating Partnership established a new Delaware
corporation, Crescent Operating, Inc. All of the outstanding common stock of
Crescent Operating, Inc. was distributed, effective June 12, 1997, to those
persons who were limited partners of the Operating Partnership or shareholders
of the Company on May 30, 1997.
Crescent Operating, Inc. was formed to become a lessee and operator of
various assets and to perform the Intercompany Agreement between Crescent
Operating, Inc. and the Operating Partnership, pursuant to which each has agreed
to provide the other with rights to participate in certain transactions. As a
result of the formation of Crescent Operating, Inc. and the execution of the
Intercompany Agreement, persons who own equity interests in both Crescent
Operating, Inc. and the Operating Partnership have the opportunity to
participate in the benefits of both the real estate investments of the Operating
Partnership (including ownership of real estate assets) and the lease of certain
of such assets and the ownership of other non-real estate assets by Crescent
Operating, Inc. Crescent Operating, Inc.'s certificate of incorporation, as
amended and restated, generally prohibits Crescent Operating, Inc., for so long
as the Intercompany Agreement remains in effect, from engaging in activities or
making investments that a REIT could make, unless the Operating Partnership was
first given the opportunity but elected not to pursue such activities or
investments.
COMPETITION
All of the Properties are located in developed areas that include other
office buildings, luxury hotels and resorts and residential developments. The
number and type of commercial properties in a particular area could have a
material effect on the Operating Partnership's ability to lease space or
maintain or increase occupancy at its hotel, and on rents and room rates charged
at its comparable Properties or at any newly acquired properties. In addition,
other types of office buildings, hotels and residential developments provide
leasing and/or acquisition opportunities to potential tenants, occupants or
residents of the Properties. Such competitors include Class A and B office
space, luxury hotels, business class hotels and luxury or middle-market resort
properties and a variety of residential opportunities including pre-owned
housing and luxury apartments.
EMPLOYEES
The Operating Partnership has approximately 365 employees. None of the
employees are covered by collective bargaining agreements. The Operating
Partnership believes that its relationships with its employees are satisfactory.
INSURANCE
The Operating Partnership and each of its Subsidiaries maintains insurance
coverage by financially sound and reputable insurance companies on all of its
insurable property against loss or damage with amounts and types of insurance
that are commercially reasonable.
LEGAL PROCEEDINGS
Neither the Operating Partnership nor any of its Subsidiaries nor any of
the Properties currently is the subject of any material litigation nor, to the
knowledge of the Operating Partnership, is any material litigation currently
threatened against the Operating Partnership, any of its Subsidiaries or any of
the Properties.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real property may become liable for the costs of removal or
remediation of certain hazardous or toxic substances released on or in its
property, as well as certain other costs relating to hazardous or toxic
substances. Such liability may be imposed without regard to whether the owner or
operator knew of, or was responsible for, the
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release of such substances. The presence of, or the failure properly to
remediate, such substances, when released, may adversely affect the owner's
ability to sell the affected real estate or to borrow using such real estate as
collateral. Such costs or liabilities could exceed the value of the affected
real estate. The Operating Partnership has not been notified by any governmental
authority of any non-compliance, liability or other claim in connection with any
of the Properties, and the Operating Partnership is not aware of any other
environmental condition with respect to any of the Properties that management
believes would have a material adverse effect on the Operating Partnership's
business, assets or results of operations. Prior to the Operating Partnership's
acquisition of its Properties, independent environmental consultants conducted
or updated Phase I environmental assessments (which generally do not involve
invasive techniques such as soil or ground water sampling) on the Properties.
None of these Phase I assessments or updates revealed any materially adverse
environmental condition not known to the Operating Partnership or the
independent consultants preparing the assessments. There can be no assurance,
however, that environmental liabilities have not developed since such
environmental assessments were prepared, or that future uses or conditions
(including, without limitation, changes in applicable environmental laws and
regulations) will not result in imposition of environmental liability.
CERTAIN POLICIES
The following is a discussion of the Operating Partnership's investment,
financing and conflict of interest policies, as well as its policies regarding
certain other activities. The Company is the sole shareholder of the General
Partner of the Operating Partnership. The Board of Trust Managers of the Company
elects the sole director of the General Partner and provides guidance to the
senior management of the General Partner of the Operating Partnership regarding
operating and financial policies and strategies, including its policies and
strategies with respect to acquisitions, growth, operations, indebtedness and
capitalization. These policies and strategies of the Operating Partnership and
the Company may change from time to time, except that (i) changes in conflicts
of interest policies must be consistent with applicable legal requirements and
(ii) neither the Company (without the approval of the holders of a majority of
the shares of equity securities outstanding and entitled to vote on the matter)
nor the Operating Partnership may act in a manner that could adversely affect
the ability of the Company to maintain qualification as a REIT for federal
income tax purposes. In addition, the Operating Partnership may not act in a
manner that could subject the Company to certain taxes on REITs or result in a
violation of any law or regulation of any governmental body or agency having
jurisdiction over the Company or its securities.
INVESTMENT POLICIES
General. The Operating Partnership's investment objectives are to provide
stable cash flow available for quarterly distributions and to increase funds
from operations, and the underlying value, of the Operating Partnership and,
thereby, of the Company over time through the Operating Partnership's
operational and investment activities. The Operating Partnership intends to
accomplish these objectives by pursuing its operating, investment and financing
strategies. See "The Operating Partnership." There can be no assurance, however,
that the Operating Partnership will successfully implement its strategies, that
its investment objectives will be attained or that the value of the Operating
Partnership will not decline.
The Operating Partnership intends at all times to invest in a manner
consistent with the requirements under the Code for the Company to qualify as a
REIT for federal income tax purposes. This policy of maintaining the Company's
REIT qualification will not be changed unless, due to changes in the tax laws,
changes in economic conditions or other fundamental changes in the Company's
business environment, the Company's Board of Trust Managers, with the consent of
the holders of a majority of the Common Shares outstanding, determines that it
is no longer in the best interest of the Company to qualify as a REIT for
federal income tax purposes.
Investment in Real Estate or Interests in Real Estate. The Operating
Partnership pursues its investment objectives primarily through the direct
ownership of real estate assets and, indirectly, through ownership of interests
in entities that, in turn, own real estate assets. Future investments will not
be limited to any specified geographic area or areas, but will be made in
markets meeting the Operating Partnership's selection criteria as
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described at "The Operating Partnership -- Investment Strategies," and may
include any type of asset, property or interest the ownership of which is
consistent with the Company's qualification as a REIT for federal income tax
purposes. The Operating Partnership generally purchases existing properties
meeting its selection criteria, as described at "The Operating
Partnership -- Investment Strategies," and currently does not intend to engage
in development activities, except with respect to the Residential Development
Properties and any undeveloped properties that it may acquire in the future. In
the future, however, the Operating Partnership may elect to develop properties
alone or in concert with others.
The Operating Partnership has no limit on the amount or percentage of its
assets represented by one property or property type. Subject to the percentage
ownership limitations and gross income tests which must be satisfied to maintain
the Company's qualification as a REIT for federal income tax purposes, the
Operating Partnership may invest in the securities of entities engaged in real
estate activities, or securities of other issuers, including investments made
for the purpose of exercising control over such issuers. The Operating
Partnership may acquire some, all or substantially all of the securities or
assets of other REITs or similar real estate investment entities, where such
investment would be consistent with the Operating Partnership's investment
objectives and policies and the Company's continued qualification as a REIT for
federal income tax purposes.
The Operating Partnership may purchase or lease income-producing properties
for long-term investment, expand or improve the properties that it controls, or
sell such properties, in whole or in part, as the circumstances may warrant. The
Operating Partnership may participate with other entities or individuals in the
ownership of properties, through joint ventures or other co-ownership
arrangements consistent with qualification as a REIT for federal income tax
purposes. Equity investments may be subject to existing or future mortgage
financing and other indebtedness which may have priority over the Operating
Partnership's equity interest in any such investment.
Investment in Real Estate Mortgages. While the Operating Partnership
emphasizes equity real estate investments, it has in the past and in the future
may, in its discretion, elect to invest in conventional or convertible mortgages
if it concludes that it would benefit from the cash flow from, or appreciation
of, such an investment. Such mortgages may be similar in character to the
Residential Development Property Mortgages, or may be in such other form and
have such terms as the Operating Partnership determines is advantageous to it.
In addition, if the Operating Partnership concludes that such action is
favorable to it, from time to time the Operating Partnership may elect to
exchange mortgage interests for equity interests in the properties secured
thereby. See "The Operating Partnership -- Investment Strategies."
FINANCING POLICIES
Although the Operating Partnership's organizational documents contain no
limitation on the level or amount of debt that it may incur, the Operating
Partnership intends to maintain a ratio of indebtedness to total market
capitalization of the Company (i.e., the aggregate of the market value of all
issued and outstanding Common Shares and Units plus total debt) of approximately
40%, although this policy is subject to reevaluation and modification and could
be increased above 40%. The debt policy is based on the relationship between the
debt of the Operating Partnership and the total market capitalization of the
Company, rather than the book value of its assets or other historical measures,
because management believes that market capitalization more accurately reflects
the ability of the Operating Partnership to borrow money and meet its debt
service requirements. Market capitalization is, however, more variable than book
value of assets or other historical measures. There can be no assurance that the
ratio of indebtedness to market capitalization (or any other measure of asset
value) or the incurrence of debt at any particular level would not adversely
affect the financial condition and results of operations of the Operating
Partnership. See "Risk Factors -- Risks Relating to Debt," and "The Operating
Partnership -- Financing Strategies." Total market capitalization may not,
however, be reflective of the value of the Operating Partnership's underlying
assets. Management will endeavor to retain the Operating Partnership's ability
and flexibility to raise additional capital through the issuance of debt as well
as equity securities, to pursue attractive opportunities as they arise and
otherwise to act in a manner that it believes is consistent with the best
interests of the Operating Partnership. From time to time the Operating
Partnership may reevaluate its borrowing and debt policies in light of
then-current market conditions, relative costs of debt and equity capital,
market values of properties, growth and investment
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opportunities and such other factors as management deems relevant, and may
increase or decrease its borrowings and its ratio of debt to total
capitalization in light of such reevaluation.
To the extent that the Company's Board of Trust Managers determines to seek
additional capital, such capital may be raised through (i) additional equity
offerings by either the Company or the Operating Partnership, (ii) debt
financings by the Operating Partnership, (iii) through operating cash flow,
subject to the distribution requirements which must be satisfied in order to
maintain qualification as a REIT for federal income tax purposes, or (iv)
through a combination of these financing methods, depending on then-current
market conditions and the Operating Partnership's then-current level of
indebtedness. It is the Company's policy that it shall not incur indebtedness
other than short-term trade debt, employee compensation, distribution payable or
similar indebtedness that will be paid in the ordinary course of business, and
that indebtedness shall instead be incurred by the Operating Partnership to the
extent necessary to fund the business activities conducted by the Operating
Partnership and its Subsidiaries. The Company is required by the Operating
Partnership's limited partnership agreement to contribute the proceeds of its
equity offerings to the Operating Partnership in exchange for an increased
interest in the Operating Partnership. The proceeds from equity offerings or
debt financings may be used to finance the acquisition or development of
additional properties or interests therein or for working capital purposes. To
the extent that the costs of any such debt financings are greater than the
increased income derived from new or improved properties, the Operating
Partnership's results of operations could be adversely affected.
WORKING CAPITAL RESERVES
The Operating Partnership will maintain working capital reserves and, when
not sufficient, access to borrowings, in such amounts as the Operating
Partnership determines to be adequate to meet normal contingencies in connection
with the operation of the Operating Partnership's business and investments. In
addition, the Operating Partnership has the ability to borrow under its existing
credit facility for working capital purposes.
CONFLICTS OF INTEREST
General. The Operating Partnership has adopted certain policies and entered
into certain agreements designed to eliminate or minimize potential conflicts of
interest. The Company's trust managers and officers also are subject to certain
provisions of Texas law which are designed to minimize conflicts of interest.
There can be no assurance, however, that these policies and statutory provisions
always will successfully and entirely eliminate the influence of such conflicts
and, if they are not successful, decisions of management could fail to reflect
fully and accurately objective business judgment.
Policies Applicable to All Directors. Pursuant to the Texas Real Estate
Investment Trust Act, the interest of any trust manager or officer of the
Company in any transaction is required to be disclosed to or known to the Board
of Trust Managers or, if applicable, the shareholders and generally must be
approved by a majority of the disinterested trust managers or the shareholders.
All transactions between the Company or the Operating Partnership and any trust
manager or any entity in which such a trust manager has a material financial
interest must be confirmed and ratified by the Board of Trust Managers, with the
interested trust manager abstaining.
Policies Relating to Affiliates of the Rainwater Group. Each of Messrs.
Rainwater, Goff and Haddock has entered into an agreement not to engage directly
or indirectly, in certain real estate related activities (a "Noncompetition
Agreement") during specified periods of time. See "Management -- Agreements Not
to Compete." Each also has agreed that, as long as his Noncompetition Agreement
remains in effect, real estate investment opportunities that are presented to
him will be offered to the Company and that, if the Company elects not to make
an investment offered to it by any of them, neither they, nor their respective
controlled affiliates, will participate in the investment unless approved by the
Company. The Noncompetition Agreements do not prohibit Messrs. Rainwater, Goff
and Haddock from engaging in certain activities with respect to properties
already owned or from making certain passive real estate investments. Mr.
Rainwater, through certain affiliates, retains ownership of the Hotel Crescent
Court and the Crescent Spa, and a limited partnership in which Rainwater, Inc.
and Messrs. Rainwater, Goff and Haddock are indirect investors, retains
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<PAGE> 63
ownership of a hotel in Arlington, Texas. The Company has rights of first
refusal to acquire the hotel in Arlington and the Hotel Crescent Court upon any
proposed transfer to a third party.
OTHER POLICIES
The Operating Partnership intends to invest and operate in a manner
consistent with the Company's ability to comply with the requirements of the
Code for qualification of the Company as a REIT for federal income tax purposes,
unless, due to changes in the tax laws, changes in economic conditions or other
fundamental changes in the Company's business environment, the Board of Trust
Managers of the Company, with the consent of the holders of a majority of the
shares of equity securities outstanding and entitled to vote on the question,
determines that it is no longer in the best interest of the Company to qualify
as a REIT.
The Operating Partnership intends to operate in a manner that will not
subject it or the Company to regulation under the Investment Company Act of
1940, as amended.
The Operating Partnership has from time to time made loans to its officers
or the officers or director of its General Partner, and the Company has made
loans to certain of its trust managers to permit them to acquire Common Shares
of the Company. See "Certain Relationships and Related Transactions." In the
future, the Operating Partnership may make loans similar to the Residential
Development Property Mortgages. The Operating Partnership does not intend to
engage in trading, underwriting or agency distribution or sale of securities of
other issuers.
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<PAGE> 64
MANAGEMENT
The Operating Partnership is controlled by the Company through the
Company's ownership of all of the outstanding stock of the General Partner,
which is the sole general partner of the Operating Partnership and owns a 1%
general partner interest in the Operating Partnership. In addition, the Company
owns an approximately 89% limited partner interest in the Operating Partnership.
The remaining limited partner interests are owned by senior members of
management of the Company and the General Partner and certain outside investors.
The Operating Partnership holds substantially all of the Company's assets,
including interests in the Properties, and conducts substantially all of the
Company's operations, including providing management, leasing and development
services for certain of the Properties. Set forth below is information with
respect to the sole director and the executive officers of the General Partner
and certain trust managers and the executive officers of the Company.
<TABLE>
<CAPTION>
NAME TERM EXPIRES AGE(1) POSITION
---- ------------ ------ --------
<S> <C> <C> <C>
Richard E. Rainwater 2000 53 Chairman of the Board of Trust Managers of the
Company and Member of the Strategic Planning
Committee of the General Partner
John C. Goff 1999 42 Vice Chairman of the Board of Trust Managers of the
Company and Member of the Strategic Planning
Committee of the General Partner
Gerald W. Haddock 1998 50 President, Chief Executive Officer and Sole Director
of the General Partner, and President, Chief
Executive Officer, Trust Manager of the Company
and Member of the Strategic Planning Committee of
the General Partner
Dallas E. Lucas N/A 35 Senior Vice President, Chief Financial and
Accounting Officer of the Company and the General
Partner
David M. Dean N/A 37 Senior Vice President, Law and Secretary of the
Company and the General Partner
James M. Eidson, Jr. N/A 43 Senior Vice President, Acquisitions of the General
Partner
William D. Miller N/A 39 Senior Vice President, Administration of the General
Partner and the Company
Bruce A. Picker N/A 33 Vice President and Treasurer of the General Partner
and the Company
Joseph D. Ambrose III N/A 47 Vice President, Administration of the General
Partner
Jerry R. Crenshaw, Jr. N/A 34 Vice President and Controller of the General Partner
Barry L. Gruebbel N/A 43 Vice President, Property Management of the General
Partner
Howard W. Lovett N/A 40 Vice President, Corporate Leasing of the General
Partner
John M. Walker, Jr. N/A 47 Vice President, Acquisitions of the General Partner
John L. Zogg, Jr. N/A 34 Vice President, Leasing and Marketing of the General
Partner
Murphy C. Yates N/A 50 Director of Leasing and Operations of the General
Partner
</TABLE>
- ---------------
(1) At December 31, 1997.
MANAGEMENT OF THE OPERATING PARTNERSHIP
The following is a summary of the experience of management of the Operating
Partnership.
Richard E. Rainwater has been an independent investor since 1986. From 1970
to 1986, he served as the chief investment advisor to the Bass family, whose
overall wealth increased dramatically during his tenure. During that time he was
principally responsible for numerous major corporate and real estate
acquisitions and dispositions. Immediately after beginning his independent
investment activities, he founded ENSCO International Incorporated, an oil field
service and offshore drilling company, in 1986. In 1990 he co-founded Columbia
Hospital Corporation, and in 1989 participated in a management-led buyout of
HCA-Hospital Corporation of America; both of these companies owned and operated
"for profit" hospitals. In 1992, Mr. Rainwater was one of the founders of Mid
Ocean Limited, a provider of casualty re-insurance. In February 1994, he
assisted in the merger of Columbia Hospital Corporation and HCA-Hospital
Corporation
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<PAGE> 65
that created Columbia/HCA Healthcare Corporation, the world's largest hospital
company. Mr. Rainwater serves as a director of Mesa, Inc., one of the largest
oil and gas companies in the United States. In 1996, Mr. Rainwater led a
recapitalization of Mesa, Inc., and a partnership wholly owned by Mr. Rainwater
became the controlling shareholder in July 1996. Mr. Rainwater is a graduate of
the University of Texas at Austin and the Graduate School of Business at
Stanford University. Mr. Rainwater has served as the Chairman of the Board of
Trust Managers since the Company's inception in 1994 and as a member of the
Strategic Planning Committee of the General Partner since 1996.
John C. Goff, prior to joining the Company, served as a senior investment
advisor to, and investor with, Mr. Rainwater, as well as a vice president of
Rainwater, Inc., a management operating company wholly owned by Mr. Rainwater.
In those capacities, he has been involved in, and principally responsible for,
numerous acquisitions and financings involving corporate, debt and real estate
interests. Mr. Goff currently is a member of the board of directors of The
Staubach Company. Prior to joining Rainwater, Inc. in 1987, Mr. Goff was
employed by the accounting firm of KPMG Peat Marwick LLP from 1981 to 1987.
Before joining KPMG Peat Marwick LLP, Mr. Goff was employed by Century
Development Corporation, a major Houston-based office developer and property
management company. Mr. Goff is a graduate of the University of Texas at Austin
and is a Certified Public Accountant. From the Company's inception in 1994
through December 19, 1996, Mr. Goff served as Chief Executive Officer. Since
December 19, 1996, Mr. Goff has served as Vice Chairman of the Board of Trust
Managers and as a member of the Strategic Planning Committee of the General
Partner.
Gerald W. Haddock, prior to joining the Company, was vice president of
Rainwater, Inc. from 1990 to 1994 and was the lead transactional attorney for
Mr. Rainwater from 1986 to 1994. During this period, he was in the private
practice of law, pursuant to which, among other things, he served as primary
outside legal counsel to, and investor with, Mr. Rainwater and primary outside
legal counsel to Rainwater, Inc. Mr. Haddock currently is a member of the board
of directors of AmeriCredit Corporation, a company engaged in the financing of
automobile dealer paper, and ENSCO International Incorporated, of which he was
one of the three founding directors. In addition, Mr. Haddock serves as general
counsel for the Texas Rangers baseball club. Mr. Haddock earned both Bachelor of
Business Administration (B.B.A.) and Juris Doctor (J.D.) degrees from Baylor
University. He also holds a Master of Laws (L.L.M.) degree in taxation from New
York University and has served as the Chairman of the Tax Section of the State
Bar of Texas. From the Company's inception in 1994 through December 19, 1996,
Mr. Haddock served as President and Chief Operating Officer. Since December 19,
1996, Mr. Haddock has served as President and Chief Executive Officer.
Dallas E. Lucas, prior to joining the Company, was a financial consulting
and audit manager in the real estate services group of Arthur Andersen LLP in
Dallas. Mr. Lucas was employed by Arthur Andersen LLP for nine years, until
December 1993. Mr. Lucas holds a Bachelor of Business Administration (B.B.A.)
degree in accounting from the University of Oklahoma and is a Certified Public
Accountant. Mr. Lucas has served as the Senior Vice President, Chief Financial
and Accounting Officer since the Company's inception in 1994.
David M. Dean, prior to joining the Company, was an attorney for Burlington
Northern Railroad Company from 1992 to 1994, and served as Assistant General
Counsel in 1994. At Burlington Northern, he was responsible for the majority of
that company's transactional and general corporate legal work. Mr. Dean was
previously engaged in the private practice of law from 1986 to 1990 with Kelly,
Hart & Hallman and from 1990 to 1992 with Jackson & Walker, L.L.P. where he
worked primarily with Mr. Haddock on acquisition, financing and venture capital
transactions for Mr. Rainwater and related investor groups. Mr. Dean graduated
with honors from Texas A & M University with Bachelor of Arts (B.A.) degrees in
English and Philosophy in 1983. He also holds a Juris Doctor (J.D.) degree and a
Master of Laws (L.L.M.) degree in taxation from Southern Methodist University
School of Law. Mr. Dean has served as the Senior Vice President, Law and
Secretary since August 1994.
James M. Eidson, Jr. has seventeen years of experience in the commercial
real estate business. Prior to joining the Company, he owned an investment
company, specializing in investment grade commercial properties, from 1992 to
1994. From 1989 to 1992, he was associated with CB Commercial Real Estate Group,
Inc., where he was a Senior Investment Specialist in their investment grade
commercial property group, and
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<PAGE> 66
from 1982 to 1989 he owned a real estate company through which he provided
brokerage and investment services for individuals and large corporate investors
and made investments in commercial properties for his own account. He gained his
early experience in real estate acquisitions, dispositions, leasing, marketing
and consulting while a broker and investment specialist for three years with
Hank Dickerson & Company. Mr. Eidson is a former professional football player
who played with the Dallas Cowboys from 1976 through 1978. Mr. Eidson holds a
Master of Business Administration (M.B.A.) degree from Southern Methodist
University and a Bachelor of Science (B.S.) degree from Mississippi State
University. Mr. Eidson has served as the Senior Vice President, Acquisitions
since May 1995.
William D. Miller, prior to joining the Company, served as Vice President,
Legal Affairs of the Texas Rangers major league baseball club beginning in March
1994. While with the Rangers, Mr. Miller managed all legal matters concerning
the senior management of the baseball club and the partnerships that own or are
affiliated with the owners of the club. Mr. Miller was also a member of the
senior management of the Rangers and certain partnerships affiliated with the
Rangers. In addition, Mr. Miller functioned as the primary lawyer responsible
for the Rangers' interest in the development of The Ballpark project in
Arlington. Prior to joining the Rangers, Mr. Miller practiced law at Jackson &
Walker, L.L.P. from September 1986, was the lead real estate lawyer for Mr.
Rainwater, Rainwater, Inc. and Mr. Haddock, and was instrumental in the
formation transactions of the Company. Mr. Miller received his Juris Doctor
(J.D.) degree with honors from the University of Texas, School of Law, and his
Bachelor of Science (B.S.) degree with first honors in Commerce and Engineering
Sciences from Drexel University. Mr. Miller has served as Senior Vice President,
Administration of the General Partner since joining the Company in May 1997.
Bruce A. Picker, prior to joining the Company, worked for Rainwater, Inc.
from 1990 to 1994 as the partnership controller of its first major real estate
acquisition. Previously, Mr. Picker was a financial analyst with Yarnell Ice
Cream Company, a manufacturer and distributor of premium frozen deserts, from
1989 to 1990. Mr. Picker also was a senior accountant for the accounting firm of
Arthur Andersen LLP in their audit department from 1986 to 1989. Mr. Picker
holds a Bachelor of Business Administration (B.B.A.) degree in accounting from
Harding University and is a Certified Public Accountant. Mr. Picker has served
as the Treasurer of the Company and the General Partner since their inception in
1994 and has been a Vice President of the General Partner since June 1996.
Joseph D. Ambrose III, prior to joining the Company, served as Vice
President of CRC Environmental Risk Management, Inc., an environmental and risk
management consulting firm, from 1993 to 1994. He was responsible for major
client interface, development of new risk management initiatives and human
resources. For two and one-half years prior to joining CRC, Mr. Ambrose was a
Vice President of American Real Estate Group ("AREG"), a liquidating real estate
company, where he managed the environmental, insurance and
other risks associated with the disposition of a nationwide real estate
portfolio. Prior to joining AREG, he was President of Ambrose Properties, Inc.,
which acquired and developed oil and gas and real estate properties. Mr. Ambrose
graduated from Texas Christian University with a Bachelor of Business
Administration (B.B.A.) degree in management and received his Juris Doctor
(J.D.) and Master of Business Administration (M.B.A.) degrees from Southern
Methodist University. Mr. Ambrose has served as the Vice President,
Administration since joining the Company in 1994.
Jerry R. Crenshaw, Jr. was the controller of Carrington Laboratories, Inc.,
a pharmaceutical and medical device company, from 1991 until February 1994. From
1986 until 1991, Mr. Crenshaw was an experienced audit senior in the real estate
services group of Arthur Andersen LLP. Mr. Crenshaw holds a Bachelor of Business
Administration (B.B.A.) degree in accounting from Baylor University and is a
Certified Public Accountant. Mr. Crenshaw has served as Controller since the
Company's inception in 1994 and has been a Vice President since March 1997.
Barry L. Gruebbel, prior to joining the Company, was involved with the
property and asset management of over 10 million square feet of Class A office,
retail, industrial and multi-family real estate in Texas and New Mexico with
Hines Industrial from 1982 to 1986, with Southland Investment Properties from
1986 to 1990 and most recently with Rosewood Property Company at The Crescent.
Mr. Gruebbel is a Certified Property Manager currently active in the real estate
organizations of the Institute of Real Estate Management and Building Owners and
Managers. Mr. Gruebbel received a Bachelor of Business Administration (B.B.A.)
in
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<PAGE> 67
Real Estate from the University of Texas at Arlington in 1977. Mr. Gruebbel has
been with the Company since its inception and became Vice President, Property
Management in February 1997.
Howard W. Lovett, prior to joining the Company, was president of The
Gaineswood Company, a private investment company specializing in real estate and
venture capital investments, from January 1989 to August 1995. Previously, Mr.
Lovett was vice president of Morgan & Company, a Houston based real estate
development company, where he was responsible for income property acquisitions
and management and the acquisition and development of Wildcat Ranch, an
exclusive residential development outside Aspen, Colorado. Mr. Lovett graduated
from Carleton College with a Bachelor of Arts (B.A.) degree in English in 1980.
He also holds a Master of Business Administration (M.B.A.) from Harvard
University. Mr. Lovett has served as Vice President, Corporate Leasing since
June 1996.
John M. Walker, Jr., prior to joining the Company in 1995, practiced law
privately from 1976 to 1992. During 1993, he served as the Executive Vice
President and Chief Operating Officer of a corporate subsidiary of NHP, Inc., a
real estate asset and property management company, and was involved in several
personal business projects during 1994 and 1995. Mr. Walker currently serves as
a director of Walden Special Corp. and Chimney Trace Special Corp., special
purpose affiliates of Walden Residential Properties, Inc. Mr. Walker earned a
Bachelor of Arts (B.A.) degree from Vanderbilt University. He also holds Juris
Doctor (J.D.) and Master of Business Administration (M.B.A.) degrees from
Southern Methodist University. Mr. Walker has served as Vice President,
Acquisitions since June 1996.
John L. Zogg, Jr., served as vice president of the commercial real estate
group of Rosewood Property Company, responsible for marketing and leasing office
space in the Dallas and Denver areas from January 1989 to May 1994. For three
years prior to joining Rosewood Property Company, Mr. Zogg worked as marketing
manager of Gerald D. Hines Interests, responsible for office leasing in the
Dallas metropolitan area. He graduated from the University of Texas at Austin
with a Bachelor of Arts (B.A.) degree in Economics and holds a Master of
Business Administration (M.B.A.) degree from the University of Dallas. Mr. Zogg
has served as Vice President, Leasing and Marketing since May 1994.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation paid
or awarded to the chief executive officer and the four most highly compensated
executive officers of the General Partner for the years ended December 31, 1996
and 1995, respectively. The Company was organized in February 1994, and,
accordingly, did not pay any compensation to its executive officers for the
years prior to 1994. As a result of the Company's UPREIT structure, no employees
are compensated by the Company, but are compensated by the General Partner.
Neither the Operating Partnership nor the Company has granted any stock
appreciation rights ("SARs"). The Operating Partnership has issued units of
ownership interest (the "Units"). Unless otherwise indicated, each Unit is
exchangeable (the "Exchange Rights") for Common Shares on a one-for-two basis
or, at the election of the Company, cash equal to the then-current fair market
value of the Common Shares for which each Unit is exchangeable.
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<PAGE> 68
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ALL OTHER
ANNUAL RESTRICTED SECURITIES COMPEN-
NAME AND COMPEN- STOCK UNDERLYING LTIP SATION
PRINCIPAL POSITION(1) YEAR SALARY($) BONUS($) SATION($) AWARDS($) OPTIONS(#) PAYOUTS ($)(2)
- ---------------------------- ---- --------- --------- --------- ---------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald W. Haddock 1996 286,165 1,500,000 -- -- 2,000,000(3) -- 960
President and Chief 1995 200,000 125,000 -- -- 250,000 -- 1,005
Executive Officer(4) 1994(5) 104,500 90,000 -- 402,472 -- 800
John C. Goff 1996 286,165 1,500,000 -- -- 2,000,000(3) -- 960
Vice Chairman of the 1995 200,000 125,000 -- -- 250,000 -- 1,005
Board of Trust 1994(5) 104,500 90,000 -- 641,904 -- 800
Managers(6)
Dallas E. Lucas 1996 141,300 81,000 -- -- 120,000 -- 960
Senior Vice President 1995 131,250 52,500 -- 250,007(7) 60,000(8) -- 1,005
and Chief Financial 1994(5) 81,587 50,000 -- 58,000(9) -- 625
and Accounting
Officer
David M. Dean 1996 141,300 81,000 -- -- 120,000 -- 960
Senior Vice President, 1995 131,250 52,500 -- 100,015(7) 60,000(8) -- 1,005
Law and Secretary 1994(5) 52,083 15,000 -- 48,000(9) -- 521
James M. Eidson, Jr. 1996 138,740 331,000 -- -- 210,000 -- 960
Senior Vice President, 1995 117,949 392,442 273,758(10) -- 60,000(8) -- --
Acquisitions 1994(5) 53,125 -- -- -- -- -- --
</TABLE>
- ---------------
(1) Excludes James S. Wassel, who resigned from his position as an
executive officer and employee of the General Partner in April 1997.
For 1996, 1995 and 1994, Mr. Wassel's salary was $200,000, $200,000
and $143,950, respectively, and his bonus for each of such years was
$110,000, $55,000 and $39,000, respectively. Had the Company been in
existence during the entire period of 1994, Mr. Wassel's base salary
would have been $200,000. In addition, the Company issued 1,196 Units
valued at $16.75 (a total of $20,033) to Mr. Wassel in 1995 as
non-cash bonus compensation. In 1995 and 1996, the Company granted Mr.
Wassel options to purchase 10,000 and 60,000 Common Shares,
respectively. The 10,000 options were granted in 1995 based on Mr.
Wassel's performance in 1994.
(2) All amounts in this column represent matching contributions to the
Crescent Real Estate Equities, Ltd. 401(k) Plan.
(3) The number of securities underlying options granted represent the
number of Common Shares issuable following (i) exercise of Plan
Options for Plan Units on a one-for-one basis and (ii) the exchange of
Plan Units for Common Shares on a one-for-two basis.
(4) Mr. Haddock served as President and Chief Operating Officer of the
Company from the Company's inception in 1994 to December 19, 1996.
(5) Had the Company been in existence during the entire period of 1994,
base salaries would have been $160,000, $160,000, $125,000, $125,000
and $85,000 for Messrs. Haddock, Goff, Lucas, Dean and Eidson,
respectively.
(6) Mr. Goff served as Chief Executive Officer of the Company from the
Company's inception in 1994 to December 19, 1996.
(7) The Company issued 16,598 and 6,640 Restricted Shares on June 12, 1995
at a market price of $15.0625 with annual vesting in equal one-fifth
installments to Mr. Lucas and Mr. Dean, respectively. Dividends are
paid on the Restricted Shares to the holder of the Restricted Shares.
(8) Represents shares underlying options granted in March 1996 based on
individual's performance in 1995.
(9) Includes 8,000 shares underlying options granted in 1995 based on
individual's performance in 1994.
(10) The Company issued 19,044 Units valued at $14.375 to Mr. Eidson as
non-cash bonus compensation.
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<PAGE> 69
OPTION GRANTS IN 1996
The following table provides certain information regarding options granted
to the named executive officers for the year ended December 31, 1996.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM*
OPTIONS EMPLOYEES IN OR BASE EXPIRATION -------------------
GRANTED(#) FISCAL YEAR PRICE($/SH.) DATE 5% 10%
NAME(1) ------------ ------------ ------------ ------------------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Gerald W. Haddock......... 2,000,000(2) 41.2% $17.5625 July 2006 $ 22,090 $55,980
John C. Goff.............. 2,000,000(2) 41.2% $17.5625 July 2006 $ 22,090 $55,980
Dallas E. Lucas........... 120,000(3) 2.5% $21.8125 November 2006 $ 1,646 $ 4,172
David M. Dean............. 120,000(3) 2.5% $21.8125 November 2006 $ 1,646 $ 4,172
James M. Eidson, Jr....... 210,000(4) 4.3% $20.5982 July/November 2006(4) $ 2,720(4) $ 6,894(4)
</TABLE>
- ---------------
* Potential Realizable Value is the change in share price of securities
underlying options granted, based on the assumed annual growth rates shown
over their 10-year option term. For example, a 5% growth rate, compounded
annually, for Mr. Haddock's grant results in a share price of $28.61 per
share and a 10% growth rate, compounded annually, results in a share price
of $45.55 per share. These potential realizable values are listed to comply
with the regulations of the Commission, and the Company cannot predict
whether these values will be achieved. Actual gains, if any, on share
option exercise are dependent on the future performance of the shares.
(1) Excludes James S. Wassel, who resigned from his position as an executive
officer and employee of the General Partner in April 1997. For 1996, the
Company granted options to purchase 60,000 Common Shares to Mr. Wassel,
representing 1.2% of the total options granted to employees for 1996. The
options had an exercise price of $21.8125 per Common Share and, due to Mr.
Wassel's resignation, expired in April 1997. The "potential realizable
value" of such options (see above note explaining the calculation thereof)
at a 5% and 10% assumed annual rate of stock price appreciation for the
option term was $823,000 and $2,086,000 respectively.
(2) The number of securities underlying options granted represent the number of
Common Shares issuable following (i) exercise of Plan Options for Plan
Units on a one-for-one basis and (ii) the exchange of Plan Units for Common
Shares on a one-for-two basis. Plan Options relating to 1,500,000 Common
Shares vest in equal one-seventh installments on July 16, 1997, 1998, 1999,
2000, 2001, 2002 and 2003; Plan Options relating to 500,000 Common Shares
vested on January 8, 1997.
(3) Vest in equal one-fifth installments on November 19, 1997, 1998, 1999, 2000
and 2001.
(4) Options relating to 150,000 Common Shares (i) vest in equal one-fifth
installments on November 19, 1997, 1998, 1999, 2000 and 2001, (ii) have an
expiration date of November 2006 and (iii) have a potential realizable
value of $2,058,000 and $5,215,000 based on 5% and 10%, respectively,
assumed annual rates of stock price appreciation for the option term.
Options relating to the remaining 60,000 Common Shares (i) vest in equal
one-fifth installments on July 16, 1997, 1998, 1999, 2000 and 2001, (ii)
have an expiration date of July 2006 and (iii) have a potential realizable
value of $662,000 and $1,679,000 based on 5% and 10%, respectively, assumed
annual rates of stock price appreciation for the option term.
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<PAGE> 70
OPTION EXERCISES AND VALUES AT DECEMBER 31, 1996
The following table provides information about option exercises by the
named executive officers in the last fiscal year and options held by each of
them at December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR END(#) AT FISCAL YEAR END($)(4)
ACQUIRED ON VALUE ---------------------------- ---------------------------
NAME(1) EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------- ----------- ----------- ----------- ------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Gerald W. Haddock....... -- -- 893,314(2) 1,759,158(3) $ 9,543 $16,494
John C. Goff............ -- -- 1,052,936(2) 1,838,968(3) $11,758 $17,602
Dallas E. Lucas......... -- -- 34,933 203,067 $ 484 $ 1,477
David M. Dean........... -- -- 21,600 206,400 $ 289 $ 1,513
James M. Eidson, Jr..... -- -- -- 270,000 -- $ 1,824
</TABLE>
- ---------------
(1) Excludes James S. Wassel, who resigned from his position as an executive
officer and employee of the General Partner in April 1997. At December 31,
1996, Mr. Wassel held exercisable options to acquire 2,000 Common Shares and
unexercisable options to acquire 128,000 Common Shares. The value of the
unexercised in-the-money options held by Mr. Wassel at December 31, 1996 was
$27,000 for exercisable options and $683,000 for unexercisable options. As a
result of Mr. Wassel's resignation, all exercisable options must be
exercised by April 1998, and all unexercisable options lapsed.
(2) The number of securities underlying exercisable but unexercised options
includes 500,000 Common Shares. Such Common Shares may be issued following
exercise of Plan Options for Plan Units on a one-for-one basis and, assuming
shareholder approval of Exchange Rights for such Plan Units, the exchange of
Plan Units for Common Shares on a one-for-two basis.
(3) The number of securities underlying unexercisable and unexercised options
includes 1,500,000 Common Shares. Such Common Shares may be issued following
vesting and exercise of Plan Options for Plan Units on a one-for-one basis
and, assuming shareholder approval of Exchange Rights for such Plan Units,
the exchange of Plan Units for Common Shares on a one-for-two basis.
(4) Market value of securities underlying in-the-money options based on the
closing price of the Company's Common Shares on December 31, 1996 (the last
trading day of the fiscal year) on the New York Stock Exchange of $26.375,
minus exercise price.
EMPLOYMENT AGREEMENTS
As part of the transactions in connection with the formation of the
Company, the Operating Partnership assumed Employment Agreements between
Rainwater, Inc. and each of John C. Goff and Gerald W. Haddock. The Employment
Agreements for Messrs. Goff and Haddock provide that each of them shall receive
minimum base compensation of $160,000 per annum. On July 1, 1995, the General
Partner's Board of Directors increased the salary for each of Messrs. Goff and
Haddock to $240,000 per annum. On March 5, 1996, the General Partner's Board of
Directors increased the salary for each of Messrs. Goff and Haddock to $300,000
per annum and, on March 3, 1997, to $400,000 per annum. On June 21, 1997, Mr.
Goff agreed to a reduction in his salary from the Operating Partnership to
$100,000 per annum to reflect his agreement to devote a significant amount of
his time to his duties as Chairman of CBHS. The term of each of the Employment
Agreements expires on April 14, 1998, subject to automatic renewal for one-year
terms unless terminated by the Operating Partnership or Messrs. Goff or Haddock,
as the case may be. Such Employment Agreements also require that Messrs. Goff
and Haddock enter into the Noncompetition Agreements described below.
AGREEMENTS NOT TO COMPETE
The Company is dependent on the services of Richard E. Rainwater, John C.
Goff and Gerald W. Haddock. Messrs. Goff and Haddock are employees of the
Company. Mr. Rainwater serves as Chairman of the Board of Trust Managers, but
has no employment agreement with the Company and, therefore, is not
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<PAGE> 71
obligated to remain with the Company for any specified term. In connection with
the initial public offering of the Company's Common Shares in May 1994 (the
"Initial Offering"), each of Messrs. Rainwater, Goff and Haddock entered into a
Noncompetition Agreement with the Company that restricts him from engaging in
certain real estate related activities during specified periods of time. The
restrictions imposed by Mr. Rainwater's Noncompetition Agreement will terminate
one year after the later to occur of (i) the date on which Mr. Rainwater ceases
to serve as a trust manager of the Company and (ii) the date on which Mr.
Rainwater's beneficial ownership of the Company (including Common Shares and
Units) first represents less than a 2.5% ownership interest in the Company. The
Noncompetition Agreements do not prohibit Messrs. Rainwater, Goff and Haddock
from engaging in certain activities with respect to properties already owned or
from making certain passive real estate investments. The restrictions imposed by
Mr. Goff's and Mr. Haddock's Noncompetition Agreements will terminate one year
after the subject individual first ceases to be a trust manager or an executive
officer of the Company.
In addition, each of Messrs. Rainwater, Goff and Haddock has agreed that,
as long as his Noncompetition Agreement remains in effect, real estate
investment opportunities that are presented to him will be offered to the
Company and that, if the Company elects not to make any investment offered to it
by any of them, neither the party who offered such investment opportunity to the
Company nor his controlled affiliates will participate in the investment without
the consent of a majority of the independent trust managers.
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of Common Shares
and Units for (i) each shareholder of the Company who beneficially owns more
than 5% of the Common Shares or Units; (ii) the sole director of the General
Partner and each named executive officer of the Company or General Partner; and
(iii) the sole director of the General Partner and the executive officers of the
Company or General Partner as a group. Unless otherwise indicated in the
footnotes, all Common Shares and all Units are owned directly by the listed
beneficial owner.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER PERCENT NUMBER PERCENT NUMBER OF SHARES
NAME AND ADDRESS OF OF OF OF OF SHARES AND AND
BENEFICIAL OWNER(1) SHARES(2) SHARES(3) UNITS(2) UNITS(3) UNITS(2) UNITS(3)
------------------- --------- --------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Rainwater............. 7,065,912(4)(5) 6.2% 6,822,962(5) 53.3% 13,888,874 11.5%
John C. Goff..................... 1,006,997(4)(6) 0.9% 1,484,400(7) 6.0% 2,491,397 2.2%
Gerald W. Haddock................ 654,178(4)(6) 0.6% 1,237,124(8) 4.1% 1,891,302 1.7%
Dallas E. Lucas.................. 92,684(4)(6)(9) * -- * 92,684 *
David M. Dean.................... 70,141(4)(6)(9) * -- * 70,141 *
James M. Eidson, Jr.............. 75,052(4)(6) * -- 75,052 *
FMR Corp......................... 7,837,800(10) 7.0% -- * 7,837,800 6.3%
82 Devonshire Street
Boston, Massachusetts 02109
Cohen & Steers Capital........... 6,154,800(11) 5.5% -- * 6,154,800 4.9%
Management, Inc.
757 Third Avenue
New York, New York 10017
Director and Executive
Officers as a Group (14
persons(12))................... 9,095,148(4)(5)(6) 7.9% 9,547,070(5)(7)(8) 67.1% 18,642,218 14.9%
(9)
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each beneficial owner is 777
Main Street, Suite 2100, Fort Worth, Texas 76102.
(2) All information is as of December 3, 1997 unless otherwise indicated. All
information as to number of Units reflects the number of Common Shares
issuable (on a one-for-two basis) upon exchange of Units, assuming the
availability of Exchange Rights of all Units. As of such date, 112,556,374
Common Shares ("Shares") and 12,804,144 Units were outstanding. For
purposes of this table, a person is deemed to have "beneficial ownership"
of the number of Shares that such person has the right to acquire within
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60 days of December 3, 1997 upon exercise of options to purchase Common
Shares ("Options") granted pursuant to the Company's 1994 Stock Incentive
Plan and the Amended 1995 Plan or, for Units, upon the exchange of Units
for Common Shares on a one-for-two basis (assuming the Company elects to
issue Shares rather than pay cash upon such exchange). The total number of
Units outstanding represents approximately 10.2% of the total partnership
interests in the Operating Partnership.
(3) For purposes of computing the percentage of outstanding Shares held by each
person, all Common Shares that such person has the right to acquire within
60 days pursuant to the exercise of Options or upon the exchange of Units
(assuming the availability of Exchange Rights for all Units) for Common
Shares are deemed to be outstanding, but are not deemed to be outstanding
for the purpose of computing the ownership percentage of any other person.
For purposes of computing the percentage of outstanding Units and the
percentage of outstanding Shares and Units held by each person, all Units
that such person has the right to acquire within 60 days upon the exchange
of Units (assuming the availability of Exchange Rights for all Units) for
Common Shares on a one-for-two basis are deemed to be outstanding.
(4) The number of Shares beneficially owned by the following persons includes
the number of Shares indicated due to the vesting of Options: Richard E.
Rainwater -- 1,165,624; John C. Goff -- 891,904; Gerald W.
Haddock -- 652,472; Dallas E. Lucas -- 74,200; David M. Dean -- 64,000;
James M. Eidson, Jr. -- 54,000; and Director and Executive Officers as a
Group -- 3,004,150.
(5) The number of Shares and Units beneficially owned by Richard E. Rainwater
includes 1,200,000 Shares and 126,588 Units owned by trusts established for
the benefit of Mr. Rainwater's children, and 460,000 Shares and 1,780 Units
owned by Darla Moore, who is Mr. Rainwater's spouse. Mr. Rainwater
disclaims beneficial ownership as to all such 1,660,000 Shares and 128,368
Units. In addition, the number of Shares and Units beneficially owned by
Mr. Rainwater includes 2,206,374 Shares and 6,335,126 Units owned
indirectly by Mr. Rainwater, including (i) 12,346 Shares and 49,506 Units
owned by Rainwater, Inc., a Texas corporation, of which Mr. Rainwater is
the sole director and owner, (ii) 10,070 Units owned by Tower Holdings,
Inc., a Texas corporation, of which Mr. Rainwater is the sole director and
owner, (iii) 33,296 Units owned by 777 Main Street Corporation, a Texas
corporation, of which Mr. Rainwater is the sole director and owner, (iv)
2,425,836 Units owned by Rainwater Investor Partners, Ltd., a Texas limited
partnership, of which Rainwater Inc. is the sole general partner, (v)
555,424 Units owned by Rainwater RainAm Investors, L.P., a Texas limited
partnership, of which Rainwater, Inc. is the sole general partner, (vi)
3,260,994 Units owned by Office Towers LLC, a Nevada limited liability
company, of which Mr. Rainwater and Rainwater, Inc. own an aggregate 100%
interest, and (vii) 2,194,028 Shares owned by the Richard E. Rainwater 1995
Charitable Remainder Unitrust No. 1, of which Mr. Rainwater is the sole
trustee.
(6) The number of Shares beneficially owned by the following persons includes
the number of Common Shares indirectly owned through participation in the
Company's 401(k) Plan as of September 30, 1997 as follows: John C.
Goff -- 1,563; Gerald W. Haddock -- 1,706; Dallas E. Lucas -- 886; David M.
Dean -- 1,029; James M. Eidson, Jr. -- 604; and Director and Executive
Officers as a Group -- 12,772.
(7) The number of Units beneficially owned by John C. Goff includes 152,560
Units owned by Goff Family, L.P., a Delaware limited partnership, of which
Mr. Goff is a general partner, and includes 714,286 Units due to the
vesting of Plan Options.
(8) The number of Units beneficially owned by Gerald W. Haddock includes
101,706 Units owned by Haddock Family, L.P., a Delaware limited
partnership, of which Mr. Haddock is a general partner, and includes
714,286 Units due to the vesting of Plan Options.
(9) The number of Shares beneficially owned by Dallas E. Lucas and David M.
Dean includes 9,959 and 3,984 Restricted Shares, respectively, that vest in
equal amounts during the next four years. Mr. Lucas and Mr. Dean each has
sole voting power with respect to all such Restricted Shares owned by him.
(10) As reported in the Form 13F-E filed November 14, 1997, filed by FMR Corp.,
Fidelity Management & Research Company ("Fidelity"), a registered
investment advisor and wholly owned subsidiary of FMR Corp. is the
beneficial owner of 7,476,300 Shares, none of which it has the power to
vote. In
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addition to such 7,476,300 Shares, Fidelity Management Trust Company
("Fidelity Management"), a wholly owned subsidiary of FMR Corp., is the
beneficial owner of 361,500 Shares, each of which it has the sole power to
vote. As reported in the Schedule 13G dated February 14, 1997, filed by FMR
Corp., Fidelity is the beneficial owner of 6,648,800 Shares as a result of
its serving as investment adviser to various registered investment
companies (the "Funds"). Each of Edward C. Johnson III, Chairman of FMR
Corp., Abigail Johnson, a director of FMR Corp., FMR Corp., through its
control of Fidelity, and the Funds has sole power to dispose of such Shares
owned by the Funds. Neither FMR Corp., nor Edward C. Johnson III nor
Abigail Johnson has the sole power to vote or direct the voting of the
Shares owned directly by the Funds, which power resides with the Funds'
Boards of Trustees. Fidelity carries out the voting of the Shares under
written guidelines established by the Funds' Boards of Trustees. In
addition to such 6,648,800 Shares, Fidelity Management is the beneficial
owner of 271,000 Shares as a result of its serving as investment manager of
the institutional account(s). Edward C. Johnson III, Abigail Johnson and
FMR Corp., through its control of Fidelity Management Trust Company, have
sole voting and dispositive power over such 271,000 Shares owned by the
institutional account(s) as reported above. All information presented
herein relating to FMR Corp. and Fidelity is based solely on the Schedule
13G and Form 13F-E filed by FMR Corp.
(11) As reported in the Schedule 13G dated March 7, 1996, filed by Cohen &
Steers Capital Management ("Cohen & Steers"), Cohen & Steers has sole power
to vote or direct the vote of 4,555,600 shares and sole power to dispose of
or direct the disposition of 5,321,200 shares. All information presented
herein relating to Cohen & Steers is based on the Schedule 13G filed by
Cohen & Steers and certain other information available to the Operating
Partnership that the Operating Partnership believes to be reliable.
(12) Excludes James S. Wassel, who resigned from his position as an executive
officer and employee of the General Partner in April 1997. As of May 9,
1997, Mr. Wassel was the beneficial owner of 2,908 Common Shares, including
2,000 Common Shares attributable to the vesting of options and 1,196 Units.
In addition, this amount includes 908 Common Shares owned by Mr. Wassel at
December 31, 1996 through participation in the Company's 401(k) Plan.
(13) The number of shares beneficially owned by the trust managers and executive
officers as a group includes an aggregate of 4,183 Restricted Shares held
by two executive officers other than Messrs. Lucas and Dean. Such
Restricted Shares will vest in equal amounts during the next four years.
Each such executive officer has sole voting power with respect to all
Restricted Shares owned by him.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the formation of the Company in 1994, operating
businesses affiliated with Richard E. Rainwater (the "Rainwater Group") and
Rosewood Property Company ("Rosewood") received, in the aggregate, 6,474,288
Units, 617,392 shares of the Company's Common Stock (the "Common Stock") and
cash payments in the amount of $7,500,000. Based on their respective ownership
interests in various members of the Rainwater Group, the portion of such
consideration allocable at that time to Richard E. Rainwater, John C. Goff and
Gerald W. Haddock, each of whom was a director and executive officer of the
Company, was: (i) 3,425,270, 385,058 and 270,318 Units, respectively, and (ii)
253,131, 55,565 and 6,174 shares of Common Stock, respectively. Rosewood and
RRCC Limited Partnership, a member of the Rainwater Group that owned in 1994 and
1995 in excess of 5% of the outstanding Common Shares and Units, received in the
formation of the Company 1,384,299 and 2,475,342 Units, respectively.
In 1994, Rosewood, which contributed (directly or indirectly) two
properties to the Operating Partnership in connection with the formation
transactions, and its affiliates leased approximately 164,120 square feet of
space in the Crescent Facilities representing approximately 12.6% of the
rentable area of the Company's properties and 3.2% of the aggregate rentable
area of the Company's portfolio of 12 Class A office properties (the "Crescent
Office Properties") and two retail centers (the "Retail Centers"). Total rental
payments with respect to this space were approximately $3,300,000 for the year
ended December 31, 1994.
In 1994, RRCC Limited Partnership leased 22,281 square feet of space in the
Company's properties (representing approximately 2.0% of the rentable area of
the properties and 4% of the aggregate rentable area of the Crescent Office
Properties and the Retail Centers). Total rental payments with respect to this
space were approximately $800,000 for the year ended December 31, 1994.
In connection with the formation transactions, the Company assumed the
lease by Rainwater, Inc., a corporation wholly-owned by Mr. Rainwater, of
approximately 23,000 square feet of space in Continental Plaza (representing
approximately 2.4% of the rentable area of Continental Plaza and 0.4% of the
aggregate rentable area of the Crescent Office Properties and the Retail
Centers). Total rental payments with respect to this space were approximately
$412,000 for the year ended December 31, 1994. The Company also assumed the
lessor's obligation to sublease a portion of Continental Plaza to affiliates of
Mr. Rainwater and received total rental payments with respect to the subleased
space of approximately $83,988 for the year ended December 31, 1994.
Certain of the Company's properties were managed by affiliates of the
Rainwater Group until May 1994. Management, security, leasing and other fees
earned by these affiliates in connection with the management of these properties
was $900,000 for the year ended December 31, 1994. In addition, the Rainwater
Group reimbursed affiliates for various operating expenses paid to third parties
on its behalf.
During the period August 5, 1994 through November 7, 1994, the Operating
Partnership made a loan totaling approximately $390,000 to Houston Area
Development Corp., bearing interest at 14.5% per annum and repayable following
the receipt of certain proceeds related to the creation of certain municipal
utility districts covering parts of the Houston Area Development Corp.'s land
developments. This loan has been repaid in full.
In 1994, John C. Goff, a director and executive officer of the Company,
purchased a lot in the Mira Vista Residential Development Property for a price
of $80,000, equal to approximately 50% of its list price.
In 1994, James S. Wassel, an executive officer of the Company, received a
short-term bridge loan from the Company in the amount of $135,000. The loan was
part of Mr. Wassel's relocation allowance, and was used to purchase a personal
residence in Dallas before the sale of his personal residence in New Jersey
closed. The loan was funded on July 11, 1994, did not bear interest, and was
repaid in full on August 10, 1994.
In connection with the second public offering of the Company's Common
Shares in April 1995 (the "April 1995 Offering"), Mr. Rainwater purchased,
indirectly through a charitable remainder trust, a partnership interest
consisting of 1,097,014 Units for approximately $31,000,000. Mr. Rainwater's
$31,000,000 investment was based on the public offering price of the shares of
Common Stock in the April 1995 Offering multiplied by the number of Units
received. Following approval by the Company's stockholders of conversion rights
relating to such Units, Mr. Rainwater converted such Units to 1,097,014 shares
of the Common Stock.
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At the end of 1996, the Operating Partnership owned four hotel properties,
Hyatt Regency Beaver Creek, Denver Marriott City Center, Hyatt Regency
Albuquerque and Sonoma Mission Inn & Spa, and two destination health and fitness
resorts, Canyon Ranch-Tucson and Canyon Ranch-Lenox (collectively, the "Hotel
Properties"). Through July 30, 1997, the Operating Partnership leased each of
the Hotel Properties to independent companies (the "Hotel Lessees") pursuant to
six separate leases. The Hotel Lessees were owned 4.5% by each of John C. Goff
and Gerald W. Haddock, each of whom is an officer and trust manager of the
Company, and 91% by the Hotel Lessees' asset managers and other persons.
Effective July 31, 1997, Crescent Operating, Inc. acquired the Hotel Lessees.
The terms of the leases of the Hotel Properties were not modified in connection
with the acquisition. Under the leases, each having a term of 10 years, the
Hotel Lessees have assumed the rights and obligations of the property owner
under the management agreement with the hotel operators, as well as the
obligation to pay all property taxes and other charges against the property. As
part of each of the lease agreements for five of the Hotel Properties, the
Operating Partnership has agreed to fund all capital expenditures relating to
furniture, fixtures and equipment reserves required under the applicable
management agreements. The only exception is Canyon Ranch-Tucson, in which the
Hotel Lessee of such property owns all furniture, fixtures and equipment
associated with the property and will fund all related capital expenditures.
Each of the leases provides for the payment by the respective Hotel Lessee of
(i) base rent, with periodic rent increases, (ii) percentage rent based on a
percentage of gross room revenues above a specified amount and (iii) a
percentage of gross food and beverage revenues above a specified amount. Under
the leases, the Hotel Lessees paid an aggregate of $15,881,117 in rent to the
Operating Partnership during 1996. The Hotel Lessees of the three Hotel
Properties owned as of December 31, 1995 paid an aggregate of $6,021,112 in rent
to the Operating Partnership during 1995.
In July 1996, the Operating Partnership acquired Canyon Ranch-Tucson and in
December 1996, the Operating Partnership acquired Canyon Ranch-Lenox for
purchase prices of approximately $57,000,000 and $30,000,000, respectively.
Melvin Zuckerman, who became a trust manager of the Company in November 1996,
was the principal shareholder of the corporation (the "Seller") which owned
Canyon Ranch-Tucson and of the corporation which was one of the general partners
of the general partner of the partnership that owned Canyon Ranch-Lenox prior to
the sale to the Operating Partnership. Of the approximately $57,000,000 paid by
the Operating Partnership for Canyon Ranch-Tucson, approximately $27,000,000 was
paid through the issuance of Units to the Seller.
In July 1996, the Operating Partnership also obtained from the Seller and
Jerrold Cohen an option to acquire up to 30% of a management company to be
formed by the Seller and Jerrold Cohen. The management company will have all
rights to develop and manage new Canyon Ranch resorts, both within the United
States and internationally, and to use and sublicense the Canyon Ranch name and
trademarks. The Operating Partnership must exercise the option on or before July
26, 1998, either in full or in three increments, for an aggregate maximum of
$6,000,000.
Effective March 14, 1996, July 17, 1996 and June 10, 1997, the Operating
Partnership loaned to Morton H. Meyerson, Anthony M. Frank and Paul E. Rowsey
III, respectively, independent trust managers of the Company, $187,425, $187,425
and $419,997, respectively, on a recourse basis, pursuant to a plan approved by
the Board of Trust Managers for all holders of options under the 1994 Crescent
Real Estate Equities, Inc. Stock Incentive Plan (the "1994 Plan") and the
Amended 1995 Plan. Each of Messrs. Meyerson and Frank used the proceeds of the
loan, together with $75.00 in cash, to acquire 15,000 Common Shares pursuant to
the exercise of 15,000 options that were granted to Messrs. Meyerson and Frank
on May 5, 1994 under the 1994 Plan. Mr. Rowsey used the proceeds, of his loan,
together with $300.00 in cash, to acquire 30,000 Common Shares pursuant to the
exercise of 30,000 options granted to him on May 5, 1994 under the 1994 Plan and
$28.00 in cash to acquire 2,800 Common Shares pursuant to the exercise of 2,800
options granted to him on March 14, 1996 under the Amended 1995 Plan. Each of
the loans bears interest at a fixed annual rate equal to the dividend yield on
the Common Shares as of March 14, 1996 (for Mr. Meyerson's loan), July 17, 1996
(for Mr. Frank's loan) and June 10, 1997 (for Mr. Rowsey's loan), the effective
date of the applicable loan. Each loan is payable, interest only, on a quarterly
basis from dividends paid with respect to such Common Shares, with a final
payment of all accrued and unpaid interest plus the entire original principal
balance due on March 14, 2001 (for Mr. Meyerson's loan), July 17, 2001 (for Mr.
Frank's loan) and June 10, 2002 (for Mr. Rowsey's loan). Mr. Meyerson's loan is
secured by 7,500 Units owned by Mr. Meyerson, Mr. Frank's loan is secured by
15,000 Common Shares owned by Mr. Frank and Mr. Rowsey's loan is secured by
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32,800 Common Shares owned by Mr. Rowsey. In addition, effective March 14, 1997,
the Operating Partnership loaned Mr. Meyerson $45,311 on a recourse basis, and
Mr. Meyerson used the proceeds of the loan, together with $14.00 in cash, to
acquire 2,800 Common Shares pursuant to the exercise of 2,800 options that were
granted to Mr. Meyerson on March 14, 1996 under the Amended 1995 Plan. The loan
bears interest at a fixed annual rate equal to the dividend yield on the Common
Shares as of March 14, 1997, is secured by the 2,800 Common Shares, and is
payable, interest only, on a quarterly basis from distributions paid with
respect to such 2,800 Common Shares, with a final payment of all accrued and
unpaid interest plus the entire original principal balance due on March 14,
2002.
On September 13, 1996, the Operating Partnership purchased 1,187,906 shares
of the Series B Non-Voting Participating Convertible Preferred Stock of Fresh
Choice, Inc. ("Fresh Choice"), a chain of upscale casual restaurants, for a
total of approximately $5,500,000 ($4.63 per share). Mr. Rainwater is currently
the holder of approximately 8.8% of the voting common stock of Fresh Choice. The
Operating Partnership also acquired an immediately exercisable option to
purchase up to an additional 593,953 shares of the Series C Participating
Non-Voting Convertible Preferred Stock at a price of $6.00 per share for a
period of three years following the closing of the initial purchase of preferred
stock (the "Series C Stock Option"). The Series C preferred stock is senior to
the common stock of Fresh Choice and all other preferred stock of Fresh Choice
and is convertible into shares of the common stock of Fresh Choice on a
one-for-one basis. The Series B preferred stock is senior to the common stock of
Fresh Choice and the Series A preferred stock of Fresh Choice. The Series B
preferred stock also is convertible into shares of the common stock or Series A
Voting Participating Convertible Stock of Fresh Choice on a one-for-one basis
(and, under certain conditions relating to the earnings of Fresh Choice, may
elect a majority of the directors of Fresh Choice), provided that, in order to
preserve the Company's REIT status, conversion is not permitted if it would
cause the Company to be treated as the owner of more than 10% of the outstanding
voting securities of Fresh Choice for federal income tax purposes. Outstanding
Series A Stock may be converted into Common Stock at Fresh Choice's election if
common stock trades at $15.00 per share. On August 11, 1997, the Operating
Partnership entered into a Call Option Agreement (the "Option Agreement") with
Mr. Rainwater whereby Mr. Rainwater granted to the Operating Partnership an
option (the "Option"), exercisable at any time through September 12, 2006, to
purchase all, but not less than all, of the 496,400 shares of common stock of
Fresh Choice owned by Mr. Rainwater (the "Shares") at Mr. Rainwater's investment
cost in the Shares ($3,645,191, plus incidental expenses, plus Mr. Rainwater's
cost of funds at the rate of LIBOR plus 50 basis points, with interest
compounded quarterly). During the pendency of the Option, Mr. Rainwater retains
sole beneficial ownership of the Shares unless and until the Shares are sold.
Prior to selling any of the Shares, Mr. Rainwater must give the Operating
Partnership notice of his intention to sell so that the Operating Partnership
may exercise the Option; if the Operating Partnership fails to exercise the
Option within two business days, Mr. Rainwater may sell those Shares but must
remit to the Operating Partnership the cash proceeds from the sale, net of his
investment cost in the Shares sold. Also on August 11, as compensation for
services rendered in connection with the Fresh Choice investment, the Operating
Partnership entered into an Agreement of Assignment with Mr. Rainwater's wholly
owned corporation, Rainwater, Inc., whereby Crescent assigned to Rainwater, Inc.
the Series C Stock Option with respect to 80,000 shares of Series C preferred
stock covered by that option.
On June 17, 1997, the Operating Partnership acquired, for an aggregate
purchase price of approximately $399.7 million, the 91 Behavioral Healthcare
Facilities (and one additional behavioral healthcare facility that was
subsequently sold) that were previously owned and operated by a subsidiary of
Magellan Health Services, Inc. ("Magellan") and warrants to purchase shares of
Magellan's common stock. The purchase price was determined as the result of
negotiations between the Vice Chairman and the Chief Executive Officer of the
Company and Magellan. The warrants permit the Operating Partnership to purchase
up to 1,283,311 shares of common stock of Magellan, at an exercise price of
$30.00 per share, with such warrants exercisable, in increments, during the
period from May 1998 through May 2009. In connection with the transaction,
Crescent Operating, Inc. was formed by the Operating Partnership (through a
spin-off of shares of Crescent Affiliate to all shareholders of the Company and
limited partners of the Operating Partnership at the time of the spin-off).
Messrs. Rainwater, Goff and Haddock are directors of Crescent Operating, Inc.
and serve as executive officers of Crescent Operating, Inc. (in the same
capacities as for the Company). Crescent Operating, Inc. and Magellan formed
Charter Behavioral Health Systems, LLC ("CBHS") a new limited liability company,
to operate the Behavioral Healthcare Facilities. Crescent Operating, Inc. and
Magellan each have a 50% interest
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in CBHS, subject to dilution of up to 5% each in connection with future
incentive compensation of management of CBHS. CBHS leases the Behavioral
Healthcare Facilities from the Operating Partnership pursuant to a triple-net
lease with an initial 12-year term (subject to four, five-year renewal options)
for annual minimum rent of approximately $41.7 million, increasing annually at a
5% compounded annual rate.
A limited partnership, the sole general partner of which is Rainwater,
Inc., owns 3,885,832 shares of Magellan common stock and warrants to acquire an
additional 1,942,996 shares of Magellan common stock. Mr. Rainwater, either
directly or indirectly, owns interests in that partnership equivalent to
approximately 2,475,000 of those shares, and warrants to acquire approximately
1,237,200 shares, of Magellan common stock. Mr. Rainwater's children, either
directly or indirectly, own interests in that partnership equivalent to
approximately 320,000 of those shares, and warrants to acquire approximately
160,000 shares, of Magellan common stock. Messrs. Goff and Haddock each own,
directly or indirectly, approximately 57,000 shares, and warrants to acquire
approximately 28,500 shares, of Magellan common stock. These warrants entitle
the warrant holders to purchase, at any time until the January 25, 2000
expiration date, shares of Magellan common stock at a purchase price of $26.15
per share.
Darla D. Moore is married to Mr. Rainwater and is a director of Magellan.
As part of the arrangements pursuant to which Mr. Rainwater acquired securities
of Magellan, an affiliate of Mr. Rainwater has the right to designate a nominee
acceptable to Magellan for election as a director of Magellan for so long as Mr.
Rainwater and his affiliates continue to own beneficially a specified minimum
number of shares of Magellan common stock. Mr. Rainwater's affiliate proposed
Ms. Moore as its nominee for director, and Ms. Moore was elected a director by
the Magellan Board on February 22, 1996.
Management believes that the foregoing transactions are on terms no less
favorable than those that could have been obtained in comparable transactions
with unaffiliated parties.
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STRUCTURE OF THE OPERATING PARTNERSHIP
The Company is a fully integrated real estate company operating as a REIT
for federal income tax purposes. The Operating Partnership provides management,
leasing and development services with respect to certain of its properties. The
Operating Partnership is controlled by the Company through the Company's
ownership of all of the outstanding stock of the General Partner, which owns a
1% general partner interest in the Operating Partnership. In addition, the
Company owns an approximately 89% limited partner interest in the Operating
Partnership. The direct and indirect subsidiaries of the Operating Partnership
include seven single purpose limited partnerships in which the Operating
Partnership owns substantially all of the economic interests directly, through
its approximately 99% limited partner interest in such seven limited
partnerships, with the remaining interests owned indirectly by the Company
through seven separate corporations, each of which is a wholly owned subsidiary
of the General Partner and is the approximately 1% general partner of one of the
seven limited partnerships. The Operating Partnership also owns the real estate
mortgages and non-voting common stock representing economic interests ranging
from approximately 40% to 98% in the Residential Development Corporations. In
addition, the Company owns an indirect 40% interest in each of two corporations
that currently own and operate approximately 79 refrigerated warehouses with an
aggregate of approximately 368 million cubic feet. The Operating Partnership
also has a 42.5% partnership interest in a partnership whose primary holdings
consist of a 364-room executive conference center and general partner interests
ranging from one to 50% in additional office, retail, multi-family and
industrial properties.
The following table sets forth certain of the Properties owned by the
Operating Partnership and its Subsidiaries:
(13)
<TABLE>
<S> <C>
Operating Partnership: The Addison, Addison Tower, The Amberton, AT&T Building,
Bank One Center(1), Bank One Tower, Canyon Ranch-Tucson,
Cedar Springs Plaza, Central Park Plaza, Chancellor Park(2),
Concourse Office Park, Denver Marriott City Center, Fountain
Place, Four Seasons Hotel-Houston, Frost Bank Plaza,
Greenway I, Greenway IA, Greenway II, Houston Center Office
Properties, MCI Tower, The Meridian, Miami Center, One
Preston Park, Palisades Central I, Palisades Central II,
Park Shops at Houston Center, Reverchon Plaza, Sonoma
Mission Inn & Spa, Spectrum Center(3), Stemmons Place, Three
Westlake Park(4), Trammell Crow Center(5), U.S. Home
Building, The Woodlands Office Properties(6), The Woodlands
Retail Properties(6), Valley Centre, Walnut Green, 44 Cook,
55 Madison, 160 Spear Street, 301 Congress Avenue(7), 1615
Poydras, 3333 Lee Parkway, 5050 Quorum and 6225 North 24th
Street
Crescent Real Estate The Aberdeen, The Avallon, Caltex House, The Citadel,
Funding I, L.P. ("Funding Continental Plaza, The Crescent Atrium, The Crescent Office
I"): Towers, Regency Plaza One and Waterside Commons
Crescent Real Estate Albuquerque Plaza, Barton Oaks Plaza One, Briargate Office
Funding II, L.P. and Research Center, Hyatt Regency Albuquerque, Hyatt
("Funding II") Regency Beaver Creek, Las Colinas Plaza, Liberty Plaza I &
II, MacArthur Center I & II, Ptarmigan Place, Stanford
Corporate Centre, Two Renaissance Square and 12404 Park
Central
Crescent Real Estate Greenway Plaza Portfolio(8)
Funding III, IV and
V, L.P. ("Funding III,
IV and V"):
Crescent Real Estate Canyon Ranch-Lenox
Funding VI, L.P.
("Funding VI"):
Crescent Real Estate Behavioral Healthcare Facilities
Funding VII, L.P.
("Funding VII"):
</TABLE>
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(1) The Operating Partnership owns a 50% interest in the limited partnership
that owns the Bank One Center.
(2) The Operating Partnership owns Chancellor Park through its ownership of a
mortgage note secured by the building and through its direct and indirect
interests in the partnership which owns the building.
(3) The Operating Partnership owns the principal economic interest in Spectrum
Center through an interest in the partnership which owns both a mortgage
note secured by the building and the ground lessor's interest in the land
underlying the building.
(4) The Operating Partnership owns the principal economic interest in Three
Westlake Park through its ownership of a mortgage note secured by the
building.
(5) The Operating Partnership owns the principal economic interest in Trammell
Crow Center through its ownership of fee simple title to the Property
(subject to a ground lease and a leasehold estate regarding the building)
and two mortgage notes encumbering the leasehold interests in the land and
building.
(6) The Operating Partnership owns a 75% limited partner interest and an
indirect approximately 10% general partner interest in the partnerships
that own The Woodlands Office and Retail Properties.
(7) The Operating Partnership owns a 49% limited partner interest and
Crescent/301, L.L.C., a wholly owned subsidiary of the General Partner and
the Operating Partnership, owns a 1% general partner interest in 301
Congress Avenue, L.P., the partnership that owns 301 Congress Avenue.
(8) Funding III owns the Greenway Plaza Portfolio, except for the central
heated and chilled water plant building and Coastal Tower office building,
both located within Greenway Plaza, which are owned by Funding IV and
Funding V, respectively.
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes will be issued under the Indenture, a copy of which is
filed as an exhibit to the Registration Statement and which will be made
available upon request. The terms of the Exchange Notes include those provisions
contained in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
Exchange Notes are subject to all such terms, and Holders (as defined below) of
the Exchange Notes are referred to the Indenture and the Trust Indenture Act for
a statement thereof. The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to and qualified in its
entirety by reference to the Indenture. As used in this section, the term
"Operating Partnership" means Crescent Real Estate Equities Limited Partnership
and does not include any of its Subsidiaries unless otherwise expressly stated
or the context otherwise requires.
GENERAL
The 2002 Exchange Notes and the 2007 Exchange Notes constitute separate
series of securities under the Indenture and will be limited to aggregate
principal amounts of $150,000,000 and $250,000,000, respectively. The 2002
Exchange Notes and the 2002 Private Notes will be treated as a single series of
debt securities under the Indenture, and the 2007 Exchange Notes and the 2007
Private Notes will be treated as a separate series of debt securities from the
2002 Notes under the Indenture. The Exchange Notes will be direct, senior
unsecured and unsubordinated obligations of the Operating Partnership and will
rank pari passu with each other and with all other unsecured and unsubordinated
indebtedness of the Operating Partnership from time to time outstanding. The
Exchange Notes will be effectively subordinated to mortgages and other secured
indebtedness of the Operating Partnership to the extent of the value of the
property securing such indebtedness. The Exchange Notes also will be effectively
subordinated to all existing and future third party indebtedness and other
liabilities of the Operating Partnership's Subsidiaries. As of September 30,
1997, after giving pro forma effect to transactions completed subsequent to
September 30, 1997 and related financing, the Operating Partnership and its
Subsidiaries collectively had total indebtedness of $1,809.3 million, which
consisted of $722.5 million of secured indebtedness (of which $160.6 million was
secured indebtedness of the Operating Partnership and $561.9 million was secured
indebtedness of its Subsidiaries) and $1,086.8 million of unsecured indebtedness
(all of which was unsecured indebtedness of the Operating Partnership). See
"Capitalization."
The 2002 Exchange Notes will mature on September 15, 2002, and the 2007
Exchange Notes will mature on September 15, 2007 (each a "Maturity Date"). The
Exchange Notes are not subject to any sinking fund provisions.
Except as described under "-- Certain Covenants -- Limitations on
Incurrence of Debt" and "-- Merger, Consolidation or Sale," the Indenture does
not contain any other provisions that would limit the ability of the Operating
Partnership to incur indebtedness or that would afford Holders of the Exchange
Notes protection in the event of (i) a highly leveraged or similar transaction
involving the Operating Partnership, the management of the Operating
Partnership, the General Partner or the Company, or any subsidiary of any of
them, (ii) a change of control of the Operating Partnership, the General Partner
or the Company or (iii) a
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reorganization, restructuring, merger or similar transaction involving the
Operating Partnership that may adversely affect the Holders of the Exchange
Notes. Such additional indebtedness may consist of obligations of the Operating
Partnership, the General Partner or the Company, or any subsidiary of any of
them, and is not limited to indebtedness issued under the Indenture. In
addition, subject to the limitations set forth under "-- Merger, Consolidation
or Sale," the Operating Partnership may, in the future, enter into certain
transactions such as the sale of all or substantially all of its assets or the
merger or consolidation of the Operating Partnership that would increase the
amount of the Operating Partnership's indebtedness or substantially reduce or
eliminate the Operating Partnership's assets, which may have an adverse effect
on the Operating Partnership's ability to service its indebtedness, including
the Exchange Notes. The Operating Partnership and its management have no present
intention of engaging in a highly leveraged or similar transaction involving the
Operating Partnership.
PRINCIPAL AND INTEREST
The 2002 Exchange Notes will bear interest at 6 5/8% per annum, and the
2007 Exchange Notes will bear interest at 7 1/8% per annum, each from September
22, 1997, payable semi-annually in arrears on each September 15 and March 15,
commencing March 15, 1998 (each, an "Interest Payment Date"), through the
applicable Maturity Date, to the persons (the "Holders") in whose names the
applicable Exchange Notes are registered in the security register applicable to
the Exchange Notes at the close of business on the date 15 calendar days prior
to such payment day regardless of whether such day is a Business Day, as defined
below (each, a "Regular Record Date"). In the Letter of Transmittal, holders of
Private Notes whose Private Notes are accepted for exchange will waive the right
to receive any payment in respect of interest on the Private Notes accrued from
September 22, 1997 to the date of the issuance of the Exchange Notes. Interest
on the Exchange Notes will be computed on the basis of a 360-day year of twelve
30-day months. The interest rate on the Exchange Notes is subject to adjustment
in the event that the Exchange Notes are assigned a rating that is not an
Investment Grade Rating, do not continue to be assigned a rating or are not
assigned a rating by the Rating Agencies. See "-- Rating."
The principal of each Exchange Note payable on the applicable Maturity Date
will be paid against presentation and surrender of such Exchange Note at the
corporate trust office of the Trustee, located initially in Boston,
Massachusetts, in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
If any Interest Payment Date or a Maturity Date falls on a day that is not
a Business Day, the required payment shall be made on the next Business Day as
if it were made on the date such payment was due and no interest shall accrue on
the amount so payable for the period from and after such Interest Payment Date
or such Maturity Date, as the case may be. "Business Day" means any day, other
than a Saturday or Sunday, on which banking institutions in New York, New York,
Boston, Massachusetts and St. Louis, Missouri are open for business.
OPTIONAL REDEMPTION
The Exchange Notes may be redeemed at any time at the option of the
Operating Partnership, in whole or from time to time in part, at a redemption
price equal to the sum of (i) the principal amount of the Exchange Notes (or
portion thereof) being redeemed plus accrued and unpaid interest, if any,
thereon to the redemption date and (ii) the Make-Whole Amount (as defined
below), if any, with respect to such Exchange Notes (or portion thereof)
(collectively, the "Redemption Price").
If notice has been given as provided in the Indenture and funds for the
redemption of any Exchange Notes (or portion thereof) called for redemption
shall have been made available on the redemption date referred to in such
notice, such Exchange Notes (or portion thereof) will cease to bear interest on
the date fixed for such redemption specified in such notice and the only right
of the Holders of the Exchange Notes will be to receive payment of the
Redemption Price.
Notice of any optional redemption of any Exchange Notes (or portion
thereof) will be given to Holders at their addresses, as shown in the security
register for the Exchange Notes, not more than 60 or less than
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30 days prior to the date fixed for redemption. The notice of redemption will
specify, among other items, the Redemption Price and the principal amount of the
Exchange Notes held by such Holder to be redeemed.
If less than all the Exchange Notes are to be redeemed at the option of the
Operating Partnership, the Operating Partnership will notify the Trustee at
least 45 days prior to giving notice of redemption to the Holders (or such
shorter period as is satisfactory to the Trustee) of the aggregate principal
amount of Exchange Notes to be redeemed and their redemption date. The Trustee
shall select, in such manner as it shall deem fair and appropriate, Exchange
Notes to be redeemed in whole or in part.
As used herein:
"Make-Whole Amount" means, in connection with any optional redemption
or accelerated payment of any Exchange Notes, the excess, if any, of (i)
the aggregate present value as of the date of such redemption or
accelerated payment of each dollar of principal being redeemed or paid and
the amount of interest (exclusive of interest accrued to the date of
redemption or accelerated payment) that would have been payable in respect
of each such dollar if such redemption or accelerated payment had not been
made, determined by discounting, on a semi-annual basis, such principal and
interest at the Reinvestment Rate (determined on the third Business Day
preceding the date notice of such redemption is given) from the respective
dates on which such principal and interest would have been payable if such
redemption or accelerated payment had not been made, to the date of
redemption or accelerated payment, over (ii) the aggregate principal amount
of the Exchange Notes being redeemed or paid.
"Reinvestment Rate" means .25% plus the arithmetic mean of the yields
under the heading "Week Ending" published in the most recent Statistical
Release under the caption "Treasury Constant Maturities" for the maturity
(rounded to the nearest month) corresponding to the remaining life to
maturity, as of the payment date of the principal being redeemed or paid.
If no maturity exactly corresponds to such maturity, yields for the two
published maturities most closely corresponding to such maturity shall be
calculated pursuant to the immediately preceding sentence and the
Reinvestment Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding in each of such relevant periods to the
nearest month. For the purposes of calculating the Reinvestment Rate, the
most recent Statistical Release published prior to the date of
determination of the Make-Whole Amount shall be used. If the format or
content of the Statistical Release changes in a manner that precludes
determination of the Treasury yield in the above manner, then the Treasury
yield shall be determined in the manner that most closely approximates the
above manner, as reasonably determined by the Operating Partnership.
"Statistical Release" means the statistical release designated
"H.15(519)" or any successor publication which is published weekly by the
Federal Reserve System and which reports yields on actively traded United
States government securities adjusted to constant maturities, or, if such
statistical release is not published at the time of any determination under
the Indenture, then such other reasonably comparable index which shall be
designated by the Operating Partnership.
RATING
The Operating Partnership intends to obtain a rating of the Private Notes
and/or the Exchange Notes from the Rating Agencies. If, within the period from
September 22, 1997 to September 22, 1998, (i) either Rating Agency at any time
(a) assigns a rating to a series of the Private Notes or the Exchange Notes that
is not an Investment Grade Rating, or (b) withdraws any rating for a series of
the Private Notes or the Exchange Notes and does not promptly assign a new
rating, or (ii) either Rating Agency fails to assign any rating to a series of
the Private Notes or the Exchange Notes, then the interest rate for such series
shall increase by the Rating Adjustment commencing on the date on which such
series is rated with other than an Investment Grade Rating, the date a rating
for any series is withdrawn, or September 22, 1998 if no rating is assigned, as
the case may be. In the case of clause (i) above, from and after such date, if
any, until September 22, 1998, if such series becomes rated by such Rating
Agency with an Investment Grade Rating, then the Rating Adjustment shall be
eliminated, until such time as it would otherwise again be applicable. The
interest rate for each series of Private Notes or Exchange Notes, as the case
may be, shall be fixed on September 22, 1998 for
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the remainder of the term of such series. Notwithstanding anything to the
contrary contained herein, if at any time within the period from September 22,
1997 to September 22, 1998, both Rating Agencies shall have rated any series of
Private Notes or Exchange Notes with an Investment Grade Rating, the Rating
Adjustment shall be eliminated for the remainder of the term of such series of
Private Notes or Exchange Notes.
CERTAIN COVENANTS
Limitations on Incurrence of Debt. The Operating Partnership will not, and
will not permit a Subsidiary to, incur any Debt (as defined below) other than
intercompany Debt (representing Debt to which the only parties are the Operating
Partnership and any of its Subsidiaries, but only so long as such Debt is held
solely by any of the Operating Partnership and any Subsidiary) that is
subordinate in right of payment to the Notes, if, immediately after giving
effect to the incurrence of such additional Debt, the aggregate principal amount
of all outstanding Debt of the Operating Partnership and its Subsidiaries on a
consolidated basis determined in accordance with GAAP is greater than 60% of the
sum of (i) Total Assets (as defined below) as of the end of the fiscal quarter
covered in the Operating Partnership's most recent quarterly or annual financial
statements, as the case may be, most recently required to be delivered to
Holders pursuant to the Indenture, prior to the incurrence of such additional
Debt and (ii) the increase or decrease in Total Assets from the end of such
quarter including, without limitation, any increase in Total Assets resulting
from the incurrence of such additional Debt (such increase or decrease together
with the Operating Partnership's Total Assets is referred to as the "Adjusted
Total Assets") (Section 1004(a)).
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Secured Debt (as defined below) of the Operating Partnership or any Subsidiary
if, immediately after giving effect to the incurrence of such additional Secured
Debt, the aggregate principal amount of all outstanding Secured Debt of the
Operating Partnership and its Subsidiaries on a consolidated basis is greater
than 40% of Adjusted Total Assets (Section 1004(b)).
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt, other than intercompany Debt that is subordinate in right of payment to
the Notes, if the ratio of the Consolidated Income Available for Debt Service to
the Annual Debt Service Charge (in each case as defined below) for the period
consisting of the four consecutive fiscal quarters most recently ended prior to
the date on which such additional Debt is to be incurred shall have been less
than 1.5 to 1 on a pro forma basis after giving effect to the incurrence of such
Debt and to the application of the proceeds therefrom, and calculated on the
assumption that (i) such Debt and any other Debt incurred by the Operating
Partnership or its Subsidiaries since the first day of such four-quarter period,
which was outstanding at the end of such period, had been incurred at the
beginning of such period and continued to be outstanding throughout such period,
and the application of the proceeds of such Debt, including to refinance other
Debt, had occurred at the beginning of such period, (ii) the repayment or
retirement of any other Debt by the Operating Partnership or its Subsidiaries
since the first day of such four-quarter period had been repaid or retired at
the beginning of such period (except that, in determining the amount of Debt so
repaid or retired, the amount of Debt under any revolving credit facility shall
be computed based upon the average daily balance of such Debt during such
period), (iii) in the case of Acquired Indebtedness or Debt incurred in
connection with any acquisition since the first day of the four-quarter period,
the related acquisition had occurred as of the first day of the period with the
appropriate adjustments with respect to the acquisition being included in the
pro forma calculation and (iv) in the case of any increase or decrease in Total
Assets, or any other acquisition or disposition by the Operating Partnership or
any Subsidiary of any asset or group of assets, since the first day of such
four-quarter period, including, without limitation, by merger, stock purchase or
sale, or asset purchase or sale, such increase, decrease or other acquisition or
disposition or any related repayment of Debt had occurred as of the first day of
such period with the appropriate adjustments to revenues, expenses and Debt
levels with respect to such increase, decrease or other acquisition or
disposition being included in such pro forma calculation (Section 1004(c)).
Maintenance of Total Unencumbered Assets. The Operating Partnership is
required at all times to maintain Total Unencumbered Assets (as defined below)
of not less than 150% of the aggregate outstanding
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principal amount of all outstanding Unsecured Debt of the Operating Partnership
and its Subsidiaries on a consolidated basis (Section 1004(d)).
As used in the Indenture and the description thereof herein:
"Acquired Indebtedness" means Debt of a person (i) existing at the
time the person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from the person, in each case, other than Debt
incurred in connection with, or in contemplation of, the person becoming a
Subsidiary or that acquisition. Acquired Indebtedness shall be deemed to be
incurred on the date of the related acquisition of assets from any person
or the date the acquired person becomes a Subsidiary.
"Annual Debt Service Charge" as of any date means the amount which is
expensed in any 12-month period for Consolidated Interest Expense of the
Operating Partnership and its Subsidiaries.
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income plus amounts which have been deducted in
determining Consolidated Net Income during such period for (i) Consolidated
Interest Expense, (ii) provision for taxes of the Operating Partnership and
its Subsidiaries based on income, (iii) amortization (other than
amortization of debt discount) and depreciation, (iv) provisions for losses
from sales or joint ventures, (v) increases in deferred taxes and other
non-cash items, (vi) charges resulting from a change in accounting
principles and (vii) charges for early extinguishment of debt, and less
amounts which have been added in determining Consolidated Net Income during
such period for (a) provisions for gains from sales or joint ventures and
(b) decreases in deferred taxes and other non-cash items.
"Consolidated Interest Expense" means, for any period, and without
duplication, all interest (including the interest component of rentals on
leases reflected in accordance with GAAP as capitalized leases on the
Operating Partnership's consolidated balance sheet, letter of credit fees,
commitment fees and other like financial charges) and all amortization of
debt discount on all Debt (including, without limitation, payment-in-kind,
zero coupon and other securities) of the Operating Partnership and its
Subsidiaries, but excluding legal fees, title insurance charges and other
out-of-pocket fees and expenses incurred in connection with the issuance of
Debt, all determined in accordance with GAAP.
"Consolidated Net Income" for any period means the amount of net
income (or loss) of the Operating Partnership and its Subsidiaries for such
period determined on a consolidated basis in accordance with GAAP.
"Debt" of the Operating Partnership or any Subsidiary means, without
duplication, any indebtedness of the Operating Partnership or its
Subsidiaries, whether or not contingent, in respect of (i) borrowed money
evidenced by bonds, notes, debentures or similar instruments, (ii)
indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or
any security interest existing on property owned by the Operating
Partnership or its Subsidiaries, (iii) the reimbursement obligations,
contingent or otherwise, in connection with any letters of credit actually
issued or amounts representing the balance deferred and unpaid of the
purchase price of any property except any such balance that constitutes an
accrued expense or trade payable or (iv) any lease of property by the
Operating Partnership or its Subsidiaries as lessee which is reflected in
the Operating Partnership's consolidated balance sheet as a capitalized
lease in accordance with GAAP (but, in the case of items of indebtedness
under (i) through (iii) above, only to the extent that any such items
(other than letters of credit) would appear as a liability on the Operating
Partnership's consolidated balance sheet in accordance with GAAP), and also
includes, to the extent not otherwise included, any obligation by the
Operating Partnership or any Subsidiary to be liable for, or to pay, as
obligor, guarantor or otherwise (other than for purposes of collection in
the ordinary course of business), indebtedness of another person (other
than the Operating Partnership or any Subsidiary) (it being understood that
"Debt" of the Operating Partnership and its Subsidiaries on a consolidated
basis shall be deemed to be incurred whenever the Operating Partnership and
its Subsidiaries on a consolidated basis shall create, assume, guarantee or
otherwise become liable in respect thereof, and Debt of a Subsidiary of the
Operating Partnership existing prior to the time it became a Subsidiary of
the Operating Partnership shall be deemed to be incurred upon such
Subsidiary's becoming a Subsidiary of the
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Operating Partnership, and Debt of a person existing prior to a merger or
consolidation of such person with the Operating Partnership or any
Subsidiary of the Operating Partnership in which such person is the
successor to the Operating Partnership or such Subsidiary shall be deemed
to be incurred upon the consummation of such merger or consolidation);
provided, however, that the term Debt shall not include any such
indebtedness that has been the subject of an "in substance" defeasance in
accordance with GAAP.
"Secured Debt" means, without duplication, Debt secured by any
mortgage, trust deed, deed of trust, deed to secure Debt, security
agreement, pledge, conditional sale or other title retention agreement,
capitalized lease, or other like agreement granting or conveying security
title to or a security interest in real property or other tangible assets.
Secured Debt shall be deemed to be incurred (i) on the date the Operating
Partnership or any Subsidiary creates, assumes, guarantees or otherwise
becomes liable in respect thereof if it is secured in the manner described
in the preceding sentence on such date or (ii) on the date the Operating
Partnership or any Subsidiary first secures such Debt in the manner
described in the preceding sentence if such Debt was not so secured on the
date it was incurred.
"Significant Subsidiary" means any Subsidiary which is a "significant
subsidiary" (as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated under the Securities Act) of the Operating Partnership.
"Subsidiary" means (i) a corporation, partnership, limited liability
company, trust, real estate investment trust or other entity 50% or more of
the voting power of the voting equity securities of which are owned,
directly or indirectly, by the Operating Partnership or by one or more
Subsidiaries of the Operating Partnership, (ii) a partnership, limited
liability company trust, real estate investment trust or other entity not
treated as a corporation for federal income tax purposes 50% or more of the
value of the equity interests of which are owned, directly or indirectly,
by the Operating Partnership or by one or more other Subsidiaries of the
Operating Partnership and (iii) one or more corporations which, either
individually or in the aggregate, would be Significant Subsidiaries (as
defined above, except that the investment, asset and equity thresholds for
purposes of this definition shall be 5%), 50% or more of the value of the
equity interests of which are owned, directly or indirectly, by the
Operating Partnership or by one or more Subsidiaries.
"Total Assets" as of any date means the sum of (i) Undepreciated Real
Estate Assets and (ii) all other assets of the Operating Partnership and
its Subsidiaries on a consolidated basis determined in accordance with GAAP
(but excluding intangibles and accounts receivable).
"Total Unencumbered Assets" as of any date means the sum of (i) those
Undepreciated Real Estate Assets not securing any portion of Secured Debt
and (ii) all other assets of the Operating Partnership and its Subsidiaries
on a consolidated basis not securing any portion of Secured Debt determined
in accordance with GAAP (but excluding intangibles and accounts
receivable).
"Undepreciated Real Estate Assets" as of any date means the cost
(original cost plus capital improvements) of real estate assets of the
Operating Partnership and its Subsidiaries on such date, before
depreciation and amortization, determined on a consolidated basis in
accordance with GAAP.
"Unsecured Debt" means Debt of the Operating Partnership or any
Subsidiary that is not Secured Debt.
Existence. Except as permitted under "-- Merger, Consolidation or Sale,"
the Operating Partnership is required to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
and franchises; provided, however, that the Operating Partnership shall not be
required to preserve any right or franchise if the Board of Directors of the
General Partner determines that the preservation thereof is no longer desirable
in the conduct of the Operating Partnership's business and that the loss thereof
is not disadvantageous in any material respect to the Holders (Section 1006).
Maintenance of Properties. The Operating Partnership is required to cause
all of its material properties used or useful in the conduct of its business or
the business of any Subsidiary to be maintained and kept in
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good condition, repair and working order and supplied with all necessary
equipment and to cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the reasonable judgment of the
Operating Partnership may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that the Operating Partnership and its Subsidiaries shall not
be prevented from discontinuing the operation and maintenance of any of the
properties if such discontinuance is, in the judgment of the Operating
Partnership, desirable in the conduct of its business and not disadvantageous in
any material respect to the Holders (Section 1007).
Insurance. The Operating Partnership is required to, and is required to
cause each of its Subsidiaries to, maintain insurance coverage by financially
sound and reputable insurance companies on all of its insurable property against
loss or damage with amounts and types of insurance that are commercially
reasonable (Section 1008).
Payment of Taxes and Other Claims. The Operating Partnership is required to
pay or discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon its income, profits or property or
that of any Subsidiary and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Operating Partnership or any Subsidiary; provided, however, that the Operating
Partnership shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings (Section
1009).
Provision of Financial Information. The Operating Partnership will deliver
to each Holder of the Exchange Notes (a) quarterly unaudited consolidated
financial statements (including statements of income and cash flow and a
consolidated balance sheet), in comparative form, of the Operating Partnership
and its Subsidiaries within 60 days of the end of each of the first three fiscal
quarters, (b) annual audited consolidated financial statements of the Operating
Partnership and its Subsidiaries within 105 days of the end of each fiscal year,
(c) together with the statements delivered under (a) and (b) above,
certification from an officer of the Operating Partnership ranking at the level
of a Senior Vice President or above and having responsibility for financial
information as fairly presenting in all material respects the financial position
and results of operations of the Operating Partnership and its Subsidiaries, (d)
together with the statements delivered under (a) above, a certificate from an
officer of the Operating Partnership ranking at the level of Senior Vice
President or above and having responsibility for financial information showing
compliance with the provisions of restrictive covenants and indicating whether
or not the Operating Partnership is aware of any defaults, (e) together with the
statements delivered under (b) above, a certificate from the Operating
Partnership's accountants showing compliance with the provisions of restrictive
covenants and indicating whether or not they became aware of any defaults during
their audit, (f) copies of all public documents sent by the Operating
Partnership to public securities holders or filed by the Operating Partnership
with the Commission within 15 days after the filing of such documents and (g)
notice within ten business days after an officer of the Operating Partnership
ranking at the level of a Senior Vice President or above and having
responsibility for financial information becomes aware of the existence of any
Default or Event of Default, specifying the nature and period of existence
thereof and what action the Operating Partnership is taking or proposes to take
with respect thereto.
Following the effectiveness of the Registration Statement of which this
Prospectus constitutes a part, the quarterly and annual consolidated financial
statements referred to above will be deemed to refer to the Operating
Partnership's quarterly reports on Form 10-Q or annual reports on Form 10-K or
current reports on Form 8-K, respectively (Section 1010).
Compliance with the covenants described herein with respect to the Notes
generally may not be waived by the Board of Directors of the General Partner or
by the Trustee unless the Holders of at least a majority in principal amount
outstanding of all Notes of each series of Notes affected by such waiver consent
to such waiver; provided, however, that the defeasance and covenant defeasance
provisions of the Indenture described under "-- Satisfaction and Discharge" will
apply to the Notes.
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MERGER, CONSOLIDATION OR SALE
The Operating Partnership may consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into, any other
corporation, limited liability company, association, partnership, real estate
investment trust, company or business trust (any such entity, a "Corporation"),
provided that (a) the Operating Partnership shall be the continuing Corporation
or the successor Corporation or its transferees or assignees of such assets (if
other than the Operating Partnership) formed by or resulting from any such
consolidation or merger or which shall have received the transfer of such assets
by lease (subject to the continuing obligations of the Operating Partnership set
forth in the Indenture) or otherwise, either directly or indirectly, shall
expressly assume payment of the principal of (and premium or Make-Whole Amount,
if any) and interest on all the Notes and the due and punctual performance and
observance of all of the covenants and conditions contained in the Indenture;
(b) the successor corporation formed by or resulting from any such consolidation
or merger or which shall have received the transfer of assets shall be a United
States Corporation (as defined in the Indenture); (c) immediately after giving
effect to such transaction and treating any Debt which becomes an obligation of
the Operating Partnership or any Subsidiary of the Operating Partnership as a
result thereof as having been incurred by the Operating Partnership or such
Subsidiary at the time of such transaction, no Event of Default under the
Indenture, and no event which, after notice or the lapse of time, or both, would
become such an Event of Default, shall have occurred and be continuing; and (d)
an officer's certificate and legal opinion covering such conditions shall be
delivered to the Trustee (Sections 801 and 803).
GLOBAL SECURITIES
Exchange Notes issued in exchange for the Private Notes currently
represented by one or more fully registered global notes will be represented by
one or more fully registered global notes (collectively, the "Global
Securities"), and will be deposited upon issuance with The Depository Trust
Company (the "Depository") or an agent of the Depository and registered in the
name of Cede & Co. ("Cede"), as the Depository's nominee.
Exchange Notes issued in exchange for other Private Notes will be issued in
registered, certificated form without interest coupons.
Holders may hold their interests in any Global Securities directly through
the Depository, or indirectly through organizations which are participants in
the Depository ("Participants"). Transfers between Participants will be effected
in the ordinary way in accordance with the Depository's rules and will be
settled in immediately available funds. Access to the Depository's system is
also available to other entities such as banks, brokers, dealers, trust
companies and other parties that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly, and have
indirect access to the Depository's system ("Indirect Participants"). Persons
who are not Participants or Indirect Participants may beneficially own
securities held by or on behalf of the Depository only through the Participants
or the Indirect Participants. The ownership interests and transfer of ownership
interests of such persons held by or on behalf of the Depository are recorded on
the records of the Participants and Indirect Participants. So long as Cede, as
the nominee of the Depository, is the registered owner of any Global Security,
Cede for all purposes will be considered the sole holder of such Global
Security. Except as provided below, owners of beneficial interests in a Global
Security will not be entitled to have certificates registered in their names,
will not receive or be entitled to receive physical delivery of certificates in
definitive form and will not be considered the Holder thereof.
The Depository has advised the Operating Partnership as follows: the
Depository is a limited purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Depository was
created to hold securities for its Participants and to facilitate the clearance
and settlement of securities transactions, such as transfers and pledges, among
Participants in deposited securities through electronic book-entry changes to
accounts of its Participants, thereby eliminating the need for physical
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movement of securities certificates. Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Certain of such Participants (or their representatives), together
with other entities, own the Depository. The rules applicable to the Depository
and its Participants are on file with the Commission.
The Depository has also advised the Operating Partnership that pursuant to
procedures established by it, (i) upon deposit of the Global Securities, the
Depository will credit the accounts of its Participants with portions of the
principal amount of the Global Securities representing the Exchange Notes issued
in exchange for the Private Notes that each such Participant has instructed the
Depository to surrender for exchange and (ii) ownership of such interests in the
Global Securities will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by the Depository (with respect to
the Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Securities).
Under the terms of the Indenture, the Operating Partnership and the Trustee
will treat the persons in whose names the Exchange Notes, including the Global
Securities, are registered as the owners thereof for the purpose of receiving
payments in respect of the principal of and premium, if any, and interest on any
Exchange Notes and for any and all other purposes whatsoever. Payments on any
Exchange Notes registered in the name of Cede will be payable by the Trustee to
Cede in its capacity as the registered holder under the Indenture. Consequently,
none of the Operating Partnership, the Trustee or any agent of the Operating
Partnership or the Trustee has or will have any responsibility or liability for
(i) any aspect of the Depository's records or the records of any Participant or
Indirect Participant relating to or payments made on account of beneficial
ownership interests in the Global Securities, or for maintaining, supervising or
reviewing any of the Depository's records or records of any Participant or
Indirect Participant relating to the beneficial ownership interests in the
Global Securities or (ii) any other matter relating to the actions and practices
of the Depository or any of its Participants or Indirect Participants. The
Depository has advised the Operating Partnership that its current practice, upon
receipt of any payment in respect of securities such as the Exchange Notes
(including principal and interest), is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate to
their respective holdings in principal amount of beneficial interests in the
relevant security as shown on the records of the Depository unless the
Depository has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Exchange Notes will be governed by standing instructions
and customary practices and will be the responsibility of the Participants or
the Indirect Participants and will not be the responsibility of the Depository,
the Trustee or the Operating Partnership. Neither the Operating Partnership nor
the Trustee will be liable for any delay by the Depository or any of its
Participants or Indirect Participants in identifying the beneficial owners of
the Exchange Notes, and the Operating Partnership and the Trustee may
conclusively rely on and will be protected in relying on instructions from Cede
for all purposes.
The Depository may discontinue providing its services as securities
depositary with respect to the Exchange Notes at any time by giving reasonable
notice to the Operating Partnership. In the event that the Depository notifies
the Operating Partnership that it is unwilling or unable to continue as
depositary for any Global Security or if at any time the Depository ceases to be
a clearing agency registered as such under the Exchange Act when the Depository
is required to be so registered to act as such depositary and no successor
depositary shall have been appointed within 90 days of such notification or of
the Operating Partnership's becoming aware of the Depository's ceasing to be so
registered, as the case may be, certificates for the relevant Exchange Notes
will be printed and delivered in exchange for interests in such Global Security.
Any Global Security that is exchangeable pursuant to the preceding sentence
shall be exchanged for the relevant Exchange Notes registered in such names as
the Depository shall direct. It is expected that such instructions will be based
upon directions received by the Depository from its Participants with respect to
ownership of beneficial interests in such Global Security.
The Operating Partnership may decide to discontinue use of the system of
book-entry transfers through the Depository (or a successor securities
depositary). In that event, certificates representing the Exchange Notes will be
printed and delivered.
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The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Operating
Partnership believes to be reliable, but the Operating Partnership does not take
responsibility for the accuracy thereof.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The following events are "Events of Default" with respect to any series of
the Notes: (a) default for 30 days in the payment of any installment of interest
on any Note of such series; (b) default in the payment of the principal of (or
premium or Make-Whole Amount, if any, on) any Note of such series at its
maturity; (c) default in the performance, or breach, of any other covenant or
warranty of the Operating Partnership contained in the Indenture, such default
having continued for 60 days after written notice as provided in the Indenture;
(d) default in the payment of an aggregate principal amount exceeding $5,000,000
of any recourse indebtedness of the Operating Partnership or any mortgage,
indenture or other instrument under which such indebtedness is issued or by
which such indebtedness is secured, such default having occurred after the
expiration of any applicable grace period and having resulted in the
acceleration of the maturity of such indebtedness, but only if such indebtedness
is not discharged or such acceleration is not rescinded or annulled, such
default having continued for a period of 10 days after written notice as
provided in the Indenture; (e) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of the
Operating Partnership or any Significant Subsidiary or any of their respective
property; and (f) any other Event of Default provided in the Indenture with
respect to the Note (Section 501).
If an Event of Default under the Indenture with respect to any series of
the Notes occurs and is continuing, then in every such case the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Notes (as
defined below) of such series may declare the principal amount of all of the
Notes of such series to be due and payable immediately by written notice thereof
to the Operating Partnership (and to the Trustee if given by the Holders).
However, at any time after such a declaration of acceleration with respect to
Notes of any series has been made, but before a judgment or decree for payment
of the money due has been obtained by the Trustee, the Holders of not less than
a majority in principal amount of Outstanding Notes of such series may rescind
and annul such declaration and its consequences if (a) the Operating Partnership
shall have paid or deposited with the Trustee all payments of principal which
have become due otherwise than by such declaration of acceleration of (and
premium or Make-Whole Amount, if any) and required interest on the Notes of such
series, plus certain fees, expenses, disbursements and advances of the Trustee
and (b) all Events of Default, other than the nonpayment of principal of (and
premium or Make-Whole Amount, if any) or interest on the Notes of such series
which have become due solely by declaration of acceleration, have been cured or
waived as provided in the Indenture (Section 502). The Indenture also provides
that the Holders of not less than a majority in principal amount of the
Outstanding Notes of any series may waive any past default with respect to such
series and its consequences, except a default (x) in the payment of the
principal of (or premium or Make-Whole Amount, if any) or interest payable on
any Note of such series or (y) in respect of a covenant or provision contained
in the Indenture that cannot be modified or amended without the consent of the
Holder of each Outstanding Note of such series affected thereby (Section 513). A
Note shall be deemed outstanding ("Outstanding") if it has been authenticated
and delivered under the Indenture unless, among other things, such Note has been
cancelled or redeemed.
The Trustee will be required to give notice to the Holders of Notes of any
series within 90 days of a default under the Indenture unless such default has
been cured or waived; provided, however, that the Trustee may withhold notice to
the Holders of any default (except a default in the payment of the principal of
(or premium or Make-Whole Amount, if any) or interest on any Note of such
series) if specified responsible officers of the Trustee in good faith determine
such withholding to be in the best interests of the Holders of the Notes of such
series; and provided further that in the case of any default or breach of the
character specified in Section 501(d) of the Indenture no such notice shall be
given until at least 60 days after the occurrence thereof (Section 601).
The Indenture provides that no Holders of Notes of any series may institute
any proceedings, judicial or otherwise, with respect to the Indenture or for any
remedy thereunder, except in the case of failure of the Trustee, for 60 days, to
act after it has received a written request to institute proceedings in respect
of an Event
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of Default from the Holders of not less than 25% in principal amount of the
Outstanding Notes, as well as an offer of indemnity reasonably satisfactory to
it (Section 507). This provision will not prevent, however, any Holder of Notes
from instituting suit for the enforcement of payment of the principal of (and
premium or Make-Whole Amount, if any) and interest on such Notes at the
respective due dates thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of any
Outstanding Notes of any series under the Indenture, unless such Holders shall
have offered to the Trustee thereunder reasonable security or indemnity (Section
602). The Holders of not less than a majority in principal amount of the
Outstanding Notes of any series shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or of exercising any trust or power conferred upon the Trustee. The Trustee,
however, may refuse to follow any direction which is in conflict with any law or
with the Indenture or with the Notes of such series, which may involve the
Trustee in personal liability or which may be unduly prejudicial to the Holders
of Notes of such series not joining therein (Section 512).
Within 120 days after the close of each fiscal year, the Operating
Partnership must deliver to the Trustee a certificate, signed by one of several
specified officers of the General Partner ranking at the level of Senior Vice
President or above, stating whether or not such officer has knowledge of any
default under the Indenture and, if so, specifying each such default and the
nature and status thereof (Section 1011).
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Notes which are affected by such modification or
amendment; provided, however, that no such modification or amendment may,
without the consent of the Holders of each Outstanding Note affected thereby,
(a) change the stated maturity of the principal of (or premium or Make-Whole
Amount, if any, on) or any installment of principal of or interest on, any such
Note; (b) reduce the principal amount of, or the rate or amount of interest on,
or any premium payable on redemption of, any such Note, (c) change the place of
payment, or the coin or currency, for payment of principal of, or any premium or
interest on, any such Note; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any such Note; (e) reduce the
above-stated percentage in principal amount of Outstanding Notes of any series
necessary to modify or amend the Indenture, to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder or to reduce
the quorum or voting requirements set forth in the Indenture; or (f) modify any
of the foregoing provisions or any of the provisions relating to the waiver of
certain past defaults or certain covenants, except to increase the required
percentage to effect such action or to provide that certain other provisions may
not be modified or waived without the consent of the Holders of each Outstanding
Note affected thereby (Section 902).
The Indenture provides that the Holders of not less than a majority in
principal amount of Outstanding Notes have the right to waive compliance by the
Operating Partnership with certain covenants in the Indenture (Section 1013).
Modifications and amendments of the Indenture will be permitted to be made
by the Operating Partnership and the Trustee without the consent of any Holder
of Notes for any of the following purposes: (i) to evidence the succession or
addition of another person to the Operating Partnership as obligor under the
Indenture; (ii) to add to the covenants of the Operating Partnership for the
benefit of the Holders of all or any series of Notes or to surrender any right
or power conferred upon the Operating Partnership in the Indenture; (iii) to add
Events of Default for the benefit of the Holders of all or any series of Notes;
(iv) to permit or facilitate the issuance of Notes in uncertificated form,
provided, that such action shall not adversely affect the interests of the
Holders of Notes of any series in any material respect; (v) to secure the Notes;
(vi) to establish the form or terms of additional notes of any series; (vii) to
provide for the acceptance of appointment by a successor Trustee or facilitate
the administration of the trusts under the Indenture by more than one Trustee;
(viii) to comply with any requirements of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act or in connection
with the registration of the Private Notes or the
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Exchange Notes pursuant to the requirements of the Securities Act; (ix) to cure
any ambiguity, defect or inconsistency in the Indenture, provided that such
action shall not adversely affect the interests of Holders of Notes of any
series in any material respect; or (x) to supplement any of the provisions of
the Indenture to the extent necessary to permit or facilitate defeasance and
discharge of any series of Notes or additional notes under the Indenture,
provided that such action shall not adversely affect the interests of the
Holders of the notes of such series in any material respect (Section 901).
The Indenture contains provisions for convening meetings of the Holders of
Notes (Section 1501). A meeting will be permitted to be called at any time by
the Trustee, and also, upon request to the Trustee, by the Operating Partnership
or the Holders of at least 10% in principal amount of the Outstanding Notes of
any series, in any such case upon notice given as provided in the Indenture
(Section 1502). Except for any consent that must be given by the Holder of each
Note affected by certain modifications and amendments of the Indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is present will be permitted to be adopted by the affirmative vote of
the Holders of a majority in principal amount of the Outstanding Notes of that
series; provided, however, that, except as referred to above, any resolution
with respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the Holders of a
specified percentage, which is less than a majority, in principal amount of the
Outstanding Notes of a series may be adopted at a meeting or adjourned meeting
duly reconvened at which a quorum is present by the affirmative vote of the
Holders of such specified percentage in principal amount of the Outstanding
Notes of such series. Any resolution passed or decision taken at any meeting of
Holders of Notes of any series duly held in accordance with the Indenture will
be binding on all Holders of Notes of such series. The quorum at any meeting
called to adopt a resolution, and at any reconvened meeting, will be Persons
holding or representing a majority in principal amount of the Outstanding Notes
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the Holders of
not less than a specified percentage in principal amount of the Outstanding
Notes of a series, the Persons holding or representing such specified percentage
in principal amount of the Outstanding Notes of such series will constitute a
quorum (Section 1504).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Notes of any series with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that the
Indenture expressly provides may be made, given or taken by the Holders of a
specified percentage in principal amount of all Outstanding Notes affected
thereby, or of the Holders of such series and one or more additional series: (i)
there shall be no minimum quorum requirement for such meeting and (ii) the
principal amount of the Outstanding Notes of such series that vote in favor of
such request, demand, authorization, direction, notice, consent, waiver or other
action shall be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under the Indenture (Section 1504).
SATISFACTION AND DISCHARGE
The Operating Partnership may discharge certain obligations to Holders of
Notes of a series that have not already been delivered to the Trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the Trustee, in trust, funds in such currency or
currencies, currency unit or units or composite currency or currencies in which
the Notes of such series are payable in an amount sufficient to pay the entire
indebtedness on such Notes in respect of principal (and premium or Make-Whole
Amount, if any) and interest to the date of such deposit (if such Notes have
become due and payable) or to the stated maturity or Redemption Date, as the
case may be (Section 401(a)(2)).
NO CONVERSION RIGHTS
The Notes will not be convertible into or exchangeable for any capital
stock of the Company or equity interest in the Operating Partnership.
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PAYMENT
All payments of principal and interest in respect of the Exchange Notes in
the form of Global Securities will be made by the Operating Partnership in
immediately available funds.
GOVERNING LAW
The Indenture is governed by and shall be construed in accordance with the
laws of the State of New York.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion, which was prepared by Shaw Pitman Potts &
Trowbridge, special tax counsel to the Operating Partnership ("Tax Counsel"),
summarizes the material U.S. federal income tax consequences of the exchange of
the Private Notes for the Exchange Notes pursuant to the Exchange Offer. This
discussion is based on provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), its legislative history, judicial authority, current
administrative rulings and practice and existing and proposed Treasury
Regulations, all as in effect and existing on the date hereof. Legislative,
judicial or administrative changes or interpretations after the date hereof
could alter or modify the validity of this discussion and the conclusions set
forth below. Any such changes or interpretations may be retroactive and could
adversely affect a Holder of the Private Notes or the Exchange Notes.
This discussion does not purport to deal with all aspects of U.S. federal
income taxation that might be relevant to particular Holders in light of their
personal investment or tax circumstances or status, nor does it discuss the U.S.
federal income tax consequences to certain types of Holders subject to special
treatment under the U.S. federal income tax laws, such as certain financial
institutions, insurance companies, dealers in securities or foreign currency,
tax-exempt organizations, foreign corporations or non-resident alien
individuals, or persons holding Private Notes or Exchange Notes that are a hedge
against, or that are hedged against, currency risk or that are part of a
straddle or conversion transaction, or persons whose functional currency is not
the U.S. dollar. Moreover, the effect of any state, local or foreign tax laws is
not discussed.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH HOLDER OF A
PRIVATE NOTE THAT IS PARTICIPATING IN THE EXCHANGE OFFER IS STRONGLY URGED TO
CONSULT WITH ITS OWN TAX ADVISORS TO DETERMINE THE IMPACT OF SUCH HOLDER'S
PARTICULAR TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, OF THE EXCHANGE OF
THE PRIVATE NOTES FOR THE EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER.
EXCHANGE OFFER
The exchange of the Private Notes by any Holder for the Exchange Notes
pursuant to the Exchange Offer should not be treated as an "exchange" for
federal income tax purposes because the Exchange Notes should not be considered
to differ materially in kind or extent from the Private Notes. Rather, the
Exchange Notes received by any Holder should be treated as a continuation of the
Private Notes in the hands of such Holder. As a result, there should be no
federal income tax consequences to Holders exchanging the Private Notes for the
Exchange Notes pursuant to the Exchange Offer, and the federal income tax
consequences of holding and disposing of the Exchange Notes should be the same
as the federal income tax consequences of holding and disposing of the Private
Notes. Accordingly, a Holder's adjusted tax basis in the Exchange Notes will be
the same as its adjusted tax basis in the Private Notes exchanged therefor and
its holding period for the Private Notes will be included in its holding period
for the Exchange Notes. Thus, the determination of gain on a sale or other
disposition of the Exchange Notes will be the same as for the Private Notes. In
addition, the Holders, among other things, must continue to include original
issue discount in income as if the exchange had not occurred.
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PLAN OF DISTRIBUTION
This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of any Exchange Notes
received in exchange for Private Notes acquired by such broker-dealer for its
own account as a result of market-making or other trading activities. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
such Private Notes pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Operating Partnership has agreed that for a period of up to 120 days after the
closing of the Exchange Offer, it will make this Prospectus, as amended or
supplemented, available to any such broker-dealer that requests copies of this
Prospectus in the Letter of Transmittal for use in connection with any such
resale.
The Operating Partnership will not receive any proceeds from any sale of
Exchange Notes by broker-dealers or any other persons. Exchange Notes received
by broker-dealers for their own account pursuant to the Exchange Offer may be
sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the
Exchange Notes, or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or negotiated prices. Any such resale may be made directly to purchasers
or to or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the purchasers of
any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker-dealer that participates in a distribution of such Exchange Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer that receives Exchange Notes in exchange for Private
Notes acquired by such broker-dealer as a result of market-making or other
trading activities will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.
The Operating Partnership has agreed to pay all expenses incident to the
Operating Partnership's performance of, or compliance with, the Registration
Rights Agreement and will indemnify the holders of Private Notes (including any
broker-dealers), and certain parties related to such holders, against certain
liabilities, including liabilities under the Securities Act.
AVAILABLE INFORMATION
The Operating Partnership has filed with the Commission a Registration
Statement, of which this Prospectus constitutes a part, under the Securities Act
with respect to the Exchange Offer. This Prospectus omits certain information
contained in the Registration Statement, and reference is made to the
Registration Statement and the exhibits thereto for further information with
respect to the Operating Partnership and the Exchange Offer. Statements
contained herein concerning the provisions of any documents are not necessarily
an exhaustive description of such documents, and reference is made to the copy
of each such document filed as an exhibit to the Registration Statement. Each
such statement is qualified in its entirety by such reference. The Registration
Statement, including exhibits filed therewith, may be inspected at the Public
Reference Section maintained by the Commission at Judiciary Plaza, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and the following regional
offices of the Commission: Citicorp Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661-2511 and Seven World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a Web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission, including the Operating Partnership and the Company. In
addition, the Company's Common Shares are listed on the New York Stock Exchange
and reports, proxy statements and other information concerning the Company and
the Operating Partnership can be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
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EXPERTS
The consolidated financial statements of the Operating Partnership as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996 included in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.
The financial statements of (i) Carter-Crowley Operating Real Estate
Portfolio for the year ended December 31, 1996, (ii) Trammell Crow Center for
the year ended December 31, 1996, (iii) Fountain Place for the year ended
December 31, 1996 and the five month period ended May 31, 1997, (iv) Houston
Center for the year ended December 31, 1996 and the six month period ended June
30, 1997, (v) Miami Center for the year ended December 31, 1996 and the six
month period ended June 30, 1997 and (vi) Bank One Center for the year ended
December 31, 1996 and the eight month period ended August 31, 1997, included in
this Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm in giving said
reports.
The financial statements of the Provider Segment of Magellan Health
Services, Inc. as of September 30, 1996 and 1995 and for each of the three years
in the period ended September 30, 1996 included in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Operating Partnership by Shaw Pittman Potts & Trowbridge, Washington, D.C.
-89-
<PAGE> 94
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS FOR CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP
AS OF SEPTEMBER 30, 1997 (UNAUDITED)
Consolidated Balance Sheets as of September 30, 1997 and
December 31, 1996......................................... F-3
Consolidated Statements of Operations for the three and nine
months ended September 30, 1997 and 1996.................. F-4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996......................... F-5
Notes to Financial Statements............................... F-6
FINANCIAL STATEMENTS FOR CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP
AS OF DECEMBER 31, 1996 (AUDITED)
Report of Independent Public Accountants.................... F-18
Consolidated Balance Sheets of Crescent Real Estate Equities
Limited Partnership as of December 31, 1996 and 1995...... F-19
Consolidated Statements of Operations of Crescent Real
Estate Equities Limited Partnership (successor to the
Rainwater Property Group) for the years ended December 31,
1996 and 1995, and for the period from May 5, 1994 to
December 31, 1994 and Combined Statement of Operations of
the Rainwater Property Group for the period from January
1, 1994 to
May 4, 1994............................................... F-20
Consolidated Statements of Partners' Capital of Crescent
Real Estate Equities Limited Partnership (successor to the
Rainwater Property Group) for the years ended December 31,
1996 and 1995, and for the period from May 5, 1994 to
December 31, 1994 and Combined Statement of Partners'
Deficit of the Rainwater Property Group for the period
from January 1, 1994 to May 4, 1994....................... F-21
Consolidated Statements of Cash Flows of Crescent Real
Estate Equities Limited Partnership (successor to the
Rainwater Property Group) for the years ended December 31,
1996 and 1995, and for the period from May 5, 1994 to
December 31, 1994 and Combined Statement of Cash Flows of
the Rainwater Property Group for the period from January
1, 1994 to May 4, 1994.................................... F-22
Notes to Financial Statements............................... F-23
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
Report of Independent Public Accountants.................... F-38
Combined Balance Sheets as of September 30, 1995 and 1996
(audited) and March 31, 1997 (unaudited).................. F-39
Combined Statements of Operations for the years ended
September 30, 1994, 1995 and 1996 (audited) and the six
months ended March 31, 1996 and 1997 (unaudited).......... F-40
Combined Statements of Changes in Stockholder's Deficit for
the years ended September 30, 1994, 1995 and 1996
(audited) and the six months ended March 31, 1996 and 1997
(unaudited)............................................... F-41
Combined Statements of Cash Flows for the years ended
September 30, 1994, 1995 and 1996 (audited) and the six
months ended March 31, 1996 and 1997 (unaudited).......... F-42
Notes to Combined Financial Statements...................... F-43
</TABLE>
F-1
<PAGE> 95
<TABLE>
<S> <C>
CARTER-CROWLEY OPERATING REAL ESTATE PORTFOLIO
Report of Independent Public Accountants.................... F-55
Statement of Excess of Revenues Over Specific Operating
Expenses for the Year Ended December 31, 1996............. F-56
Notes to Statement.......................................... F-57
TRAMMELL CROW CENTER
Report of Independent Public Accountants.................... F-60
Statement of Excess of Revenues Over Specific Operating
Expenses for the Year Ended December 31, 1996............. F-61
Notes to Statement.......................................... F-62
FOUNTAIN PLACE
Report of Independent Public Accountants.................... F-65
Statements of Excess of Revenues Over Specific Operating
Expenses for the Year Ended December 31, 1996 and the Five
Month Period Ended May 31, 1997........................... F-66
Notes to Statements......................................... F-67
HOUSTON CENTER
Report of Independent Public Accountants.................... F-70
Statements of Excess of Revenues Over Specific Operating
Expenses for the Year Ended December 31, 1996 and the Six
Month Period Ended June 30, 1997.......................... F-71
Notes to Statements......................................... F-72
Schedules................................................... F-74
MIAMI CENTER
Report of Independent Public Accountants.................... F-77
Statements of Excess of Revenues Over Specific Operating
Expenses for the Year Ended December 31, 1996 and the Six
Month Period Ended June 30, 1997.......................... F-78
Notes to Statements......................................... F-79
BANK ONE CENTER
Report of Independent Public Accountants.................... F-81
Statements of Excess of Revenues Over Specific Operating
Expenses for the Year Ended December 31, 1996 and the
Eight Month Period Ended August 31, 1997.................. F-82
Notes to Statements......................................... F-83
PRO FORMA FINANCIAL STATEMENTS FOR CRESCENT REAL ESTATE
EQUITIES LIMITED PARTNERSHIP (UNAUDITED)
Pro Forma Consolidated Balance Sheet as of September 30,
1997 and Notes Thereto.................................... F-85
Pro Forma Consolidated Statement of Operations for the Nine
Months Ended September 30, 1997 and Notes Thereto......... F-87
Pro Forma Consolidated Statement of Operations for the Year
Ended December 31, 1996 and Notes Thereto................. F-91
</TABLE>
F-2
<PAGE> 96
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS:
Investments in real estate:
Land................................................... $ 418,625 $ 146,036
Building and improvements.............................. 2,647,981 1,561,639
Furniture, fixtures and equipment...................... 47,137 24,951
Less -- accumulated depreciation....................... (256,204) (208,808)
---------- ----------
Net investment in real estate..................... 2,857,539 1,523,818
Cash and cash equivalents................................. 46,691 25,535
Restricted cash and cash equivalents...................... 32,462 36,882
Accounts receivable, net.................................. 23,980 15,330
Deferred rent receivable.................................. 30,649 16,217
Investments in real estate mortgages and common stock of
unconsolidated companies............................... 369,779 37,069
Notes receivable, net..................................... 166,323 31,405
Other assets, net......................................... 87,641 47,284
---------- ----------
Total assets...................................... $3,615,064 $1,733,540
========== ==========
LIABILITIES:
Borrowings under Credit Facility.......................... $ 316,500 $ 40,000
Notes payable............................................. 1,460,404 627,808
Accounts payable, accrued expenses and other
liabilities............................................ 88,230 48,462
---------- ----------
Total liabilities................................. 1,865,134 716,270
---------- ----------
MINORITY INTERESTS.......................................... 28,396 29,265
PARTNERS' CAPITAL
General partner........................................... 4,295 4,515
Limited partners.......................................... 1,717,239 983,490
---------- ----------
Total partners' capital........................... 1,721,534 988,005
---------- ----------
Total liabilities and partners' capital........... $3,615,064 $1,733,540
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 97
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- --------------------
1997 1996 1997 1996
--------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Office and retail properties................... $ 92,014 $43,255 $247,333 $120,080
Hotel properties............................... 9,032 5,051 26,453 13,775
Behavioral healthcare properties............... 13,824 -- 15,966 --
Interest and other income...................... 5,187 1,062 13,508 3,572
-------- ------- -------- --------
Total revenues......................... 120,057 49,368 303,260 137,427
-------- ------- -------- --------
EXPENSES:
Real estate taxes.............................. 10,607 5,077 28,229 13,454
Repairs and maintenance........................ 6,301 2,369 17,244 7,248
Other rental property operating................ 22,500 9,452 59,100 27,294
Corporate general and administrative........... 2,372 1,199 9,855 3,498
Interest expense............................... 23,075 11,843 54,687 30,861
Amortization of deferred financing costs....... 937 745 2,157 2,065
Depreciation and amortization.................. 20,549 11,058 50,840 29,339
-------- ------- -------- --------
Total expenses......................... 86,341 41,743 222,112 113,759
-------- ------- -------- --------
Operating income....................... 33,716 7,625 81,148 23,668
OTHER INCOME:
Equity in net income of unconsolidated
companies................................... 1,119 892 3,118 3,067
-------- ------- -------- --------
INCOME BEFORE MINORITY INTERESTS AND
EXTRAORDINARY ITEM............................. 34,835 8,517 84,266 26,735
Minority interests............................. (390) (635) (1,192) (955)
-------- ------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM................. 34,445 7,882 83,074 25,780
Extraordinary item............................. -- (1,599) -- (1,599)
-------- ------- -------- --------
NET INCOME....................................... $ 34,445 $ 6,283 $ 83,074 $ 24,181
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 98
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
------------------------
1997 1996
----------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 83,074 $ 24,181
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 52,997 31,404
Minority interest...................................... 1,192 955
Extraordinary item..................................... -- 1,599
Non-cash compensation.................................. 157 91
Equity in earnings in excess of distributions received
from unconsolidated subsidiaries...................... (252) (363)
Increase in accounts receivable........................ (8,650) (3,997)
Increase in deferred rent receivable................... (14,432) (2,932)
Increase in other assets............................... (24,068) (1,405)
Decrease in restricted cash and cash equivalents....... 4,944 1,451
Increase (decrease) in accounts payable, accrued
expenses and other liabilities........................ 39,768 (1,394)
----------- ---------
Net cash provided by operating activities......... 134,730 49,590
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of investment properties...................... (1,356,266) (173,091)
Capital expenditures -- rental properties................. (14,497) (4,504)
Tenant improvement and leasing costs -- rental
properties............................................. (27,121) (8,738)
(Increase) decrease in restricted cash and cash
equivalents............................................ (524) 1,682
Investment in unconsolidated subsidiaries................. (328,468) (18,924)
Escrow deposits -- acquisition of investment properties... (4,190) (6,350)
Increase in notes receivable.............................. (134,918) (11,573)
----------- ---------
Net cash used in investing activities............. (1,865,984) (221,498)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs...................................... (11,329) (4,317)
Borrowings under Credit Facility.......................... 612,500 172,500
Payments under Credit Facility............................ (336,000) (20,000)
Debt proceeds............................................. 990,696 124,638
Debt payments............................................. (158,100) (57,184)
Capital contributions -- joint venture.................... -- 750
Capital distributions -- joint venture.................... (2,061) (988)
Capital contributions to the Operating Partnership........ 761,826 1,574
Distribution of Crescent Operating, Inc. shares to limited
partners of Operating Partnership...................... (11,907) --
Distributions from the Operating Partnership.............. (93,215) (47,637)
----------- ---------
Net cash provided by financing activities......... 1,752,410 169,336
----------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 21,156 (2,572)
CASH AND CASH EQUIVALENTS,
Beginning of period....................................... 25,535 16,869
----------- ---------
CASH AND CASH EQUIVALENTS,
End of period............................................. $ 46,691 $ 14,297
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 99
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Formation of the Operating Partnership and Organization
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership ("CREELP", together with its direct and indirect interests in
limited partnerships, the "Operating Partnership") was formed under the terms of
the Limited Partnership Agreement dated May 5, 1994. The Operating Partnership
is controlled by Crescent Real Estate Equities Company, a Texas real estate
investment trust ("Crescent Equities"), through Crescent Equities' ownership of
all of the outstanding stock of Crescent Real Estate Equities, Ltd., a Delaware
corporation which owns an approximate 1% general partner interests in the
Operating Partnership ("CREE, Ltd."). In addition, Crescent Equities owns an
approximate 89% limited partner interest in the Operating Partnership, with the
remaining approximate 10% held by other partners. The Operating Partnership
provides management, leasing, and development services with respect to certain
of its properties. The Operating Partnership owns substantially all of the
economic interest directly or indirectly of seven single purpose limited
partnerships (formed for the purpose of obtaining securitized debt). The term
"Operating Partnership" includes, unless context otherwise requires, CREELP and
other limited partnerships ("subsidiaries") of the Operating Partnership.
As of September 30, 1997, the Operating Partnership directly or indirectly
owned a portfolio of real estate assets (the "Properties") located primarily in
20 metropolitan submarkets in Texas and Colorado. The Properties include 76
office properties (the "Office Properties") with an aggregate of approximately
24.7 million net rentable square feet, 91 behavioral healthcare facilities
("Behavioral Healthcare Facilities"), five full-service hotels with a total of
1,900 rooms and two destination health and fitness resorts (the "Hotel
Properties"), seven retail properties (the "Retail Properties") with an
aggregate of approximately .8 million net rentable square feet, and real estate
mortgages and non-voting common stock representing economic interests ranging
from approximately 40% to 98% in five unconsolidated residential development
corporations (the "Residential Development Corporations"). The Operating
Partnership also, has a 42.5% partnership interest in an unconsolidated entity
whose primary holdings consist of a 364-room executive conference center and
general partner interests ranging from one to 50%, in additional office, retail,
multi-family and industrial properties.
The following table sets forth, by subsidiary, the Properties owned by such
subsidiary as of September 30, 1997:
CREELP: The Addison, Addison Tower, The Amberton, AT&T
Building, Bank One Tower, Canyon Ranch-Tucson, Cedar
Springs Plaza, Central Park Plaza, Chancellor
Park(1), Concourse Office Park, Denver Marriott City
Center, Four Seasons Hotel-Houston, Frost Bank Plaza,
Greenway I and IA, Greenway II, Houston Center Office
Properties, MCI Tower, The Meridian, Miami Center,
One Preston Park, Palisades Central I, Palisades
Central II, The Park Shops in Houston Center,
Reverchon Plaza, Sonoma Mission Inn & Spa, Spectrum
Center(2), Stemmons Place, Three Westlake Park(3),
Trammell Crow Center(4), The Woodlands Office
Properties(5), The Woodlands Retail Properties(5),
Valley Centre, Walnut Green, 44 Cook, 55 Madison, 160
Spear Street, 301 Congress Avenue(6), 1615 Poydras,
3333 Lee Parkway, 5050 Quorum, and 6225 North 24th
Street
F-6
<PAGE> 100
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Crescent Real Estate
Funding I, L.P.: ("Funding
I") The Aberdeen, The Avallon, Caltex House, The
Citadel, Continental Plaza, The Crescent Atrium,
The Crescent Office Towers, Regency Plaza One, and
Waterside Commons
Crescent Real Estate
Funding II, L.P.: ("Funding
II") Albuquerque Plaza, Barton Oaks Plaza One, Briargate
Office and Research Center, Hyatt Regency
Albuquerque, Hyatt Regency Beaver Creek, Las
Colinas Plaza, Liberty Plaza I & II, MacArthur
Center I & II, Ptarmigan Place, Stanford Corporate
Centre, Two Renaissance Square, and 12404 Park
Central
Crescent Real Estate Greenway Plaza Portfolio(7)
Funding III, IV, and V, L.P.:
("Funding III, IV and V")
Crescent Real Estate
Funding VI, L.P.:
("Funding VI") Canyon Ranch-Lenox
Crescent Real Estate
Funding VII, L.P.:
("Funding VII") Behavioral Healthcare Facilities
- ---------------
(1) CREELP owns Chancellor Park through its ownership of a mortgage note secured
by the building and through its direct and indirect interests in the
partnership which owns the building.
(2) CREELP owns the principal economic interest in Spectrum Center through an
interest in the limited partnership which owns both a mortgage note secured
by Spectrum Center and the ground lessor's interest in the land underlying
the building.
(3) CREELP owns the principal economic interest in Three Westlake Park through
its ownership of a mortgage note secured by Three Westlake Park.
(4) CREELP owns the principal economic interest in Trammell Crow Center through
its ownership of fee simple title to the property (subject to a ground lease
and a leasehold estate regarding the building) and two mortgage notes
encumbering the leasehold interests in the land and building.
(5) CREELP owns a 75% limited partner interest and an indirect approximately 10%
general partner interest in the partnerships that own The Woodlands Office
and Retail Properties.
(6) CREELP owns a 49% limited partner interest and Crescent/301, L.L.C., a
wholly owned subsidiary of the CREE, Ltd. and CREELP, owns a 1% general
partner interest in 301 Congress Avenue, L.P., the partnership that owns 301
Congress Avenue.
(7) Funding III owns the Greenway Plaza Portfolio, except for the central heated
and chilled water plant building and Coastal Tower Office property, both
located within Greenway Plaza, which are owned by Funding IV and Funding V,
respectively.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In management's opinion, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of the
unaudited interim financial statements have been included. Operating results for
interim periods reflected are not necessarily indicative of the results that may
be expected for a full fiscal year. These financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
of the Operating Partnership as of December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996.
F-7
<PAGE> 101
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUPPLEMENTAL DISCLOSURES TO STATEMENTS OF CASH FLOWS:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1997 1996
------- -------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid............................................. $52,594 $30,930
Supplemental schedule of noncash investing and financing
activities:
Minority interest -- joint venture capital................ $ -- $21,635
Issuance of limited partnership interests in conjunction
with property acquisition.............................. $ -- $27,056
</TABLE>
3. INVESTMENTS IN REAL ESTATE MORTGAGES AND COMMON STOCK OF UNCONSOLIDATED
COMPANIES:
The Operating Partnership reports its share of income and losses based on
its ownership interest in the respective equity investments. The following
summarized information for all unconsolidated companies (see Note 1) has been
presented on an aggregated basis as of September 30, 1997.
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Total revenues.............................................. $27,685 $34,105
Total expenses.............................................. 26,247 30,853
------- -------
Net income.................................................. $ 1,438 $ 3,252
======= =======
Operating Partnership equity in net income of unconsolidated
companies................................................. $ 1,119 $ 3,118
======= =======
</TABLE>
4. NOTES PAYABLE AND BORROWINGS UNDER CREDIT FACILITY:
Following is a summary of the Company's Operating Partnership financing:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Note payable to LaSalle National Bank, as Trustee for
Commercial Mortgage Pass-Through Certificates, Series
1995-MD IV ("LaSalle Note I") bears interest at 7.83% with
an initial seven-year interest-only term (through August
2002), followed by principal amortization based on a
25-year amortization schedule through maturity in August
2027(1), secured by the Funding I properties.............. $ 239,000
Note payable to LaSalle National Bank, as Trustee for
Commercial Mortgage Pass-Through Certificates, Series
1996-MD V ("LaSalle Note II") bears interest at 7.79% with
an initial seven-year interest-only term (through March
2003), followed by principal amortization based on a
25-year amortization schedule through maturity in March
2028(2), secured by the Funding II properties............. 161,000
Note payable to LaSalle National Bank, as Trustee for
Commercial Mortgage Pass-Through Certificates, Series
1994-MD II ("LaSalle Note III") due July 1999, bears
interest at 30-day LIBOR plus a weighted average rate of
2.135% (at September 30, 1997 the rate was 7.82% subject
to a rate cap of 10%) with a five-year interest-only term,
secured by the Funding III, IV and V properties........... 115,000
Note payable to Connecticut General Life Insurance Company
("CIGNA") due December 2002, bears interest at 7.47% with
a seven-year interest-only term, secured by the MCI Tower
and Denver Marriott City Center properties................ 63,500
</TABLE>
F-8
<PAGE> 102
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Note payable to Northwestern Mutual Life Insurance Company
due January 2004, bears interest at 7.66% with a
seven-year interest-only term, secured by the 301 Congress
Avenue property........................................... 26,000
Note payable to Metropolitan Life Insurance Company due
September 2001, bears interest at 8.88% with monthly
principal and interest payments, secured by five of The
Woodlands Office Properties............................... 12,188
Note payable to Nomura Asset Capital Corporation ("Nomura
Funding VI Note") bears interest at 10.07% with monthly
principal and interest payments based on a 25-year
amortization schedule through July 2020(3), secured by the
Funding VI property....................................... 8,716
Short-term unsecured note payable to BankBoston, N.A.
("BankBoston") due October 1997, bears interest at
Eurodollar rate plus 137.5 basis points (at September 30,
1997, the rate was 7.03%.................................. 235,000(4)
Short-term unsecured note payable to BankBoston due August
1998, bears interest at Eurodollar rate plus 120 basis
points (at September 30, 1997, the rate was 6.86%)........ 200,000
Senior unsecured notes to State Street Bank & Trust Company
of Missouri, N.A., as Trustee, bear interest at a fixed
rate of 6.63% with a five-year interest-only term, due
September 2002 (see description of Notes offering
below).................................................... 150,000
Senior unsecured notes to State Street Bank & Trust Company
of Missouri, N.A., as Trustee, bear interest at a fixed
rate of 7.13% with a ten-year interest-only term, due
September 2007 (see description of Notes offering
below).................................................... 250,000
----------
Total Notes Payable......................................... $1,460,404
==========
</TABLE>
- ---------------
(1) In August 2007, the interest rate increases, and the Operating Partnership
is required to remit, in addition to the monthly debt service payment,
excess property cash flow, as defined, to be applied first against principal
until the note is paid in full and thereafter, against accrued excess
interest, as defined. It is the Operating Partnership's intention to repay
the note in full at such time (August 2007) by making a final payment of
approximately $220,000.
(2) In March 2006, the interest rate increases, and the Operating Partnership is
required to remit, in addition to the monthly debt service payment, excess
property cash flow, as defined, to be applied first against principal until
the note is paid in full and thereafter, against accrued excess interest, as
defined. It is the Operating Partnership's intention to repay the note in
full at such time (March 2006) by making a final payment of approximately
$154,000.
(3) In July 1998, the Operating Partnership may defease the note by purchasing
Treasury obligations to pay the note without penalty. In July 2010, the
interest rate due under the note will change to a 10-year Treasury yield
plus 500 basis points or, if the Company so elects, it may repay the note
without penalty.
(4) On October 15, 1997, the note was repaid in full through a draw under the
Operating Partnership's Credit Facility (see Note 9 -- October 1997
Offering).
On September 22, 1997, the Operating Partnership's line of credit from a
consortium of banks led by BankBoston (the "Credit Facility") was increased to
$450,000 to enhance the Operating Partnership's financial flexibility in making
new real estate investments. Concurrently with such increase, the interest rate
on advances under the Credit Facility was decreased from the Eurodollar rate
plus 137.5 basis points to the Eurodollar rate plus 120 basis points. The Credit
Facility is unsecured and expires in June 2000. The Credit Facility requires the
Operating Partnership to maintain compliance with a number of customary
financial and other covenants on an ongoing basis, including leverage ratios
based on book value and debt service coverage ratios, limitations on additional
secured and total indebtedness and distributions, and a minimum net worth
requirement. As of September 30, 1997, the Operating Partnership was in
compliance with all covenants. As of September 30, 1997, the interest rate was
6.86% and the outstanding balance was $316,500, with availability of $133,500.
F-9
<PAGE> 103
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On September 22, 1997, the Operating Partnership completed a private note
offering of senior unsecured notes in an aggregate principal amount of $400,000
(the "Notes"). The Notes were issued in two series, the 6 5/8%, $150,000 notes
with maturity on September 15, 2002, yielding a 6.73% effective rate (the "2002
Notes") and the 7 1/8%, $250,000 notes with maturity on September 15, 2007,
yielding a 7.151% effective rate (the "2007 Notes"). The Notes pay interest
semi-annually in arrears. The interest rate on the Notes is subject to temporary
increase by 50 basis points in the event that a registered offer to exchange the
Notes for notes of the Operating Partnership with terms identical in all
material respects to the Notes is not consummated or a shelf registration
statement with respect to the resale of the Notes is not declared effective by
the Securities and Exchange Commission (the "SEC") on or before the 180th day
following the date of original issuance of the Notes. The interest rate on the
Notes also is subject to temporary or permanent increase by 37.5 basis points in
the event that, within the period from the date of original issuance of the
Notes to the first anniversary of original issuance, the Notes are assigned a
rating that is not an investment grade rating (as defined in the Notes) or are
not assigned or do not retain, a rating by specified rating agencies. These
adjustments may apply simultaneously.
The Notes are redeemable, in whole or in part, at the option of the
Operating Partnership upon payment of principal, accrued and unpaid interest,
and the premium specified in the Notes. The Notes also contain certain
covenants, including limitations on the ability of the Operating Partnership and
its subsidiaries to incur additional debt, other than certain intercompany debt
that is subordinate to payment of the Notes, unless certain asset and income
tests are satisfied.
The net proceeds of the Notes offering were used to fund the approximately
$327,600 purchase price of Houston Center, to repay approximately $50,000 of
borrowings under the Credit Facility, to fund approximately $10,000 of the
purchase price of Miami Center, and to repay approximately $7,200 of short term
indebtedness.
5. PARTNERS' CAPITAL:
On February 4, 1997, the Operating Partnership paid a distribution of
$26,100.
On April 28, 1997, Crescent Equities completed an offering (the "April 1997
Offering") of 24,150,000 common shares (including the underwriters'
overallotment option) at $25.375 per share. Net proceeds from the April 1997
Offering to Crescent Equities after underwriting discount of $29,222 and other
offering costs of $3,000 were approximately $580,584. On May 14, 1997, Crescent
Equities completed an additional offering of 500,000 common shares to several
underwriters who participated in the April 1997 Offering. The common shares were
sold at $25.875 per share, totaling gross proceeds of approximately $12,938
(collectively, the "Offerings"). Net proceeds from the Offerings were
contributed to the Operating Partnership in exchange for an increased limited
partner interest.
In the second quarter of 1997, the Operating Partnership used net proceeds
of $593,522 from the Offerings and approximately $314,700 from borrowings under
the Credit Facility and $160,000 of short-term borrowings from BankBoston (i) to
fund approximately $30,000 in connection with the formation and capitalization
of Crescent Operating, Inc. ("Crescent Operating"); (ii) to repay the $150,000
BankBoston short-term note payable; (iii) to reduce by $131,000 borrowings under
the Credit Facility; (iv) to fund approximately $306,300 of the purchase price
of the Carter-Crowley Portfolio (as defined in Note 7) acquired by the Company;
and (v) to fund the commitments of the Company and Crescent Operating related to
the Magellan transaction totaling approximately $419,700. The remaining $31,222
has been used for working capital purposes.
On May 14, 1997, the Operating Partnership paid a distribution of $33,476.
F-10
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CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On July 23, 1997, the Crescent Equities sold to Merrill Lynch & Co. 351,185
common shares at $28.475 per share (the "Merrill Offering"). The proceeds were
contributed to the Operating Partnership, which used these funds to repay
approximately $10,000 of borrowings incurred under the Credit Facility.
On August 5, 1997, the Company paid a distribution of $33,639.
On September 22, 1997, in connection with the acquisition of Houston
Center, Crescent Equities sold to the seller of Houston Center 307,831 common
shares at $32.485 per share (the "HC Offering"). The proceeds were contributed
to the Operating Partnership, which used these funds to repay approximately
$10,000 of borrowings under the Credit Facility.
6. FORMATION AND CAPITALIZATION OF CRESCENT OPERATING, INC.
In April 1997, the Operating Partnership established a new Delaware
Corporation, Crescent Operating. All of the outstanding common stock of Crescent
Operating was distributed, effective June 12, 1997, to those persons who were
limited partners of the Operating Partnership or shareholders of Crescent
Equities on May 30, 1997, in a spin-off.
Crescent Operating was formed to become a lessee and operator of various
assets and to perform the Intercompany Agreement between Crescent Operating and
the Operating Partnership, pursuant to which each has agreed to provide the
other with rights to participate in certain transactions. As a result of the
formation of Crescent Operating and the execution of the Intercompany Agreement,
persons who own equity interests in both Crescent Operating and the Operating
Partnership have the opportunity to participate in the benefits of both the real
estate investments of the Operating Partnership (including ownership of real
state assets) and the lease of certain of such assets and the ownership of other
non-real estate assets by Crescent Operating. The certificate of incorporation,
as amended and restated, of Crescent Operating generally prohibits Crescent
Operating for so long as the Intercompany Agreement remains in effect, from
engaging in activities or making investments that a REIT could make, unless the
Operating Partnership was first given the opportunity but elected not to pursue
such activities or investments.
In connection with the formation and capitalization of Crescent Operating,
the Operating Partnership provided to Crescent Operating approximately $50,000
in the form of cash contributions and loans to be used by Crescent Operating to
acquire certain assets described in Note 7. The Operating Partnership also made
available to Crescent Operating a line of credit in the amount of $20,400 to be
used by Crescent Operating to fulfill certain ongoing obligations associated
with these assets.
7. ACQUISITIONS:
Greenway II. On January 17, 1997, the Operating Partnership acquired
Greenway II, a seven-story Class A office building containing approximately
154,000 net rentable square feet and located in the Richardson/Plano submarket
of Dallas, Texas. The purchase price was approximately $18,200, which was funded
through a draw under the Credit Facility.
Trammell Crow Center. On February 28, 1997, the Operating Partnership
acquired substantially all of the economic interest in Trammell Crow Center, a
50-story Class A office building, which contains approximately 1,128,000 net
rentable square feet. The property is located in the cultural and financial
district of the Central Business District ("CBD") submarket of Dallas, Texas.
The Operating Partnership acquired its interest in Trammell Crow Center through
the purchase of fee simple title to the property (subject to a ground lease and
a leasehold estate regarding the building) and two mortgage notes encumbering
the leasehold interests in the land and building. The purchase price was
approximately $162,000, of which $150,000 was funded through proceeds from an
unsecured, short-term loan with BankBoston and the remaining balance of $12,000
through a draw under the Credit Facility.
F-11
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CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Denver Properties. On February 28, 1997, the Operating Partnership acquired
three office buildings in Denver, Colorado, in a single transaction: 44 Cook, 55
Madison and the AT&T Building. 44 Cook, a 10-story Class A office building
containing approximately 119,000 net rentable square feet, and 55 Madison, an
eight-story Class A office building containing approximately 125,000 net
rentable square feet, are both located in the Cherry Creek submarket of Denver,
Colorado. The AT&T Building, a 15-story office building, contains approximately
170,000 net rentable square feet and is located in the Denver CBD submarket. The
three office properties were acquired for an aggregate purchase price of
approximately $42,675, which was funded through a draw under the Credit
Facility.
Carter-Crowley Portfolio. On February 10, 1997, the Operating Partnership
entered into a contract to acquire for approximately $383,300, substantially all
of the assets (the "Carter-Crowley Portfolio") of Carter-Crowley Properties,
Inc. ("Carter-Crowley"), an unaffiliated company controlled by the family of
Donald J. Carter. At the time the contract was executed, the Carter-Crowley
Portfolio included 14 office properties (the "Carter-Crowley Office Portfolio"),
with an aggregate of approximately 3.0 million net rentable square feet,
approximately 1,216 acres of commercially zoned, undeveloped land located in the
Dallas/Fort Worth metropolitan area, two multifamily residential properties
located in the Dallas/Fort Worth metropolitan area, marketable securities, an
approximately 12% limited partner interest in the limited partnership that owns
the Dallas Mavericks NBA basketball franchise, secured and unsecured promissory
notes, certain direct nonoperating working interests in various oil and gas
wells, an approximately 35% limited partner interest in two oil and gas limited
partnerships, and certain other assets (including operating businesses).
Pursuant to an agreement between Carter-Crowley and the Operating Partnership,
Carter-Crowley liquidated approximately $51,000 of such assets originally
included in the Carter-Crowley Portfolio, consisting primarily of the marketable
securities and the oil and gas investments, resulting in a reduction in the
total purchase price by a corresponding amount to approximately $332,300. On May
9, 1997, the Operating Partnership and Crescent Operating acquired the
Carter-Crowley Portfolio.
The Operating Partnership acquired certain assets from the Carter-Crowley
Portfolio, with an aggregate purchase price of approximately $306,300,
consisting primarily of the Carter-Crowley Office Portfolio, the two multifamily
residential properties, the approximately 1,216 acres of undeveloped land and
the secured and unsecured promissory notes relating primarily to the Dallas
Mavericks. In addition to the promissory notes relating to the Dallas Mavericks,
the Operating Partnership obtained rights from the current holders of the
majority interest in the Dallas Mavericks to a contingent $10,000 payment after
a new arena is constructed within a 75-mile radius of Dallas.
Crescent Operating purchased the remainder of the Carter-Crowley Portfolio
utilizing cash contributions and loan proceeds provided to Crescent Operating by
the Operating Partnership. These assets, which have an allocated cost of
approximately $26,000, consisted primarily of the approximately 12% limited
partner interest in the limited partnership that owns the Dallas Mavericks, an
approximately 1% interest in a private venture capital fund, and a 100% interest
in a construction equipment sale, leasing and services company.
Dallas Mavericks Interest. On June 11, 1997, DBL Holdings, Inc. ("DBL"), a
wholly owned subsidiary of the Operating Partnership was formed. In connection
with the formation of DBL, the Operating Partnership acquired all the voting and
non-voting common stock of DBL, for an aggregate purchase price of approximately
$2,500 and loaned to DBL approximately $10,100. The voting common stock, which
represented a 5% effective interest in DBL, was subsequently sold to Gerald W.
Haddock , the President and Chief Executive Officer and Sole Director of CREE,
Ltd. and Crescent Equities and Crescent Operating, and John C. Goff, the Vice
Chairman of Crescent Equities and Crescent Operating, for $126. On June 11,
1997, DBL acquired from Crescent Operating, for approximately $12,550, the
limited partner interest in the partnership that owns the Dallas Mavericks.
Magellan Transaction. On June 17, 1997, the Operating Partnership acquired
substantially all of the real estate assets of the domestic hospital provider
business of Magellan Health Services, Inc. ("Magellan"), as
F-12
<PAGE> 106
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
previously owned and operated by a wholly owned subsidiary of Magellan. The
Magellan transaction involved various components, certain of which related to
the Operating Partnership and certain of which related to Crescent Operating.
The total purchase price of the assets acquired in the Magellan transaction
was approximately $419,700. Of this amount, the Operating Partnership paid
approximately $387,200 for the acquisition of the 91 Behavioral Healthcare
Facilities (and one additional behavioral healthcare facility, which
subsequently was sold) and $12,500 for the acquisition of warrants to purchase
1,283,311 shares of common stock of Magellan. Crescent Operating paid $5,000 for
its interest in Charter Behavioral Health Systems, LLC, a limited liability
company ("CBHS"), $12,500 for the acquisition of warrants to purchase 1,283,311
shares of common stock of Magellan and $2,500 to CBHS after the closing. CBHS is
owned 50% by Crescent Operating and 50% by a wholly owned subsidiary of
Magellan, subject to potential dilution of each by up to 5% in connection with
future incentive compensation of management of CBHS.
The principal component of the transaction was the Operating Partnership's
acquisition of the Behavioral Healthcare Facilities, which are leased to CBHS,
and the subsidiaries of CBHS, under a triple-net lease. The lease requires the
payment of annual minimum rent in the amount of $41,700, increasing in each
subsequent year during the 12-year term at a 5% compounded annual rate. The
lease provides for four, five-year renewal options. All maintenance and capital
improvement costs are the responsibility of CBHS during the term of the lease.
In addition, CBHS is required to pay annually an additional $20,000 under the
lease, at least $10,000 of which must be used, as directed by CBHS, for capital
expenditures each year and up to $10,000 of which may be used, if requested by
CBHS, to cover capital expenditures, property taxes, insurance premiums, and
franchise fees.
Woodlands Transaction. On July 31, 1997, the Operating Partnership and
certain Morgan Stanley funds (the "Morgan Stanley Group") acquired The Woodlands
Corporation, a subsidiary of Mitchell Energy Corporation, for approximately
$543,000. In connection with the acquisition, the Operating Partnership and the
Morgan Stanley Group made equity investments of approximately $80,000 and
$109,000, respectively. The Operating Partnership's contribution was funded
through the $235,000 BankBoston loan. The remaining approximately $354,000 and
associated acquisition and financing costs of approximately $15,000 were
financed by the two limited partnerships, described below, through which the
investment was made. The Woodlands Corporation was the principal owner,
developer and operator of The Woodlands, an approximately 27,000-acre,
master-planned residential and commercial community located 27 miles north of
downtown Houston, Texas. The Woodlands which is approximately 50% developed,
includes a shopping mall, retail centers, office buildings, a hospital, club
facilities, a community college, a performance pavilion, and numerous other
amenities.
The acquisition was made through The Woodlands Commercial Properties
Company, L.P. ("Woodlands-CPC"), a limited partnership in which the Morgan
Stanley Group holds a 57.5% interest and the Company holds a 42.5% interest, and
the Woodlands Land Development Company, L.P. ("Woodlands-LDC"), a limited
partnership in which the Morgan Stanley Group holds a 57.5% interest and a newly
formed Residential Development Corporation, The Woodlands Land Company, Inc.
("WLC"), holds a 42.5% interest. The Operating Partnership currently owns all of
the non-voting common stock, representing a 95% economic interest in WLC and,
effective September 29, 1997, Crescent Operating owns all of the voting common
stock, representing a 5% economic interest, in WLC. The Operating Partnership is
the managing general partner of Woodlands-CPC and WLC is the managing general
partner of Woodlands-LDC.
In connection with the acquisition, Woodlands-CPC acquired The Woodlands
Corporation's 25% general partner interest in the partnerships that own
approximately 1.2 million square feet of The Woodlands Office and Retail
Properties. The Operating Partnership previously held a 75% limited partner
interest in each of these partnerships and, as a result of the acquisition, the
Operating Partnership's indirect economic ownership interest in these Properties
increased to approximately 85%. The other assets acquired by Woodlands-CPC
F-13
<PAGE> 107
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
include a 364-room executive conference center, a private golf and tennis club
serving approximately 1,600 members and offering 81 holes of golf, and
approximately 400 acres of land that will support commercial development of more
than 3.5 million square feet of office, multi-family, industrial, retail and
lodging properties. In addition, Woodlands-CPC acquired The Woodlands
Corporation's general partner interests, ranging from one to 50%, in additional
office and retail properties and in multi-family and light industrial
properties. Woodlands-LDC acquired approximately 6,400 acres of land that will
support development of more than 20,000 lots for single-family homes and
approximately 2,500 acres of land that will support more than 21.5 million net
rentable square feet of commercial development. The executive conference center,
including the golf and tennis club and golf courses, is operated and leased by a
wholly owned subsidiary of a partnership owned 42.5% by a subsidiary of Crescent
Operating and 57.5% by the Morgan Stanley Group.
Desert Mountain. On August 29, 1997, the Operating Partnership acquired,
through a newly formed Residential Development Corporation, Desert Mountain
Development Corporation ("DMDC"), the majority economic interest in Desert
Mountain Properties Limited Partnership ("DMPLP"), the partnership that owns
Desert Mountain, a master-planned, luxury residential and recreational community
in northern Scottsdale, Arizona. Desert Mountain is an 8,300-acre property that
is zoned for the development of approximately 4,500 lots, approximately 1,500 of
which have been sold. Desert Mountain also includes The Desert Mountain Club, a
private golf, tennis and fitness club serving over 1,600 members. The
partnership interest was acquired from a subsidiary of Mobil Land Development
Corporation for approximately $214,000, which was funded through the $200,000
BankBoston loan and a draw under the Credit Facility. The sole limited partner
of DMPLP is Sonora Partners Limited Partnership ("Sonora") whose principal owner
is Lyle Anderson, the original developer of Desert Mountain. A portion of
Sonora's interest in DMPLP is exchangeable for common shares of Crescent
Equities. Sonora currently owns a 7% economic interest in DMPLP, and DMDC, which
is the sole general partner of DMPLP, owns the remaining 93% economic interest.
The Operating Partnership owns all of the non-voting common stock, representing
a 95% economic interest, and, effective September 29, 1997, Crescent Operating
owns all of the voting common stock, representing a 5% economic interest, in
DMDC. The Operating Partnership also holds a residential development property
mortgage on Desert Mountain.
Houston Center. On September 22, 1997, the Operating Partnership acquired
Houston Center, an approximately 3.0 million square foot, mixed-use property
located in the CBD submarket of Houston, Texas. Houston Center consists of three
high-rise Class A office buildings aggregating approximately 2.8 million net
rentable square feet ("Houston Center Office Properties"), a 399-room Four
Seasons Hotel-Houston, 114 luxury apartments, The Park Shops in Houston Center
(a retail property containing approximately 191,000 net rentable square feet),
and approximately 20 acres of contiguous undeveloped commercial land. The
aggregate purchase price for Houston Center was approximately $327,600 which was
funded from the proceeds of the Notes offering (described in Note 4).
Miami Center. On September 30, 1997, the Operating Partnership acquired
Miami Center, a 34-story Class A office building containing approximately
783,000 net rentable square feet located in the Downtown-CBD submarket of Miami,
Florida. The Operating Partnership acquired fee simple title, subject to a
Condominium Declaration, to Miami Center for approximately $131,500. The
purchase price was funded through an approximately $121,500 draw under the
Credit Facility and $10,000 from proceeds of the Notes offering. The Operating
Partnership owns the single condominium unit that comprises the Miami Center
office building and an unaffiliated party owns the hotel unit. The Condominium
Declaration grants each unit a 50% interest in common areas, as well as in the
common operating expenses of the condominium.
8. PRO FORMA FINANCIAL INFORMATION
The pro forma financial information for the nine months ended September 30,
1997 and 1996 assumes the completion, in each case as of January 1, 1996, of (i)
the 11,500,000 common share offering on October 2,
F-14
<PAGE> 108
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1996 and the additional 450,000 common share offering on October 9, 1996; (ii)
the Offerings; (iii) the Merrill Offering; (iv) the UBS Offering; (v) the Notes
offering; (vi) the HC Offering; (vii) the 1996 and 1997 completed acquisitions
inclusive of subsequent events (see Note 9), except for the Refrigerated
Warehouses transaction (collectively referred to as the, "Acquisitions"); and
(viii) the October 1997 Offering (as defined in Note 9). Proforma information
assumes as of January 1, 1996, all offering proceeds were used for repayment of
indebtedness for Acquisitions.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
Total revenue..................................... $437,619 $408,865
Operating income.................................. $100,440 $ 79,165
Income before minority interests and extraordinary
item............................................ $120,339 $ 95,185
Net income........................................ $120,706 $ 94,136
</TABLE>
The pro forma operating results combine the Operating Partnership's
historical operating results with the historical incremental rental income and
operating expenses including an adjustment for depreciation based on the
acquisition price associated with the Office and Retail Property acquisitions.
Pro forma adjustments primarily represent the following: (i) rental income to
the Operating Partnership from the hotels acquired during 1996 and 1997, based
on the lease payments from the hotel lessees and calculated on a pro forma basis
by applying the rent provisions (as set forth in the lease agreements); (ii)
rental income based on the lease payment from CBHS to the Operating Partnership
by applying the rent provisions (as set forth in the lease agreement); (iii)
adjustment for depreciation expense for Hotel Properties and Magellan
Facilities; (iv) adjustment for equity in net income for the Woodlands and
Desert Mountain transactions; (v) interest income for the notes acquired in the
Carter-Crowley transaction, the loans to Crescent Operating and the loans to
DMPLP; and (vi) interest costs assuming the borrowings to finance acquisitions
and assumption of debt for property acquisitions.
These pro forma amounts are not necessarily indicative of what the actual
financial position of the Operating Partnership would have been assuming the
above investments had been consummated as of the beginning of the period, nor do
they purport to represent the future financial position of the Operating
Partnership.
9. SUBSEQUENT EVENTS
Distribution. On November 4, 1997, the Operating Partnership paid a
distribution of $47,584.
October 1997 Offering. On October 8, 1997, Crescent Equities completed an
offering (the "October 1997 Offering") of 10,000,000 common shares at $39.00 per
share. Net proceeds from the October 1997 Offering to Crescent Equities after
underwriting discount of $19,900 were approximately $370,100 (with other
estimated offering costs of $1,500). The net proceeds of $370,100 were
contributed to the Operating Partnership, which used these funds to partially
repay approximately $325,100 of borrowings under the Credit Facility and to fund
approximately $45,000 of the purchase price of the U.S. Home Building.
U.S. Home Building. On October 15, 1997, the Operating Partnership acquired
U.S. Home Building, a 21-story Class A office building located in the West
Loop/Galleria submarket of Houston, Texas, containing approximately 400,000 net
rentable square feet. The purchase price was approximately $45,000, which was
funded from proceeds of the October 1997 Offering.
Bank One Center. On October 22, 1997, the Operating Partnership, together
with affiliates of TrizecHahn Corporation ("Trizec") acquired Bank One Center, a
60-story Class A office building located in the CBD submarket of Dallas, Texas.
Bank One Center contains approximately 1.5 million net rentable square feet. The
acquisition was made by Main Street Partners, L.P. (the "Partnership"), a Texas
limited
F-15
<PAGE> 109
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
partnership in which the Operating Partnership and Trizec each own a 50%
interest. Crescent 1717 Main, L.L.C., a Texas limited liability company that is
wholly owned by the Operating Partnership and TrizecHahn 1717 Main St., Inc., a
Delaware corporation, serve as the general partners of the Partnership. The
Partnership acquired Bank One Center for approximately $238,000 from two
unaffiliated entities. The purchase price was funded through (i) proceeds from
two secured loans aggregating $155,000 provided by The Travelers Insurance
Company and (ii) capital contributions of $41,500 from each of Operating
Partnership and Trizec partner groups. The Operating Partnership's capital
contribution of $41,500 was funded through a draw under the Credit Facility.
Registration Statement. On October 29, 1997, Crescent Equities filed a
shelf registration with the SEC for an aggregate of $1.5 billion of common
shares, preferred shares, and warrants exercisable for common shares. Any
securities issued under the registration statement may be offered from time to
time in amounts, at prices, and on terms to be determined at the time of the
offering. Management believes this shelf registration will provide Crescent
Equities with more efficient and immediate access to the capital markets at such
time as it is considered appropriate. Net proceeds from any offering of these
securities are expected to be contributed to the Operating Partnership to be
used for general business purposes, including the acquisition and development of
additional properties and other acquisition transactions, the payment of certain
outstanding debt, and improvements to certain properties.
Refrigerated Warehouses Transaction. Effective September 28, 1997, the
Operating Partnership entered into a partnership with Vornado Realty Trust
("Vornado" and, collectively with its affiliates, "VNO") to participate in the
acquisition of Americold Corporation ("Americold") and URS Logistics, Inc.
("URS"), two suppliers of refrigerated warehouse space in the United States. On
October 30, 1997, the Operating Partnership and VNO agreed to the termination of
that partnership and the formation of two new partnerships, one of which was
formed to consummate the acquisition of Americold (the "Americold Partnership")
and the other to consummate the acquisition of URS (the "URS Partnership"). The
Operating Partnership, through two newly formed subsidiaries ("Crescent
Subsidiaries"), will own 40% of these partnerships, and Vornado, through two
newly formed subsidiaries ("Vornado Subsidiaries"), will own 60%.
On October 31, 1997, the Americold Partnership acquired all of the common
stock of Americold through the merger of a subsidiary of Vornado into Americold,
and the URS Partnership acquired all of the common stock of URS through the
merger of a separate subsidiary of Vornado into URS. As a result, the Americold
Partnership and the URS Partnership became the owners and operators of
approximately 79 refrigerated warehouses with an aggregate of approximately 368
million cubic feet.
The aggregate purchase price for the acquisition of Americold and URS was
approximately $1.0 billion (including transaction costs associated with the
acquisition). Of this amount, the purchase price for the acquisition of
Americold was approximately $632 million (consisting of approximately $112
million in cash for the purchase of the equity, approximately $151 million in
cash for the repayment of certain outstanding bonds issued by Americold,
approximately $367 million in retention of debt and approximately $2 million in
transaction costs), and the purchase price for the acquisition of URS was
approximately $372 million (consisting of approximately $173 million in cash for
the purchase of the equity, approximately $192 million in retention of debt and
approximately $7 million in transaction costs).
The Operating Partnership currently owns all of the voting common stock,
representing an approximately 5% economic interest, and all of the nonvoting
common stock, representing an approximately 95% economic interest, of the
Crescent Subsidiaries. The Operating Partnership has offered and expects
Crescent Operating to accept the opportunities to acquire all of the voting
common stock in the subsidiaries. It is intended that the transfer of the voting
common stock to Crescent Operating (or, if Crescent Operating does not accept
such offer, to another entity) will take place in the near future and in no
event later than December 31, 1997.
F-16
<PAGE> 110
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The parties have not yet determined certain matters relating to the future
ownership and operations of Americold and URS, including the identification and
division of the assets that will continue to be owned by one of the partnerships
and those that will be owned by one or more other entities formed to conduct the
business operations currently conducted by Americold and URS, and the nature and
terms of any lease that will be entered into between the operating entity and
the owner of the warehouses.
Term Loan. On November 3, 1997, the Operating Partnership negotiated a term
loan with BankBoston in the amount of $50,000 (the "BankBoston Term Loan"). The
loan bears interest at Eurodollar plus 120 basis points and matures on March 31,
1998. The BankBoston Term Loan can be increased to $150,000 subject to certain
conditions.
Fountain Place. On November 7, 1997, the Operating Partnership acquired
Fountain Place, a 60-story Class A office building located in the CBD submarket
of Dallas, Texas containing approximately 1.2 million net rentable square feet.
The purchase price was approximately $114,000 of which the Operating Partnership
funded $16,900 through the BankBoston Term Loan and $97,100 through the
assumption of nonrecourse indebtedness.
F-17
<PAGE> 111
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Crescent Real Estate Equities Limited Partnership:
We have audited the accompanying consolidated balance sheets of Crescent
Real Estate Equities Limited Partnership as of December 31, 1996 and 1995, and
the related consolidated statements of operations, partners' capital, and cash
flows for the years ended December 31, 1996 and 1995, and for the period from
May 5, 1994, to December 31, 1994, and the combined statements of operations,
partners' deficit, and cash flows of the Rainwater Property Group (see Note 1)
for the period from January 1, 1994, to May 4, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Crescent Real Estate
Equities Limited Partnership as of December 31, 1996 and 1995, and the results
of its operations and its cash flows for the years ended December 31, 1996 and
1995, and for the period from May 5, 1994, to December 31, 1994, and the results
of operations and cash flows of the Rainwater Property Group for the period from
January 1, 1994, to May 4, 1994, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 17, 1997
F-18
<PAGE> 112
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---------- ---------
<S> <C> <C>
Assets:
Investments in Real Estate:
Land................................................... $ 146,036 $ 57,566
Building and improvements.............................. 1,561,639 932,340
Furniture, fixtures and equipment...................... 24,951 16,800
Less -- Accumulated depreciation....................... (208,808) (172,267)
---------- ---------
Net Investment in Real Estate..................... 1,523,818 834,439
Cash and cash equivalents................................. 25,535 16,869
Restricted cash and cash equivalents...................... 36,882 22,187
Accounts receivable, net of allowance for doubtful
accounts of $904 and $715, respectively................ 15,330 7,005
Deferred rent receivable.................................. 16,217 10,007
Investments in real estate mortgages and common stock of
residential development corporations................... 37,069 20,090
Notes receivable.......................................... 31,405 18,933
Other assets, net......................................... 47,284 35,702
---------- ---------
Total assets...................................... $1,733,540 $ 965,232
========== =========
Liabilities:
Borrowings under Credit Facility.......................... $ 40,000 $ 20,000
Notes payable............................................. 627,808 424,528
Accounts payable, accrued expenses and other
liabilities............................................ 48,462 31,706
---------- ---------
Total liabilities................................. 716,270 476,234
---------- ---------
Minority interests.......................................... 29,265 9,481
Partners' capital:
General partner........................................... 4,515 4,800
Limited partners.......................................... 983,490 474,717
---------- ---------
Total partners' capital........................... 988,005 479,517
---------- ---------
Total liabilities and partners' capital........... $1,733,540 $ 965,232
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 113
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS AND
RAINWATER PROPERTY GROUP
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
RAINWATER
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP PROPERTY GROUP
------------------------------------------------- --------------
FOR THE PERIOD FOR THE
FOR THE FOR THE FROM MAY 5, PERIOD FROM
YEAR ENDED YEAR ENDED 1994 TO JANUARY 1,
DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 TO
1996 1995 1994 MAY 4, 1994
------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental property...................... $ 202,003 $ 123,489 $ 49,075 $ 18,550
Interest and other income............ 6,858 6,471 1,268 42
Lot sales............................ -- -- -- 2,593
----------- ----------- ----------- ----------
Total revenues............... 208,861 129,960 50,343 21,185
----------- ----------- ----------- ----------
Expenses:
Real estate taxes.................... 20,606 12,494 5,426 2,270
Repairs and maintenance.............. 12,292 7,787 2,651 1,279
Other rental property operating...... 40,915 25,668 10,916 5,147
Corporate general and
administrative.................... 4,674 3,812 1,815 --
Interest expense..................... 42,926 18,781 3,493 4,867
Amortization of deferred financing
costs............................. 2,812 2,500 923 --
Depreciation and amortization........ 40,535 28,060 14,255 7,793
Cost of lot sales.................... -- -- -- 867
Residential development operating.... -- -- -- 561
----------- ----------- ----------- ----------
Total expenses............... 164,760 99,102 39,479 22,784
----------- ----------- ----------- ----------
Operating income (loss)...... 44,101 30,858 10,864 (1,599)
Other income (expense):
Reorganization costs................. -- -- (1,900) --
Equity in net income of residential
development corporations.......... 3,850 5,500 3,631 --
----------- ----------- ----------- ----------
Income (loss) before minority interests
and extraordinary items.............. 47,951 36,358 12,595 (1,599)
Minority interests................... (1,482) (815) -- --
----------- ----------- ----------- ----------
Income (loss) before extraordinary
items................................ 46,469 35,543 12,595 (1,599)
Extraordinary items.................. (1,599) -- (949) --
----------- ----------- ----------- ----------
Net income (loss)...................... $ 44,870 $ 35,543 $ 11,646 $ (1,599)
=========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 114
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL AND
RAINWATER PROPERTY GROUP
COMBINED STATEMENT OF PARTNERS' DEFICIT
(DOLLARS IN THOUSANDS)
(NOTES 1, 2 AND 8)
<TABLE>
<CAPTION>
LIMITED GENERAL TOTAL
PARTNERS' PARTNER'S PARTNERS'
CAPITAL CAPITAL CAPITAL
--------- --------- ---------
<S> <C> <C> <C>
Partners' capital, December 31, 1993........................ $ 2,941 $ -- $ 2,941
Contributions............................................. 5,660 -- 5,660
Distributions............................................. (16,675) -- (16,675)
Net Loss.................................................. (1,599) -- (1,599)
-------- ------ --------
Partners' deficit, May 4, 1994.............................. (9,673) -- (9,673)
Contributions............................................. 339,232 5,035 344,267
Distributions............................................. (17,614) (178) (17,792)
Net Income................................................ 11,530 116 11,646
-------- ------ --------
Partners' capital, December 31, 1994........................ 323,475 4,973 328,448
Contributions............................................. 167,249 -- 167,249
Contribution of notes receivable.......................... 1,061 -- 1,061
Distributions............................................. (52,256) (528) (52,784)
Net Income................................................ 35,188 355 35,543
-------- ------ --------
Partners' capital, December 31, 1995........................ 474,717 4,800 479,517
Contributions............................................. 535,428 -- 535,428
Contribution of notes receivable.......................... 1,557 -- 1,557
Distributions............................................. (72,633) (734) (73,367)
Net Income................................................ 44,421 449 44,870
-------- ------ --------
Partners' capital, December 31, 1996........................ $983,490 $4,515 $988,005
======== ====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 115
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS AND
RAINWATER PROPERTY GROUP
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
RAINWATER
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP PROPERTY GROUP
--------------------------------------------------- --------------
FOR THE PERIOD FOR THE
FOR THE FOR THE FROM MAY 5, PERIOD FROM
YEAR ENDED YEAR ENDED 1994 TO JANUARY 1,
DECEMBER 31, DECEMBER 31, DECEMBER 31, 1994 TO
1996 1995 1994 MAY 4, 1994
------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 44,870 $ 35,543 $ 11,646 $(1,599)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 43,347 30,560 15,178 7,793
Reorganization costs.................................. -- -- 1,900 --
Minority interests.................................... 1,482 815 -- --
Extraordinary items................................... 1,599 -- 949 --
Non-cash compensation................................. 111 -- -- --
Equity in earnings in excess of distributions received
from residential development corporations........... (322) -- -- --
(Increase) decrease in accounts receivable............ (8,325) (5,043) (608) 534
Increase in deferred rent receivable.................. (6,210) (875) -- --
Increase in other assets.............................. (387) (7,871) (1,797) (2,520)
Increase in lots held for development and sale........ -- -- -- (1,670)
Increase in restricted cash and cash equivalents...... (15,537) (4,700) (12,074) --
Increase (decrease) in accounts payable, accrued
expenses and other liabilities...................... 16,756 16,448 6,420 (293)
Increase in accrued interest payable -- affiliate..... -- -- -- 210
--------- --------- --------- -------
Net cash provided by operating activities......... 77,384 64,877 21,614 2,455
--------- --------- --------- -------
Cash flows from investing activities:
Acquisition of investment properties.................... (460,113) (420,284) (192,200) --
Capital expenditures -- rental properties............... (2,380) (1,148) (2,100) (1,354)
Tenant improvement and leasing costs -- rental
properties............................................ (20,052) (13,911) -- --
Decrease (increase) in restricted cash and cash
equivalents........................................... 842 (5,413) -- --
Purchase of non-continuing partner's interest........... -- -- (14,000) (1,025)
Payments to continuing partners in connection with
formation transactions................................ -- -- (7,496) --
Decrease in cash and cash equivalents resulting from
non-controlling interest held in residential
development corporations after formation
transactions.......................................... -- -- (744) --
Investment in residential development corporations...... (16,657) (8,654) -- --
Investment in unconsolidated companies.................. (3,900) -- -- --
Escrow deposits -- acquisition of investment
properties............................................ 140 40,836 (41,186) --
Increase in notes receivable............................ (10,913) (12,732) (2,940) --
--------- --------- --------- -------
Net cash used in investing activities............. (513,033) (421,306) (260,666) (2,379)
--------- --------- --------- -------
Cash flows from financing activities:
Debt financing costs.................................... (7,081) (8,342) (4,227) --
Borrowings under Credit Facility........................ 191,500 217,450 194,642 --
Payments under Credit Facility.......................... (171,500) (392,092) -- --
Debt proceeds........................................... 152,755 411,862 -- 3,411
Debt payments........................................... (92,254) (66) (266,334) (15,137)
Capital contributions -- Joint Venture.................. 750 125 -- 5,660
Capital distributions -- Joint Venture.................. (14,505) -- -- --
Capital distributions................................... -- -- -- (16,675)
Capital contributions to the Operating Partnership...... 458,017 166,926 359,133 --
Reorganization costs.................................... -- -- (1,900) --
Distributions from the Operating Partnership............ (73,367) (52,784) (17,792) --
Decrease in due from affiliates......................... -- -- 3,439 815
(Decrease) increase in due to affiliates................ -- -- (1,353) 616
--------- --------- --------- -------
Net cash provided by (used in) financing
activities...................................... 444,315 343,079 265,608 (21,310)
--------- --------- --------- -------
Increase (decrease) in cash and cash equivalents.......... 8,666 (13,350) 26,556 (21,234)
Cash and cash equivalents, Beginning of period............ 16,869 30,219 3,663 24,897
--------- --------- --------- -------
Cash and cash equivalents, End of period.................. $ 25,535 $ 16,869 $ 30,219 $ 3,663
========= ========= ========= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 116
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
AND RAINWATER PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Formation of the Operating Partnership and Organization
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership ("CREELP," together with its direct and indirect interests in
limited partnerships, the "Operating Partnership") was formed under the terms of
the Limited Partnership Agreement dated February 9, 1994. The Operating
Partnership is controlled by Crescent Real Estate Equities Company, a Texas real
estate investment trust ("Crescent Equities"), through Crescent Equities'
ownership of all of the outstanding stock of Crescent Real Estate Equities,
Ltd., a Delaware corporation which owns an approximate 1% general partner
interest in the Operating Partnership ("CREE, Ltd."). In addition, Crescent
Equities owns an approximate 84% limited partner interest in the Operating
Partnership, with the remaining approximate 15% held by other partners. The
Operating Partnership provides management, leasing, and development services
with respect to certain of its properties. The Operating Partnership owns
substantially all of the economic interest directly or indirectly of six single
purpose limited partnerships (formed for the purpose of obtaining securitized
debt). The term "Operating Partnership" includes, unless the context otherwise
requires, CREELP and other limited partnerships ("subsidiaries") of the
Operating Partnership.
As of December 31, 1996, the Operating Partnership directly or indirectly
owned a portfolio of real estate assets (the "Properties") located primarily in
16 metropolitan submarkets in Texas and Colorado. The Properties include 53
office properties (the "Office Properties") with an aggregate of approximately
16.3 million net rentable square feet, four full-service hotels with a total of
1,471 rooms and two destination health and fitness resorts (the "Hotel
Properties"), six retail properties (the "Retail Properties") with an aggregate
of approximately .6 million net rentable square feet and real estate mortgages
and nonvoting common stock in three residential development corporations (the
"Residential Development Corporations") that own all or a portion of six
single-family residential land developments and three condominium/townhome
developments. In addition, the Operating Partnership owns one mortgage note
secured by a Class A office property.
The following table sets forth, by subsidiary, the Properties owned by such
subsidiary:
<TABLE>
<S> <C>
CREELP: Bank One Tower, Canyon Ranch-Tucson, Chancellor Park(1),
Central Park Plaza, Denver Marriott City Center, Frost Bank
Plaza, Greenway I and IA, MCI Tower, Sonoma Mission Inn &
Spa, Spectrum Center(2), Three Westlake Park(3), The
Woodlands Office Properties(4), The Woodlands Retail
Properties(4), 160 Spear Street, 1615 Poydras, 301 Congress
Avenue(5), 3333 Lee Parkway, and 6225 North 24th Street
Crescent Real Estate Funding I, L.P.: The Aberdeen, The Avallon, Caltex House, The Citadel,
("Funding I") Continental Plaza, The Crescent Atrium, The Crescent Office
Towers, Regency Plaza One, and Waterside Commons
Crescent Real Estate Funding II, Albuquerque Plaza, Barton Oaks Plaza One, Briargate Office
L.P.: ("Funding II") and Research Center, Hyatt Regency Albuquerque, Hyatt
Regency Beaver Creek, Las Colinas Plaza, Liberty Plaza I &
II, MacArthur Center I & II, Ptarmigan Place, Stanford
Corporate Centre, Two Renaissance Square, and 12404 Park
Central
Crescent Real Estate Funding III, IV, Greenway Plaza Portfolio(6)
and V L.P.: ("Funding III, IV and
V")
</TABLE>
F-23
<PAGE> 117
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
AND RAINWATER PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Crescent Real Estate Funding VI, Canyon Ranch-Lenox
L.P.: ("Funding VI")
- ---------------
(1) CREELP owns Chancellor Park through its ownership of a mortgage note secured
by the building and through its direct and indirect interests in the
partnership which owns the building.
(2) CREELP owns the principal economic interest in Spectrum Center through an
interest in the partnership which owns both a mortgage note secured by the
building and the ground lessor's interest in the land underlying the
building.
(3) CREELP owns the principal economic interest in Three Westlake Park through
its ownership of a mortgage note secured by the building.
(4) CREELP owns a 75% limited partner interest in the partnerships that own The
Woodlands Office and Retail Properties.
(5) CREELP owns a 49% limited partner interest and Crescent/301, L.L.C., a
wholly owned subsidiary of CREE, Ltd. and CREELP, owns a 1% general partner
interest in 301 Congress Avenue, L.P., the partnership that owns 301
Congress Avenue.
(6) Funding III owns the Greenway Plaza Portfolio, except for the central heated
and chilled water plant building and Coastal Tower Office property, both
located within Greenway Plaza, which are owned by Funding IV and Funding V,
respectively (see Note 11).
Basis of Presentation
The accompanying consolidated financial statements of the Operating
Partnership include all direct and indirect subsidiary entities. The equity
interests in those direct and indirect subsidiaries not owned by the Operating
Partnership are reflected as minority interests. All significant intercompany
balances and transactions have been eliminated.
The accompanying combined statements of operations, partners' deficit, and
cash flows of the Rainwater Property Group ("RPG") consist of the accounts of
prior entity partnerships and owner which had ownership interest in the
properties of The Crescent Office Towers, The Crescent Atrium, Continental
Plaza, MacArthur Center I & II, Mira Vista, Falcon Point, Spring Lakes, The
Citadel and Las Colinas Plaza (collectively, the "RPG Properties").
The business combination, in 1994, was structured as an exchange of
properties or partnership interests by RPG for limited partnership interests in
the Operating Partnership or shares of Crescent Equities. Therefore, the
combination was accounted for as a reorganization of entities under common
control (except for investments in real estate mortgages and common stock of
Residential Development Corporations, which were accounted for under the equity
method of accounting) and, accordingly, all assets and liabilities of the
predecessor partnerships were recorded at predecessor historical cost in a
manner similar to that in pooling of interests accounting. Purchase accounting
was applied to those properties for which monetary consideration was given to
acquire certain partnership interests previously held by partners who did not
participate in the reorganization, in which case the value of the property
reflects the amount of the consideration paid in addition to predecessor
historical cost.
The accompanying combined statements of operations, partners' deficit, and
cash flows of RPG have been presented on a combined historical cost basis
because of the affiliated ownership and management, and because the assets and
liabilities were subject to a business combination with the Operating
Partnership, both newly formed entities with no prior operations. All
significant intercompany balances and transactions have been eliminated.
F-24
<PAGE> 118
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
AND RAINWATER PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with the terms of the Limited Partnership Agreement, Crescent
Equities is reimbursed for all expenses incurred relating to the ownership and
operation of, or for the benefit of, the Operating Partnership. Therefore, all
expenses of Crescent Equities are included herein as expenses of the Operating
Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Investments in Real Estate
Properties are recorded at the lower of depreciable cost or net realizable
value. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, as follows:
<TABLE>
<S> <C>
Buildings and Improvements................................ 5 to 49 years
Tenant Improvements....................................... Terms of leases
Furniture, Fixtures and Equipment......................... 3 to 10 years
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations are capitalized.
Concentration of Real Estate Investments
The majority of the Operating Partnership's office and retail properties
are in the Houston, Texas and Dallas/Fort Worth, Texas metropolitan areas. As of
December 31, 1996, these office and retail properties together represented
approximately 35% and 33%, respectively, of the Operating Partnership's total
net rentable square feet and accounted for approximately 27% and 34%,
respectively, of the Operating Partnership's total pro forma rental revenues for
1996 (see Note 11). As a result of the geographic concentration, the operations
of these properties could be adversely affected by a recession or general
economic downturn in the areas where these properties are located.
Restricted Cash and Cash Equivalents
Restricted cash includes escrows established pursuant to certain mortgage
financing arrangements for real estate taxes, insurance, security deposits,
ground lease expenditures, capital expenditures, and monthly interest carrying
costs paid in arrears.
Other Assets
Other assets consist principally of leasing costs and deferred financing
costs. Leasing costs are amortized on a straight-line basis over the terms of
the respective leases and unamortized lease costs are written off upon early
termination of lease agreements. Deferred financing costs are amortized on a
straight-line basis over the term of the respective loans.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, and short-term
investments are reasonable estimates of their fair values because of the short
maturities of these instruments. The fair value of notes receivable, which
approximates carrying value, is estimated based on year-end interest rates for
receivables of comparable
F-25
<PAGE> 119
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
AND RAINWATER PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
maturity. Notes payable and borrowings under Credit Facility have aggregate
carrying values which approximate their estimated fair values based upon the
current interest rates for debt with similar terms and remaining maturities,
without considering the adequacy of the underlying collateral. Disclosure about
fair value of financial instruments is based on pertinent information available
to management as of December 31, 1996 and 1995.
During 1996 and 1995, the Operating Partnership did not invest in any asset
backed or off balance sheet derivative financial instruments as defined pursuant
to Statement of Financial Accounting Standards No. 119 "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments".
Revenue Recognition
Office/Retail
The Operating Partnership, as a lessor, has retained substantially all of
the risks and benefits of ownership of the investment properties and accounts
for its leases as operating leases. Income on leases which include scheduled
increases in rental rates over the lease term and/or abated rent payments for
various periods following the tenant's lease commencement date is recognized on
a straight-line basis. Deferred rent receivable represents the excess of rental
revenue recognized on a straight-line basis over cash received under the
applicable lease provisions.
Residential Lots
Prior to the business combination of the Operating Partnership, revenue
from residential lot sales was recognized at the time of the closing of a sale,
when title to or possession of the property transferred to the buyer. In 1995,
the Operating Partnership adopted the accounting prescribed in EITF 95-6,
"Accounting by Real Estate Investment Trust for an Investment in Service
Corporation" and utilized the equity method with regard to the Operating
Partnership's investment in the Residential Development Corporations. The effect
of this change on the period from May 5, 1994, to December 31, 1994, was not
material and such amounts have been reclassified to conform to the current
presentation.
Hotels
The Operating Partnership does not operate the Hotel Properties directly.
It has leased these hotel properties to independent companies affiliated with
the Operating Partnership (see Note 6). The leases provide for the payment by
the lessee of the Hotel Property of (i) base rent, with periodic rent increases,
(ii) percentage rent based on a percentage of gross room revenues above a
specified amount, and (iii) a percentage of gross food and beverage revenues
above a specified amount. Base rental income under these leases is recognized on
a straight-line basis over the terms of the respective leases.
Income Taxes
Prior to May 5, 1994, all of the RPG Properties were owned by partnerships
and joint ventures whose partners were required to include their respective
share of profits and losses in their individual tax returns.
No provision has been made for federal or state income taxes because each
partner's proportionate share of income or loss from the Operating Partnership
will be passed through on each partner's separate tax return.
Statements of Cash Flows
For purposes of the statements of cash flows, all highly liquid investments
purchased with an original maturity of 90 days or less are included in cash and
cash equivalents.
F-26
<PAGE> 120
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
AND RAINWATER PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental Disclosure to Statements of Cash Flows
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- ------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid......................................... $ 42,488 $18,224 $7,100(1)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Mortgage notes assumed in property acquisitions....... $142,799 $12,732 $ --
Minority interest -- joint venture capital............ 31,985 8,994 --
Issuance of limited partner interests in the Operating
Partnership in conjunction with property
acquisitions....................................... 77,236 -- --
Issuance of restricted limited partner interests in
the Operating Partnership.......................... -- 455 --
</TABLE>
- ---------------
(1) Represents for the periods January 1, 1994 to May 4, 1994 and May 5, 1994 to
December 31, 1994, $4,657 and $2,443, respectively.
Adoption of New Accounting Pronouncements
In March 1995, the Operating Partnership adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets to be Disposed Of." This statement
requires that long-lived assets and certain identifiable intangibles, to be held
and used by an entity, be reviewed for impairment whenever events or changes in
circumstances indicated that the carrying amount of an asset may not be
recoverable. An impairment loss is recognized, on a property by property basis,
when expected undiscounted cash flows are less than the carrying value of the
asset. In cases where the Operating Partnership does not expect to recover its
carrying costs, the Operating Partnership reduces its carrying costs to fair
value. No such reductions have occurred to date.
3. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Leasing costs............................................... $ 39,483 $ 30,858
Deferred financing costs.................................... 13,956 12,569
Other....................................................... 15,237 10,986
-------- --------
68,676 54,413
Less -- Accumulated amortization............................ (21,392) (18,711)
-------- --------
$ 47,284 $ 35,702
======== ========
</TABLE>
F-27
<PAGE> 121
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
AND RAINWATER PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE AND BORROWINGS UNDER CREDIT FACILITY:
Following is a summary of the Operating Partnership's debt financing:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Note payable to LaSalle National Bank, as Trustee for
Commercial Mortgage Pass-Through Certificates, Series
1995-MD IV ("LaSalle Note I") bears interest at 7.83% with
an initial seven-year interest-only period (through August
2002), followed by principal amortization based on a
25-year amortization schedule through maturity in August
2027(1), secured by the Funding I properties with a
combined book value of $311,339........................... $239,000 $239,000
Note payable to LaSalle National Bank, as Trustee for
Commercial Mortgage Pass-Through Certificates, Series
1996-MD V ("LaSalle Note II") bears interest at 7.79% with
an initial seven-year interest-only period (through March
2003), followed by principal amortization based on a
25-year amortization schedule through maturity in March
2028(2), secured by the Funding II properties with a
combined book value of $296,600........................... 161,000 67,362
Note payable to LaSalle National Bank, Trustee of Commercial
Mortgage Pass-Through Certificates, Series 1994-MD II
("LaSalle Note III") due July 1999, bears interest at
30-day LIBOR plus a weighted average rate of 2.135% (at
December 31, 1996 the rate was 7.51% subject to a rate cap
of 10%) with a five-year interest-only term, secured by
the Funding III, IV and V properties with a book value of
$213,243.................................................. 115,000 --
Note payable to Connecticut General Life Insurance Company
("CIGNA") due December 2002, bears interest at 7.47% with
a seven-year interest-only term, secured by the MCI Tower
and Denver Marriott City Center properties with a combined
book value of $102,990.................................... 63,500 51,500
Note payable to Northwestern Mutual Life Insurance Company
due January 2004, bears interest at 7.66% with a
seven-year interest-only term, secured by the 301 Congress
Avenue property with a book value of $44,501.............. 26,000 --
Note payable to Metropolitan Life Insurance Company due
September 2001, bears interest at 8.875% with monthly
principal and interest payments, secured by five of The
Woodlands Office Properties with a combined book value of
$16,058................................................... 12,411 12,666
Note payable to Nomura Asset Capital Corporation ("Nomura
Funding VI Note") bears interest at 10.07% with monthly
principal and interest payments based on a 25-year
amortization schedule through July 2020(3), secured by the
Funding VI property with a book value of $29,332.......... 8,780 --
</TABLE>
F-28
<PAGE> 122
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
AND RAINWATER PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Short-term note payable to The First National Bank of Boston
("FNBB") due March 1996, bears interest at 7.9%, secured
by six CREELP properties.................................. $ -- $ 54,000
Short-term construction loan payable to Texas Commerce Bank
due September 1997, bears interest at LIBOR plus 1.7%, (at
December 31, 1996 the rate was 7.39%) secured by land and
improvements that relate to the construction of The
Avallon Phase II (Building 5)............................. 2,117 --
-------- --------
Total Notes Payable............................... $627,808 $424,528
======== ========
</TABLE>
- ---------------
(1) In August 2007, the interest rate increases, and the Operating Partnership
is required to remit, in addition to the monthly debt service payment,
excess property cash flow, as defined, to be applied first against principal
until the note is paid in full and thereafter, against accrued excess
interest, as defined. It is the Operating Partnership's intention to repay
the note in full at such time (August 2007) by making a final payment of
approximately $220,000.
(2) In March 2006, the interest rate increases, and the Operating Partnership is
required to remit, in addition to the monthly debt service payment, excess
property cash flow, as defined, to be applied first against principal until
the note is paid in full and thereafter, against accrued excess interest, as
defined. It is the Operating Partnership's intention to repay the note in
full at such time (March 2006) by making a final payment of approximately
$154,000.
(3) In July 1998, the Operating Partnership may defease the loan by purchasing
treasuries to pay out the obligation without penalty. In July 2010, the
loan's interest rate will change to a 10 year treasury yield plus 500 basis
points or if elected, the loan can be prepaid without defeasance.
In June 1996, the Operating Partnership executed a new $150,000 credit
facility (the "Credit Facility") led by FNBB, which was increased to $175,000 in
August 1996, to enhance the Operating Partnership's financial flexibility in
making new real estate investments. The Credit Facility initially had a term
that expired in March 1997, with advances under the Credit Facility bearing
interest at the Eurodollar rate plus 240 basis points for advances of $2,000 or
more, or at the lender's prime rate plus 50 basis points for advances of less
than $2,000. In October 1996, Crescent Equities completed a public offering of
its common shares and contributed proceeds to the Operating Partnership, as a
result, the Credit Facility became unsecured, the annual interest rate was
reduced to the Eurodollar rate plus 185 basis points or, as applicable, the
lender's prime rate, and the term was extended until March 1999. As of December
31, 1996, the interest rate was 7.41% and the outstanding balance was $40,000
with availability of $135,000. The Credit Facility requires the Operating
Partnership to maintain compliance with a number of customary financial and
other covenants on an ongoing basis, including loan-to-value, fixed charge and
debt service coverage ratios, limitations on additional indebtedness and
distributions, and a minimum net worth requirement. As of December 31, 1996, the
Operating Partnership was in compliance with all covenants, except for one
financial covenant for which the Operating Partnership had obtained a bank
waiver.
F-29
<PAGE> 123
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
AND RAINWATER PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Combined aggregate principal maturities of notes payable and borrowings
under the Credit Facility are as follows:
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1997...................................................... $ 2,515
1998...................................................... 435
1999...................................................... 155,477
2000...................................................... 523
2001...................................................... 11,170
Thereafter................................................ 497,688
--------
$667,808
========
</TABLE>
5. RENTALS UNDER OPERATING LEASES:
The Operating Partnership receives rental income from the leasing of
office, retail and hotel property space under operating leases. Future minimum
rentals (base rents) under noncancelable operating leases over the next five
years (excluding tenant reimbursements of operating expenses) as of December 31,
1996, are as follows:
<TABLE>
<CAPTION>
COMBINED
OFFICE,
LEASES RETAIL AND
WITH HOTEL
AFFILIATES BUILDING SPACE
---------- ---------------
<S> <C> <C>
1997............................................. $ 24,879 $ 227,195
1998............................................. 25,530 209,590
1999............................................. 25,174 189,068
2000............................................. 25,380 173,015
2001............................................. 24,777 152,007
Thereafter....................................... 105,866 589,445
-------- ----------
$231,606 $1,540,320
======== ==========
</TABLE>
Generally, the office and retail leases also require that tenants reimburse
the Operating Partnership for increases in operating expenses above operating
expenses during the base year of the tenants lease. These amounts totaled
$16,719, $8,267, and $3,952 for the years ended December 31, 1996, 1995 and
1994, respectively. These increases are generally payable in equal installments
throughout the year, based on estimated increases, with any differences being
adjusted at year end based upon actual expenses.
The Operating Partnership recognized percentage lease revenue from the
Hotel Properties of approximately $4,493, $1,797 and $0 for the years ended
December 31, 1996, 1995, and 1994, respectively.
6. RELATED PARTY TRANSACTIONS:
Certain of the RPG Properties were managed by affiliates of certain
partners of RPG prior to the business combination. Management, security, leasing
and other fees earned by these affiliates in connection with the management of
these properties were $864 for the period from January 1, 1994, to May 4, 1994.
In addition, the RPG Properties reimbursed affiliates for various operating
expenses paid to third parties on its behalf. No related party fees have been
paid subsequent to May 4, 1994.
F-30
<PAGE> 124
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
AND RAINWATER PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Operating Partnership has leased the Hotel Properties to independent
companies (collectively, the "Hotel Lessees") pursuant to six separate leases,
each for a term of approximately 10 years. These independent companies are owned
4.5% by each of John C. Goff, who is an officer and trust manager of Crescent
Equities, and Gerald W. Haddock, who is an officer and trust manager of Crescent
Equities and an officer and the sole director of CREE, Ltd., and 91% by the
Hotel Lessees' asset manager. Under the leases, the Hotel Lessees have assumed
the rights and obligations of the property owner under the respective management
agreement with the hotel operators, as well as the obligation to pay all
property taxes and other charges against the property. As part of the lease
agreements for five of the Hotel Properties, the Operating Partnership has
agreed to fund all capital expenditures relating to furniture, fixtures and
equipment reserves required under the applicable management agreements. The only
exception is Canyon Ranch-Tucson, in which the hotel lessee owns all furniture,
fixtures, and equipment associated with the property and will fund all related
capital expenditures.
7. COMMITMENTS AND CONTINGENCIES:
Lease Commitments
The Operating Partnership has twelve properties located on land that is
subject to long-term ground leases which expire between 2001 and 2057. Ground
lease expense during each of the three years ended December 31, 1996, 1995 and
1994 was $681, $442, and $83, respectively. Future minimum lease payments due
under such ground leases as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
GROUND
LEASES
------------
<S> <C>
1997.................................................. $ 1,259
1998.................................................. 1,212
1999.................................................. 1,215
2000.................................................. 1,228
2001.................................................. 1,244
Thereafter............................................ 79,456
-------
$85,614
=======
</TABLE>
Contingencies
The Operating Partnership currently is not subject to any material legal
proceedings or claims nor, to management's knowledge, are any material legal
proceedings or claims currently threatened.
Environmental Matters
All of the Properties have been subjected to Phase I environmental audits.
Such audits have not revealed, nor is management aware of, any environmental
liability that management believes would have a material adverse impact on the
financial position or results of operations.
8. PARTNERS' CAPITAL AND PARTNERS' DEFICIT:
The distributions paid during the period from May 5, 1994 to December 31,
1994, were $17,792.
On April 11, 1995, Crescent Equities completed a public offering of
5,175,000 common shares (including the underwriters' overallotment option) at
$28.125 per share. Net proceeds of approximately $136,400 from the offering were
contributed to the Operating Partnership, all of which were used to reduce
amounts outstanding under the Credit Facility. In connection with the Crescent
Equities offering, Richard E.
F-31
<PAGE> 125
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
AND RAINWATER PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Rainwater, Chairman of the Board for Crescent Equities, contributed
approximately $30,500 to the Operating Partnership, all of which were used to
reduce amounts outstanding under the Credit Facility.
The distributions paid during the year ended December 31, 1995, were
$52,784.
On October 2, 1996, Crescent Equities completed a public offering (the
"Offering") of 11,500,000 common shares (including the underwriters'
overallotment option) at $40.375 per share. Net proceeds from the Offering
contributed to the Operating Partnership were approximately $437,433. The
Operating Partnership used a portion of these net proceeds to repay $16,000 on
FNBB short term note and $151,500 of the Credit Facility. The remaining net
proceeds of $269,933 were used to fund subsequent acquisitions. On October 9,
1996, Crescent Equities completed an additional offering of 450,000 common
shares to several underwriters who participated in the Offering. The common
shares were sold at $42 per share. The gross proceeds of $18,900 from the
additional offering were contributed to the Operating Partnership. The Operating
Partnership used these cash contributions to fund subsequent acquisitions.
The distributions paid during the year ended December 31, 1996, was
$73,367.
On February 4, 1997, the Operating Partnership paid a distribution of
$26,100.
9. REORGANIZATION COSTS:
In 1994, non-recurring reorganization costs, which represent costs incurred
in the formation of the Operating Partnership and in connection with the
transfer of the properties by the predecessor partnerships, are comprised of the
following:
<TABLE>
<S> <C>
Professional fees........................................... $ 955
Title insurance premiums.................................... 920
Other....................................................... 25
------
$1,900
======
</TABLE>
10. EXTRAORDINARY ITEMS:
In April 1996, the Operating Partnership canceled its $150,000 credit
facility led by FNBB. At that time the Operating Partnership had no outstanding
borrowings under the credit facility. In connection with the cancellation of the
credit facility, the Operating Partnership recognized an extraordinary loss of
$1,599, resulting from the write-off of unamortized deferred financing costs.
During the period from May 5, 1994, to December 31, 1994, the Operating
Partnership recognized an extraordinary loss of $949 resulting from the
write-off of deferred financing costs on notes payable which were repaid early
and the write-off of predecessor partnership organization costs.
F-32
<PAGE> 126
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
AND RAINWATER PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. ACQUISITIONS:
During 1996, the Operating Partnership acquired the following properties
from unrelated third parties (certain of the properties are owned in fee simple
or pursuant to a lessee's interest under a ground lease). The Operating
Partnership funded these acquisitions through cash contributions from Crescent
Equities, debt proceeds from Nomura Asset Capital Corporation and CIGNA Note,
borrowings under the Credit Facility, debt assumption, and issuance of limited
partnership interests in the Operating Partnership.
<TABLE>
<CAPTION>
OPERATING
PARTNERSHIP'S ROOMS/ NET
ACQ. EFFECTIVE ACQ. GUEST RENTABLE
PROPERTY DATE CITY, STATE OWNERSHIP% PRICE NIGHTS AREA
-------- ----- ----------- ------------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
3333 Lee Parkway 1/96 Dallas, TX 100% $ 14,500 -- 233,484
301 Congress Avenue 4/96 Austin, TX 50 21,635 -- 418,338
Central Park Plaza 6/96 Omaha, NE 100 25,486 -- 409,850
Canyon Ranch-Tucson 7/96 Tucson, AZ 100 57,000 240 --
The Woodlands Office
Properties 7/96 Houston, TX 75 8,186 -- 109,400
Three Westlake Park 8/96 Houston, TX 100 28,980 -- 414,251
1615 Poydras 8/96 New Orleans, LA 100 36,450 -- 508,741
Greenway Plaza Office
Portfolio 10/96 Houston, TX 100 206,000 -- 4,256,885
Chancellor Park 10/96 San Diego, CA 100 31,058 -- 195,733
The Woodlands Retail
Properties 10/96 Houston, TX 75 22,500 -- 356,104
Sonoma Mission Inn & Spa 11/96 Sonoma, CA 100 53,400 168 --
Canyon Ranch-Lenox 12/96 Lenox, MA 100 30,000 202 --
160 Spear Street 12/96 San Francisco, CA 100 35,450 -- 276,420
Greenway I & IA 12/96 Dallas, TX 100 17,000 -- 146,704
Bank One Tower 12/96 Austin, TX 100 39,220 -- 389,503
Frost Bank Plaza 12/96 Austin, TX 100 36,000 -- 433,024
</TABLE>
The following represents additional information for properties which the
CREELP either owns a limited partnership interest in the partnership that owns
the property or has the principal economic interest in the property through its
ownership of a mortgage note secured by the property.
On April 18, 1996, CREELP together with Aetna Life Insurance Company
("Aetna") formed 301 Congress Avenue, L.P., a Delaware limited partnership in
which CREELP and Aetna, each own a 50% interest. Crescent/301, L.L.C., a
Delaware limited liability company that is wholly owned by the CREELP and CREE,
Ltd., serves as the general partner of 301 Congress Avenue, L.P. On April 18,
1996, 301 Congress Avenue, L.P. acquired from Aetna the 301 Congress Avenue
property. CREELP contributed to the 301 Congress Avenue, L.P. approximately
$21,635. Beginning in April 1996, the operations of 301 Congress Avenue, L.P.
were consolidated into the operations of CREELP.
On July 31, 1996, the Woodland Office Equities -- '95 Limited ("WOE"), in
which CREELP owns a 75% limited partnership interest, acquired two office
properties developed by The Woodlands Corporation. The purchase price for the
two office properties was approximately $10,915, of which CREELP contributed
$8,186 to WOE.
On August 16, 1996, CREELP acquired for approximately $29,000, the
principal economic interest in Three Westlake Park through its acquisition from
the lender of a mortgage note (the "Three Westlake Note"), in the principal
amount of approximately $46,300. Under the terms of the Three Westlake Note, as
F-33
<PAGE> 127
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
AND RAINWATER PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
modified, CREELP will receive all net cash flow from Three Westlake Park through
February 2004. The Three Westlake Note is secured by a first priority deed of
trust on Three Westlake Park. The operations of the property were consolidated
into the operations of CREELP.
On October 31, 1996, the Company formed the Woodland Retail Equities -- '96
Limited ("WRE") partnership with The Woodlands Corporation ("TWC"), a subsidiary
of Mitchell Energy & Development Corp., in which CREELP owns a 75% limited
partner interest. WRE owns four retail properties located in The Woodlands.
CREELP's investment was approximately $22,500, with a minimum preferential
return of 9.75% that escalates in January 1999 to 10.5%.
Significant Transaction
On October 7, 1996, the Operating Partnership through three newly formed
single purpose limited partnerships, Fundings III, IV and V, L.P., acquired a
property portfolio located in Houston, Texas (the "Greenway Plaza Portfolio").
The Greenway Plaza Portfolio consists primarily of 10 suburban office properties
with an aggregate of approximately 4.3 million net rentable square feet, a
central plant which provides heated and chilled water to both the 10 office
properties and third parties, and a 389-room full-service hotel and a private
health and dining club, which are both subject to triple-net leases. The
aggregate cost of the Greenway Plaza Portfolio was $206,000, which was funded
through the issuance to the sellers of equity shares in the Operating
Partnership of $25,000, the assumption of $115,000 of nonrecourse indebtedness
and $66,000 of cash from contributions received from Crescent Equities.
Pro Forma Operating Results
Assuming completion of (i) the 1996 and 1995 property acquisitions and
Biltmore Note and (ii) the capital contributions received on October 2, 1996,
October 9, 1996, and April 11, 1995, in each case as of January 1, 1996 and
1995, pro forma operating results are presented as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Total Revenue............................................... $298,046 $288,536
Operating Income............................................ 74,802 72,481
Income before minority interest and extraordinary item...... 78,653 77,981
Net Income.................................................. 76,035 75,921
</TABLE>
The pro forma operating results combine the Operating Partnership's
historical operating results with the historical incremental rental income and
operating expenses including an adjustment for depreciation based on the
acquisition price associated with the property acquisitions and pro forma
adjustments. The historical operations of the destination resorts and
full-service hotel properties were adjusted to reflect the lease payments from
the hotel lessee to the Operating Partnership calculated on a pro forma basis by
applying the rent provisions (as defined in the lease agreements). Pro forma
adjustments primarily represent the increase in interest costs assuming the
borrowings to finance property acquisitions had occurred at the beginning of the
period.
These pro forma amounts are not necessarily indicative of what the actual
financial position of the Operating Partnership would have been assuming the
above property acquisitions had been consummated as of the beginning of the
period, nor do they purport to represent the future financial position of the
Operating Partnership.
F-34
<PAGE> 128
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
AND RAINWATER PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARY SELECTED FINANCIAL DATA
The following table sets forth certain summary financial information for
the Operating Partnership on a pro forma and historical basis and for the
Rainwater Property Group (the Operating Partnership's predecessor) on a combined
historical basis, which consists of the combined financial statements of the
entities that contributed Properties in exchange for Units or Common Shares of
the Company in connection with the formation of the Company and the Operating
Partnership. Such information should be read in conjunction with "Selected
Financial Data."
The pro forma information for the year ended December 31, 1996 assumes
completion, in each case as of January 1, 1996 in determining operating and
other data, of (i) the Company's public offering of its common shares that
closed on October 2, 1996 (the "October 1996 Offering") and the additional
public offering of 450,000 common shares that closed on October 9, 1996 and the
use of the net proceeds therefrom to repay approximately $168 million of
indebtedness and to fund approximately $289 million of Property acquisitions in
the fourth quarter of 1996 and the first quarter of 1997, (ii) the Company's
public offering of its common shares in April 1997 (the "April 1997 Offering")
and the additional public offering of 500,000 common shares that closed on May
14, 1997 and the use of the net proceeds therefrom to fund approximately $593.5
million of Property acquisitions and other investments in the second quarter of
1997, (iii) the Company's offering of 4,700,000 common shares to an affiliate of
Union Bank of Switzerland (the "UBS Offering") and the use of the net proceeds
therefrom to repay approximately $145 million of indebtedness under the Credit
Facility, (iv) the Company's offering of the Private Notes and the use of the
net proceeds therefrom to fund approximately $337.6 million of the purchase
price of two Properties and to repay approximately $57.2 million of indebtedness
incurred under the Credit Facility and other short-term indebtedness, (v) the
Company's public offering of its Common Shares in October 1997 (the "October
1997 Offering") and the use of the net proceeds therefrom to fund approximately
$45.0 million of the purchase price of one Property and to repay approximately
$325.1 million of short-term indebtedness and indebtedness incurred under the
Credit Facility, (vi) the assumption of indebtedness of $97.1 million in
connection with the purchase of one Property and (vii) Property acquisitions and
other investments during 1996 and 1997.
The pro forma information for the nine months ended September 30, 1997
assumes completion, in each case as of January 1, 1997 in determining operating
and other data, and, in each case as of September 30, 1997 in determining
balance sheet data, of (i) the April 1997 Offering and the additional public
offering of 500,000 common shares that closed on May 14, 1997 and the use of the
net proceeds therefrom to fund approximately $593.5 million of Property
acquisitions and other investments in the second quarter of 1997, (ii) the UBS
Offering and the use of the net proceeds therefrom to repay approximately $145
million of indebtedness under the Credit Facility, (iii) the Company's offering
of the Private Notes and the use of the net proceeds therefrom to fund
approximately $337.6 million of the purchase price of two Properties and to
repay approximately $57.2 million of indebtedness incurred under the Credit
Facility and other short-term indebtedness, (iv) the October 1997 Offering and
the use of the net proceeds therefrom to fund approximately $45.0 million of the
purchase price of one Property and to repay approximately $325.1 million of
short-term indebtedness and indebtedness incurred under the Credit Facility, (v)
the assumption of indebtedness of $97.1 million in connection with the purchase
of one Property and (vi) Property acquisitions and other investments during
1997.
12. SUBSEQUENT EVENTS (THROUGH MARCH 1, 1997, UNAUDITED):
Greenway II. On January 17, 1997, the Operating Partnership acquired
Greenway II, a seven-story Class A office property containing approximately
154,000 square feet of net rentable space located in the Richardson/Plano
submarket of Dallas, Texas. The purchase price was approximately $18,200, which
was funded through a draw under the Credit Facility.
F-35
<PAGE> 129
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
AND RAINWATER PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Magellan Health Service Portfolio. On January 29, 1997, the Operating
Partnership entered into a definitive agreement, as amended effective February
28, 1997, to acquire substantially all of the real estate assets of Magellan
Health Services Inc.'s ("Magellan") domestic hospital provider business as
currently operated by Charter Behavioral Health Systems, Inc. ("Charter"). The
assets to be acquired by the Operating Partnership consist primarily of
approximately 90 acute care psychiatric hospitals and similar facilities.
Magellan and an affiliate of Crescent Equities ("Crescent Affiliate") to be
formed as described below will be equal owners of a to-be-formed limited
liability company ("OpCo") which will operate the facilities under a franchise
arrangement with Magellan and a triple-net lease agreement with the Operating
Partnership. The Operating Partnership will receive $40,000 in base rent the
first year with base rents in subsequent years increasing at a 5% compounded
annual rate over an initial twelve-year term. All maintenance and capital
improvement costs will be subordinated to the base rents due to the Operating
Partnership under the lease. Also, in conjunction with the acquisition, the
Operating Partnership and Crescent Affiliate will each receive warrants to
purchase 1,283,311 shares of Magellan's common stock exercisable at $30 per
share, subject to vesting and exercise restrictions. Management believes these
warrants will allow the Operating Partnership and Crescent Affiliate to
participate in the benefits realized by Magellan from this business realignment
as well as any benefits from the growth of Magellan's managed care business and
public sector business. The total amount to be paid in connection with the
transaction is $400,000, $5,000 of which will be paid by Crescent Affiliate for
its interest in OpCo upon the closing. Crescent Affiliate and Magellan each will
pay an additional $2,500 to OpCo within five days after the closing and will
commit to loan up to $17,500 during the five years following the closing.
Closing of the transaction is scheduled to be complete by the end of May 1997,
subject to approval of the transaction by Magellan's shareholders and customary
closing conditions.
Carter Crowley Portfolio. On February 10, 1997, the Operating Partnership
entered into a definitive agreement to acquire substantially all of the assets
of Carter-Crowley Properties, Inc., a company controlled by the family of Donald
J. Carter for an aggregate purchase price of approximately $383,000. The
purchase includes fourteen office properties aggregating approximately 3 million
square feet located in seven suburban Dallas submarkets. The Operating
Partnership or Crescent Affiliate will also acquire other assets consisting
principally of 1,221 acres of commercially zoned, undeveloped land in the
Dallas-Fort Worth metroplex, marketable securities, and equity and debt
interests in the Dallas Mavericks NBA basketball franchise. The transaction is
scheduled to be completed by the end of April 1997, subject to the completion of
due diligence and customary closing conditions.
Shelf Registration. On February 14, 1997, Crescent Equities filed a shelf
registration with the Securities and Exchange Commission ("SEC") for an
aggregate of $1,200,000 of common stock, preferred stock and warrants
exercisable for common stock. Any securities issued under the registration
statement may be offered from time to time in amounts, at prices, and on terms
to be determined at the time of the offering. Management believes this shelf
registration will provide Crescent Equities with more efficient and immediate
access to the capital markets at such time as it is considered appropriate. Net
proceeds from any offering of these securities are expected to be used for
general business purposes, including the acquisition and development of
additional properties and other acquisition transactions, the payment of certain
outstanding debt and improvements to certain properties in the Operating
Partnership's portfolio.
Trammell Crow Center. On February 28, 1997, the Operating Partnership
acquired substantially all of the economic interest in Trammell Crow Center
("TCC"), a 50-story Class A office property containing approximately 1,128,000
square feet of net rentable space. The Operating Partnership acquired its
interest in TCC through the purchase of fee simple title to the property
(subject to a ground lease and a leasehold estate for years regarding the
building) and two mortgage notes encumbering the leasehold interests in the land
and building. TCC is located in the cultural and financial district of the
Central Business District ("CBD") submarket of Dallas, Texas. The purchase price
was approximately $162,000, of which $150,000 was funded through proceeds from
an unsecured, short-term loan with the FNBB and the remaining balance of $12,000
F-36
<PAGE> 130
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
AND RAINWATER PROPERTY GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
through a draw under the Credit Facility. The short-term loan, which is interest
only, bears interest at the Eurodollar rate plus 185 basis points and is due at
maturity on July 28, 1997.
Denver Properties. On February 28, 1997, the Operating Partnership
acquired, in a single transaction, the following three office properties in
Denver, Colorado: 44 Cook, 55 Madison and AT&T. 44 Cook, a 10-story Class A
office property, contains approximately 119,000 square feet of net rentable
space and 55 Madison, an 8-story Class A office property, contains approximately
126,000 square feet of net rentable space are both located in the Cherry Creek
submarket. The AT&T, a 15-story office property, contains approximately 170,000
square feet of net rentable space and is located in the Denver CBD. The combined
purchase price for the three office properties was $42,675 which was funded
through a draw under the Credit Facility.
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues............................................ $43,060 $44,999 $49,368 $71,434
Income before minority interests and extraordinary
item.............................................. 8,563 9,655 8,517 21,216
Minority interests.................................. -- (320) (635) (527)
Extraordinary item.................................. -- (1,599) -- --
Net income.......................................... 8,563 7,736 7,882 20,689
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues............................................ $25,955 $29,228 $34,280 $40,497
Income before minority interests.................... 5,320 11,012 11,427 8,599
Minority interests.................................. -- -- (148) (667)
Net income.......................................... 5,320 11,012 11,279 7,932
</TABLE>
F-37
<PAGE> 131
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Magellan Health Services, Inc:
We have audited the accompanying combined balance sheets of the Provider
Segment (the "Company") of Magellan Health Services, Inc., a Delaware
corporation, as of September 30, 1995 and 1996, and the related combined
statements of operations, changes in stockholder's deficit and cash flows for
each of the three years in the period ended September 30, 1996. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Provider Segment of
Magellan Health Services, Inc. as of September 30, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1996 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 7, 1996
F-38
<PAGE> 132
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------- MARCH 31,
1995 1996 1997
--------- --------- -----------
(AUDITED) (AUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash, including cash equivalents of $60,234 in 1995
and $20,999 in 1996 at cost which approximates
market value....................................... $ 103,735 $ 71,822 66,151
Accounts receivable, less allowance for doubtful
accounts of $47,851 in 1995 and $48,299 in 1996.... 170,728 148,805 145,296
Supplies.............................................. 5,768 4,753 4,465
Other current assets.................................. 13,064 20,120 20,074
--------- --------- ---------
Total Current Assets.......................... 293,295 245,500 235,986
Assets restricted for settlement of unpaid claims and
other
long-term liabilities................................. 94,138 105,303 96,402
Property and Equipment:
Land.................................................. 88,019 83,431 82,705
Buildings and improvements............................ 377,169 388,821 393,812
Equipment............................................. 107,681 122,927 126,549
--------- --------- ---------
572,869 595,179 603,066
Accumulated depreciation.............................. (89,046) (118,937) (132,806)
--------- --------- ---------
483,823 476,242 470,260
Construction in progress.............................. 2,902 1,879 2,573
--------- --------- ---------
Total Property and Equipment.................. 486,725 478,121 472,833
Other Long-Term Assets.................................. 36,846 34,923 28,859
Goodwill, net of accumulated amortization of $944 in
1995 and $1,147 in 1996............................... 18,208 18,800 18,373
Other Intangible Assets, net of accumulated amortization
of $1,362 in 1995 and $2,958 in 1996.................. 5,394 6,258 6,370
--------- --------- ---------
$ 934,606 $ 888,905 $ 858,823
========= ========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
Accounts payable...................................... $ 69,726 $ 61,685 $ 56,154
Accrued liabilities................................... 116,380 117,214 88,714
Current maturities of long-term debt and capital lease
obligations........................................ 2,799 2,751 2,845
--------- --------- ---------
Total Current Liabilities..................... 188,905 181,650 147,713
Long-Term Debt and Capital Lease Obligations............ 77,111 73,620 72,380
Reserve for Unpaid Claims............................... 100,125 73,040 62,316
Deferred Credits and Other Long-Term Liabilities........ 34,455 36,506 20,925
Minority Interest....................................... 7,486 21,421 21,947
Due to Parent........................................... 666,349 619,556 637,555
Commitments and Contingencies Stockholder's Deficit:
Accumulated deficit................................... (139,003) (114,906) (101,065)
Cumulative foreign currency adjustments............... (822) (1,982) (2,948)
--------- --------- ---------
(139,825) (116,888) (104,013)
--------- --------- ---------
$ 934,606 $ 888,905 $ 858,823
========= ========= =========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these balance sheets.
F-39
<PAGE> 133
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------------- -------------------------
1994 1995 1996 1996 1997
--------- ---------- ---------- ----------- -----------
(AUDITED) (AUDITED) (AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue............................ $904,646 $1,106,975 $1,044,345 $538,119 $479,289
-------- ---------- ---------- -------- --------
Costs and expenses Salaries, supplies
and other operating expenses......... 661,436 825,468 800,912 406,471 372,201
Bad debt expense..................... 70,623 91,652 79,930 41,381 35,055
Depreciation and amortization........ 28,354 36,029 37,108 18,720 18,566
Amortization of reorganization
value in excess of amounts
allocable to identifiable
assets.......................... 31,200 26,000 -- -- --
Interest, unaffiliated............... 6,364 5,421 5,492 2,872 2,483
Allocated interest, net from
Parent............................ 33,030 48,756 42,123 19,115 24,321
ESOP expense......................... 49,197 73,527 -- -- --
Stock option expense (credit)........ 10,614 (467) 914 1,414 1,433
Unusual items........................ 71,287 57,437 37,271 -- 1,395
-------- ---------- ---------- -------- --------
962,105 1,163,823 1,003,750 489,973 455,454
-------- ---------- ---------- -------- --------
Income (loss) before income taxes and
minority interest.................... (57,459) (56,848) 40,595 48,146 23,835
Provision for (benefit from) income
taxes................................ (10,504) (12,934) 14,883 18,920 8,886
-------- ---------- ---------- -------- --------
Income (loss) before minority
interest............................. (46,955) (43,914) 25,712 29,226 14,949
Minority interest...................... 48 340 1,615 1,476 1,108
-------- ---------- ---------- -------- --------
Net income (loss)...................... $(47,003) $ (44,254) $ 24,097 $ 27,750 $ 13,841
======== ========== ========== ======== ========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these statements.
F-40
<PAGE> 134
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
--------------------------------- -------------------------
1994 1995 1996 1996 1997
--------- --------- --------- ----------- -----------
(AUDITED) (AUDITED) (AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Accumulated Deficit:
Balance, beginning of period.......... $(47,746) $ (94,749) $(139,003) $(139,003) $(114,906)
Net income (loss)..................... (47,003) (44,254) 24,097 27,750 13,841
-------- --------- --------- --------- ---------
Balance, end of period................ (94,749) (139,003) (114,906) (111,253) (101,065)
-------- --------- --------- --------- ---------
Cumulative Foreign Currency Adjustments:
Balance, beginning of period.......... (4,660) (2,454) (822) (822) (1,982)
Foreign currency translation gain
(loss)............................. 2,206 1,632 (1,160) (1,045) (966)
-------- --------- --------- --------- ---------
Balance, end of period................ (2,454) (822) (1,982) (1,867) (2,948)
-------- --------- --------- --------- ---------
Total Stockholder's Deficit............. $(97,203) $(139,825) $(116,888) $(113,120) $(104,013)
======== ========= ========= ========= =========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these statements.
F-41
<PAGE> 135
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
--------------------------------- -------------------------
1994 1995 1996 1996 1997
--------- --------- --------- ----------- -----------
(AUDITED) (AUDITED) (AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss)................................... $ (47,003) $ (44,254) $ 24,097 $ 27,750 $ 13,841
--------- --------- -------- -------- --------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Gain on sale of assets......................... -- (2,961) (1,697) (138) (3,302)
Depreciation and amortization.................. 59,554 62,029 37,108 18,720 18,566
Non-cash portion of unusual items.............. 70,207 45,773 31,206 -- --
ESOP expense................................... 49,197 73,527 -- -- --
Stock option expense (credit).................. 10,614 (467) 914 1,414 1,433
Non-cash interest expense...................... 2,005 2,735 2,424 1,202 882
Cash flows from changes in assets and
liabilities, net of effects from sales and
acquisitions of businesses:
Accounts receivable, net.................... (7,533) 9,451 22,905 (8,828) 3,509
Other current assets........................ 4,563 8,273 575 (2,848) 667
Other long-term assets...................... 2,860 (5,726) 5,496 5,886 (3,350)
Accounts payable and accrued liabilities.... 2,683 (15,192) (16,917) (12,567) (31,536)
Reserve for unpaid claims................... 1,215 (5,885) (29,985) (10,625) (13,694)
Other liabilities........................... (8,249) (21,127) (18,968) (5,669) (15,179)
Minority interest, net of dividends paid.... 80 22 1,596 1,887 1,593
Due to Parent -- interest and income
taxes..................................... (42,459) (11,966) 19,618 11,741 6,402
Other....................................... 613 285 1,022 121 (1,063)
--------- --------- -------- -------- --------
Total adjustments........................... 145,350 138,771 55,297 296 (35,072)
--------- --------- -------- -------- --------
Net cash provided by (used in) operating
activities............................. 98,347 94,517 79,394 28,046 (21,231)
--------- --------- -------- -------- --------
Cash Flows From Investing Activities
Capital expenditures................................ (14,626) (19,354) (30,978) (10,403) (9,463)
Acquisitions of businesses, net of cash acquired.... (130,550) (62,125) (235) (256) (6,998)
Decrease (increase) in assets restricted for
settlement of unpaid claims and other long-term
liabilities...................................... 7,076 (19,606) (17,732) (6,070) 8,626
Proceeds from sale of assets........................ 16,584 5,879 5,098 503 10,386
Investment in Parent................................ -- (4,736) -- -- --
Other............................................... -- (1,050) -- -- --
--------- --------- -------- -------- --------
Net cash provided by (used in) investing
activities............................. (121,516) (100,992) (43,847) (16,226) 2,551
--------- --------- -------- -------- --------
Cash Flows From Financing Activities
Change in Due to Parent............................. 86,612 (16,970) (62,625) (30,443) 14,718
Payments on debt and capital lease obligations...... (19,842) (2,423) (4,835) (2,037) (1,709)
--------- --------- -------- -------- --------
Net cash provided by (used in) financing
activities............................. 66,770 (19,393) (67,460) (32,480) 13,009
--------- --------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents......................................... 43,601 (25,868) (31,913) (20,660) (5,671)
Cash and cash equivalents at beginning of period...... 86,002 129,603 103,735 103,735 71,822
--------- --------- -------- -------- --------
Cash and cash equivalents at end of period............ $ 129,603 $ 103,735 $ 71,822 $ 83,075 $ 66,151
========= ========= ======== ======== ========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these statements.
F-42
<PAGE> 136
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(ALL REFERENCES TO MARCH 31, 1996 AND 1997 FINANCIAL DATA ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The combined financial statements of the Provider Segment of Magellan
Health Services, Inc. ("CBHS" or the "Company") include the accounts of the
Company and its subsidiaries except where control is temporary or does not rest
with the Company. All significant intercompany accounts and transactions have
been eliminated in combination. The accompanying unaudited combined financial
statements for the six months ended March 31, 1996 and 1997 have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring adjustments considered necessary for a fair presentation,
have been included. Magellan Health Services, Inc. ("Magellan" or "Parent") is
an integrated behavioral healthcare company providing behavioral healthcare
services in the United States, the United Kingdom and Switzerland. Magellan
operates through three principal subsidiaries engaging in (i) the provider
business, (ii) the managed care business and (iii) the public sector business.
The Company utilizes certain Parent systems and services ("Magellan
Overhead"), including, but not limited to, risk management, computer systems,
auditing, third-party reimbursement and treasury. The Company procures insurance
("Insurance") for professional liability claims, worker's compensation claims
and general matters through the Parent. The assets, liabilities and operating
expenses for Magellan Overhead and Insurance are included in the combined
financial statements of the Company. The combined financial statements of CBHS
have been prepared in connection with the sale of certain CBHS assets and
related transactions, which are more fully described in Note 2.
The combined financial statements present the historical combined financial
position, results of operations and cash flows of CBHS and, as a result, include
certain assets, liabilities, operations and personnel that will not be included
in the transactions described below in Note 2.
On June 2, 1992, Magellan filed a voluntary petition under Chapter 11 of
the United States Bankruptcy Code. The prepackaged plan of reorganization (the
"Plan") effected a restructuring of Magellan's debt and equity capitalization.
Magellan's Plan was confirmed on July 8, 1992, and became effective on July 21,
1992 (effective on July 31, 1992 for financial reporting purposes). The combined
financial statements for all periods are presented for the Company after the
consummation of the Plan. These financial statements were prepared under the
principles of fresh start accounting. (See Note 4.)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
NET REVENUE
Net revenue is based on established billing rates, less estimated
allowances for patients covered by Medicare and other contractual reimbursement
programs and discounts from established billing rates. Amounts received by the
Company for treatment of patients covered by Medicare and other contractual
reimbursement programs, which may be based on cost of services provided or
predetermined rates, are generally less than the established billing rates of
the Company's hospitals. Final determination of amounts earned under contractual
reimbursement programs is subject to review and audit by the applicable
agencies. Net revenue for fiscal 1994, 1995 and 1996 included $32.1 million,
$35.6 million and $28.3 million,
F-43
<PAGE> 137
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
respectively, for the settlement and adjustment of reimbursement issues related
to earlier fiscal periods. Net revenue for the six months ended March 31, 1996
and 1997 (unaudited) includes $11.1 million and $13.8 million, respectively for
the settlement and adjustment of reimbursement issues related to earlier fiscal
periods. Management believes that adequate provision has been made for any
adjustments that may result from such reviews.
ADVERTISING COSTS
The production costs of advertising are expensed as incurred. The Company
does not consider any of its advertising costs to be direct-response and,
accordingly, does not capitalize such costs. Advertising costs consist primarily
of radio and television air time, which is amortized as utilized, and printed
media services. Advertising expense was approximately $35.6 million, $33.5
million and $30.3 million for the years ended September 30, 1994, 1995 and 1996,
respectively.
CHARITY CARE
The Company provides healthcare services without charge or at amounts less
than its established rates to patients who meet certain criteria under its
charity care policies. Because the Company does not pursue collection of amounts
determined to be charity care, they are not reported as revenue. For the years
ended September 30, 1994, 1995 and 1996, the Company provided, at its
established billing rates, approximately $29.3 million, $41.2 million and $37.9
million, respectively, of such care.
ALLOCATED INTEREST, NET
Magellan provides financing and cash management services for CBHS.
Magellan's interest expense is allocated to CBHS based on the financing and the
cost of financing provided directly to CBHS. Deferred financing costs and
accrued interest related to such financing is carried on the books of the
Parent.
INCOME TAXES
The operations of CBHS are included in the Magellan consolidated federal
income tax return and in various unitary, foreign and consolidated state income
tax returns. Magellan allocates its consolidated income tax provision or benefit
to CBHS, which approximates income taxes that would be calculated on a
stand-alone basis.
Current and deferred income taxes payable or receivable are settled
currently through the Due to Parent account.
CASH AND CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid interest-bearing investments
with a maturity of three months or less when purchased, consisting primarily of
money market instruments.
CONCENTRATION OF CREDIT RISK
Accounts receivable from patient revenue subject the Company to a
concentration of credit risk with third party payors that include insurance
companies, managed healthcare organizations and governmental entities. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific payors, historical trends and other
information. Management believes the allowance for doubtful accounts is adequate
to provide for normal credit losses.
F-44
<PAGE> 138
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ASSETS RESTRICTED FOR THE SETTLEMENT OF UNPAID CLAIMS AND OTHER LONG-TERM
LIABILITIES
Assets restricted for the settlement of unpaid claims and other long-term
liabilities include marketable securities which are carried at fair market
value. Transfer of such investments from the Insurance subsidiaries to the
Company or any of its other subsidiaries is subject to approval by certain
regulatory authorities. These assets will remain with Magellan subsequent to the
sale of the psychiatric facilities.
During fiscal 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" ("FAS 115"). Under FAS 115, investments are classified into three
categories: (i) held to maturity; (ii) available for sale; and (iii) trading.
Unrealized holding gains or losses are recorded for trading and available for
sale securities. The Company's investments are classified as available for sale
and the adoption of FAS 115 did not have a material effect on the Company's
financial statements, financial condition and liquidity or results of
operations. The unrealized gain or loss on investments available for sale was
not material at September 30, 1995 and 1996.
PROPERTY AND EQUIPMENT
As a result of the adoption of fresh start accounting, property and
equipment were adjusted to their estimated fair value as of July 31, 1992 and
historical accumulated depreciation was eliminated. Expenditures for renewals
and improvements are charged to the property accounts. Replacements and
maintenance and repairs that do not improve or extend the life of the respective
assets are expensed as incurred. The Company removes the cost and related
accumulated depreciation from the accounts for property sold or retired, and any
resulting gain or loss is included in operations. Amortization of capital lease
assets is included in depreciation expense. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, which is
generally 10 to 40 years for buildings and improvements and three to ten years
for equipment. Depreciation expense was $27.4 million, $34.5 million and $34.9
million for the years ended September 30, 1994, 1995 and 1996, respectively.
INTANGIBLE ASSETS
Intangible assets are composed principally of (i) goodwill and (ii)
non-compete agreements. Goodwill represents the excess of the cost of businesses
acquired over the fair value of the net identifiable assets at the date of
acquisition and is amortized using the straight-line method over 25 to 40 years.
Non-compete agreements are amortized over the term of the related agreements.
The Company continually monitors events and changes in circumstances that
could indicate carrying amounts of intangible assets may not be recoverable.
When events or changes in circumstances are present that indicate the carrying
amount of intangible assets may not be recoverable, the Company assesses the
recoverability of intangible assets by determining whether the carrying value of
such intangible assets will be recovered through the future cash flows expected
from the use of the asset and its eventual disposition. No impairment losses on
intangible assets were recorded by the Company in fiscal 1994 and 1996.
Impairment losses of approximately $4.0 million were recorded in fiscal 1995.
(See Note 4)
FOREIGN CURRENCY
Changes in the cumulative translation of foreign currency assets and
liabilities are presented as a separate component of stockholder's deficit.
Gains and losses resulting from foreign currency transactions, which were not
material, are included in operations as incurred.
RECENT ACCOUNTING PRONOUNCEMENTS
In March, 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for
the Impairment of Long-Lived Assets and for
F-45
<PAGE> 139
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Long-Lived Assets to be Disposed Of," which became effective for fiscal years
beginning after December 15, 1995. FAS 121 established standards for determining
when impairment losses on long-lived assets have occurred and how impairment
losses should be measured. The Company adopted FAS 121 effective October 1,
1994. The initial financial statement impact of adopting FAS 121 was not
material.
2. SALE OF PSYCHIATRIC FACILITIES (UNAUDITED)
On January 30, 1997, Magellan announced that it had entered into a series
of transactions including an agreement to sell substantially all of CBHS
domestic hospital real estate and related personal property (the "Assets") to
Crescent Real Estate Equities Limited Partnership ("Crescent"). In addition,
Magellan's domestic portion of its provider business segment will be operated as
a joint venture, New CBHS, that is initially owned equally by Magellan an
affiliate of Crescent (the "Crescent Operating"). Magellan received $417.2
million in cash (before costs estimated to be $12.5 million), which includes
$17.2 million for hospitals acquired after January 30, 1997, and warrants in the
Crescent Operating for the purchase of 2.5% of the Crescent Operating's common
stock, exercisable over 12 years, as consideration for the Assets. In addition
to the assets, Crescent and the Crescent Operating will each receive 1,283,311
warrants (2,566,622 warrants in aggregate) to purchase Magellan Common Stock at
$30 per share, exercisable over 12 years.
In related agreements, (i) Crescent will lease the real estate and related
assets to New CBHS for annual rent beginning at $41.7 million, which includes
$1.7 million for hospitals acquired after January 30, 1997 that were sold to
Crescent with a 5% annual escalation clause compounded annually and additional
rent of $20 million, of which at least $10 million must be used for capital
expenditures, and (ii) New CBHS will pay Magellan approximately $78 million in
annual franchise fees, subject to increase, for the use of assets retained by
Magellan and for support in certain areas. The franchise fees paid by New CBHS
will be subordinated to the lease obligation with Crescent. The assets retained
by Magellan include, but are not limited to, the "CHARTER" name, intellectual
property, treatment protocols and procedures, clinical quality management,
operating processes and the "1-800-CHARTER" telephone call center. Magellan will
provide New CBHS ongoing support in areas including managed care contracting
services, advertising and marketing assistance, risk management services,
outcomes monitoring, and consultation on matters relating to reimbursement,
government relations, clinical strategies, regulatory matters, strategic
planning and business development.
3. ACQUISITIONS AND JOINT VENTURES
ACQUISITIONS
In February 1995, the Company acquired a 90 percent ownership interest in
Westwood Pembroke Health System ("Westwood Pembroke"), which includes two
psychiatric hospitals and a professional group practice. The Company accounted
for the acquisition using the purchase method of accounting. Magellan will
retain its proportionate ownership interest in Westwood Pembroke subsequent to
the closing of the transactions with Crescent and the Crescent Operating.
During fiscal 1994, the Company agreed to acquire 40 psychiatric hospitals
(the "Acquired Hospitals") from Tenet Healthcare Corporation (formerly National
Medical Enterprises). The purchase price for the Acquired Hospitals was
approximately $120.4 million in cash plus an additional cash amount of
approximately $51 million, subject to adjustment, for the net working capital of
the Acquired Hospitals (the "Hospital Acquisition").
On June 30, 1994, the Company completed the purchase of 27 of the Acquired
Hospitals for a cash purchase price of approximately $129.6 million, which
included approximately $39.3 million, subject to adjustment, for the net working
capital of the facilities. On October 31, 1994, the Company completed the
purchase of three additional Acquired Hospitals for a cash purchase price of
approximately $5 million, which included approximately $2.2 million related to
the net working capital of the facilities. On November 30, 1994,
F-46
<PAGE> 140
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the Company completed the purchase of the remaining ten Acquired Hospitals for a
cash purchase price of approximately $36.8 million, including approximately $9.5
million related to the net working capital of the ten Acquired Hospitals. The
Company accounted for the Hospital Acquisition using the purchase method of
accounting. The operating results of the Acquired Hospitals are included in the
Company's Consolidated Statements of Operations from the respective dates of
acquisition.
JOINT VENTURES
The Company has entered into four hospital-based joint ventures with
Columbia/HCA Healthcare Corporation. Generally, each member of the joint venture
leases and/or contributes certain assets in each respective market to the joint
venture with the Company becoming the managing member.
The joint ventures' results of operations have been included in the
consolidated financial statements since inception, less minority interest. A
summary of the joint ventures is as follows:
<TABLE>
<CAPTION>
MARKET DATE
------ ----
<S> <C>
Albuquerque, NM............................................. May 1995
Raleigh, NC................................................. June 1995
Lafayette, LA............................................... October 1995
Anchorage, AK............................................... August 1996
</TABLE>
Magellan will retain its proportionate ownership interest in these joint
ventures subsequent to the closing of the transactions with Crescent and the
Crescent Operating.
4. THE RESTRUCTURING AND FRESH START REPORTING
Under the principles of fresh start accounting, Magellan's total assets
were recorded at their assumed reorganization value, with the reorganization
value allocated to identifiable tangible assets on the basis of their estimated
fair value. Accordingly, the Company's property and equipment were reduced and
its intangible assets were written off. The excess of the reorganization value
over the value of identifiable assets was reported by Magellan as
"reorganization value in excess of amounts allocable to identifiable assets"
(the "Excess Reorganization Value").
The total reorganization value assigned to Magellan's assets was estimated
by calculating projected cash flows before debt service requirements, for a
five-year period, plus an estimated terminal value of Magellan (calculated using
a multiple of approximately six (6) on projected EBDIT (which is net revenue
less operating and bad debt expenses)), each discounted back to its present
value using a discount rate of 12% (representing the estimated after-tax
weighted cost of capital). This amount was approximately $1.2 billion and was
increased by (i) the estimated net realizable value of assets to be sold and
(ii) estimated cash in excess of normal operating requirements. The above
calculations resulted in an estimated reorganization value of approximately $1.3
billion, of which the Excess Reorganization Value was $225 million, of which
$129 million related to continuing operations. The Excess Reorganization Value
was amortized by Magellan over the three-year period ended July 31, 1995, which
is reflected in the Company's Statement of Operations for the years ended
September 30, 1994 and 1995.
5. UNUSUAL ITEMS
INSURANCE SETTLEMENTS
Unusual items included the resolutions of disputes between the Company and
insurance carriers concerning certain billings for services.
F-47
<PAGE> 141
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In November 1994, the Company and a group of insurance carriers resolved a
billing dispute that arose in the fourth quarter of fiscal 1994 related to
claims paid predominantly in the 1980's. As part of the resolution, the Company
agreed to pay the insurance carriers approximately $31 million plus interest,
for a total of $37.5 million in four installments over a three year period. The
Company and the insurance carriers will continue to do business at the same or
similar general levels. Furthermore, the parties will seek additional business
opportunities that will serve to enhance their present relationships.
In March 1995, the Company and a group of insurance carriers resolved a
billing dispute which arose in fiscal 1995 related to matters arising
predominately in the 1980's. As part of the settlement, the Company agreed to
pay the insurance carriers $29.8 million payable in five installments over a
three year period. The Company and the insurance carriers have agreed to
continue to do business at the same or similar general levels and to seek
additional business opportunities that will serve to enhance their present
relationships.
In August 1996, the Company and a group of insurance carriers resolved a
billing dispute which arose in fiscal 1996 related to matters originating in the
1980's. As part of the settlement of these claims, certain related payer matters
and associated legal fees, the Company recorded a charge of approximately $30.0
million during the quarter ended June 30, 1996. The Company will pay the
insurance settlement amount in twelve installments over a three year period,
beginning August 1996. The Company and the insurance carriers have agreed that
the dispute and settlement will not negatively impact any present or pending
business relationships nor will it prevent the parties from negotiating in good
faith concerning additional business opportunities available to, and future
relationships between, the parties.
Amounts payable in future periods under the insurance settlements are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------
<S> <C>
1997.......................................... $21,510
1998.......................................... 14,180
1999.......................................... 5,745
</TABLE>
FACILITY CLOSURES
During fiscal 1995 and fiscal 1996, the Company consolidated, closed or
sold fifteen and nine psychiatric facilities (the "Closed Facilities"),
respectively. The Closed Facilities will be retained by Magellan subsequent to
the closing of the transaction with Crescent and the Crescent Operating and will
be sold, leased or used for alternative purposes depending on the market
conditions in each geographic area.
The Company recorded charges of approximately $3.6 million and $4.1 million
related to facility closures in fiscal 1995 and fiscal 1996, respectively, as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Severance and related benefits.............................. $2,132 $2,334
Contract terminations and other............................. 1,492 1,782
------ ------
$3,624 $4,116
====== ======
</TABLE>
Approximately 500 and 620 employees were terminated at the facilities
closed in the fourth quarter of fiscal 1995 and during fiscal 1996,
respectively. Severance and related benefits paid and charged against the
resulting liability were approximately $1.3 million and $2.9 million in fiscal
1995 and fiscal 1996, respectively. Other exit costs paid and applied against
the resulting liabilities were approximately $212,000 and $1.4 million in fiscal
1995 and fiscal 1996, respectively.
F-48
<PAGE> 142
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
During the six months ended March 31, 1997, (unaudited) the Company
consolidated or closed three psychiatric facilities and its one general hospital
(the "1997 Closed Facilities"). The 1997 Closed Facilities which were owned by
the Company are expected to be sold as part of the Crescent Transactions. The
Company recorded charges of approximately $4.2 million related to facility
closures during the six months ended March 31, 1997, (unaudited) which consisted
of approximately $3.0 million for severance and related benefits and $1.2
million for contract terminations and other costs.
Approximately 700 employees were terminated at the 1997 Closed Facilities.
Severance and related benefits paid and applied against the resulting liability
were approximately $2.3 million during the six months ended March 31, 1997,
(unaudited). Other exit costs paid and applied against the resulting liability
were approximately $280,000.
The following table presents net revenue, salaries, supplies and other
operating expenses and bad debt expenses and depreciation and amortization, of
the 1995 and 1996 Closed Facilities and the 1997 Closed Facilities (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------- -------------------------
1994 1995 1996 1996 1997
-------- -------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues.................... $124,185 $156,164 $85,810 $51,649 $20,856
Salaries, supplies and other
operating expenses and bad
debt expenses................. 119,411 152,065 89,965 54,604 21,649
Depreciation and amortization... 3,291 3,134 1,870 1,193 299
</TABLE>
The Company also recorded a charge of approximately $2.0 million in fiscal
1996 related to severance and related benefits for approximately 275 employees
who were terminated pursuant to planned overhead reductions.
ASSET IMPAIRMENTS
As a result of the Hospital Acquisition, the Company reassessed its
business strategy in certain markets at the end of fiscal 1994. The Company
established a plan to consolidate services in selected markets and to close or
sell certain facilities owned prior to the Hospital Acquisition. The Company
recorded a charge of $23 million in fiscal 1994 primarily to write down the
property and equipment at these facilities to their net realizable value.
As discussed in Note 1, the Company adopted FAS 121 effective October 1,
1994. During fiscal 1995, the Company recorded impairment losses on property and
equipment and intangible assets of approximately $23.0 million and $4.0 million,
respectively. During fiscal 1996, the Company recorded impairment losses on
property and equipment of approximately $1.2 million. Such losses resulted from
changes in the manner that certain of the Company's assets will be used in
future periods and current period operating losses at certain of the Company's
operating facilities combined with projected future operating losses. Fair
values of the long-lived assets that have been written down were determined
using the best available information in each individual circumstance, which
included quoted market price, comparable sales prices for similar assets or
valuation techniques utilizing present value of estimated expected cash flows.
OTHER
During fiscal 1994, the Company recorded a charge of approximately $4.5
million related to the relocation of the Company's executive offices. During
fiscal 1995, the Company recorded a gain of approximately $3.0 million related
to the sale of three psychiatric hospitals.
F-49
<PAGE> 143
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also sold two psychiatric facilities during the six months
ended March 31, 1997 that were closed during fiscal 1995. The Company received
approximately $5.6 million in proceeds from sales and recorded an aggregate gain
on such sales of approximately $2.8 million during the six months ended March
31, 1997, (unaudited).
6. BENEFIT PLANS
Magellan maintains an Employee Stock Ownership Plan (the "ESOP"), a
noncontributory retirement plan that enables eligible Company employees to
participate in the ownership of Magellan.
Magellan had recorded unearned compensation to reflect the cost of Magellan
Common Stock purchased by the ESOP but not yet allocated to participants'
accounts. In the period that shares are allocated or projected to be allocated
to participants, ESOP expense is recorded and unearned compensation is reduced.
Magellan's ESOP expense is reflected in the Company's statement of operations.
All shares had been allocated to the participants as of September 30, 1995.
During fiscal 1992, Magellan reinstated a defined contribution plan (the
"401-k Plan"). Employee participants can elect to voluntarily contribute up to
6% of their compensation to the 401-k Plan. Effective October 1, 1992, Magellan
began making contributions to the 401-k Plan based on employee compensation and
contributions. Magellan makes a discretionary contribution of 2% of each
employee's compensation and matches 50% of each employee's contribution up to 3%
of their compensation. During the years ended September 30, 1994, 1995 and 1996,
Magellan made contributions of approximately $4.9 million, $5.8 million and $5.3
million, respectively, to the 401-k Plan, which is reflected in salaries,
supplies and other operating expenses.
Magellan maintains five stock option plans that enable key employees and
directors to purchase shares of Magellan Common Stock. Magellan's 1992 stock
option plan allows for the exercise price of certain options to be reduced upon
termination of employment of a certain optionee without cause. Stock option
expense under Magellan's 1992 stock option plan is reflected in the Company's
statement of operations. As of September 30, 1996, 362,990 options were
outstanding at an exercise price of $4.36 and 6,000 options were outstanding at
an exercise price of $22.75. Such options expire in October 2000 and are 100%
vested.
7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Information with regard to the Company's long-term debt and capital lease
obligations at September 30, 1995 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
6.59% to 10.75% Mortgage and other notes payable through
1999.................................................... $ 5,268 $ 3,163
Variable rate secured notes due through 2013 (3.65% to
3.85% at September 30, 1996)............................ 62,025 60,875
3.85% to 11.50% Capital lease obligations due through
2014.................................................... 12,617 12,333
------- -------
79,910 76,371
Less amounts due within one year.......................... 2,799 2,751
------- -------
$77,111 $73,620
======= =======
</TABLE>
The aggregate scheduled maturities of long-term debt and capital lease
obligations during the five years subsequent to September 30, 1996, are as
follows (in thousands): 1997 -- $2,751; 1998 -- $2,273; 1999 -- $2,103;
2000 -- $1,991 and 2001 -- $10,359.
F-50
<PAGE> 144
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
LEASES
The Company leases certain of its operating facilities, some of which may
be purchased during the term or at expiration of the leases. The book value of
capital leased assets was approximately $8.4 million at September 30, 1996. The
leases, which expire at various dates through 2069, generally require the
Company to pay all maintenance, property tax and insurance costs.
At September 30, 1996, aggregate amounts of future minimum payments under
operating leases were as follows: 1997 -- $6.4 million; 1998 -- $4.8 million;
1999 -- $3.6 million; 2000 -- $2.2 million; 2001 -- $1.8 million; subsequent to
2001 -- $47.4 million.
Rent expense for the years ended September 1994, 1995 and 1996 was $11.4
million, $15.4 million and $14.0 million, respectively.
8. INCOME TAXES
The provision (benefit) for income taxes allocated to CBHS by Magellan
consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
Income taxes currently payable:
Federal............................................. $ -- $ 595 $ 977
State, excluding California state refund............ 639 1,694 971
California state refund............................. -- -- (3,695)
Foreign............................................. 1,466 1,188 3,779
Deferred income taxes:
Federal............................................. (11,078) (14,360) 11,214
State............................................... (1,583) (2,051) 1,602
Foreign............................................. 52 -- 35
-------- -------- -------
$(10,504) $(12,934) $14,883
======== ======== =======
</TABLE>
A reconciliation of the Company's income tax provision (benefit) to that
computed by applying the statutory federal income tax rate is as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
Income tax provision (benefit) at federal statutory
income tax rate..................................... $(20,111) $(19,897) $14,208
State income taxes, net of federal income tax benefit
and excluding California state refund............... (616) (232) 1,673
California state refund, net of federal income tax
benefit.......................................... -- -- (2,402)
Foreign income taxes, net of federal income tax
benefit............................................. 987 772 2,479
Amortization of excess reorganization value........... 10,920 9,100 --
Other -- net.......................................... (1,684) (2,677) (1,075)
-------- -------- -------
Income tax provision (benefit)........................ $(10,504) $(12,934) $14,883
======== ======== =======
</TABLE>
F-51
<PAGE> 145
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Salaries, wages and other benefits.......................... $ 27,386 $ 27,313
Amounts due health insurance programs....................... 10,252 27,146
Other....................................................... 78,742 62,755
-------- --------
$116,380 $117,214
======== ========
</TABLE>
10. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------- --------------------------
1994 1995 1996 1996 1997
------ ------ ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid for interest, net of amounts
capitalized.......................... $5,842 $5,303 $5,680 $2,099 $2,278
====== ====== ====== ====== ======
</TABLE>
The non-cash portion of unusual items for fiscal 1995 and 1996 includes the
unpaid portion of the $29.8 million and $30.0 million insurance settlements that
were recorded during the quarters ended March 31, 1995, and June 30, 1996,
respectively. The payments of the insurance settlements are included in accounts
payable and other accrued liabilities in the statement of cash flows for the
years ended September 30, 1995 and 1996.
11. COMMITMENTS AND CONTINGENCIES
The Company is self-insured for a substantial portion of its general and
professional liability risks through Magellan. The reserves for self-insured
general and professional liability losses, including loss adjustment expenses,
are based on actuarial estimates that are discounted at an average rate of 6% to
their present value based on the Company's historical claims experience adjusted
for current industry trends. The undiscounted amount of the reserve for unpaid
claims at September 30, 1995 and 1996 was approximately $113.1 million and $84.3
million, respectively. The reserve for unpaid claims is adjusted periodically as
such claims mature, to reflect changes in actuarial estimates based on actual
experience. During fiscal 1996, the Company recorded a reduction in malpractice
claim reserves of approximately $15.3 million as a result of updated actuarial
estimates. The Company recorded reductions of expenses of approximately $7.5
million and $5.0 million during the six months ended March 31, 1996 and 1997,
(unaudited) respectively. These reductions resulted primarily from updates to
actuarial assumptions regarding the Company's expected losses for more recent
policy years. These revisions are based on changes in expected values of
ultimate losses resulting from the Company's claim experiences, and increased
reliance on such claim experience. While management and its actuaries believe
that the present reserve is reasonable, ultimate settlement of losses may vary
from the amount recorded.
Certain assets of the Company, including substantially all accounts
receivable and personal property, are pledged to the Parent's bank lenders as
collateral for certain Parent indebtedness. In the opinion of management, the
Parent's obligations under such indebtedness will continue to be serviced from
ongoing operations, thereby mitigating the lenders' potential claims against
these assets.
Certain of the Company's subsidiaries are subject to or parties to claims,
civil suits and governmental investigations and inquiries relating to their
operations and certain alleged business practices. In the opinion of
F-52
<PAGE> 146
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
management, based on consultation with counsel, resolution of these matters will
not have a material adverse effect on the Company's financial position or
results of operations.
In January 1996, the Company settled an ongoing dispute with the Resolution
Trust Corporation ("RTC"), for itself or in its capacity as conservator or
receiver for 12 financial institutions, which formerly held certain debt
securities that were issued by the Company in 1988. In connection with the
settlement, the Company, denying any liability or fault, paid $2.7 million to
the RTC in exchange for a release of all claims.
On August 1, 1996, the United States Department of Justice, Civil Division,
filed an Amended Complaint in a civil qui tam action initiated in November of
1994 against Magellan and the Company's Orlando South hospital subsidiary by two
former employees. The Amended Complaint alleges that the hospital violated the
federal False Claims Act ("the Act") in billing for inpatient treatment provided
to elderly patients. The Amended Complaint is based on disputed clinical and
factual issues which the Company believes do not constitute a violation of the
Act. The Company and its subsidiary deny any liability in this matter and will
continue to vigorously defend themselves against the suit. As is its policy, the
Company will continue to cooperate with the government in this matter. The
Company does not believe this matter will have a material adverse effect on its
financial position or results of operations.
F-53
<PAGE> 147
CARTER-CROWLEY OPERATING REAL ESTATE PORTFOLIO
STATEMENT OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-54
<PAGE> 148
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Crescent Real Estate Equities Limited Partnership:
We have audited the accompanying statement of excess of revenues over
specific operating expenses (as defined in Note 2) of Carter-Crowley Operating
Real Estate Portfolio for the year ended December 31, 1996. This statement is
the responsibility of the Property's management. Our responsibility is to
express an opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statement referred to above presents fairly, in all
material respects, the excess of revenues over specific operating expenses of
Carter-Crowley Operating Real Estate Portfolio for the year ended December 31,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 18, 1997
F-55
<PAGE> 149
CARTER-CROWLEY OPERATING REAL ESTATE PORTFOLIO
STATEMENT OF EXCESS OF
REVENUES OVER SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUES:
Office rent............................................... $31,191,267
Residential rent.......................................... 881,509
Recoveries................................................ 383,872
Other..................................................... 355,157
-----------
32,811,805
SPECIFIC OPERATING EXPENSES:
Utilities................................................. 5,085,564
Repairs, maintenance, and contract services............... 4,493,230
Real estate taxes......................................... 3,924,737
Salaries.................................................. 2,954,502
General and administrative................................ 526,811
Insurance................................................. 272,421
Ground lease.............................................. 154,104
Management fees........................................... 44,322
-----------
17,455,691
-----------
EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES......... $15,356,114
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-56
<PAGE> 150
CARTER-CROWLEY OPERATING REAL ESTATE PORTFOLIO
NOTES TO STATEMENT OF EXCESS
OF REVENUES OVER SPECIFIC OPERATING EXPENSES
DECEMBER 31, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Description of Portfolio
Carter-Crowley Operating Real Estate Portfolio (the "Portfolio") consists
of 14 office buildings (the "Buildings") and two apartment/condominium complexes
(the "Apartments") located in Dallas, Texas, and surrounding suburbs. The
Properties contain approximately 3 million rentable square feet. The Portfolio,
including the land on which the Buildings and Apartments are located (with the
exception of one office building subject to a ground lease expiring May, 2079),
are owned fee simple.
Use of Estimates
The preparation of statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Rental Income and Deferred Rent Concessions
In connection with obtaining certain tenants under long-term leases,
property management grants rent concessions. The aggregate rental payments due
over the terms of the leases are recognized as rental income on a straight-line
basis over the full term of the leases, including the periods of rent
concessions.
Recoveries
A portion of the operating expenses is charged back to tenants on a monthly
basis based upon estimated expenses. These charges are adjusted at period-end,
based upon actual expenses.
2. BASIS OF ACCOUNTING:
The accompanying statement of excess of revenues over specific operating
expenses is presented on the accrual basis of accounting. This statement is not
intended to be a complete presentation of revenues and operating expenses for
the year ended December 31, 1996, as certain items such as depreciation,
amortization, interest, and partnership administrative expenses have been
excluded since they are not comparable to the proposed future operations of the
Properties. This statement has been prepared in accordance with requirements for
financial information required by Form 8-K and Rule 3.14 of Regulation S-X of
the Securities and Exchange Commission. Accordingly, the statement does not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
3. PROPERTY MANAGEMENT:
The Buildings are managed internally and are allocated a management fee of
4% of gross rental receipts. Total management fees allocated to the Buildings
for the year ended December 31, 1996, were approximately $1.3 million and are
eliminated against the corresponding fees recorded by the Portfolio in the
accompanying statement of excess of revenues over specific operating expenses.
Approximately $1.1 million of home office salary expenses related to Building
management are included in salaries in the accompanying statement of excess of
revenues over specific operating expenses.
The Portfolio entered into a management agreement with Columbus Management
Services, Inc. (the "Manager") on January 1, 1996, relating to the management of
the Apartments. The agreement with the Manager requires a monthly management fee
of $200 and 5% of gross revenues, as defined. Total management fees for the year
ended December 31, 1996, were approximately $44,000. The agreement may be
terminated at
F-57
<PAGE> 151
CARTER-CROWLEY OPERATING REAL ESTATE PORTFOLIO
NOTES TO STATEMENT OF EXCESS
OF REVENUES OVER SPECIFIC OPERATING EXPENSES -- (CONTINUED)
any time by either party in accordance with the management agreement. If
terminated, the management fees must be paid through the month in which the
Manager's service will extend.
4. INTENT TO SELL:
On February 10, 1997, the fee owner of the Properties entered into a
contract to sell its interest in the Portfolio to an unaffiliated third party.
F-58
<PAGE> 152
TRAMMELL CROW CENTER
STATEMENT OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-59
<PAGE> 153
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Crescent Real Estate Equities Limited Partnership:
We have audited the accompanying statement of excess of revenues over
specific operating expenses (as defined in Note 2) of Trammell Crow Center for
the year ended December 31, 1996. This statement is the responsibility of the
Property's management. Our responsibility is to express an opinion on this
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statement referred to above presents fairly, in all
material respects, the excess of revenues over specific operating expenses of
Trammell Crow Center for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
February 14, 1997
F-60
<PAGE> 154
TRAMMELL CROW CENTER
STATEMENT OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUES:
Office rent............................................... $19,616,793
Parking................................................... 1,143,927
Recoveries................................................ 2,223,219
Other..................................................... 20,751
-----------
23,004,690
SPECIFIC OPERATING EXPENSES:
Real estate taxes......................................... 2,207,946
Utilities................................................. 1,924,197
Repairs, maintenance, and contract services............... 1,916,371
Ground lease.............................................. 1,700,000
Salaries.................................................. 1,088,448
General and administrative................................ 821,717
Management fees........................................... 454,099
Insurance................................................. 151,982
-----------
10,264,760
-----------
EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES......... $12,739,930
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-61
<PAGE> 155
TRAMMELL CROW CENTER
NOTES TO STATEMENT OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
DECEMBER 31, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Description of Property
Trammell Crow Center (the "Property") is a 50-story office tower located in
the central business district of Dallas, Texas. The Property contains
approximately 1,133,000 rentable square feet as well as an underground parking
garage. C-W #11 Limited Partnership ("C-W #11") is the lessee of the land under
a ground lease, as amended February 28, 1997, which expires December 2037. The
fee owner of the land is one of the Property's lenders.
Use of Estimates
The preparation of statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Rental Income and Deferred Rent Concessions
In connection with obtaining certain tenants under long-term leases,
property management grants rent concessions. The aggregate rental payments due
over the terms of the leases are recognized as rental income on a straight-line
basis over the full term of the leases, including the periods of rent
concessions.
Recoveries
A portion of the operating expenses is charged back to tenants on a monthly
basis based upon estimated expenses. These charges are adjusted at period-end,
based upon actual expenses.
2. BASIS OF ACCOUNTING:
The accompanying statement of excess of revenues over specific operating
expenses is presented on the accrual basis of accounting. This statement is not
intended to be a complete presentation of revenues and operating expenses for
the year ended December 31, 1996, as certain items such as depreciation,
amortization, interest, and partnership administrative expenses have been
excluded since they are not comparable to the proposed future operations of the
Property.
3. PROPERTY MANAGEMENT:
C-W #11 entered into a management agreement with Trammell Crow Dallas/Fort
Worth, Inc. (the "Manager") on June 1, 1993. The agreement with the Manager
requires a management fee of 2% of gross rental receipts, as defined. Effective
January 1, 1997, the monthly management fee decreases to 1.75% of gross rental
receipts. Total management fees for the year ended December 31, 1996, were
approximately $454,000. The agreement may be terminated at any time by either
party in accordance with the management agreement. If terminated, the management
fees must be paid through the month in which the Manager's service will extend.
4. SIGNIFICANT TENANTS:
The largest tenant of the Property occupies approximately 173,000 square
feet, or 15%, of the total leasable square footage. This lease expires in
December 1999. The second largest tenant of the Property occupies approximately
132,000 square feet, or 12%, of the total leasable square footage. This lease
expires in June 2005.
F-62
<PAGE> 156
TRAMMELL CROW CENTER
NOTES TO STATEMENT OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES -- (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES:
Lease Commitments
Ground lease expense for the year ended December 31, 1996 was approximately
$1.7 million. Future minimum lease payments due under the ground lease as of
December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997........................................... $ 2,500,000
1998........................................... 2,500,000
1999........................................... 2,500,000
2000........................................... 2,500,000
2001........................................... 2,500,000
Thereafter..................................... 90,000,000
------------
$102,500,000
============
</TABLE>
Contingencies
The accompanying statement of excess of revenues over specific operating
expenses includes bad debt expense of approximately $675,000 relating to a legal
dispute which is in the settlement process.
6. INTENT TO SELL:
On January 14, 1997, the fee owner of the Property and both of the
Property's mortgage note lenders approved a nonbinding letter of intent to sell
their interest (including equity, debt, and accrued interest) in the Property to
an unaffiliated third party. The expected sales price is approximately $162
million.
F-63
<PAGE> 157
FOUNTAIN PLACE
STATEMENTS OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996,
AND THE FIVE MONTH PERIOD ENDED MAY 31, 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-64
<PAGE> 158
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Crescent Real Estate Equities Limited Partnership:
We have audited the accompanying statements of excess of revenues over
specific operating expenses (as defined in Note 2) of Fountain Place for the
year ended December 31, 1996, and the five month period ended May 31, 1997. This
statement is the responsibility of the Property's management. Our responsibility
is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the statements referred to above presents fairly, in all
material respects, the excess of revenues over specific operating expenses of
Fountain Place for the year ended December 31, 1996, and the five month period
ended May 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
July 23, 1997
F-65
<PAGE> 159
FOUNTAIN PLACE
STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996,
AND THE FIVE MONTH PERIOD ENDED MAY 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31, MAY 31,
1996 1997
------------ ----------
<S> <C> <C>
REVENUES:
Office rent............................................... $18,920,706 $7,523,968
Parking................................................... 1,003,465 415,852
Recoveries................................................ 1,934,493 918,133
Other..................................................... 648,730 254,579
----------- ----------
22,507,394 9,112,532
----------- ----------
SPECIFIC OPERATING EXPENSES:
Real estate taxes......................................... 2,250,067 1,174,762
Utilities................................................. 1,720,973 720,101
Repairs, maintenance, and contract services............... 3,563,067 1,529,122
Salaries.................................................. 1,070,729 502,839
General and administrative................................ 375,787 223,369
Management fees........................................... 648,505 243,322
Insurance................................................. 205,864 80,829
----------- ----------
9,834,992 4,474,344
----------- ----------
EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES......... $12,672,402 $4,638,188
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-66
<PAGE> 160
FOUNTAIN PLACE
NOTES TO STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
MAY 31, 1997, AND DECEMBER 31, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Description of Property
Fountain Place (the "Property") is a 58-story office tower located in the
central business district of Dallas, Texas. The Property contains approximately
1,200,000 rentable square feet as well as an underground parking garage.
Use of Estimates
The preparation of statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Rental Income and Deferred Rent Concessions
In connection with obtaining certain tenants under long-term leases,
property management grants rent concessions. The aggregate future minimum rental
payments due over the terms of the leases are recognized as rental income on a
straight-line basis over the full term of the leases, including the periods of
rent concessions.
Recoveries
A portion of the operating expenses is charged back to tenants on a monthly
basis based upon estimated expenses. These charges are adjusted at period-end,
based upon actual expenses.
2. BASIS OF ACCOUNTING:
The accompanying statements of excess of revenues over specific operating
expenses is presented on the accrual basis of accounting. These statements are
not intended to be a complete presentation of revenues and operating expenses
for the year ended December 31, 1996, and the five month period ended May 31,
1997, as certain items such as depreciation, amortization, interest, and
partnership administrative expenses have been excluded since they are not
comparable to the proposed future operations of the Property.
3. PROPERTY MANAGEMENT:
Chubb Realty of Texas, Inc. (the "Manager"), a wholly owned subsidiary of
Bellemead Development Corporation, has had an arrangement to manage the Property
since August 1995. The Manager requires a management fee of 3.25% of gross
rental receipts, as defined. Total management fees for the year ended December
31, 1996, and the five month period ended May 31, 1997, were approximately
$649,000 and $243,000, respectively.
F-67
<PAGE> 161
FOUNTAIN PLACE
NOTES TO STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
MAY 31, 1997, AND DECEMBER 31, 1996 -- (CONTINUED)
4. SIGNIFICANT TENANTS:
The largest tenant of the Property occupies approximately 300,000 square
feet, or 25%, of the total square footage. This lease expires in December 1999.
The second largest tenant of the Property occupies approximately 251,000 square
feet, or 21%, of the total rentable square footage. This lease expires in
February 2017.
F-68
<PAGE> 162
HOUSTON CENTER
STATEMENTS OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996,
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-69
<PAGE> 163
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Crescent Real Estate Equities Limited Partnership:
We have audited the accompanying statements of excess of revenues over
specific operating expenses (as defined in Note 2) of Houston Center for the
year ended December 31, 1996, and for the six month period ended June 30, 1997.
These statements and the supplemental schedules are the responsibility of the
Property's management. Our responsibility is to express an opinion on these
statements and the supplemental schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statements presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all
material respects, the excess of revenues over specific operating expenses of
Houston Center for the year ended December 31, 1996, and for the six month
period ended June 30, 1997, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
statements taken as a whole. The supplemental schedules included on pages 4 and
5 are presented for the purposes of additional analysis and are not a required
part of the basic statements. This information has been subjected to the
auditing procedures applied in our audits of the basic statements taken as a
whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
August 22, 1997
F-70
<PAGE> 164
HOUSTON CENTER
STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996,
AND THE SIX MONTH PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
<S> <C> <C>
REVENUES:
Office rent............................................... $21,761,693 $10,745,759
Stepped rent.............................................. (30,158) (291,114)
Parking................................................... 4,909,768 2,739,939
Recoveries................................................ 16,762,064 8,569,720
Other..................................................... 2,165,715 862,381
----------- -----------
45,569,082 22,626,685
----------- -----------
SPECIFIC OPERATING EXPENSES:
Real estate taxes......................................... 5,094,126 2,520,371
Utilities................................................. 4,589,307 2,332,058
Repairs, maintenance, and contract services............... 7,939,089 3,406,810
Leasehold interest expense (First City Tower Garage)...... 995,832 493,972
Salaries.................................................. 2,387,584 1,069,142
General and administrative................................ 1,844,256 829,184
Management fees........................................... 1,962,873 958,472
Insurance................................................. 529,401 278,342
----------- -----------
25,342,468 11,888,351
----------- -----------
EXCESS OF REVENUES OVER SPECIFIC OPERATING
EXPENSES.................................................. $20,226,614 $10,738,334
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-71
<PAGE> 165
HOUSTON CENTER
NOTES TO STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
DECEMBER 31, 1996, AND JUNE 30, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Description of Property
Houston Center (the "Property") is a combination of the following certain
assets located in downtown Houston, Texas.
<TABLE>
<CAPTION>
ASSET TYPE SQUARE FEET/NO. OF UNITS
----- ---- ------------------------
<S> <C> <C>
1 Houston Center....................................... Office 1,065,215 sq. ft.
2 Houston Center....................................... Office 1,024,956 sq. ft.
4 Houston Center....................................... Office 674,247 sq. ft.
The Park Shops......................................... Retail 190,729 sq. ft.
Houston Center Garage.................................. 1,353 spaces
First City Tower Garage leasehold interest............. 731 spaces
Undeveloped Land....................................... 870,000 sq. ft.
</TABLE>
Use of Estimates
The preparation of statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Rental Income and Deferred Rent Concessions
In connection with obtaining certain tenants under long-term leases,
property management grants rent concessions. The aggregate rental payments due
over the terms of the leases are recognized as rental income on a straight-line
basis over the full term of the leases, including the periods of rent
concessions.
Recoveries
A portion of the operating expenses is charged back to tenants on a monthly
basis based upon estimated expenses. These charges are adjusted at period-end,
based upon actual expenses.
2. BASIS OF ACCOUNTING:
The accompanying statements of excess of revenues over specific operating
expenses is presented on the accrual basis of accounting. These statements are
not intended to be a complete presentation of revenues and operating expenses
for the year ended December 31, 1996, and for the six months ended June 30,
1997, as certain items such as depreciation, amortization, interest, and
partnership administrative expenses have been excluded since they are not
comparable to the proposed future operations of the Property.
3. PROPERTY MANAGEMENT:
The Property (except for The Park Shops) entered into a management
agreement with Heitman Properties of Texas Ltd. (the "Manager") on September 30,
1993. The agreement with the Manager requires a management fee of 4.25% of gross
rental receipts, as defined. The Park Shops entered into a management agreement
with Urban Retail Properties Co. ("Urban"). Urban receives a management fee of
4.25% of gross rental receipts, as defined. Total management fees for the year
ended December 31, 1996, and for the six month period ended June 30, 1997, were
approximately $1,962,873 and $ 958,472, respectively. The agreements currently
expire September 30, 1999. However, in conjunction with the sale of the
Property, the agreements are being amended to expire on December 31, 1998.
F-72
<PAGE> 166
HOUSTON CENTER
NOTES TO STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES -- (CONTINUED)
4. SIGNIFICANT TENANTS:
There are no individual tenants that occupy more than 10% of the net
rentable square footage of the Property as of June 30, 1997.
5. FIRST CITY TOWER GARAGE LEASEHOLD INTEREST:
The Property's owner leases 731 spaces located in the First City Tower
Garage from an affiliate. The lease expires in 2019. The lease requires monthly
installments based on estimates of the garage's operations for each year. The
estimates of expenses are reconciled to actual expenses in the following year.
F-73
<PAGE> 167
SCHEDULE I
HOUSTON CENTER
STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES BY ASSET
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HOUSTON FIRST CITY
1 HOUSTON 2 HOUSTON 4 HOUSTON THE PARK CENTER TOWER UNDEVELOPED
CENTER CENTER CENTER SHOPS GARAGE GARAGE LAND
----------- ----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Office rent.................. $ 8,161,593 $ 7,274,383 $4,094,402 $2,231,315 $ -- $ -- $ --
Stepped rent................. 206,622 (157,294) (48,133) (31,353) -- -- --
Parking(A)................... 387,759 673,414 211,222 -- 1,819,681 1,218,419 599,273
Recoveries................... 5,695,959 6,180,408 3,775,454 1,110,243 -- -- --
Other........................ 548,682 705,180 620,905 249,808 5,040 -- 36,100
----------- ----------- ---------- ---------- ---------- ---------- --------
15,000,615 14,676,091 8,653,850 3,560,013 1,824,721 1,218,419 635,373
----------- ----------- ---------- ---------- ---------- ---------- --------
SPECIFIC OPERATING EXPENSES:
Real estate taxes............ 1,586,259 1,347,783 1,074,583 331,420 318,153 150,400 285,528
Utilities.................... 1,563,791 1,557,007 972,075 375,831 49,770 -- 70,833
Repairs, maintenance, and
contract services.......... 2,337,064 2,702,426 1,610,049 1,038,962 152,982 -- 97,606
Leasehold interest expense... -- -- -- -- -- 995,832 --
Salaries..................... 693,682 815,513 548,190 318,786 7,184 -- 4,229
General and administrative... 576,957 395,332 269,810 536,424 -- -- 65,733
Management fees.............. 626,037 625,602 382,744 177,368 74,451 48,550 28,121
Insurance.................... 156,642 193,887 93,758 34,686 25,871 -- 24,557
----------- ----------- ---------- ---------- ---------- ---------- --------
7,540,432 7,637,550 4,951,209 2,813,477 628,411 1,194,782 576,607
----------- ----------- ---------- ---------- ---------- ---------- --------
EXCESS OF REVENUES OVER
SPECIFIC OPERATING
EXPENSES..................... $ 7,460,183 $ 7,038,541 $3,702,641 $ 746,536 $1,196,310 $ 23,637 $ 58,766
=========== =========== ========== ========== ========== ========== ========
<CAPTION>
CONSOLIDATED
TOTAL
------------
<S> <C>
REVENUES:
Office rent.................. $21,761,693
Stepped rent................. (30,158)
Parking(A)................... 4,909,768
Recoveries................... 16,762,064
Other........................ 2,165,715
-----------
45,569,082
-----------
SPECIFIC OPERATING EXPENSES:
Real estate taxes............ 5,094,126
Utilities.................... 4,589,307
Repairs, maintenance, and
contract services.......... 7,939,089
Leasehold interest expense... 995,832
Salaries..................... 2,387,584
General and administrative... 1,844,256
Management fees.............. 1,962,873
Insurance.................... 529,401
-----------
25,342,468
-----------
EXCESS OF REVENUES OVER
SPECIFIC OPERATING
EXPENSES..................... $20,226,614
===========
</TABLE>
- ---------------
(A) Parking is net of expenses paid by the third party operator.
F-74
<PAGE> 168
SCHEDULE II
HOUSTON CENTER
STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES BY ASSET
FOR THE PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
1 HOUSTON 2 HOUSTON 4 HOUSTON THE PARK HOUSTON FIRST CITY UNDEVELOPED
CENTER CENTER CENTER SHOPS CENTER GARAGE TOWER GARAGE LAND
---------- ---------- ---------- ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Office rent..................... $4,366,484 $3,586,693 $1,720,578 $1,072,578 $ -- $ -- $ --
Stepped rent.................... (67,273) (129,295) (67,218) (27,328) -- -- --
Parking(A)...................... 204,747 372,694 120,001 -- 1,009,422 621,616 411,459
Recoveries...................... 3,009,647 3,058,185 1,823,901 677,987 -- -- --
Other........................... 292,612 122,024 323,661 114,364 2,520 -- 7,200
---------- ---------- ---------- ---------- ---------- -------- --------
7,806,217 7,010,301 3,920,349 1,837,601 1,011,942 621,616 418,659
---------- ---------- ---------- ---------- ---------- -------- --------
SPECIFIC OPERATING EXPENSES:
Real estate taxes............... 793,130 666,990 537,291 141,398 160,574 77,854 143,134
Utilities....................... 849,051 799,552 488,721 154,463 20,783 -- 19,488
Repairs, maintenance, and
contract services............. 1,108,755 1,091,851 622,498 486,411 42,294 -- 55,001
Leasehold interest expense...... -- -- -- -- -- 493,972 --
Salaries........................ 361,886 311,355 249,526 141,019 3,862 -- 1,494
General and administrative...... 218,266 182,227 165,193 249,055 -- -- 14,443
Management fees................. 330,183 309,292 149,475 86,442 39,213 27,186 16,681
Insurance....................... 92,074 100,223 44,550 17,464 12,360 -- 11,671
---------- ---------- ---------- ---------- ---------- -------- --------
3,753,345 3,461,490 2,257,254 1,276,252 279,086 599,012 261,912
---------- ---------- ---------- ---------- ---------- -------- --------
EXCESS OF REVENUES OVER SPECIFIC
OPERATING EXPENSES.............. $4,052,872 $3,548,811 $1,663,095 $ 561,349 $ 732,856 $ 22,604 $156,747
========== ========== ========== ========== ========== ======== ========
<CAPTION>
CONSOLIDATED
TOTAL
------------
<S> <C>
REVENUES:
Office rent..................... $10,745,759
Stepped rent.................... (291,114)
Parking(A)...................... 2,739,939
Recoveries...................... 8,569,720
Other........................... 862,381
-----------
22,626,685
-----------
SPECIFIC OPERATING EXPENSES:
Real estate taxes............... 2,520,371
Utilities....................... 2,332,058
Repairs, maintenance, and
contract services............. 3,406,810
Leasehold interest expense...... 493,972
Salaries........................ 1,069,142
General and administrative...... 829,184
Management fees................. 958,472
Insurance....................... 278,342
-----------
11,888,351
-----------
EXCESS OF REVENUES OVER SPECIFIC
OPERATING EXPENSES.............. $10,738,334
===========
</TABLE>
- ---------------
(A) Parking is net of expenses paid by the third party operator.
F-75
<PAGE> 169
MIAMI CENTER
STATEMENTS OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996,
AND THE SIX-MONTH PERIOD ENDED JUNE 30, 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-76
<PAGE> 170
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Crescent Real Estate Equities Limited Partnership:
We have audited the accompanying statements of excess of revenues over
specific operating expenses (as defined in Note 2) of Miami Center for the year
ended December 31, 1996, and the six-month period ended June 30, 1997. These
statements are the responsibility of the Property's management. Our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all
material respects, the excess of revenues over specific operating expenses of
Miami Center for the year ended December 31, 1996, and the six-month period
ended June 30, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
August 21, 1997
F-77
<PAGE> 171
MIAMI CENTER
STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996,
AND THE SIX-MONTH PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
REVENUES:
Office rent............................................... $12,554,877 $6,033,466
Parking................................................... 1,259,118 624,675
Recoveries................................................ 930,406 492,001
Other..................................................... 83,863 8,160
----------- ----------
14,828,264 7,158,302
SPECIFIC OPERATING EXPENSES:
Real estate taxes......................................... 2,498,327 1,236,978
Utilities................................................. 1,147,064 566,893
Repairs, maintenance, and contract services............... 2,614,911 1,276,345
Salaries.................................................. 363,052 212,870
General and administrative................................ 546,345 224,529
Management fees........................................... 331,665 167,269
Insurance................................................. 209,933 100,828
----------- ----------
7,711,297 3,785,712
----------- ----------
EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES......... $ 7,116,967 $3,372,590
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-78
<PAGE> 172
MIAMI CENTER
NOTES TO STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
DECEMBER 31, 1996, AND JUNE 30, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Description of Property
Miami Center (the "Property") is a 34-story office tower located in the
central business district of Miami, Florida. The Property contains approximately
773,000 rentable square feet as well as a nine level attached parking facility.
The building is owned by The Prudential Insurance Company of America, a New
Jersey Corporation. The Property is managed by Premisys Real Estate Services,
Inc.
Use of Estimates
The preparation of statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Rental Income and Deferred Rent Concessions
In connection with obtaining certain tenants under long-term leases,
property management grants rent concessions. The aggregate rental payments due
over the terms of the leases are recognized as rental income on a straight-line
basis over the full term of the leases, including the periods of rent
concessions.
Recoveries
A portion of the operating expenses is charged back to tenants on a monthly
basis based upon estimated expenses. These charges are adjusted at period-end,
based upon actual expenses.
2. BASIS OF ACCOUNTING:
The accompanying statements of excess of revenues over specific operating
expenses is presented on the accrual basis of accounting. These statements are
not intended to be a complete presentation of revenues and operating expenses
for the year ended December 31, 1996, and the six-month period ended June 30,
1997, as certain items such as depreciation, amortization, interest, and
administrative expenses have been excluded since they are not comparable to the
proposed future operations of the Property.
3. PROPERTY MANAGEMENT:
The Property entered into a management agreement with Premisys Real Estate
Services, Inc. (the "Manager") in June 1995. The agreement with the Manager
requires a management fee of 2.25 % of gross rental receipts, as defined. Total
management fees for the year ended December 31, 1996, and the six-month period
ended June 30, 1997, were approximately $331,665 and $167,269, respectively. The
agreement may be terminated at any time by either party in accordance with the
management agreement. If terminated, the Manager shall be paid an amount equal
to the next monthly installment of the annual fee.
4. SIGNIFICANT TENANTS:
The largest tenant of the Property occupies approximately 100,000 square
feet, or 13%, of the total leasable square footage. This lease expires in
January 2009. The second largest tenant of the Property occupies approximately
67,000 square feet, or 9%, of the total leasable square footage. This lease
expires in October 2005.
F-79
<PAGE> 173
BANK ONE CENTER
STATEMENT OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996,
AND THE EIGHT MONTH PERIOD ENDED AUGUST 31, 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-80
<PAGE> 174
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Crescent Real Estate Equities Limited Partnership
and TrizecHahn Office Properties, Inc.:
We have audited the accompanying statements of excess of revenues over
specific operating expenses (as defined in Note 2) of Bank One Center for the
year ended December 31, 1996, and the eight month period ended August 31, 1997.
These statements are the responsibility of the Property's management. Our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the statements referred to above presents fairly, in all
material respects, the excess of revenues over specific operating expenses of
Bank One Center for the year ended December 31, 1996, and the eight month period
ended August 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
October 15, 1997
F-81
<PAGE> 175
BANK ONE CENTER
STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996,
AND THE EIGHT MONTH PERIOD ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ -----------
<S> <C> <C>
REVENUES:
Office rent............................................... $15,443,972 $10,498,563
Parking................................................... 1,950,290 1,251,984
Recoveries................................................ 6,816,286 4,614,930
Other..................................................... 831,886 584,718
----------- -----------
25,042,434 16,950,195
----------- -----------
SPECIFIC OPERATING EXPENSES:
Real estate taxes......................................... 2,366,374 2,103,054
Utilities................................................. 1,861,291 1,290,853
Repairs, maintenance, and contract services............... 3,688,396 2,754,971
Salaries.................................................. 908,148 610,310
General and administrative................................ 1,393,094 797,074
Management fees........................................... 231,581 165,582
Insurance................................................. 212,121 130,749
Ground rent............................................... 264,033 183,626
----------- -----------
10,925,038 8,036,219
----------- -----------
EXCESS OF REVENUES OVER SPECIFIC OPERATING
EXPENSES.................................................. $14,117,396 $ 8,913,976
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-82
<PAGE> 176
BANK ONE CENTER
NOTES TO STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
AUGUST 31, 1997, AND DECEMBER 31, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Description of Property
Bank One Center (the "Property") is a 60-story office tower located in the
central business district of Dallas, Texas. The Property contains approximately
1,531,000 rentable square feet as well as underground and attached above ground
parking garages. A parcel of the Property's land is subject to a ground lease
dated December 28, 1981, which expires May 31, 2042.
Use of Estimates
The preparation of statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Rental Income and Deferred Rent Concessions
In connection with obtaining certain tenants under long-term leases,
property management grants rent concessions. The aggregate future minimum rental
payments due over the terms of the leases are recognized as rental income on a
straight-line basis over the full term of the leases, including the periods of
rent concessions.
Recoveries
A portion of the operating expenses is charged back to tenants on a monthly
basis based upon estimated expenses. These charges are adjusted at period-end,
based upon actual expenses.
2. BASIS OF ACCOUNTING:
The accompanying statements of excess of revenues over specific operating
expenses is presented on the accrual basis of accounting. These statements are
not intended to be a complete presentation of revenues and operating expenses
for the year ended December 31, 1996, and the eight month period ended August
31, 1997, as certain items such as depreciation, amortization, and interest
expense have been excluded since they are not comparable to the proposed future
operations of the Property.
3. PROPERTY MANAGEMENT:
The Property entered into a management agreement with LaSalle Partners
Management Limited (the "Manager") in November 1995. The Manager requires a
management fee of 1% of gross rental receipts, as defined. Total management fees
for the year ended December 31, 1996, and the eight month period ended August
31, 1997, were approximately $232,000 and $166,000, respectively.
4. SIGNIFICANT TENANT:
The largest tenant of the Property occupies approximately 350,000 square
feet, or 23%, of the total square footage. This lease expires in January 2010.
F-83
<PAGE> 177
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The pro forma information for the year ended December 31, 1996 assumes
completion, in each case as of January 1, 1996 in determining operating and
other data, of (i) Crescent Real Estate Equities Company's (the "Company")
public offering of its common shares that closed on October 2, 1996 (the
"October 1996 Offering") and the additional public offering of 450,000 common
shares that closed on October 9, 1996 and these net proceeds were contributed to
Crescent Real Estate Equities Limited Partnership (the "Operating Partnership"),
which used the net proceeds to repay approximately $168,000 of indebtedness and
to fund approximately $289,000 of Property acquisitions in the fourth quarter of
1996 and the first quarter of 1997, (ii) the Company's public offering of its
common shares in April 1997 (the "April 1997 Offering") and the additional
public offering of 500,000 common shares that closed on May 14, 1997 and these
net proceeds were contributed to the Operating Partnership, which used the net
proceeds to fund approximately $593,500 of Property acquisitions and other
investments in the second quarter of 1997, (iii) the Company's offering of
4,700,000 common shares to an affiliate of Union Bank of Switzerland (the "UBS
Offering") and these net proceeds were contributed to the Operating Partnership,
which used the net proceeds to repay approximately $145,000 of indebtedness
under the Credit Facility, (iv) the Operating Partnership's offering of the
Private Notes and the use of the net proceeds therefrom to fund approximately
$337,600 of the purchase price of two Properties and to repay approximately
$57,200 of indebtedness incurred under the Credit Facility and other short-term
indebtedness, (v) the Company's public offering of its Common Shares in October
1997 (the "October 1997 Offering") and these net proceeds were contributed to
the Operating Partnership, which used the net proceeds therefrom to fund
approximately $45,000 of the purchase price of one Property and to repay
approximately $325,100 of short-term indebtedness and indebtedness incurred
under the Credit Facility, (vi) the assumption of indebtedness of $97,100 in
connection with the purchase of one Property and (vii) Property acquisitions,
other investments and share issuances during 1996 and 1997.
The pro forma information for the nine months ended September 30, 1997
assumes completion, in each case as of January 1, 1997 in determining operating
and other data, and, in each case as of September 30, 1997 in determining
balance sheet data, of (i) the April 1997 Offering and the additional public
offering of 500,000 common shares that closed on May 14, 1997 and these net
proceeds were contributed to the Operating Partnership, which used the net
proceeds to fund approximately $593,500 of Property acquisitions and other
investments in the second quarter of 1997, (ii) the UBS Offering and these net
proceeds were contributed to the Operating Partnership, which used the net
proceeds to repay approximately $145,000 of indebtedness under the Credit
Facility, (iii) the Operating Partnership's offering of the Private Notes and
the use of the net proceeds therefrom to fund approximately $337,600 of the
purchase price of two Properties and to repay approximately $57,200 of
indebtedness incurred under the Credit Facility and other short-term
indebtedness, (iv) the October 1997 Offering and these net proceeds were
contributed to the Operating Partnership, which used the net proceeds to fund
approximately $45,000 of the purchase price of one Property and to repay
approximately $325,100 of short-term indebtedness and indebtedness incurred
under the Credit Facility, (v) the assumption of indebtedness of $97,100 in
connection with the purchase of one Property and (vi) Property acquisitions,
other investments and share issuances during 1997.
The unaudited pro forma Consolidated Balance Sheet and Statements of
Operations should be read in conjunction with the historical audited financial
statements of the Operating Partnership for the year ended December 31, 1996,
filed herein. In management's opinion, all adjustments necessary to reflect the
above discussed transactions have been made. The unaudited pro forma
Consolidated Balance Sheet and Statements of Operations are not necessarily
indicative of what actual results of operations of the Operating Partnership
would have been for the period, nor does it purport to represent the Operating
Partnership's results of operations for future periods.
F-84
<PAGE> 178
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
CRESCENT REAL
ESTATE EQUITIES
LIMITED PARTNERSHIP PRO FORMA PRO FORMA
HISTORICAL(A) ADJUSTMENTS CONSOLIDATED
------------------- ----------- ------------
<S> <C> <C> <C>
Investments in real estate....................... $3,113,743 $ 159,000(B) $3,272,743
Less -- accumulated depreciation................. (256,204) -- (256,204)
---------- --------- ----------
Net investment in real estate.......... 2,857,539 159,000 3,016,539
Cash and cash equivalents........................ 46,691 41,500(C) 88,191
Restricted cash and cash equivalents............. 32,462 -- 32,462
Accounts receivable, net......................... 23,980 -- 23,980
Deferred rent receivable......................... 30,649 -- 30,649
Investments in real estate mortgages and common
stock of unconsolidated companies.............. 369,779 202,000(D) 571,779
Notes receivable, net............................ 166,323 -- 166,323
Other assets, net................................ 87,641 -- 87,641
---------- --------- ----------
Total assets........................... $3,615,064 $ 402,500 $4,017,564
========== ========= ==========
LIABILITIES
Borrowings under Credit Facility................. $ 316,500 $ 133,400(E) $ 449,900
Notes payable.................................... 1,460,404 (198,100)(F) 1,359,404
97,100(G)
Accounts payable, accrued expenses and other
liabilities.................................... 88,230 -- 88,230
---------- --------- ----------
Total liabilities...................... 1,865,134 32,400 1,897,534
---------- --------- ----------
MINORITY INTERESTS............................... 28,396 -- 28,396
PARTNERS' CAPITAL
General partner................................ 4,295 -- 4,295
Limited partners............................... 1,717,239 370,100(H) 2,087,339
---------- --------- ----------
Total partners' capital................ 1,721,534 370,100 2,091,634
---------- --------- ----------
Total liabilities and partners'
capital.............................. $3,615,064 $ 402,500 $4,017,564
========== ========= ==========
</TABLE>
See accompanying notes to Pro Forma Consolidated Balance Sheet.
F-85
<PAGE> 179
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C>
(A) Reflects Crescent Real Estate Equities Limited Partnership
unaudited consolidated historical balance sheet as of
September 30, 1997..................................... --
(B) Increase reflects the following:
Acquisition of U.S. Home Building office property........... $ 45,000
Acquisition of Fountain Place office property............... 114,000
---------
$ 159,000
=========
(C) Net increase reflects the following:
Capital contributions made by the Company from the October
1997 Offering.......................................... $ 370,100
Acquisition of U.S. Home Building office property........... (45,000)
Partial repayment under the Credit Facility using capital
contributions made by the Company from the October 1997
Offering............................................... (325,100)
Draw under the Credit Facility for working capital.......... 21,500
Borrowings under the Bridge Loan for working capital........ 20,000
---------
$ 41,500
=========
(D) Net increase reflects the following:
Refrigerated Warehouse Investment -- 40% equity
investment............................................. $ 160,500
Investment in a partnership that owns Bank One Center office
property -- 50% equity investment..................... 41,500
---------
$ 202,000
=========
(E) Net increase in borrowings under the Credit Facility as a
result of:
Partial repayment under the Credit Facility using capital
contributions made by the Company from the October 1997
Offering............................................... $(325,100)
Draw to repay the BankBoston Note I......................... 235,000
Investment in a partnership that owns Bank One Center office
property -- 50% equity investment..................... 41,500
Draw for working capital.................................... 21,500
Refrigerated Warehouse Investment -- 40% equity
investment............................................. 160,500
---------
$ 133,400
=========
(F) Net decrease in short-term borrowings as a result of:
Repayment of BankBoston Note I through a draw under the
Credit Facility........................................ $(235,000)
Borrowings under the Bridge Loan for working capital........ 20,000
Borrowings under the Bridge Loan to partially fund the
acquisition of Fountain Place office property.......... 16,900
---------
$(198,100)
=========
(G) Increase in notes payable reflects the following:
Assumption of debt with the acquisition of Fountain Place
office property........................................ $ 97,100
=========
(H) Increase reflects the following:
Capital contributions made by the Company from the October
1997 Offering.......................................... $ 370,100
=========
</TABLE>
F-86
<PAGE> 180
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CRESCENT REAL
ESTATE EQUITIES
LIMITED
PARTNERSHIP 1997 ACQUIRED OTHER PRO FORMA
HISTORICAL(A) INVESTMENTS(B) ADJUSTMENTS CONSOLIDATED
--------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Rental property...................... $289,752 $111,825 $ -- $401,577
Interest and other income............ 13,508 -- 6,206(C) 19,714
-------- -------- -------- --------
Total revenues............... 303,260 111,825 6,206 421,291
-------- -------- -------- --------
EXPENSES:
Real estate taxes.................... 28,229 10,204 -- 38,433
Repairs and maintenance.............. 17,244 12,351 -- 29,595
Other rental property operating...... 59,100 19,134 (283)(D) 77,443
(508)(E)
Corporate general and
administrative.................... 9,855 -- -- 9,855
Interest expense..................... 54,687 -- 42,215(F) 96,902
Depreciation and amortization........ 50,840 19,755 -- 70,595
Amortization of deferred financing
costs............................. 2,157 -- 539(G) 2,696
-------- -------- -------- --------
Total expenses............... 222,112 61,444 41,963 325,519
-------- -------- -------- --------
Operating income (loss)...... 81,148 50,381 (35,757) 95,772
OTHER INCOME:
Equity in net income of
unconsolidated companies.......... 3,118 11,130 -- 14,248
-------- -------- -------- --------
INCOME (LOSS) BEFORE MINORITY
INTERESTS............................ 84,266 61,511 (35,757) 110,020
Minority interests..................... (1,192) -- -- (1,192)
-------- -------- -------- --------
NET INCOME (LOSS)...................... $ 83,074 $ 61,511 $(35,757) $108,828
======== ======== ======== ========
</TABLE>
See adjustments to Pro Forma Consolidated Statement of Operations on following
page.
F-87
<PAGE> 181
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(A) Reflects Crescent Real Estate Equities Limited Partnership's unaudited
consolidated historical statement of operations for the nine months ended
September 30, 1997.
(B) Reflects the historical incremental rental income and operating expenses,
including an adjustment for depreciation based on acquisition price
associated with the 1997 acquired investments, assuming the investments were
acquired at the beginning of the period.
<TABLE>
<CAPTION>
ACQUISITION
INVESTMENT DATE
---------- -----------
<S> <C>
Greenway II office property................................. 1/17/97
Trammell Crow Center office property........................ 2/28/97
Three Denver office properties.............................. 2/28/97
Carter-Crowley Real Estate Assets........................... 5/9/97
Magellan Real Estate Assets(i).............................. 6/17/97
The Woodlands(ii)(iii)...................................... 7/31/97
Desert Mountain(iv)......................................... 8/29/97
Houston Center mixed-use property complex................... 9/22/97
Four Seasons Hotel(v)....................................... 9/22/97
Miami Center office property................................ 9/30/97
U.S. Home Building office property.......................... 10/15/97
Bank One Center office property(vi)......................... 10/22/97
Refrigerated Warehouse Investment(vii)...................... 10/31/97
Fountain Place office property.............................. 11/7/97
</TABLE>
(i) Calculated to reflect the lease payment from the behavioral
healthcare facilities' lessee to the Operating Partnership by
applying the rent provisions (as set forth in the facilities' lease
agreement).
(ii) The Operating Partnership has an indirect 40.375% (after sale of
voting common stock to Crescent Operating, Inc. ("COI"))
non-voting equity investment in the limited partnership whose
primary holding consists of The Woodlands land assets.
(iii) The Operating Partnership has a 42.5% equity investment in the
limited partnership whose primary holding consists of The
Woodlands commercial property assets.
(iv) The Operating Partnership has an indirect 88.35% (after sale of
voting common stock to COI) non-voting equity investment in the
limited partnership that owns Desert Mountain.
(v) Historical operations of the hotel were adjusted to reflect the
lease payment from the hotel lessee to the Operating Partnership
calculated on a pro forma basis.
(vi) The Operating Partnership has a 50% equity investment in the
partnership that owns Bank One Center office property.
(vii) The Operating Partnership owns an indirect 40% equity investment
in each of the two corporations that own and operate the
refrigeration warehouses.
F-88
<PAGE> 182
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
(C) Increase reflects the incremental interest income associated with the
following, assuming all had occurred at the beginning of the period.
<TABLE>
<S> <C> <C> <C> <C> <C>
Carter Crowley Notes..................... ($ 53,365 @ 10%) $ 5,337
Other Note............................... ($ 8,850 @ 18%) 1,593
COI Note................................. ($ 36,955 @ 12%) 4,435
Desert Mountain Note..................... ($ 26,157 @ 12%) 3,139
--------
Total.................................... $ 14,504
Prorated for nine months................. 10,878
Less: Historical interest income......... (4,672)
--------
Total.................................... $ 6,206
=======
(D) Reflects the elimination of historical ground lessee's
expense, as a result of the Operating Partnership acquiring
the land underlying Trammell Crow Center, assuming Trammell
Crow Center was acquired at the beginning of the period..... $ (283)
======
(E) Decrease as a result of the elimination of third party
property management fees which terminated subsequent to
acquisition of certain of the properties.................... $ (508)
======
</TABLE>
(F) Net increase as a result of interest costs for long and short-term
financing, as follows, net of repayment with proceeds of the October 1997
Offering, the September 1997 Note Offering, UBS Offering and April and May
1997 Equity Offerings, assuming the borrowings to finance investment
acquisitions and the assumption of debt and repayment, had all occurred at
the beginning of the period.
<TABLE>
<S> <C> <C> <C> <C> <C>
Credit Facility.......................... $ 449,900 @ 6.86% 30,863
BankBoston Note II....................... 200,000 @ 6.86% 13,720
Bridge Loan.............................. 36,900 @ 6.86% 2,531
Note Offering -- 6.625% Notes due 2002... 150,000 @ 6.625% 9,938
Note Offering -- 7.125% Notes due 2007... 250,000 @ 7.125% 17,813
Chase Manhattan Note..................... 97,100 @ 7.41% 7,195
LaSalle Note I........................... 239,000 @ 7.83% 18,714
LaSalle Note II.......................... 161,000 @ 7.79% 12,542
Cigna Note............................... 63,500 @ 7.47% 4,743
Metropolitan Life Note................... 12,188 @ 8.88% 1,082
LaSalle Note III......................... 115,000 @ 7.82% 8,993
Nomura Funding VI Note................... 8,716 @ 10.07% 878
Northwestern Life Note................... 26,000 @ 7.66% 1,992
---------- --------
Total annual amount...................... $1,809,304 $131,004
Prorated for nine months................. 98,253
Less: Capitalized interest............... (1,351)
Historical interest expense.............. (54,687)
--------
$42,215
=======
</TABLE>
F-89
<PAGE> 183
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
(G) Amortization of capitalized costs associated with the September 1997 Note
Offering for initial purchasers' discounts ($4,731) and other costs ($500).
<TABLE>
<CAPTION>
AMORTIZATION
OF FEES
------------
<S> <C> <C>
Note Offering -- 6.625% Notes due 2002...................... $ 392
Note Offering -- 7.125% Notes due 2007...................... 327
----------
Total....................................................... $ 719
Prorated for nine months.................................... $ 539
=======
</TABLE>
F-90
<PAGE> 184
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CRESCENT REAL
ESTATE EQUITIES
LIMITED
PARTNERSHIP 1996 ACQUIRED 1997 ACQUIRED OTHER PRO FORMA
HISTORICAL(A) INVESTMENTS(B) INVESTMENTS(C) ADJUSTMENTS CONSOLIDATED
--------------- -------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental property...................... $202,003 $89,185 $212,344 $ -- $503,532
Interest and other income............ 6,858 -- -- 14,504(D) 21,362
-------- ------- -------- -------- --------
Total revenues............... 208,861 89,185 212,344 14,504 524,894
-------- ------- -------- -------- --------
EXPENSES:
Real estate taxes.................... 20,606 8,176 18,140 -- 46,922
Repairs and maintenance.............. 12,292 8,403 22,588 -- 43,283
Other rental property operating...... 40,915 21,346 37,246 (1,700)(E) 96,374
(1,433)(F)
Corporate general and
administrative.................... 4,674 -- -- 5,326(G) 10,000
Interest expense..................... 42,926 -- -- 86,976(H) 129,902
Depreciation and amortization........ 40,535 12,727 38,743 -- 92,005
Amortization of deferred financing
costs............................. 2,812 -- -- 719(I) 3,531
-------- ------- -------- -------- --------
Total expenses............... 164,760 50,652 116,717 89,888 422,017
-------- ------- -------- -------- --------
Operating income (loss)...... 44,101 38,533 95,627 (75,384) 102,877
OTHER INCOME:
Equity in net income of
unconsolidated
companies......................... 3,850 -- 10,170 -- 14,020
-------- ------- -------- -------- --------
INCOME (LOSS) BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM............... 47,951 38,533 105,797 (75,384) 116,897
Minority interests..................... (1,482) (533) -- -- (2,015)
-------- ------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM....... 46,469 38,000 105,797 (75,384) 114,882
Extraordinary item..................... (1,599) -- -- -- (1,599)
-------- ------- -------- -------- --------
NET INCOME (LOSS)...................... $ 44,870 $38,000 $105,797 $(75,384) $113,283
======== ======= ======== ======== ========
</TABLE>
See accompanying notes to the Pro Forma Consolidated Statement of Operations.
F-91
<PAGE> 185
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(A) Reflects Crescent Real Estate Equities Limited Partnership's consolidated
historical statement of operations for the year ended December 31, 1996
(B) Reflects the historical incremental rental income and operating expenses,
including an adjustment for depreciation based on acquisition price
associated with all investments acquired in 1996, assuming the investments
were acquired at the beginning of the period.
<TABLE>
<CAPTION>
ACQUISITION
INVESTMENT DATE
---------- -----------
<S> <C>
3333 Lee Parkway office property............................ 1/5/96
301 Congress Avenue office property (i)..................... 4/18/96
Central Park Plaza office property.......................... 6/13/96
Canyon Ranch -- Tucson resort (ii).......................... 7/26/96
The Woodlands office properties (iii)....................... 7/31/96
Three Westlake Park office property......................... 8/16/96
1615 Poydras office property................................ 8/23/96
Greenway Plaza Portfolio.................................... 10/7/96
Chancellor Park office property............................. 10/24/96
The Woodlands retail properties (iii)....................... 10/31/96
Sonoma Mission Inn & Spa (ii)............................... 11/18/96
Canyon Ranch -- Lenox resort (ii)........................... 12/11/96
160 Spear Street office property............................ 12/13/96
Greenway I and IA office properties......................... 12/18/96
Bank One Tower office property.............................. 12/23/96
Frost Bank Plaza office property............................ 12/27/96
</TABLE>
(i) The Operating Partnership has a 1% general partner and a 49%
limited partner interest in the partnership that owns 301 Congress
Avenue.
(ii) Historical operations of the hotel or/resort property were
adjusted to reflect the lease payments from the hotel lessee to
the Operating Partnership calculated on a pro forma basis by
applying the rent provisions (as defined in the lease agreements).
(iii) The Operating Partnership had a 75% interest in the partnership
that owns these properties, in 1996. Currently, the Operating
Partnership has an approximate 85% interest.
F-92
<PAGE> 186
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
(C) Reflects the historical incremental rental income and operating expenses,
including an adjustment for depreciation based on acquisition price
associated with the 1997 acquired investments, assuming the investments were
acquired at the beginning of the period.
<TABLE>
<CAPTION>
ACQUISITION
INVESTMENT DATE
---------- -----------
<S> <C>
Greenway II office property................................. 1/17/97
Trammell Crow Center office property........................ 2/28/97
Three Denver office properties.............................. 2/28/97
Carter-Crowley Real Estate Assets........................... 5/9/97
Magellan Real Estate Assets (i)............................. 6/17/97
The Woodlands (ii) (iii).................................... 7/31/97
Desert Mountain (iv)........................................ 8/29/97
Houston Center mixed-use property complex................... 9/22/97
Four Seasons Hotel (v)...................................... 9/22/97
Miami Center office property................................ 9/30/97
U.S. Home Building office property.......................... 10/15/97
Bank One Center office property (vi)........................ 10/22/97
Refrigerated Warehouse Investment (vii)..................... 10/31/97
Fountain Place office property.............................. 11/7/97
</TABLE>
(i) Calculated to reflect the lease payment from the behavioral
healthcare facilities' lessee to the Operating Partnership by
applying the rent provisions (as set forth in the facilities'
lease agreement).
(ii) The Operating Partnership has an indirect 40.375% (after sale of
voting common stock to COI) non-voting equity investment limited
partnership whose primary holding consists of The Woodlands land
assets.
(iii) The Operating Partnership has a 42.5% equity investment in the
limited partnership whose primary holding consists of The
Woodlands commercial property assets.
(iv) The Operating Partnership has an indirect 88.35% (after sale of
voting common stock to COI) non-voting equity investment in the
limited partnership that owns Desert Mountain.
(v) Historical operations of the hotel were adjusted to reflect the
lease payment from the hotel lessee to the Operating Partnership
calculated on a pro forma basis.
(vi) The Operating Partnership has a 50% equity investment in the
partnership that owns Bank One Center office property.
(vii) The Operating Partnership owns an indirect 40% equity investment
in each of the two corporations that own and operate the
refrigeration warehouses.
(D) Increase reflects the incremental interest income associated with the
following, assuming all had occurred at the beginning of the period.
<TABLE>
<S> <C> <C> <C>
Carter Crowley Notes..................... ($53,365 @ 10%) $ 5,337
Other Note............................... ($ 8,850 @ 18%) 1,593
COI Note................................. ($36,955 @ 12%) 4,435
Desert Mountain Note..................... ($26,157 @ 12%) 3,139
--------
Total..................................................................... $14,504
=======
</TABLE>
F-93
<PAGE> 187
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
<TABLE>
<S> <C> <C>
(E) Reflects the elimination of historical ground lessee's
expense, as a result of the Operating Partnership acquiring
the land underlying Trammell Crow Center, assuming Trammell
Crow Center was acquired at the beginning of the period..... $(1,700)
=======
(F) Decrease as a result of the elimination of third party
property management fees which terminated subsequent to
acquisition of certain of the properties.................... $(1,433)
=======
(G) Increase reflects the estimated incremental general and
administrative costs associated with the increase in
personnel due to numerous acquisitions in 1996 and 1997..... $ 5,326
=======
</TABLE>
(H) Net increase as a result of interest costs for long and short-term
financing, as follows, net of repayment with proceeds of the October 1997
Offering, the September 1997 Note Offering, UBS Offering, April and May 1997
Equity Offerings, and the October 1996 Equity Offerings, assuming the
borrowings to finance investment acquisition and the assumption of debt and
repayment, had all occurred at the beginning of the period.
<TABLE>
<S> <C> <C> <C> <C> <C>
Credit Facility........................ $ 449,900 @ 6.86% 30,863
BankBoston Note II..................... 200,000 @ 6.86% 13,720
Bridge Loan............................ 36,900 @ 6.86% 2,531
Note Offering -- 6.625% Notes due @
2002................................. 150,000 6.625% 9,938
Note Offering -- 7.125% Notes due @
2007................................. 250,000 7.125% 17,813
Chase Manhattan Note................... 97,100 @ 7.41% 7,195
LaSalle Note I......................... 239,000 @ 7.83% 18,714
LaSalle Note II........................ 161,000 @ 7.79% 12,542
Cigna Note............................. 63,500 @ 7.47% 4,743
Metropolitan Life Note................. 12,188 @ 8.88% 1,082
LaSalle Note III....................... 115,000 @ 7.82% 8,993
Nomura Funding VI Note................. 8,716 @ 10.07% 878
Northwestern Life Note................. 26,000 @ 7.66% 1,992
---------- --------
Total annual amount.................... $1,809,304 $131,004
Less: Capitalized interest............. (1,102)
Historical interest expense............ (42,926)
--------
$86,976
=======
</TABLE>
(I) Amortization of capitalized costs associated with the September 1997 Note
Offering for initial purchasers' discounts ($4,731) and other costs ($500).
<TABLE>
<CAPTION>
AMORTIZATION
OF FEES
------------
<S> <C> <C>
Note Offering -- 6.625% Notes due 2002...................... $ 392
Note Offering -- 7.125% Notes due 2007...................... 327
--------
Total..................................................................... $ 719
=======
</TABLE>
F-94
<PAGE> 188
APPENDIX A
The following information concerns each Property the book value of which
amounts to 10 percent or more of the total assets of the Operating Partnership
and its Subsidiaries as of the date hereof or the gross revenue from which
during the year ended December 31, 1996 amounted to 10 percent or more of the
aggregate gross revenues of the Operating Partnership and its Subsidiaries
during such year.
The Woodlands. On July 31, 1997, the Operating Partnership and certain
Morgan Stanley funds (the "Morgan Stanley Group"), acquired The Woodlands
Corporation, a subsidiary of Mitchell Energy Corporation, for approximately $543
million. In connection with the acquisition, the Operating Partnership and the
Morgan Stanley Group made equity investments of approximately $80 million and
$109 million, respectively. The remaining approximately $354 million and
associated acquisition and financing costs of approximately $15 million were
financed by the two limited partnerships, described below, through which the
investment was made. The Woodlands Corporation was the principal owner,
developer and operator of The Woodlands, an approximately 27,000-acre,
master-planned residential and commercial community located 27 miles north of
downtown Houston, Texas. The Woodlands, which is approximately 50% developed,
includes a shopping mall, retail centers, office buildings, a hospital, club
facilities, a community college, a performance pavilion and numerous other
amenities.
The acquisition was made through The Woodlands Commercial Properties
Company, L.P. ("Woodlands-CPC"), a limited partnership in which the Morgan
Stanley Group holds a 57.5% interest and the Operating Partnership holds a 42.5%
interest, and the Woodlands Land Development Company, L.P. ("Woodlands-LDC"), a
limited partnership in which the Morgan Stanley Group holds a 57.5% interest and
a newly formed Residential Development Corporation, The Woodlands Land Company,
Inc. ("WLC"), holds a 42.5% interest. The Operating Partnership currently owns
all of the non-voting common stock, representing a 95% economic interest in WLC
and, effective September 29, 1997, Crescent Operating, Inc. ("COI") owns all of
the voting common stock, representing a 5% economic interest, in WLC. The
Operating Partnership is the managing general partner of Woodlands-CPC and WLC
is the managing general partner of Woodlands-LDC.
In connection with the acquisition, Woodlands-CPC acquired The Woodlands
Corporation's 25% general partner interest in the partnerships that own
approximately 1.2 million square feet of Office and Retail Properties in The
Woodlands. The Operating Partnership previously held a 75% limited partner
interest in each of these partnerships and, as a result of the acquisition, the
Operating Partnership's indirect economic ownership interest in these Properties
increased to approximately 85%. The other assets acquired by Woodlands-CPC
include a 364-room executive conference center, a private golf and tennis club
serving approximately 1,600 members and offering 81 holes of golf, and
approximately 400 acres of land that will support commercial development of more
than 3.5 million square feet of office, multi-family, industrial, retail and
lodging properties. In addition, Woodlands-CPC acquired The Woodlands
Corporation's general partner interests, ranging from one to 50 percent, in
additional office and retail properties and in multi-family and light industrial
properties. Woodlands-LDC acquired approximately 6,400 acres of land that will
support development of more than 20,000 lots for single-family homes and
approximately 2,500 acres of land that will support more than 21.5 million net
rentable square feet of commercial development. The executive conference center,
including the golf and tennis club and golf courses, is operated and leased by a
wholly owned subsidiary of a partnership owned 42.5% by a subsidiary of Crescent
Operating, Inc. and 57.5% by the Morgan Stanley Group.
Desert Mountain. On August 29, 1997, the Operating Partnership acquired,
through a newly formed Residential Development Corporation, Desert Mountain
Development Corporation ("DMDC"), the majority economic interest in Desert
Mountain Properties Limited Partnership ("DMPLP"), the partnership that owns
Desert Mountain, a master-planned, luxury residential and recreational community
in northern Scottsdale, Arizona. The partnership interest was acquired from a
subsidiary of Mobil Land Development Corporation for approximately $214 million.
The sole limited partner of DMPLP is Sonora Partners Limited Partnership
("Sonora") whose principal owner is Lyle Anderson, the original developer of
Desert Mountain. A portion of Sonora's interest in DMPLP is exchangeable for
Common Shares of the Company. Sonora currently owns a
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<PAGE> 189
7% economic interest in DMPLP, and DMDC, which is the sole general partner of
DMPLP, owns the remaining 93% economic interest. The Operating Partnership owns
all of the non-voting common stock, representing a 95% economic interest, and,
effective September 29, 1997, COI owns all of the voting common stock,
representing a 5% economic interest, in DMDC. The Operating Partnership also
holds a residential development property mortgage on Desert Mountain. DMPLP has
entered into an advisory agreement with the Lyle Anderson Company pursuant to
which Mr. Anderson provides advisory services in connection with the operation
and development of Desert Mountain.
Desert Mountain is an 8,300-acre property that is zoned for the development
of approximately 4,500 lots, approximately 1,500 of which have been sold.
However, the current plans for Desert Mountain contemplate limiting development
in order to maintain the exclusive nature of the community. Desert Mountain also
includes The Desert Mountain Club, a private golf, tennis and fitness club
serving over 1,600 members. The club offers four Jack Nicklaus signature 18-hole
golf courses, including Cochise, site of the Senior PGA Tour's The Tradition
golf tournament.
Behavioral Healthcare Facilities. The 91 Behavioral Healthcare Facilities,
which are located in 28 states, were purchased by the Operating Partnership for
approximately $387.2 million (including the purchase price for one facility
which was subsequently sold). The Behavorial Healthcare Facilities are leased to
Charter Behavorial Health Systems, LLC ("CBHS") and its subsidiaries under a
triple-net lease. CBHS is a newly formed Delaware limited liability company
owned 50% by a subsidiary of Magellan Health Services, Inc. and 50% by COI. The
lease requires the payment of annual minimum rent in the amount of approximately
$41.7 million for the period ending June 16, 1998, increasing in each subsequent
year during the 12-year term at a 5% compounded annual rate. All maintenance and
capital improvement costs are the responsibility of CBHS during the term of the
lease. In addition, the obligation of CBHS to pay an approximately $78.3 million
franchise fee to Magellan Health Services, Inc. and one of its subsidiaries, as
franchisor, pursuant to a franchise agreement, is subordinated to the obligation
of CBHS to pay annual minimum rent to the Operating Partnership. The franchisor
does not have the right to terminate the franchise agreement due to any
nonpayment of the franchise fee as a result of the subordination of the
franchise fee to the annual minimum rent. The lease is designed to provide the
Operating Partnership with a secure, above-average return on its investment as a
result of the priority of annual minimum rent to the franchise fee and the
initial amount and annual escalation in the lease payments.
Houston Center. Houston Center consists of three high-rise Class A office
buildings aggregating approximately 2.8 million net rentable square feet ("HC
Office Properties"), approximately 191,000 net rentable square feet of retail
space, four parking garages aggregating 2,698 spaces, a leasehold interest in
First City Tower Garage for the use of 731 spaces (collectively with the HC
Office Properties, "HC Complex"), a 399-room Four Seasons Hotel, 114 luxury
apartments and approximately 20 acres of contiguous undeveloped commercial land
which currently contains eight surface parking lots which have an aggregate of
1,490 spaces used by the HC Complex which was purchased for an aggregate
purchase price of $327.6 million. The Operating Partnership has leased the Four
Seasons Hotel and 114 luxury apartments to COI. Developed between 1974 and 1983,
the HC Office Properties are situated on approximately 5.7 acres.
As of September 30, 1997, the HC Office Properties were 92% leased with a
weighted average base rental rate per square foot of $7.97 (a weighted average
full-service rental rate of $14.14). The HC Office Properties' leases are
primarily triple net, with the tenant responsible for payment or reimbursement
of, in addition to base rent, most operating costs of the property, including
utilities, real estate taxes and insurance. The weighted average remaining lease
term for the HC Office Properties is approximately 4.1 years. The HC Office
Properties are leased to approximately 220 tenants, the major tenants having
principal businesses in the industry sectors of energy, as well as professional
services such as a accounting, consulting, engineering and legal. Major tenants
include Chevron USA, Inc., Ernst & Young U.S., Lyondell Petrochemical Company
and American Exploration Company. None of the tenants in the HC Office
Properties leases more than 10% of the aggregate net rentable area.
The Houston CBD submarket consists of 25.2 million square feet of Class A
office space, which was approximately 40% of Houston's total Class A office
space at September 30, 1997. At September 30, 1997, the
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<PAGE> 190
Houston CBD Class A office space was 93% occupied, and the average quoted
full-service market rental rate for such space was $15.63 per square foot.
The aggregate tax basis for the HC Complex of depreciable real property and
improvements and personal property for federal income tax purposes is $250.1
million. For federal income tax purposes, depreciation is computed using the
straight-line method over lives which range from 15 to 39 years for the real
property and improvements, and the double-declining balance method over lives
which range from 5 to 7 years for the personal property.
The 1996 realty tax rate, for HC Complex and the 20 acres of undeveloped
commercial land, was $2.92 per $100 of the $174 million assessed value. The
total amount of tax at this rate for 1996 was approximately $5.1 million.
For the year ended December 31, 1996 and the six months ended June 30,
1997, utility expense was approximately $4.6 million and $2.3 million,
respectively, and expenses for repairs, maintenance and contract services were
approximately $7.9 million and $3.4 million, respectively, for the HC Complex
and the 20 acres of undeveloped commercial land.
The Operating Partnership has no immediate plans to renovate the HC Office
Properties, other than expenditures associated with the maintenance of the
property. Management believes that Houston Center is suitable and adequate for
continued use as Class A office properties, a full-service hotel, retail space
and apartments and is adequately covered by insurance.
The following table sets forth HC Office Properties' year-end occupancy and
average base rent per leased square foot for the five years ended December 31,
1996, and for the nine months ended September 30, 1997.
<TABLE>
<CAPTION>
AVERAGE
BASE
YEAR OCCUPANCY RENT(1)(2)
---- --------- ----------
<S> <C> <C>
1992.................................................. 88% $9.64
1993.................................................. 79 9.41
1994.................................................. 87 8.06
1995.................................................. 88 7.58
1996.................................................. 92 7.86
9/30/97............................................... 92 7.97
</TABLE>
- ---------------
(1) Represents annual base rental revenues (excluding scheduled rent increases
and free rent that would be taken into account under generally accepted
accounting principles) divided by average occupancy in square footage for
the year or period and excluding expenses payable by or reimbursable from
the tenants.
(2) Leases are primarily triple net, with the tenant responsible for payment, or
reimbursement of, in addition to base rent, most operating costs of the
property, including utilities, real estate taxes and insurance.
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<PAGE> 191
The following table sets forth a schedule of lease expirations for leases
in place as of September 30, 1997, for the HC Office Properties, for each of the
10 years beginning with the remainder of 1997, assuming that none of the tenants
exercises renewal options and excluding 220,876 square feet of unleased space.
<TABLE>
<CAPTION>
ANNUAL BASE
PERCENTAGE PERCENTAGE OF RENT PER
NET RENTABLE OF LEASED TOTAL ANNUAL SQUARE FOOT
NUMBER OF AREA SUBJECT TO NET RENTABLE ANNUAL BASE BASE RENT FOR NET
TENANTS WITH EXPIRING AREA SUBJECT RENT UNDER REPRESENTED RENTABLE
YEAR OF LEASE EXPIRING LEASES TO EXPIRING EXPIRING BY EXPIRING AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1)(2) LEASES EXPIRING(1)(2)
------------- ------------ --------------- ------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1997................. 8 10,429 0.4% $ 66,115 0.3% $6.34
1998................. 68 175,042 6.9 969,092 4.4 5.54
1999................. 45 624,366 24.5 4,603,235 21.1 7.37
2000................. 33 189,057 7.4 317,936 6.1 6.97
2001................. 36 875,519 34.4 646,897 34.9 8.73
2002................. 18 203,158 8.0 3,091,288 14.1 15.22
2003................. 8 79,464 3.1 598,487 2.7 7.53
2004................. 5 52,268 2.1 425,362 1.9 8.14
2005................. 2 59,940 2.4 457,649 2.1 7.64
2006................. 2 60,665 2.4 595,288 2.7 9.81
2007 and
thereafter......... 4 213,634 8.4 2,117,309 9.7 9.91
</TABLE>
- ---------------
(1) Calculated based on base rent payable as of the expiration date of the lease
for net rentable square feet expiring, without giving effect to free rent or
scheduled rent increases that would be taken into account under generally
accepted accounting principles and excluding expenses payable by or
reimbursable from the tenants.
(2) Leases are triple net, with the tenant responsible for payment or
reimbursement of, in addition to base rent, most operating costs of the
property, including utilities, real estate taxes and insurance.
Americold Corporation and URS Logistics, Inc. See "Business and
Properties -- Recent Acquisitions."
A-4
<PAGE> 192
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE OPERATING PARTNERSHIP. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE OPERATING PARTNERSHIP SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................ 1
Risk Factors........................... 15
The Operating Partnership.............. 20
No Cash Proceeds to the Operating
Partnership.......................... 24
Capitalization......................... 24
Debt Structure......................... 25
The Exchange Offer..................... 26
Selected Financial Data................ 34
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of the Operating
Partnership.......................... 37
Ratios of Earnings to Fixed Charges.... 44
Business and Properties................ 45
Certain Policies....................... 56
Management............................. 60
Principal Shareholders................. 67
Certain Relationships and Related
Transactions......................... 70
Structure of the Operating
Partnership.......................... 74
Description of the Exchange Notes...... 75
Certain U.S. Federal Income Tax
Considerations....................... 87
Plan of Distribution................... 88
Available Information.................. 88
Experts................................ 89
Legal Matters.......................... 89
Index to Financial Statements.......... F-1
Appendix A............................. A-1
=============================================
</TABLE>
======================================================
[LOGO]
CRESCENT REAL ESTATE
EQUITIES LIMITED
PARTNERSHIP
OFFER TO EXCHANGE
6 5/8% NOTES DUE 2002 FOR ANY AND ALL OUTSTANDING 6 5/8% NOTES DUE 2002
7 1/8% NOTES DUE 2007 FOR ANY AND ALL OUTSTANDING 7 1/8% NOTES DUE 2007
------------------------------------
PROSPECTUS
------------------------------------
DECEMBER , 1997
======================================================
<PAGE> 193
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Operating Partnership's limited partnership agreement (the "Agreement")
provides that the Operating Partnership will indemnify any director or officer
of the Operating Partnership, Crescent Real Estate Equities Company (the
"Company") or Crescent Real Estate Equities, Ltd. (the "General Partner") that
is made a party to a proceeding by reason of his status as such director or
officer (an "Indemnitee") from and against any and all losses, claims, damages,
liabilities, joint or several, expenses (including, without limitation,
attorneys' fees and other legal fees and expenses), judgments, fines,
settlements and other amounts arising from any and all claims, demands, actions,
suits or proceedings, civil, criminal, administrative or investigative, that
relate to the operations of the Operating Partnership as set forth in the
Agreement in which such Indemnitee may be involved, or is threatened to be
involved, as a party or otherwise, unless it is established that: (i) the act or
omission of the Indemnitee was material to the matter giving rise to the
proceedings and either was committed in bad faith or was the result of active
and deliberate dishonesty; (ii) the Indemnitee actually received an improper
personal benefit in money, property or services; or (iii) in the case of any
criminal proceeding, the Indemnitee had reasonable cause to believe that the act
or omission was unlawful. The indemnity extends to any liability of any
Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of
the Operating Partnership or any subsidiary entity (including, without
limitation, any indebtedness which the Operating Partnership or any subsidiary
entity has assumed or taken subject to). The termination of any proceeding by
judgment, order or settlement does not create a presumption that the Indemnitee
did not meet the requisite standard of conduct set forth for indemnification.
The termination of any proceeding by conviction of an Indemnitee or upon a plea
of nolo contendre or its equivalent by an Indemnitee, or an entry of an order of
probation against an Indemnitee prior to judgment, creates a rebuttable
presumption that such Indemnitee acted in a manner contrary to that specified
for indemnification with respect to the subject matter of such proceeding.
The right to indemnification conferred in the Agreement is a contract right
and includes the right of each Indemnitee to be paid by the Operating
Partnership the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that the payment of such expenses in
advance of the final disposition of a proceeding shall be made only upon
delivery to the Operating Partnership of (i) a written affirmation of the
Indemnitee of his or her good faith belief that the standard of conduct
necessary for indemnification by the Operating Partnership has been met and (ii)
a written undertaking by or on behalf of the Indemnitee to repay all amounts so
advanced if it shall ultimately be determined that the standard of conduct has
not been met.
The Company's Restated Declaration of Trust provides that the trust
managers and officers shall be indemnified to the maximum extent permitted by
Texas law. The Declaration of Trust provides that no trust manager shall be
liable to the Company for any act, omission, loss, damage or expense arising
from the performance of his duties to the Company save only for his own willful
misfeasance or willful malfeasance or gross negligence. In addition to, but in
no respect whatsoever in limitation of the foregoing, the liability of each
trust manager for monetary damages shall be eliminated to the fullest extent
permitted by applicable law. The Declaration of Trust also provides that no
amendment thereto may limit or eliminate this limitation of liability with
respect to events occurring prior to the effective date of such amendment.
The Company carries insurance that purports to insure officers and trust
managers of the Company against certain liabilities incurred by them in the
discharge of their official functions.
The Company and the Operating Partnership have entered into indemnification
agreements with each of the Company's executive officers and trust managers. The
indemnification agreements require, among other things, that the Company and the
Operating Partnership indemnify such officers and trust managers to the fullest
extent permitted by law, and advance to the officers and directors all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The Company and the Operating Partnership also
must indemnify and advance expenses incurred by officers and directors seeking
to
II-1
<PAGE> 194
enforce their rights under the indemnification agreements and cover officers and
directors under the Company's and Operating Partnership's directors' and
officers' liability insurance, if any. Although the indemnification agreements
offer substantially the same scope of coverage afforded by provisions in the
Declaration of Trust, the Company's Bylaws and Operating Partnership Agreement,
they provide greater assurance to directors and executive officers that
indemnification will be available, because, as contracts, they cannot be
modified unilaterally in the future by the Board of Trust Managers or by the
stockholders to alter, limit or eliminate the rights they provide.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following is a list of all exhibits and financial statement schedules
filed as a part of this Registration Statement on Form S-4, including those
incorporated herein by reference.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.01 -- Form of Purchase Agreement, dated September 19, 1997,
among the Registrant, Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Salomon Brothers
Inc (filed herewith).
3.01 -- Second Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited
Partnership dated as of November 1, 1997 (filed as
Exhibit 4.06 to the Registration Statement on Form S-3
(File No. 333-41049) of Crescent Real Estate Equities
Company (the "Company") and incorporated herein by
reference).
4.01 -- Indenture, dated as of September 22, 1997, between the
Registrant and State Street Bank and Trust Company of
Missouri, N.A. (filed herewith).
4.02 -- Restated Declaration of Trust of the Company (filed as
Exhibit No. 4.01 to the Company's Registration Statement
on Form S-3 (File No. 333-21905) (the "1997 Form S-3")
and incorporated herein by reference).
4.03 -- Amended and Restated Bylaws of the Company, as amended
(filed as Exhibit 4.02 to the Company's Form 8-K dated
October 8, 1997 and filed October 14, 1997, and
incorporated herein by reference).
4.04 -- Form of 6 5/8% Note due 2002 (filed herewith).
4.05 -- Form of 7 1/8% Note due 2007 (filed herewith).
4.06 -- Registration Rights Agreement, dated as of September 22,
1997, among the Registrant, Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Salomon
Brothers Inc (filed herewith).
5.01* -- Opinion of Shaw Pittman Potts & Trowbridge as to the
legality of the securities being registered by the
Registrant.
8.01* -- Opinion of Shaw Pittman Potts & Trowbridge regarding
certain material tax issues relating to the Registrant.
10.01 -- Form of Noncompetition Agreement (Rainwater) filed as
Exhibit No. 10.02 to the Company's Registration Statement
on Form S-11 (File No. 33-90226) (the "1995 S-11") and
incorporated herein by reference).
10.02 -- Form of Noncompetition Agreement (Goff) (filed as Exhibit
No. 10.03 to the 1995 S-11 and incorporated herein by
reference).
10.03 -- Form of Noncompetition Agreement (Haddock) (filed as
Exhibit No. 10.04 to the 1995 S-11 and incorporated
herein by reference).
10.04 -- Form of Employment Agreement (Goff) (filed as Exhibit No.
10.05 to the 1995 S-11 and incorporated herein by
reference).
</TABLE>
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<PAGE> 195
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.05 -- Form of Employment Agreement (Haddock) (filed as Exhibit
No. 10.06 to the 1995 S-11 and incorporated herein by
reference).
10.06 -- Form of Registration Rights, Lock-Up and Pledge Agreement
(filed as Exhibit No. 10.05 to the Registration Statement
on Form S-11 (File No. 33-78188) (the "1994 S-11") of the
Company and incorporated herein by reference).
10.07 -- Form of Officers' and Trust Managers' Indemnification
Agreement as entered into between the Company and each of
its executive officers and trust managers (filed
herewith).
10.08 -- Crescent Real Estate Equities Company 1994 Stock
Incentive Plan (filed as Exhibit No. 10.07 to the 1994
S-11 and incorporated herein by reference).
10.09 -- Crescent Real Estate Equities, Ltd. 401(k) Plan (filed as
Exhibit No. 10.10 to the 1995 S-11 and incorporated
herein by reference).
10.10 -- Agreement, dated as of August 15, 1996, relating to the
acquisition of the Greenway Plaza Portfolio (filed as
Exhibit No. 10.02 to the 1996 Form 8-K and incorporated
herein by reference).
10.11 -- Form of Amended and Restated Lease Agreement, dated
January 1, 1996, among the Registrant, Mogul Management,
LLC and RoseStar Management, LLC, relating to the Hyatt
Regency Beaver Creek (filed as Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 (the "1995 10-K") and
incorporated herein by reference).
10.12 -- Real Estate Purchase and Sale Agreement, dated as of
January 29, 1997, between the Registrant, as purchaser,
and Magellan Health Services, Inc., as seller, relating
to the acquisition of 92 behavioral healthcare facilities
(the "Magellan Facilities"), as amended effective
February 28, 1997 and May 29, 1997 (filed as Exhibit No.
10.13 to the Company's Quarterly Report on Form 10-Q/A
for the quarter ended June 30, 1997 (the "1997 10-Q") and
incorporated herein by reference).
10.13 -- Second Amended and Restated 1995 Crescent Real Estate
Equities Company Stock Incentive Plan (filed herewith).
10.14 -- Lease Agreement, dated December 19, 1995 between the
Registrant and RoseStar Management, LLC, relating to the
Hyatt Regency Albuquerque (filed as Exhibit 10.16 to the
1995 10-K and incorporated herein by reference).
10.15 -- Amended and Restated Lease Agreement, dated June 30, 1995
between the Registrant and RoseStar Management, LLC,
relating to the Denver Marriott (filed as Exhibit 10.17
to the 1995 10-K and incorporated herein by reference).
10.16 -- Loan Agreement, dated August 24, 1995, including Form of
Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing, and Amendment to Loan Agreement,
dated October 19, 1995, between Crescent Real Estate
Funding I, L.P. and Nomura Asset Capital Corporation
(filed as Exhibit 10.15 to the 1995 10-K and incorporated
herein by reference).
10.17 -- Loan Agreement, dated August 24, 1995, including Form of
Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing, between Crescent Real Estate Funding
II, L.P. and Nomura Asset Capital Corporation (filed as
Exhibit 10.19 to the 1995 10-K and incorporated herein by
reference).
10.18 -- Mortgage Loan Application and Agreement, dated October 3,
1995, as amended by letter agreements dated October 10,
1995 and October 30, 1995, between the Registrant and
CIGNA Investments, Inc. and Secured Promissory Note dated
December 11, 1995 (filed as Exhibit 10.20 to the 1995
10-K and incorporated herein by reference).
</TABLE>
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<PAGE> 196
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.19 -- 1995 Crescent Real Estate Equities Limited Partnership
Unit Incentive Plan (filed as Exhibit No. 99.01 to the
Company's Registration Statement on Form S-8 (File No.
333-3452) and incorporated herein by reference).
10.20 -- 1996 Crescent Real Estate Equities Limited Partnership
Unit Incentive Plan (filed as Exhibit No. 10.01 to the
1996 Form 8-K and incorporated herein by reference).
10.21 -- Lease Agreement, dated July 26, 1996, between Canyon
Ranch, Inc. and Canyon Ranch Leasing, L.L.C., as assigned
by Canyon Ranch, Inc. to the Registrant pursuant to the
Assignment and Assumption of Master Lease, dated July 26,
1996 (filed as Exhibit 10.24 to the 1997 10-Q and
incorporated herein by reference).
10.22 -- Lease Agreement, dated November 18, 1996, between the
Registrant and Wine Country Hotel, LLC. (filed as Exhibit
10.25 to the 1996 10-K and incorporated herein by
reference).
10.23 -- Lease Agreement, dated December 11, 1996, between Canyon
Ranch-Bellefontaine Associates, L.P., and Vintage
Resorts, LLC as assigned by Canyon Ranch-Bellefontaine
Associates, L.P. to Crescent Real Estate Funding VI, L.P.
pursuant to the Assignment and Assumption of Master
Lease, dated December 11, 1996 (filed as Exhibit 10.26 to
the 1997 10-Q and incorporated herein by reference).
10.24 -- Master Lease Agreement, dated June 16, 1997, between
Crescent Real Estate Funding VII, L.P. and Charter
Behavioral Health Systems, LLC and its subsidiaries,
relating to the Magellan Facilities (filed as Exhibit
10.27 to the 1997 10-Q and incorporated herein by
reference).
10.25 -- Third Amended and Restated Revolving Credit Agreement,
dated September 22, 1997 among the Registrant,
BankBoston, N.A. and the other banks named therein (filed
as Exhibit 10.29 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997 and
incorporated herein by reference).
10.26 -- Intercompany Agreement, dated June 3, 1997, between the
Registrant and Crescent Operating, Inc. (filed as Exhibit
10.2 to the Registration Statement on Form S-1 (File No.
333-25223) of Crescent Operating, Inc. and incorporated
herein by reference).
12.01 -- Statement Regarding Computation of Ratios of Earnings to
Fixed Charges and Preferred Shares Dividends (filed
herewith).
21.01 -- Subsidiaries of the Registrant (filed herewith).
23.01 -- Consent of Arthur Andersen LLP (Dallas), Certified Public
Accountants, dated December 12, 1997 (filed herewith).
23.02 -- Consent of Arthur Andersen LLP (Atlanta), Certified
Public Accountants, dated December 5, 1997 (filed
herewith).
23.03* -- Consent of Shaw Pittman Potts & Trowbridge (to be
included in its opinion to be filed as Exhibit 5.01 to
this Registration Statement).
23.04* -- Consent of Shaw Pittman Potts & Trowbridge (to be
included in its opinion to be filed as Exhibit 8.01 to
this Registration Statement).
25.01 -- Statement of Eligibility of Trustee (filed herewith).
27.01 -- Financial Data Schedule (filed herewith).
99.01 -- Form of Letter of Transmittal (filed herewith).
99.02 -- Form of Notice of Guaranteed Delivery (filed herewith).
99.03 -- Form of Letter to Brokers (filed herewith).
</TABLE>
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<PAGE> 197
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
99.04 -- Form of Letter to Clients (filed herewith).
99.05 -- Form of Instruction to Registered Holder and for Bank
Entry Transfer Participant from Beneficial Owner (filed
herewith).
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim of indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 198
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Worth, State of
Texas, on the 15th day of December, 1997.
CRESCENT REAL ESTATE
EQUITIES LIMITED PARTNERSHIP
By: CRESCENT REAL ESTATE EQUITIES,
LTD., its General Partner
By: /s/ GERALD W. HADDOCK
----------------------------------
Gerald W. Haddock
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ GERALD W. HADDOCK Sole Director, President and December 15, 1997
- ----------------------------------------------------- Chief Executive Officer of
Gerald W. Haddock the General Partner
(Principal Executive
Officer)
/s/ DALLAS E. LUCAS Senior Vice President and December 15, 1997
- ----------------------------------------------------- Chief Financial Officer of
Dallas E. Lucas the General Partner
(Principal Financial and
Accounting Officer)
</TABLE>
II-6
<PAGE> 199
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.01 -- Form of Purchase Agreement, dated September 19, 1997,
among the Registrant, Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Salomon Brothers
Inc (filed herewith).
3.01 -- Second Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited
Partnership dated as of November 1, 1997 (filed as
Exhibit 4.06 to the Registration Statement on Form S-3
(File No. 333-41049) of Crescent Real Estate Equities
Company (the "Company") and incorporated herein by
reference).
4.01 -- Indenture, dated as of September 22, 1997, between the
Registrant and State Street Bank and Trust Company of
Missouri, N.A. (filed herewith).
4.02 -- Restated Declaration of Trust of the Company (filed as
Exhibit No. 4.01 to the Company's Registration Statement
on Form S-3 (File No. 333-21905) (the "1997 Form S-3")
and incorporated herein by reference).
4.03 -- Amended and Restated Bylaws of the Company, as amended
(filed as Exhibit 4.02 to the Company's Form 8-K dated
October 8, 1997 and filed October 14, 1997, and
incorporated herein by reference).
4.04 -- Form of 6 5/8% Note due 2002 (filed herewith).
4.05 -- Form of 7 1/8% Note due 2007 (filed herewith).
4.06 -- Registration Rights Agreement, dated as of September 22,
1997, among the Registrant, Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Salomon
Brothers Inc (filed herewith).
5.01* -- Opinion of Shaw Pittman Potts & Trowbridge as to the
legality of the securities being registered by the
Registrant.
8.01* -- Opinion of Shaw Pittman Potts & Trowbridge regarding
certain material tax issues relating to the Registrant.
10.01 -- Form of Noncompetition Agreement (Rainwater) (filed as
Exhibit No. 10.02 to the Company's Registration Statement
on Form S-11 (File No. 33-90226) (the "1995 S-11") and
incorporated herein by reference).
10.02 -- Form of Noncompetition Agreement (Goff) (filed as Exhibit
No. 10.03 to the 1995 S-11 and incorporated herein by
reference).
10.03 -- Form of Noncompetition Agreement (Haddock) (filed as
Exhibit No. 10.04 to the 1995 S-11 and incorporated
herein by reference).
10.04 -- Form of Employment Agreement (Goff) (filed as Exhibit No.
10.05 to the 1995 S-11 and incorporated herein by
reference).
10.05 -- Form of Employment Agreement (Haddock) (filed as Exhibit
No. 10.06 to the 1995 S-11 and incorporated herein by
reference).
10.06 -- Form of Registration Rights, Lock-Up and Pledge Agreement
(filed as Exhibit No. 10.05 to the Registration Statement
on Form S-11 (File No. 33-78188) (the "1994 S-11") of the
Company and incorporated herein by reference).
10.07 -- Form of Officers' and Trust Managers' Indemnification
Agreement as entered into between the Company and each of
its executive officers and trust managers (filed
herewith).
10.08 -- Crescent Real Estate Equities Company 1994 Stock
Incentive Plan (filed as Exhibit No. 10.07 to the 1994
S-11 and incorporated herein by reference).
</TABLE>
<PAGE> 200
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.09 -- Crescent Real Estate Equities, Ltd. 401(k) Plan (filed as
Exhibit No. 10.10 to the 1995 S-11 and incorporated
herein by reference).
10.10 -- Agreement, dated as of August 15, 1996, relating to the
acquisition of the Greenway Plaza Portfolio (filed as
Exhibit No. 10.02 to the 1996 Form 8-K and incorporated
herein by reference).
10.11 -- Form of Amended and Restated Lease Agreement, dated
January 1, 1996, among the Registrant, Mogul Management,
LLC and RoseStar Management, LLC, relating to the Hyatt
Regency Beaver Creek (filed as Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 (the "1995 10-K") and
incorporated herein by reference).
10.12 -- Real Estate Purchase and Sale Agreement, dated as of
January 29, 1997, between the Registrant, as purchaser,
and Magellan Health Services, Inc., as seller, relating
to the acquisition of 92 behavioral healthcare facilities
(the "Magellan Facilities"), as amended effective
February 28, 1997 and May 29, 1997 (filed as Exhibit No.
10.13 to the Company's Quarterly Report on Form 10-Q/A
for the quarter ended June 30, 1997 (the "1997 10-Q") and
incorporated herein by reference).
10.13 -- Second Amended and Restated 1995 Crescent Real Estate
Equities Company Stock Incentive Plan (filed herewith).
10.14 -- Lease Agreement, dated December 19, 1995 between the
Registrant and RoseStar Management, LLC, relating to the
Hyatt Regency Albuquerque (filed as Exhibit 10.16 to the
1995 10-K and incorporated herein by reference).
10.15 -- Amended and Restated Lease Agreement, dated June 30, 1995
between the Registrant and RoseStar Management, LLC,
relating to the Denver Marriott (filed as Exhibit 10.17
to the 1995 10-K and incorporated herein by reference).
10.16 -- Loan Agreement, dated August 24, 1995, including Form of
Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing, and Amendment to Loan Agreement,
dated October 19, 1995, between Crescent Real Estate
Funding I, L.P. and Nomura Asset Capital Corporation
(filed as Exhibit 10.15 to the 1995 10-K and incorporated
herein by reference).
10.17 -- Loan Agreement, dated August 24, 1995, including Form of
Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing, between Crescent Real Estate Funding
II, L.P. and Nomura Asset Capital Corporation (filed as
Exhibit 10.19 to the 1995 10-K and incorporated herein by
reference).
10.18 -- Mortgage Loan Application and Agreement, dated October 3,
1995, as amended by letter agreements dated October 10,
1995 and October 30, 1995, between the Registrant and
CIGNA Investments, Inc. and Secured Promissory Note dated
December 11, 1995 (filed as Exhibit 10.20 to the 1995
10-K and incorporated herein by reference).
10.19 -- 1995 Crescent Real Estate Equities Limited Partnership
Unit Incentive Plan (filed as Exhibit No. 99.01 to the
Company's Registration Statement on Form S-8 (File No.
333-3452) and incorporated herein by reference).
10.20 -- 1996 Crescent Real Estate Equities Limited Partnership
Unit Incentive Plan (filed as Exhibit No. 10.01 to the
1996 Form 8-K and incorporated herein by reference).
10.21 -- Lease Agreement, dated July 26, 1996, between Canyon
Ranch, Inc. and Canyon Ranch Leasing, L.L.C., as assigned
by Canyon Ranch, Inc. to the Registrant pursuant to the
Assignment and Assumption of Master Lease, dated July 26,
1996 (filed as Exhibit 10.24 to the 1997 10-Q and
incorporated herein by reference).
</TABLE>
<PAGE> 201
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.22 -- Lease Agreement, dated November 18, 1996, between the
Registrant and Wine Country Hotel, LLC. (filed as Exhibit
10.25 to the 1996 10-K and incorporated herein by
reference).
10.23 -- Lease Agreement, dated December 11, 1996, between Canyon
Ranch-Bellefontaine Associates, L.P., and Vintage
Resorts, LLC as assigned by Canyon Ranch-Bellefontaine
Associates, L.P. to Crescent Real Estate Funding VI, L.P.
pursuant to the Assignment and Assumption of Master
Lease, dated December 11, 1996 (filed as Exhibit 10.26 to
the 1997 10-Q and incorporated herein by reference).
10.24 -- Master Lease Agreement, dated June 16, 1997, between
Crescent Real Estate Funding VII, L.P. and Charter
Behavioral Health Systems, LLC and its subsidiaries,
relating to the Magellan Facilities (filed as Exhibit
10.27 to the 1997 10-Q and incorporated herein by
reference).
10.25 -- Third Amended and Restated Revolving Credit Agreement,
dated September 22, 1997 among the Registrant,
BankBoston, N.A. and the other banks named therein (filed
as Exhibit 10.29 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997 and
incorporated herein by reference).
10.26 -- Intercompany Agreement, dated June 3, 1997, between the
Registrant and Crescent Operating, Inc. (filed as Exhibit
10.2 to the Registration Statement on Form S-1 (File No.
333-25223) of Crescent Operating, Inc. and incorporated
herein by reference).
12.01 -- Statement Regarding Computation of Ratios of Earnings to
Fixed Charges and Preferred Shares Dividends (filed
herewith).
21.01 -- Subsidiaries of the Registrant (filed herewith).
23.01 -- Consent of Arthur Andersen LLP (Dallas), Certified Public
Accountants, dated December 12, 1997 (filed herewith).
23.02 -- Consent of Arthur Andersen LLP (Atlanta), Certified
Public Accountants, dated December 5, 1997 (filed
herewith).
23.03* -- Consent of Shaw Pittman Potts & Trowbridge (to be
included in its opinion to be filed as Exhibit 5.01 to
this Registration Statement).
23.04* -- Consent of Shaw Pittman Potts & Trowbridge (to be
included in its opinion to be filed as Exhibit 8.01 to
this Registration Statement).
25.01 -- Statement of Eligibility of Trustee (filed herewith).
27.01 -- Financial Data Schedule (filed herewith).
99.01 -- Form of Letter of Transmittal (filed herewith).
99.02 -- Form of Notice of Guaranteed Delivery (filed herewith).
99.03 -- Form of Letter to Brokers (filed herewith).
99.04 -- Form of Letter to Clients (filed herewith).
99.05 -- Form of Instruction to Registered Holder and for Bank
Entry Transfer Participant from Beneficial Owner (filed
herewith).
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.01
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
(a Delaware limited partnership)
$150,000,000 6 5/8% Notes due 2002
$250,000,000 7 1/8% Notes due 2007
PURCHASE AGREEMENT
September 19, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, New York 10281-1209
SALOMON BROTHERS INC.
7 World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership (the "OPERATING PARTNERSHIP"), proposes to issue and sell to you, as
the initial purchasers (the "INITIAL PURCHASERS"), up to $150,000,000 aggregate
principal amount of 6 5/8% Notes due October 1, 2002 (the "2002 NOTES") and up
to $250,000,000 aggregate principal amount of 7 1/8% Notes due October 1, 2007
(the "2007 NOTES") (collectively, the "SECURITIES"). The Securities will be
issued pursuant to an indenture to be dated as of September 22, 1997, between
the Operating Partnership and State Street Bank and Trust Company of Missouri,
N.A., as trustee (such indenture, as supplemented, the "INDENTURE"). Securities
issued in book-entry form will be issued to Cede & Co. as nominee of The
Depository Trust Company ("DTC") pursuant to a letter agreement, to be dated as
of the Closing Date (as defined in Section 2(c)) (the "DTC AGREEMENT"), among
the Operating Partnership, State Street Bank and Trust Company of Missouri, N.A.
(the "TRUSTEE") and DTC. Unless the context otherwise requires, as used herein,
"you" and "your" shall mean the parties to whom this Purchase Agreement (this
"AGREEMENT") is addressed. Capitalized terms used herein without definition
shall have the meanings assigned to such terms in the Offering Memorandum (as
defined below) relating to the Securities.
The Securities will be offered and sold to you without being registered
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), in reliance
<PAGE> 2
upon an exemption from the registration requirements thereof. The Operating
Partnership has prepared a preliminary offering memorandum, dated September 11,
1997 (the "PRELIMINARY OFFERING MEMORANDUM"), and will prepare a final offering
memorandum dated the date hereof (the "FINAL OFFERING MEMORANDUM" and, together
with the Preliminary Offering Memorandum, the "OFFERING MEMORANDUM"), setting
forth or including a description of the terms of the Securities, the terms of
the offering, a description of the Operating Partnership and any material
developments relating to the Operating Partnership occurring after the date of
the most recent financial statements included therein. Any references herein to
the Preliminary Offering Memorandum, the Final Offering Memorandum and the
Offering Memorandum shall be deemed to include all amendments and supplements
thereto. The Operating Partnership hereby confirms that it has authorized the
use of the Offering Memorandum and any amendments and supplements thereto, in
connection with the Exempt Resales (as defined below) by the Initial Purchasers.
The "COMPANY" shall mean Crescent Real Estate Equities Company, a Texas real
estate investment trust which owns 100% of the outstanding capital stock of the
general partner of the Operating Partnership.
You have advised the Issuers that you will offer (the "EXEMPT RESALES") the
Securities purchased by you hereunder on the terms set forth in the Offering
Memorandum solely to (i) persons (each, a "144A PURCHASER") who you reasonably
believe to be "qualified institutional buyers" as defined in Rule 144A ("Rule
144A") under the Securities Act ("QIBS") and (ii) a limited number of other
institutional "accredited investors," as defined in Rule 501(a) (1), (2), (3)
and (7) under the Act, that made certain representations and agreements to the
Issuers (each, an "ACCREDITED INSTITUTION") (such persons specified in clauses
(i) and (ii) being referred to herein as the "ELIGIBLE PURCHASERS"). Pursuant to
the terms of the Securities and the Indenture, investors that acquire Securities
may only resell or otherwise transfer such Securities if such Securities are
hereafter registered under the Securities Act or if an exemption from the
registration requirements of the Securities Act is available (including the
exemption afforded by Rule 144A of the rules and regulations promulgated under
the Securities Act by the Securities and Exchange Commission (the
"Commission")). You will offer the Securities to Eligible Purchasers initially
at a price equal to 99.564% of the principal amount thereof in the case of the
2002 Notes and 99.819% of the principal amount thereof in the case of the 2007
Notes. Such price may be changed at any time without notice.
Holders (including subsequent transferees) of the Securities will have the
registration rights set forth in the registration rights agreement (the
"REGISTRATION RIGHTS AGREEMENT"), to be dated the Closing Date, for so long as
such Securities constitute "Registrable Securities" as defined in the
Registration Rights Agreement. Pursuant to the Registration Rights Agreement,
the Operating Partnership will agree to file with the Commission under the
circumstances set forth therein, (i) a registration statement under the
Securities Act (the "EXCHANGE OFFER REGISTRATION STATEMENT") relating to notes
of the Operating Partnership
-2-
<PAGE> 3
with terms identical in all material respects to the Securities (the "EXCHANGE
OFFER NOTES") to be offered in exchange for the Securities (such offer to
exchange being referred to as the "REGISTERED EXCHANGE OFFER") or under certain
circumstances, (ii) a shelf registration statement pursuant to Rule 415 under
the Securities Act (the "SHELF REGISTRATION STATEMENT") relating to the resale
of the Securities by certain holders, and in either case, to use its reasonable
efforts to cause such Exchange Offer Registration Statement or Shelf
Registration Statement to be declared effective.
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE OPERATING PARTNERSHIP.
(a) The Operating Partnership represents and warrants to you, as of the
date hereof and as of the Closing Date (as defined below), as follows:
(1) The Offering Memorandum. The Offering Memorandum, as of its date
and at the Closing Date (as defined below), did not and will not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to
statements in or omissions from any such document in reliance upon, and in
conformity with, written information furnished to the Operating Partnership
by you, specifically for use therein.
(2) No Other Sales of Securities; No General Solicitation. Neither the
Operating Partnership nor any affiliate (as defined in Rule 501(b) of
Regulation D under the Securities Act ("REGULATION D")) of the Operating
Partnership has directly, or through any agent (provided that no
representation is made as to the Initial Purchasers or any person acting on
their behalf), (A) sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any security (as defined in the
Securities Act) which is or will be integrated with the sale of the
Securities in a manner that would require the registration of the
Securities under the Securities Act or (B) engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in
connection with the offering of the Securities.
(3) No Registration or Qualification. It is not necessary in
connection with the offer, sale and delivery of the Securities to the
Initial Purchasers and to each subsequent purchaser in the manner
contemplated by this Agreement to register the Securities under the
-3-
<PAGE> 4
Securities Act or to qualify the Indenture under the Trust Indenture Act of
1939, as amended (the "TRUST INDENTURE ACT").
(4) Rule 144A Eligibility. The Securities are eligible for resale
pursuant to Rule 144A and satisfy the requirements set forth in Rule
144A(d)(3) under the Securities Act.
(5) Independent Accountants. Each of Arthur Andersen LLP, the
accounting firm whose report on the financial statements and is included in
the Offering Memorandum, and any other accounting firm whose report on
financial statements is included in the Offering Memorandum, is an
independent public accountant as required by the Securities Act and the
applicable rules and regulations thereunder (the "SECURITIES ACT
REGULATIONS").
(6) Financial Statements. The consolidated financial statements of the
Operating Partnership and its consolidated subsidiaries (including the
notes thereto) included in the Offering Memorandum were prepared in
accordance with generally accepted accounting principles ("GAAP")
consistently applied throughout the periods involved except as otherwise
noted therein and present fairly the financial condition of the Operating
Partnership and its consolidated subsidiaries at the respective dates
indicated and the results of operations for the respective periods
specified. The financial information and data included in the Offering
Memorandum present fairly the information included therein and have been
prepared on a basis consistent with that of the financial statements
included in the Offering Memorandum and books and records of the respective
entities presented therein. The pro forma financial information included in
the Offering Memorandum (a) includes all adjustments necessary to present
fairly the pro forma financial position of the Operating Partnership and
its Subsidiaries presented therein at the respective dates indicated and
the results of their operations for the respective periods specified, and
(b) except for the pro forma adjustment relating to anticipated capital
contributions from the Company to be derived from future equity offerings
by the Company, which adjustment is based on the Operating Partnership's
reasonable expectations, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
information. Except as reflected or disclosed in the financial statements
included in the Offering Memorandum, none of the Operating Partnership, any
of its Subsidiaries or the Residential Development Corporations (as such
terms are hereinafter defined) is subject to any material indebtedness,
obligation, or liability, contingent or otherwise.
-4-
<PAGE> 5
(7) No Material Adverse Change in Business. Since the respective dates
as of which information is given in the Offering Memorandum, except as
otherwise stated therein, (A) there has been no material adverse change in
the condition, financial or otherwise, or in the earnings, assets, business
affairs or business prospects of the Operating Partnership, the
Subsidiaries and the Residential Development Corporations, considered as
one enterprise, whether or not arising in the ordinary course of business,
(B) no material casualty loss or material condemnation or other material
adverse event with respect to any real property or improvements thereon
owned or leased by any of the Operating Partnership, any of its
Subsidiaries or any of the Residential Development Corporations, including
any property underlying indebtedness held by the Operating Partnership, any
of the Subsidiaries or any of the Residential Development Corporations
(each, individually a "PROPERTY" and collectively, the "PROPERTIES"), has
occurred that is material to the Operating Partnership, the Subsidiaries
and the Residential Development Corporations considered as one enterprise,
(C) there have been no acquisitions or other transactions entered into by
the Operating Partnership, any Subsidiary or any Residential Development
Corporation other than those in the ordinary course of business that are
material with respect to such entities, considered as one enterprise, or
would result in any inaccuracy in the representations contained in Section
1(a)(6) above, (D) except as described in the Offering Memorandum and
except for regular quarterly distributions on the partnership interests of
the Operating Partnership, there has been no distribution of any kind
declared, paid or made by the Operating Partnership with respect to its
partnership interests, and (E) there has been no change in the partnership
interests of the Operating Partnership or the capital stock of its
Subsidiaries or the Residential Development Corporations, or any increase
in the indebtedness of the Operating Partnership, the Subsidiaries or the
Residential Development Corporations that is material to such entities,
considered as one enterprise.
(8) Good Standing of the Operating Partnership. The Operating
Partnership has been duly formed and is validly existing as a limited
partnership in good standing under the Delaware Revised Uniform Limited
Partnership Act (the "DELAWARE ACT") with partnership power and authority
to own, lease and operate its properties, to conduct the business in which
it is engaged or proposes to engage as described in the Offering Memorandum
and to enter into and perform its obligations under this Agreement. The
Operating Partnership is duly qualified or registered as a foreign
partnership and is in good standing in each jurisdiction in which such
qualification or registration is required, whether by reason of the
ownership or leasing
-5-
<PAGE> 6
of property or the conduct of business, except where the failure to so
qualify or register would not have a material adverse effect on the
condition, financial or otherwise, on the earnings, assets, business
affairs or business prospects of the Operating Partnership, the
Subsidiaries and the Residential Development Corporations considered as one
enterprise. The First Amended and Restated Agreement of Limited Partnership
of the Operating Partnership, as amended (the "PARTNERSHIP AGREEMENT"), is
a valid and binding agreement enforceable in accordance with its terms.
Crescent Real Estate Equities, Ltd., a Delaware corporation ("CGP, INC."),
a wholly owned subsidiary of the Company, is the sole general partner of
the Operating Partnership and is the holder of a one percent (1%) general
partner interest in the Operating Partnership. Entities in which the
Operating Partnership directly or indirectly has at least a 50% ownership
interest are hereinafter referred to as the "SUBSIDIARIES," and each,
individually, as a "SUBSIDIARY." Houston Area Development Corp., a Texas
corporation, Mira Vista Development Corp., a Texas corporation, Crescent
Development Management Corp., a Delaware corporation, Desert Mountain
Development Corporation, a Delaware corporation, and Woodlands Land
Company, Inc., a Texas corporation, are referred to herein collectively as
the "RESIDENTIAL DEVELOPMENT CORPORATIONS."
(9) Good Standing of the Subsidiaries and Residential Development
Corporations. Each of the Subsidiaries and the Residential Development
Corporations has been duly organized and is validly existing as a
corporation, limited partnership, or limited liability company, as the case
may be, in good standing under the laws of its respective state of
organization, with full power and authority to own, lease and operate its
properties, to conduct the business in which it is engaged or proposes to
engage as described in the Offering Memorandum. Each of the Subsidiaries
and the Residential Development Corporations is duly qualified as a foreign
corporation, limited partnership, or limited liability company, as the case
may be, to transact business and is in good standing in each jurisdiction
in which such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except where the failure
to so qualify would not have a material adverse effect on the condition,
financial or otherwise, or the earnings, assets, business affairs or
business prospects of the Operating Partnership, the Subsidiaries and the
Residential Development Corporations considered as one enterprise. Each of
the partnership agreements, limited liability company agreements, or other,
similar instruments to which the Operating Partnership or any of its
Subsidiaries is a party has been duly authorized, executed and delivered by
the parties
-6-
<PAGE> 7
thereto and constitutes the valid agreement thereof, enforceable in
accordance with its terms. All of the issued and outstanding shares of
capital stock of each of the corporate Subsidiaries and the Residential
Development Corporations have been duly authorized and validly issued and
are fully paid and nonassessable. The ownership by the Operating
Partnership or the Subsidiaries of the shares of capital stock or limited
partnership or equity interests, as the case may be, of each of the
Subsidiaries and the Residential Development Corporations is as described
in the Offering Memorandum and all of such shares or limited partnership or
equity interests, or other, similar instruments owned by the Operating
Partnership or the Subsidiaries are free and clear of all liens, charges
and encumbrances.
(10) Capitalization of Operating Partnership. The capitalization of
the Operating Partnership is as set forth in the Offering Memorandum as of
the date referenced in the Offering Memorandum. All of the partnership
interests outstanding at the Closing Date were duly authorized for issuance
by the Operating Partnership and are validly issued and fully paid. The
partnership interests were offered and sold in compliance with all
applicable laws (including, without limitation, federal and state
securities laws). Except as summarized in the Offering Memorandum or set
forth in the Partnership Agreement, there are no preemptive or other rights
to subscribe for or to purchase, nor any restriction upon the voting or
transfer of, any partnership interests pursuant to the Partnership
Agreement or any other instrument. The terms of the partnership interests
conform to all statements and descriptions related thereto contained in the
Offering Memorandum.
(11) Valid Authorization of the Indenture. The Indenture (A) has been
duly and validly authorized, and when executed and delivered by the
Operating Partnership, and assuming due authorization, execution and
delivery by the Trustee, will constitute a valid and binding obligation of
the Operating Partnership, enforceable against the Operating Partnership in
accordance with its terms, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally and (ii) rights of acceleration
and the availability of equitable remedies may be limited by equitable
principles of general applicability; and (B) conforms in all material
respects to the description thereof in the Offering Memorandum.
(12) Authorization of the Securities. The Securities have been duly
authorized by the Operating Partnership for issuance and sale pursuant to
this Agreement and such Securities, when executed,
-7-
<PAGE> 8
authenticated, issued and delivered in the manner provided for in this
Agreement and the Indenture against payment of the consideration therefor
specified in this Agreement, will constitute valid and legally binding
obligations of the Operating Partnership, entitled to the benefits of the
Indenture enforceable against the Operating Partnership in accordance with
their terms, except as (A) the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally and (B) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. Such Securities will be in
the form contemplated by, and each registered holder thereof is entitled to
the benefits of, the Indenture. Upon payment of the purchase price and
delivery of such Securities in accordance herewith, the Initial Purchasers
will receive good, valid and marketable title to such Securities, free and
clear of all security interests, mortgages, pledges, liens, encumbrances,
claims and equities. The terms of such Securities conform in all material
respects to all statements and descriptions related thereto contained in
the Offering Memorandum. Such Securities rank and will rank pari passu with
all unsecured and unsubordinated indebtedness of the Operating Partnership
that is outstanding on the Closing Date or that may be incurred thereafter,
except that such Securities will be effectively subordinated to (Y) the
claims of each secured mortgage lender to the extent of the value of the
property securing such indebtedness and (Z) all existing and future
third-party indebtedness and other liabilities of the Subsidiaries.
(13) Authorization of Exchange Offer Notes. The Exchange Offer Notes
have been duly authorized by the Operating Partnership for issuance and
sale pursuant to the Indenture, the Registration Rights Agreement and such
Exchange Offer Notes when executed, authenticated, issued and delivered in
the manner provided for in the Registration Rights Agreement and the
Indenture against payment of consideration therefor in the form of the
Securities, will constitute valid and legally binding obligations of the
Operating Partnership, entitled to the benefits of the Indenture
enforceable against the Operating Partnership in accordance with their
terms, except as (A) the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally and (B) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. Such Securities will be in
the form contemplated by, and each registered holder thereof is entitled to
the benefits of, the Indenture.
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(14) Absence of Defaults. None of Operating Partnership, any
Subsidiary or any Residential Development Corporation is in violation of
its charter, by-laws, certificate of limited partnership, partnership
agreement, or limited liability company agreement, as the case may be, and
none of the Operating Partnership, any Subsidiary or any Residential
Development Corporation is in default in the performance or observance of
any obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to
which such entity is a party or by which such entity may be bound, or to
which any of the property or assets of such entity is subject, except where
a default thereunder would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, assets, business
affairs or business prospects of the Operating Partnership, the
Subsidiaries and the Residential Development Corporations considered as one
enterprise.
(15) Absence of Conflicts. The execution and delivery of this
Agreement, the Registration Rights Agreement and the Indenture, the
performance of the obligations set forth herein or therein, and the
consummation of the transactions contemplated hereby or thereby or in the
Offering Memorandum, including the issuance and sale of the Securities to
the Initial Purchasers, by the Operating Partnership and its Subsidiaries,
as applicable, will not result in the creation of any lien, charge or
encumbrance upon the Properties or conflict with or constitute a breach or
violation by the Operating Partnership or any Subsidiary, or default under,
(A) any material contract, indenture, mortgage, loan agreement, note,
lease, joint venture or partnership agreement or other instrument or
agreement to which such entity is a party or by which they, any of them,
any of their respective assets or any Property may be bound or subject; (B)
the charter, by-laws, certificate of limited partnership, partnership
agreement, or limited liability company agreement, as the case may be, of
such entity; or (C) any applicable law, rule, order, administrative
regulation or administrative or court decree.
(16) Authorization of Agreement. The Operating Partnership has full
right, power and authority under its organizational documents to enter into
this Agreement and this Agreement has been duly authorized, executed and
delivered by the Operating Partnership.
(17) Absence of Proceedings. There is no action, suit or proceeding
before or by any court or governmental agency or body, domestic or foreign,
now pending, or, to the knowledge of the Operating Partnership, threatened
against or affecting the Operating Partnership, any Subsidiary, any
Residential Development Corporation, any Property, any of the Subsidiaries
or any of the Residential Development Corporations, or any officer or
director of CGP, Inc. that is required to be disclosed in the Offering
Memorandum (other than as disclosed therein) or that, if determined
adversely to the Operating Partnership, any Subsidiary, any Residential
Development
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<PAGE> 10
Corporation, any Property, including any property underlying indebtedness
held by the Operating Partnership, any of the Subsidiaries and any of the
Residential Development Corporations, or any officer or director of CGP,
Inc., might (A) result in any material adverse change in the condition,
financial or otherwise, or in the earnings, assets, business affairs or
business prospects of the Operating Partnership, the Subsidiaries and the
Residential Development Corporations considered as one enterprise or (B)
materially and adversely affect the consummation of the transactions
contemplated by this Agreement. There is no pending legal or governmental
proceeding to which the Operating Partnership, any Subsidiary or any
Residential Development Corporation is a party or of which any of their
respective properties or assets or any Property, including any property
underlying indebtedness held by, the Operating Partnership, any of the
Subsidiaries or any of the Residential Development Corporations, is the
subject, including ordinary routine litigation incidental to the business,
that is, considered in the aggregate, material to the condition, financial
or otherwise, or the earnings, assets, business affairs or business
prospects of the Operating Partnership, the Subsidiaries and the
Residential Development Corporations considered as one enterprise.
(18) Investment Company Act. None of the Operating Partnership, any
Subsidiary or any Residential Development Corporation is, or at the Closing
Date will be, required to be registered under the Investment Company Act of
1940, as amended (the "1940 ACT").
(19) Possession of Intellectual Property. None of the Operating
Partnership, any Subsidiary or any Residential Development Corporation is
required to own or possess any trademarks, service marks, trade names or
copyrights (collectively, "PROPRIETARY RIGHTS") not now lawfully owned or
possessed in order to conduct the business now operated by such entity or
as proposed to be operated by it as described in the Offering Memorandum
and no such entity has received any notice or is otherwise aware of any
infringement of or conflict with asserted rights of others with respect to
any proprietary rights.
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(20) Absence of Further Requirements. All authorizations, approvals
and consents of any court or governmental authority or agency that are
necessary in connection with the offering, issuance or sale of the
Securities hereunder or the consummation of the other transactions
contemplated by this Agreement, the Registration Rights Agreement or the
Indenture have been obtained, except such as may be required under the
Securities Act and the Trust Indenture Act with respect to registration of
the Exchange Notes pursuant to the Registration Rights Agreement, and the
securities, Blue Sky or real estate syndication laws of various states in
connection with the offer and sale of the Securities..
(21) Possession of Licenses and Permits. Each of the Operating
Partnership, the Subsidiaries and the Residential Development Corporations
possesses such certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct the business now conducted by it, or proposed to be
conducted by it, as described in the Offering Memorandum, and none of the
Operating Partnership, any Subsidiary or any Residential Development
Corporation has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially and adversely affect the
condition, financial or otherwise, or the earnings, assets, business
affairs or business prospects of the Operating Partnership, the
Subsidiaries and the Residential Development Corporations considered as one
enterprise.
(22) Absence of Labor Disputes. No labor dispute with the employees of
the Operating Partnership, any Subsidiary or any Residential Development
Corporation exists or, to the knowledge of the Operating Partnership, is
imminent.
(23) Title to Property. Except as otherwise described in the Offering
Memorandum, (A) each of the Operating Partnership, the Subsidiaries, and
each Residential Development Corporation, as the case may be, has good and
marketable title in fee simple to all real property owned by such entity
and good and marketable title to the improvements, if any, thereon and all
other assets that are required for the effective operation of such real
property in the manner in which they currently are operated except where
the failure to own real property or improvements thereon in fee simple
would not have a material adverse effect on the condition, financial or
otherwise, or on the earnings, assets, business affairs or business
prospects of or with respect to the Operating Partnership, the Subsidiaries
and the
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<PAGE> 12
Residential Development Corporations considered as one enterprise; (B) any
real property and buildings held under lease by the Operating Partnership,
any Subsidiary or any Residential Development Corporation are in full force
and effect, and such entity is not in default in respect of any of the
terms or provisions of such leases and such entity has not received notice
of the assertion of any claim by anyone adverse to the Operating
Partnership's rights as lessee under such leases, or affecting or
questioning the Operating Partnership's right to the continued possession
or use of the real property and buildings held under such leases or of a
default under such leases, in each case with such exceptions as would not
have a material adverse impact on the condition, financial or otherwise, or
on the earnings, assets, business affairs or business prospects of or with
respect to the Operating Partnership, the Subsidiaries and the Residential
Development Corporations considered as one enterprise; (C) all liens,
charges, encumbrances, claims, or restrictions on or affecting any of the
Properties, including any property underlying indebtedness held by the
Operating Partnership, any of the Subsidiaries or any of the Residential
Development Corporations, and the assets of the Operating Partnership, any
Subsidiary or any Residential Development Corporation which are material to
the Operating Partnership, its Subsidiaries or the Residential Development
Corporations, as the case may be, are disclosed in the Offering Memorandum;
(D) none of the Operating Partnership, any of the Subsidiaries, any of the
Residential Development Corporations or any tenant of any of the Properties
is in default under any of the leases pursuant to which the Operating
Partnership, as lessor, leases its Property (nor does the Operating
Partnership know of any event which, but for the passage of time or the
giving of notice, or both, would constitute a default under any of such
leases) other than such defaults that would not have a material adverse
effect on the condition, financial or otherwise, or on the earnings,
assets, business affairs or business prospects of or with respect to the
Operating Partnership, any Subsidiary or any Residential Development
Corporation or any Property; (E) except as described in the Offering
Memorandum, no person has an option or right of first refusal to purchase
all or part of any Property or any interest therein, other than such
options or rights of first refusal which would not have a material adverse
effect on the condition, financial or otherwise, or on the earnings,
assets, business affairs or business prospects of or with respect to the
Operating Partnership, the Subsidiaries and the Residential Development
Corporations, considered as one enterprise; (F) each of the Properties
complies with all applicable codes, laws and regulations (including,
without limitation, building and zoning codes, laws and regulations and
laws relating to access to the Properties),
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<PAGE> 13
except if and to the extent disclosed in the Offering Memorandum and except
for such failures to comply that would not individually or in the aggregate
have a material adverse impact on the condition, financial or otherwise, or
on the earnings, assets, business affairs or business prospects of such
Property or the Operating Partnership; (G) there are in effect for the
Properties, including, to the knowledge of the Operating Partnership, any
property underlying indebtedness held by the Operating Partnership, any of
the Subsidiaries and any of the Residential Development Corporations, and
the other assets of the Operating Partnership, the Subsidiaries and the
Residential Development Corporations, insurance policies by financially
sound and reputable insurance companies covering risks and in amounts that
are commercially reasonable for the assets owned by them and that are
consistent with the types and amounts of insurance typically maintained by
present owners of similar types of properties; and (H) the Operating
Partnership has no knowledge of any pending or threatened condemnation
proceedings, zoning change, or other proceeding or action that will in any
manner affect the size of, use of, improvements on, construction on or
access to the Properties, including any property underlying indebtedness
held by the Operating Partnership, any of the Subsidiaries or any
Residential Development Corporation, except such proceedings or actions
that would not have a material adverse effect on the condition, financial
or otherwise, or on the earnings, assets, business affairs or business
prospects of the Operating Partnership or with respect to such Property,
including any property underlying indebtedness held by the Operating
Partnership, any of the Subsidiaries or any Residential Development
Corporation.
(24) Environmental Laws. Except as disclosed in the Offering
Memorandum, (A) each Property, including, without limitation, the
Environment (as defined below) associated with such Property, is free of
any Hazardous Substance (as defined below), except for Hazardous Substances
that would not have a material adverse effect on the condition, financial
or otherwise, or on the earnings, assets, business affairs or business
prospects of or with respect to the Operating Partnership, the Subsidiaries
and the Residential Development Corporations considered as one enterprise;
(B) none of the Operating Partnership, any Subsidiary or any Residential
Development Corporation has caused or suffered to occur any Release (as
defined below) of any Hazardous Substance into the Environment on, in,
under or from any Property, and no condition exists on, in, under or, to
the knowledge of the Operating Partnership, adjacent to any Property that
is reasonably likely to result in the incurrence of material liabilities or
any material violations of any Environmental Law (as defined below), give
rise to the imposition of any Lien (as defined below) under any
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<PAGE> 14
Environmental Law, or cause or constitute a health, safety or environmental
hazard to any property, person or entity; (C) none of the Operating
Partnership, any Subsidiary or any Residential Development Corporation
intends to use the properties or assets described in the Offering
Memorandum or any other real property for the purpose of handling, burying,
storing, retaining, refining, transporting, processing, manufacturing,
generating, producing, spilling, seeping, leaking, escaping, leaching,
pumping, pouring, emitting, emptying, discharging, injecting, dumping,
transferring or otherwise disposing of or dealing with a Hazardous
Substance, except for materials utilized in the ordinary course of business
of the properties, provided such use would not, in the ordinary course of
business, give rise to liability under any Environmental Law; (D) none of
the Operating Partnership, any Subsidiary or any Residential Development
Corporation has received any notice of a claim under or pursuant to any
Environmental Law or under common law pertaining to Hazardous Substances on
or originating from any Property; (E) none of the Operating Partnership,
any Subsidiary or any Residential Development Corporation has received any
notice from any Governmental Authority (as defined below) claiming any
violation of any Environmental Law; (F) no Property is included or, to the
knowledge of the Operating Partnership, proposed for inclusion on the
National Priorities List issued pursuant to CERCLA (as defined below) by
the United States Environmental Protection Agency (the "EPA") or on the
Comprehensive Environmental Response, Compensation, and Liability
Information System database maintained by the EPA, and has not otherwise
been identified by the EPA as a potential CERCLA removal, remedial or
response site or included or, to the knowledge of the Operating
Partnership, proposed for inclusion on, any similar list of potentially
contaminated sites pursuant to any other Environmental Law; and (G) there
are no underground storage tanks located on or in any Property except where
the presence thereof would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, assets or business
affairs or business prospects of the Operating Partnership, the
Subsidiaries and the Residential Development Corporations considered as one
enterprise.
As used herein, "HAZARDOUS SUBSTANCE" shall include, without
limitation, any hazardous substance, hazardous waste, toxic substance,
pollutant, solid waste or similarly designated materials, including,
without limitation, oil, petroleum or any petroleum-derived substance or
waste, asbestos or asbestos-containing materials, PCBs, pesticides,
explosives, radioactive materials, dioxins, urea formaldehyde insulation or
any constituent of any such substance, pollutant or waste, including any
such substance, pollutant or waste
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<PAGE> 15
identified or regulated under any Environmental Law (including, without
limitation, materials listed in the United States Department of
Transportation Optional Hazardous Material Table, 49 C.F.R. ss. 172.101, as
the same may now or hereafter be amended, or in the EPA's List of Hazardous
Substances and Reportable Quantities, 40 C.F.R. Part 302, as the same may
now or hereafter be amended); "ENVIRONMENT" shall mean any surface water,
drinking water, ground water, land surface, subsurface strata, river
sediment, buildings, structures, and ambient, workplace and indoor air;
"ENVIRONMENTAL LAW" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. ss. 9601 et
seq.) ("CERCLA"), the Resource Conservation and Recovery Act of 1976, as
amended (42 U.S.C. ss. 6901 et seq.), the Clean Air Act, as amended (42
U.S.C. ss. 7401 et seq.), the Clean Water Act, as amended (33 U.S.C. ss.
1251 et seq.), the Toxic Substances Control Act, as amended (15 U.S.C. ss.
2601 et seq.), the Occupational Safety and Health Act of 1970, as amended
(29 U.S.C. ss. 651 et seq.), the Hazardous Materials Transportation Act, as
amended (49 U.S.C. ss. 1801 et seq.), and all other federal, state and
local laws, ordinances, regulations, rules, orders, decisions and permits
relating to the protection of the environment or of human health from
environmental effects; "GOVERNMENTAL AUTHORITY" shall mean any federal,
state or local governmental office, agency or authority having the duty or
authority to promulgate, implement or enforce any Environmental Law; "LIEN"
shall mean, with respect to any Property, any mortgage, deed of trust,
pledge, security interest, lien, encumbrance, penalty, fine, charge,
assessment, judgment or other liability in, on or affecting such Property;
and "RELEASE" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, emanating or
disposing of any Hazardous Substance into the Environment, including,
without limitation, the abandonment or discard of barrels, containers,
tanks (including, without limitation, underground storage tanks) or other
receptacles containing or previously containing any Hazardous Substance or
any release, emission, discharge or similar term, as those terms are
defined or used in any Environmental Law.
(25) Tax Compliance. Each of the Operating Partnership, the
Subsidiaries and the Residential Development Corporations has filed all
federal, state, local and foreign income tax returns which have been
required to be filed (except in any case in which the failure to so file
would not have a material adverse effect on the condition, financial or
otherwise, or the earnings, assets, business affairs or business prospects
of such entities considered as one enterprise) and has paid all taxes
required to be paid and any other assessment, fine or penalty
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<PAGE> 16
levied against it, to the extent that any of the foregoing is due and
payable, except, in all cases, for any such tax, assessment, fine or
penalty that is being contested in good faith.
(26) No Price Manipulation. None of the Subsidiaries, the Residential
Development Corporations or the Operating Partnership, nor any of their
directors, officers or controlling persons, has taken or will take,
directly or indirectly, any action resulting in a violation of Regulation M
under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"),
or designed to cause or result under the Exchange Act or otherwise in, or
which has constituted or which reasonably might be expected to constitute,
the unlawful stabilization or manipulation of the price of any security of
the Operating Partnership or facilitation of the sale or resale of the
Securities.
(27) Registration Rights Agreement. The execution and delivery of the
Registration Rights Agreement have been duly authorized by all necessary
partnership action of the Operating Partnership and, when duly executed and
delivered by the Operating Partnership and the other parties thereto, will
be a valid and binding agreement of the Operating Partnership, enforceable
against the Operating Partnership in accordance with its terms. The
Registration Rights Agreement will conform in all material respects to the
description thereof contained in the Offering Memorandum.
(28) Plan Assets. The assets of the Operating Partnership, its
Subsidiaries and the Residential Development Corporations do not constitute
"plan assets" under the Employee Retirement Security Act of 1974, as
amended.
(29) Regulations G, T, U and X. None of the transactions contemplated
by this Agreement (including, without limitation, the use of the proceeds
from the sale of the Securities) will violate or result in a violation of
Section 7 of the Exchange Act, or any regulation promulgated thereunder,
including, without limitation, Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System.
(30) Partnership Classification. The Operating Partnership and each of
the Subsidiaries that are partnerships are properly classified as
partnerships, and not as corporations or as associations taxable as
corporations, for Federal income tax purposes throughout the period from
May 5, 1994 through the date hereof, or, in the case of any Subsidiary
partnerships that have terminated, through the date of termination of such
Subsidiary partnerships.
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<PAGE> 17
(31) Cross Defaults. The mortgages and deeds of trust encumbering the
properties and assets described in general in the Offering Memorandum are
not convertible and are not cross-defaulted or cross-collateralized to any
property not owned by the Operating Partnership or any of its Subsidiaries;
except as disclosed in the Offering Memorandum, none of the Operating
Partnership or any of its Subsidiaries holds participating interests in
such mortgages and deeds of trust.
(b) Any certificate signed by any officer of the Operating Partnership, the
Company, the Subsidiaries or the Residential Development Corporations and
delivered to you or to counsel for the Initial Purchasers shall be deemed a
representation and warranty by such entity to each Initial Purchaser as to the
matters covered thereby.
SECTION 2. SALE AND DELIVERY TO INITIAL PURCHASERS; CLOSING.
(a) The commitment of the Initial Purchasers to purchase the Securities
pursuant to this Agreement shall be deemed to have been made on the basis of the
representations and warranties herein contained and shall be subject to the
terms and conditions set forth herein.
(b) The Operating Partnership agrees to issue and sell the Securities to
each of the Initial Purchasers, and each of the Initial Purchasers, severally
and not jointly, agrees to purchase from the Operating Partnership, at a
purchase price (the "PURCHASE PRICE") of 99.25% of the principal amount thereof
in the case of the 2002 Notes and 99% of the principal amount thereof in the
case of the 2007 Notes, the principal amount of Securities set forth opposite
the name of such Initial Purchaser in Schedule I hereto.
(c) Payment of the purchase price for, and delivery of, the Securities
shall be made at the offices of Hogan & Hartson L.L.P., Columbia Square, 555
Thirteenth Street, N.W., Washington, D.C. 20004-1109, or at such other place as
shall be agreed upon by you and the Operating Partnership, at 9:00 A.M., New
York City time, on the first (1st) business day following the date of this
Agreement, or at such other date and time as shall be agreed upon by you and the
Operating Partnership (such time and date being referred to as the "CLOSING
DATE"). Payment shall be made to the Operating Partnership by wire transfer or
by certified or official bank check or checks in federal or similar same-day
funds payable to the order of the Operating Partnership against delivery to you
for your respective accounts of the Securities to be purchased by you. Subject
to Section 6 below, the Securities shall be in such authorized denominations and
registered in such names as you may request in writing on the last business day
prior to the
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<PAGE> 18
Closing Date. The certificates representing the Securities shall be registered
in the name of Cede & Co. pursuant to the DTC Agreement and shall be made
available for examination and packaging by the Initial Purchasers in The City of
New York not later than 10:00 a.m. on the last business day prior to the Closing
Date.
SECTION 3. COVENANTS OF THE OPERATING PARTNERSHIP.
The Operating Partnership covenants with you as follows:
(a) At any time prior to the completion of the distribution of the
Securities by the Initial Purchasers to purchasers who are not affiliates
thereof, the Operating Partnership will give the Initial Purchasers notice of
its intention to prepare any supplement or amendment to the Offering Memorandum,
will furnish the Initial Purchasers with copies of any such amendment,
supplement or other document a reasonable amount of time prior to such proposed
use, and will not use any such amendment or supplement to which the Initial
Purchasers or counsel for the Initial Purchasers shall reasonably object.
(b) The Operating Partnership has furnished or will furnish to the Initial
Purchasers such number of copies of the Offering Memorandum (as amended or
supplemented) as the Initial Purchaser may reasonably request.
(c) At any time prior to the completion of the distribution of the
Securities by the Initial Purchasers to purchasers who are not affiliates
thereof, if any event shall occur as a result of which it is necessary, in the
reasonable opinion of counsel for the Initial Purchasers or counsel for the
Operating Partnership, to amend or supplement the Offering Memorandum in order
to make the Offering Memorandum not misleading, in light of the circumstances
existing at the time it is delivered to a purchaser, the Operating Partnership
will forthwith amend or supplement the Offering Memorandum (in form and
substance reasonably satisfactory to counsel for the Initial Purchasers) so
that, as so amended or supplemented, the Offering Memorandum will not include an
untrue statement of a material fact or omit to state a material affect necessary
in order to make the statements therein, in light of the circumstances existing
at the time it is delivered to a purchaser, not misleading, and the Operating
Partnership will furnish to the Initial Purchasers a reasonable number of copies
of such amendment or supplement.
(d) The Operating Partnership will endeavor, in cooperation with the
Initial Purchasers, (i) to qualify the Securities for sale under the laws,
including real estate syndication laws, of such jurisdictions as the Initial
Purchaser may reasonably designate, (ii) to maintain such qualifications in
effect so long as required for the sale of the Securities and (iii) to arrange
for the determination of the legality of the Securities for purchase by
institutional investors under the laws
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<PAGE> 19
of such jurisdictions as the Initial Purchaser may reasonably request. The
Operating Partnership will promptly advise the Initial Purchasers of the receipt
by the Operating Partnership of any notification with respect to the suspension
of the qualification of the Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose. Notwithstanding
the foregoing, the Operating Partnership shall not be obligated to qualify as a
foreign corporation in any jurisdiction in which it is not so qualified or to
file a general consent to service of process in any jurisdiction.
(e) Neither the Operating Partnership nor any affiliate (as defined in Rule
501(b) of Regulation D) of the Operating Partnership will solicit any offer to
buy or offer or sell the Securities by means of any form of general solicitation
or general advertising (within the meaning of Regulation D).
(f) The Operating Partnership shall, during any period in the two years
after the Closing Date (or any shorter period provided for in Rule 144(k) under
the Securities Act or any successor provision thereto) in which the Operating
Partnership is not subject to Section 13 or 15(d) of the Exchange Act, make
available, upon request, to any holder of such Securities in connection with any
sale thereof and any prospective purchaser of Securities from such holder the
information ("RULE 144A INFORMATION") specified in Rule 144A(d)(4) under the
Act.
(g) Neither the Operating Partnership nor any affiliate (as defined in Rule
501(b) of Regulation D) will sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Securities
Act) the offering of which security will be integrated with the sale of the
Securities in a manner which would require the registration of the Securities
under the Securities Act.
(h) The Operating Partnership shall use its best efforts in cooperation
with the Initial Purchasers to permit the Securities to be eligible for
clearance and settlement through DTC.
(i) The Operating Partnership will not, for a period of 90 days following
the date and time that this Agreement is executed and delivered by the parties
hereto (the "EXECUTION TIME"), without your prior written consent, offer, sell
or contract to sell, or otherwise dispose of, directly or indirectly, or
announce the offering of, any debt securities issued or guaranteed by the
Operating Partnership (other than the securities offered pursuant to an Exchange
Offer Registration Statement for the Securities).
(j) The Operating Partnership will use its best efforts to enable Standard
& Poor's Ratings Services ("S&P") and Moody's Investors Service, Inc.
("Moody's") or any other nationally recognized statistical rating organization
to provide their respective credit ratings of any Securities, if applicable.
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<PAGE> 20
(k) The Operating Partnership will use the net proceeds received by it from
the sale of the Securities in the manner specified in the Offering Memorandum
under "Use of Proceeds."
(l) If requested by the Initial Purchasers, the Operating Partnership will
use its best efforts to cause the Securities to be designated by the National
Association of Securities Dealers, Inc. PORTAL Market ("PORTAL") as
PORTAL-eligible securities in accordance with the rules and regulations of the
National Association of Securities Dealers, Inc.
(m) The Operating Partnership will furnish to holders of the Securities as
soon as practicable after the end of each fiscal year an annual report
(including a balance sheet and statements of income, holders' equity and cash
flows of the Operating Partnership and its consolidated subsidiaries certified
by independent public accountants) and, as soon as practicable after the end of
each of the first three quarters of each fiscal year (beginning with the first
fiscal quarter ending after the date of the Offering Memorandum), consolidated
summary financial information of the Operating Partnership and its consolidated
subsidiaries of such quarter in reasonable detail.
(n) The Operating Partnership will not take any action prohibited by
Regulation M under the Exchange Act, in connection with the distribution of the
Securities contemplated hereby.
(o) The Operating Partnership will comply with all of the terms and
conditions of the Registration Rights Agreement.
(p) Prior to any registration of the Exchange Offer Notes pursuant to the
Registration Rights Agreement, or at such earlier time as may be so required,
the Operating Partnership will qualify the Indenture under the Trust Indenture
Act, and enter into any necessary supplemental indentures in connection
therewith.
SECTION 4. PAYMENT OF EXPENSES.
The Operating Partnership will pay all expenses incident to the performance
of its obligations under this Agreement, including (i) the preparation and
printing of the Offering Memorandum (including financial statements and
exhibits) and of each amendment and supplement thereto, (ii) the preparation and
delivery to the Initial Purchasers of this Agreement, the Indenture, the
Registration Rights Agreement and such other documents as may be required in
connection with the offering, purchase, sale and delivery of the Securities to
the Initial Purchasers, including any global securities, (iii) the preparation,
issuance and delivery of the Securities, including any global securities, (iv)
the fees and disbursements of the Operating Partnership's counsel, accountants
and other advisors or agents (including transfer agents and registrars), as well
as the fees and disbursements
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of the Trustees, and their respective counsel, (v) the qualification of the
Securities under state securities laws and real estate syndication laws in
accordance with the provisions of Section 3(d) hereof, including fees and
disbursements of counsel for the Initial Purchasers in connection therewith and
in connection with the preparation, and delivery of a blue sky memorandum (the
"Blue Sky Memorandum") and any amendment thereto, (vi) the delivery to the
Initial Purchasers of copies of the Offering Memorandum and any amendments or
supplements thereto, (vii) any fees charged by nationally recognized statistical
rating organizations for the rating of the Securities, (viii) the fees and
expenses of the Trustee, including the reasonable fees and disbursements of
counsel for the Trustee, in connection with the Indenture and the Securities,
and (ix) all expenses and listing fees incurred in connection with the
application for quotation of the Securities on the PORTAL market.
If this Agreement is terminated by the Initial Purchasers in accordance
with the provisions of Section 5 or Section 10 hereof, the Operating Partnership
shall reimburse the Initial Purchasers for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Initial
Purchasers.
SECTION 5. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS.
The several obligations of the Initial Purchasers' are subject to the
accuracy as of the date hereof and as of the Closing Date of the representations
and warranties of the Operating Partnership contained herein, to the accuracy of
the statements of officers of the Operating Partnership or any Subsidiary made
in any certificate delivered pursuant to the provisions hereof, to the
performance by the Operating Partnership of all of its covenants and other
obligations hereunder, and to the following further conditions:
(a) (i) The Initial Purchasers shall not have discovered and disclosed to
the Operating Partnership on or prior to the Closing Date that the Offering
Memorandum or any amendment or supplement thereto contains an untrue statement
of a fact which, in the reasonable opinion of counsel for the Initial
Purchasers, is material or omits to state a fact which, in the reasonable
opinion of such counsel, is material and is required to be stated therein or is
necessary to make the statements therein not misleading.
(ii) All consents, waivers and approvals (including, but not limited
to, the consents, waivers and approvals referenced below) necessary for the
transactions contemplated by this Agreement, the Indenture and the
Registration Rights Agreement, except as may be required under the
Securities Act or the Trust Indenture Act, shall have been obtained and
shall be in full force and effect at the Closing Date.
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(iii) All corporate proceedings and other legal matters incident to
the authorization, form and validity of each of this Agreement, the
Registration Rights Agreement, the Securities and the Offering Memorandum,
and other legal matters relating thereto and the transactions contemplated
thereby shall be satisfactory in all respects to counsel for the Initial
Purchasers, and the Operating Partnership shall have furnished to such
counsel all documents and information that they may reasonably request to
enable them to pass upon such matters.
(b) At the Closing Date, the Initial Purchasers shall have received the
opinion, dated as of the applicable Closing Date, of Shaw, Pittman, Potts &
Trowbridge, counsel for the Operating Partnership and the Subsidiaries in form
and substance satisfactory to counsel for the Initial Purchasers, together with
signed or reproduced copies of such letter for each of the other Initial
Purchasers, to the effect that:
(i) The Operating Partnership has been duly formed and is validly
existing as a limited partnership in good standing under the Delaware Act.
The Operating Partnership has full partnership power and authority to own,
lease and operate its properties, to conduct the business in which it is
engaged or proposes to engage as described in the Offering Memorandum and
to enter into and perform its obligations under this Agreement, the
Partnership Agreement, the Indenture and the Registration Rights Agreement
(collectively, the "Listed Agreements"), and the Securities. The Operating
Partnership is duly qualified or registered as a foreign partnership and is
in good standing in Texas, Colorado, Arizona, New Mexico, Louisiana,
Nebraska and each other jurisdiction in which such qualification or
registration is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify
or register would not have a material adverse effect on the condition,
financial or otherwise, or the earnings, assets, business affairs or
business prospects of the Operating Partnership, the Subsidiaries and the
Residential Development Corporations considered as one enterprise. CGP,
Inc., a wholly owned subsidiary of the Company, is the sole general partner
of the Operating Partnership.
(ii) Each of Crescent Real Estate Funding I, L.P., Crescent Real
Estate Funding II, L.P., Crescent Real Estate Funding III, L.P., Crescent
Real Estate Funding IV, L.P., Crescent Real Estate Funding V, L.P.,
Crescent Real Estate Funding VI, L.P., Crescent Real Estate Funding VII and
any other Subsidiary that would be considered a "Significant Subsidiary" as
defined in Article 1, Rule 1--02 of Regulation S-X promulgated pursuant to
the Securities Act (collectively, the "SIGNIFICANT SUBSIDIARIES") has been
organized and is validly existing as a corporation, limited partnership or
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limited liability company, as the case may be, in good standing under the
laws of its respective state of organization, with full corporate,
partnership or limited liability company (as the case may be) power and
authority to own, lease and operate its properties, to conduct the business
in which it is engaged or proposes to engage as described in the Offering
Memorandum, and to enter into and perform its obligations under any Listed
Agreements to which it is a party. Each of the Significant Subsidiaries and
the Residential Development Corporations is duly qualified as a foreign
corporation, limited partnership or limited liability company, as the case
may be, to transact business and is in good standing in each jurisdiction
in which such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except where the failure
to so qualify would not have a material adverse effect on the condition,
financial or otherwise, or the earnings, assets, business affairs or
business prospects of the Operating Partnership, the Significant
Subsidiaries and the Residential Development Corporations considered as one
enterprise. All of the issued and outstanding shares of capital stock of
each of the corporate Significant Subsidiaries have been duly authorized
and validly issued and are fully paid and nonassessable. The ownership by
the Operating Partnership and the Significant Subsidiaries of the shares of
capital stock or limited partnership or equity interests, as the case may
be, of each of the Significant Subsidiaries is free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity.
(iii) The Securities are in the form contemplated in the Indenture and
have been duly and validly authorized by all necessary action and, when
executed, authenticated and delivered in accordance with the Indenture and
against payment therefor as specified in this Agreement, will be entitled
to the benefits of the Indenture and will be valid and legally binding
obligations of the Operating Partnership enforceable against the Operating
Partnership in accordance with their terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, or
similar laws affecting creditors' rights generally from time to time in
effect and general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity) and
except that a waiver of rights under any usury law may be unenforceable.
Such Securities rank and will rank pari passu with all unsecured and
unsubordinated indebtedness of the Operating Partnership that is
outstanding on the Closing Date or that may be incurred thereafter, except
that such Securities will be effectively subordinated to the claims of each
secured mortgage lender to the extent of the value of the property securing
such indebtedness and all existing and future third-party indebtedness and
other liabilities of the Subsidiaries.
(iv) None of the Operating Partnership or any Significant Subsidiary
is in violation of its charter, by-laws, certificate of limited
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partnership, partnership agreement, limited liability company agreement or
similar instrument, as the case may be, and, to the knowledge of counsel,
none of the Operating Partnership or any Significant Subsidiary is in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any material contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which such
entity is a party or by which such entity is bound, or to which any of the
property or assets of such entity is subject, except where a default
thereunder would not have a material adverse effect on the condition,
financial or otherwise, or the earnings, assets, business affairs or
business prospects of the Operating Partnership, the Subsidiaries and the
Residential Development Corporations considered as one enterprise.
(v) Each of this Agreement, the Indenture and the Registration Rights
Agreement was duly and validly authorized, executed and delivered by the
Operating Partnership and, assuming due authorization, execution and
delivery by any other party thereto, is a valid and binding agreement of
such party, enforceable against such party in accordance with its terms,
except as such enforceability may be (1) limited by bankruptcy, insolvency,
reorganization, liquidation, moratorium and other similar laws affecting
the rights and remedies of creditors generally, (2) subject to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law), and (3) pertaining to
indemnity and contribution, limited under applicable securities laws and
public policy.
(vi) The execution and delivery of this Agreement, the Indenture, the
Securities, the DTC Agreement and the Registration Rights Agreement, the
performance of the obligations set forth herein and therein, and the
consummation of the transactions contemplated thereby or in the Offering
Memorandum by the Operating Partnership and the Significant Subsidiaries,
as applicable, will not conflict with or constitute a breach or violation
of, or default under: (A) to the knowledge of counsel, any material
contract, indenture, mortgage, loan agreement, note, lease, joint venture
or partnership agreement or other instrument or agreement to which the
Operating Partnership or any Significant Subsidiary is a party or by which
they or any of them or any of their respective properties or other assets
or any Property may be bound or subject; (B) the charter, by-laws,
certificate of limited partnership, partnership agreement, or limited
liability company agreement, or similar instrument, as the case may be, of
the Operating Partnership or any Significant Subsidiary; or (C) any federal
or Delaware law.
(vii) To the knowledge of counsel, there is no action, suit or
proceeding before or by any court or governmental agency or body, domestic
or foreign, now pending or threatened against or affecting the Operating
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<PAGE> 25
Partnership or any Significant Subsidiary, any Property, any property
underlying indebtedness held by the Operating Partnership or any of the
Significant Subsidiaries that, if determined adversely to the Operating
Partnership, any Significant Subsidiary, any Property, including any
property underlying indebtedness held by the Operating Partnership, or any
of the Significant Subsidiaries would reasonably be expected to (1) result
in any material adverse change in the condition, financial or otherwise, or
in the earnings, assets, business affairs or business prospects of the
Operating Partnership, the Subsidiaries and the Residential Development
Corporations, considered as one enterprise, or (2) materially and adversely
affect the consummation of the transactions contemplated by this Agreement.
To the knowledge of counsel, there is no pending legal or governmental
proceeding to which the Operating Partnership or any Significant Subsidiary
is a party or of which any of their respective properties or assets or any
Property, including any property underlying indebtedness held by the
Operating Partnership, or any of the Significant Subsidiaries is the
subject, including ordinary routine litigation incidental to the business,
that is, considered in the aggregate, material to the condition, financial
or otherwise, or the earnings, assets, business affairs or business
prospects of the Operating Partnership, the Subsidiaries and the
Residential Development Corporations, considered as one enterprise.
(viii) None of the Operating Partnership, nor any Subsidiary is, or at
the Closing Time will be, required to be registered under the 1940 Act.
(ix) All filings have been made and all authorizations, approvals,
consents, licenses, order registrations or qualification of decrees of any
court or governmental authority or agency that are necessary in connection
with the offering, issuance or sale of the Securities under this Agreement
have been obtained, except such as may be required under (A) the Securities
Act and the Securities Act Regulations and the Trust Indenture Act with
respect to the registration of the Exchange Offer Notes pursuant to the
Registration Rights Agreement and (B) state securities or real estate
syndication laws.
(x) The Securities and the Listed Agreements conform in all material
respects to the descriptions thereof, if any, in the Offering Memorandum.
(xi) Except as contemplated in the Registration Rights Agreement to
the knowledge of such counsel, there are no persons with registration or
other similar rights to have any securities registered under the Exchange
Offer Registration Statement or the Shelf Registration Statement, or
require the Operating Partnership to file any other registration statement,
as a result of the offer and sale of the Exchange Notes.
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(xii) The information in the Offering Memorandum under the headings
"Description of the Notes," "Plan of Distribution" and "Notice to
Investors" to the extent that it constitutes matters of law or legal
conclusions has been reviewed by such counsel, is correct and presents
fairly the information required to be disclosed therein.
(xiii) The Operating Partnership and each of the Significant
Subsidiaries that are partnerships are properly classified as partnerships,
and not as corporations or as associations taxable as corporations, for
Federal income tax purposes throughout the period from May 5, 1994 through
the date hereof, or, in the case of any Significant Subsidiary partnerships
that have terminated, through the date of termination of such Significant
Subsidiary Partnerships.
(xiv) Based on the representations, warranties and agreements of each
of the Initial Purchasers in Section 6 of this Agreement and on the truth
and accuracy of the representations and agreements deemed to be made by
purchasers of the Securities contained in the Offering Memorandum, it is
not necessary in connection with the offer, sale and delivery of the
Securities to the Initial Purchasers under this Agreement or in connection
with the initial resale of such Securities by the Initial Purchasers in
accordance with Section 6 of this Agreement to register the Securities
under the Securities Act or to qualify the Indenture under the Trust
Indenture Act; provided, however that such counsel need not express any
opinion with respect to the conditions under which the Securities may be
further resold.
(c) At the Closing Date, you shall have received the favorable opinion,
dated as of the applicable Closing Time, of Hogan & Hartson L.L.P., counsel for
the Initial Purchasers, with respect to the matters set forth in (i) (first
sentence only), (iii), (v), (vi), (x) (solely as to the Securities) and (xiv) of
Section 5(b) above.
(d) In giving the opinions required by Sections 5(b) and (c), respectively,
Shaw, Pittman, Potts & Trowbridge and Hogan & Hartson L.L.P. shall additionally
state (which shall not constitute an opinion) that nothing has come to the
attention of such counsel which cause them to believe that the Offering
Memorandum or any amendment thereto (except for financial statements and
supporting schedules and other financial information and data included therein
or omitted therefrom, as to which such counsel need not express any view), as of
the date of this Agreement or at the Closing Time, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. In giving their belief
required in this Section 5(d), such counsel may state that their belief is based
upon their
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participation in the preparation of the Offering Memorandum and any amendments
and supplements thereto and review and discussion of the contents thereof.
(e) In giving their opinions required by Section 5(b) and 5(c), such
counsel (i) may rely as to all matters of fact, upon certificates and written
statements of officers and employees of and accountants for the Operating
Partnership and the Significant Subsidiaries and (ii) may rely as to the
qualification and good standing of each of the Operating Partnership or any of
the Significant Subsidiaries to do business in any state or jurisdiction, upon
certificates of appropriate government officials or opinions of counsel in such
jurisdictions.
(f) At Closing Time, there shall not have been, since the respective dates
as of which information is given in the Offering Memorandum, any material
adverse change in the condition, financial or otherwise on the earnings, assets,
business affairs or business prospects of the Operating Partnerships, the
Subsidiaries and the Residential Development Corporations considered as one
enterprise, whether or not arising in the ordinary course of business, and you
shall have received a certificate of the President or a Vice President of the
General Partner of the Operating Partnership, and the chief financial officer or
chief accounting officer of the General Partner of the Operating Partnership,
dated as of the Closing Date, to the effect that (i) there has been no such
material adverse change in the condition, financial or otherwise on the
earnings, assets, business affairs or business prospects of the Operating
Partnerships, the Subsidiaries and the Residential Development Corporations
considered as one enterprise, (ii) the representations and warranties in Section
1 are accurate as though expressly made at and as of the Closing Date, and (iii)
all conditions, precedent set forth in this Section 5 have been satisfied or
waived.
(g) At the time of the execution of this Agreement, you shall have received
from Arthur Andersen LLP a letter dated such date, in form and substance
satisfactory to you to the effect that: (i) they are independent accountants
with respect to the Operating Partnership and its Subsidiaries within the
meaning of Rule 101 of the AICPA's Code of Professional Conduct; (ii) it is
their opinion that the consolidated financial statements and supporting
schedules included or incorporated by reference in the Offering Memorandum and
covered by their opinions therein comply in form in all material respects with
Rule 101 of the AICPA's Code of Professional Conduct; (iii) based upon limited
procedures set forth in detail in such letter (which shall include, without
limitation, the procedures specified by the American Institute of Certified
Public Accountants for a review of interim financial information as described in
SAS No. 71, Interim Financial Information, with respect to the unaudited
financial statements of the Operating Partnership included or incorporated by
reference in the Offering Memorandum), nothing has come to their attention which
causes them to believe that, (A) any material modifications should be made to
the unaudited condensed financial statements included or incorporated by
reference in the Offering Memorandum for
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them to be in conformity with GAAP or (B) the unaudited condensed financial
statements included or incorporated by reference in the Offering Memorandum do
not comply as to form in all material respects with GAAP or (C) at a specified
date not more than five days prior to the date of this Agreement, there has been
any change in the partnership interests in the Operating Partnership or in the
consolidated long term debt of the Operating Partnership or any decrease in the
net assets of the Company, as compared with the amounts shown in the most recent
consolidated balance sheet included in the Offering Memorandum or, during the
period from the date of the most recent consolidated statement of operations
included in the Offering Memorandum to a specified date not more than five days
prior to the date of this Agreement, there were any decreases, as compared with
the corresponding period in the preceding year, in consolidated revenues, or
decrease in net income the Operating Partnership, as applicable, except in all
instances for changes, increases or decreases which the Offering Memorandum
discloses have occurred or may occur; (iv) made inquiries of certain officials
of the Operating Partnership who have responsibility for financial and
accounting matters about the basis for their determination of the pro forma
adjustments, and whether all significant assumptions regarding pending and
completed acquisitions and the October 1996 Offering, the April 1997 Offering,
UBS Offering, and this Offering had been reflected in the pro forma adjustments
and (v) in addition to the audit referred to in their opinions and the limited
procedures referred to in clause (iii) above, they have carried out certain
specified procedures with respect to certain amounts, percentages and financial
and statistical information which are included in the Offering Memorandum and
which are specified by you, and have found such amounts, percentages and
financial and statistical information to be in agreement with relevant
accounting, financial and other records of the Operating Partnership and its
Subsidiaries identified in such letter.
(h) On the Closing Date, you shall have received from Arthur Andersen LLP a
letter, dated as of the Closing Date, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (g) of this
Section 5, except that the specified date referred to shall be a date not more
than three business days prior to the applicable Closing Time.
(i) On the Closing Date, counsel for the Initial Purchasers shall have been
furnished with such documents and opinions as they may reasonably require for
the purpose of enabling them to pass upon the issuance and sale of the
Securities as herein contemplated, or in order to evidence the accuracy of any
of the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Operating
Partnership in connection with the issuance and sale of the Securities as herein
contemplated shall be satisfactory in form and substance to you and counsel for
the Initial Purchasers.
(j) On the Closing Date, the Securities shall be rated Baa3 by Moody's
Investor's Service Inc. and the Operating Partnership shall have delivered
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to the Initial Purchasers a letter dated the Closing Date from such rating
agency, or other evidence satisfactory to the Initial Purchasers, confirming
that the Securities have such ratings; and since the date of this Agreement,
there shall not have occurred a downgrading in the rating assigned to the
Securities by any "nationally recognized statistical rating agency" as that term
is defined by the Commission for purposes of Rule 436(g)(2) under the Securities
Act, and no such securities rating agency shall have publicly announced that it
has under surveillance or review, with possible negative implications, its
rating of the Securities.
(k) If any condition specified in this Section 5 shall not have been
fulfilled when and as required to be fulfilled, the Agreement may be terminated
by you by notice to the Operating Partnership at any time at or prior to the
Closing Date and such termination shall be without liability of any party to any
other party except that Section 4 shall survive any such termination and remain
in full force and effect.
SECTION 6. SUBSEQUENT OFFERS AND RESALES OF THE SECURITIES.
Each of the Initial Purchasers and the Operating Partnership hereby
establishes and agrees to observe the following procedures in connection with
the offer and sale by the Initial Purchasers of the Securities:
(a) Offers and sales of the Securities will be made by the Initial
Purchasers only (i) to institutional investors that are reasonably believed to
qualify as accredited investors (as defined in Rule 510(a) under the Securities
Act) (each such institutional investor being hereinafter referred to as an
"INSTITUTIONAL ACCREDITED INVESTOR") or, (ii) in the case of Securities resold
or otherwise transferred pursuant to Rule 144A, to institutional investors that
are reasonably believed to qualify as qualified institutional buyers as defined
in Rule 144A.
(b) Neither of the Initial Purchasers nor any affiliate thereof (as defined
in Rule 501(b) of Regulation D) may solicit any offer to buy or offer or sell
the Securities by means of any form of general solicitation or general
advertising (within the meaning of Regulation D).
(c) In the case of a non-bank purchaser of a Security acting as a fiduciary
for one or more third parties, in connection with an offer and sale to such
purchaser pursuant to clause (a) above, each third party shall, in the judgment
of the applicable Initial Purchaser, be an accredited institutional investor.
(d) No sale of the Securities to any one purchaser will be for less than
$100,000 principal amount, and no Security will be issued in a smaller principal
amount. If the purchaser is a non-bank fiduciary acting on behalf of
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others, each person for whom it is acting must purchase at least $100,000
principal amount of the Securities.
(e) The transfer restrictions and the other provisions set forth in the
Indenture, including the legend required thereby, shall apply to the Securities
except as otherwise agreed by the Operating Partnership and the Initial
Purchasers. Following the sale of the Securities by the Initial Purchasers to
subsequent purchasers pursuant to the terms hereof, the Initial Purchaser shall
not be liable or responsible to the Operating Partnership for any losses,
damages or liabilities suffered or incurred by the Operating Partnership,
including any losses, damages or liabilities under the Securities Act, arising
from or relating to any resale or transfer of any Security.
(f) Each Initial Purchaser will deliver to each purchaser of the Securities
from such Initial Purchaser, in connection with its original distribution of the
Securities, a copy of the Offering Memorandum as amended and supplemented at the
date of such delivery.
(g) In connection with its original distribution of the Securities, the
Operating Partnership agrees that, prior to any offer or resale of the
Securities by the Initial Purchasers, the Initial Purchasers and counsel for the
Initial Purchasers shall have the right to make reasonable due diligence
inquiries into the business of the Operating Partnership and its Subsidiaries.
The Operating Partnership also agrees to provide answers to each prospective
subsequent purchaser of Securities who so requests concerning the Operating
Partnership and its Subsidiaries (to the extent that such information is
available to prospective subsequent purchasers without unreasonable effort or
expense and to the extent the provision thereof is not prohibited by applicable
law) and the terms and conditions of the offering of the Securities, as provided
in the Offering Memorandum.
(h) Each Initial Purchaser will take reasonable steps to inform persons
acquiring Securities from such Initial Purchaser, as the case may be, in the
United States that the Securities (i) have not been and will not be registered
under the Securities Act, (ii) are being sold to them without registration under
the Securities Act in reliance on Rule 144A or in accordance with another
exemption from registration under the Securities Act, as the case may be, and
(iii) may not be offered, sold or otherwise transferred except (A) to the
Operating Partnership, (B) in accordance with (1) Rule 144A to a person whom the
seller reasonably believes is a QIB that is purchasing such Securities for its
own account or for the account of a QIB to whom notice is given that the offer,
sale or transfer is being made in reliance on Rule 144A or (2) pursuant to
another available exemption from registration under the Securities Act.
(i) Until the expiration of two years after the original issuance of the
Securities, the Operating Partnership will not, and will cause its Affiliates
not
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to purchase or agree to purchase or otherwise acquire any Securities which are
"restricted securities" (as such term is defined under Rule 144(a)(3) under the
Securities Act), whether as beneficial owner or otherwise (except as agent
acting as a securities broker on behalf of and for the account of customers in
the ordinary course of business in unsolicited broker's transactions) unless,
immediately upon any such purchase, the Operating Partnership or any affiliate
shall submit such Securities to the Trustee for cancellation.
SECTION 7. INDEMNIFICATION.
(a) The Operating Partnership agrees to indemnify and hold harmless each
Initial Purchaser and each person, if any, who controls any Initial Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, and any director, officer, employee or affiliate thereof, as
follows:
(1) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Offering Memorandum
(or any amendment thereto) or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein not misleading;
(2) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever for which indemnification is provided under subsection (1)
above; provided that (subject to Section 7(d) below) any such settlement is
effected with the written consent of the Operating Partnership; and
(3) against any and all expense whatsoever (including, without
limitation, the fees and other charges of counsel chosen by the Initial
Purchasers), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever for which indemnification is provided under subsection (i)
above, to the extent that any such expense is not paid under (i) or (ii)
above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Operating
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Partnership by any Initial Purchasers through you expressly for use in the
Offering Memorandum (or any amendment thereto).
(b) The Initial Purchasers agree to indemnify and hold harmless the
Operating Partnership, its directors, officers, employees and affiliates and
each person, if any, who controls the Operating Partnership within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act against
any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section 7, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Offering Memorandum (or any amendment thereto), in
reliance upon and in conformity with written information furnished to the
Operating Partnership by the Initial Purchasers expressly for use in the
Offering Memorandum (or any amendment thereto).
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
hereunder to the extent it is not materially prejudiced as a result thereof and
in any event shall not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. In the case of parties indemnified
pursuant to Section 7(a) above, counsel to the indemnified parties shall be
selected by the Initial Purchasers, and, in the case of parties indemnified
pursuant to Section 7(b) above, counsel to the indemnified parties shall be
selected by the Operating Partnership. An indemnifying party may participate at
its own expense in the defense of any such action; provided, however, that
counsel to the indemnifying party shall not (except with the consent of the
indemnified party) also be counsel to the indemnified party. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 7 or Section 8 hereof (whether
or not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
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(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 7(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
SECTION 8. CONTRIBUTION.
If the indemnification provided for in Section 7 hereof is for any reason
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, liabilities, claims, damages or expenses referred to therein,
then each indemnifying party shall contribute to the aggregate amount of such
losses, liabilities, claims, damages and expenses incurred by such indemnified
party, as incurred, (i) in such proportion as is appropriate to reflect the
relative benefits received by the Operating Partnership on the one hand, and the
Initial Purchasers, on the other hand, from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Operating Partnership, on the one hand, and of the Initial
Purchasers, on the other hand, in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.
The relative benefits received by the Operating Partnership, on the one
hand, and the Initial Purchasers, on the other hand, in connection with the
offering of the Securities pursuant to this Agreement shall be deemed to be in
the same respective proportions as the total net proceeds from the offering of
such Securities (before deducting expenses) received by the Operating
Partnership, and the total discount received by the Initial Purchasers, in each
case as set forth on the cover of the Offering Memorandum.
The relative fault of the Operating Partnership, on the one hand, and the
Initial Purchasers, on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Operating Partnership or by the Initial Purchasers
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
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The Operating Partnership and the Initial Purchasers agree that it would
not be just and equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in this
Section 8. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
8 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities purchased by it were offered exceeds the
amount of any damages which such Initial Purchaser has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls an
Initial Purchaser within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution as
such Initial Purchaser, and each person, if any, who controls the Operating
Partnership within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act shall have the same rights to contribution as the Operating
Partnership. The Initial Purchasers' respective obligations to contribute
pursuant to this Section 8 are several in proportion to the aggregate principal
amount of Securities set forth opposite their respective names in Schedule I
hereto and not joint.
SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties and agreements contained in this Agreement
or in certificates of officers of CGP, Inc., as general partner of the Operating
Partnership or the Operating Partnership, submitted pursuant hereto or thereto
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the Initial Purchasers or any controlling
person, or by or on behalf of the Operating Partnership or any controlling
person, and shall survive delivery of and payment for the Securities.
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SECTION 10. TERMINATION OF AGREEMENT.
(a) The Initial Purchasers may terminate this Agreement, by notice to the
Operating Partnership, at any time at or prior to the Closing Time, (i) if there
has been, since the date of this Agreement or since the respective dates as of
which information is given in the Offering Memorandum, any material adverse
change in the condition, financial or otherwise, or in the earnings, assets,
business affairs or business prospects of the Operating Partnership, the
Subsidiaries and the Residential Development Corporations considered as one
enterprise, whether or not arising in the ordinary course of business, (ii) if
there has occurred any material adverse change in the financial markets in the
United States or any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial, or economic conditions in
each case, the effect of which is such as to make it, in the Initial Purchasers
reasonable judgment, impracticable to market the Securities or enforce contracts
for the sale of the Securities, or (iii) if a banking moratorium has been
declared by either federal, New York or Texas authorities.
(b) If this Agreement is terminated pursuant to this Section 10, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof and provided further that Sections 4, 7, 8, 9, and
14 hereof shall survive such termination and remain in full force and effect.
SECTION 11. DEFAULT BY AN INITIAL PURCHASER.
If one or more of the Initial Purchasers shall fail at the Closing Date to
purchase the Securities which it or they are obligated to purchase under this
Agreement (the "DEFAULTED SECURITIES"), the non-defaulting Initial Purchaser
shall have the right, within 24 hours thereafter, to make arrangements for any
other Initial Purchasers to purchase all, but not less than all of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the non-defaulting Initial Purchaser shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
aggregate principal amount of the Securities to be purchased hereunder, the
non-defaulting Initial Purchaser shall be obligated, severally and not jointly,
to purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of all
non-defaulting Initial Purchasers, or
(b) If the number of Defaulted Securities exceeds 10% of the aggregate
principal amount of the Securities to be purchased hereunder, this Agreement
shall terminate without liability on the part of the non-defaulting Initial
Purchaser.
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No action taken pursuant to this Section 11 shall relieve the defaulting
Initial Purchaser from liability in respect to its default.
In the event of any such default which does not result in a termination of
this Agreement, either the non-defaulting Initial Purchasers or the Operating
Partnership shall have the right to postpone the Closing Date for a period not
exceeding seven days in order to effect any required changes in the Offering
Memorandum or in any other documents or arrangements. As used herein, the term
"Initial Purchaser" includes any person substituted for an Initial Purchaser
under this Section 11.
SECTION 12. NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if mailed or transmitted by any standard
form of telecommunication. Notices to the Initial Purchasers shall be directed
to Merrill Lynch at Merrill Lynch World Headquarters, World Financial Center,
North Tower, New York, New York 10281- 1201, attention of Michael F. Profenius,
Managing Director, and notices to the Operating Partnership shall be directed to
777 Main Street, Suite 2100, Fort Worth, TX 76102 attention of Gerald W.
Haddock, Chief Executive Officer of CGP, Inc.
SECTION 13. PARTIES.
This Agreement shall each inure to the benefit of and be binding upon you
and the Operating Partnership, and your respective successors. Nothing expressed
or mentioned in this Agreement is intended or shall be construed to give any
person, firm or corporation, other than the Initial Purchasers and the Operating
Partnership and their respective successors and the controlling persons and
officers and directors referred to in Sections 7 and 8 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the parties and their respective successors, and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Securities from the Initial Purchasers shall be deemed to be a
successor by reason merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY
TIME.
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SECTION 15. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, and if executed
in more than one counterpart the executed counterparts shall contribute a single
instrument.
SECTION 16. EFFECT OF HEADINGS.
The Article and Section headings herein are for convenience only and shall
not affect the construction hereof.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Operating Partnership a counterpart hereof,
whereupon this Agreement, along with all counterparts, will become a binding
agreement between you and the Operating Partnership in accordance with its
terms.
Very truly yours,
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP
By: CRESCENT REAL ESTATE EQUITIES LTD.,
its general partner
By:
---------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED
as of the date first
above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By:
-----------------------------------
Name: Daniel A. Rubenstein
Title: Director
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[EXECUTION COPY]
EXHIBIT 4.01
- --------------------------------------------------------------------------------
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
Issuer
and
STATE STREET BANK AND TRUST COMPANY OF MISSOURI, N.A.
Trustee
------------------------
INDENTURE
Dated as of September 22, 1997
------------------------
SENIOR DEBT SECURITIES
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS OF THE ISSUER.........................................................................................1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS......................................................................................1
Acquired Indebtedness...........................................................................1
Act ........................................................................................2
Additional Amounts..............................................................................2
Affiliate.......................................................................................2
Annual Debt Service Charge......................................................................2
Authenticating Agent............................................................................2
Authorized Newspaper............................................................................2
Bankruptcy Law..................................................................................2
Bearer Security.................................................................................2
Board of Directors..............................................................................2
Board Resolution................................................................................2
Business Day....................................................................................2
CEDEL ..........................................................................................2
Commission......................................................................................3
Common Depositary...............................................................................3
Consolidated Income Available for Debt Service..................................................3
Consolidated Interest Expense...................................................................3
Consolidated Net Income.........................................................................3
Conversion Event................................................................................3
Corporate Trust Office..........................................................................3
Corporation.....................................................................................3
Coupon ........................................................................................3
Crescent .......................................................................................3
Custodian.......................................................................................3
Debt ...........................................................................................4
Defaulted Interest..............................................................................4
Dollar..........................................................................................4
DTC ............................................................................................4
ECU ............................................................................................4
Euroclear.......................................................................................4
European Community..............................................................................4
European Monetary System........................................................................4
European Union..................................................................................4
Event of Default................................................................................4
Exchange Act....................................................................................4
Exchange Date...................................................................................4
Foreign Currency................................................................................4
GAAP ........................................................................................5
General Partner.................................................................................5
Government Obligations..........................................................................5
Holder ........................................................................................5
Indenture.......................................................................................5
</TABLE>
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<TABLE>
<S> <C>
Indexed Security................................................................................5
Interest .......................................................................................5
Interest Payment Date...........................................................................5
Issuer ........................................................................................5
Issuer Request..................................................................................5
Judgment Currency...............................................................................6
Legal Holiday...................................................................................6
Make-Whole Amount...............................................................................6
Maturity .......................................................................................6
Officers' Certificate...........................................................................6
Opinion of Counsel..............................................................................6
Original Issue Discount Security................................................................6
Outstanding.....................................................................................6
Paying Agent....................................................................................7
Person ........................................................................................7
Place of Payment................................................................................7
Predecessor Security............................................................................7
Recourse Indebtedness...........................................................................7
Redemption Date.................................................................................8
Redemption Price................................................................................8
Registered Security.............................................................................8
Regular Record Date.............................................................................8
Reinvestment Rate...............................................................................8
Repayment Date..................................................................................8
Repayment Price.................................................................................8
Responsible Officer.............................................................................8
Secured Debt....................................................................................8
Security .......................................................................................9
Security Register...............................................................................9
Significant Subsidiary..........................................................................9
Special Record Date.............................................................................9
Stated Maturity.................................................................................9
Statistical Release.............................................................................9
Subsidiary......................................................................................9
Total Assets....................................................................................9
Total Unencumbered Assets.......................................................................9
Trust Indenture Act or.........................................................................10
Trustee........................................................................................10
Undepreciated Real Estate Assets...............................................................10
United States..................................................................................10
United States Person...........................................................................10
Unsecured Debt.................................................................................10
Yield to Maturity..............................................................................10
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS............................................................10
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE..........................................................11
SECTION 104. ACTS OF HOLDERS.................................................................................11
SECTION 105. NOTICES, ETC., TO TRUSTEE AND ISSUER............................................................11
SECTION 106. NOTICE TO HOLDERS; WAIVER.......................................................................11
SECTION 107. EFFECT OF HEADINGS AND TABLE OF CONTENTS........................................................12
SECTION 108. SUCCESSORS AND ASSIGNS..........................................................................12
SECTION 109. SEVERABILITY CLAUSE.............................................................................13
SECTION 110. BENEFITS OF INDENTURE...........................................................................13
SECTION 111. GOVERNING LAW...................................................................................14
SECTION 112. LEGAL HOLIDAYS..................................................................................14
</TABLE>
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<TABLE>
<S> <C>
SECTION 113. QUALIFICATION UNDER TRUST INDENTURE ACT.........................................................14
SECTION 114. COUNTERPARTS....................................................................................14
SECTION 115. JUDGMENT CURRENCY...............................................................................14
SECTION 116. NONRECOURSE.....................................................................................14
ARTICLE TWO
SECURITIES FORMS
SECTION 201. FORMS OF SECURITIES.............................................................................15
SECTION 202. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.................................................15
SECTION 203. SECURITIES ISSUABLE IN GLOBAL FORM..............................................................16
ARTICLE THREE
THE SECURITIES
SECTION 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES............................................................16
SECTION 302. CURRENCY, DENOMINATIONS.........................................................................20
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING..................................................20
SECTION 304. TEMPORARY SECURITIES............................................................................22
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.............................................24
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES................................................27
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS RESERVED...................................................28
SECTION 308. PERSONS DEEMED OWNERS...........................................................................29
SECTION 309. CANCELLATION....................................................................................30
SECTION 310. COMPUTATION OF INTEREST.........................................................................30
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.........................................................30
SECTION 402. APPLICATION OF TRUST FUNDS......................................................................31
ARTICLE FIVE
REMEDIES
SECTION 501 EVENTS OF DEFAULT...............................................................................32
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT..............................................33
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.................................34
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM................................................................35
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES OR COUPONS..........................35
SECTION 506. APPLICATION OF MONEY COLLECTED..................................................................36
SECTION 507. LIMITATION ON SUITS.............................................................................36
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM OR MAKE-WHOLE AMOUNT, IF
ANY, INTEREST AND ADDITIONAL AMOUNTS......................................................36
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES..............................................................37
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE..................................................................37
SECTION 511. DELAY OR OMISSION NOT WAIVER....................................................................37
SECTION 512. CONTROL BY HOLDERS OF SECURITIES................................................................37
SECTION 513. WAIVER OF PAST DEFAULTS.........................................................................37
SECTION 514. WAIVER OF USURY, STAY OR EXTENSION LAWS.........................................................38
SECTION 515. UNDERTAKING FOR COSTS...........................................................................38
</TABLE>
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<TABLE>
<S> <C>
ARTICLE SIX
THE TRUSTEE
SECTION 601. NOTICE OF DEFAULTS..............................................................................38
SECTION 602. CERTAIN RIGHTS OF TRUSTEE.......................................................................38
SECTION 603. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES..........................................40
SECTION 604. MAY HOLD SECURITIES.............................................................................40
SECTION 605. MONEY HELD IN TRUST.............................................................................40
SECTION 606. COMPENSATION AND REIMBURSEMENT..................................................................40
SECTION 607. CORPORATE TRUSTEE REQUIRED ELIGIBILITY; CONFLICTING INTERESTS...................................41
SECTION 608. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR...............................................41
SECTION 609. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR..........................................................42
SECTION 610. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.....................................43
SECTION 611. APPOINTMENT OF AUTHENTICATING AGENT.............................................................43
ARTICLE SEVEN
HOLDERS' LIST AND REPORTS BY TRUSTEE AND ISSUER
SECTION 701. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS....................................................45
SECTION 702. REPORTS BY TRUSTEE..............................................................................45
SECTION 703. REPORTS BY ISSUER...............................................................................45
SECTION 704. ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS........................................46
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE
SECTION 801. CONSOLIDATIONS AND MERGERS OF ISSUER AND SALES, LEASES AND CONVEYANCE PERMITTED SUBJECT
TO CERTAIN CONDITIONS.....................................................................46
SECTION 802. RIGHTS AND DUTIES OF SUCCESSOR CORPORATION......................................................46
SECTION 803. OFFICERS' CERTIFICATE AND OPINION OF COUNSEL....................................................47
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS..............................................47
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.................................................48
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES............................................................49
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES...............................................................49
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.............................................................49
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES..............................................49
SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURES...............................................................49
ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM OR MAKE-WHOLE AMOUNT, IF ANY, INTEREST AND ADDITIONAL
AMOUNTS...................................................................................50
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY................................................................50
SECTION 1003. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST..............................................51
</TABLE>
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<TABLE>
<S> <C>
SECTION 1004. LIMITATIONS ON INCURRENCE OF DEBT..............................................................52
SECTION 1005. [INTENTIONALLY OMITTED]........................................................................53
SECTION 1006. EXISTENCE......................................................................................53
SECTION 1007. MAINTENANCE OF PROPERTIES......................................................................53
SECTION 1008. INSURANCE......................................................................................54
SECTION 1009. PAYMENT OF TAXES AND OTHER CLAIMS..............................................................54
SECTION 1010. PROVISION OF FINANCIAL INFORMATION.............................................................54
SECTION 1011. STATEMENT AS TO COMPLIANCE.....................................................................54
SECTION 1012. ADDITIONAL AMOUNTS.............................................................................55
SECTION 1013. WAIVER OF CERTAIN COVENANTS....................................................................55
SECTION 1014. DELIVERY OF CERTAIN INFORMATION................................................................55
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. APPLICABILITY OF ARTICLE.......................................................................56
SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE..........................................................56
SECTION 1103. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED..............................................56
SECTION 1104. NOTICE OF REDEMPTION...........................................................................56
SECTION 1105. DEPOSIT OF REDEMPTION PRICE....................................................................58
SECTION 1106. SECURITIES PAYABLE ON REDEMPTION DATE..........................................................58
SECTION 1107. SECURITIES REDEEMED IN PART....................................................................59
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. APPLICABILITY OF ARTICLE.......................................................................59
SECTION 1202. SATISFACTION OF SINKING FUND PAYMENT WITH SECURITIES...........................................59
SECTION 1203. REDEMPTION OF SECURITIES FOR SINKING FUND......................................................59
ARTICLE THIRTEEN
REPAYMENT AT THE OPTION OF HOLDERS
SECTION 1301. APPLICABILITY OF ARTICLE.......................................................................60
SECTION 1302. REPAYMENT OF SECURITIES........................................................................60
SECTION 1303. EXERCISE OF OPTION.............................................................................60
SECTION 1304. WHEN SECURITIES PRESENTED FOR REPAYMENT BECOME DUE AND PAYABLE.................................61
SECTION 1305. SECURITIES REPAID IN PART......................................................................61
ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1401. APPLICABILITY OF ARTICLE; ISSUER'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE..........62
SECTION 1402. DEFEASANCE AND DISCHARGE.......................................................................62
SECTION 1403. COVENANT DEFEASANCE............................................................................62
SECTION 1404. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE................................................63
SECTION 1405. DEPOSITED MONEY AND GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; OTHER MISCELLANEOUS
PROVISIONS................................................................................64
</TABLE>
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<TABLE>
<S> <C>
ARTICLE FIFTEEN
MEETINGS OF HOLDERS OF SECURITIES
SECTION 1501. PURPOSES FOR WHICH MEETINGS MAY BE CALLED......................................................65
SECTION 1502. CALL, NOTICE AND PLACE OF MEETINGS.............................................................65
SECTION 1503. PERSONS ENTITLED TO VOTE AT MEETINGS...........................................................65
SECTION 1504. QUORUM; ACTION.................................................................................65
SECTION 1505. DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT OF MEETINGS............................66
SECTION 1506. COUNTING VOTES AND RECORDING ACTION OF MEETINGS................................................67
SECTION 1507. EVIDENCE OF ACTION TAKEN BY HOLDERS............................................................67
SECTION 1508. PROOF OF EXECUTION OF INSTRUMENTS..............................................................67
ARTICLE SIXTEEN
SECURITIES IN FOREIGN CURRENCIES
SECTION 1601. APPLICABILITY OF ARTICLE.......................................................................68
</TABLE>
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CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
Reconciliation and Tie between Trust Indenture Act of 1939
(the "TIA" or "Trust Indenture Act") and the Indenture, dated as of
September 22, 1997
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
<S> <C> <C>
Sec. 310(a)(1) . . . . . . . . . . . . . . . . . 607
(a)(2) . . . . . . . . . . . . . . . . 607
(b) . . . . . . . . . . . . . . . . . . 607, 608
Sec. 312(a) . . . . . . . . . . . . . . . . . . 704
Sec. 312(c) . . . . . . . . . . . . . . . . . . 701
Sec. 313(a) . . . . . . . . . . . . . . . . . . 702
(c) . . . . . . . . . . . . . . . . . . 702
Sec. 314(a) . . . . . . . . . . . . . . . . . . 703
(a)(4) . . . . . . . . . . . . . . . . 1011
(c)(1) . . . . . . . . . . . . . . . . 102
(c)(2) . . . . . . . . . . . . . . . . 102
(e) . . . . . . . . . . . . . . . . . . 102
Sec. 315(b) . . . . . . . . . . . . . . . . . . 601
Sec. 316(a) (last sentence) . . . . . . . . . 101 ("Outstanding")
(a)(1)(A) . . . . . . . . . . . . . . . 502, 512
(a)(1)(B) . . . . . . . . . . . . . . . 513
(b) . . . . . . . . . . . . . . . . . . 508
Sec. 317(a)(1) . . . . . . . . . . . . . . . . 503
(a)(2) . . . . . . . . . . . . . . . . 504
Sec. 318(a) . . . . . . . . . . . . . . . . . . 113
(c) . . . . . . . . . . . . . . . . . . 113
</TABLE>
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NOTE: This reconciliation and tie shall not, for any purpose, be deemed
to be a part of the Indenture.
Attention should also be directed to Section 318(c) of the Trust
Indenture Act, which provides that the provisions of Sections 310 to and
including 317 of the Trust Indenture Act are a part of and govern every
qualified indenture, whether or not physically contained therein.
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<PAGE> 9
INDENTURE (this "Indenture"), dated as of September 22, 1997,
between CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership (the "Issuer"), having its principal offices at 777 Main Street,
Suite 2100, Fort Worth, Texas 76102 and State Street Bank and Trust Company of
Missouri, N.A., a national banking association, as Trustee hereunder (the
"Trustee"), having its Corporate Trust Office at One Metropolitan Square, 211
North Broadway, Suite 3900, St. Louis, Missouri 63192.
RECITALS OF THE ISSUER
The Issuer deems it necessary to issue from time to time for
its lawful purposes senior debt securities (hereinafter called the
"Securities") evidencing its unsecured and unsubordinated indebtedness, and has
duly authorized the execution and delivery of this Indenture to provide for the
issuance from time to time of the Securities, unlimited as to principal amount,
to bear interest at the rates or formulas, to mature at such times and to have
such other provisions as shall be fixed as hereinafter provided.
Upon making the appropriate filings with the Securities and
Exchange Commission, this Indenture will be subject to the provisions of the
Trust Indenture Act of 1939, as amended, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder that are deemed to be
incorporated into this Indenture and shall, to the extent applicable, be
governed by such provisions.
All things necessary to make this Indenture a valid agreement
of the Issuer, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the holders thereof, it is mutually covenanted and agreed,
for the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS. For all purposes of this
Indenture, except as otherwise expressly provided or unless the context
otherwise requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article, and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the TIA,
either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(4) the words "herein," "hereof," "hereto" and "hereunder" and
other words of similar import refer to this Indenture as a
whole and not to any particular Article, Section or other
subdivision; and
(5) the word "or" is always used inclusively.
"ACQUIRED INDEBTEDNESS" means Debt of a Person (i) existing
at the time the Person becomes a Subsidiary or (ii) assumed in connection with
the acquisition of assets from the Person, in each case, other than Debt
incurred in connection with, or in contemplation of, the Person becoming a
Subsidiary or that acquisition. Acquired Indebtedness shall be deemed to be
incurred on
<PAGE> 10
the date of the related acquisition of assets from any Person or the date the
acquired Person becomes a Subsidiary.
"ACT," when used with respect to any Holder, has the meaning
specified in Section 104.
"ADDITIONAL AMOUNTS" means any additional amounts which are
required by a Security or by or pursuant to a Board Resolution, under
circumstances specified therein, to be paid by the Issuer in respect of certain
taxes, assessments or other governmental charges imposed on certain Holders and
which are owing to such Holders.
"AFFILIATE" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any specified Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"ANNUAL DEBT SERVICE CHARGE," as of any date means the amount
which is expensed in any 12-month period for Consolidated Interest Expense of
the Issuer and its Subsidiaries.
"AUTHENTICATING AGENT" means any Person authorized by the
Trustee pursuant to Section 611 to act on behalf of the Trustee to authenticate
Securities of one or more series.
"AUTHORIZED NEWSPAPER" means a newspaper, printed in the
English language or in an official language of the place of publication,
customarily published on each day that is a Business Day in the place of
publication, whether or not published on days that are Legal Holidays in the
place of publication, and of general circulation in each place in connection
with which the term is used or in the financial community of each such place.
Whenever successive publications are required to be made in Authorized
Newspapers, the successive publications may be made in the same or in different
Authorized Newspapers in the same city meeting the foregoing requirements and
in each case on any day that is a Business Day in the place of publication.
"BANKRUPTCY LAW" has the meaning specified in Section 501.
"BEARER SECURITY" means any Security established pursuant to
Section 201 which is payable to bearer.
"BOARD OF DIRECTORS" means the board of directors of the
General Partner or any committee of that board duly authorized to act
thereunder.
"BOARD RESOLUTION" means a copy of one or more resolutions
certified by the Secretary or an Assistant Secretary of the General Partner to
have been duly adopted by the Board of Directors and to be in full force and
effect on the date of such certification, and delivered to the Trustee.
"BUSINESS DAY" when used with respect to any Place of Payment
or any other location referred to in this Indenture or in the Securities,
means, unless otherwise specified with respect to any Securities pursuant to
Section 301, any day, other than a Saturday or Sunday or other day on which
banking institutions in that Place of Payment or particular location are
authorized or required by law, regulation or executive order to close.
"CEDEL" means Central de Livraison de Valeurs Mobilieres,
S.A., or its successor.
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"COMMISSION" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the TIA, then the body
performing such duties on such date.
"COMMON DEPOSITARY" has the meaning specified in Section
304(b).
"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any
period means Consolidated Net Income plus amounts which have been deducted in
determining Consolidated Net Income during such period for (i) Consolidated
Interest Expense, (ii) provision for taxes of the Issuer and its Subsidiaries
based on income, (iii) amortization (other than amortization of debt discount)
and depreciation, (iv) provisions for losses from sales or joint ventures, (v)
increases in deferred taxes and other non-cash items, (vi) charges resulting
from a change in accounting principles and (vii) charges for early
extinguishment of debt, and less amounts which have been added in determining
Consolidated Net Income during such period for (a) provisions for gains from
sales or joint ventures and (b) decreases in deferred taxes and other non-cash
items.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, and
without duplication, all interest (including the interest component of rentals
on leases reflected in accordance with GAAP as capitalized leases on the
Issuer's consolidated balance sheet, letter of credit fees, commitment fees and
other like financial charges) and all amortization of debt discount on all Debt
(including, without limitation, payment-in-kind, zero coupon and other
securities) of the Issuer and its Subsidiaries, but excluding legal fees, title
insurance charges and other out-of-pocket fees and expenses incurred in
connection with the issuance of Debt, all determined in accordance with GAAP.
"CONSOLIDATED NET INCOME" for any period means the amount of
net income (or loss) of the Issuer and its Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP.
"CONVERSION EVENT" means the cessation of use of (i) a Foreign
Currency both by the government of the country or the confederation which
issued such currency and for the settlement of transactions by a central bank
or other public institutions of or within the international banking community,
(ii) the ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Union or (iii)
any currency unit or composite currency other than the ECU for the purposes for
which it was established.
"CORPORATE TRUST OFFICE" means the principal corporate trust
office of the Trustee at which, at any particular time, its corporate trust
business shall be principally administered, which office at the date hereof is
located at One Metropolitan Square, 211 North Broadway, Suite 3900, St. Louis,
Missouri 63102, provided that with respect to presentment, transfer, exchange,
registration or payment of Securities, "Corporate Trust Office" means at the
date hereof at Two International Place, Financial Services, Corporate Trust
Department, Boston, Massachusetts 02110, with a drop facility located at the
Corporate Trust Window, Concourse Level, 61 Broadway, New York, NY 10006.
"CORPORATION" includes corporations and limited liability
companies, associations, partnerships, real estate investment trusts, companies
and business TRUSTS.
"COUPON" means any interest coupon appertaining to a Bearer
Security.
"CRESCENT" means Crescent Real Estate Equities Company, a
Texas real estate investment trust.
"CUSTODIAN" has the meaning specified in Section 501.
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"DEBT" of any Person means, without duplication, any
indebtedness of such Person, whether or not contingent, in respect of (i)
borrowed money evidenced by bonds, notes, debentures or similar instruments,
(ii) indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or
any security interest existing on property owned by such Person, (iii) the
reimbursement obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the balance deferred
and unpaid of the purchase price of any property except any such balance that
constitutes an accrued expense or trade payable or (iv) any lease of property
by such Person as lessee which is reflected on such Person's consolidated
balance sheet as a capitalized lease in accordance with GAAP; in the case of
items of indebtedness under (i) through (iii) above to the extent that any such
items (other than letters of credit) would appear as a liability on such
Person's consolidated balance sheet in accordance with GAAP, and also includes,
to the extent not otherwise included, any obligation by such Person to be
liable for, or to pay, as obligor, guarantor or otherwise (other than for
purposes of collection in the ordinary course of business), indebtedness of
another Person (other than such Person and its Subsidiaries) (it being
understood that "Debt" shall be deemed to be incurred by the Issuer and its
Subsidiaries on a consolidated basis whenever the Issuer and its Subsidiaries
on a consolidated basis shall create, assume, guarantee or otherwise become
liable in respect thereof; Debt of a Subsidiary of the Issuer existing prior to
the time it became a Subsidiary of the Issuer shall be deemed to be incurred
upon such Subsidiary's becoming a Subsidiary of the Issuer, and Debt of a
Person existing prior to a merger or consolidation of such Person with the
Issuer or any Subsidiary of the Issuer in which such Person is the successor of
the Issuer or such Subsidiary shall be deemed to be incurred upon the
consummation of such merger or consolidation); provided, however, that the term
Debt shall not include any such indebtedness that has been the subject of an
"in substance" defeasance in accordance with GAAP.
"DEFAULTED INTEREST" has the meaning specified in Section 307.
"DOLLAR" or "$" means a dollar or other equivalent unit in
such coin or currency of the United States as at the time shall be legal tender
for the payment of public and private debts.
"DTC" has the meaning specified in Section 304(b).
"ECU" means European Currency Units as defined and revised
from time to time by the Council of the European Community.
"EUROCLEAR" means Morgan Guaranty Trust Company of New York,
Brussels Office, or its successor as operator of the Euroclear System.
"EUROPEAN COMMUNITY" means the European Economic Community.
"EUROPEAN MONETARY SYSTEM" means the European Monetary System
established by the Resolution of December 5, 1978 of the Council of the
European Community.
"EUROPEAN UNION" means the European Community, the European
Coal and Steel Community and the European Atomic Energy Community.
"EVENT OF DEFAULT" has the meaning specified in Article Five.
"EXCHANGE ACT" means the Securities Exchange Act of 1934 and
any successor statute thereto, in each case as amended from time to time, and
the rules and regulations of the Commission thereunder.
"EXCHANGE DATE" has the meaning specified in Section 304(b).
"FOREIGN CURRENCY" means any currency, currency unit or
composite currency, including, without limitation, the ECU, issued by the
government of one or more countries other than the United States or by any
recognized confederation or association of such governments.
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<PAGE> 13
"GAAP" means generally accepted accounting principles, as in
effect from time to time, as used in the United States applied on a consistent
basis; provided that solely for purposes of any calculation required by the
financial covenants contained herein, "GAAP" shall mean generally accepted
accounting principles as used in the United States on the date hereof, applied
on a consistent basis.
"GENERAL PARTNER" means Crescent Real Estate Equities, Ltd., a
Delaware corporation and wholly owned subsidiary of Crescent, as general
partner of the Issuer.
"GOVERNMENT OBLIGATIONS" means securities which are (i) direct
obligations of the United States or the government which issued the Foreign
Currency in which the Securities of a particular series are payable, for the
payment of which its full faith and credit is pledged or (ii) obligations of a
Person controlled or supervised by and acting as an agency or instrumentality
of the United States or such government which issued the foreign currency in
which the Securities of such series are payable, the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States or such other government, which, in either case, are not callable or
redeemable at the option of the Issuer thereof, and shall also include a
depositary receipt issued by a bank or trust company as custodian with respect
to any such Government Obligation or held by such custodian for the account of
the holder of a depositary receipt, provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depositary receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depositary receipt.
"HOLDER" means, in the case of any Registered Security, the
Person in whose name such Security is registered in the Security Register and,
in the case of any Bearer Security, the bearer thereof and, when used with
respect to any coupon, shall mean the bearer thereof.
"INDENTURE" means this instrument as originally executed or as
it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
and shall include the terms of a particular series of Securities established as
contemplated by Section 301.
"INDEXED SECURITY" means a Security the terms of which provide
that the principal amount thereof payable at Stated Maturity may be more or
less than the principal face amount thereof at original issuance.
"INTEREST," when used with respect to an Original Issue
Discount Security which by its terms bears interest only after Maturity, shall
mean interest payable after Maturity and, when used with respect to a Security
which provides for the payment of Additional Amounts pursuant to Section 1012,
includes such Additional Amounts.
"INTEREST PAYMENT DATE," when used with respect to any
Security, means the Stated Maturity of an installment of interest on such
Security.
"ISSUER" means the Person named as the "Issuer" in the first
paragraph of this Indenture until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Issuer" shall mean such successor Person.
"ISSUER REQUEST" and "ISSUER ORDER" mean, respectively, a
written request or order signed in the name of the Issuer by the General
Partner by its Chairman of the Board of Directors, its President or a Vice
President (whether or not designated by a number or a word or words added
before or after the title "vice president"), and by its Chief Financial
Officer, Treasurer, an Assistant Treasurer, its Secretary or an Assistant
Secretary, of the General Partner, and delivered to the Trustee.
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"JUDGMENT CURRENCY" has the meaning specified in Section 115.
"LEGAL HOLIDAY" means a day that is not a Business Day.
"MAKE-WHOLE AMOUNT" means, in connection with any optional
redemption or accelerated payment of any Securities, the excess, if any, of:
(i) the aggregate present value as of the date of such redemption or
accelerated payment of each dollar of principal being redeemed or paid and the
amount of interest (exclusive of interest accrued to the date of redemption or
accelerated payment) that would have been payable in respect of each such
dollar if such redemption had not been made, determined by discounting, on a
semi-annual basis, such principal and interest at the Reinvestment Rate
(determined on the third Business Day preceding the date notice of such
redemption is given) from the respective dates on which such principal and
interest would have been payable if such redemption or accelerated payment had
not been made, to the date of redemption or accelerated payment; over (ii) the
aggregate principal amount of the Securities being redeemed or paid.
"MATURITY," when used with respect to any Security, means the
date on which the principal of such Security or an installment of principal
becomes due and payable as therein or herein provided, whether at the Stated
Maturity or by declaration of acceleration, notice of redemption or repurchase,
notice of option to elect repayment or otherwise, and includes the Redemption
Date.
"OFFICERS' CERTIFICATE" means a certificate signed by the
Chairman of the Board of Directors, the President or a Vice President (whether
or not designated by a number or a word or words added before or after the
title "vice president") of the General Partner and by the Chief Financial
Officer, Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the General Partner, and delivered to the Trustee.
"OPINION OF COUNSEL" means a written opinion of counsel, who
may be counsel for the Issuer, Crescent, or the General Partner or who may be
an employee of or other counsel for the Issuer or the General Partner and who
shall be reasonably satisfactory to the Trustee.
"ORIGINAL ISSUE DISCOUNT SECURITY" means any Security which
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the Maturity thereof pursuant to
Section 502.
"OUTSTANDING," when used with respect to Securities, means, as
of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or the
Security Registrar or delivered to the Trustee or the
Security Registrar for cancellation,
(ii) Securities, or portions thereof, for whose payment or
redemption or repayment at the option of the Holder
money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other
than the Issuer) in trust or set aside and segregated
in trust by the Issuer (if the Issuer shall act as
its own Paying Agent) for the Holders of such
Securities and any coupons appertaining thereto,
provided that, if such Securities are to be redeemed,
notice of such redemption has been duly given
pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made;
(iii) Securities, except to the extent provided in Sections
1402 and 1403, with respect to which the Issuer has
effected defeasance and/or covenant defeasance as
provided in Article Fourteen; and
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<PAGE> 15
(iv) Securities which have been paid pursuant to Section
306 or in exchange for or in lieu of which other
Securities have been authenticated and delivered
pursuant to this Indenture, other than any such
Securities in respect of which there shall have been
presented to the Trustee proof satisfactory to it
that such Securities are held by a bona fide
purchaser in whose hands such Securities are valid
obligations of the Issuer;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or are present at
a meeting of Holders for quorum purposes, and for the purpose of making the
calculations required by TIA Section 313, (i) the principal amount of an
Original Issue Discount Security that may be counted in making such
determination or calculation and that shall be deemed to be Outstanding for
such purpose shall be equal to the amount of principal thereof that would be
(or shall have been declared to be) due and payable, at the time of such
determination or calculation, upon a declaration of acceleration of the
maturity thereof pursuant to Section 502, (ii) the principal amount of any
Security denominated in a Foreign Currency that may be counted in making such
determination or calculation and that shall be deemed Outstanding for such
purpose shall be equal to the Dollar equivalent, determined pursuant to Section
301 as of the date such Security is originally issued by the Issuer, of the
principal amount (or, in the case of an Original Issue Discount Security, the
Dollar equivalent as of such date of original issuance of the amount determined
as provided in clause (i) above) of such Security, (iii) the principal amount
of any Indexed Security that may be counted in making such determination or
calculation and that shall be deemed Outstanding for such purpose shall be
equal to the principal face amount of such Indexed Security at original
issuance, unless otherwise provided with respect to such Security pursuant to
Section 301, and (iv) Securities owned by the Issuer or any other obligor upon
the Securities or any Affiliate of the Issuer or of such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in making such determination or
calculation or in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Securities which a Responsible
Officer of the Trustee knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Issuer or any other obligor upon the Securities or any Affiliate of
the Issuer or of such other obligor.
"PAYING AGENT" means any Person authorized by the Issuer to
pay the principal of (and premium and Additional Amounts, if any) or interest
on any Securities or coupons on behalf of the Issuer.
"PERSON" means any individual, corporation, partnership,
limited liability company, joint venture, joint-stock company, trust,
unincorporated organization, real estate investment trust or government or any
agency or political subdivision thereof.
"PLACE OF PAYMENT," when used with respect to any Security,
means the place or places where the principal of (and premium and Additional
Amounts, if any) and interest on such Securities are payable as specified as
contemplated by Sections 301 and 1002.
"PREDECESSOR SECURITY" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 306 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Security or a
Security to which a mutilated, destroyed, lost or stolen coupon appertains
shall be deemed to evidence the same debt as the mutilated, destroyed, lost or
stolen Security or the Security to which the mutilated, destroyed, lost or
stolen coupon appertains.
"RECOURSE INDEBTEDNESS" means Debt, other than Secured Debt as
to which Secured Debt the liability of the obligor thereon is limited to its
interest in the collateral securing
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<PAGE> 16
such Secured Debt, provided that no such Secured Debt shall constitute Recourse
Indebtedness by reason of provisions therein for imposition of full recourse
liability on the obligor for certain wrongful acts, environmental liabilities,
or other customary exclusions from the scope of so-called "non-recourse"
provisions.
"REDEMPTION DATE," when used with respect to any Security to
be redeemed, in whole or in part, means the date fixed for such redemption by
or pursuant to this Indenture or such Security.
"REDEMPTION PRICE," when used with respect to any Security to
be redeemed, means the price at which it is to be redeemed pursuant to this
Indenture or such Security.
"REGISTERED SECURITY" shall mean any Security which is
registered in the Security Register.
"REGULAR RECORD DATE" for the interest payable on any Interest
Payment Date on any Registered Security of or within any series means the date
specified for that purpose as contemplated by Section 301, whether or not a
Business Day.
"REINVESTMENT RATE" means .25% plus the arithmetic mean of the
yields under the heading "Week Ending" published in the most recent Statistical
Release under the caption "Treasury Constant Maturities" for the maturity
(rounded to the nearest month) corresponding to the remaining life to maturity,
as of the payment date of the principal being redeemed or paid. If no maturity
exactly corresponds to such maturity, yields for the two published maturities
most closely corresponding to such maturity shall be calculated pursuant to the
immediately preceding sentence and the Reinvestment Rate shall be interpolated
or extrapolated from such yields on a straight-line basis, rounding in each of
such relevant periods to the nearest month. For the purposes of calculating
the Reinvestment Rate, the most recent Statistical Release published prior to
the date of determination of the Make-Whole Amount shall be used. If the
format or content of the Statistical Release changes in a manner that precludes
determination of the Treasury yield in the above manner, then the Treasury
yield shall be determined in the manner that most closely approximates the
above manner, as reasonably determined by the Issuer. If the format or content
of the Statistical Release changes in a manner that precludes determination of
the Treasury Yield in the above manner, then the Treasury Yield shall be
determined in the manner that most closely approximates the above manner, as
reasonably determined by the Issuer.
"REPAYMENT DATE" means, when used with respect to any Security
to be repaid at the option of the Holder, the date fixed for such repayment by
or pursuant to this Indenture.
"REPAYMENT PRICE" means, when used with respect to any
Security to be repaid at the option of the Holder, the price at which it is to
be repaid by or pursuant to this Indenture.
"RESPONSIBLE OFFICER," when used with respect to the Trustee,
means the chairman or vice-chairman of the board of directors, the chairman or
vice-chairman of the executive committee of the board of directors, the
president, any vice president (whether or not designated by a number or a word
or words added before or after the title "vice president"), the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any other officer of the Trustee customarily performing functions similar to
those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of such officer's knowledge and familiarity with the
particular subject.
"SECURED DEBT" means, without duplication, Debt that is
secured by a mortgage, trust deed, deed of trust, deed to secure Debt, security
agreement, pledge, conditional sale or other title retention agreement,
capitalized lease, or other like agreement granting or conveying security title
to or a security interest in real property or other tangible assets. Secured
Debt shall be deemed
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<PAGE> 17
to be incurred (i) on the date the Issuer or any Subsidiary creates, assumes,
guarantees or otherwise becomes liable in respect thereof if it is secured in
the manner described in the preceding sentence on such date or (ii) on the date
the Issuer or any Subsidiary first secures such Debt in the manner described in
the preceding sentence if such Debt was not so secured on the date it was
incurred.
"SECURITY" has the meaning stated in the first recital of this
Indenture and, more particularly, means any Security or Securities
authenticated and delivered under this Indenture; provided; however, that, if
at any time there is more than one Person acting as Trustee under this
Indenture, "Securities" with respect to the Indenture as to which such Person
is Trustee shall have the meaning stated in the first recital of this Indenture
and shall more particularly mean Securities authenticated and delivered under
this Indenture, exclusive, however, of Securities of any series as to which
such Person is not Trustee.
"SECURITY REGISTER" and "SECURITY REGISTRAR" have the
respective meanings specified in Section 305.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary which is a
"significant subsidiary" (as defined in Article I, Rule 1-02 of Regulation S-X,
promulgated under the Securities Act of 1933, as amended) of the Issuer.
"SPECIAL RECORD DATE" for the payment of any Defaulted
Interest on the Registered Securities of or within any series means a date
fixed by the Trustee pursuant to Section 307.
"STATED MATURITY," when used with respect to any Security or
any installment of principal thereof or interest thereon or any Additional
Amounts with respect thereto, means the date specified in such Security or a
coupon representing such installment of interest as the fixed date on which the
principal of such Security or such installment of principal or interest, or
such Additional Amounts are due and payable.
"STATISTICAL RELEASE" means the statistical release designated
"H.15(519)" or any successor publication which is published weekly by the
Federal Reserve System and which reports yields on actively traded United
States government securities adjusted to constant maturities, or, if such
statistical release is not published at the time of any determination under the
Indenture, then such other reasonably comparable index which shall be
designated by the Issuer.
"SUBSIDIARY" means, as to any Person, (i) a corporation,
partnership, limited liability company, trust, real estate investment trust or
other entity 50% or more of the voting power of the voting equity securities of
which are owned, directly or indirectly, by such Person or by one or more
Subsidiaries of such Person; (ii) a partnership, limited liability company,
trust, real estate investment trust or other entity not treated as a
corporation for federal income tax purposes 50% or more of the value of the
equity interests of which are owned, directly or indirectly, by such Person or
by one or more other Subsidiaries of such Person; and (iii) one or more
corporations which, either individually or in the aggregate, would be
Significant Subsidiaries (as defined herein, except that the investment, asset
and equity thresholds for purposes of this definition shall be 5%), 50% or more
of the value of the equity interests of which are owned, directly or
indirectly, by such Person or by one or more Subsidiaries of such person.
"TOTAL ASSETS" as of any date means the sum of (i) the
Undepreciated Real Estate Assets and (ii) all other assets of the Issuer and
its Subsidiaries on a consolidated basis determined in accordance with GAAP
(but excluding intangibles and accounts receivable).
"TOTAL UNENCUMBERED ASSETS" as of any date means the sum of
(i) the Undepreciated Real Estate Assets not securing any portion of Secured
Debt and (ii) all other assets of the Issuer and its Subsidiaries on a
consolidated basis not securing any portion of Secured Debt determined in
accordance with GAAP (but excluding intangibles and accounts receivable).
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"TRUST INDENTURE ACT" or "TIA" means the Trust Indenture Act
of 1939, as amended and as in force at the date as of which this Indenture was
executed, except as provided in Section 905.
"TRUSTEE" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean or include each Person who is then a Trustee hereunder;
provided, however, that if at any time there is more than one such Person,
"Trustee" as used with respect to the Securities of any series shall mean only
the Trustee with respect to Securities of that series.
"UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the
cost (original cost plus capital improvements) of real estate assets of the
Issuer and its Subsidiaries on such date, before depreciation and amortization,
determined on a consolidated basis in accordance with GAAP.
"UNITED STATES" means, unless otherwise specified with respect
to any Securities pursuant to Section 301, the United States of America
(including the states and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction.
"UNITED STATES PERSON" means, unless otherwise specified with
respect to any Securities pursuant to Section 301, an individual who is a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States or an
estate or trust the income of which is subject to United States federal income
taxation regardless of its source.
"UNSECURED DEBT" means Debt of the Issuer or any Subsidiary
that is not Secured Debt.
"YIELD TO MATURITY" means the yield to maturity, computed at
the time of issuance of a Security (or, if applicable, at the most recent
redetermination of interest on such Security) and as set forth in such Security
in accordance with generally accepted United States bond yield computation
principles.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS. Except as
otherwise expressly provided in this Indenture, upon any application or request
by the Issuer to the Trustee to take any action under any provision of this
Indenture, the Issuer shall furnish to the Trustee an Officers' Certificate
stating that all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with and an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with, except that in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (including certificates
delivered pursuant to Section 1011) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such condition or covenant and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not
such condition or covenant has been complied with; and
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(4) a statement as to whether, in the opinion of such individual,
such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may
certify or give an opinion as to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an officer of the General
Partner may be based, insofar as it relates to legal matters, upon an Opinion
of Counsel, or a certificate or representations of or by counsel, unless such
officer knows, or in the exercise of reasonable care should know, that the
opinion, certificate or representations with respect to the matters upon which
his certificate or opinion is based are erroneous. Any such Opinion of Counsel
or certificate or representations may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the General Partner stating that the information as to
such factual matters is in the possession of the Issuer, unless such counsel
knows that the certificate or opinion or representations as to such matters are
erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 104. ACTS OF HOLDERS. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Holders may be embodied in and evidenced
by one or more instruments of substantially similar tenor signed by such
Holders in person or by agents duly appointed in writing. If, but only if,
Securities of a series are issuable as Bearer Securities, any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Holders of Securities of such series
may, alternatively, be embodied in and evidenced by the record of Holders of
Securities of such series voting in favor thereof, either in person or by
proxies duly appointed in writing, at any meeting of Holders of Securities of
such series duly called and held in accordance with the provisions of Article
Fifteen, or a combination of such instruments and any such record. Except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments or record or both are delivered to the Trustee
and, where it is hereby expressly required, to the Issuer. Such instrument or
instruments and any such record (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments or so voting at any such meeting. Proof of
execution of any such instrument or of a writing appointing any such agent, or
of the holding by any Person of a Security, shall be sufficient for any purpose
of this Indenture and (subject to Section 315 of the TIA) conclusive in favor
of the Trustee and the Issuer and any agent of the Trustee or the Issuer, if
made in the manner provided in this Section. The record of any meeting of
Holders of Securities shall be proved in the manner provided in Section 1506.
(b) The fact and date of the execution by any Person of
any such instrument or writing may be proved in any reasonable manner which the
Trustee deems sufficient and in accordance with such reasonable rules as the
Trustee may determine; and the Trustee may in any instance require further
proof with respect to any of the matters referred to in this Section.
(c) The ownership, principal amount and serial numbers of
Registered Securities held by any Person, and the date of the commencement and
the date of the termination of holding the same, shall be proved by the
Security Register.
(d) The ownership, principal amount and serial numbers of
Bearer Securities held by any Person, and the date of the commencement and the
date of the termination of holding
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the same may be proved by the production of such Bearer Securities or by a
certificate executed, as, depositary, by any trust company, bank, banker or
other depositary reasonably acceptable to the Issuer, wherever situated, if
such certificate shall be deemed by the Issuer and the Trustee to be
satisfactory, showing that at the date therein mentioned such Person had on
deposit with such depositary, or exhibited to it, the Bearer Securities therein
described; or such facts may be proved by the certificate or affidavit of the
Person holding such Bearer Securities, if such certificate or affidavit is
deemed by the Trustee to be satisfactory. The Trustee and the Issuer may
assume that such ownership of any Bearer Security continues until (1) another
certificate or affidavit bearing a later date issued in respect of the same
Bearer Security is produced, or (2) such Bearer Security is produced to the
Trustee by some other Person, or (3) such Bearer Security is surrendered in
exchange for a Registered Security, or (4) such Bearer Security is no longer
Outstanding. The ownership, principal amount and serial numbers of Bearer
Securities held by the Person so executing such instrument in writing and the
date of the commencement and the date of the termination of holding the same
may also be proved in any other manner which the Trustee deems sufficient.
(e) If the Issuer shall solicit from the Holders of any
Registered Securities any request, demand, authorization, direction, notice,
consent, waiver or other Act, the Issuer may, at its option, in or pursuant to
a Board Resolution, fix in advance a record date for the determination of
Holders of Registered Securities entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other Act, but the Issuer
shall have no obligation to do so. If such a record date is fixed, such
request, demand, authorization, direction, notice, consent, waiver or other Act
may be given before or after such record date, but only the Holders of
Registered Securities of record at the close of business on such record date
shall be deemed to be Holders for the purposes of determining whether Holders
of the requisite proportion of Outstanding Securities have authorized or agreed
or consented to such request, demand, authorization, direction, notice,
consent, waiver or other Act, and for that purpose the Outstanding Securities
shall be computed as of such record date, provided that no such authorization,
agreement or consent by the Holders on such record date shall be deemed
effective unless it shall become effective pursuant to the provisions of this
Indenture not later than eleven months after the record date.
(f) Any request, demand, authorization, direction,
notice, consent, waiver or other Act of the Holder of any Security shall bind
every future Holder of the same Security and the Holder of every Security
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof in respect of anything done, omitted or suffered to be done by the
Trustee, any Security Registrar, any Paying Agent, any Authenticating Agent or
the Issuer in reliance thereon, whether or not notation of such action is made
upon such Security.
SECTION 105. NOTICES, ETC., TO TRUSTEE AND ISSUER. Any
request, demand, authorization, direction, notice, consent, waiver or Act of
Holders or other document provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with
(A) the Trustee by a Holder or by the Issuer shall be sufficient
for every purpose hereunder if made, given, furnished or filed
in writing to or with the Trustee at its Corporate Trust
Office, or
(B) the Issuer by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first class postage
prepaid, to the Issuer addressed to it at the address of its
principal office specified in the first paragraph of this
Indenture or at any other address previously furnished in
writing to the Trustee by the Issuer.
SECTION 106. NOTICE TO HOLDERS; WAIVER. Where this Indenture
provides for notice of any event to Holders of Registered Securities by the
Issuer or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each such Holder affected by such event, at his address as
it
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appears in the Security Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Holders of Registered Securities is given by mail,
neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder shall affect the sufficiency of such notice
with respect to other Holders of Registered Securities or the sufficiency of
any notice to Holders of Bearer Securities given as provided herein. Any
notice mailed to a Holder in the manner herein prescribed shall be conclusively
deemed to have been received by such Holder, whether or not such Holder
actually receives such notice.
If by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause it shall be impracticable to give
such notice by mail, then such notification to Holders of Registered Securities
as shall be made with the approval of the Trustee shall constitute a sufficient
notification to such Holders for every purpose hereunder.
Except as otherwise expressly provided herein or otherwise
specified with respect to any Securities pursuant to Section 301, where this
Indenture provides for notice to Holders of Bearer Securities of any event,
such notice shall be sufficiently given if published in an Authorized Newspaper
in New York City and in such other city or cities as may be specified in such
Securities on a Business Day, such publication to be not later than the latest
date, and not earlier than the earliest date, prescribed for the giving of such
notice. Any such notice shall be deemed to have been given on the date of such
publication or, if published more than once, on the date of the first such
publication.
If by reason of the suspension of publication of any
Authorized Newspaper or Authorized Newspapers or by reason of any other cause
it shall be impracticable to publish any notice to Holders of Bearer Securities
as provided above, then such notification to Holders of Bearer Securities as
shall be given with the approval of the Trustee shall constitute sufficient
notice to such Holders for every purpose hereunder. Neither the failure to
give notice by publication to any particular Holder of Bearer Securities as
provided above, nor any defect in any notice so published, shall affect the
sufficiency of such notice with respect to other Holders of Bearer Securities
or the sufficiency of any notice to Holders of Registered Securities given as
provided herein.
Any request, demand, authorization, direction, notice,
consent, waiver or Act required or permitted under this Indenture shall be in
the English language, except that, if the Issuer so elects, any published
notice may be in an official language of the country of publication.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
SECTION 107. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 108. SUCCESSORS AND ASSIGNS. All covenants and
agreements in this Indenture by the Issuer shall bind its successors and
assigns, whether so expressed or not.
SECTION 109. SEVERABILITY CLAUSE. In case any provision in
this Indenture or in any Security or coupon shall be deemed invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 110. BENEFITS OF INDENTURE. Nothing in this
Indenture or in the Securities or coupons, express or implied, shall give to
any Person, other than the parties hereto, any
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Security Registrar, any Paying Agent, any Authenticating Agent and their
successors hereunder and the Holders any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 111. GOVERNING LAW. This Indenture and the
Securities and coupons shall be governed by and construed in accordance with
the laws of the State of New York.
SECTION 112. LEGAL HOLIDAYS. In any case where any Interest
Payment Date, Redemption Date, Repayment Date, sinking fund payment date,
Stated Maturity or Maturity of any Security, or the last date on which a Holder
has the right to exchange Securities of a series that are exchangeable, shall
be a Legal Holiday at any Place of Payment, then (notwithstanding any other
provision of this Indenture or any Security or coupon other than a provision in
any Security or coupon that specifically states that such provision shall apply
in lieu hereof), payment of interest or any Additional Amounts or principal
(and premium or Make-Whole Amount, if any) need not be made at such Place of
Payment on such date and such Securities need not be exchanged on such date,
but such payment may be made and such Securities may be exchanged on the next
succeeding Business Day at such Place of Payment with the same force and effect
as if made on the Interest Payment Date, Redemption Date, Repayment Date or
sinking fund payment date, or at the Stated Maturity or Maturity or on such
last day for exchange, provided that no interest shall accrue on the amount so
payable for the period from and after such Interest Payment Date, Redemption
Date, Repayment Date, sinking fund payment date, Stated Maturity or Maturity or
last day for or exchange, as the case may be.
SECTION 113. QUALIFICATION UNDER TRUST INDENTURE ACT. In the
event this Indenture is or becomes qualified under the provisions of the TIA,
the provisions hereof shall be subject to the TIA, all provisions which the TIA
provides as automatically deemed to be included in an indenture to be qualified
thereunder shall be included herein, and, in the event of any conflict between
the provisions hereof and the provisions of the TIA, the provisions of the TIA
shall control.
SECTION 114. COUNTERPARTS. This Indenture may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
SECTION 115. JUDGMENT CURRENCY. The Issuer agrees, to the
fullest extent that it may effectively do so under applicable law, that (a) if
for the purpose of obtaining judgment in any court it is necessary to convert
the sum due in respect of the principal of, or premium or interest, if any, or
Additional Amounts on the Securities of any series (the "Required Currency")
into a currency in which a judgment will be rendered (the "Judgment Currency"),
the rate of exchange used shall be the rate at which in accordance with normal
banking procedures the Trustee could purchase in The City of New York the
Required Currency with the Judgment Currency on the New York Banking Day
preceding that on which a final unappealable judgment is given and (b) the
Issuer's obligations under this Indenture to make payments in the Required
Currency (i) shall not be discharged or satisfied by any tender, or any
recovery pursuant to any judgment (whether or not entered in accordance with
clause (a)), in any currency other than the Required Currency, except to the
extent that such tender or recovery shall result in the actual receipt, by the
payee, of the full amount of the Required Currency expressed to be payable in
respect of such payments, (ii) shall be enforceable as an alternative or
additional cause of action for the purpose of recovering in the Required
Currency the amount, if any, by which such actual receipt shall fall short of
the full amount of the Required Currency so expressed to be payable, and (iii)
shall not be affected by judgment being obtained for any other sum due under
this Indenture. For purposes of the foregoing, "New York Banking Day" means
any day except a Legal Holiday in The City of New York.
SECTION 116. NONRECOURSE. Unless otherwise provided in the
Board Resolution authorizing a particular series of Securities in accordance
with Section 301, no recourse under or upon any obligation, covenant or
agreement contained in this Indenture, in any Security or coupon appertaining
thereto, or because of any Debt evidenced thereby (including, without
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limitation, any obligation or indebtedness relating to the principal of, or
premium or Make-Whole Amount, if any, interest or any other amounts due, or
claimed to be due, on any Security issued hereunder), or for any claim based
thereon or otherwise in respect thereof, shall be had (i) against the General
Partner or any other partner, or any Person which owns an interest, directly or
indirectly, in any partner, in the Issuer, or (ii) against any promoter, as
such, or against any past, present or future shareholder, officer, trustee or
partner, as such, of the Issuer or the General Partner or of any successor,
either directly or through the Issuer or the General Partner or any successor,
under any rule of law, statute or constitutional provision or by the
enforcement of any assessment or by any legal or equitable proceeding or
otherwise, all such liability being expressly waived and released by the
acceptance of the Securities by the Holders thereof and as part of the
consideration for the issue of the Securities. Unless otherwise provided in
the Board Resolution authorizing a particular series of Securities in
accordance with Section 301, the Holders of the Securities hereunder
acknowledge by the acceptance of the Securities that their sole remedies under
this Indenture for any Default by the Issuer in the payment of the principal
of, or any premium or Make-Whole Amount, if any, interest or any amounts due,
or claimed to be due, on any Security, or otherwise, are limited to claims
against the property of the Issuer as provided in Section 503 hereof.
ARTICLE TWO
SECURITIES FORMS
SECTION 201. FORMS OF SECURITIES. The Registered Securities,
if any, of each series and the Bearer Securities, if any, of each series and
related coupons shall be in substantially the forms as shall be established in
one or more indentures supplemental hereto or approved from time to time by or
pursuant to a Board Resolution in accordance with Section 301, shall have such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture or any indenture supplemental hereto,
and may have such letters, numbers or other marks of identification or
designation and such legends or endorsements placed thereon as the Issuer may
deem appropriate and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Securities may be listed, or to conform to usage.
Unless otherwise specified as contemplated by Section 301,
Bearer Securities shall have interest coupons attached.
The definitive Securities and coupons shall be printed,
lithographed or engraved or produced by any combination of these methods on a
steel engraved border or steel engraved borders or may be produced in any other
manner, all as determined by the officers executing such Securities or coupons,
as evidenced by their execution of such Securities or coupons.
SECTION 202. FORM OF TRUSTEE'S CERTIFICATE OF
AUTHENTICATION. Subject to Section 611, the Trustee's certificate of
authentication shall be in substantially the following form:
This is one of the Securities of the series
designated therein referred to in the within-mentioned
Indenture.
(TRUSTEE)
as Trustee
By:
----------------------------
Authorized Signatory
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SECTION 203. SECURITIES ISSUABLE IN GLOBAL FORM. If
Securities of or within a series are issuable in global form, as specified as
contemplated by Section 301, then, notwithstanding clause (9) of Section 301
and the provisions of Section 302, any such Security shall represent such of
the Outstanding Securities of such series as shall be specified therein and may
provide that it or any number of such Securities shall represent the aggregate
amount of Outstanding Securities of such series from time to time endorsed
thereon and may also provide that the aggregate amount of Outstanding
Securities of such series represented thereby may from time to time be
increased or decreased to reflect exchanges. Any endorsement of a Security in
global form to reflect the amount, or any increase or decrease in the amount,
of Outstanding Securities represented thereby shall be made in such manner and
by such Person or Persons as shall be specified therein or in the Issuer Order
to be delivered pursuant to Section 303 or 304. Subject to the provisions of
Section 303 and, if applicable, Section 304, the Trustee shall deliver and
redeliver any Security in permanent global form in the manner and upon
instructions given by the Person or Persons specified therein or in the
applicable Issuer Order. If an Issuer Order pursuant to Section 303 or 304 has
been, or simultaneously is, delivered, any instructions by the Issuer with
respect to endorsement or delivery or redelivery of a Security in global form
shall be in writing but need not comply with Section 102 and need not be
accompanied by an Opinion of Counsel.
The provisions of the last sentence of Section 303 shall apply
to any Security represented by a Security in global form if such Security was
never issued and sold by the Issuer and the Issuer delivers to the Trustee the
Security in global form together with written instructions (which need not
comply with Section 102 and need not be accompanied by an Opinion of Counsel)
with regard to the reduction in the principal amount of Securities represented
thereby, together with the written statement contemplated by the last sentence
of Section 303.
Notwithstanding the provisions of Section 307, unless
otherwise specified as contemplated by Section 301, payment of principal of,
and any premium and interest on, and any Additional Amounts in respect of, any
Security in temporary or permanent global form shall be made to the Person or
Persons specified therein.
Notwithstanding the provisions of Section 308 and except as
provided in the preceding paragraph, the Issuer, the Trustee and any agent of
the Issuer and the Trustee shall treat as the Holder of such principal amount
of Outstanding Securities represented by a global Security (a) in the case of a
global Security in registered form, the Holder of such global Security in
registered form, or (b) in the case of a global Security in bearer form, the
Person or Persons specified pursuant to Section 301.
ARTICLE THREE
THE SECURITIES
SECTION 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES. The
aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There
shall be established in one or more Board Resolutions or pursuant to authority
granted by one or more Board Resolutions and, subject to Section 303, set
forth, or determined in the manner provided, in an Officers' Certificate, or
established in one or more indentures supplemental hereto, prior to the
issuance of Securities of any series, any or all of the following, as
applicable (each of which (except for the matters set forth in clauses (1), (2)
and (16) below), if so provided, may be determined from time to time by the
Issuer with respect to unissued Securities of the series when issued from time
to time):
(1) the title of the Securities of the series (which shall
distinguish the Securities of such series from all other
series of Securities);
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(2) any limit upon the aggregate principal amount of the
Securities of the series that may be authenticated and
delivered under this Indenture (except for Securities
authenticated and delivered upon registration of transfer of,
or in exchange for, or in lieu of, other Securities of the
series pursuant to Sections 304, 305, 306, 906, 1107 or 1305);
(3) the percentage of the principal amount at which the Securities
of the series will be issued and, if other than the principal
amount thereof, the portion of the principal amount thereof
payable upon declaration of acceleration of maturity thereof;
(4) the date or dates, or the method for determining such date or
dates, on which the principal of the Securities of the series
shall be payable;
(5) the rate or rates at which the Securities of the series shall
bear interest, if any, or the method by which such rate or
rates shall be determined, the date or dates from which such
interest shall accrue or the method by which such date or
dates shall be determined, the Interest Payment Dates on which
such interest will be payable and the Regular Record Date, if
any, for the interest payable on any Registered Security on
any Interest Payment Date, or the method by which such date
shall be determined, and the basis upon which interest shall
be calculated if other than that of a 360-day year of twelve
30-day months;
(6) the place or places, if any, other than or in addition to the
Borough of Manhattan, New York City, where (i) the principal
of (and premium or Make-Whole Amount, if any), interest, if
any, on, and Additional Amounts, if any, payable in respect
of, the Securities of the series shall be payable, (ii) any
Registered Securities of the series may be surrendered for
registration of transfer or exchange and (iii) notices or
demands to or upon the Issuer in respect of the Securities of
the series and this Indenture may be served;
(7) the period or periods within which, the price or prices at
which, the currency or currencies, currency unit or units or
composite currency or currencies in which, and other terms and
conditions upon which the Securities of the series may be
redeemed, as a whole or in part, at the option of the Issuer,
if the Issuer is to have such an option;
(8) the obligation, if any, of the Issuer to redeem, repay or
purchase the Securities of the series pursuant to any sinking
fund or analogous provision or at the option of a Holder
thereof, and the period or periods within which or the date or
dates on which, the price or prices at which, the currency or
currencies, currency unit or units or composite currency or
currencies in which, and other terms and conditions upon which
the Securities of the series shall be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
(9) if other than denominations of $1,000 and any integral
multiple thereof, the denominations in which any Registered
Securities of the series shall be issuable and, if other than
denominations of $5,000 and any integral multiple thereof, the
denomination or denominations in which any Bearer Securities
of the series shall be issuable;
(10) if other than the Trustee, the identity of each Security
Registrar and/or Paying Agent;
(11) if other than the principal amount thereof, the portion of the
principal amount of the Securities of the series that shall be
payable upon declaration of acceleration of the
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Maturity thereof pursuant to Section 502 or the method by
which such portion shall be determined;
(12) if other than Dollars, the Foreign Currency or Currencies in
which payment of the principal of (and premium or Make-Whole
Amount, if any) or interest or Additional Amounts, if any, on
the Securities of the series shall be payable or in which the
Securities of the series shall be denominated;
(13) whether the amount of payments of principal of (and premium or
Make-Whole Amount, if any) or interest, if any, on the
Securities of the series may be determined with reference to
an index, formula or other method (which index, formula or
method may be based, without limitation, on one or more
currencies, currency units, composite currencies, commodities,
equity indices or other indices), and the manner in which such
amounts shall be determined;
(14) whether the principal of (and premium or Make-Whole Amount, if
any) or interest or Additional Amounts, if any, on the
Securities of the series are to be payable, at the election of
the Issuer or a Holder thereof, in a currency or currencies,
currency unit or units or composite currency or currencies
other than that in which such Securities are denominated or
stated to be payable, the period or periods within which, and
the terms and conditions upon which, such election may be
made, and the time and manner of, and identity of the exchange
rate agent with responsibility for, determining the exchange
rate between the currency or currencies, currency unit or
units or composite currency or currencies in which such
Securities are denominated or stated to be payable and the
currency or currencies, currency unit or units or composite
currency or currencies in which such Securities are to be so
payable;
(15) provisions, if any, granting special rights to the Holders of
the Securities of the series upon the occurrence of such
events as may be specified;
(16) any deletions from, modifications of or additions to the
Events of Default or covenants of the Issuer with respect to
the Securities of the series, whether or not such Events of
Default or covenants are consistent with the Events of Default
or covenants set forth herein;
(17) whether the Securities of the series will be in certificated
or book-entry form and, if certificated, whether Securities of
the series are to be issuable as Registered Securities, Bearer
Securities (with or without coupons) or both, any restrictions
applicable to the offer, sale or delivery of Bearer Securities
and the terms upon which Bearer Securities of the series may
be exchanged for Registered Securities of the series and vice
versa (if permitted by applicable laws and regulations),
whether any Securities of the series are to be issuable
initially in temporary global form and whether any Securities
of the series are to be issuable in permanent global form with
or without coupons and, if so, whether beneficial owners of
interests in any such permanent global Security may exchange
such interests for Securities of such series and of like tenor
of any authorized form and denomination and the circumstances
under which any such exchanges may occur, if other than in the
manner provided in Section 305, and, if Registered Securities
of the series are to be issuable as a global Security, the
identity of the depositary for such series;
(18) the date as of which any Bearer Securities of the series and
any temporary global Security representing Outstanding
Securities of the series shall be dated if other than the date
of original issuance of the first Security of the series to be
issued;
(19) the Person to whom any interest on any Registered Security of
the series shall be payable, if other than the Person in whose
name that Security (or one or more
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Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest, the manner in
which, or the Person to whom, any interest on any Bearer
Security of the series shall be payable, if otherwise than
upon presentation and surrender of the coupons appertaining
thereto as they severally mature, and the extent to which, or
the manner in which, any interest payable on a temporary
global Security on an Interest Payment Date will be paid if
other than in the manner provided in Section 304;
(20) the applicability, if any, of Sections 1402 and/or 1403 to the
Securities of the series and any provisions in modification
of, in addition to or in lieu of, any of the provisions of
Article Fourteen;
(21) if the Securities of such series are to be issuable in
definitive form (whether upon original issue or upon exchange
of a temporary Security of such series) only upon receipt of
certain certificates or other documents or satisfaction of
other conditions, then the form and/or terms of such
certificates, documents or conditions;
(22) whether and under what circumstances the Issuer will pay
Additional Amounts on the Securities of the series to any
Holder who is not a United States Person (including any
modification to the definition of such term) in respect of any
tax, assessment or governmental charge and, if so, whether the
Issuer will have the option to redeem such Securities rather
than pay such Additional Amounts (and the terms of any such
option);
(23) with respect to any Securities that provide for optional
redemption or prepayment upon the occurrence of certain events
(such as a change of control of the Issuer), (i) the possible
effects of such provisions on the market price of the Issuer's
or the General Partner's securities or in deterring certain
mergers, tender offers or other takeover attempts, and the
intention of the Issuer to comply with the requirements of
Rule 14e-1 under the Exchange Act and any other applicable
securities laws in connection with such provisions; (ii)
whether the occurrence of the specified events may give rise
to cross-defaults on other indebtedness such that payment on
such Securities may be effectively subordinated; and (iii) the
existence of any limitations on the Issuer's financial or
legal ability to repurchase such Securities upon the
occurrence of such an event (including, if true, the lack of
assurance that such a repurchase can be effected) and the
impact, if any, under the Indenture of such a failure,
including whether and under what circumstances such a failure
may constitute an Event of Default;
(24) with respect to any Securities that may be issued in a private
offering, the restrictions on transfer and legends relating to
such Securities of the series and whether Securities of the
series are entitled to registration or exchange rights; and
(25) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities of any one series and the coupons, if any,
appertaining to any Bearer Securities of the series shall be substantially
identical except, in the case of Registered Securities, as to denomination and
except as may otherwise be provided in or pursuant to the Board Resolution
establishing the series (subject to Section 303 and the second paragraph of
this Section 301) and set forth in an Officers' Certificate or in any indenture
supplemental hereto. All Securities of any one series need not be issued at
the same time and, unless otherwise provided, a series may be reopened, without
the consent of the Holders, for issuances of additional Securities of such
series.
If any of the terms of the Securities of any series are
established by action taken pursuant to one or more Board Resolutions, a copy
of an appropriate record of such action(s) shall be
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certified by the Secretary or an Assistant Secretary of the General Partner and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the Securities of such series.
SECTION 302. CURRENCY, DENOMINATIONS. Unless otherwise
provided as contemplated by Section 301, the principal of, any premium and
interest on and any Additional Amounts with respect to the Securities shall be
payable in Dollars. Unless otherwise provided as contemplated by Section 301,
Registered Securities denominated in Dollars (other than Registered Securities
issued in global form, which may be of any denomination) shall be issuable in
denominations of $1,000 and any integral multiple thereof, and the Bearer
Securities denominated in Dollars (other than Bearer Securities issued in
global form, which may be of any denomination) shall be issuable in
denominations of $5,000 and any integral multiple thereof. Securities not
denominated in Dollars shall be issuable in such denominations as are
established with respect to such Securities in or pursuant to this Indenture.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities and any coupons appertaining thereto shall be executed on behalf
of the Issuer by the General Partner by its Chairman of the Board, its
President or one of its Vice Presidents (whether or not designated by a number
or word or words added before or after the title "vice president"), under its
corporate seal reproduced thereon, and attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the
Securities and coupons may be manual or facsimile signatures of the present or
any future such authorized officer and may be imprinted or otherwise reproduced
on the Securities.
Securities or coupons bearing the manual or facsimile
signatures of individuals who were at any time the proper officers of the
General Partner shall bind the Issuer, notwithstanding that such individuals or
any of them have ceased to hold such offices prior to the authentication and
delivery of such Securities or did not hold such offices at the date of such
Securities or coupons.
At any time and from time to time after the execution and
delivery of this Indenture, the Issuer may deliver the Securities of any
series, together with any coupon appertaining thereto, executed by the Issuer
to the Trustee for authentication, together with an Issuer Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Issuer Order shall authenticate and deliver such Securities; provided,
however, that, in connection with its original issuance, no Bearer Security
shall be mailed or otherwise delivered to any location in the United States;
and provided further that, unless otherwise specified with respect to any
series of Securities pursuant to Section 301, a Bearer Security may be
delivered in connection with its original issuance only if the Person entitled
to receive such Bearer Security shall have furnished a certificate to Euroclear
or CEDEL (with a copy to the Trustee), as the case may be, in the form set
forth in Exhibit A-1 to this Indenture or such other certificate as may be
specified with respect to any series of Securities pursuant to Section 301,
dated no earlier than 15 days prior to the earlier of the date on which such
Bearer Security is delivered and the date on which any temporary Security first
becomes exchangeable for such Bearer Security in accordance with the terms of
such temporary Security and this Indenture. If any Security shall be
represented by a permanent global Bearer Security, then, for purposes of this
Section and Section 304, the notation of a beneficial owner's interest therein
upon original issuance of such Security or upon exchange of a portion of a
temporary global Security shall be deemed to be delivery in connection with its
original issuance of such beneficial owner's interest in such permanent global
Security. Except as permitted by Section 306, the Trustee shall not
authenticate and deliver any Bearer Security unless all appurtenant coupons for
interest then matured have been detached and canceled.
If all the Securities of any series are not to be issued at
one time and if the Board Resolution or supplemental indenture establishing
such series shall so permit, such Issuer Order may set forth procedures
acceptable to the Trustee for the issuance of such Securities and determining
the terms of particular Securities of such series, such as interest rate or
formula, maturity date, date of issuance and date from which interest shall
accrue. In authenticating such
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Securities, and accepting the additional responsibilities under this Indenture
in relation to such Securities, the Trustee shall be entitled to receive, and
(subject to TIA Section 315(a) through 315(d)) shall be fully protected in
relying upon:
(a) an Opinion of Counsel stating that:
(1) the terms and the form or forms of such
Securities and any coupons have been
established in conformity with the provisions
of this Indenture; and
(2) such Securities, together with any coupons
appertaining thereto, when completed by
appropriate insertions and executed and
delivered by the Issuer to the Trustee for
authentication in accordance with this
Indenture, authenticated and delivered by the
Trustee in accordance with this Indenture and
issued by the Issuer in the manner and subject
to any conditions specified in such Opinion of
Counsel, will constitute legal, valid and
binding obligations of the Issuer, enforceable
in accordance with their terms, subject to
applicable bankruptcy, insolvency,
reorganization and other similar laws of
general applicability relating to or affecting
the enforcement of creditors' rights generally
and to general equitable principles and will
entitle the Holders thereof to the benefits of
this Indenture; and
(b) an Officers' Certificate stating that all
conditions precedent provided for in this Indenture relating
to the issuance of the Securities have been complied with and
that, to the best of the knowledge of the signers of such
certificate, no Event of Default with respect to any of the
Securities shall have occurred and be continuing.
If such form or terms have been so established, the Trustee
shall not be required to authenticate such Securities if the issue of such
Securities pursuant to this Indenture will affect the Trustee's own rights,
duties, obligations or immunities under the Securities and this Indenture or
otherwise in a manner which is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 301 and of the
preceding paragraph, if all the Securities of any series are not to be issued
at one time, it shall not be necessary to deliver an Officers' Certificate
otherwise required pursuant to Section 301 or an Issuer Order, or an Opinion of
Counsel or an Officers' Certificate otherwise required pursuant to the
preceding paragraph at the time of issuance of each Security of such series,
but such order, opinion and certificates, with appropriate modifications to
cover such future issuances, shall be delivered at or before the time of
issuance of the first Security of such series.
Each Registered Security shall be dated the date of its
authentication and each Bearer Security shall be dated as of the date specified
as contemplated by Section 301.
No Security or coupon shall be entitled to any benefit under
this Indenture or be valid or obligatory for any purpose unless there appears
on such Security or Security to which such coupon appertains a certificate of
authentication substantially in the form provided for herein duly executed by
the Trustee by manual signature of an authorized signatory, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder and is entitled to the benefits of this Indenture. Notwithstanding
the foregoing, if any Security shall have been authenticated and delivered
hereunder but never issued and sold by the Issuer, and the Issuer shall deliver
such Security to the Trustee for cancellation as provided in Section 309
together with a written statement (which need
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not comply with Section 102 and need not be accompanied by an Opinion of
Counsel) stating that such Security has never been issued and sold by the
Issuer, for all purposes of this Indenture such Security shall be deemed never
to have been authenticated and delivered hereunder and shall never be entitled
to the benefits of this Indenture.
SECTION 304. TEMPORARY SECURITIES. (a) Pending the
preparation of definitive Securities of any series, the Issuer may execute, and
upon Issuer Order the Trustee shall authenticate and deliver, temporary
Securities which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Securities in lieu of which they are issued, in registered
form, or, if authorized, in bearer form with one or more coupons or without
coupons, and with such appropriate insertions, omissions, substitutions and
other variations as the officers executing such Securities may determine, as
conclusively evidenced by their execution of such Securities. Such temporary
Securities may be in global form.
Except in the case of temporary Securities in global form
(which shall be exchanged in accordance with Section 304(b) or as otherwise
provided in or pursuant to a Board Resolution), if temporary Securities of any
series are issued, the Issuer will cause definitive Securities of that series
to be prepared without unreasonable delay. After the preparation of definitive
Securities of such series, the temporary Securities of such series shall be
exchangeable for definitive Securities of such series upon surrender of the
temporary Securities of such series at the office or agency of the Issuer in a
Place of Payment for that series, without charge to the Holder. Upon surrender
for cancellation of any one or more temporary Securities of any series
(accompanied by any nonmatured coupons appertaining thereto), the Issuer shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
like principal amount of definitive Securities of the same series of authorized
denominations; provided, however, that no definitive Bearer Security shall be
delivered in exchange for a temporary Registered Security, and provided further
that a definitive Bearer Security shall be delivered in exchange for a
temporary Bearer Security only in compliance with the conditions set forth in
this Indenture. Until so exchanged, the temporary Securities of any series
shall in all respects be entitled to the same benefits under this Indenture as
definitive Securities of such series.
(b) Unless otherwise provided in or pursuant to a Board
Resolution, this Section 304(b) shall govern the exchange of temporary
Securities issued in global form other than through the facilities of The
Depository Trust Company ("DTC"). If any such temporary Security is issued in
global form, then such temporary global Security shall, unless otherwise
provided therein, be delivered to the London office of a depositary or common
depositary (the "Common Depositary"), for the benefit of Euroclear and CEDEL,
for credit to the respective accounts of the beneficial owners of such
Securities (or to such other accounts as they may direct).
Without unnecessary delay, but in any event not later than the
date specified in, or determined pursuant to the terms of, any such temporary
global Security (the "Exchange Date"), the Issuer shall deliver to the Trustee
definitive Securities, in aggregate principal amount equal to the principal
amount of such temporary global Security, executed by the Issuer. On or after
the Exchange Date, such temporary global Security shall be surrendered by the
Common Depositary to the Trustee, as the Issuer's agent for such purpose, to be
exchanged, in whole or from time to time in part, for definitive Securities
without charge, and the Trustee shall authenticate and deliver, in exchange for
each portion of such temporary global Security, an equal aggregate principal
amount of definitive Securities of the same series of authorized denominations
and of like tenor as the portion of such temporary global Security to be
exchanged. The definitive Securities to be delivered in exchange for any such
temporary global Security shall be in bearer form, registered form, permanent
global bearer form or permanent global registered form, or any combination
thereof, as specified as contemplated by Section 301, and, if any combination
thereof is so specified, as requested by the beneficial owner thereof;
provided, however, that, unless otherwise specified in such temporary global
Security, upon such presentation by the Common Depositary, such temporary
global Security is accompanied by a certificate dated the Exchange Date or a
subsequent date and signed by Euroclear as to the portion of such temporary
global Security held for its account then to be
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exchanged and a certificate dated the Exchange Date or a subsequent date and
signed by CEDEL as to the portion of such temporary global Security held for
its account then to be exchanged, each in the form set forth in Exhibit A-2 to
this Indenture or in such other form as may be established pursuant to Section
301; and provided further that definitive Bearer Securities shall be delivered
in exchange for a portion of a temporary global Security only in compliance
with the requirements of Section 303.
Unless otherwise specified in such temporary global Security,
the interest of a beneficial owner of Securities of a series in a temporary
global Security shall be exchanged for definitive Securities of the same series
and of like tenor following the Exchange Date when the account holder instructs
Euroclear or CEDEL, as the case may be, to request such exchange on his behalf
and delivers to Euroclear or CEDEL, as the case may be, a certificate in the
form set forth in Exhibit A-1 to this Indenture (or in such other form as may
be established pursuant to Section 301), dated no earlier than 15 days prior to
the Exchange Date, copies of which certificate shall be available from the
offices of Euroclear and CEDEL, the Trustee, any Authenticating Agent appointed
for such series of Securities and each Paying Agent. Unless otherwise
specified in such temporary global Security, any such exchange shall be made
free of charge to the beneficial owners of such temporary global Security,
except that a Person receiving definitive Securities must bear the cost of
insurance, postage, transportation and the like unless such Person takes
delivery of such definitive Securities in person at the offices of Euroclear or
CEDEL. Definitive Securities in bearer form to be delivered in exchange for
any portion of a temporary global Security shall be delivered only outside the
United States.
Until exchanged in full as hereinabove provided, the temporary
Securities of any series shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities of the same series and of like
tenor authenticated and delivered hereunder, except that, unless otherwise
specified as contemplated by Section 301, interest payable on a temporary
global Security on an Interest Payment Date for Securities of such series
occurring prior to the applicable Exchange Date shall be payable to Euroclear
and CEDEL on such Interest Payment Date upon delivery by Euroclear and CEDEL to
the Trustee of a certificate or certificates in the form set forth in Exhibit
A-2 to this Indenture (or in such other forms as may be established pursuant to
Section 301), for credit without further interest on or after such Interest
Payment Date to the respective accounts of Persons who are the beneficial
owners of such temporary global Security on such Interest Payment Date and who
have each delivered to Euroclear or CEDEL, as the case may be, a certificate
dated no earlier than 15 days prior to the Interest Payment Date occurring
prior to such Exchange Date in the form set forth as Exhibit A-1 to this
Indenture (or in such other forms as may be established pursuant to Section
301). Notwithstanding anything to the contrary herein contained, the
certifications made pursuant to this paragraph shall satisfy the certification
requirements of the preceding two paragraphs of this Section 304(b) and of the
third paragraph of Section 303 of this Indenture and the interests of the
Persons who are the beneficial owners of the temporary global Security with
respect to which such certification was made will be exchanged for definitive
Securities of the same series and of like tenor on the Exchange Date or the
date of certification if such date occurs after the Exchange Date, without
further act or deed by such beneficial owners. Except as otherwise provided in
this paragraph, no payments of principal or interest owing with respect to a
beneficial interest in a temporary global Security will be made unless and
until such interest in such temporary global Security shall have been exchanged
for an interest in a definitive Security. Any interest so received by
Euroclear and CEDEL and not paid as herein provided shall be returned to the
Trustee prior to the expiration of two years after such Interest Payment Date
in order to be repaid to the Issuer.
(c) Unless otherwise provided in or pursuant to a Board
Resolution, this Section 304(c) shall govern the exchange of temporary
Securities issued in global form through the facilities of DTC. If any such
temporary Security is issued in global form, then such temporary global
security shall, unless otherwise provided therein, be delivered to DTC for
credit to the respective accounts of the beneficial owners of such Securities
(or to such other accounts as they may direct).
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Without unnecessary delay, but in any event not later than the
Exchange Date, the Issuer shall deliver to the Trustee definitive Securities,
in aggregate principal amount equal to the principal amount of such temporary
global Security, executed by the Issuer. On or after the Exchange Date, such
temporary global Security shall be surrendered by DTC to the Trustee, as the
Issuer's agent for such purpose, to be exchanged, in whole or from time to time
in part, for definitive Securities without charge, and the Trustee shall
authenticate and deliver, in exchange for each portion of such temporary global
Security, an equal aggregate principal amount of definitive Securities of the
same series of authorized denominations and of like tenor as the portion of
such temporary global Security to be exchanged. The definitive Securities to
be delivered in exchange for any such temporary global Security shall be in
registered form or permanent global registered form, or any combination
thereof, as specified as contemplated by Section 301, and, if any combination
thereof is so specified, as requested by the beneficial owner thereof.
Unless otherwise specified in such temporary global Security,
the interest of a beneficial owner of Securities of a series in a temporary
global Security shall be exchanged for definitive Securities of the same series
and of like tenor following the Exchange Date when the account holder instructs
DTC to request such exchange on his behalf. Unless otherwise specified in such
temporary global Security, any such exchange shall be made free of charge to
the beneficial owners of such temporary global Security, except that a Person
receiving definitive Securities must bear the cost of insurance, postage,
transportation and the like unless such Person takes delivery of such
definitive Securities in person.
Until exchanged in full as hereinabove provided, the temporary
Securities of any series shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities of the same series and of like
tenor authenticated and delivered hereunder, except that, unless otherwise
specified as contemplated by Section 301, interest payable on a temporary
global Security on an Interest Payment Date for Securities for such series
occurring prior to the applicable Exchange Date shall be payable to DTC on such
Interest Payment Date, for credit without further interest on or after such
Interest Payment Date to the respective accounts of Persons who are the
beneficial owners of such temporary global Security on such Interest Payment
Date.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND
EXCHANGE. The Issuer shall cause to be kept at the Corporate Trust Office of
the Trustee or in any office or agency of the Issuer in a Place of Payment a
register for each series of Securities (the registers maintained in such office
or in any such office or agency of the Issuer in a Place of Payment being
herein sometimes referred to collectively as the "Security Register") in which,
subject to such reasonable regulations as it may prescribe, the Issuer shall
provide for the registration of Registered Securities and of transfers of
Registered Securities. The Security Register shall be in written form or any
other form capable of being converted into written form within a reasonable
time. The Trustee, at its Corporate Trust Office, is hereby appointed
"Security Registrar" for the purpose of registering Registered Securities and
transfers of Registered Securities on such Security Register as herein
provided. The Issuer shall have the right to remove and replace from time to
time the Security Registrar for any series of Securities; provided that no such
removal or replacement shall be effective until a successor Security Registrar
with respect to such series of Securities shall have been appointed by the
Issuer and shall have accepted such appointment by the Issuer. In the event
that the Trustee shall cease to be Security Registrar, it shall have the right
to examine the Security Register at all reasonable times.
Subject to the provisions of this Section 305, upon surrender
for registration of transfer of any Registered Security of any series at any
office or agency of the Issuer in a Place of Payment for that series, the
Issuer shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Registered
Securities of the same series, of any authorized denominations and of a like
aggregate principal amount, bearing a number not contemporaneously outstanding,
and containing identical terms and provisions. Whenever any such Registered
Securities are so surrendered for exchange, the Issuer shall execute,
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and the Trustee shall authenticate and deliver, the Registered Securities which
the Holder making the exchange is entitled to receive.
Unless otherwise specified with respect to any series of
Securities as contemplated by Section 301, Bearer Securities may not be issued
in exchange for Registered Securities. If (but only if) permitted by the
applicable Board Resolution and (subject to Section 303) set forth in the
applicable Officers' Certificate, or in any indenture supplemental hereto,
delivered as contemplated by Section 301, at the option of the Holder, Bearer
Securities of any series may be exchanged for Registered Securities of the same
series of any authorized denominations and of a like aggregate principal amount
and tenor, upon surrender of the Bearer Securities to be exchanged at any such
office or agency, with all unmatured coupons and all matured coupons in default
thereto appertaining. If the Holder of a Bearer Security is unable to produce
any such unmatured coupon or coupons or matured coupon or coupons in default,
any such permitted exchange may be effected if the Bearer Securities are
accompanied by payment in funds acceptable to the Issuer in an amount equal to
the face amount of such missing coupon or coupons, or the surrender of such
missing coupon or coupons may be waived by the Issuer and the Trustee if there
is furnished to them such security or indemnity as they may require to save
each of them and any Paying Agent harmless. If thereafter the Holder of such
Security shall surrender to any Paying Agent any such missing coupon in
respect of which such a payment shall have been made, such Holder shall be
entitled to receive the amount of such payment; provided, however, that, except
as otherwise provided in Section 1002, interest represented by coupons shall be
payable only upon presentation and surrender of those coupons at an office or
agency located outside the United States. Notwithstanding the foregoing, in
case a Bearer Security of any series is surrendered at any such office or
agency in a permitted exchange for a Registered Security of the same series and
like tenor after the close of business at such office or agency on (i) any
Regular Record Date and before the opening of business at such office or agency
on the relevant Interest Payment Date, or (ii) any Special Record Date and
before the opening of business at such office or agency on the related proposed
date for payment of Defaulted Interest, such Bearer Security shall be
surrendered without the coupon relating to such Interest Payment Date or
proposed date for payment, as the case may be, and interest or Defaulted
Interest, as the case may be, will not be payable on such Interest Payment Date
or proposed date for payment, as the case may be, in respect of the Registered
Security issued in exchange for such Bearer Security, but will be payable only
to the Holder of such coupon when due in accordance with the provisions of this
Indenture. Whenever any Securities are so surrendered for exchange, the Issuer
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
If provided as contemplated by Section 301, at the option of
the Holder, Registered Securities of such series may be exchanged for Bearer
Securities upon such terms and conditions as may be provided in or pursuant to
this Indenture with respect to such series. Whenever any Securities are so
surrendered for exchange, the Issuer shall execute, and the Trustee shall
authenticate and deliver, the Securities which the Holder making the exchange
is entitled to receive.
Notwithstanding the foregoing, except as otherwise specified
as contemplated by Section 301, any permanent global Security shall be
exchangeable only as provided in this paragraph. If the depositary for any
permanent global Security is DTC, then unless the terms of such global Security
expressly permit such global Security to be exchanged in whole or in part for
definitive Securities, a global Security may be transferred, in whole but not
in part, only to a nominee of DTC, or by a nominee of DTC to DTC, or to a
successor to DTC for such global Security elected or approved by the Issuer or
to a nominee of such successor to DTC. If at any time DTC notifies the Issuer
that it is unwilling or unable to continue as depositary for the applicable
global Security or Securities or if at any time DTC ceases to be a clearing
agency registered under the Exchange Act if so required by applicable law or
regulation, the Issuer shall appoint a successor depositary with respect to
such global Security or Securities. If (x) a successor depositary for such
global Security or Securities is not appointed by the Issuer within 90 days
after the Issuer receives such notice or becomes aware of such unwillingness,
inability or ineligibility, (y) an Event of Default has occurred and is
continuing and the beneficial owners representing a majority in principal
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<PAGE> 34
amount of the applicable series of Securities represented by such global
Security or Securities advise DTC to cease acting as depositary for such global
Security or Securities or (z) the Issuer, in its sole discretion, determines at
any time that all Outstanding Securities (but not less than all) of any series
issued or issuable in the form of one or more global Securities shall no longer
be represented by such global Security or Securities, then the Issuer shall
execute, and the Trustee shall authenticate and deliver definitive Securities
of like series, rank, tenor and terms in definitive form in an aggregate
principal amount equal to the principal amount of such global Security or
Securities. The Issuer and the Trustee shall be entitled to rely conclusively
on information provided by DTC as to the names of the beneficial holders and
the amounts owned by such holders. If any beneficial owner of an interest in a
permanent global Security is otherwise entitled to exchange such interest for
Securities of such series and of like tenor and principal amount of another
authorized form and denomination, as specified as contemplated by Section 301
and provided that any applicable notice provided in the permanent global
Security shall have been given, then without unnecessary delay but in any event
not later than the earliest day on which such interest may be so exchanged, the
Issuer shall execute, and the Trustee shall authenticate and deliver definitive
Securities in aggregate principal amount equal to the principal amount of such
beneficial owner's interest in such permanent global Security. On or after the
earliest date on which such interests may be so exchanged, such permanent
global Security shall be surrendered for exchange by DTC or such other
depositary as shall be specified in the Issuer Order with respect thereto to
the Trustee, as the Issuer's agent for such purpose, provided, however, that no
such exchanges may occur during a period beginning at the opening of business
15 days before any selection of Securities to be redeemed and ending on the
relevant Redemption Date if the Security for which exchange is requested may be
among those selected for redemption; and provided further that no Bearer
Security delivered in exchange for a portion of a permanent global Security
shall be mailed or otherwise delivered to any location in the United States.
If a Registered Security is issued in exchange for any portion of a permanent
global Security after the close of business at the office or agency where such
exchange occurs on (i) any Regular Record Date and before the opening of
business at such office or agency on the relevant Interest Payment Date, or
(ii) any Special Record Date and the opening of business at such office or
agency on the related proposed date for payment of Defaulted Interest, interest
or Defaulted Interest, as the case may be, will not be payable on such Interest
Payment Date or proposed date for payment, as the case may be, in respect of
such Registered Security, but will be payable on such Interest Payment Date or
proposed date for payment, as the case may be, only to the Person to whom
interest in respect of such portion of such permanent global Security is
payable in accordance with the provisions of this Indenture.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Issuer, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Registered Security presented or surrendered for
registration of transfer or for exchange or redemption shall (if so required by
the Issuer or the Security Registrar) be duly endorsed, or be accompanied by a
written instrument of transfer in form satisfactory to the Issuer and the
Security Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing.
No service charge shall be made for any registration of
transfer or exchange of Securities, but the Issuer 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 Securities, other
than exchanges pursuant to Sections 304, 906, 1107 or 1305 not involving any
transfer.
Except as otherwise provided in or pursuant to this Indenture,
the Issuer or the Trustee, as applicable, shall not be required (i) to issue,
register the transfer of or exchange any Security if such Security may be among
those selected for redemption during a period beginning at the opening of
business 15 days before selection of the Securities to be redeemed under
Section 1103 and ending at the close of business on (A) if such Securities are
issuable only as Registered
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Securities, the day of the mailing of the relevant notice of redemption and (B)
if such Securities are issuable as Bearer Securities, the day of the first
publication of the relevant notice of redemption or, if such Securities are
also issuable as Registered Securities and there is no publication, the mailing
of the relevant notice of redemption, or (ii) to register the transfer of or
exchange any Registered Security so selected for redemption in whole or in
part, except, in the case of any Registered Security to be redeemed in part,
the portion thereof not to be redeemed, or (iii) to exchange any Bearer
Security so selected for redemption except that such a Bearer Security may be
exchanged for a Registered Security of that series and like tenor, provided
that such Registered Security shall be simultaneously surrendered for
redemption, or (iv) to issue, register the transfer of or exchange any Security
which has been surrendered for repayment at the option of the Holder, except
the portion, if any, of such Security not to be so repaid.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN
SECURITIES. If any mutilated Security or a Security with a mutilated coupon
appertaining to it is surrendered to the Trustee or the Issuer, together with,
in proper cases, such security or indemnity as may be required by the Issuer or
the Trustee to save each of them and any agent of either of them harmless, the
Issuer shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of the same series and principal amount, containing
identical terms and provisions and bearing a number not contemporaneously
outstanding, with coupons corresponding to the coupons, if any, appertaining to
the surrendered Security.
If there shall be delivered to the Issuer and to the Trustee
(i) evidence to their satisfaction of the destruction, loss or theft of any
Security or coupon, and (ii) such security or indemnity as may be required by
them to save each of them and any agent of either of them harmless, then, in
the absence of notice to the Issuer or the Trustee that such Security or coupon
has been acquired by a bona fide purchaser, the Issuer shall execute and upon
its request the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Security or in exchange for the Security to which a
destroyed, lost or stolen coupon appertains (with all appurtenant coupons not
destroyed, lost or stolen), a new Security of the same series and principal
amount, containing identical terms and provisions and bearing a number not
contemporaneously outstanding, with coupons corresponding to the coupons, if
any, appertaining to such destroyed, lost or stolen Security or to the Security
to which such destroyed, lost or stolen coupon appertains.
Notwithstanding the provisions of the previous two paragraphs,
in case any such mutilated, destroyed, lost or stolen Security or coupon has
become or is about to become due and payable, the Issuer in its discretion may,
instead of issuing a new Security, with coupons corresponding to the coupons,
if any, appertaining to such destroyed, lost or stolen Security or to the
Security to which such destroyed, lost or stolen coupon appertains, pay such
Security or coupon, provided, however, that payment of principal of (and
premium or Make-Whole Amount, if any), and interest on and any Additional
Amounts with respect to, Bearer Securities shall, except as otherwise provided
in Section 1002, be payable only at an office or agency located outside the
United States and, unless otherwise specified as contemplated by Section 301,
any interest in Bearer Securities shall be payable only upon presentation and
surrender of the coupons appertaining thereto.
Upon the issuance of any new Security under this Section, the
Issuer may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security of any series with its coupons, if any,
issued pursuant to this Section in lieu of any destroyed, lost or stolen
Security, or in exchange for a Security to which a destroyed, lost or stolen
coupon appertains, shall constitute an original additional contractual
obligation of the Issuer, whether or not the destroyed, lost or stolen Security
and its coupons, if any, or the destroyed, lost or stolen coupon shall be at
any time enforceable by anyone, and shall be entitled to all the benefits of
this Indenture equally and proportionately with any and all other Securities of
that series and their coupons, if any, duly issued thereunder.
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The provisions of this Section, as amended or supplemented,
are exclusive and shall preclude (to the extent lawful) all other rights and
remedies with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Securities or coupons.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS RESERVED.
Except as otherwise specified with respect to a series of Securities in
accordance with the provisions of Section 301, interest on and Additional
Amounts with respect to any Registered Security that is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be
paid to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest at the office or agency of the Issuer maintained for such
purpose pursuant to Section 1002; provided, however, that each installment of
interest on any Registered Security may at the Issuer's option be paid by (i)
mailing a check for such interest, payable to or upon the written order of the
Person entitled thereto pursuant to Section 308, to the address of such Person
as it appears on the Security Register or (ii) transfer to an account
maintained by the payee located inside the United States.
Unless otherwise provided as contemplated by Section 301 with
respect to the Securities of any series, payment of interest may be made, in
the case of a Bearer Security, by transfer to an account maintained by the
payee with a bank located outside the United States.
Unless otherwise provided as contemplated by Section 301,
every permanent global Security will provide that interest, if any, payable on
any Interest Payment Date will be paid to DTC, Euroclear and/or CEDEL, as the
case may be, with respect to that portion of such permanent global Security
held for its account by Cede & Co. or the Common Depositary, as the case may
be, for the purpose of permitting such party to credit the interest received by
it in respect of such permanent global Security to the accounts of the
beneficial owners thereof.
In case a Bearer Security of any series is surrendered in
exchange for a Registered Security of such series after the close of business
(at an office or agency in a Place of Payment for such series) on any Regular
Record Date and before the opening of business (at such office or agency) on
the next succeeding Interest Payment Date, such Bearer Security shall be
surrendered without the coupon relating to such Interest Payment Date and
interest will not be payable on such Interest Payment Date in respect of the
Registered Security issued in exchange for such Bearer Security, but will be
payable only to the Holder of such coupon when due in accordance with the
provisions of this Indenture.
Except as otherwise specified with respect to a series of
Securities in accordance with the provisions of Section 301, any interest on
any Registered Security of any series that is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the registered
Holder thereof on the relevant Regular Record Date by virtue of having been
such Holder, and such Defaulted Interest may be paid by the Issuer, at its
election in each case, as provided in clause (A) or (B) below:
(A) The Issuer may elect to make payment
of any Defaulted Interest to the Persons in whose names the
Registered Securities of such series (or their respective
Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such
Defaulted Interest, which shall be fixed in the following
manner. The Issuer shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each
Registered Security of such series and the date of the
proposed payment (which shall not be less than 20 days after
such notice is received by the Trustee), and at the same time
the Issuer shall deposit with the Trustee an amount of money
in the currency or currencies, currency unit or units or
composite currency or currencies in which the Securities of
such series are payable (except as otherwise specified
pursuant to Section 301 for the Securities of such series)
equal to the aggregate amount proposed to be paid in respect
of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such
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deposit on or prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of
the Persons entitled to such Defaulted Interest as provided in
this clause. Thereupon the Trustee shall fix a Special Record
Date for the payment of such Defaulted Interest which shall be
not more than 15 days and not less than 10 days prior to the
date of the proposed payment and not less than 10 days after
the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Issuer of such
Special Record Date and, in the name and at the expense of the
Issuer, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be
mailed, first class postage prepaid, to each Holder of
Registered Securities of such series at his address as it
appears in the Security Register not less than 10 days prior
to such Special Record Date. The Trustee may, in its
discretion, in the name and at the expense of the Issuer,
cause a similar notice to be published at least once in an
Authorized Newspaper in each Place of Payment, but such
publications shall not be a condition precedent to the
establishment of such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special
Record Date therefore having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Persons in whose names
the Registered Securities of such series (or their respective
Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be
payable pursuant to the following clause (B). In case a
Bearer Security of any series is surrendered at the office or
agency in a Place of Payment for such series in exchange for a
Registered Security of such series after the close of business
at such office or agency on any Special Record Date and before
the opening of business at such office or agency on the
related proposed date for payment of Defaulted Interest, such
Bearer Security shall be surrendered without the coupon
relating to such proposed date of payment and Defaulted
Interest will not be payable on such proposed date of payment
in respect of the Registered Security issued in exchange for
such Bearer Security, but will be payable only to the Holder
of such coupon when due in accordance with the provisions of
this Indenture.
(B) The Issuer may make payment of any
Defaulted Interest on the Registered Securities of any series
in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such
Securities may be listed, and upon such notice as may be
required by such exchange, if, after notice given by the
Issuer to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by
the Trustee.
Subject to the foregoing provisions of this Section and
Section 305, each Security delivered under this Indenture upon registration of
transfer of or in exchange for or in lieu of any other Security shall carry the
rights to interest accrued and unpaid, and to accrue, which were carried by
such other Security.
SECTION 308. PERSONS DEEMED OWNERS. Prior to due presentment
of a Registered Security for registration of transfer, the Issuer, the Trustee
and any agent of the Issuer or the Trustee may treat the Person in whose name
such Registered Security is registered as the owner of such Security for the
purpose of receiving payment of principal of (and premium or Make-Whole Amount,
if any), and (subject to Sections 305 and 307) interest on and any Additional
Amounts with respect to such Registered Security and for all other purposes
whatsoever, whether or not such Registered Security be overdue, and neither the
Issuer, the Trustee nor any agent of the Issuer or the Trustee shall be
affected by notice to the contrary.
Title to any Bearer Security and any coupons appertaining
thereto shall pass by delivery. The Issuer, the Trustee and any agent of the
Issuer or the Trustee may treat the Holder of any Bearer Security and the
Holder of any coupon as the absolute owner of such Security or coupon for the
purpose of receiving any payment with respect to payment thereof or on account
thereof and for all other purposes whatsoever, whether or not any payment with
respect to such Security or
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coupon be overdue, and neither the Issuer, the Trustee nor any agent of the
Issuer or the Trustee shall be affected by notice to the contrary.
No Holder of any beneficial interest in any global Security
held on its behalf by a depositary shall have any rights under this Indenture
with respect to such global Security, and such depositary may be treated by the
Issuer, the Trustee, and any agent of the Issuer or the Trustee as the owner of
such global Security for all purposes whatsoever. None of the Issuer, the
Trustee, any Paying Agent or the Security Registrar will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of a Security in
global form or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
Notwithstanding the foregoing, with respect to any global
Security, nothing herein shall prevent the Issuer, the Trustee, or any agent of
the Issuer or the Trustee, from giving effect to any written certification,
proxy or other authorization furnished by any depositary, as a Holder, with
respect to such global Security or impair, as between such depositary and
owners of beneficial interests in such global Security, the operation of
customary practices governing the exercise of the rights of such depositary (or
its nominee) as Holder of such global Security.
SECTION 309. CANCELLATION. All Securities and coupons
surrendered for payment, redemption, repayment at the option of the Holder,
registration of transfer or exchange or for credit against any sinking fund
payment shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee, and any such Securities and coupons and Securities
and coupons surrendered directly to the Trustee for any such purpose shall be
promptly canceled by it; provided, however, where the Place of Payment is
located outside of the United States, the Paying Agent at such Place of Payment
may cancel the Securities surrendered to it for such purposes prior to
delivering the Securities to the Trustee. The Issuer may at any time deliver
to the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Issuer may have acquired in any manner
whatsoever, and may deliver to the Trustee (or to any other Person for delivery
to the Trustee) for cancellation any Securities previously authenticated
hereunder which the Issuer has not issued and sold, and all Securities so
delivered shall be promptly canceled by the Trustee. If the Issuer shall so
acquire any of the Securities, however, such acquisition shall not operate as a
redemption or satisfaction of the indebtedness represented by such Securities
unless and until the same are surrendered to the Trustee for cancellation. No
Securities shall be authenticated in lieu of or in exchange for any Securities
canceled as provided in this Section, except as expressly permitted by this
Indenture. Canceled Securities and coupons held by the Trustee shall be
periodically destroyed by the Trustee and the Trustee shall deliver a
certificate of such destruction to the Issuer, unless by an Issuer Order the
Issuer directs their return to it.
SECTION 310. COMPUTATION OF INTEREST. Except as otherwise
specified as contemplated by Section 301 with respect to Securities of any
series, interest on the Securities shall be computed on the basis of a 360-day
year consisting of twelve 30-day months.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture
shall upon Issuer Request cease to be of further effect with respect to any
series of Securities specified in such Issuer Request (except as to any
surviving rights of registration of transfer or exchange of Securities of such
series herein expressly provided for and any right to receive Additional
Amounts, as provided in Section 1012), and the Trustee, upon receipt of an
Issuer Order, and at the expense of the Issuer, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture as to
such series when
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(a) either
(1) all Securities of such series theretofore
authenticated and delivered and all coupons, if any,
appertaining thereto (other than (i) coupons
appertaining to Bearer Securities surrendered in
exchange for Registered Securities and maturing after
such exchange, whose surrender is not required or has
been waived as provided in Section 305, (ii)
Securities and coupons of such series which have been
destroyed, lost or stolen and which have been
replaced or paid as provided in Section 306, (iii)
coupons appertaining to Securities called for
redemption and maturing after the relevant Redemption
Date, whose surrender has been waived as provided in
Section 1106, and (iv) Securities and coupons of such
series for whose payment money has theretofore been
deposited in trust or segregated and held in trust by
the Issuer and thereafter repaid to the Issuer or
discharged from such Trust, as provided in Section
1003) have been delivered to the Trustee for
cancellation; or
(2) all Securities of such series and, in the case of (A)
or (B) below, any coupons appertaining thereto not
theretofore delivered to the Trustee for cancellation
(A) have become due and payable, or
(B) will become due and payable at their Stated
Maturity within one year, or
(C) if redeemable at the option of the Issuer,
are to be called for redemption within one
year under arrangements satisfactory to the
Trustee for the giving of notice of
redemption by the Trustee in the name, and at
the expense, of the Issuer, and the Issuer,
in the case of (A), (B) or (C) above, has
irrevocably deposited or caused to be
deposited with the Trustee as trust funds in
trust for such purpose an amount in the
currency or currencies, currency unit or
units or composite currency or currencies in
which the Securities of such series are
payable, sufficient to pay and discharge the
entire indebtedness on such Securities and
such coupons not theretofore delivered to the
Trustee for cancellation, for principal (and
premium or Make-Whole Amount, if any) and
interest, and any Additional Amounts with
respect thereto, to the date of such deposit
(in the case of Securities which have become
due and payable) or to the Stated Maturity or
Redemption Date, as the case may be,
(b) the Issuer has paid or caused to be paid all other sums
payable hereunder by the Issuer; and
(c) the Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture as to such series
have been complied with.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Issuer to the Trustee and any predecessor
Trustee under Section 606, the obligations of the Issuer to any Authenticating
Agent under Section 611 and, if money shall have been deposited with and held
by the Trustee pursuant to subclause (B) of clause (1) of this Section, the
obligations of the Trustee under Section 402 and the last paragraph of Section
1003 shall survive.
SECTION 402. APPLICATION OF TRUST FUNDS. Subject to the
provisions of the last paragraph of Section 1003, all money and Government
Obligations deposited with the Trustee pursuant to Section 401 or Article 14
shall be held in trust and applied by it, in accordance with the provisions of
the Securities, the coupons and this Indenture, to the payment, either directly
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or through any Paying Agent (including the Issuer acting as its own Paying
Agent) as the Trustee may determine, to the Persons entitled thereto, of the
principal (and premium or Make-Whole Amount, if any), and any interest and
Additional Amounts for whose payment such money has or Government Obligations
have been deposited with or received by the Trustee, but such money and
Government Obligations need not be segregated from other funds except to the
extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT. "Event of Default," wherever
used herein with respect to any particular series of Securities, means any one
of the following events (whatever the reason for such Event of Default and
whether or not it shall be voluntary or involuntary or be effected by operation
of law or pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body) unless such
event is specifically deleted or modified in or pursuant to the supplemental
indenture, Board Resolution or Officers' Certificate establishing the terms of
such series pursuant to this Indenture:
(a) default in the payment of any interest upon or any Additional
Amounts payable in respect of any Security of that series or
of any coupon appertaining thereto, when such interest or
Additional Amounts or coupon becomes due and payable, and
continuance of such default for a period of 30 days; or
(b) default in the payment of the principal of (or premium or
Make-Whole Amount, if any, on) any Security of that series
when it becomes due and payable at its Maturity; or
(c) default in the deposit of any sinking fund payment, when and
as due by the terms of any Security of that series; or
(d) default in the performance, or breach, of any covenant or
warranty of the Issuer in this Indenture with respect to any
Security of that series (other than a covenant or warranty a
default in the performance or the breach of which is elsewhere
in this Section specifically dealt with), and continuance of
such default or breach for a period of 60 days after there has
been given, by registered or certified mail, to the Issuer by
the Trustee or to the Issuer and the Trustee by the Holders of
at least 25% in principal amount of the Outstanding Securities
of that series, a written notice specifying such default or
breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(e) a default under any evidence of Recourse Indebtedness of the
Issuer, or under any mortgage, indenture or other instrument
of the Issuer (including a default with respect to Securities
of any series other than that series) under which there may be
issued or by which there may be secured any Recourse
Indebtedness of the Issuer (or by any Subsidiary, the
repayment of which the Issuer has guaranteed or for which the
Issuer is directly responsible or liable as obligor or
guarantor), whether such Recourse Debt now exists or shall
hereafter be created, which default shall constitute a failure
to pay an aggregate principal amount exceeding $5,000,000 of
such indebtedness when due and payable after the expiration of
any applicable grace period with respect thereto and shall
have resulted in such indebtedness in an aggregate principal
amount exceeding $5,000,000 becoming or being declared due and
payable prior to the date on which it would otherwise have
become due and payable, without such indebtedness having been
discharged, or such acceleration having been rescinded or
annulled, within a period of 10 days after there shall have
been given, by registered or certified mail, to the Issuer by
the Trustee or to the
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Issuer and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Securities of that series
of a written notice specifying such default and requiring the
Issuer to cause such indebtedness to be discharged or cause
such acceleration to be rescinded or annulled and stating that
such notice is a "Notice of Default" hereunder; or
(f) the Issuer or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(1) commences a voluntary case;
(2) consents to the entry of an order for relief against
it in an involuntary case;
(3) consents to the appointment of a Custodian of it or
for all or substantially all of its property; or
(4) makes a general assignment for the benefit of its
creditors; or
(g) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(1) is for relief against the Issuer or any Significant
Subsidiary in an involuntary case,
(2) appoints a Custodian of the Issuer or any Significant
Subsidiary or for all or substantially all of either
of its property, or
(3) orders the liquidation of the Issuer or any
Significant Subsidiary,
and the order or decree remains unstayed and in effect for 90
days; or
(h) any other Event of Default provided in or pursuant to this
Indenture with respect to Securities of that series.
As used in this Section 501, the term "Bankruptcy Law" means title 11, U.S.
Code or any similar Federal or state law for the relief of debtors and the term
"Custodian" means any receiver, trustee, assignee, liquidator or other similar
official under any Bankruptcy Law.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND
ANNULMENT. If an Event of Default with respect to Securities of any series at
the time Outstanding occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series may declare the principal (or, if any
Securities are Original Issue Discount Securities or Indexed Securities, such
portion of the principal as may be specified in the terms thereof) of all the
Securities of that series to be due and payable immediately, by a notice in
writing to the Issuer (and to the Trustee if given, or such lesser amount as
may be provided for in the Securities of such series, by the Holders), and upon
any such declaration such principal or such lesser amount shall become
immediately due and payable.
At any time after such a declaration of acceleration with
respect to Securities of any series has been made and before a judgment or
decree for payment of the money due has been obtained by the Trustee as
hereinafter in this Article provided, the Holders of not less than a majority
in principal amount of the Outstanding Securities of that series, by written
notice to the Issuer and the Trustee, may rescind and annul such declaration
and its consequences if:
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(a) the Issuer has paid or deposited with the Trustee a sum
sufficient to pay in the currency or currency unit or
composite currency in which the Securities of such series are
payable (except as otherwise specified pursuant to Section 301
for the Securities of such series):
(1) all overdue installments of interest on and any
Additional Amounts payable in respect of all
Outstanding Securities of that series and any related
coupons,
(2) the principal of (and premium or Make-Whole Amount,
if any, on) any Outstanding Securities of that series
which have become due otherwise than by such
declaration of acceleration and interest thereon and
any Additional Amounts with respect thereto at the
rate or rates borne by or provided for in such
Securities,
(3) to the extent that payment of such interest or
Additional Amounts is lawful, interest upon overdue
installments of interest and any Additional Amounts
at the rate or rates borne by or provided for in such
Securities, and
(4) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents
and counsel; and
(b) all Events of Default with respect to Securities of that
series, other than the nonpayment of the principal of (or
premium or Make-Whole Amount, if any) or interest on, and any
Additional Amounts with respect to Securities of that series
which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section
513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE. The Issuer covenants that if:
(a) default is made in the payment of any installment of interest
or Additional Amounts, if any, on any Security of any series
and any related coupon when such interest or Additional Amount
becomes due and payable and such default continues for a
period of 30 days, or
(b) default is made in the payment of the principal of (or premium
or Make-Whole Amount, if any, on) any Security of any series
at its Maturity,
then the Issuer will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Securities of such series and coupons, the whole
amount then due and payable on such Securities and coupons for principal (and
premium or Make-Whole Amount, if any) and interest and Additional Amounts, with
interest upon any overdue principal (and premium or Make-Whole Amount, if any)
and, to the extent that payment of such interest shall be legally enforceable,
upon any overdue installments of interest or Additional Amounts, if any, at the
rate or rates borne by or provided for in such Securities, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Issuer fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, and may prosecute such proceeding to judgment or final decree, and may
enforce the same against the Issuer or any other obligor upon such Securities
and any related
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coupons and collect the monies adjudged or decreed to be payable in the manner
provided by law out of the property of the Issuer or any other obligor upon
such Securities and any related coupons wherever situated.
If an Event of Default with respect to Securities of any
series occurs and is continuing, the Trustee may in its discretion proceed to
protect and enforce its rights and the rights of the Holders of Securities of
such series and any related coupons by such appropriate judicial proceedings as
the Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein or therein, or
to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of
the pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Issuer or any other obligor upon the Securities or
the property of the Issuer or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of the Securities of any series
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Issuer for the payment of overdue principal, premium or Make-Whole Amount,
if any, or interest or Additional Amounts) shall be entitled and empowered, by
intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount, or
such lesser amount as may be provided for in the
Securities of such series, of principal (and premium
or Make-Whole Amount, if any) and interest and
Additional Amounts, if any, owing and unpaid in
respect of the Securities and any related coupons and
to file such other claims of the Trustee (including
any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents
and counsel) and of the Holders allowed in such
judicial proceeding, and
(b) to collect and receive any monies of other property
payable or deliverable on any such claims and to
distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator (or
other similar official) in any such judicial proceeding is hereby authorized by
each Holder of the Securities of such series and coupons to make such payments
to the Trustee, and in the event that the Trustee shall consent to the making
of such payments directly to the Holders, to pay to the Trustee any amount due
to it for the reasonable compensation, expenses, disbursements and advances of
the Trustee and any predecessor Trustee, their agents and counsel, and any
other amounts due the Trustee or any predecessor Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
of a Security or coupon any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or coupons or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder of a Security or coupon in any such proceeding.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES OR COUPONS. All rights of action and claims under this Indenture or
any of the Securities or coupons may be prosecuted and enforced by the Trustee
without the possession of any of the Securities or coupons or the production
thereof in any proceeding relating thereto, and any such proceeding instituted
by the Trustee shall be brought in its own name as trustee of an express trust,
and any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, be for the ratable benefit of the Holders of the
Securities and coupons in respect of which such judgment has been recovered.
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SECTION 506. APPLICATION OF MONEY COLLECTED. Any money
collected by the Trustee pursuant to this Article shall be applied in the
following order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal (or premium or Make-Whole
Amount, if any) or interest and any Additional Amounts, upon presentation of
the Securities or coupons, or both, as the case may be, and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 606;
SECOND: To the payment of the amounts then due and unpaid
upon the Securities and coupons for principal (and premium or
Make-Whole Amount, if any) and interest and any Additional Amounts
payable, in respect of which or for the benefit of which such money
has been collected, ratably, without preference or priority of any
kind, according to the aggregate amounts due and payable on such
Securities and coupons for principal (and premium or Make-Whole
Amount, if any), interest and Additional Amounts, respectively; and
THIRD: The balance, if any, to the Issuer.
SECTION 507. LIMITATION ON SUITS. No Holder of any Security
of any series or any related coupon shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder,
unless:
(a) such Holder has previously given written notice to the Trustee
of a continuing Event of Default with respect to the
Securities of that series;
(b) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written
request to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee indemnity
reasonably satisfactory to the Trustee against the costs,
expenses and liabilities to be incurred in compliance with
such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any
such proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders
of a majority in principal amount of the Outstanding
Securities of that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture or any Security to affect, disturb or prejudice the rights of
any other of such Holders, or to obtain or to seek to obtain priority or
preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all such Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PRINCIPAL, PREMIUM OR MAKE-WHOLE AMOUNT, IF ANY, INTEREST AND ADDITIONAL
AMOUNTS. Notwithstanding any other provision in this Indenture, the Holder of
any Security or coupon shall have the right which is absolute and unconditional
to receive payment of the principal of (and premium or Make-Whole Amount, if
any) and (subject to Sections 305 and 307) interest on, and any Additional
Amounts in respect of, such Security or payment of such coupon on the
respective Stated Maturity or Maturities specified in such Security or coupon
(or, in the case of redemption, on the Redemption Date or, in the case of
repayment, on the Repayment Date) and to
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institute suit for the enforcement of any such payment and such rights shall
not be impaired without the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES. If the
Trustee or any Holder of a Security or coupon has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, the Issuer, the
Trustee and the Holders of Securities and coupons shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE. Except as
otherwise provided with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Securities or coupons in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to each Holder of Securities or coupons is intended to be exclusive
of any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER. No delay or
omission of the Trustee or of any Holder of any Security or coupon to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to any Holder may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by such Holder of
Securities or coupons, as the case may be.
SECTION 512. CONTROL BY HOLDERS OF SECURITIES. The Holders
of not less than a majority in principal amount of the Outstanding Securities
of any series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the Securities of
such series and any related coupons, provided that
(a) such direction shall not be in conflict with any rule of law
or with this Indenture or with the Securities of any series,
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(c) the Trustee need not take any action which might involve it in
personal liability or be unduly prejudicial to the Holders of
Securities of such series not joining therein.
SECTION 513. WAIVER OF PAST DEFAULTS. The Holders of not
less than a majority in principal amount of the Outstanding Securities of any
series may on behalf of the Holders of all the Securities of such series and
any related coupons waive any past default hereunder with respect to such
series and its consequences, except a default
(a) in the payment of the principal of (or premium or Make-Whole
Amount, if any) or interest on or Additional Amounts payable
in respect of any Security of such series or any related
coupons, or
(b) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent
of the Holder of each Outstanding Security of such series
affected.
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Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
SECTION 514. WAIVER OF USURY, STAY OR EXTENSION LAWS. The
Issuer covenants (to the extent that it may lawfully do so) that it will not at
any time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any usury, stay or extension law wherever enacted, now
or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
SECTION 515. UNDERTAKING FOR COSTS. All parties to this
Indenture agree, and each Holder of any Security by his acceptance thereof
shall be deemed to have agreed, that any court may in its discretion require,
in any suit for the enforcement of any right or remedy under this Indenture, or
in any suit against the Trustee for any action taken or omitted by it as
Trustee, the filing by any party litigant in such suit of any undertaking to
pay the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Holder, or group of Holders, holding in the aggregate more
than 25% in principal amount of the Outstanding Securities, or to any suit
instituted by any Holder for the enforcement of the payment of the principal of
(or premium or Make-Whole Amount, if any) or interest or Additional Amounts, if
any on any Security on or after the respective Stated Maturities expressed in
such Security (or, in the case of redemption, on or after the Redemption Date
or, in the case of repayment, on or after the Repayment Date).
ARTICLE SIX
THE TRUSTEE
SECTION 601. NOTICE OF DEFAULTS. Within 90 days after the
occurrence of any default hereunder with respect to the Securities of any
series for which it is acting as trustee, the Trustee shall transmit in the
manner and to the extent provided in TIA Section 313(c), notice of such default
hereunder known to the Trustee, unless such default shall have been cured or
waived; provided, however, that, except in the case of a default in the payment
of the principal of (or premium or Make-Whole Amount, if any) or interest on or
any Additional Amounts with respect to any Security of such series, or in the
payment of any sinking fund installment with respect to the Securities of such
series, the Trustee shall be protected in withholding such notice if and so
long as Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the best interests of the Holders of the
Securities and coupons of such series; and provided further that in the case of
any default or breach of the character specified in Section 501(d) with respect
to the Securities and coupons of such series, no such notice to Holders shall
be given until at least 60 days after the occurrence thereof. For the purpose
of this Section, the term "default" means any event which is, or after notice
or lapse of time or both would become, an Event of Default with respect to the
Securities of such series.
SECTION 602. CERTAIN RIGHTS OF TRUSTEE. Subject to the
provisions of TIA Section 315(a) through 315(d):
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, coupon or
other paper or document
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believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Issuer mentioned herein shall
be sufficiently evidenced by an Issuer Request or Issuer Order
(other than delivery of any Security, together with any
coupons appertaining thereto, to the Trustee for
authentication and delivery pursuant to Section 303 which
shall be sufficiently evidenced as provided therein) and any
resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder,
the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, rely
upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and
in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders of Securities of
any series or any related coupons pursuant to this Indenture,
unless such Holders shall have offered to the Trustee security
or indemnity reasonably satisfactory to the Trustee against
the costs, expenses and liabilities which might be incurred by
it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, coupon or
other paper or document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises
of the Issuer, personally or by agent or attorney following
reasonable notice to the Issuer;
(g) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or
through agents or counsel and the Trustee shall not be
responsible for any misconduct or negligence on the part of
any agent or counsel appointed with due care by it hereunder;
and
(h) subject to Sections 315(a) through 315(d) of the TIA, the
Trustee shall not be charged with knowledge of any Event of
Default described in Section 501(d), (e), (f), (g) or (h)
hereof unless a Responsible Officer of the Trustee shall have
actual knowledge of such Event of Default.
The Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers, if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
Except during the continuance of an Event of Default, the
Trustee undertakes to perform only such duties as are specifically set forth in
this Indenture, and no implied covenants or obligations shall be read into this
Indenture against the Trustee.
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SECTION 603. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
SECURITIES. The recitals contained herein and in the Securities, except the
Trustee's certificate of authentication, and in any coupons shall be taken as
the statements of the Issuer, and neither the Trustee nor any Authenticating
Agent assumes any responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Securities or coupons, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Securities
and perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility and Qualification on Form T-1 supplied to the Issuer
are true and correct, subject to the qualifications set forth therein. Neither
the Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Issuer of Securities or the proceeds thereof.
SECTION 604. MAY HOLD SECURITIES. The Trustee, any Paying
Agent, Security Registrar, Authenticating Agent or any other agent of the
Trustee or the Issuer, in its individual or any other capacity, may become the
owner or pledgee of Securities and coupons and, subject to TIA Sections 310(b)
and 311 of the TIA, may otherwise deal with the Issuer with the same rights it
would have if it were not Trustee, Paying Agent, Security Registrar,
Authenticating Agent or such other agent.
SECTION 605. MONEY HELD IN TRUST. Except as provided in
Section 402 and Section 1003, money held by the Trustee in trust hereunder need
not be segregated from other funds except to the extent required by law. The
Trustee shall be under no liability for interest on any money received by it
hereunder except as otherwise agreed with the Issuer.
SECTION 606. COMPENSATION AND REIMBURSEMENT. The Issuer
agrees:
(a) to pay to the Trustee from time to time reasonable
compensation for all services rendered by the Trustee
hereunder (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of
an express trust);
(b) except as otherwise expressly provided herein, to reimburse
each of the Trustee and any predecessor Trustee upon its
request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with
any provision of this Indenture (including the reasonable
compensation and the expenses and disbursements of its agents
and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(c) to indemnify each of the Trustee and any predecessor Trustee
for, and to hold it harmless against, any loss, liability or
expense incurred without negligence or bad faith on its own
part, arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, 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.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(f) or Section
501(g), the expenses (including the reasonable charges and expenses of its
counsel) and the compensation for the services are intended to constitute
expenses of administration under any applicable Federal or state bankruptcy,
insolvency or other similar law.
As security for the performance of the obligations of the
Issuer under this Section, the Trustee shall have a lien prior to the
Securities upon all property and funds held or collected by the Trustee as
such, except funds held in trust for the payment of principal of (or premium or
Make-Whole Amount, if any) or interest or any Additional Amounts on particular
Securities or any related coupons.
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The provisions of this Section shall survive the termination
of this Indenture.
SECTION 607. CORPORATE TRUSTEE REQUIRED ELIGIBILITY;
CONFLICTING INTERESTS. There shall at all times be a Trustee hereunder which
shall be eligible to act as Trustee under TIA Section 310(a)(1) and shall have
or be wholly owned by an entity having a combined capital and surplus of at
least $50,000,000. If such corporation publishes reports of condition at least
annually, pursuant to law or the requirements of Federal, state, territorial or
District of Columbia supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
SECTION 608. RESIGNATION AND REMOVAL; APPOINTMENT OF
SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment
of a successor Trustee pursuant to this Article shall become effective until
the acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time with respect to the
Securities of one or more series by giving written notice thereof to the
Issuer. If any instrument of acceptance by a successor Trustee shall not have
been delivered to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to such
series.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal
amount of the Outstanding Securities of such series delivered to the Trustee
and to the Issuer.
(d) If at any time:
(1) the Trustee shall fail to comply with the
provisions of TIA Section 310(b) after
written request therefor by the Issuer or by
any Holder of a Security who has been a bona
fide Holder of a Security for at least six
months, or
(2) the Trustee shall cease to be eligible under
Section 607 and shall fail to resign after
written request therefor by the Issuer or by
any Holder of a Security who has been a bona
fide Holder of a Security for at least six
months, or
(3) the Trustee shall become incapable of acting
or shall be adjudged a bankrupt or insolvent,
or a receiver of the Trustee or of its
property shall be appointed or any public
officer shall take charge or control of the
Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (A) the Issuer by or pursuant to a Board Resolution may
remove the Trustee and appoint a successor Trustee with respect to all
Securities, or (B) subject to TIA Section 315(e), any Holder of a Security who
has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee with respect to all
Securities of such series and the appointment of a successor Trustee or
Trustees.
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(e) If the Trustee shall resign, be removed or become incapable
of acting, or if a vacancy shall occur in the office of Trustee for any cause
with respect to the Securities of one or more series, the Issuer, by or
pursuant to a Board Resolution, shall promptly appoint a successor Trustee or
Trustees with respect to the Securities of that or those series (it being
understood that any such successor Trustee may be appointed with respect to the
Securities of one or more or all of such series and that at any time there
shall be only one Trustee with respect to the Securities of any particular
series) and shall comply with the applicable requirements of Section 609. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee with respect to the Securities
of any series shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Securities of such series delivered to the
Issuer and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance with the
applicable requirements of Section 609, become the successor Trustee with
respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Issuer. If no successor Trustee with
respect to the Securities of any series shall have been so appointed by the
Issuer or the Holders of Securities and accepted appointment in the manner
provided in Section 609, any Holder of a Security who has been a bona fide
Holder of a Security of such series for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to
Securities of such series.
(f) The Issuer shall give notice of each resignation and each
removal of the Trustee with respect to the Securities of any series and each
appointment of a successor Trustee with respect to the Securities of any series
in the manner provided for notices to the Holders of Securities in Section 106.
Each notice shall include the name of the successor Trustee with respect to the
Securities of such series and the address of its Corporate Trust Office.
SECTION 609. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor Trustee
with respect to all Securities, every such successor Trustee shall execute,
acknowledge and deliver to the Issuer and to the retiring Trustee, an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on request of
the Issuer or the successor Trustee, such retiring Trustee shall, upon, payment
of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee,
and shall duly assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee hereunder, subject
nevertheless to its claim, if any, provided for in Section 606.
(b) In case of the appointment hereunder of a successor Trustee
with respect to the Securities of one or more (but not all) series, the Issuer,
the retiring Trustee and each successor Trustee with respect to the Securities
of one or more series shall execute and deliver an indenture supplemental
hereto, pursuant to Article Nine hereof, wherein each successor Trustee shall
accept such appointment and which (1) shall contain such provisions as shall be
necessary or desirable to transfer and confirm to, and to vest in, each
successor Trustee all the rights, powers, trusts and duties of the retiring
Trustee with respect to the Securities of that or those series to which the
appointment of such successor Trustee relates, (2) if the retiring Trustee is
not retiring with respect to all Securities, shall contain such provisions as
shall be deemed necessary or desirable to confirm that all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of
that or those series as to which the retiring Trustee is not retiring shall
continue to be vested in the retiring Trustee, and (3) shall add to or change
any of the provisions of this Indenture as shall be necessary to provide for or
facilitate the administration of the trusts hereunder by more than one Trustee,
it being understood that nothing herein or in such supplemental indenture shall
constitute such Trustee's co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee; and upon
the execution and delivery of such supplemental indenture the resignation or
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removal of the retiring Trustee shall become effective to the extent provided
therein and each such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
to which the appointment of such successor Trustee relates; but, on request of
the Issuer or any successor Trustee, such retiring Trustee shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Issuer
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Trustee all such rights, powers and trusts
referred to in paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 610. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS. Any Corporation into which the Trustee may be merged or converted
or with which it may be consolidated, or any Corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any Corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such Corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities or coupons shall
have been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the Securities or coupons so
authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities or coupons. In case any Securities or coupons
shall not have been authenticated by such predecessor Trustee, any such
successor Trustee may authenticate and deliver such Securities or coupons, in
either its own name or that of its predecessor Trustee, with the full force and
effect which this Indenture provides for the certificate of authentication of
the Trustee.
SECTION 611. APPOINTMENT OF AUTHENTICATING AGENT. At any
time when any of the Securities remain Outstanding, the Trustee may appoint an
Authenticating Agent or Agents with respect to one or more series of Securities
which shall be authorized to act on behalf of the Trustee to authenticate
Securities of such series or pursuant to Section 306 issued upon original
issue, exchange, registration of transfer or partial redemption or repayment
thereof, and Securities so authenticated shall be entitled to the benefits of
this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Any such appointment shall be
evidenced by an instrument in writing signed by a Responsible Officer of the
Trustee, a copy of which instrument shall be promptly furnished to the Issuer.
Wherever reference is made in this Indenture to the authentication and delivery
of Securities by the Trustee or the Trustee's certification of authentication,
such reference shall be deemed to include authentication and delivery on behalf
of the Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Issuer
and shall at all times be a bank or trust company or corporation organized and
doing business and in good standing under the laws of the United States of
America or of any State or the District of Columbia, authorized under such laws
to act as Authenticating Agent, having or be wholly owned by an entity having a
combined capital and surplus of not less than $50,000,000 and subject to
supervision or examination by Federal or State authorities. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. In case at any
time an Authenticating Agent shall cease to be eligible in accordance with
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the provisions of this Section, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section.
Any Corporation into which an Authenticating Agent may be
merged or converted or with which it may be consolidated, or any Corporation
resulting from any merger, conversion or consolidation to which such
Authenticating Agent shall be a party, or any Corporation succeeding to the
corporate agency or corporate trust business of an Authenticating Agent, shall
continue to be an Authenticating Agent, provided such Corporation shall be
otherwise eligible under this Section without the execution or filing of any
paper or further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent for any series of Securities may at
any time resign by giving written notice of resignation to the Trustee for such
series and to the Issuer. The Trustee for any series of Securities may at any
time terminate the agency of an Authenticating Agent by giving written notice
of termination to such Authenticating Agent and to the Issuer. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
such Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee for such series may appoint a successor
Authenticating Agent which shall be acceptable to the Issuer and shall give
notice of such appointment to all Holders of Securities of the series with
respect to which such Authenticating Agent will serve in the manner set forth
in Section 106. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and
duties of its predecessor hereunder, with like effect as if originally named as
an Authenticating Agent herein. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section.
The Issuer agrees to pay to each Authenticating Agent from
time to time reasonable compensation including reimbursement of its reasonable
expenses for its services under this Section.
If an appointment with respect to one or more series is made
pursuant to this Section, the Securities of such series may have endorsed
thereon, in addition to or in lieu of the Trustee's certificate of
authentication, an alternate certificate of authentication substantially in the
following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
(TRUSTEE)
as Trustee
By:
----------------------------------
as Authenticating Agent
By:
----------------------------------
Authorized Signatory
If all of the Securities of any series may not be originally
issued at one time, and if the Trustee does not have an office capable of
authenticating Securities upon original issuance located in a Place of Payment
where the Issuer wishes to have Securities of such series authenticated upon
original issuance, the Trustee, if so requested in writing (which writing need
not be accompanied by or contained in an Officers' Certificate by the Issuer),
shall appoint in accordance with this Section an Authenticating Agent having an
office in a Place of Payment designated by the Issuer with respect to such
series of Securities.
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ARTICLE SEVEN
HOLDERS' LIST AND REPORTS BY TRUSTEE AND ISSUER
SECTION 701. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS.
Every Holder of Securities or coupons, by receiving and holding the same,
agrees with the Issuer and the Trustee that neither the Issuer nor the Trustee
nor an Authenticating Agent nor any Paying Agent nor any Security Registrar
shall be held accountable by reason of the disclosure of any information as to
the names and addresses of the Holders of Securities in accordance with TIA
Section 312(c), regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of
mailing any material pursuant to a request made under TIA Section 312(b).
SECTION 702. REPORTS BY TRUSTEE. Upon qualification of this
Indenture under the TIA:
(a) Within 60 days after December 31 of each year commencing
with the first December 31 following the first issuance of Securities pursuant
to Section 301, if required by Section 313(a) of the TIA, the Trustee shall
transmit, pursuant to Section 313(c) of the TIA, a brief report dated as of
such December 31 with respect to any of the events specified in said Section
313(a) which may have occurred since the later of the immediately preceding
December 31 and the date of this Indenture.
(b) The Trustee shall transmit the reports required by Section
313(a) of the TIA at the times specified therein.
(c) Reports pursuant to this Section shall be transmitted in
the manner and to the Persons required by Sections 313(c) and 313(d) of the
TIA.
SECTION 703. REPORTS BY ISSUER. Upon qualification of this
Indenture under the TIA, the Issuer will, pursuant to TIA Section 314(a):
(a) file with the Trustee, within 15 days after the Issuer is required
to file the same with the Commission, copies of the annual reports and
of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to
time by rules and regulations prescribe) which the Issuer may be
required to file with the Commission pursuant to Section 13 or Section
15(d) of the Exchange Act; or, if the Issuer is not required to file
information, documents or reports pursuant to either of said Sections,
then it shall file with the Trustee and the Commission, in accordance
with rules and regulations prescribed from time to time by the
Commission, such of the supplementary and periodic information,
documents and reports which may be required pursuant to Section 13 of
the Exchange Act in respect of a security listed and registered on a
national securities exchange as may be prescribed from time to time in
such rules and regulations;
(b) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to
compliance by the Issuer with the conditions and covenants of this
Indenture as may be required from time to time by such rules and
regulations; and
(c) transmit by mail to the Holders of Securities, within 30 days after
the filing thereof with the Trustee, in the manner and to the extent
provided in TIA Section 313(c), such summaries of any information,
documents and reports required to be filed by the Issuer pursuant to
Section 1010 and paragraphs (a) and (b) of this Section as may be
required by rules and regulations prescribed from time to time by the
Commission.
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SECTION 704. ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
HOLDERS. The Issuer will furnish or cause to be furnished to the Trustee:
(a) semiannually, not later than 15 days after the Regular
Record Date for interest of each series of Securities, a list, in such form as
the Trustee may reasonably require, of the names and addresses of the Holders
of Registered Securities of such series as of such Regular Record Date, or if
there is no Regular Record Date for interest for such series of Securities,
semiannually, upon such dates as are set forth in the Board Resolution or
indenture supplemental hereto authorizing such series, and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Issuer of any such request, a list of
similar form and content as of a date not more than 15 days prior to the time
such list is furnished, provided however, that, so long as the Trustee is the
Security Registrar, no such list shall be required to be furnished, provided,
however, that, so long as the Trustee is the Security Registrar, no such list
shall be required to be furnished, provided however, that, so long as the
Trustee is the Security Registrar, no such list shall be required to be
furnished.
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE
SECTION 801. CONSOLIDATIONS AND MERGERS OF ISSUER AND SALES,
LEASES AND CONVEYANCE PERMITTED SUBJECT TO CERTAIN CONDITIONS. The Issuer may
consolidate with, or sell, lease or convey all or substantially all of its
assets to, or merge with or into, any other Corporation, provided that (a) the
Issuer shall be the continuing Corporation, or the successor Corporation or its
transferees or assignees of such assets (if other than the Issuer) formed by or
resulting from any such consolidation or merger or which shall have received
the transfer of such assets by lease (subject to the continuing obligations of
Issuer set forth in Section 802) or otherwise, either directly or indirectly,
shall expressly assume the payment of the principal of (and premium or
Make-Whole Amount, if any) and interest on all the Securities, and the due and
punctual performance and observance of all of the covenants and conditions in
this Indenture; (b) the successor Corporation formed by or resulting from any
such consolidation or merger or which shall have received the transfer of
assets pursuant to this Section 801 shall be a United States Corporation; and
(c) immediately after giving effect to such transaction and treating any Debt
which becomes an obligation of the Issuer or any Subsidiary as a result thereof
as having been incurred by the Issuer or such Subsidiary at the time of such
transaction, no Event of Default, and no event which, after notice or the lapse
of time, or both, would become such an Event of Default, shall have occurred
and be continuing.
SECTION 802. RIGHTS AND DUTIES OF SUCCESSOR CORPORATION. In
case of any such consolidation, merger, sale, lease or conveyance and upon any
such assumption by the successor Corporation, such successor Corporation shall
succeed to and be substituted for the Issuer with the same effect as if it had
been named herein as the party of the first part, and the predecessor
Corporation, except in the event of a lease, shall be relieved of any further
obligation under this Indenture and the Securities. Such successor Corporation
thereupon may cause to be signed, and may issue either in its own name or in
the name of the Issuer, any or all of the Securities issuable hereunder which
theretofore shall not have been signed by the Issuer and delivered to the
Trustee; and, upon the order of such successor Corporation, instead of the
Issuer, and subject to all the terms, conditions and limitations in this
Indenture prescribed, the Trustee shall authenticate and shall deliver any
Securities which previously shall have been signed and delivered by the
officers of the Issuer to the Trustee for authentication, and any Securities
which such successor Corporation thereafter shall cause to be signed and
delivered to the Trustee for that purpose. All the Securities so issued shall
in all respects have the same legal rank and benefit under this Indenture as
the Securities theretofore or thereafter issued in accordance with the terms of
this Indenture as though all of such Securities had been issued at the date of
the execution hereof.
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In case of any such consolidation, merger, sale, lease or
conveyance, such changes in phraseology and form (but not in substance) may be
made in the Securities thereafter to be issued as may be appropriate.
SECTION 803. OFFICERS' CERTIFICATE AND OPINION OF COUNSEL.
Any consolidation, merger, sale, lease or conveyance permitted under Section
801 is also subject to the condition that the Trustee receive an Officers'
Certificate and an Opinion of Counsel to the effect that any such
consolidation, merger, sale, lease or conveyance, and the assumption by any
successor Corporation, complies with the provisions of this Article and that
all conditions precedent herein provided for relating to such transaction have
been complied with.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
HOLDERS. Without the consent of any Holders of Securities or coupons, the
Issuer, when authorized by or pursuant to a Board Resolution, and the Trustee,
at any time and from time to time, may enter into one or more indentures
supplemental hereto, in form satisfactory to the Trustee, for any of the
following purposes:
(a) to evidence the succession of another Person to the Issuer
or the addition of another Person and the assumption by any such
successor or additional Person of the covenants of the Issuer herein
and in the Securities; or
(b) to add to the covenants of the Issuer for the benefit of
the Holders of all or any series of Securities (and if such covenants
are to be for the benefit of less than all series of securities,
stating that such covenants are expressly being included solely for
the benefit of such series) or to surrender any right or power herein
conferred upon the Issuer; or
(c) to add any additional Events of Default for the benefit of
the Holders of all or any series of Securities (and if such Events of
Default are to be for the benefit of less than all series of
Securities, stating that such Events of Default are expressly being
included solely for the benefit of such series); provided, however,
that in respect of any such additional Events of Default such
supplemental indenture may provide for a particular period of grace
after default (which period may be shorter or longer than that allowed
in the case of other defaults) or may provide for an immediate
enforcement upon such default or may limit the remedies available to
the Trustee upon such default or may limit the right of the Holders of
a majority in aggregate principal amount of that or those series of
Securities to which such additional Events of Default apply to waive
such default; or
(d) to add to or change any of the provisions of this Indenture
to provide that Bearer Securities may be registrable as to principal,
to change or eliminate any restrictions on the payment of principal of
or any premium or interest on or any Additional Amounts with respect
to Bearer Securities, to permit Bearer Securities to be issued in
exchange for Registered Securities, to permit Bearer Securities to be
issued in exchange for Bearer Securities of other authorized
denominations or to permit or facilitate the issuance of Securities in
uncertificated form, provided that any such action shall not adversely
affect the interests of the Holders of Securities of any series or any
related coupons in any material respect; or
(e) to change or eliminate any of the provisions of this
Indenture, provided that any such change or elimination shall become
effective only when there is no Security Outstanding of any series
created prior to the execution of such supplemental indenture which is
entitled to the benefit of such provision; or
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(f) to secure the Securities; or
(g) to establish the form or terms of Securities of any series
and any related coupons as permitted by Sections 201 and 301; or
(h) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one
or more series and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee; or
(i) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein, or to make any other provisions with respect to
matters or questions arising under this Indenture which shall not be
inconsistent with the provisions of this Indenture, provided such
provisions shall not adversely affect the interests of the Holders of
Securities of any series or any related coupons in any material
respect;
(j) to supplement any of the provisions of this Indenture to
such extent as shall be necessary to permit or facilitate the
defeasance and discharge of any series of Securities pursuant to
Sections 401, 1402 and 1403, provided that any such action shall not
adversely affect the interests of the Holders of Securities of such
series and any related coupons or any other series of Securities in
any material respect; or
(k) to add to or change any provisions of this Indenture to
comply with any requirements of the Commission in connection with (i)
qualification of the Indenture under the TIA and (ii) any registration
of the Securities pursuant to the requirements of the Securities Act
of 1933, as amended.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in principal amount
of all Outstanding Securities affected by such supplemental indenture, by Act
of said Holders delivered to the Issuer and the Trustee, the Issuer, when
authorized by or pursuant to a Board Resolution, and the Trustee may enter into
an indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders of
Securities and any related coupons under this Indenture; provided, however,
that no such supplemental indenture shall, without the consent of the Holder of
each Outstanding Security affected thereby:
(a) change the Stated Maturity of the principal of (or premium
or Make-Whole Amount, if any, on) or any installment of principal of
or interest on or any Additional Amounts with respect to, any
Security, or reduce the principal amount thereof or the rate or amount
of interest thereon or any Additional Amounts payable in respect
thereof, or any premium payable upon the redemption thereof, or change
any obligation of the Issuer to pay Additional Amounts pursuant to
Section 1012 (except as contemplated by Section 801(a) and permitted
by Section 901(a)), or reduce the amount of the principal of an
Original Issue Discount Security that would be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to
Section 502 or the amount thereof provable in bankruptcy pursuant to
Section 504, or adversely affect any right of repayment at the option
of the Holder of any Security, or change any Place of Payment where,
or the currency or currencies, currency unit or units or composite
currency or currencies in which the principal of, any premium or
interest on, or any Additional Amounts with respect to any Security is
payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof (or, in the
case of redemption or repayment at the option of the Holder, on or
after the Redemption Date or the Repayment Date, as the case may be),
or
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(b) reduce the percentage in principal amount of the
Outstanding Securities of any series, the consent of whose Holders is
required for any such supplemental indenture, or the consent of whose
Holders is required for any waiver with respect to such series (or
compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this
Indenture, or reduce the requirements of Section 1504 for quorum or
voting, or
(c) modify any of the provisions of this Section, Section 513
or Section 1013, except to increase the required percentage to effect
such action or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the
Holder of each Outstanding Security affected thereby.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
A supplemental indenture which changes or eliminates any
covenant or other provision of this Indenture which has expressly been included
solely for the benefit of one or more particular series of Securities, or which
modifies the rights of the Holders of Securities of such series with respect to
such covenant or other provision, shall be deemed not to affect the rights
under this Indenture of the Holders of Securities of any other series.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES. As a
condition to executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modification thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to TIA Section 315) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the
execution of any supplemental indenture under this Article, this Indenture
shall be modified in accordance therewith, and such supplemental indenture
shall form a part of this Indenture for all purposes; and every Holder of
Securities theretofore or thereafter authenticated and delivered hereunder and
of any coupon appertaining thereto shall be bound thereby.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT. Every
supplemental indenture executed pursuant to this Article following the
qualification of the Indenture under the provisions of the TIA, shall conform
to the requirements of the TIA as then in effect.
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL
INDENTURES. Securities of any series authenticated and delivered after the
execution of any supplemental indenture pursuant to this Article may, and
shall, if required by the Trustee, bear a notation in form approved by the
Trustee as to any matter provided for in such supplemental indenture. If the
Issuer shall so determine, new Securities of any series so modified as to
conform, in the opinion of the Trustee and the Issuer, to any such supplemental
indenture may be prepared and executed by the Issuer and authenticated and
delivered by the Trustee in exchange for Outstanding Securities of such series.
SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURES. Promptly
after the execution by the Issuer and the Trustee of any supplemental indenture
pursuant to the provisions of Section 902, the Issuer shall give notice thereof
to the Holders of each Outstanding Security affected, in the manner provided
for in Section 106, setting forth in general terms the substance of such
supplemental indenture.
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ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM OR MAKE-WHOLE
AMOUNT, IF ANY, INTEREST AND ADDITIONAL AMOUNTS. The Issuer covenants and agrees
for the benefit of the Holders of each series of Securities that it will duly
and punctually pay the principal of (and premium or Make-Whole Amount, if any)
and interest on and any Additional Amounts payable in respect of the Securities
of that series in accordance with the terms of such series of Securities, any
coupons appertaining thereto and this Indenture. Unless otherwise specified as
contemplated by Section 301 with respect to any series of Securities, any
interest due on and any Additional Amounts payable in respect of any Bearer
Securities on or before Maturity, other than Additional Amounts, if any, payable
as provided in Section 1012 in respect of principal of (or premium or Make-Whole
Amount, if any, on) such a Security, shall be payable only upon presentation and
surrender of the several coupons for such interest installments as are evidenced
thereby as they severally mature. Unless otherwise specified with respect to
Securities of any series pursuant to Section 301, at the option of the Issuer,
all payments of principal may be paid by check to the registered Holder of the
Registered Security or other person entitled thereto against surrender of such
Security.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY. If Securities
of a series are issuable only as Registered Securities, the Issuer shall
maintain in each Place of Payment for any series of Securities an office or
agency where Securities of that series may be presented or surrendered for
payment, where Securities of that series may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Issuer in
respect of the Securities of that series and this Indenture may be served. If
Securities of a series are issuable as Bearer Securities, the Issuer will
maintain: (A) in the Borough of Manhattan, New York City, an office or agency
where any Securities of that series may be presented or surrendered for payment,
where any Securities of that series may be surrendered for registration of
transfer, where Securities of that series may be surrendered for exchange, where
notices and demands to or upon the Issuer in respect of the Securities of that
series and this Indenture may be served and where Bearer Securities of that
series and related coupons may be presented or surrendered for payment in the
circumstances described in the following paragraph (and not otherwise); (B)
subject to any laws or regulations applicable thereto in a Place of Payment for
that series which is located outside the United States, an office or agency
where Securities of that series and related coupons may be presented and
surrendered for payment (including payment of any Additional Amounts payable on
Securities of that series pursuant to Section 1012), provided, however, that if
the Securities of that series are listed on the Luxembourg Stock Exchange or any
other stock exchange located outside the United States and such stock exchange
shall so require, the Issuer will maintain a Paying Agent for the Securities of
that series in Luxembourg or any other required city located outside the United
States, as the case may be, so long as the Securities of that series are listed
on such exchange and (C) subject to any laws or regulations applicable thereto,
in a Place of Payment for that series located outside the United States an
office or agency where any Registered Securities of that series may be
surrendered for registration of transfer, where Securities of that series may be
surrendered for exchange and where notices and demands to or upon the Issuer in
respect of the Securities of that series and this Indenture may be served. The
Issuer will give prompt written notice to the Trustee of the location, and any
change in the location, of each such office or agency. If at any time the Issuer
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, except that Bearer Securities of that series and the related coupons
may be presented and surrendered for payment (including payment of any
Additional Amounts payable on Bearer Securities of that series pursuant to
Section 1012) at the offices specified in the Security in London, England, and
the Issuer hereby appoints the same as its agent to receive such respective
presentations, surrenders, notices and demands, and the Issuer hereby appoints
the Trustee its agent to receive all such presentations, surrenders, notices and
demands.
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Unless otherwise specified with respect to any Securities
pursuant to Section 301, no payment of principal, premium or interest on or
Additional Amounts in respect of Bearer Securities shall be made at any office
or agency of the Issuer in the United States or by check mailed to any address
in the United States or by transfer to an account maintained with a bank located
in the United States; provided, however, that, if amounts owing with respect to
any Bearer Securities of a series are payable in Dollars, payment of principal
of and any premium and interest on any Bearer Security (including any Additional
Amounts payable on Securities of such series pursuant to Section 1012) shall be
made at the office of the designated agent of the Issuer's Paying Agent in the
Borough of Manhattan, New York City, if (but only if) payment in Dollars of the
full amount of such principal, premium, interest or Additional Amounts, as the
case may be, at all offices or agencies outside the United States maintained for
the purpose by the Issuer in accordance with this Indenture, is illegal or
effectively precluded by exchange controls or other similar restrictions, as
evidenced by an Opinion of Counsel.
The Issuer may from time to time designate one or more other
offices or agencies where the Securities of one or more series may be presented
or surrendered for any or all of such purposes, and may from time to time
rescind such designations, provided, however, that no such designations or
rescission shall in any manner relieve the Issuer of its obligation to maintain
an office or agency in accordance with the requirements set forth above for
Securities of any series for such purposes. The Issuer will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency. Unless otherwise specified with
respect to any Securities pursuant to Section 301 with respect to a series of
Securities, the Issuer hereby designates as a Place of Payment for each series
of Securities the office or agency of the Issuer in the Borough of Manhattan,
New York City, and initially appoints the Trustee at its Corporate Trust Office
as Paying Agent in such city and as its agent to receive all such presentations,
surrenders, notices and demands.
Unless otherwise specified with respect to any Securities
pursuant to Section 301, if and so long as the Securities of any series (i) are
denominated in a Foreign Currency or (ii) may be payable in a Foreign Currency,
or so long as it is required under any other provision of the Indenture, then
the Issuer will maintain with respect to each such series of Securities, or as
so required, at least one exchange rate agent.
SECTION 1003. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN
TRUST. If the Issuer shall at any time act as its own Paying Agent with respect
to any series of any Securities and any related coupons, it will, on or before
each due date of the principal of (and premium or Make-Whole Amount, if any), or
interest on or Additional Amounts in respect of, any of the Securities of that
series, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum in the currency or currencies, currency unit or units or composite
currency or currencies in which the Securities of such series are payable
(except as otherwise specified pursuant to Section 301 for the Securities of
such series) sufficient to pay the principal (and premium or Make-Whole Amount,
if any) or interest or Additional Amounts so becoming due until such sums shall
be paid to such Persons or otherwise disposed of as herein provided, and will
promptly notify the Trustee of its action or failure so to act.
Whenever the Issuer shall have one or more Paying Agents for
any series of Securities and any related coupons, it will, before each due date
of the principal of (and premium or Make-Whole Amount, if any), or interest on
or Additional Amounts in respect of, any Securities of that series, deposit with
a Paying Agent a sum (in the currency or currencies, currency unit or units or
composite currency or currencies described in the preceding paragraph)
sufficient to pay the principal (and premium or Make-Whole Amount, if any) or
interest or Additional Amounts, so becoming due, such sum to be held in trust
for the benefit of the Persons entitled to such principal, premium or interest
or Additional Amounts and (unless such Paying Agent is the Trustee) the Issuer
will promptly notify the Trustee of its action or failure so to act.
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The Issuer will cause each Paying Agent other than the Trustee
to execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of principal of (and
premium or Make-Whole Amount, if any) or interest on
Securities or Additional Amounts in trust for the benefit of
the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Issuer (or any
other obligor upon the Securities) in the making of any such
payment of principal (and premium or Make-Whole Amount, if
any) or interest or Additional Amounts; and
(3) at any time during the continuance of any such default upon
the written request of the Trustee, forthwith pay to the
Trustee all sums so held in trust by such Paying Agent.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Issuer Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Issuer or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Issuer or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Except as otherwise provided in the Securities of any series,
any money deposited with the Trustee or any Paying Agent, or then held by the
Issuer, in trust for the payment of the principal of (and premium or Make-Whole
Amount, if any) or interest on, or any Additional Amounts in respect of, any
Security of any series or any related coupon and remaining unclaimed for two
years after such principal (and premium or Make-Whole Amount, if any), interest
or Additional Amounts have become due and payable shall be paid to the Issuer
upon Issuer Request or (if then held by the Issuer) shall be discharged from
such trust; and the Holder of such Security shall thereafter, as an unsecured
general creditor, look only to the Issuer for payment of such principal of (and
premium or Make-Whole Amount, if any) or interest on, or any Additional Amounts
in respect of, any Security, without interest thereon, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the Issuer as trustee thereof, shall thereupon cease, provided, however, that
the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Issuer cause to be published once, in an
Authorized Newspaper, notice that such money remains unclaimed and that, after a
date specified therein, which shall not be less than 30 days from the date of
such publication, any unclaimed balance of such money then remaining will be
repaid to the Issuer.
SECTION 1004. LIMITATIONS ON INCURRENCE OF DEBT.
(a) The Issuer will not, and will not permit any Subsidiary
to, incur any Debt other than intercompany Debt (representing Debt to
which the only parties are the Issuer and any of its Subsidiaries, but
only so long as such Debt is held solely by the Issuer and any
Subsidiary) that is subordinate in right of payment to the Securities,
if, immediately after giving effect to the incurrence of such
additional Debt, the aggregate principal amount of all outstanding Debt
of the Issuer and its Subsidiaries on a consolidated basis determined
in accordance with GAAP is greater than 60% of the sum of (i) Total
Assets as of the end of the fiscal quarter covered in the Issuer's most
recent quarterly or annual financial statements, as the case may be,
most recently required to be delivered to the Holders pursuant to
Section 1010, prior to the incurrence of such additional Debt and (ii)
the increase or decrease in Total Assets from the end of such quarter
including, without limitation, any increase in Total Assets resulting
from the incurrence of such additional Debt (such increase or decrease
together with the Total Assets is referred to as the "Adjusted Total
Assets"); and
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(b) The Issuer will not, and will not permit any Subsidiary
to, incur any Secured Debt of the Issuer or any Subsidiary if,
immediately after giving effect to the incurrence of such additional
Secured Debt, the aggregate principal amount of all outstanding Secured
Debt of the Issuer and its Subsidiaries on a consolidated basis is
greater than 40% of the Adjusted Total Assets; and
(c) The Issuer will not, and will not permit any Subsidiary
to, incur any Debt other than intercompany Debt that is subordinate in
right of payment to the Securities, if the ratio of the Consolidated
Income Available for Debt Service to the Annual Debt Service Charge for
the period consisting of the four consecutive fiscal quarters most
recently ended prior to the date on which such additional Debt is to be
incurred shall have been less than 1.5 to 1 on a pro forma basis after
giving effect to the incurrence of such Debt and to the application of
the proceeds therefrom, and calculated on the assumption that (i) such
Debt and any other Debt incurred by the Issuer or its Subsidiaries
since the first day of such four-quarter period, which was outstanding
at the end of such period, had been incurred at the beginning of such
period and continued to be outstanding throughout such period, and the
application of the proceeds of such Debt, including to refinance other
Debt, had occurred at the beginning of such period, (ii) the repayment
or retirement of any other Debt by the Issuer or its Subsidiaries since
the first day of such four-quarter period had been repaid or retired at
the beginning of such period (except that, in determining the amount of
Debt so repaid or retired, the amount of Debt under any revolving
credit facility shall be computed based upon the average daily balance
of such Debt during such period), (iii) in the case of Acquired
Indebtedness or Debt incurred in connection with any acquisition since
the first day of the four-quarter period, the related acquisition had
occurred as of the first day of the period with the appropriate
adjustments with respect to the acquisition being included in the pro
forma calculation, and (iv) in the case of any increase or decrease in
Total Assets, or any other acquisition or disposition by the Issuer or
any Subsidiary of any asset or group of assets, since the first day of
such four-quarter period, including, without limitation, by merger,
stock purchase or sale, or asset purchase or sale, such increase,
decrease, or other acquisition or disposition or any related repayment
of Debt had occurred as of the first day of such period with the
appropriate adjustments to revenues, expenses and Debt levels with
respect to such increase, decrease or other acquisition or disposition
being included in such pro forma calculation; and
(d) Issuer will at all times maintain Total Unencumbered
Assets of not less than 150% of the aggregate outstanding principal
amount of all outstanding Unsecured Debt of the Issuer and its
Subsidiaries on a consolidated basis.
SECTION 1005. [INTENTIONALLY OMITTED].
SECTION 1006. EXISTENCE. Subject to Article Eight, the Issuer
will do or cause to be done all things necessary to preserve and keep in full
force and effect its existence, rights and franchises; provided, however, that
the Issuer shall not be required to preserve any right or franchise if the Board
of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Issuer and that the loss thereof
is not disadvantageous in any material respect to the Holders.
SECTION 1007. MAINTENANCE OF PROPERTIES. The Issuer will cause
all of its material properties used or useful in the conduct of its business or
the business of any Subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the reasonable judgment of the Issuer may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that the
Issuer and its Subsidiaries shall not be prevented from discontinuing the
operation and maintenance of any of such properties if such
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discontinuance is, in the judgment of the Issuer, desirable in the conduct of
its business and not disadvantageous in any material respect to the Holders.
SECTION 1008. INSURANCE. The Issuer will, and will cause each
of its Subsidiaries to, maintain insurance coverage by financially sound and
reputable insurance companies on all of its insurable property against loss or
damage with amounts and types of insurance that are commercially reasonable.
SECTION 1009. PAYMENT OF TAXES AND OTHER CLAIMS. The Issuer
will pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of the
Issuer or any Subsidiary, and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Issuer or any Subsidiary; provided, however, that the Issuer shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
SECTION 1010. PROVISION OF FINANCIAL INFORMATION. The Issuer
will deliver to each Holder (a) quarterly unaudited consolidated financial
statements (including statements of income and cash flow and a consolidated
balance sheet), in comparative form, of the Issuer and its Subsidiaries within
60 days of the end of each of the first three fiscal quarters, (b) annual
audited consolidated financial statements of the Issuer and its Subsidiaries
within 105 days of the end of each fiscal year, (c) together with the statements
delivered under (a) and (b) above, certification from an officer of the Issuer
ranking at the level of a Senior Vice President or above and having
responsibility for financial information as fairly presenting in all material
respects the financial position and results of operations of the Issuer and its
Subsidiaries, (d) together with the statements delivered under (a) above, a
certificate from an officer of the Issuer ranking at the level of Senior Vice
President or above and having responsibility for financial information showing
compliance with the provisions of restrictive covenants and indicating whether
or not the Issuer is aware of any defaults, (e) together with the statements
delivered under (b) above, a certificate from the Issuer's accountants showing
compliance with the provisions of restrictive covenants and indicating whether
or not they became aware of any defaults during their audit, (f) copies of all
public documents sent by the Issuer to public securities holders or filed by the
Issuer with the Commission within 15 days after the delivery or filing of such
documents, and (g) notice within ten business days, after an officer of the
Issuer ranking at the level of a Senior Vice President or above and having
responsibility for financial information becomes aware of the existence of any
Default or Event of Default, specifying the nature and period of existence
thereof and what action the Issuer is taking or proposes to take with respect
thereto.
Once the Issuer becomes subject to the Exchange Act, the
quarterly and annual consolidated financial statements referred to above will be
deemed to refer to the Issuer's quarterly reports on Form 10-Q, annual reports
on Form 10-K or current reports on Form 8-K, respectively.
SECTION 1011. STATEMENT AS TO COMPLIANCE. The Issuer shall
deliver to the Trustee, within 120 days after the end of each fiscal year (which
is currently December 31), a written statement (which need not be contained in
or accompanied by an Officers' Certificate) signed by the principal executive
officer, the principal financial officer or the principal accounting officer of
the General Partner acting in its capacity as the sole general partner of the
Issuer, stating that:
(a) a review of the activities of the Issuer during such year
and of its performance under this Indenture has been made under his or her
supervision, and
(b) to the best of his or her knowledge, based on such review,
(i) the Issuer has complied with all the conditions and covenants imposed on it
under this Indenture throughout such year, or, if there has been a default in
the fulfillment of any such condition or covenant, specifying each such default
known to him or her and the nature and status thereof, and (ii) no event has
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occurred and is continuing which is, or after notice or lapse of time or both
would become, an Event of Default, or, if such an event has occurred and is
continuing, specifying each such event known to him and the nature and status
thereof.
SECTION 1012. ADDITIONAL AMOUNTS. If any Securities of a
series provide for the payment of Additional Amounts, the Issuer will pay to the
Holder of any Security of such series or any coupon appertaining thereto
Additional Amounts as may be specified as contemplated by Section 301. Whenever
in this Indenture there is mentioned, in any context except in the case of
Section 502(a), the payment of the principal of or any premium or interest on,
or in respect of, any Security of any series or payment of any related coupon or
the net proceeds received on the sale or exchange of any Security of any series,
such mention shall be deemed to include mention of the payment of Additional
Amounts provided by the terms of such series established pursuant to Section 301
to the extent that, in such context, Additional Amounts are, were or would be
payable in respect thereof pursuant to such terms and express mention of the
payment of Additional Amounts (if applicable) in any provisions hereof shall not
be construed as excluding Additional Amounts in those provisions hereof where
such express mention is not made.
Except as otherwise specified as contemplated by Section 301,
if the Securities of a series provide for the payment of Additional Amounts, at
least 10 days prior to the first Interest Payment Date with respect to that
series of Securities (or if the Securities of that series will not bear interest
prior to Maturity, the first day on which a payment of principal and any premium
is made), and at least 10 days prior to each date of payment of principal and
any premium or interest if there has been any change with respect to the matters
set forth in the below-mentioned Officers' Certificate, the Issuer shall furnish
to the Trustee and the Paying Agent, if other than the Trustee, an Officers'
Certificate instructing the Trustee and such Paying Agent or Paying Agents
whether such payment of principal of and any premium or interest on the
Securities of that series shall be made to Holders of Securities of that series
or any related coupons who are not United States persons without withholding for
or on account of any tax, assessment or other governmental charge described in
the Securities of the series. If any such withholding shall be required, then
such Officers' Certificate shall specify by country the amount, if any, required
to be withheld on such payments to such Holders of Securities of that series or
related coupons and the Issuer will pay to the Trustee or such Paying Agent the
Additional Amounts required by the terms of such Securities. If the Trustee or
any Paying Agent, as the case may be, shall not so receive the above-mentioned
certificate, then the Trustee or such Paying Agent shall be entitled (i) to
assume that no such withholding or deduction is required with respect to any
payment of principal or interest with respect to any Securities of a series or
related coupons until it shall have received a certificate advising otherwise
and (ii) to make all payments of principal and interest with respect to the
Securities of a series or related coupons without withholding or deductions
until otherwise advised. The Issuer covenants to indemnify the Trustee and any
Paying Agent for, and to hold them harmless against, any loss, liability or
expense reasonably incurred without negligence or bad faith on their part
arising out of or in connection with actions taken or omitted by any of them or
in reliance on any Officers' Certificate furnished pursuant to this Section or
in reliance on the Issuer's not furnishing such an Officers' Certificate.
SECTION 1013. WAIVER OF CERTAIN COVENANTS. The Issuer may omit
in any particular instance to comply with any term, provision or condition set
forth in Sections 1004 to 1011, inclusive, if before or after the time for such
compliance the Holders of at least a majority in principal amount of all
Outstanding Securities of each series affected by such omission, by Act of such
Holders, either waive such compliance in such instance or generally waive
compliance with such covenant or condition, but no such waiver shall extend to
or affect such covenant or condition except to the extent so expressly waived,
and, until such waiver shall become effective, the obligations of the Issuer and
the duties of the Trustee in respect of any such term, provision or condition
shall remain in full force and effect.
SECTION 1014. DELIVERY OF CERTAIN INFORMATION. At any time
when the Issuer is not subject to Section 13 or 15(d) of the Exchange Act, upon
the request of a Holder of a
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Security, the Issuer will promptly furnish or cause to be furnished Rule 144A
Information (as defined below) to such Holder, or to a prospective purchaser of
any such Security designated by any such Holder, as the case may be, to the
extent required to permit compliance by such Holder with Rule 144A under the
Securities Act (or any successor provision thereto) in connection with the
resale of any such Security; provided, however, that the Issuer shall not be
required to furnish such information in connection with any request made on or
after the date which is two years from the later of (i) the date such a Security
(or any such predecessor security) was last acquired from the Issuer or (ii) the
date such a Security (or any such predecessor security) was last acquired from
an "affiliate" of the Issuer within the meaning of Rule 144 under the Securities
Act (or any successor provision thereto). "Rule 144A Information" shall be such
information as is specified pursuant to Rule 144A(d)(4) under the Securities Act
(or any successor provision thereto).
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. APPLICABILITY OF ARTICLE. Securities of any
series which are redeemable before their Stated Maturity shall be redeemable in
accordance with their terms and (except as otherwise specified as contemplated
by Section 301 for Securities of any series) in accordance with this Article.
SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE. The
election of the Issuer to redeem any Securities shall be evidenced by or
pursuant to a Board Resolution. In case of any redemption at the election of the
Issuer of less than all of the Securities of any series, the Issuer shall, at
least 45 days prior to the giving of notice of redemption in Section 1104
(unless a shorter notice shall be satisfactory to the Trustee), notify the
Trustee of such Redemption Date and of the principal amount of Securities of
such series to be redeemed. In the case of any redemption of Securities prior to
the expiration of any restriction on such redemption provided in the terms of
such Securities or elsewhere in this Indenture, the Issuer shall furnish the
Trustee with an Officers' Certificate evidencing compliance with such
restriction.
SECTION 1103. SELECTION BY TRUSTEE OF SECURITIES TO BE
REDEEMED. If less than all the Securities of any series issued on the same day
with the same terms are to be redeemed, the particular Securities to be redeemed
shall be selected not more than 60 days prior to the Redemption Date by the
Trustee, from the Outstanding Securities of such series issued on such date with
the same terms not previously called for redemption, by such method as the
Trustee shall deem fair and appropriate and which may provide for the selection
for redemption of portions (equal to the minimum authorized denomination for
Securities of that series or any integral multiple thereof) of the principal
amount of Securities of such series of a denomination larger than the minimum
authorized denomination for Securities of that series.
The Trustee shall promptly notify the Issuer and the Security
Registrar (if other than itself) in writing of the Securities selected for
redemption and, in the case of any Securities selected for partial redemption,
the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the redemption of Securities
shall relate, in the case of any Security redeemed or to be redeemed only in
part, to the portion of the principal amount of such Security which has been or
is to be redeemed.
SECTION 1104. NOTICE OF REDEMPTION. Notice of redemption shall
be given in the manner provided in Section 106, not less than 30 days nor more
than 60 days prior to the Redemption Date, unless a shorter period is specified
by the terms of such series established pursuant to Section 301, to each Holder
of Securities to be redeemed. Failure to give such notice in the manner herein
provided to the Holder of any Security designated for redemption as a whole or
in part, or any defect in the notice to any such Holder, shall not affect the
validity of the proceedings for
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the redemption of any other such Security or portion thereof. Any notice that is
mailed to the Holders of Registered Securities in the manner herein provided
shall be conclusively presumed to have been duly given, whether or not the
Holder; receives the notice.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price, accrued interest to the
Redemption Date payable as provided in Section 1106,
if any, and Additional Amounts, if any,
(c) if less than all Outstanding Securities of any series
are to be redeemed, the identification (and, in the
case of partial redemption, the principal amount) of
the particular Security or Securities to be redeemed,
(d) in case any Security is to be redeemed in part only,
the notice which relates to such Security shall state
that on and after the Redemption Date, upon surrender
of such Security, the holder will receive, without a
charge, a new Security or Securities of authorized
denominations for the principal amount thereof
remaining unredeemed,
(e) that on the Redemption Date the Redemption Price and
accrued interest to the Redemption Date payable as
provided in Section 1106, if any, will become due and
payable upon each such Security, or the portion
thereof, to be redeemed and, if applicable, that
interest thereon shall cease to accrue on and after
said date,
(f) the Place or Places of Payment where such Securities,
together in the case of Bearer Securities with all
coupons appertaining thereto, if any, maturing after
the Redemption Date, are to be surrendered for
payment of the Redemption Price and accrued interest,
if any,
(g) that the redemption is for a sinking fund, if such
is the case,
(h) that, unless otherwise specified in such notice,
Bearer Securities of any series, if any, surrendered
for redemption must be accompanied by all coupons
maturing subsequent to the date fixed for redemption
or the amount of any such missing coupon or coupons
will be deducted from the Redemption Price, unless
security or indemnity satisfactory to the Issuer, the
Trustee for such series and any Paying Agent is
furnished,
(i) if Bearer Securities of any series are to be redeemed
and any Registered Securities of such series are not
to be redeemed, and if such Bearer Securities may be
exchanged for Registered Securities not subject to
redemption on this Redemption Date pursuant to
Section 305 or otherwise, the last date, as
determined by the Issuer, on which such exchanges may
be made,
(j) the CUSIP number or the Euroclear or CEDEL reference
numbers of such Security, if any (provided that the
notice may contain a disclaimer as to the accuracy of
such numbers), and
(k) if applicable, that a Holder of Securities who
desires to convert Securities for redemption must
satisfy the requirements for conversion contained in
such Securities, the then existing conversion price
or rate, and the date and time when the option to
convert shall expire.
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A notice of redemption published as contemplated by Section
106 need not identify particular Registered Securities to be redeemed.
Notice of redemption of Securities to be redeemed shall be
given by the Issuer or, at the Issuer's request, by the Trustee in the name and
at the expense of the Issuer.
SECTION 1105. DEPOSIT OF REDEMPTION PRICE. At least one
Business Day prior to any Redemption Date, the Issuer shall deposit with the
Trustee or with a Paying Agent (or, if the Issuer is acting as its own Paying
Agent, which it may not do in the case of a sinking fund payment under Article
Twelve, segregate and hold in trust as provided in Section 1003) an amount of
money in the currency or currencies, currency unit or units or composite
currency or currencies in which the Securities of such series are payable
(except as otherwise specified pursuant to Section 301 for the Securities of
such series) sufficient to pay on the Redemption Date the Redemption Price of,
and (except if the Redemption Date shall be an Interest Payment Date) accrued
interest on and Additional Amounts with respect thereto, all the Securities or
portions thereof which are to be redeemed on that date.
SECTION 1106. SECURITIES PAYABLE ON REDEMPTION DATE. Notice of
redemption having been given as aforesaid, the Securities so to be redeemed
shall, on the Redemption Date, become due and payable at the Redemption Price
therein specified in the currency or currencies, currency unit or units or
composite currency or currencies in which the Securities of such series are
payable (except as otherwise specified pursuant to Section 301 for the
Securities of such series) (together with accrued interest, if any, to the
Redemption Date), and from and after such date (unless the Issuer shall default
in the payment of the Redemption Price and accrued interest) such Securities
shall, if the same were interest-bearing, cease to bear interest and the coupons
for such interest appertaining to any Bearer Securities so to be redeemed,
except to the extent provided below, shall be void. Upon surrender of any such
Security for redemption; in accordance with said notice, together with all
coupons, if any, appertaining thereto maturing after the Redemption Date, such
Security shall be paid by the Issuer at the Redemption Price, together with
accrued interest and Additional Amounts, if any, to the Redemption Date;
provided, however, that installments of interest on Bearer Securities whose
Stated Maturity is on or prior to the Redemption Date shall be payable only at
an office or agency located outside the United States (except as otherwise
provided in Section 1002) and, unless otherwise specified as contemplated by
Section 301, only upon presentation and surrender of coupons for such interest;
and provided further that, except as otherwise provided, installments of
interest on Registered Securities whose Stated Maturity is on or prior to the
Redemption Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307.
If any Bearer Security surrendered for redemption shall not be
accompanied by all appurtenant coupons maturing after the Redemption Date, such
Security may be paid after deducting from the Redemption Price an amount equal
to the face amount of all such missing coupons, or the surrender of such missing
coupon or coupons may be waived by the Issuer and the Trustee if there be
furnished to them such security or indemnity as they may require to save each of
them and any Paying Agent harmless. If thereafter the Holder of such Security
shall surrender to the Trustee or any Paying Agent any such missing coupon in
respect of which a deduction shall have been made from the Redemption Price,
such Holder shall be entitled to receive the amount so deducted; provided,
however, that interest represented by coupons shall be payable only upon
presentation and surrender of those coupons at an office or agency located
outside the United States (except as otherwise provided in Section 1002).
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal (and premium or Make-Whole
Amount, if any) shall, until paid, bear interest from the Redemption Date at the
rate borne by the Security.
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SECTION 1107. SECURITIES REDEEMED IN PART. Any Registered
Security which is to be redeemed only in part (pursuant to the provisions of
this Article) shall be surrendered at a Place of Payment therefor (with, if the
Issuer or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Issuer and the Trustee duly executed by,
the Holder thereof or his attorney duly authorized in writing) and the Issuer
shall execute and the Trustee shall authenticate and deliver to the Holder of
such Security without service charge a new Registered Security or Securities of
the same series, of any authorized denomination as requested by such Holder in
aggregate principal amount equal to and in exchange for the unredeemed portion
of the principal of the Security so surrendered. If a Security in global form is
so surrendered, the Issuer shall execute, and the Trustee shall authenticate and
deliver to the depositary for such Security in global form as shall be specified
in the Issuer Order to the Trustee with respect thereto, without service charge,
a new Security in global form in a denomination equal to and in exchange for the
unredeemed portion of the principal of the Security in global form so
surrendered.
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. APPLICABILITY OF ARTICLE. The provisions of this
Article shall be applicable to any sinking fund for the retirement of Securities
of a series except as otherwise specified as contemplated by Section 301 for
Securities of such series.
The minimum amount of any sinking fund payment provided for by
the terms of Securities of any series is herein referred to as a "mandatory
sinking fund payment," and any payment in excess of such minimum amount provided
for by the terms of such Securities of any series is herein referred to as an
"optional sinking fund payment." If provided for by the terms of any Securities
of any series, the cash amount of any mandatory sinking fund payment may be
subject to reduction as provided in Section 1202. Each sinking fund payment
shall be applied to the redemption of Securities of any series as provided for
by the terms of Securities of such series.
SECTION 1202. SATISFACTION OF SINKING FUND PAYMENT WITH
SECURITIES. The Issuer may, in satisfaction of all or any part of any mandatory
sinking fund payment with respect to the Securities of a series, (1) deliver
Outstanding Securities of such series (other than any Securities previously
called for redemption) together in the case of any Bearer Securities of such
series with all unmatured coupons appertaining thereto and (2) apply as a credit
Securities of such series which have been redeemed either at the election of the
Issuer pursuant to the terms of such Securities or through the application of
permitted optional sinking fund payments pursuant to the terms of such
Securities, or which have otherwise been acquired by the Issuer; provided that
such Securities so delivered or applied as a credit have not been previously so
credited. Such Securities shall be received and credited for such purpose by the
Trustee at the applicable Redemption Price specified in such Securities for
redemption through operation of the sinking fund and the amount of such
mandatory sinking fund payment shall be reduced accordingly.
SECTION 1203. REDEMPTION OF SECURITIES FOR SINKING FUND. Not
less than 60 days prior to each sinking fund payment date for Securities of any
series, the Issuer will deliver to the Trustee an Officers' Certificate
specifying the amount of the next ensuing mandatory sinking fund payment for
that series pursuant to the terms of that series, the portion thereof, if any,
which is to be satisfied by payment of cash in the currency or currencies,
currency unit or units or composite currency or currencies in which the
Securities of such series are payable (except as otherwise specified pursuant to
Section 301 for the Securities of such series) and the portion thereof, if any,
which is to be satisfied by delivering and crediting Securities of that series
pursuant to Section 1202, and the optional amount, if any, to be added in cash
to the next ensuing mandatory sinking fund payment, and will also deliver to the
Trustee any Securities to be so delivered and credited. If such Officers'
Certificate shall specify an optional amount to be added in cash to the next
ensuing mandatory sinking fund payment, the Issuer shall thereupon be obligated
to pay the amount therein specified. Not less than 30 days before each such
sinking fund payment date the Trustee
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shall select the Securities to be redeemed upon such sinking fund payment date
in the manner specified in Section 1103 and cause notice of the redemption
thereof to be given in the name of and at the expense of the Issuer in the
manner provided in Section 1104. Such notice having been duly given, the
redemption of such Securities shall be made upon the terms and in the manner
stated in Sections 1106 and 1107.
ARTICLE THIRTEEN
REPAYMENT AT THE OPTION OF HOLDERS
SECTION 1301. APPLICABILITY OF ARTICLE. Repayment of
Securities of any series before their Stated Maturity at the option of Holders
thereof shall be made in accordance with the terms of such Securities, if any,
and (except as otherwise specified by the terms of such series established
pursuant to Section 301) in accordance with this Article.
SECTION 1302. REPAYMENT OF SECURITIES. Securities of any
series subject to repayment in whole or in part at the option of the Holders
thereof will, unless otherwise provided in the terms of such Securities, be
repaid at a price equal to the principal amount thereof, together with interest,
if any, thereon accrued to the Repayment Date specified in or pursuant to the
terms of such Securities. The Issuer covenants that at least one Business Day
prior to the Repayment Date it will deposit with the Trustee or with a Paying
Agent (or, if the Issuer is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 1003) an amount of money in currency or
currencies, currency unit or units or composite currency or currencies in which
the Securities of such series are payable (except as otherwise specified
pursuant to Section 301 for the Securities of such series) sufficient to pay the
principal (or, if so provided by the terms of the Securities of any series, a
percentage of the principal) of, and (except if the Repayment Date shall be an
Interest Payment Date) accrued interest on, all the Securities or portions
thereof, as the case may be, to be repaid on such date.
SECTION 1303. EXERCISE OF OPTION. Securities of any series
subject to repayment at the option of the Holders thereof will contain an
"Option to Elect Repayment" form on the reverse of such Securities. In order for
any Security to be repaid at the option of the Holder, the Trustee must receive
at the Place of Payment therefor specified in the terms of such Security (or at
such other place or places of which the Issuer shall from time to time notify
the Holders of such Securities) not earlier than 60 days nor later than 30 days
prior to the Repayment Date (1) the Security so providing for such repayment
together with the "Option to Elect Repayment" form on the reverse thereof duly
completed by the Holder (or by the Holder's attorney duly authorized in writing)
or (2) a telegram, telex, facsimile transmission or a letter from a member of a
national securities exchange, or the National Association of Securities Dealers,
Inc., or a commercial bank or trust company in the United States setting forth
the name of the Holder of the Security, the principal amount of the Security,
the principal amount of the Security to be repaid, the CUSIP number, if any, or
a description of the tenor and terms of the Security, a statement that the
option to elect repayment is being exercised thereby and a guarantee that the
Security to be repaid, together with the duly completed form entitled "Option to
Elect Repayment" on the reverse of the Security will be received by the Trustee
not later than the fifth Business Day after the date of such telegram, telex,
facsimile transmission or letter; provided, however, that such telegram, telex,
facsimile transmission or letter shall only be effective if such Security and
form duly completed are received by the Trustee by such fifth Business Day. If
less than the entire principal amount of such Security is to be repaid in
accordance with the terms of such Security, the principal amount of such
Security to be repaid, in increments of the minimum denominations for Securities
of such series, and the denomination or denominations of the Security or
Securities to be issued to the Holder for the portion of the principal amount of
such Security surrendered that is not to be repaid, must be specified. The
principal amount of any Security providing for repayment at the option of the
Holder thereof may not be repaid in part if, following such repayment, the
unpaid principal amount of such Security would be less than the minimum
authorized denomination of Securities of the series of which such Security to be
repaid is a part. Except as otherwise may be provided by the terms of any
Security providing for repayment at the option of the Holder thereof, exercise
of the repayment option by the Holder shall be irrevocable unless waived by the
Issuer.
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SECTION 1304. WHEN SECURITIES PRESENTED FOR REPAYMENT BECOME
DUE AND PAYABLE. If Securities of any series providing for repayment at the
option of the Holders thereof shall have been surrendered as provided in this
Article and as provided by or pursuant to the terms of such Securities, such
Securities or the portions thereof, as the case may be, to be repaid shall
become due and payable and shall be paid by the Issuer on the Repayment Date
therein specified, and on and after such Repayment Date (unless the Issuer shall
default in the payment of such Securities on such Repayment Date) such
Securities shall, if the same were interest-bearing, cease to bear interest and
the coupons for such interest appertaining to any Bearer Securities so to be
repaid, except to the extent provided below, shall be void. Upon surrender of
any such Security for repayment in accordance with such provisions, together
with all coupons, if any, appertaining thereto maturing after the Repayment
Date, the principal amount of such Security so to be repaid shall be paid by the
Issuer, together with accrued interest, if any, to the Repayment Date; provided,
however, that coupons whose Stated Maturity is on or prior to the Repayment Date
shall be payable only at an office or agency located outside the United States
(except as otherwise provided in Section 1002) and, unless otherwise specified
pursuant to Section 301, only upon presentation and surrender of such coupons;
and provided further that, in the case of Registered Securities, installments of
interest, if any, whose Stated Maturity is on or prior to the Repayment Date
shall be payable (but without interest thereon, unless the Issuer shall default
in the payment thereof) to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307.
If any Bearer Security surrendered for repayment shall not be
accompanied by all appurtenant coupons maturing after the Repayment Date, such
Security may be paid after deducting from the amount payable therefor as
provided in Section 1302 an amount equal to the face amount of all such missing
coupons, or the surrender of such missing coupon or coupons may be waived by the
Issuer and the Trustee if there be furnished to them such security or indemnity
as they may require to save each of them and any Paying Agent harmless. If
thereafter the Holder of such Security shall surrender to the Trustee or any
Paying Agent any such missing coupon in respect of which a deduction shall have
been made as provided in the preceding sentence, such Holder shall be entitled
to receive the amount so deducted; provided, however, that interest represented
by coupons shall be payable only at an office or agency located outside the
United States (except as otherwise provided in Section 1002) and, unless
otherwise specified as contemplated by Section 301, only upon presentation and
surrender of those coupons.
If the principal amount of any Security surrendered for
repayment shall not be so repaid upon surrender thereof, such principal amount
(together with interest, if any, thereon, accrued to such Repayment Date) shall,
until paid, bear interest from the Repayment Date at the rate of, interest or
Yield to Maturity (in the case of Original Issue Discount Securities) set forth
in such Security.
SECTION 1305. SECURITIES REPAID IN PART. Upon surrender of any
Registered Security which is to be repaid in part only, the Issuer shall execute
and the Trustee shall authenticate and deliver to the Holder of such Security,
without service charge and at the expense of the Issuer, a new Registered
Security or Securities of the same series, of any authorized denomination
specified by the Holder, in an aggregate principal amount equal to and in
exchange for the portion of the principal of such Security so surrendered which
is not to be repaid.
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ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1401. APPLICABILITY OF ARTICLE; ISSUER'S OPTION TO
EFFECT DEFEASANCE OR COVENANT DEFEASANCE. If, pursuant to Section 301, provision
is made for either or both of (a) defeasance of the Securities of or within a
series under Section 1402 or (b) covenant defeasance of the Securities of or
within a series under Section 1403, then the provisions of such Section or
Sections, as the case may be, together with the other provisions of this Article
(with such modifications thereto as may be specified pursuant to Section 301
with respect to any Securities), shall be applicable to such Securities and any
coupons appertaining thereto, and the Issuer may at its option by Board
Resolution, at any time, with respect to such Securities and any coupons
appertaining thereto, elect to have Section 1402 (if applicable) or Section 1403
(if applicable) be applied to such Outstanding Securities and any coupons
appertaining thereto upon compliance with the conditions set forth below in this
Article.
SECTION 1402. DEFEASANCE AND DISCHARGE. Upon the Issuer's
exercise of the above option applicable to this Section with respect to any
Securities of or within a series, the Issuer shall be deemed to have been
discharged from its obligations with respect to such Outstanding Securities and
any coupons appertaining thereto on the date the conditions set forth in Section
1404 are satisfied (hereinafter, "defeasance"). For this purpose, such
defeasance means that the Issuer shall be deemed to have paid and discharged the
entire indebtedness represented by such Outstanding Securities and any coupons
appertaining thereto, which shall thereafter be deemed to be "Outstanding" only
for the purposes of Section 1405 and the other Sections of this Indenture
referred to in clauses (A) and (B) below, and to have satisfied all of its other
obligations under such Securities and any coupons appertaining thereto and this
Indenture insofar as such Securities and any coupons appertaining thereto are
concerned (and the Trustee, at the expense of the Issuer, shall execute proper
instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of such Outstanding Securities and any coupons appertaining thereto
receive, solely from the trust fund described in Section 1404 and as more fully
set forth in such Section, payments in respect of the principal of (and premium
or Make-Whole Amount, if any) and interest and Additional Amounts, if any, on
such Securities and any coupons appertaining thereto when such payments are due
and any right of such Holder to exchange such Securities for other Securities,
(B) the Issuer's obligations with respect to such Securities under Sections 305,
306, 1002 and 1003 and with respect to the payment of Additional Amounts, if
any, on such Securities as contemplated by Section 1012 (but only to the extent
that the Additional Amounts payable with respect to such Securities exceed the
amount deposited in respect of such Additional Amounts pursuant to Section 1404
below), (C) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and (D) this Article. Subject to compliance with this Article
Fourteen, the Issuer may exercise its option under this Section notwithstanding
the prior exercise of its option under Section 1403 with respect to such
Securities and any coupons appertaining thereto.
SECTION 1403. COVENANT DEFEASANCE. Upon the Issuer's exercise
of the above option applicable to this Section with respect to any Securities of
or within a series, the Issuer shall be released from its obligations under
Sections 1004 to 1011, inclusive, and, if specified pursuant to Section 301, its
obligations under any other covenant, with respect to such Outstanding
Securities and any coupons appertaining thereto on and after the date the
conditions set forth in Section 1404 are satisfied (hereinafter, "covenant
defeasance"), and such Securities and any coupons appertaining thereto shall
thereafter be deemed to be not "Outstanding" for the purposes of any direction,
waiver, consent or declaration or Act of Holders (and the consequences of any
thereof) in connection with any such covenant, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such covenant
defeasance means that, with respect to such Outstanding Securities and any
coupons appertaining thereto, the Issuer may omit to comply with and shall have
no liability in respect of any term, condition or limitation set forth in any
such Section or such other covenant, whether directly or indirectly, by reason
of any reference elsewhere herein to
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any such Section or such other covenant or by reason of reference in any such
Section or such other covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a default or an Event
of Default under Section 501(d) or 501(h) or otherwise, as the case may be, but,
except as specified above, the remainder of this Indenture and such Securities
and any coupons appertaining thereto shall be unaffected thereby.
SECTION 1404. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to application of Section 1402 or Section
1403 to any Outstanding Securities of or within a series and any coupons
appertaining thereto:
(a) The Issuer shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the requirements of
Section 607 who shall agree to comply with the provisions of this Article
Fourteen applicable to it) as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of such Securities and any coupons appertaining
thereto, (1) an amount in such currency, currencies or currency unit in which
such Securities and any coupons appertaining thereto are then specified as
payable at Stated Maturity, or (2) Government Obligations applicable to such
Securities and coupons appertaining thereto (determined on the basis of the
currency, currencies or currency unit in which such Securities and coupons
appertaining thereto are then specified as payable at Stated Maturity) which
through the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the due
date of any payment of principal of (and premium or Make-Whole Amount, if any)
and interest, if any, on such Securities and any coupons appertaining thereto,
money in an amount, or (3) a combination thereof, any case, in an amount,
sufficient, without consideration of any reinvestment of such principal and
interest, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, and which shall be applied by the Trustee (or
other qualifying trustee) to pay and discharge, (i) the principal of (and
premium or Make-Whole Amount, if any) and interest, if any, on such Outstanding
Securities and any coupons appertaining thereto on the Stated Maturity of such
principal or installment of principal or interest and (ii) any mandatory sinking
fund payments or analogous payments applicable to such Outstanding Securities
and any coupons appertaining thereto on the day on which such payments are due
and payable in accordance with the terms of this Indenture and of such
Securities and any coupons appertaining thereto.
(b) Such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under, this Indenture or any
other material agreement or instrument to which the Issuer is a party or by
which it is bound.
(c) No Event of Default or event which with notice or lapse of
time or both would become an Event of Default with respect to such Securities
and any coupons appertaining thereto shall have occurred and be continuing on
the date of such deposit and, with respect to defeasance only, at any time
during the period ending on the 91st day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until the
expiration of such period).
(d) In the case of an election under Section 1402, the Issuer
shall have delivered to the Trustee an Opinion of Counsel stating that (i) the
Issuer has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of execution of this Indenture, there
has been a change in the applicable Federal income tax law, in either case to
the effect that, and based thereon such opinion shall confirm that, the Holders
of such Outstanding Securities and any coupons appertaining thereto will not
recognize income, gain or loss for Federal income tax purposes as a result of
such defeasance and will not be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such defeasance had not occurred.
(e) In the case of an election under Section 1403, the Issuer
shall have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of such Outstanding Securities
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and any coupons appertaining thereto will not recognize income, gain or loss for
Federal income tax purposes as a result of such covenant defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred.
(f) The Issuer shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent to the defeasance under Section 1402 or the covenant
defeasance under Section 1403 (as the case may be) have been complied with.
(g) Notwithstanding any other provisions of this Section, such
defeasance or covenant defeasance shall be effected in compliance with any
additional or substitute terms, conditions or limitations which may be imposed
on the Issuer in connection therewith pursuant to Section 301.
SECTION 1405. DEPOSITED MONEY AND GOVERNMENT OBLIGATIONS TO BE
HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to the provisions of the
last paragraph of Section 1003, all money and Government Obligations (or other
property as may be provided pursuant to Section 301) (including the proceeds
thereof) deposited with the Trustee (or other qualifying trustee, collectively
for purposes of this Section 1405, the "Trustee") pursuant to Section 1404 in
respect of any Outstanding Securities of any series and any coupons appertaining
thereto shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and any coupons appertaining thereto and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Issuer acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities and any coupons appertaining
thereto of all sums due and to become due thereon in respect of principal (and
premium or Make-Whole Amount, if any) and interest and Additional Amounts, if
any, but such money need not be segregated from other funds except to the extent
required by law.
Unless otherwise specified with respect to any Security
pursuant to Section 301, in or pursuant to this Indenture or any Security if,
after a deposit referred to in Section 1404(a) has been made, (a) the Holder of
a Security in respect of which such deposit was made is entitled to, and does,
elect pursuant to Section 301 or the terms of such Security to receive payment
in a currency or currency unit other than that in which the deposit pursuant to
Section 1404(a) has been made in respect of such Security, or (b) a Conversion
Event occurs in respect of the Foreign Currency in which the deposit pursuant to
Section 1404(a) has been made, the indebtedness represented by such Security and
any coupons appertaining thereto shall be deemed to have been, and will be,
fully discharged and satisfied through the payment of the principal of (and
premium or Make-Whole Amount, if any), and interest, if any, on and Additional
Amounts, if any, with respect to such Security as the same becomes due out of
the proceeds yielded by converting (from time to time as specified below in the
case of any such election) the amount or other property deposited in respect of
such Security into the currency or currency unit in which such Security becomes
payable as a result of such election or Conversion Event based on the applicable
market exchange rate for such currency or currency unit in effect on the second
Business Day prior to each payment date, except, with respect to a Conversion
Event, for such Foreign Currency in effect (as nearly as feasible) at the time
of the Conversion Event.
The Issuer shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the Government
Obligations deposit pursuant to Section 1404 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of such Outstanding Securities and any
coupons appertaining thereto.
Anything in this Article to the contrary notwithstanding,
subject to Section 606, the Trustee shall deliver or pay to the Issuer from time
to time upon Issuer Request any money or Government Obligations (or other
property and any proceeds therefrom) held by it as provided in Section 1404
which, in the opinion of a nationally recognized firm of independent public
accountants
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expressed in a written certification thereof delivered to the Trustee, are in
excess of the amount thereof which would then be required to be deposited to
effect a defeasance or covenant defeasance, as applicable, in accordance with
this Article.
ARTICLE FIFTEEN
MEETINGS OF HOLDERS OF SECURITIES
SECTION 1501. PURPOSES FOR WHICH MEETINGS MAY BE CALLED. A
meeting of Holders of Securities of any series may be called at any time and
from time to time pursuant to this Article to make, give or take any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be made, given or taken by Holders of Securities
of such series.
SECTION 1502. CALL, NOTICE AND PLACE OF MEETINGS.
(a) The Trustee may at any time call a meeting of Holders of
Securities of any series for any purpose specified in Section 1501, to be held
at such time and at such place in the Borough of Manhattan, New York City, or in
London as the Trustee shall determine. Notice of every meeting of Holders of
Securities of any series, setting forth the time and the place of such meeting
and in general terms the action proposed to be taken at such meeting, shall be
given, in the manner provided in Section 106, not less than 21 nor more than 180
days prior to the date fixed for the meeting.
(b) In case at any time the Issuer, pursuant to a Board
Resolution, or any Holders of at least 10% in principal amount of the
Outstanding Securities of any series shall have requested the Trustee to call a
meeting of the Holders of Securities of such series for any purpose specified in
Section 1501, by written request setting forth in reasonable detail the action
proposed to be taken at the meeting, and the Trustee shall not have made the
first publication of the notice of such meeting within 21 days after receipt of
such request or shall not thereafter proceed to cause the meeting to be held as
provided herein, then the Issuer or the Holders of Securities of such series in
the amount above specified, as the case may be, may determine the time and the
place in the Borough of Manhattan, New York City, or in London for such meeting
and may call such meeting for such purposes by giving notice thereof as provided
in subsection (a) of this Section.
SECTION 1503. PERSONS ENTITLED TO VOTE AT MEETINGS. To be
entitled to vote at any meeting of Holders of Securities of any series, a Person
shall be (1) a Holder of one or more Outstanding Securities of such series, or
(2) a Person appointed by an instrument in writing as proxy for a Holder or
Holders of one or more Outstanding Securities of such series by such Holder or
Holders. The only Persons who shall be entitled to be present or to speak at any
meeting of Holders of Securities of any series shall be the Persons entitled to
vote at such meeting and their counsel, any representatives of the Trustee and
its counsel and any representatives of the Issuer and its counsel.
SECTION 1504. QUORUM; ACTION. The Persons entitled to vote a
majority in principal amount of the Outstanding Securities of a series shall
constitute a quorum for a meeting of Holders of Securities of such series;
provided, however, that if any action is to be taken at such meeting with
respect to a consent or waiver which this Indenture expressly provides may be
given by the Holders of not less than a specified percentage in principal amount
of the Outstanding Securities of a series, the Persons entitled to vote such
specified percentage in principal amount of the Outstanding Securities of such
series shall constitute a quorum. In the absence of a quorum within 30 minutes
after the time appointed for any such meeting, the meeting shall, if convened at
the request of Holders of Securities of such series, be dissolved. In any other
case the meeting may be adjourned for a period of not less than 10 days as
determined by the chairman of the meeting prior to the adjournment of such
meeting. In the absence of a quorum at the reconvening of any such adjourned
meeting, such adjourned meeting may be further adjourned for a period of not
less than 10
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days as determined by the chairman of the meeting prior to the adjournment of
such adjourned meeting. Notice of the reconvening of any adjourned meeting shall
be given as provided in Section 1502(a), except that such notice need to be
given only once not less than five days prior to the date on which the meeting
is scheduled to be reconvened. Notice of the reconvening of any adjournment
meeting shall state expressly the percentage, as provided above, of the
principal amount of the Outstanding Securities of such series which shall
constitute a quorum.
Except as limited by the proviso to Section 902, any
resolution presented to a meeting or adjourned meeting duly reconvened at which
a quorum is present as aforesaid may be adopted by the affirmative vote of the
persons entitled to vote a majority in aggregate principal amount of the
Outstanding Securities represented at such meeting; provided, however, that,
except as limited by the proviso to Section 902, any resolution with respect to
any request, demand, authorization, direction, notice, consent, waiver or other
action which this Indenture expressly provides may be made, given or taken by
the Holders of a specified percentage, which is less than a majority, in
principal amount of the Outstanding Securities of a series may be adopted at a
meeting or an adjourned meeting duly reconvened and at which a quorum is present
as aforesaid by the affirmative vote of the Holders of such specified percentage
in principal amount of the Outstanding Securities of that series.
Any resolution passed or decision taken at any meeting of
Holders of Securities of any series duly held in accordance with this Section
shall be binding on all the Holders of Securities of such series and the related
coupons, whether or not present or represented at the meeting.
Notwithstanding the foregoing provisions of this Section 1504,
if any action is to be taken at a meeting of Holders of Securities of any series
with respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that this Indenture expressly provides may be made, given
or taken by the Holders of a specified percentage in principal amount of all
Outstanding Securities affected thereby, or of the Holders of such series and
one or more additional series:
(a) there shall be no minimum quorum requirement for such
meeting; and
(b) the principal amount of the Outstanding Securities of
such series that vote in favor of such request,
demand, authorization, direction, notice, consent,
waiver or other action shall be taken into account in
determining whether such request, demand,
authorization, direction, notice, consent, waiver or
other action has been made, given or taken under this
Indenture.
SECTION 1505. DETERMINATION OF VOTING RIGHTS; CONDUCT AND
ADJOURNMENT OF MEETINGS.
(a) Notwithstanding any provisions of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for any
meeting of Holders of Securities of a series in regard to proof of the holding
of Securities of such series and of the appointment of proxies and in regard to
the appointment and duties of inspectors of votes, the submission and
examination of proxies, certificates and other evidence of the right to vote,
and such other matters concerning the conduct of the meeting as it shall deem
appropriate. Except as otherwise permitted or required by any such regulations,
the holding of Securities shall be proved in the manner specified in Section 104
and the appointment of any proxy shall be proved in the manner specified in
Section 104 or by having the signature of the Person executing the proxy
witnessed or guaranteed by any trust company, bank or banker authorized by
Section 104 to certify to the holding of Bearer Securities. Such regulations may
provide that written instruments appointing proxies, regular on their face, may
be presumed valid and genuine without the proof specified in Section 104 or
other proof.
(b) The Trustee shall, by an instrument in writing appoint a
temporary chairman of the meeting, unless the meeting shall have been canceled
by the Issuer or by Holders of Securities
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as provided in Section 1502(b), in which case the Issuer or the Holders of
Securities of the series calling the meeting, as the case may be, shall in like
manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the persons entitled to
vote a majority in principal amount of the Outstanding Securities of such series
represented at the meeting.
(c) At any meeting each Holder of a Security of such series or
proxy shall be entitled to one vote for each $1,000 principal amount of the
Outstanding Securities of such series held or represented by him; provided,
however that no vote shall be cast or counted at any meeting in respect of any
Security challenged as not Outstanding and ruled by the chairman of the meeting
to be not Outstanding. The chairman of the meeting shall have no right to vote,
except as a Holder of a Security of such series or proxy.
(d) Any meeting of Holders of Securities of any series duly
called pursuant to Section 1502 at which a quorum is present may be adjourned
from time to time by Persons entitled to vote a majority in principal amount of
the Outstanding Securities of such series represented at the meeting, and the
meeting may be held as so adjourned without further notice.
SECTION 1506. COUNTING VOTES AND RECORDING ACTION OF MEETINGS.
The vote upon any resolution submitted to any meeting of Holders of Securities
of any series shall be by written ballots on which shall be subscribed the
signatures of the Holders of Securities of such series or of their
representatives by proxy and the principal amounts and serial numbers of the
Outstanding Securities of such series held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
duplicate of all votes cast at the meeting. A record, at least in duplicate, of
the proceedings of each meeting of Holders of Securities of any Series shall be
prepared by the secretary of the meeting and there shall be attached to said
record the original reports of the inspectors of votes on any vote by ballot
taken thereat and affidavits by one or more persons having knowledge of the
fact, setting forth a copy of the notice of the meeting and showing that said
notice was given as provided in Section 1502 and, if applicable, Section 1504.
Each copy shall be signed and verified by the affidavits of the permanent
chairman and secretary of the meeting and one such copy shall be delivered to
the Issuer and another to the Trustee to be preserved by the Trustee, the latter
to have attached thereto the ballots voted at the meeting. Any record so signed
and verified shall be conclusive evidence of the matters therein stated.
SECTION 1507. EVIDENCE OF ACTION TAKEN BY HOLDERS. Any
request, demand, authorization, direction, notice consent, waiver or other
action provided by this Indenture to be given or taken by a specified percentage
in principal amount of the Holders of any or all series may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such specified percentage of Holders in person or by agent duly appointed in
writing, and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee. Proof and execution of any instrument or of a writing appointing any
such agent shall be sufficient for any purpose of this Indenture and (subject to
Article Six) conclusive in favor of the Trustee and the Issuer, if made in the
manner provided in this Article.
SECTION 1508. PROOF OF EXECUTION OF INSTRUMENTS. Subject to
Article Six, the execution of any instrument by a Holder or his agent or proxy
may be proved in accordance with such reasonable rules and regulations as may be
prescribed by the Trustee or in such manner as shall be satisfactory to the
Trustee.
-67-
<PAGE> 76
ARTICLE SIXTEEN
SECURITIES IN FOREIGN CURRENCIES
SECTION 1601. APPLICABILITY OF ARTICLE. Whenever this Indenture
provides for (a) any action by, or the determination of any of the rights of
Holders of Securities of any series in which not all of such Securities are
denominated in the same currency, or (b) any distribution to Holders of
Securities, in the absence of any provision to the contrary in the form of
Security of any particular series or pursuant to this Indenture or the
Securities, any amount in respect of any Security denominated in a currency
other than Dollars shall be treated for any such action or distribution as that
amount of Dollars that could be obtained for such amount on such reasonable
basis of exchange and as of the record date with respect to Registered
Securities of such series (if any) for such action, determination of rights for
distribution (or, if there shall be no applicable record date, such other date
reasonably proximate to the date of such action, determination of rights or
distribution) as the Issuer may specify in a written notice to the Trustee or,
in the absence of such written notice, as the Trustee may determine.
* * * * *
-68-
<PAGE> 77
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP
By: Crescent Real Estate Equities, Ltd.,
as General Partner
By:
----------------------------------
Name:
Title:
Attest:
----------------------------
Title:
STATE STREET BANK AND TRUST COMPANY
OF MISSOURI, N.A., as Trustee
By:
----------------------------------
Name:
Title:
Attest:
----------------------------
Title:
-69-
<PAGE> 78
STATE OF )
) ss:
COUNTY OF _____________ )
On the ____ day of _____________, 1997, before me personally came
__________________, to me known, who, being by me duly sworn, did depose and say
that he is ______ ___________________________________ of CRESCENT REAL ESTATE
EQUITIES, LTD., the general partner of CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, one of the parties described in and which executed the foregoing
instrument, and that he signed his name thereto by authority of the Board of
Directors.
{Notarial Seal}
--------------------------------
Notary Public
COMMISSION EXPIRES
-70-
<PAGE> 79
STATE OF MISSOURI)
) ss:
CITY OF ST. LOUIS)
On the _____ day of ____________, 1997, before me personally came
______________, to me known, who, being by me duly sworn, did depose and say
that he is ____________________ of _____________________________, one of the
parties described in and which executed the foregoing instrument, and that he
signed his name thereto by authority of the Board of Directors.
{Notarial Seal}
--------------------------------
Notary Public
COMMISSION EXPIRES
-71-
<PAGE> 80
EXHIBIT A
FORMS OF CERTIFICATION
EXHIBIT A-1
FORM OF CERTIFICATE TO BE GIVEN BY PERSON ENTITLED
TO RECEIVE BEARER SECURITY OR TO OBTAIN INTEREST
PAYABLE PRIOR TO THE EXCHANGE DATE
CERTIFICATE
{Insert title or sufficient description of Securities to be delivered}
This is to certify that, as of the date hereof, and except as set forth
below, the above-captioned Securities held by you for our account (i) are owned
by person(s) that are not citizens or residents of the United States, domestic
partnerships, domestic corporations or any estate or trust the income of which
is subject to United States federal income taxation regardless of its source
("United States person(s)"), (ii) are owned by United States person(s) that are
(a) foreign branches of United States financial institutions (financial
institutions, as defined in United States Treasury Regulations Section
1.165-12(c)(1)(v) are herein referred to a "financial institutions") purchasing
for their own account or for resale, or (b) United States person(s) who acquired
the Securities through foreign branches of United States financial institutions
and who hold the Securities through such United States financial institutions on
the date hereof (and in either case (a) or (b), each such United States
financial institution hereby agrees, on its own behalf or through its agent,
that you may advise Crescent Real Estate Equities, Ltd. or its agent that such
financial institution will comply with the requirements of Section 165(j)(3)(A),
(B) or (C) of the United States Internal Revenue Code of 1986, amended, and the
regulations thereunder), or (iii) are owned by United States or foreign
financial institution(s) for purposes of resale during the restricted period (as
defined in United States Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)),
and, in addition, if the owner is a United States or foreign financial
institution described in clause (iii) above (whether or not also described in
clause (i) or (ii)), this is to further certify that such financial institution
has not acquired the Securities for purposes of resale directly or indirectly to
a United States person or to a person within the United States or its
possessions.
As used herein, "United States" means the United States of America
(including the States and the District of Columbia), and its "possessions"
include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island
and the Northern Mariana Islands.
We undertake to advise your promptly by tested telex on or prior to the
date on which you intend to submit your certification relating to the
above-captioned Securities held by you for our account in accordance with your
Operating Procedures if any applicable statement herein is not correct on such
date, and in the absence of any such notification it may be assumed that this
certification applies as of such date.
This certificate excepts and does not relate to U.S. $ ____ of such
interest in the above-captioned Securities in respect of which we are not able
to certify and as to which we understand an exchange for an interest in a
Permanent Global Security or an exchange for and delivery of definitive
Securities (or, if relevant, collection of any interest) cannot be made until we
do so certify.
We understand that this certificate may be required in connection with
certain tax legislation in the United States. If administrative or legal
proceedings are commenced or threatened in
A-1
<PAGE> 81
connection with which this certificate is or would be relevant, we irrevocably
authorize you to produce this certificate or a copy thereof to any interested
party in such proceedings.
Dated: , 19
--------------------------------------------- --
(To be dated no earlier than the 15th day prior
to (i) the Exchange Date or (ii) the relevant
Interest Payment Date occurring prior to the
Exchange Date, as applicable)
(Name of Person Making Certification)
---------------------------------------
(Authorized Signatory)
Name:
Title:
A-2
<PAGE> 82
EXHIBIT A-2
FORM OF CERTIFICATE TO BE GIVEN BY EUROCLEAR
AND CEDEL S.A.A IN CONNECTION WITH THE
EXCHANGE OF A PORTION OF A TEMPORARY
GLOBAL SECURITY OR TO OBTAIN INTEREST
PAYABLE PRIOR TO THE EXCHANGE DATE
CERTIFICATE
{Insert title or sufficient description of Securities to be delivered}
This is to certify that, based solely on written certifications that we
have received in writing, by tested telex or by electronic transmission from
each of the persons appearing in our records as persons entitled to a portion of
the principal amount set forth below (our "Member Organizations") substantially
in the form attached hereto, as of the date hereof, {U.S.} ____________________
principal amount of the above-captioned Securities (i) is owned by person(s)
that are not citizens or residents of the United States, domestic partnerships,
domestic corporations or any estate or trust the income of which is subject to
United States Federal income taxation regardless of its source ("United States
person(s)"), (ii) is owned by United States person(s) that are (a) foreign
branches of United States financial institutions (financial institutions, as
defined in the U.S. Treasury Regulations Section 1.165-12(c)(1)(v) are herein
referred to as "financial institutions") purchasing for their own account or for
resale, or (b) United States person(s) who acquired the Securities through
foreign branches of United States financial institutions and who hold the
Securities through such United States financial institutions on the date hereof
(and in either case (a) or (b), each such financial institution has agreed, on
its own behalf or through its agent, that we may advise Crescent Real Estate
Equities, Ltd. or its agent that such financial institution will comply with the
requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of
1986, as amended, and the regulations thereunder), or (iii) is owned by United
States or foreign financial institution(s) for purposes of resale during the
restricted period (as defined in United States Treasury Regulations Section
1.163-5(c)(2)(i)(D)(7)), and, to the further effect, that financial institutions
described in clause (iii) above (whether or not also described in clause (i) or
(ii)) have certified that they have not acquired the Securities for purposes of
resale directly or indirectly to a United States person or to a person within
the United States or its possessions.
As used herein "United States" means the United States of America
(including the States and the District of Columbia), and its "possessions"
include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island
and the Northern Mariana Islands.
We further certify that (i) we are not making available herewith for
exchange (or, if relevant, collection of any interest) any portion of the
temporary global Security representing the above-captioned Securities excepted
in the above-referenced certificates of Member Organizations and (ii) as of the
date hereof we have not received any notification from any of our Member
Organizations to the effect that the statements made by such Member
Organizations with respect to any portion of the part submitted herewith for
exchange (or, if relevant, collection of any interest) are no longer true and
cannot be relied upon as of the date hereof.
We understand that this certification is required in connection with
certain tax legislation in the United States. If administrative or legal
proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably authorize you to produce
this certificate or a copy thereof to any interested party in such proceedings.
A-3
<PAGE> 83
Dated: , 19
--------------------------------------------- --
(To be dated no earlier than the Exchange
Date or the relevant Interest Payment Date
occurring prior to the Exchange Date, as
applicable)
{Morgan Guaranty Trust Company of New York,
Brussels Office}, as Operator of the
Euroclear System {Cedel}
By:
-----------------------------------------
A-4
<PAGE> 1
EXHIBIT 4.04
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
6 5/8% NOTES DUE 2002
NO. 001 PRINCIPAL AMOUNT
CUSIP NO. $150,000,000
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC AND ANY PAYMENT IS MADE TO CEDE
& CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
UNLESS AND UNTIL THIS CERTIFICATE IS EXCHANGED IN WHOLE OR IN PART FOR
NOTES IN CERTIFICATED FORM, THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY DTC TO A NOMINEE THEREOF OR BY A NOMINEE THEREOF TO DTC OR ANOTHER
NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR OF DTC OR A NOMINEE
OF SUCH SUCCESSOR.
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership (the "Issuer," which term includes any successor under the Indenture
hereinafter referred to), for value received, hereby promises to pay to Cede &
Co. or registered assigns, the principal sum of One Hundred Fifty Million
Dollars on September 15, 2002 (the "Maturity Date"), and to pay interest thereon
from January , 1998 (or from the most recent Interest Payment Date to which
interest has been paid or duly provided for), semiannually in arrears on
September 15 and March 15 of each year (each, an "Interest Payment Date"),
commencing on March 15, 1998, and on the Maturity Date, at a rate of 6 5/8% per
annum (together with any Additional Ratings Interest that the Issuer may be
required to pay, as described on the reverse hereof), until payment of said
principal sum has been made or duly provided for.
The interest so payable and punctually paid or duly provided for on an
Interest Payment Date and on the Maturity Date will be paid to the Holder in
whose name this Note (or one or more predecessor Notes) is registered at the
close of business on the "Regular Record Date" for such payment, which will be
the date 15 calendar days (regardless of whether such day is a Business Day (as
defined below)) next preceding such payment date or the Maturity Date, as the
case may be. Any interest not so punctually paid or duly provided for shall
forthwith cease to be payable to the Holder on such Regular Record Date, and
shall be paid to the Holder in whose name this Note (or one or more predecessor
Notes) is registered at the close of business on a subsequent record date for
the payment of such defaulted interest (which shall not be less than five
Business Days prior to the date of the payment of such defaulted interest)
established by notice given by mail by or on behalf of the Issuer to the Holders
of the Notes not less than 15 days preceding such subsequent record date.
Interest on this Note will be computed on the basis of a 360-day year of twelve
30-day months.
The principal of this Note payable on the Maturity Date will be paid
against presentation and surrender of this Note at the office or agency of the
Issuer maintained for that purpose in Boston, Massachusetts with a drop facility
maintained in New York, New York. The Issuer hereby initially designates the
Corporate Trust Office of the Trustee in Boston, Massachusetts as the office to
be maintained by it where Notes may be presented for payment, registration of
transfer or exchange and where notices or demands to or upon the Issuer in
respect of the Notes or the Indenture referred to on the reverse hereof may be
served.
Interest payable on this Note on any Interest Payment Date and on the
Maturity Date, as the case may be, will be the amount of interest accrued during
the applicable Interest Period (as defined below).
<PAGE> 2
An "Interest Period" is each period from and including the immediately
preceding Interest Payment Date (or from and including January , 1998, in the
case of the initial Interest Period) to but excluding the applicable Interest
Payment Date or the Maturity Date, as the case may be. If any Interest Payment
Date other than the Maturity Date would otherwise be a day that is not a
Business Day, such Interest Payment Date will be postponed to the succeeding
Business Day. If the Maturity Date falls on a day that is not a Business Day,
principal and interest payable on the Maturity Date will be paid on the
succeeding Business Day with the same force and effect as if it were paid on the
date such payment was due, and no interest will accrue on the amount so payable
for the period from and after the Maturity Date. "Business Day" means any day,
other than a Saturday or a Sunday on which banking institutions in New York, New
York, Boston, Massachusetts or St. Louis, Missouri are not required or
authorized by law or executive order to close.
Payments of principal and interest in respect of this Note will be made by
U.S. dollar check or by wire transfer (such a wire transfer to be made only to a
Holder of an aggregate principal amount of Securities in excess of $5,000,000,
and only if such Holder shall have furnished wire instructions in writing to the
Trustee no later than 15 days prior to the relevant payment date and
acknowledged that a wire transfer fee shall be payable) of immediately available
funds in such coin or currency of the United States of America as at the time of
payment is legal tender for the payment of public and private debts.
Reference is made to the further provisions of this Note set forth on the
reverse hereof. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place. Capitalized terms used herein,
including on the reverse hereof, and not defined herein or on the reverse hereof
shall have the respective meanings given to such terms in the Indenture.
This Note shall not be entitled to the benefits of the Indenture referred
to on the reverse hereof or be valid or become obligatory for any purpose until
the certificate of authentication hereon shall have been signed by the Trustee
under such Indenture.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed
manually or by facsimile by its duly authorized officers.
Dated: January , 1998 CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, as Issuer
By: CRESCENT REAL ESTATE EQUITIES,
LTD., not individually but as
General
Partner
By:
------------------------------------
Gerald W. Haddock
Its: President and Chief
Executive Officer
and By:
------------------------------------
Dallas E. Lucas
Its: Chief Financial
Officer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated herein referred to
in the within-mentioned Indenture.
STATE STREET BANK AND TRUST
COMPANY OF MISSOURI, N.A.
By:
------------------------------------
Authorized Officer
2
<PAGE> 3
[REVERSE OF NOTE]
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
6 5/8% NOTES DUE 2002
This security is one of a duly authorized issue of debentures, notes,
bonds, or other evidences of indebtedness of the Issuer (hereinafter called the
"Securities") of the series hereinafter specified, all issued or to be issued
under and pursuant to an indenture dated as of September 22, 1997 (herein called
the "Indenture"), duly executed and delivered by the Issuer to State Street Bank
and Trust Company of Missouri, N.A., as Trustee (herein called the "Trustee,"
which term includes any successor trustee under the Indenture with respect to
the series of Securities of which this Note is a part), to which Indenture and
all Indentures supplemental thereto reference is hereby made for a description
of the rights, limitations of rights, obligations, duties and immunities
thereunder of the Trustee, the Issuer and the Holders of the Securities, and of
the terms upon which the Securities are, and are to be, authenticated and
delivered. The Securities may be issued in one or more series, which different
series may be issued in various aggregate principal amounts, may mature at
different times, may bear interest (if any) at different rates, may be subject
to different redemption provisions (if any) and may otherwise vary as provided
in the Indenture. This Security is one of a series designated as the 6 5/8%
Notes due 2002 of the Issuer (the "Notes"), limited in aggregate principal
amount to $150,000,000.
In case an Event of Default with respect to the 6 5/8% Notes due 2002 shall
have occurred and be continuing, the principal hereof and Make-Whole Amount (if
any) may be declared, and upon such declaration shall become, due and payable,
in the manner, with the effect and subject to the conditions provided in the
Indenture.
The Issuer may redeem the Securities, at any time in whole or from time to
time in part, at the election of the Issuer, at a redemption price equal to the
sum of (i) the principal amount of the Securities being redeemed plus accrued
interest thereon to the Redemption Date and (ii) the Make-Whole Amount, if any,
with respect to such Securities (the "Redemption Price"). Notice of any optional
redemption of any Securities will be given to Holders at their addresses, as
shown in the security register for the Notes, not more than 60 nor less than 30
days prior to the date fixed for redemption. The notice of redemption will
specify, among other items, the Redemption Price and the principal amount of the
Securities held by such Holder to be redeemed. If less than all the Notes are to
be redeemed at the option of the Issuer, the Issuer will notify the Trustee at
least 45 days prior to giving notice of redemption to the Holders (or such
shorter period as is satisfactory to the Trustee) of the aggregate principal
amount of Notes to be redeemed and their redemption date. The Trustee shall
select, in such manner as it shall deem fair and appropriate, Notes to be
redeemed in whole or in part.
Subject to certain limitations in the Indenture, at any time when the
Issuer is not subject to Section 13 or 15(d) of the United States Securities
Exchange Act of 1934, as amended, upon the request of a Holder of a Restricted
Security (as defined in the Registration Rights Agreement) the Issuer will
promptly furnish or cause to be furnished Rule 144A Information (as defined in
the Registration Rights Agreement) to such Holder of Restricted Securities, or
to a prospective purchaser of any security designated by any such Holder to the
extent required to permit compliance by such Holder with Rule 144A under the
Securities Act in connection with the resale of any such security.
The Issuer has agreed to obtain a rating of the Notes and the Private Notes
from Standard & Poor's Rating Services, a division of The McGraw-Hill Companies,
and Moody's Investors Service, Inc. (each a "Rating Agency," and together, the
"Rating Agencies"). If, within the period from September 22, 1997 to September
22, 1998, (i) either Rating Agency at any time (a) assigns a rating to the Notes
or the notes for which this Note was exchanged pursuant to the exchange offer
described in the Issuer's registration statement on Form S-4 (File No.
333- ) (such notes, the "Private Notes"), that is not in one of such Rating
Agency's generic rating categories which signifies investment grade (an
"Investment Grade Rating") or (b) withdraws any rating for the Notes or the
Private Notes and does not promptly assign a new rating, or (ii) either Rating
Agency fails to assign any rating to the Notes or the Private Notes, then the
interest rate for
3
<PAGE> 4
the Notes shall increase by 37.5 basis points (the "Rating Adjustment") on the
date on which such series is rated with other than an Investment Grade Rating,
the date a rating for any such series is withdrawn or September 22, 1998, if no
rating is assigned, as the case may be. In the case of clause (i) above, from
and after such date, if any, until September 22, 1998, if such series becomes
rated by such Rating Agency with an Investment Grade Rating, then the Rating
Adjustment shall be eliminated, until such time as it would otherwise again be
applicable. The interest rate for the Notes shall be fixed on September 22, 1998
for the remainder of the term of the Notes. Notwithstanding anything to the
contrary contained herein, if at any time within the period from September 22,
1997 to September 22, 1998, both Rating Agencies shall have rated the Notes or
the Private Notes with an Investment Grade Rating, the Rating Adjustment shall
be eliminated for the remainder of the term of the Notes.
Whenever in this Security there is a reference, in any context, to the
payment of the principal of, Make-Whole Amount, if any, or interest on, or in
respect of, any Security, such mention shall be deemed to include mention of the
payment of Additional Ratings Interest payable as described above to the extent
that, in such context, Additional Ratings Interest is, was or would be payable
in respect of such Security and express mention of the payment of Additional
Ratings Interest in any provisions of this Security shall not be construed as
excluding Additional Ratings Interest in those provisions of this Security where
such express mention is not made.
The Indenture contains provisions permitting the Issuer and the Trustee,
with the consent of the Holders of not less than a majority of the aggregate
principal amount of the securities at the time Outstanding of all series to be
affected (voting as one class), evidenced as provided in the Indenture, to
execute supplemental Indentures adding any provisions to or changing in any
manner or eliminating any of the provisions of the Indenture or of any
supplemental Indenture or modifying in any manner the rights of the Holders of
the securities of each series; provided, however, that no such supplemental
Indenture shall, without the consent of the Holder of each security so affected,
(i) change the final maturity of any security, or reduce the principal amount
thereof or any premium thereon, or reduce the rate or extend the time of payment
of any interest thereon, or impair or affect the rights of any Holder to
institute suit for the payment on any security, or (ii) reduce the aforesaid
percentage of securities, the Holders of which are required to consent to any
such supplemental Indenture, or (iii) reduce the percentage of securities, the
Holders of which are required to consent to any waiver of compliance with
certain provisions of the Indenture or any waiver of certain defaults
thereunder. It is also provided in the Indenture that, with respect to certain
defaults or Events of Default regarding the securities of any series, the
Holders of a majority in aggregate principal amount outstanding of the
securities of such series (or, in the case of certain defaults or Events of
Default, all series of securities) may on behalf of the Holders of all the
securities of such series (or all of the securities, as the case may be) waive
any such past default or Event of Default and its consequences, prior to any
declaration accelerating the maturity of such securities, or, subject to certain
conditions, may rescind a declaration of acceleration and its consequences with
respect to such securities. The preceding sentence shall not, however, apply to
a default in the payment of the principal of or premium, if any, or interest on
any of the securities. Any such consent or waiver by the Holder of this Security
(unless revoked as provided in the Indenture) shall be conclusive and binding
upon such Holder and upon all future Holders and owners of this Security and any
securities that may be issued in exchange or substitution herefor, irrespective
of whether or not any notation thereof is made upon this Security or such other
securities.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless (a) such Holder shall have previously given
the Trustee written notice of a continuing Event of Default, (b) the Holders of
not less than 25% in aggregate principal amount of the securities Outstanding
shall have made written request to the Trustee to institute proceedings in
respect of such Event of Default as Trustee and offered the Trustee reasonable
indemnity and the Trustee shall not have received from the Holders of a majority
in aggregate principal amount of the securities Outstanding a direction
inconsistent with such request and (c) the Trustee shall have failed to
institute any such proceeding for 60 days after receipt of such notice, request
and offer of indemnity. The foregoing shall not apply to any suit instituted by
the Holder of this Security for the enforcement of any payment of principal
4
<PAGE> 5
hereof, Make-Whole Amount, if any, or interest hereon (including any Additional
Ratings Interest) on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and any Make-Whole Amount
and interest (including Additional Ratings Interest, as described herein) on
this Security in the manner, at the respective times, at the rate and in the
coin or currency herein prescribed.
This Security is issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof. Securities may be
exchanged for a like aggregate principal amount of Securities of this series of
other authorized denominations at the office or agency of the Issuer in Boston,
Massachusetts, in the manner and subject to the limitations provided in the
Indenture, but without the payment of any service charge except for any tax or
other governmental charge imposed in connection therewith.
This Security is not subject to a sinking fund requirement.
Upon due presentment for registration of transfer of Securities at the
office or agency of the Issuer in Boston, Massachusetts, a new Security or
Securities of the same series of authorized denominations in an equal aggregate
principal amount will be issued to the transferee in exchange therefor, subject
to the limitations provided in the Indenture, without charge except for any tax
or other governmental charge imposed in connection therewith.
No recourse under or upon any obligation, covenant or agreement contained
in the Indenture, in any Security or coupon appertaining thereto, or because of
any indebtedness evidenced hereby or thereby (including, without limitation, any
obligation or indebtedness relating to the principal of, or premium or
Make-Whole Amount, if any, interest or any other amounts due, or claimed to be
due, on this Security), or for any claim based thereon or otherwise in respect
thereof, shall be had (i) against the General Partner or any other partner, or
any Person which owns an interest, directly or indirectly, in any partner, in
the Issuer or (ii) against any promoter, as such, or against any past, present
or future shareholder, officer, trustee or partner, as such, of the Issuer or
the General Partner or of any successor, either directly or through the Issuer
or the General Partner or any successor, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment or by any legal
or equitable proceeding or otherwise, all such liability being expressly waived
and released by the acceptance hereof and as part of the consideration for the
issue hereof.
Prior to due presentation of a Security for registration of transfer, the
Issuer, the Trustee and any authorized agent of the Issuer or the Trustee may
deem and treat the Person in whose name this Security is registered as the
absolute owner of this Security (whether or not this Security shall be overdue
and notwithstanding any notation of ownership or other writing hereon), for the
purpose of receiving payment of, or on account of, the principal hereof and
Make-Whole Amount, if any, and subject to the provisions herein and on the face
hereof; interest hereon, and for all other purposes, and neither the Issuer nor
the Trustee nor any authorized agent of the Issuer or the Trustee shall be
affected by any notice to the contrary.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY THE LAW OF THE STATE
OF NEW YORK, UNITED STATES OF AMERICA WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAWS.
5
<PAGE> 6
ASSIGNMENT FORM AND CERTIFICATE OF TRANSFER
To assign this Security fill in the form below:
(I) or (we) assign and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number, if any)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
Your signature:
- --------------------------------------------------------------------------------
(Sign exactly as your name appears on the other side of this
Security)
Date:
- ------------------------------------
Signature Guarantee:*
- ---------------------------------
- ---------------
* Signature must be guaranteed by a commercial bank, trust company or member
firm of a major stock exchange.
6
<PAGE> 1
EXHIBIT 4.05
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
7 1/8% NOTES DUE 2007
NO. 001 PRINCIPAL AMOUNT
CUSIP NO. $250,000,000
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC AND ANY PAYMENT IS MADE TO CEDE
& CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
UNLESS AND UNTIL THIS CERTIFICATE IS EXCHANGED IN WHOLE OR IN PART FOR
NOTES IN CERTIFICATED FORM, THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY DTC TO A NOMINEE THEREOF OR BY A NOMINEE THEREOF TO DTC OR ANOTHER
NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR OF DTC OR A NOMINEE
OF SUCH SUCCESSOR.
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership (the "Issuer," which term includes any successor under the Indenture
hereinafter referred to), for value received, hereby promises to pay to Cede &
Co. or registered assigns, the principal sum of Two Hundred Fifty Million
Dollars on September 15, 2007 (the "Maturity Date"), and to pay interest thereon
from January , 1998 (or from the most recent Interest Payment Date to which
interest has been paid or duly provided for), semiannually in arrears on
September 15 and March 15 of each year (each, an "Interest Payment Date"),
commencing on March 15, 1998, and on the Maturity Date, at a rate of 7 1/8% per
annum (together with any Additional Ratings Interest that the Issuer may be
required to pay, as described on the reverse hereof), until payment of said
principal sum has been made or duly provided for.
The interest so payable and punctually paid or duly provided for on an
Interest Payment Date and on the Maturity Date will be paid to the Holder in
whose name this Note (or one or more predecessor Notes) is registered at the
close of business on the "Regular Record Date" for such payment, which will be
the date 15 calendar days (regardless of whether such day is a Business Day (as
defined below)) next preceding such payment date or the Maturity Date, as the
case may be. Any interest not so punctually paid or duly provided for shall
forthwith cease to be payable to the Holder on such Regular Record Date, and
shall be paid to the Holder in whose name this Note (or one or more predecessor
Notes) is registered at the close of business on a subsequent record date for
the payment of such defaulted interest (which shall not be less than five
Business Days prior to the date of the payment of such defaulted interest)
established by notice given by mail by or on behalf of the Issuer to the Holders
of the Notes not less than 15 days preceding such subsequent record date.
Interest on this Note will be computed on the basis of a 360-day year of twelve
30-day months.
The principal of this Note payable on the Maturity Date will be paid
against presentation and surrender of this Note at the office or agency of the
Issuer maintained for that purpose in Boston, Massachusetts with a drop facility
maintained in New York, New York. The Issuer hereby initially designates the
Corporate Trust Office of the Trustee in Boston, Massachusetts as the office to
be maintained by it where Notes may be presented for payment, registration of
transfer or exchange and where notices or demands to or upon the Issuer in
respect of the Notes or the Indenture referred to on the reverse hereof may be
served.
Interest payable on this Note on any Interest Payment Date and on the
Maturity Date, as the case may be, will be the amount of interest accrued during
the applicable Interest Period (as defined below).
<PAGE> 2
An "Interest Period" is each period from and including the immediately
preceding Interest Payment Date (or from and including January , 1998, in the
case of the initial Interest Period) to but excluding the applicable Interest
Payment Date or the Maturity Date, as the case may be. If any Interest Payment
Date other than the Maturity Date would otherwise be a day that is not a
Business Day, such Interest Payment Date will be postponed to the succeeding
Business Day. If the Maturity Date falls on a day that is not a Business Day,
principal and interest payable on the Maturity Date will be paid on the
succeeding Business Day with the same force and effect as if it were paid on the
date such payment was due, and no interest will accrue on the amount so payable
for the period from and after the Maturity Date. "Business Day" means any day,
other than a Saturday or a Sunday on which banking institutions in New York, New
York, Boston, Massachusetts or St. Louis, Missouri are not required or
authorized by law or executive order to close.
Payments of principal and interest in respect of this Note will be made by
U.S. dollar check or by wire transfer (such a wire transfer to be made only to a
Holder of an aggregate principal amount of Securities in excess of $5,000,000,
and only if such Holder shall have furnished wire instructions in writing to the
Trustee no later than 15 days prior to the relevant payment date and
acknowledged that a wire transfer fee shall be payable) of immediately available
funds in such coin or currency of the United States of America as at the time of
payment is legal tender for the payment of public and private debts.
Reference is made to the further provisions of this Note set forth on the
reverse hereof. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place. Capitalized terms used herein,
including on the reverse hereof, and not defined herein or on the reverse hereof
shall have the respective meanings given to such terms in the Indenture.
This Note shall not be entitled to the benefits of the Indenture referred
to on the reverse hereof or be valid or become obligatory for any purpose until
the certificate of authentication hereon shall have been signed by the Trustee
under such Indenture.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed
manually or by facsimile by its duly authorized officers.
Dated: January , 1998 CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, as Issuer
By: CRESCENT REAL ESTATE EQUITIES,
LTD., not individually but as
General
Partner
By:
------------------------------------
Gerald W. Haddock
Its: President and Chief
Executive Officer
and By:
------------------------------------
Dallas E. Lucas
Its: Chief Financial
Officer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated herein referred to
in the within-mentioned Indenture.
STATE STREET BANK AND TRUST
COMPANY OF MISSOURI, N.A.
By:
------------------------------------
Authorized Officer
2
<PAGE> 3
[REVERSE OF NOTE]
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
7 1/8% NOTES DUE 2007
This security is one of a duly authorized issue of debentures, notes,
bonds, or other evidences of indebtedness of the Issuer (hereinafter called the
"Securities") of the series hereinafter specified, all issued or to be issued
under and pursuant to an indenture dated as of September 22, 1997 (herein called
the "Indenture"), duly executed and delivered by the Issuer to State Street Bank
and Trust Company of Missouri, N.A., as Trustee (herein called the "Trustee,"
which term includes any successor trustee under the Indenture with respect to
the series of Securities of which this Note is a part), to which Indenture and
all Indentures supplemental thereto reference is hereby made for a description
of the rights, limitations of rights, obligations, duties and immunities
thereunder of the Trustee, the Issuer and the Holders of the Securities, and of
the terms upon which the Securities are, and are to be, authenticated and
delivered. The Securities may be issued in one or more series, which different
series may be issued in various aggregate principal amounts, may mature at
different times, may bear interest (if any) at different rates, may be subject
to different redemption provisions (if any) and may otherwise vary as provided
in the Indenture. This Security is one of a series designated as the 7 1/8%
Notes due 2007 of the Issuer (the "Notes"), limited in aggregate principal
amount to $250,000,000.
In case an Event of Default with respect to the 7 1/8% Notes due 2007 shall
have occurred and be continuing, the principal hereof and Make-Whole Amount (if
any) may be declared, and upon such declaration shall become, due and payable,
in the manner, with the effect and subject to the conditions provided in the
Indenture.
The Issuer may redeem the Securities, at any time in whole or from time to
time in part, at the election of the Issuer, at a redemption price equal to the
sum of (i) the principal amount of the Securities being redeemed plus accrued
interest thereon to the Redemption Date and (ii) the Make-Whole Amount, if any,
with respect to such Securities (the "Redemption Price"). Notice of any optional
redemption of any Securities will be given to Holders at their addresses, as
shown in the security register for the Notes, not more than 60 nor less than 30
days prior to the date fixed for redemption. The notice of redemption will
specify, among other items, the Redemption Price and the principal amount of the
Securities held by such Holder to be redeemed. If less than all the Notes are to
be redeemed at the option of the Issuer, the Issuer will notify the Trustee at
least 45 days prior to giving notice of redemption to the Holders (or such
shorter period as is satisfactory to the Trustee) of the aggregate principal
amount of Notes to be redeemed and their redemption date. The Trustee shall
select, in such manner as it shall deem fair and appropriate, Notes to be
redeemed in whole or in part.
Subject to certain limitations in the Indenture, at any time when the
Issuer is not subject to Section 13 or 15(d) of the United States Securities
Exchange Act of 1934, as amended, upon the request of a Holder of a Restricted
Security (as defined in the Registration Rights Agreement) the Issuer will
promptly furnish or cause to be furnished Rule 144A Information (as defined in
the Registration Rights Agreement) to such Holder of Restricted Securities, or
to a prospective purchaser of any security designated by any such Holder to the
extent required to permit compliance by such Holder with Rule 144A under the
Securities Act in connection with the resale of any such security.
The Issuer has agreed to obtain a rating of the Notes and the Private Notes
from Standard & Poor's Rating Services, a division of The McGraw-Hill Companies,
and Moody's Investors Service, Inc. (each a "Rating Agency," and together, the
"Rating Agencies"). If, within the period from September 22, 1997 to September
22, 1998, (i) either Rating Agency at any time (a) assigns a rating to the Notes
or the notes for which this Note was exchanged pursuant to the exchange offer
described in the Issuer's registration statement on Form S-4 (File No.
333- ) (such notes, the "Private Notes"), that is not in one of such Rating
Agency's generic rating categories which signifies investment grade (an
"Investment Grade Rating") or (b) withdraws any rating for the Notes or the
Private Notes and does not promptly assign a new rating, or (ii) either Rating
Agency fails to assign any rating to the Notes or the Private Notes, then the
interest rate for
3
<PAGE> 4
the Notes shall increase by 37.5 basis points (the "Rating Adjustment") on the
date on which such series is rated with other than an Investment Grade Rating,
the date a rating for any such series is withdrawn or September 22, 1998, if no
rating is assigned, as the case may be. In the case of clause (i) above, from
and after such date, if any, until September 22, 1998, if such series becomes
rated by such Rating Agency with an Investment Grade Rating, then the Rating
Adjustment shall be eliminated, until such time as it would otherwise again be
applicable. The interest rate for the Notes shall be fixed on September 22, 1998
for the remainder of the term of the Notes . Notwithstanding anything to the
contrary contained herein, if at any time within the period from September 22,
1997 to September 22, 1998, both Rating Agencies shall have rated the Notes or
the Private Notes with an Investment Grade Rating, the Rating Adjustment shall
be eliminated for the remainder of the term of the Notes.
Whenever in this Security there is a reference, in any context, to the
payment of the principal of, Make-Whole Amount, if any, or interest on, or in
respect of, any Security, such mention shall be deemed to include mention of the
payment of Additional Ratings Interest payable as described above to the extent
that, in such context, Additional Ratings Interest is, was or would be payable
in respect of such Security and express mention of the payment of Additional
Ratings Interest in any provisions of this Security shall not be construed as
excluding Additional Ratings Interest in those provisions of this Security where
such express mention is not made.
The Indenture contains provisions permitting the Issuer and the Trustee,
with the consent of the Holders of not less than a majority of the aggregate
principal amount of the securities at the time Outstanding of all series to be
affected (voting as one class), evidenced as provided in the Indenture, to
execute supplemental Indentures adding any provisions to or changing in any
manner or eliminating any of the provisions of the Indenture or of any
supplemental Indenture or modifying in any manner the rights of the Holders of
the securities of each series; provided, however, that no such supplemental
Indenture shall, without the consent of the Holder of each security so affected,
(i) change the final maturity of any security, or reduce the principal amount
thereof or any premium thereon, or reduce the rate or extend the time of payment
of any interest thereon, or impair or affect the rights of any Holder to
institute suit for the payment on any security, or (ii) reduce the aforesaid
percentage of securities, the Holders of which are required to consent to any
such supplemental Indenture, or (iii) reduce the percentage of securities, the
Holders of which are required to consent to any waiver of compliance with
certain provisions of the Indenture or any waiver of certain defaults
thereunder. It is also provided in the Indenture that, with respect to certain
defaults or Events of Default regarding the securities of any series, the
Holders of a majority in aggregate principal amount outstanding of the
securities of such series (or, in the case of certain defaults or Events of
Default, all series of securities) may on behalf of the Holders of all the
securities of such series (or all of the securities, as the case may be) waive
any such past default or Event of Default and its consequences, prior to any
declaration accelerating the maturity of such securities, or, subject to certain
conditions, may rescind a declaration of acceleration and its consequences with
respect to such securities. The preceding sentence shall not, however, apply to
a default in the payment of the principal of or premium, if any, or interest on
any of the securities. Any such consent or waiver by the Holder of this Security
(unless revoked as provided in the Indenture) shall be conclusive and binding
upon such Holder and upon all future Holders and owners of this Security and any
securities that may be issued in exchange or substitution herefor, irrespective
of whether or not any notation thereof is made upon this Security or such other
securities.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless (a) such Holder shall have previously given
the Trustee written notice of a continuing Event of Default, (b) the Holders of
not less than 25% in aggregate principal amount of the securities Outstanding
shall have made written request to the Trustee to institute proceedings in
respect of such Event of Default as Trustee and offered the Trustee reasonable
indemnity and the Trustee shall not have received from the Holders of a majority
in aggregate principal amount of the securities Outstanding a direction
inconsistent with such request and (c) the Trustee shall have failed to
institute any such proceeding for 60 days after receipt of such notice, request
and offer of indemnity. The foregoing shall not apply to any suit instituted by
the Holder of this Security for the enforcement of any payment of principal
4
<PAGE> 5
hereof, Make-Whole Amount, if any, or interest hereon (including any Additional
Ratings Interest) on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and any Make-Whole Amount
and interest (including Additional Ratings Interest, as described herein) on
this Security in the manner, at the respective times, at the rate and in the
coin or currency herein prescribed.
This Security is issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof. Securities may be
exchanged for a like aggregate principal amount of Securities of this series of
other authorized denominations at the office or agency of the Issuer in Boston,
Massachusetts, in the manner and subject to the limitations provided in the
Indenture, but without the payment of any service charge except for any tax or
other governmental charge imposed in connection therewith.
This Security is not subject to a sinking fund requirement.
Upon due presentment for registration of transfer of Securities at the
office or agency of the Issuer in Boston, Massachusetts, a new Security or
Securities of the same series of authorized denominations in an equal aggregate
principal amount will be issued to the transferee in exchange therefor, subject
to the limitations provided in the Indenture, without charge except for any tax
or other governmental charge imposed in connection therewith.
No recourse under or upon any obligation, covenant or agreement contained
in the Indenture, in any Security or coupon appertaining thereto, or because of
any indebtedness evidenced hereby or thereby (including, without limitation, any
obligation or indebtedness relating to the principal of, or premium or
Make-Whole Amount, if any, interest or any other amounts due, or claimed to be
due, on this Security), or for any claim based thereon or otherwise in respect
thereof, shall be had (i) against the General Partner or any other partner, or
any Person which owns an interest, directly or indirectly, in any partner, in
the Issuer or (ii) against any promoter, as such, or against any past, present
or future shareholder, officer, trustee or partner, as such, of the Issuer or
the General Partner or of any successor, either directly or through the Issuer
or the General Partner or any successor, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment or by any legal
or equitable proceeding or otherwise, all such liability being expressly waived
and released by the acceptance hereof and as part of the consideration for the
issue hereof.
Prior to due presentation of a Security for registration of transfer, the
Issuer, the Trustee and any authorized agent of the Issuer or the Trustee may
deem and treat the Person in whose name this Security is registered as the
absolute owner of this Security (whether or not this Security shall be overdue
and notwithstanding any notation of ownership or other writing hereon), for the
purpose of receiving payment of, or on account of, the principal hereof and
Make-Whole Amount, if any, and subject to the provisions herein and on the face
hereof; interest hereon, and for all other purposes, and neither the Issuer nor
the Trustee nor any authorized agent of the Issuer or the Trustee shall be
affected by any notice to the contrary.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY THE LAW OF THE STATE
OF NEW YORK, UNITED STATES OF AMERICA WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAWS.
5
<PAGE> 6
ASSIGNMENT FORM AND CERTIFICATE OF TRANSFER
To assign this Security fill in the form below:
(I) or (we) assign and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number, if any)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
Your signature:
- --------------------------------------------------------------------------------
(Sign exactly as your name appears on the other side of this
Security)
Date:
- ---------------------------------
Signature Guarantee:*
- ------------------------------
- ---------------
* Signature must be guaranteed by a commercial bank, trust company or member
firm of a major stock exchange.
6
<PAGE> 1
[EXECUTION COPY]
EXHIBIT 4.06
REGISTRATION RIGHTS AGREEMENT
Dated as of September 22, 1997
among
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
and
MERRILL LYNCH & CO.
and
SALOMON BROTHERS INC
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of
September 22, 1997, by and among CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership (the "Issuer"), and MERRILL LYNCH &
CO. and SALOMON BROTHERS INC (collectively, the "Initial Purchasers"). This
Agreement is entered into in connection with the Purchase Agreement, dated as of
September 22, 1997, among the Issuer and the Initial Purchasers (the "Purchase
Agreement") relating to the sale by the Issuer to the Initial Purchasers,
severally, of $150,000,000 aggregate principal amount of its 6 5/8% Notes due
2002 (the "2002 Notes") and $250,000,000 aggregate principal amount of its 7
1/8% Notes due 2007 (the "2007 Notes," and together with the 2002 Notes, the
"Notes"). In order to induce the Initial Purchasers to enter into the Purchase
Agreement, the Issuer has agreed to provide the registration rights set forth in
this Agreement for the equal benefit of both of the Initial Purchasers and their
direct and indirect transferees on the terms and conditions hereinafter set
forth. The execution and delivery of this Agreement is a condition to the
Initial Purchasers' obligation to purchase the Notes under the Purchase
Agreement. The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
Additional Interest: See Section 4.
Advice: See Section 5.
Applicable Period: See Section 2(b).
Consummation Date: The 180th day after the Issue Date.
Effectiveness Period: See Section 3(a).
Event Date: See Section 4(b).
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Exchange Offer: See Section 2(a).
Exchange Registration Statement: See Section 2(a).
Exchange Securities: See Section 2(a).
<PAGE> 3
Holder: Any record holder of Registrable Securities.
Indemnified Person: See Section 7.
Indemnifying Person: See Section 7.
Indenture: The Indenture, dated as of September 22, 1997, among the Issuer
and State Street Bank and Trust Company of Missouri, N.A., as trustee, pursuant
to which the Notes are being issued, as amended or supplemented from time to
time in accordance with the terms thereof.
Initial Purchasers: See the introductory paragraph to this Agreement.
Initial Shelf Registration: See Section 3(a).
Inspectors: See Section 5(n).
Issue Date: The original issue date of the Notes.
Issuer: See the introductory paragraph to this Agreement.
NASD: See Section 5(r).
Notes: See the introductory paragraph to this Agreement.
Participant: See Section 7.
Participating Broker-Dealer: See Section 2(b).
Person: An individual, corporation, limited liability company, limited or
general partnership, limited liability partnership, joint venture, association,
joint stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
Private Exchange: See Section 2(b).
Private Exchange Securities: See Section 2(b).
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
-2-
<PAGE> 4
Records: See Section 5(n).
Registrable Securities: The Notes, each Exchange Security as to which
Section 2(c)(1)(A) hereof is applicable upon original issuance and at all times
subsequent thereto and, if issued, the Private Exchange Securities, until in the
case of any such Notes, Exchange Securities or Private Exchange Securities, as
the case may be, (i) a Registration Statement (other than, with respect to any
Exchange Security as to which Section 2(c)(1)(A) hereof is applicable, the
Exchange Registration Statement) covering such Notes, Exchange Securities or
Private Exchange Securities has been declared effective by the SEC and such
Notes, Exchange Securities or Private Exchange Securities, as the case may be,
have been disposed of in accordance with such effective Registration Statement,
(ii) such Notes, Exchange Securities or Private Exchange Securities, as the case
may be, are sold in compliance with Rule 144, (iii) the date on which such
Notes, Exchange Securities or Private Exchange Securities, as the case may be,
are eligible for distribution to the public pursuant to Rule 144(k) under the
Securities Act (or any similar provision then in force) or (iv) such Notes,
Exchange Securities or Private Exchange Securities, as the case may be, cease to
be outstanding.
Registration Statement: Any registration statement of the Issuer,
including, but not limited to, the Exchange Registration Statement, that covers
any of the Registrable Securities pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
-3-
<PAGE> 5
Shelf Notice: See Section 2(c).
Shelf Registration: See Section 3(b).
Subsequent Shelf Registration: See Section 3(b).
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee as defined in the Indenture.
Underwritten registration or underwritten offering: A registration in which
securities of the Issuers are sold to an underwriter for reoffering to the
public.
2. EXCHANGE OFFER
(a) The Issuer agrees to file with the SEC after the Issue Date an offer
to exchange (the "Exchange Offer") any and all of the Notes for a like aggregate
principal amount of debt securities of the Issuer which are identical in all
material respects to the respective Notes (the "Exchange Securities") (and which
are entitled to the benefits of the Indenture which, as of the commencement of
the Exchange Offer, will have been qualified under the TIA), except that the
Exchange Securities shall have been registered pursuant to an effective
Registration Statement under the Securities Act and shall contain no restrictive
legend thereon. The Issuer agrees to use its reasonable best efforts to keep the
Exchange Offer open for such period as is required by applicable law after the
effectiveness of the Exchange Offer Registration Statement (as defined below)
and to consummate the Exchange Offer on or prior to the Consummation Date. The
Exchange Offer will be registered under the Securities Act on the appropriate
form (the "Exchange Registration Statement") and will comply with all applicable
tender offer rules and regulations under the Exchange Act. Each Holder who
participates in the Exchange Offer will be deemed to represent that any Exchange
Securities received by it will be acquired in the ordinary course of its
business, that at the time of the consummation of the Exchange Offer such Holder
will have no arrangement with any person to participate in the distribution of
the Exchange Securities in violation of the provisions of the Securities Act,
and that such Holder is not an affiliate of the Issuer within the meaning of the
Securities Act. Upon consummation of the Exchange Offer in accordance with this
Section 2, the provisions of this Agreement shall continue to apply, mutatis
mutandis, solely with respect to Registrable Securities that are Private
Exchange Securities and Exchange Securities held by Participating Broker-Dealers
(provided that in the case of Exchange Securities held by Participating
Broker-Dealers, the provisions of this Agreement shall continue to apply only
for a period of 120 days (subject to extension under the circumstances described
in the last paragraph of Section 5) after the effective date of the Exchange
Registration Statement or for such shorter period ending when all of the
Exchange
-4-
<PAGE> 6
Securities held by such Participating Broker-Dealers have been sold), and the
Issuer shall have no further obligation to register Registrable Securities
(other than Private Exchange Securities and other than Exchange Securities as to
which clause (c)(1)(A) hereof applies) pursuant to Section 3 of this Agreement.
No securities other than the Exchange Securities shall be included in the
Exchange Registration Statement.
(b) The Issuer shall include within the Prospectus contained in the
Exchange Registration Statement one or more section(s), which shall contain a
summary statement of the positions taken or policies made by the Staff of the
SEC with respect to the potential "underwriter" status of any broker-dealer that
is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of
Exchange Securities received by such broker-dealer in the Exchange Offer (a
"Participating Broker-Dealer"). Such section(s) shall also allow the use of the
Prospectus by all categories of persons required to be specified in the
Registration Statement as subject to the prospectus delivery requirements of the
Securities Act, including all Participating Broker-Dealers, and include a
statement describing the means by which Participating Broker-Dealers may resell
the Exchange Securities.
The Issuer shall use its reasonable best efforts to keep the Exchange
Registration Statement effective and to amend and supplement the Prospectus
contained therein in order to permit such Prospectus to be lawfully delivered by
all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Securities, provided that such period shall not
exceed 120 days (or such longer period if extended pursuant to the last
paragraph of Section 5) (the "Applicable Period").
If, prior to consummation of the Exchange Offer, an Initial Purchaser
holds any Notes acquired by it and having the status of an unsold allotment in
the initial distribution, the Issuer, upon the request of such Initial
Purchaser, shall, simultaneously with the delivery of the Exchange Securities in
the Exchange Offer, issue and deliver to each such Initial Purchaser, in
exchange (the "Private Exchange") for the Notes held by such Initial Purchaser,
a like principal amount of debt securities of the Issuer that are identical in
all material respects to the Exchange Securities (the "Private Exchange
Securities") (and which are issued pursuant to the Indenture) except for the
placement of a restrictive legend on such Private Exchange Securities. The
Private Exchange Securities shall bear the same CUSIP number as the Exchange
Securities. Interest on the Exchange Securities and Private Exchange Securities
will accrue from the last interest payment date on which interest was paid on
the Notes surrendered in exchange therefor or, if no interest has been paid on
the Notes, from the Issue Date.
Any board resolution or officers' certificate under the Indenture
under which the Exchange Securities or the Private Exchange Securities will be
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<PAGE> 7
issued shall provide that the holders of any of the Exchange Securities and the
Private Exchange Securities will vote and consent together on all matters (to
which such holders are entitled to vote or consent) as one class and that none
of the holders of the Exchange Securities and the Private Exchange Securities
will have the right to vote or consent as a separate class on any matter (to
which such holders are entitled to vote or consent).
(c) If (1) prior to the consummation of the Exchange Offer, the Issuer
reasonably determines in good faith or Holders of at least a majority in
aggregate principal amount of the Registrable Securities notify the Issuer that
they have reasonably determined in good faith that (A) in the opinion of counsel
to the Issuer or to such Holders, upon which opinion the Issuer is entitled to
rely, the Exchange Securities would not, upon receipt, be tradeable by such
Holders who are not affiliates of the Issuer without restriction under the
Securities Act and without restrictions under applicable blue sky or state
securities laws or (B) in the opinion of counsel to such Holders or counsel to
the Issuer, upon which opinion the Issuer is entitled to rely, the SEC is
unlikely to permit the consummation of the Exchange Offer and/or (2) subsequent
to the consummation of the Private Exchange, holders of at least a majority in
aggregate principal amount of the Private Exchange Securities so request with
respect to the Private Exchange Securities and/or (3) the Exchange Offer is
commenced and not consummated prior to the Consummation Date for any reason,
then the Issuer shall promptly deliver to the Holders and the Trustee notice
thereof (the "Shelf Notice") and shall thereafter file an Initial Shelf
Registration as set forth in Section 3 (which only in the circumstances
contemplated by clause (2) of this sentence will relate solely to the Private
Exchange Securities). The parties hereto agree that, following the delivery of a
Shelf Notice to the Holders of Registrable Securities (only in the circumstances
contemplated by clauses (1) and/or (3) of the preceding sentence), the Issuer
shall not have any further obligation to conduct the Exchange Offer or the
Private Exchange under this Section 2.
3. SHELF REGISTRATION
If a Shelf Notice is delivered as contemplated by Section 2(c), then:
(a) Initial Shelf Registration. The Issuer shall as promptly as
reasonably practicable and in any event within 60 days of the delivery of the
Shelf Notice prepare and file with the SEC a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 covering all of
the Registrable Securities (the "Initial Shelf Registration"), which Initial
Shelf Registration shall be on an appropriate form permitting registration of
such Registrable Securities for resale by such Holders in the manner or manners
designated by them (including, without limitation, one or more underwritten
offerings) provided, however, that notwithstanding any provision of this
Agreement to the contrary, if the Issuer is
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<PAGE> 8
ineligible to file the Initial Shelf Registration on Form S-3 (or similar
successor form promulgated under the Securities Act) at the time of delivery of
the Shelf Notice, the Issuer's obligation to file the Initial Shelf Registration
hereunder shall be extended until the Issuer is eligible to file the Initial
Shelf Registration on Form S-3 (or successor form) and the Issuer shall have no
obligation to file the Initial Shelf Registration if the Effectiveness Period
shall have expired prior to such time; provided further that no extension or
elimination of the Issuer's obligation to file the Initial Shelf Registration
pursuant to this clause shall eliminate or otherwise affect the Issuer's
obligations to pay Additional Interest pursuant to Section 4. The Issuer shall
not permit any securities other than the Registrable Securities to be included
in the Initial Shelf Registration or any Subsequent Shelf Registration. The
Issuer shall use its reasonable best efforts to cause the Initial Shelf
Registration to be declared effective as soon as practicable under the
Securities Act and to keep the Initial Shelf Registration continuously effective
under the Securities Act until the date which is the earliest of (i) two years
(or any shorter period under Rule 144(k) under the Securities Act) from the
Issue Date (subject to extension pursuant to the last paragraph of Section 5
hereof), (ii) the date on which all Registrable Securities covered by the
Initial Shelf Registration have been sold in the manner set forth and as
contemplated in the Initial Shelf Registration or (iii) the date on which
Registrable Securities no longer exist (the "Effectiveness Period") or such
shorter period ending when a Subsequent Shelf Registration covering all of the
Registrable Securities has been declared effective under the Securities Act.
(b) Subsequent Shelf Registrations. If the Initial Shelf Registration or
any Subsequent Shelf Registration ceases to be effective for any reason at any
time during the Effectiveness Period (other than because of the sale of all of
the securities registered thereunder), the Issuer shall use its reasonable best
efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event shall within 60 days of such cessation
of effectiveness use its reasonable best efforts to amend the Shelf Registration
in a manner reasonably expected to obtain the withdrawal of the order suspending
the effectiveness thereof, or file an additional "shelf" Registration Statement
pursuant to Rule 415 covering all of the Registrable Securities (a "Subsequent
Shelf Registration"). If a Subsequent Shelf Registration is filed, the Issuer
shall use its reasonable best efforts to cause the Subsequent Shelf Registration
to be declared effective as soon as practicable after such filing and to keep
such Registration Statement continuously effective for a period equal to the
number of days in the Effectiveness Period less the aggregate number of days
during which the Initial Shelf Registration or any Subsequent Shelf Registration
was previously continuously effective. As used herein the term "Shelf
Registration" means the Initial Shelf Registration and any Subsequent Shelf
Registration.
(c) Supplements and Amendments. The Issuer shall promptly supplement and
amend the Shelf Registration if required by the rules, regulations
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<PAGE> 9
or written instructions applicable to the registration form used for such Shelf
Registration, if required by the Securities Act, or if reasonably requested by
the Holders of a majority in aggregate principal amount of the Registrable
Securities covered by such Registration Statement or by any underwriter of such
Registrable Securities because the failure to do so would result in the Shelf
Registration Statement containing a material misstatement or omission.
4. ADDITIONAL INTEREST
(a) The Issuer and the Initial Purchaser agree that the Holders of
Registrable Securities will suffer damages if the Issuer fails to fulfill its
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Issuer agrees to pay, as liquidated damages, additional interest on the
Registrable Securities ("Additional Interest") under the circumstances and to
the extent set forth below (each of which shall be a "Registration Default" and
shall be given independent effect and shall not be duplicative or cumulative):
(i)(a) if the Exchange Offer is required to be consummated hereunder
and the Issuer fails to issue Exchange Securities prior to the Consummation Date
or (b) the Initial Shelf Registration is not declared effective by the SEC on or
prior to the Consummation Date, Additional Interest shall accrue on the
Registrable Securities included or which should have been included in such
Registration Statement over and above the stated interest at a rate of .50% per
annum commencing on the day immediately following the Consummation Date;
(ii) if the Shelf Registration has been declared effective and
thereafter ceases to be effective or the Prospectus contained therein ceases to
be usable at any time during the Effectiveness Period, as a result of the
delivery by the Issuer of the notice specified in the last paragraph of Section
5 instructing that disposition of the Registrable Securities be discontinued,
and such failure to remain effective or usable exists for more than 90 days
(whether or not consecutive) in any 12-month period, then Additional Interest
shall accrue on the Registrable Securities (over and above the stated interest)
at a rate of .50% per annum commencing on the 91st day in such 12-month period
in which such Shelf Registration ceases to be effective or the Prospectus
contained therein ceases to be usable;
provided, however, that if the Issuer shall request Holders of Notes to provide
the information called for by this Agreement for inclusion in the Shelf
Registration Statement, the Notes owned by Holders who do not deliver such
information to the Issuer will not be entitled to any Additional Interest for so
long as such Holder's failure to provide such information continues, unless the
Issuer is notified in writing by an authorized officer of the Trustee under the
Indenture or The Depository Trust Company ("DTC") as the record Holder of the
Notes, that the
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<PAGE> 10
calculation of payments to beneficial owners of the Notes as a result of this
provision is not reasonably practicable; provided further that (1) upon the
consummation of the Exchange Offer or the effectiveness of the Shelf
Registration as required hereunder (in the case of clause (i) of this Section
4), or (2) in the case of clause (ii) of this Section 4 upon the effectiveness
of a Shelf Registration which had ceased to remain effective or the receipt of a
supplemental or amended Prospectus contemplated by Section 5(j) or the receipt
of the Advice which resumed the use of the Prospectus, Additional Interest on
the Registrable Securities as a result of such clause shall cease to accrue so
long as no other Registration Default has occurred and is continuing.
Notwithstanding any provision to the contrary, (A) so long as any Registrable
Security is then covered by an effective Shelf Registration Statement or usable
Prospectus as defined in clause (ii) of this Section 4(a), no Additional
Interest shall accrue on such Registrable Security and (B) no Additional
Interest shall accrue following the termination of the Effectiveness Period.
(b) The Issuer shall notify the Trustee within three business days after
each and every date on which an event occurs in respect of which Additional
Interest is required to be paid (an "Event Date"). The Issuer shall pay the
Additional Interest due on the Registrable Securities by depositing with the
Trustee, in trust, for the benefit of the Holders thereof, on or before the
applicable semiannual interest payment date, immediately available funds in sums
sufficient to pay the Additional Interest then due to Holders of Registrable
Securities. The Additional Interest amount due shall be payable on each interest
payment date to the record Holder of Registrable Securities entitled to receive
the interest payment to be made on such date as set forth in the Indenture. The
amount of Additional Interest will be determined by multiplying the applicable
Additional Interest rate by the principal amount of the affected Registrable
Securities of such Holders, multiplied by a fraction, the numerator of which is
the number of days such Additional Interest rate was applicable during such
period (determined on the basis of a 360-day year comprised of twelve 30-day
months and, in the case of a partial month, the actual number of days elapsed),
and, the denominator of which is 360. Each obligation to pay Additional Interest
shall be deemed to accrue on the first day immediately following the occurrence
of the applicable Event Date. The parties hereto agree that the Additional
Interest provided for in this Section 4 constitutes a reasonable estimate of the
damages that may be incurred by Holders of Registrable Securities by reason of
the failure of a Shelf Registration to be declared effective or the Exchange
Offer to be consummated, or a Shelf Registration to remain effective or
Prospectus contained therein to be usable as defined in Section 4(a)(ii), as the
case may be, in accordance with this Section 4.
5. REGISTRATION PROCEDURES
In connection with the registration of any Registrable Securities
pursuant to Section 2 or 3 hereof, the Issuer shall effect such registration to
permit
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<PAGE> 11
the sale of such Registrable Securities in accordance with the intended method
or methods of disposition thereof, and pursuant thereto the Issuer shall:
(a) Use its reasonable best efforts to prepare and file with the SEC,
after the date hereof in the case of the Exchange Registration Statement and
prior to the 60th day after delivery of a Shelf Notice in the case of the Shelf
Registration Statement, a Registration Statement or Registration Statements as
prescribed by Section 2 or 3, and use its reasonable best efforts to cause each
such Registration Statement to become effective and remain effective as provided
herein, provided that, if (1) such filing is pursuant to Section 3, or (2) a
Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, before filing any Registration Statement or Prospectus or any
amendments or supplements thereto, the Issuer shall upon written request furnish
to and afford the Holders of the Registrable Securities (which in the case of
Registrable Securities in the form of global certificates shall be DTC) and each
such Participating Broker-Dealer, as the case may be, covered by such
Registration Statement, their counsel and the managing underwriters, if any, a
reasonable opportunity to review copies of all such documents (including copies
of any documents to be incorporated by reference therein and all exhibits
thereto) proposed to be filed. If such persons do not provide comments regarding
the Registration Statement to the Issuer within five business days, they will be
deemed to have no such comments.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Registration Statement, as the
case may be, as may be necessary to keep such Registration Statement
continuously effective for the Effectiveness Period or the Applicable Period, as
the case may be; cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
(or any similar provisions then in force) under the Securities Act; and comply
with the provisions of the Securities Act, the Exchange Act and the rules and
regulations of the SEC promulgated thereunder applicable to them with respect to
the disposition of all securities covered by such Registration Statement as so
amended or in such Prospectus as so supplemented and with respect to the
subsequent resale of any securities being sold by a Participating Broker-Dealer
covered by any such Prospectus; the Issuer shall not be deemed to have used its
reasonable best efforts to keep a Registration Statement effective during the
Applicable Period if the Issuer voluntarily takes any action that would result
in selling Holders of the Registrable Securities covered thereby or
Participating Broker-Dealers seeking to sell Exchange Securities not being able
to sell such Registrable Securities or such Exchange Securities during that
period unless such action is required by applicable law or unless the Issuer
complies with this Agreement, including without limitation, the provisions of
paragraph 5(k) hereof and the last paragraph of this Section 5.
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<PAGE> 12
(c) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a
Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, notify the selling Holders of Registrable Securities, or each
such Participating Broker-Dealer, as the case may be, their counsel and the
managing underwriters, if any, who have provided the Issuer with their names and
addresses promptly (but in any event within two business days), and confirm such
notice in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective
under the Securities Act (including in such notice a written statement that any
Holder may, upon request, obtain, without charge, one conformed copy of such
Registration Statement or post-effective amendment including financial
statements and schedules, documents incorporated or deemed to be incorporated by
reference and exhibits), (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the initiation
of any proceedings for that purpose, (iii) of the receipt by the Issuer of any
notification with respect to the suspension of the qualification or exemption
from qualification of a Registration Statement or any of the Registrable
Securities or the Exchange Securities to be sold by any Participating
Broker-Dealer for offer or sale in any jurisdiction, or the initiation or, to
the knowledge of the Issuer, threatening of any proceeding for such purpose,
(iv) of the happening of any event or any information becoming known that makes
any statement made in such Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in such
Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, and (v) any reasonable determination of the Issuer
that a post-effective amendment to a Registration Statement would be
appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a
Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, use their reasonable best efforts to prevent the issuance of
any order suspending the effectiveness of such Registration Statement or of any
order preventing or suspending the use of a Prospectus or suspending the
qualification (or exemption from qualification) of any of the Registrable
Securities or the Exchange Securities to
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<PAGE> 13
be sold by any Participating Broker-Dealer, for sale in any jurisdiction, and,
if any such order is issued, to use their reasonable best efforts to obtain the
withdrawal of any such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriters, if any, or the Holders of a majority in
aggregate principal amount of the Registrable Securities being sold in
connection with an underwritten offering, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information as such
managing underwriters or such Holders or counsel reasonably request to be
included therein, or (ii) make all required filings of such prospectus
supplement or such post-effective amendment as soon as practicable after the
Issuer has received notification of the matters to be incorporated in such
prospectus supplement or post-effective amendment.
(f) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a
Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, furnish to each selling Holder of Registrable Securities and
to each such Participating Broker-Dealer who so requests and to counsel and each
managing underwriter, if any, without charge, one conformed copy of the
Registration Statement or Statements and each post-effective amendment thereto,
including financial statements and schedules, and, if requested, all documents
incorporated or deemed to be incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a
Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, deliver to each selling Holder of Registrable Securities, or
each such Participating Broker-Dealer, as the case may be, their counsel, and
the underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including each form of preliminary prospectus) and each amendment
or supplement thereto and any documents incorporated by reference therein as
such Persons may reasonably request; and, subject to the last paragraph of this
Section 5, the Issuer hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Holders of Registrable
Securities or each such Participating Broker-Dealer, as the case may be, and the
underwriters or agents, if any, and dealers (if any), in connection with the
offering and sale of the Registrable Securities covered by or the sale by
Participating Broker-Dealers of the Exchange Securities pursuant to such
Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities or any
delivery of a Prospectus contained in the Exchange Registration Statement by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
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Applicable Period, to use their reasonable best efforts to register or qualify,
and to cooperate with the selling Holders of Registrable Securities or each such
Participating Broker-Dealer, as the case may be, the underwriters, if any, and
their respective counsel in connection with the registration or qualification
(or exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any selling Holder, Participating
Broker-Dealer, or the managing underwriters reasonably request in writing,
provided that where Exchange Securities held by Participating Broker-Dealers or
Registrable Securities are offered other than through an underwritten offering,
the Issuer agrees to cause its counsel to perform Blue Sky investigations and
file registrations and qualifications required to be filed pursuant to this
Section 5(h); keep each such registration or qualification (or exemption
therefrom) effective during the period such Registration Statement is required
to be kept effective and do any and all other reasonable acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Exchange Securities held by Participating Broker-Dealers or the Registrable
Securities covered by the applicable Registration Statement, provided that the
Issuer shall not be required to (A) qualify generally to do business in any
jurisdiction where it is not then so qualified, (B) take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject or (C) subject itself to taxation in excess of a nominal
dollar amount in any such jurisdiction.
(i) If a Shelf Registration is filed pursuant to Section 3, reasonably
cooperate with the selling Holders of Registrable Securities and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold, which certificates
shall not bear any restrictive legends and shall be in a form eligible for
deposit with DTC; and enable such Registrable Securities to be registered in
such names as the managing underwriter or underwriters, if any, or Holders may
request.
(j) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a
Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, upon the occurrence of any event contemplated by paragraph
5(c)(iv) or 5(c)(v) above, as promptly as practicable prepare and (subject to
Section 5(a) above) file with the SEC, solely at the expense of the Issuer, a
supplement or post-effective amendment to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchaser of the Registrable Securities
being sold thereunder or to the purchasers of the Exchange Securities to whom
such Prospectus will be delivered by a Participating Broker-Dealer, any such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated
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<PAGE> 15
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(k) Use its reasonable best efforts to cause the Registrable Securities
covered by a Registration Statement or the Exchange Securities, as the case may
be, to be rated with Moody's Investors Service, Inc. and Standard & Poor's
Rating Services, a division of the McGraw-Hill Companies, if so requested by the
Holders of a majority in aggregate principal amount of Registrable Securities
covered by such Registration Statement or the Exchange Securities, as the case
may be, or the managing underwriters, if any.
(l) Prior to the effective date of the first Registration Statement
relating to the Registrable Securities, (i) provide the Trustee with printed
certificates for the Registrable Securities in a form eligible for deposit with
DTC and (ii) provide a CUSIP number for the Registrable Securities.
(m) In connection with an underwritten offering of Registrable
Securities pursuant to a Shelf Registration, enter into an underwriting
agreement as is customary in underwritten offerings and take all such other
actions as are reasonably requested by the managing underwriters in order to
expedite or facilitate the registration or the disposition of such Registrable
Securities, and in such connection, (i) make such representations and warranties
to the underwriters, with respect to the business of the Issuer and its
subsidiaries, if any, and the Registration Statement, Prospectus and documents,
if any, incorporated or deemed to be incorporated by reference therein, in each
case, as are customarily made by the Issuer to underwriters in underwritten
offerings, and confirm the same if and when requested; (ii) obtain an opinion of
counsel to the Issuer and updates thereof in form and substance reasonably
satisfactory to the managing underwriters, addressed to the underwriters
covering the matters customarily covered in opinions requested in underwritten
offerings; (iii) obtain "cold comfort" letters and updates thereof in form and
substance reasonably satisfactory to the managing underwriters from the
independent certified public accountant(s) of the Issuer (and, if necessary, any
other independent certified public accountants of any subsidiary of the Issuer
or of any business acquired by the Issuer for which financial statements and
financial data are, or are required to be, included in the Registration
Statement), addressed to each of the underwriters, such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters in connection with underwritten offerings; and (iv) if an
underwriting agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable than those set forth in Section 7
hereof (or such other provisions and procedures acceptable to Holders of a
majority in aggregate principal amount of Registrable Securities covered by such
Registration Statement and the managing underwriters or agents) with respect to
all parties to be indemnified pursuant to said Section. The above shall be done
at each closing under such underwriting agreement, or as and to the extent
required thereunder.
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(n) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a
Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, make available for inspection by any selling Holder of such
Registrable Securities being sold, or each such Participating Broker-Dealer, as
the case may be, any underwriter participating in any such disposition of
Registrable Securities, and any attorney, accountant or other agent retained by
any such selling holder or each such Participating Broker-Dealer, as the case
may be, or underwriter (collectively, the "Inspectors"), at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Issuer
(collectively, the "Records"), as shall be reasonably necessary to enable them
to exercise any applicable due diligence responsibilities, and cause the
officers, directors and employees of the Issuer to supply all information in
each case reasonably requested by any such Inspector in connection with such
Registration Statement. Records determined in good faith by the Issuer to be
confidential shall not be disclosed by any Inspector notified of such
determination unless (i) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in such Registration Statement, (ii) the
release of such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction or (iii) the information in such Records has
been made generally available to the public. Each selling Holder of such
Registrable Securities, each such Participating Broker-Dealer and underwriters
and agents of any of them will be required to enter into a confidentiality
agreement in the form customarily provided by the Issuer. Each selling Holder of
such Registrable Securities and each such Participating Broker-Dealer will be
required to further agree that it will, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, give notice to the
Issuer and allow it at its own expense to undertake appropriate action to
prevent disclosure of the Records deemed confidential.
(o) Provide an indenture trustee for the Registrable Securities or the
Exchange Securities, as the case may be, and cause the Indenture to be qualified
under the TIA not later than the effective date of the Exchange Offer or the
first Registration Statement relating to the Registrable Securities; and in
connection therewith, cooperate with the trustee under the Indenture and the
Holders of the Registrable Securities, to effect such changes thereto as may be
required for the Indenture to be so qualified in accordance with the terms of
the TIA; and execute, and use its reasonable best efforts to cause such trustee
to execute, all documents as may be required to effect such changes, and all
other forms and documents required to be filed with the SEC to enable the
Indenture to be so qualified in a timely manner.
(p) Comply in all material respects with all applicable rules and
regulations of the SEC and make generally available to its securityholders
earning statements satisfying the provisions of Section 11(a) of the Securities
Act and
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Rule 158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 90 days after the end of each 12-month period (i) commencing at
the end of any fiscal quarter in which Registrable Securities are sold to
underwriters in a firm commitment or best efforts underwritten offering and (ii)
if not sold to underwriters in such an offering, commencing on the first day of
the first fiscal quarter of the Issuer after the effective date of a Shelf
Registration Statement, which statements shall cover said 12-month periods.
(q) If an Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Securities by Holders to the Issuer (or to such
other Person as directed by the Issuer) in exchange for the Exchange Securities
or the Private Exchange Securities, as the case may be, the Issuer shall mark,
or cause to be marked, on such Registrable Securities that such Registrable
Securities are being canceled in exchange for the Exchange Securities or the
Private Exchange Securities, as the case may be; in no event shall such
Registrable Securities be marked as paid or otherwise satisfied.
(r) Reasonably cooperate with each seller of Registrable Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Securities and their
respective counsel in connection with any filings required to be made with the
National Association of Securities Dealers, Inc. (the "NASD").
(s) Use its reasonable best efforts to take all other steps necessary to
effect the registration of the Registrable Securities covered by a Registration
Statement contemplated hereby.
Throughout the Effectiveness Period, the Issuer may require each seller
of Registrable Securities or Participating Broker-Dealer as to which any
registration is being effected to furnish to the Issuer such information
regarding such seller or Participating Broker-Dealer and the distribution of
such Registrable Securities or Exchange Securities to be sold by such
Participating Broker-Dealer, as the case may be, as the Issuer may, from time to
time, reasonably request. The Issuer may exclude from such registration the
Registrable Securities of any seller or Participating Broker-Dealer who
unreasonably fails to furnish such information within a reasonable time after
receiving such request. Each seller as to which any Shelf Registration is being
effected is deemed to agree to furnish promptly (and in any event within five
business days) to the Issuer all information required to be disclosed in order
to make the information previously furnished to the Issuer by such seller not
materially misleading.
Each Holder of Registrable Securities and each Participating
Broker-Dealer agrees by acquisition of such Registrable Securities or Exchange
Securities to be sold by such Participating Broker-Dealer, as the case may be,
that, upon receipt of any notice from the Issuer of the happening of any event
of the kind described
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<PAGE> 18
in Section 5(c)(ii), 5(c)(iii), 5(c)(iv), or 5(c)(v), such Holder or
Participating Broker-Dealer will forthwith discontinue disposition of such
Registrable Securities covered by such Registration Statement or Prospectus or
Exchange Securities to be sold by such Holder or Participating Broker-Dealer, as
the case may be, until such holder's receipt of the copies of the supplemented
or amended Prospectus contemplated by Section 5(j), or until it is advised in
writing (the "Advice") by the Issuer that the use of the applicable Prospectus
may be resumed, and has received copies of any amendments or supplements
thereto. In the event the Issuer shall give any such notice, each of the
Effectiveness Period and the Applicable Period shall be extended by the number
of days during such periods from and including the date of the giving of such
notice to and including the date when each seller of Registrable Securities
covered by such Registration Statement or Exchange Securities to be sold by such
Participating Broker-Dealer, as the case may be, shall have received (x) the
copies of the supplemented or amended Prospectus contemplated by Section 5(j) or
(y) the Advice.
6. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or compliance
with this Agreement by the Issuer shall be borne by the Issuer whether or not
the Exchange Offer or a Shelf Registration is filed or becomes effective,
including, without limitation, (i) all registration and filing fees (including,
without limitation, (A) fees with respect to filings required to be made with
the NASD in connection with an underwritten offering and (B) fees and expenses
of compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel in connection with Blue Sky
qualifications of the Registrable Securities or Exchange Securities and
determination of the eligibility of the Registrable Securities or Exchange
Securities for investment under the laws of such jurisdictions in the United
States (x) where the holders of Registrable Securities are located, in the case
of the Exchange Securities, or (y) as provided in Section 5(h), in the case of
Registrable Securities or Exchange Securities to be sold by a Participating
Broker-Dealer during the Applicable Period)), (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable Securities
or Exchange Securities in a form eligible for deposit with DTC and of printing
prospectuses in such form as the Issuer and such managing underwriters, if any,
shall determine if the printing of prospectuses is requested by the managing
underwriters, if any, or, in respect of Registrable Securities or Exchange
Securities to be sold by any Participating Broker-Dealer during the Applicable
Period, by the Holders of a majority in aggregate principal amount of the
Registrable Securities included in any Registration Statement or of such
Exchange Securities, as the case may be), (iii) reasonable messenger, telephone
and delivery expenses, (iv) fees and disbursements of counsel for the Issuer and
reasonable fees and disbursements of special counsel for the sellers of
Registrable Securities (subject to the provisions of Section 6(b)), (v) fees and
disbursements of all
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<PAGE> 19
independent certified public accountants referred to in Section 5(m)(iii)
(including, without limitation, the expenses of any special audit and "cold
comfort" letters required by or incident to such performance), (vi) rating
agency fees, (vii) Securities Act liability insurance, if the Issuer desires
such insurance, (viii) fees and expenses of all other Persons retained by the
Issuer, (ix) internal expenses of the Issuer (including, without limitation, all
salaries and expenses of officers and employees of the Issuer performing legal
or accounting duties), (x) the expense of any annual audit required by the
Securities Act or the rules and regulations thereunder, (xi) the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchange on which similar securities issued by the
Issuer are then listed, if the Issuer elects to list such securities and (xii)
the expenses relating to printing, word processing and distributing all
Registration Statements, underwriting agreements, securities sales agreements,
indentures and any other documents necessary in order to comply with this
Agreement. All underwriting discounts and selling commissions applicable to the
sale of Registrable Securities or the sale of Exchange Securities to be sold by
a Participating Broker-Dealer shall be borne by the selling Holder or
Participating Broker-Dealer, as the case may be.
(b) In connection with any Shelf Registration hereunder, the Issuer
shall reimburse the Holders of the Registrable Securities being registered in
such registration for the fees and disbursements of not more than one counsel
chosen by the Holders of a majority in aggregate principal amount of the
Registrable Securities to be included in such Registration Statement. Such
Holders shall be responsible for any and all other out-of-pocket expenses of the
Holders of Registrable Securities incurred in connection with the registration
of the Registrable Securities.
7. INDEMNIFICATION
The Issuer agrees to indemnify and hold harmless each Holder of
Registrable Securities and each Participating Broker-Dealer selling Exchange
Securities during the Applicable Period, the officers and directors of each such
person, and each person, if any, who controls any such person within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act
(each, a "Participant"), from and against any and all losses, claims, damages
and liabilities (including, without limitation, the reasonable legal fees and
other expenses actually incurred in connection with any suit, action or
proceeding or any claim asserted) caused by any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
Prospectus or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any
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<PAGE> 20
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information relating to any Participant
furnished to the Company in writing by such Participant expressly for use
therein; provided that the foregoing indemnity with respect to any preliminary
prospectus shall not inure to the benefit of any Participant (or to the benefit
of any person controlling such Participant) from whom the person asserting any
such losses, claims, damages or liabilities purchased Registrable Securities or
Exchange Securities if such untrue statement or omission or alleged untrue
statement or omission made in such preliminary prospectus is eliminated or
remedied in the related Prospectus (as amended or supplemented if the Issuer
shall have furnished any amendments or supplements thereto) and a copy of the
related Prospectus (as so amended or supplemented) shall not have been furnished
to such person at or prior to the sale of such Registrable Securities or
Exchange Securities, as the case may be, to such person.
Each Participant will be required to agree, severally and not jointly,
to indemnify and hold harmless the Issuer, its directors, officers, general
partners (including directors and officers of such general partners) and each
person who controls the Issuer within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Issuer to each Participant, but only with reference
to information relating to such Participant furnished to the Issuer in writing
by such Participant expressly for use in any Registration Statement or
Prospectus, any amendment or supplement thereto, or any preliminary prospectus.
The liability of any Participant under this paragraph shall in no event exceed
the proceeds received by such Participant from sales of Registrable Securities
giving rise to such obligations.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Person") shall promptly
notify the person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the
reasonable fees and expenses actually incurred by such counsel related to such
proceeding, provided that the failure to so notify the Indemnifying Person shall
not relieve it of any obligation or liability which it may have hereunder or
otherwise (unless and only to the extent that such failure directly results in
the loss or compromise of any material rights or defenses). In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless (i) the Indemnifying Person and the Indemnified
Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person
has failed within a reasonable time to retain counsel
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<PAGE> 21
reasonably satisfactory to the Indemnified Person or (iii) the named parties in
any such proceeding (including any impleaded parties) include both the
Indemnifying Person and the Indemnified Person and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the Indemnifying Person
shall not, in connection with any proceeding or related proceeding in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Indemnified Persons, and that all
such fees and expenses shall be reimbursed as they are incurred. Any such
separate firm for the Participants and such control persons of Participants
shall be designated in writing by Participants who sold a majority in interest
of Registrable Securities sold by all such Participants and any such separate
firm for the Issuer, its directors, officers and such control persons of the
Issuer shall be designated in writing by the Issuer. The Indemnifying Person
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
non-appealable judgment for the plaintiff, the Indemnifying Person agrees to
indemnify any Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an Indemnified Person shall have requested an Indemnifying Person
to reimburse the Indemnified Person for reasonable fees and expenses actually
incurred by counsel as contemplated by the third sentence of this paragraph, the
Indemnifying Person agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such Indemnifying Person of the
aforesaid request (ii) such Indemnifying Person shall have received notice of
the terms of settlement at least 30 days prior to such settlement being entered
into, and (iii) such Indemnifying Person shall not have reimbursed the
Indemnified Person in accordance with such request prior to the date of such
settlement; provided, however, that the Indemnifying Person shall not be liable
for any settlement effected without its consent pursuant to this sentence if the
Indemnifying Party is contesting, in good faith, the request for reimbursement.
No Indemnifying Person shall, without the prior written consent of the
Indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Person,
unless such settlement includes an unconditional release of such Indemnified
Person from all liability on claims that are the subject matter of such
proceeding.
If the Indemnification provided for in the first and second paragraphs
of this Section 7 is unavailable to an Indemnified Person in respect of any
losses, claims, damages or liabilities referred to therein, then each
Indemnifying Person under such paragraph, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the Issuer on the one hand and the
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<PAGE> 22
Participants on the other in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Issuer on the one
hand and the Participants on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Issuer or by the Participants and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The parties shall agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Securities
exceeds the amount of any damages that such Participant has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
The indemnity and contribution agreements contained in this Section 7
will be in addition to any liability which the Indemnifying Persons may
otherwise have to the Indemnified Persons referred to above.
8. RULE 144 AND RULE 144A
The Issuer covenants that it will file the reports required to be filed
by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder in a timely manner and, if at any time
the Issuer is not required to file such reports, it will, upon the request of
any Holder of Registrable Securities, make publicly available other information
so long as necessary to permit sales pursuant to Rule 144 and Rule 144A under
the Securities Act. The Issuer further covenants that it will take such further
action as any Holder of Registrable Securities may reasonably request, all to
the extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions
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<PAGE> 23
provided by (a) Rule 144 and Rule 144A under the Securities Act, as such Rules
may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the SEC.
9. UNDERWRITTEN REGISTRATIONS
If any of the Registrable Securities covered by any Shelf Registration
are to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount of such Registrable
Securities included in such offering and reasonably acceptable to the Issuer.
No Holder of Registrable Securities may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements, (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements and (c) at least 51% of the principal amount of
outstanding Registrable Securities are included in such underwritten offering.
10. MISCELLANEOUS
(a) No Inconsistent Agreements. The Issuer has not, as of the date
hereof, entered and shall not, after the date of this Agreement, enter into any
agreement with respect to any of its securities that is inconsistent with the
rights granted to the Holders of Registrable Securities in this Agreement or
otherwise conflicts with the provisions hereof. The Issuer has not entered and
will not enter into any agreement with respect to any of its securities which
will grant to any Person piggy-back rights with respect to a Registration
Statement.
(b) Adjustments Affecting Registrable Securities. The Issuer shall not,
directly or indirectly, take any action with respect to the Registrable
Securities as a class that would adversely affect the ability of the Holders of
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Issuer has obtained the written consent of Holders of at least
a majority of the then outstanding aggregate principal amount of Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to
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<PAGE> 24
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders of Registrable Securities whose securities
are being sold pursuant to a Registration Statement and that does not directly
or indirectly affect, impair, limit or compromise the rights of other Holders of
Registrable Securities may be given by Holders of at least a majority in
aggregate principal amount of the Registrable Securities being sold by such
Holders pursuant to such Registration Statement, provided that the provisions of
this sentence may not be amended, modified or supplemented except in accordance
with the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications (including without
limitation any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or telecopier:
(i) if to a Holder of Registrable Securities, at the most current
address given by the Trustee to the Issuer; and
(ii) if to the Issuer, Crescent Real Estate Equities Limited
Partnership, 777 Main Street, Suite 2100, Fort Worth, TX 76102, Attention:
Gerald W. Haddock, President and Chief Executive Officer of Crescent Real Estate
Equities, Ltd.; with a copy to Shaw, Pittman, Potts & Trowbridge, 2300 N Street,
N.W., Washington, D.C. 20037, Attention: Robert B. Robbins.
All such notices and communications shall be deemed to have been
duly given when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; one business day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if telecopied.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the trustee under the
Indenture at the address specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Registrable Securities who shall be deemed to have agreed to the
provisions hereof; provided, that, with respect to the indemnity and
contribution agreements in Section 7, each Holder of Registrable Securities
subsequent to the Initial Purchaser shall be bound by the terms thereof only if
such Holder elects to include Registrable Securities in a Shelf Registration;
provided, however, that this Agreement shall not inure to the benefit of or be
binding upon a successor or assign of a Holder unless and then only to the
extent such successor or assign holds Registrable Securities.
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<PAGE> 25
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
(i) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(j) Entire Agreement. This Agreement, together with the Purchase
Agreement, is intended by the parties as a final expression of their agreement,
and is intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein.
(k) Securities Held by the Issuer or Its Affiliates. Whenever the
consent or approval of holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Issuer or
any of its affiliates (as such term is defined in Rule 405 under the Securities
Act) shall not be counted in determining whether such consent or approval was
given by the Holders of such required percentage.
* * * * *
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<PAGE> 26
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP
By: Crescent Real Estate Equities, Ltd.
By:
------------------------------------
Name:
Title:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
SALOMON BROTHERS INC
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By:
------------------------------------
Name: Daniel A. Rubenstein
Title: Director
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<PAGE> 1
Form Page 1
EXHIBIT 10.07
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made and entered into as
of the _____ day of ____________, 1997, by and among Crescent Real Estate
Equities Company, a Texas real estate investment trust ("Crescent" together
with its wholly owned subsidiary Crescent Real Estate Equities, Ltd., a
Delaware corporation, being referred to herein collectively as the "Company"),
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership (the "Partnership"), and ___________________, a trust manager, an
officer, or a trust manager and officer of the Company (the "Indemnitee").
W I T N E S S E T H:
-------------------
WHEREAS, the interpretation of ambiguous statutes, regulations and
bylaws regarding indemnification of trust managers and officers may be too
uncertain to provide such trust managers and officers with adequate notice of
the legal, financial and other risks to which they may be exposed by virtue of
their service as such; and
WHEREAS, damages sought against trust managers and officers in
shareholder or similar litigation by class action plaintiffs may be
substantial, and the costs of defending such actions and of judgments in favor
of plaintiffs or of settlement therewith may be prohibitive for individual
trust managers and officers, without regard to the merits of a particular
action and without regard to the culpability of, or the receipt of improper
personal benefit by, any named trust manager or officer to the detriment of the
corporation; and
WHEREAS, the issues in controversy in such litigation usually relate to
the knowledge, motives and intent of the trust manager or officer, who may be
the only person with firsthand knowledge of essential facts or exculpating
circumstances who is qualified to testify in his defense regarding matters of
such a subjective nature, and, the long period of time which may elapse before
final disposition of such litigation, may impose undue hardship and burden on a
trust manager or officer or his estate in launching and maintaining a proper
and adequate defense of himself or his estate against claims for damages; and
WHEREAS, Crescent is organized under the Texas Real Estate Investment
Trust Act (the "Act"), and Section 9.20 of the Act empowers real estate
investment trusts to indemnify and advance expenses to a person serving as a
trust manager, officer, employee or agent of a real estate investment trust and
to persons serving at the request of the real estate investment trust, while a
trust manager of a corporation, as a trust manager, director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of
another real estate investment trust, foreign or domestic corporation,
partnership, joint venture, sole proprietorship, trust, employee benefit plan,
or other enterprise; and
WHEREAS, the Declaration of Trust of Crescent, as it may be amended or
amended and restated from time to time (the "Declaration of Trust"), provides
that Crescent shall indemnify current and former trust managers and officers,
and shall have the power to indemnify agents to
<PAGE> 2
Form Page 2
the full extent permitted by the Act, as it may be amended from time to time;
and
WHEREAS, the Trust Managers of Crescent (the "Board") have concluded
that it is reasonable and prudent for Crescent contractually to obligate itself
to indemnify in a reasonable and adequate manner the Indemnitee and to assume
for itself maximum liability for expenses and damages in connection with claims
lodged against the Indemnitee for the Indemnitee's decisions and actions as a
trust manager or officer, or both, of the Company; and
WHEREAS, the Partnership is organized under the Delaware Revised Uniform
Limited Partnership Act (the "DRULPA"), and Section 17-108 of the DRULPA
empowers limited partnerships to indemnify and hold harmless any partner or
other person from and against any and all claims and demands whatsoever,
subject to the standards and restrictions, if any, as are set forth in their
limited partnership agreements; and
WHEREAS, the First Amended and Restated Agreement of Limited Partnership
of the Partnership, as it may be amended or amended and restated from time to
time (the "Partnership Agreement"), provides for certain indemnification
consistent with the DRULPA, as it may be amended from time to time; and
WHEREAS, Crescent Real Estate Equities, Ltd., the general partner of the
Partnership, has concluded that it is reasonable and prudent for the
Partnership contractually to obligate itself to indemnify in a reasonable and
adequate manner the Indemnitee and to assume for itself maximum liability for
expenses and damages in connection with claims lodged against the Indemnitee
for the Indemnitee's decisions and actions as a trust manager or officer, or
both, of the Company and on behalf of the Partnership and its affiliated
entities;
NOW, THEREFORE, in consideration of the foregoing, and of other good and
valuable consideration, the receipt and sufficiency of which are acknowledged
by each of the parties hereto, the parties agree as follows:
For purposes of this Agreement, the following terms shall have the
meanings set forth below:
A. "BOARD" shall mean the Trust Managers of Crescent.
B. "CHANGE IN CONTROL" shall mean a change in the ownership or power
to direct the Voting Securities of Crescent or the acquisition by a person not
affiliated with the Company of the ability to direct the management of the
Company.
C. "CORPORATE STATUS" shall mean the status of a person who is or
was a trust manager, officer, employee or agent of the Company, or a member of
any committee of the Board, a partner, officer, employee or agent of the
Partnership, a director, officer, employee or agent of the General Partner, a
director, officer, employee or agent of any past, present or future direct or
indirect subsidiary of the Company, a trust manager, director, officer,
employee or agent of any predecessor of the Company in a merger, consolidation,
or other transaction in which the
<PAGE> 3
Form Page 3
liabilities of the predecessor are transferred to the Company by operation of
law and in any other transaction in which the Company assumes the liabilities
of the predecessor but does not specifically exclude liabilities to indemnify
persons as contemplated hereby, and the status of a person who, while a trust
manager or officer of the Company, is or was serving at the request of the
Company as a trust manager, director, officer, partner (including service as a
general partner of any limited partnership), venturer, proprietor, trustee,
employee, agent, or similar functionary of another real estate investment
trust, foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, other incorporated or unincorporated entity or
enterprise or employee benefit plan.
D. "DISINTERESTED TRUST MANAGER" shall mean a trust manager of the
Company who, at the time of the vote, is not a named defendant or respondent in
the Proceeding in respect of which indemnification is being sought by the
Indemnitee.
E. "EXPENSES" shall mean any and all expenses of Proceedings,
including, without limitation, all attorneys' fees, retainers, court costs,
transcript costs, fees of experts, investigation fees and expenses, accounting
and witness fees, travel expenses, duplicating costs, printing and binding
costs, telephone charges, postage, delivery service fees and all other
disbursements or expenses of the types customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend, investigating or
being or preparing to be a witness in a Proceeding.
F. "GOOD FAITH ACT OR OMISSION" shall mean an act or omission of the
Indemnitee other than (i) one committed in bad faith or that was the result of
the Indemnitee's active or deliberate dishonesty; (ii) one from which the
Indemnitee actually received an improper personal benefit in money, property or
services; or (iii) in the case of a criminal Proceeding, one as to which the
Indemnitee had cause to believe his conduct was unlawful.
G. "LIABILITIES" shall mean liabilities of any type whatsoever,
including, without limitation, any judgments, fines, excise taxes and penalties
under the Employee Retirement Income Security Act of 1974, as amended,
penalties and amounts paid in settlement (including all interest, assessments
and other charges paid or payable in connection with or in respect of such
judgments, fines, penalties or amounts paid in settlement) in connection with
the investigation, defense, settlement or appeal of any Proceeding or any
claim, issue or matter therein.
H. "PROCEEDING" shall mean any threatened, pending or completed
action, suit, proceeding, arbitration, alternate dispute resolution mechanism,
investigation, administrative hearing, or any other actual, threatened or
completed proceeding, whether civil, criminal, administrative, arbitrative or
investigative, any appeal or appeals therefrom, and any inquiry or
investigation that could lead to any of the foregoing.
I. "VOTING SECURITIES" shall mean any securities of Crescent that
are entitled to vote generally in the election of trust managers.
<PAGE> 4
Form Page 4
II.
TERM OF AGREEMENT
This Agreement shall continue until, and terminate upon the later to
occur of (i) the death of the Indemnitee; or (ii) the final termination of all
Proceedings (including possible Proceedings) in respect of which the Indemnitee
is granted rights of indemnification or advancement of Expenses hereunder and
of any Proceeding commenced by the Indemnitee regarding the interpretation or
enforcement of this Agreement.
III.
NOTICE OF PROCEEDINGS, DEFENSE OF CLAIMS
A. NOTICE OF PROCEEDINGS. The Indemnitee agrees to notify the
Company promptly in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement of
Expenses covered hereunder, but the Indemnitee's omission to so notify the
Company shall not relieve either the Company or the Partnership from any
liability which either may have to the Indemnitee under this Agreement.
B. DEFENSE OF CLAIMS. The Company will be entitled to participate,
at the expense of the Company (and the Partnership as provided pursuant to
Section IV.A. hereof), in any Proceeding of which the Company has notice. The
Company jointly with any other indemnifying party similarly notified of any
Proceeding will be entitled to assume the defense of the Indemnitee therein,
with counsel reasonably satisfactory to the Indemnitee; provided, however, that
the Company shall not be entitled to assume the defense of the Indemnitee in
any Proceeding if there has been a Change in Control or if the Indemnitee has
reasonably concluded that there may be a conflict of interest between the
Company and the Indemnitee with respect to such Proceeding. The Company and
the Partnership will not be liable to the Indemnitee under this Agreement for
any Expenses incurred by the Indemnitee in connection with the defense of any
Proceeding, other than reasonable costs of investigation or as otherwise
provided below, after notice from the Company to the Indemnitee of its election
to assume the defense of the Indemnitee therein. The Indemnitee shall have the
right to employ his or her own counsel in any such Proceeding, but the fees and
expenses of such counsel incurred after notice from the Company of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Company; (ii) the Indemnitee shall have reasonably concluded that counsel
employed by the Company may not adequately represent the Indemnitee and shall
have so informed the Company; or (iii) the Company shall not in fact have
employed counsel to assume the defense of the Indemnitee in such Proceeding or
such counsel shall not, in fact, have assumed such defense or such counsel
shall not be acting, in connection therewith, with reasonable diligence; and in
each such case the fees and expenses of the Indemnitee's counsel shall be
advanced by the Company and the Partnership.
<PAGE> 5
Form Page 5
C. SETTLEMENT OF CLAIMS. The Company shall not settle any
Proceeding in any manner which would impose any liability, penalty or
limitation on the Indemnitee without the written consent of the Indemnitee;
provided, however, that the Indemnitee will not unreasonably withhold or delay
consent to any proposed settlement. The Company and the Partnership shall not
be liable to indemnify the Indemnitee under this Agreement or otherwise for any
amounts paid in settlement of any Proceeding effected by the Indemnitee without
the Company's written consent, which consent shall not be unreasonably withheld
or delayed.
IV.
INDEMNIFICATION
A. IN GENERAL. Upon the terms and subject to the conditions set
forth in this Agreement, the Company and the Partnership jointly and severally
shall hold harmless and indemnify the Indemnitee against any and all
Liabilities and Expenses actually incurred by or for the Indemnitee in
connection with any Proceeding (whether the Indemnitee is or becomes a party, a
witness or otherwise is a participant in any role) to the fullest extent
required or permitted by applicable law in effect on the date hereof and to
such greater extent as applicable law may hereafter from time to time require
or permit.
B. INDEMNIFICATION OF A PARTY WHO IS WHOLLY OR PARTLY SUCCESSFUL.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee is, by reason of the Indemnitee's Corporate Status, a party to and
is successful, on the merits or otherwise, in any Proceeding, the Indemnitee
shall be indemnified by the Company and the Partnership, jointly and severally,
to the maximum extent consistent with law, against all Expenses and Liabilities
actually incurred by or for him in connection therewith. If the Indemnitee is
not wholly successful in such Proceeding but is successful, on the merits or
otherwise, as to one or more but less than all claims, issues or matters in
such Proceeding, the Company and the Partnership jointly and severally shall
hold harmless and indemnify the Indemnitee to the maximum extent consistent
with law, against all Expenses and Liabilities actually incurred by or for him
in connection with each successfully resolved claim, issue or matter in such
Proceeding. Resolution of a claim, issue or matter by dismissal, with or
without prejudice, shall be deemed a successful result as to such claim, issue
or matter, so long as there has been no finding (either adjudicated or pursuant
to Article VI hereof) that the act(s) or omissions) of the Indemnitee giving
rise thereto was not a Good Faith Act(s) or Omission(s).
C. INDEMNIFICATION FOR EXPENSES OF WITNESS. Notwithstanding any
other provision of this Agreement, to the extent that the Indemnitee, by reason
of the Indemnitee's Corporate Status, has prepared to serve or has served as a
witness in any Proceeding, or has participated in discovery proceedings or
other trial preparation, the Indemnitee shall be held harmless and indemnified
against all Expenses actually incurred by or for the Indemnitee in connection
therewith.
D. SPECIFIC LIMITATIONS ON INDEMNIFICATION. In addition to the
other limitations set forth in this Article IV, and notwithstanding anything in
this Agreement to the contrary, the Company and the Partnership shall not be
obligated under this Agreement to make any payment to the Indemnitee for
indemnification with respect to any Proceeding:
<PAGE> 6
Form Page 6
1. To the extent that payment is actually made to the
Indemnitee under any insurance policy or is made on behalf of the
Indemnitee by or on behalf of the Company or the Partnership, or both,
otherwise than pursuant to this Agreement;
2. If a court in such Proceeding has entered a judgment or
other adjudication which is final and has become nonappealable and
established that a claim of the Indemnitee for such indemnification
arose from: (i) a breach by the Indemnitee of the Indemnitee's duty of
loyalty to the Company or its shareholders; or (ii) an act(s) or
omission(s) of the Indemnitee that is not a Good Faith Act(s) or
Omission(s);
3. If there has been no Change in Control, for Liabilities in
connection with Proceedings settled without the consent of the Company;
and
4. For an accounting of profits made from the purchase or
sale by the Indemnitee of securities of the Company within the meaning
of section 16(b) of the Securities Exchange Act of 1934, as amended, or
similar provisions of any federal, state or local statute or regulation.
V.
ADVANCEMENT OF EXPENSES
Notwithstanding any provision to the contrary in Article VI hereof, the
Company and the Partnership jointly and severally shall advance to the
Indemnitee all Expenses which were incurred by or for the Indemnitee in
connection with any Proceeding for which the Indemnitee is entitled to
indemnification pursuant to Article IV hereof in advance of the final
disposition of such Proceeding, provided that, with respect to Expenses to be
advanced by the Company, the Company receive an undertaking by or on behalf of
the Indemnitee to repay Expenses advanced if it shall ultimately be determined
that the Indemnitee is not entitled to be indemnified by the Company hereunder
in such form as may be required under applicable law as in effect at the time
of execution thereof (the "Undertaking"). The Undertaking shall reasonably
evidence the Expenses incurred by or for the Indemnitee and shall contain a
written affirmation by the Indemnitee of his good faith belief that the
standard of conduct necessary for indemnification has been met. The Company
and the Partnership shall advance such expenses within five business days after
the receipt by the Company and the Partnership of the Undertaking. The
Indemnitee hereby agrees to repay any Expenses advanced hereunder if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
against such Expenses. Any advances and the undertaking to repay pursuant to
this Article V shall be unsecured and interest free, and shall be made and
accepted by the Company and the Partnership without reference to the
Indemnitee's financial ability to make repayment.
<PAGE> 7
Form Page 7
VI.
PROCEDURE FOR PAYMENT OF LIABILITIES;
DETERMINATION OF RIGHT TO INDEMNIFICATION
A. PROCEDURE FOR PAYMENT. To obtain indemnification for Liabilities
under this Agreement, the Indemnitee shall submit to the Company and the
Partnership a written request for payment, including with such request such
documentation as is reasonably available to the Indemnitee and reasonably
necessary to determine whether, and to what extent, the Indemnitee is entitled
to indemnification and payment hereunder. Any indemnification payment due
hereunder shall be paid by the Company and the Partnership no later than five
business days following the determination, pursuant to this Article VI, that
such indemnification payment is proper hereunder.
B. NO DETERMINATION NECESSARY WHEN THE INDEMNITEE WAS SUCCESSFUL.
To the extent the Indemnitee has been successful, on the merits or otherwise,
in defense of any Proceeding or in the defense of any claim, issue or matter in
such Proceeding, the Company and the Partnership jointly and severally shall
indemnify the Indemnitee against all Expenses actually incurred by or for the
Indemnitee in connection with such Proceeding.
C. DETERMINATION OF GOOD FAITH ACT OR OMISSION. In the event that
Section VI.B. is inapplicable, the Company and the Partnership jointly and
severally also shall hold harmless and indemnify the Indemnitee, except that
the Company shall have no liability to the Indemnitee hereunder if the Company
shall prove by clear and convincing evidence to a forum listed in Section VI.D.
below that the act(s) or omissions of the Indemnitee giving rise to the
Proceeding was not a Good Faith Act(s) or Omission(s).
D. FORUM FOR DETERMINATION. The Indemnitee shall be entitled to
select from among the following the forum in which the validity of the
Company's claim under Section VI.C. above that the Indemnitee is not entitled
to indemnification will be heard:
1. A quorum of the Board consisting of Disinterested Trust
Managers;
2. If such a quorum cannot be obtained, a committee of the
Board, designated to act in the matter by a majority vote of all Trust
Managers, consisting of two or more Trust Managers who are Disinterested
Trust Managers;
3. The shareholders of the Company;
4. Legal counsel selected by the Indemnitee, subject to the
approval of the Board, which approval shall not be unreasonably delayed
or denied, which counsel shall make such determination in a written
opinion; or
5. A panel of three arbitrators, one of whom is selected by
the Company, another of whom is selected by the Indemnitee and the last
of whom is selected jointly by the first two arbitrators so selected.
<PAGE> 8
Form Page 8
As soon as practicable, and in no event later than thirty days after written
notice of the Indemnitee's choice of forum pursuant to this Section VI.D., the
Company shall, at the expense of the Company, submit to the selected forum in
such manner as the Indemnitee or the Indemnitee's counsel may reasonably
request, its claim that the Indemnitee is not entitled to indemnification, and
the Company shall act in the utmost good faith to assure the Indemnitee a
complete opportunity to defend against such claim. The fees and expenses of
the selected forum in connection with making the determination contemplated
hereunder shall be paid by the Company. If the Company shall fail to submit
the matter to the selected forum within thirty days after the Indemnitee's
written notice or if the forum so empowered to make the determination shall
have failed to make the requested determination within thirty days after the
matter has been submitted to it by the Company, the requisite determination
that the Indemnitee has the right to indemnification shall be deemed to have
been made.
E. RIGHT TO APPEAL. Notwithstanding a determination by any forum
listed in Section VI.D. above that the Indemnitee is not entitled to
indemnification with respect to a specific Proceeding, the Indemnitee shall
have the right to apply to the court in which that Proceeding is or was
pending, or to any other court of competent jurisdiction, for the purpose of
enforcing the Indemnitee's right to indemnification pursuant to this Agreement.
Such enforcement action shall consider the Indemnitee's entitlement to
indemnification de novo, and the Indemnitee shall not be prejudiced by reason
of a prior determination that the Indemnitee is not entitled to
indemnification. The Company and the Partnership shall be precluded from
asserting that the procedures and presumptions of this Agreement are not valid,
binding and enforceable. The Company and the Partnership further agree to
stipulate in any such judicial proceeding that the Company and the Partnership
are bound by all the provisions of this Agreement and are precluded from making
any assertion to the contrary.
F. RIGHT TO SEEK JUDICIAL DETERMINATION. Notwithstanding any other
provision of this Agreement to the contrary, at any time after sixty days after
a request for indemnification has been made to the Company and the Partnership
(or upon earlier receipt of written notice that a request for indemnification
has been rejected) and before the third anniversary of the making of such
indemnification request, the Indemnitee may petition a court of competent
jurisdiction, whether or not such court has jurisdiction over, or is the forum
in which is pending, the Proceeding, to determine whether the Indemnitee is
entitled to indemnification hereunder, and such court thereupon shall have the
exclusive authority to make such determination, unless and until such court
dismisses or otherwise terminates the Indemnitee's action without having made
such determination. The court, as petitioned, shall make an independent
determination of whether the Indemnitee is entitled to indemnification
hereunder, without regard to any prior determination in any other forum as
provided hereby.
G. EXPENSES UNDER THIS AGREEMENT. Notwithstanding any other
provision in this Agreement to the contrary, the Company and the Partnership
jointly and severally shall indemnify the Indemnitee against all Expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section VI involving the Indemnitee and against all Expenses incurred by
the Indemnitee in connection with any other action between the Company and the
<PAGE> 9
Form Page 9
Partnership, or either of them, and the Indemnitee involving the interpretation
or enforcement of the rights of the Indemnitee under this Agreement, even if it
is finally determined that the Indemnitee is not entitled to indemnification in
whole or in part hereunder.
VII.
PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS
A. BURDEN OF PROOF. In making a determination with respect to
entitlement to indemnification hereunder, the person, persons, entity or
entities making such determination shall presume that the Indemnitee is
entitled to indemnification under this Agreement and the Company and the
Partnership shall have the burden of proof to overcome that presumption.
B. EFFECT OF OTHER PROCEEDINGS. The termination of any Proceeding
or of any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of
an order of probation prior to judgment, shall not of itself be determinative
that the act(s) or omission(s) giving rise to the Proceeding were not Good
Faith Act(s) or Omission(s).
C. RELIANCE AS SAFE HARBOR. For purposes of any determination of
whether any act or omission of the Indemnitee was a Good Faith Act or Omission,
each act of the Indemnitee shall be deemed to be a Good Faith Act or Omission
if the Indemnitee's action is based on the records or books of accounts of the
Company and the Partnership, or either of them, including financial statements,
or on information supplied to the Indemnitee by the officers of the Company or
the general partner of the Partnership in the course of their duties, or on the
advice of legal counsel for the Company or the Partnership, or both, or on
information or records given or reports made to the Company and the
Partnership, or either of them, by an independent certified public accountant
or by an appraiser or other expert selected with reasonable care by the Company
and the Partnership, or either of them. The provisions of this Section VII.C.
shall not be deemed to be exclusive or to limit in any way the other
circumstances in which the Indemnitee may be deemed to have met the applicable
standard of conduct set forth in this Agreement or under applicable law.
D. ACTIONS OF OTHERS. Neither the knowledge, actions, or failure to
act, of any trust manager, director, officer, agent or employee of the Company
or the Partnership or the general partners of the Partnership, or any one or
more of them, shall not be imputed to the Indemnitee for purposes of
determining the right to indemnification under this Agreement.
VIII.
INSURANCE; OTHER INDEMNIFICATION ARRANGEMENTS
A. INSURANCE. In the event that the Company or the Partnership, or
both, maintains officers' and directors' or similar liability insurance to
protect itself and any trust manager or officer of the Company or official of
the Partnership against any expense, liability or loss, such
<PAGE> 10
Form Page 10
insurance shall cover the Indemnitee to at least the same degree as each other
trust manager or officer, or both, of the Company or official of the
Partnership.
B. OTHER ARRANGEMENTS. The Declaration of Trust and Bylaws of the
Company, the Partnership Agreement of the Partnership, the Act and the DRULPA
permit the Company and the Partnership to purchase and maintain insurance or
furnish comparable protection or make other arrangements, including but not
limited to providing a trust fund, letter of credit, or surety bond
(collectively, "Indemnification Arrangements") on behalf of the Indemnitee
against any Liability asserted against or incurred by the Indemnitee or any
Expenses incurred by the Indemnitee or on the Indemnitee's behalf in connection
with actions taken or omissions by the Indemnitee in the Indemnitee's Corporate
Status, whether or not the Company or the Partnership, or both, would have the
power to indemnify the Indemnitee under this Agreement or under the Act or the
DRULPA, as they may be in effect from time to time. The purchase,
establishment or maintenance, or any combination thereof, of any such
Indemnification Arrangement shall in no way affect or limit the rights and
obligations of the Indemnitee, the Company or the Partnership hereunder, except
as expressly provided herein, and the execution and delivery of this Agreement
by the Indemnitee, the Company and the Partnership shall in no way affect or
limit the rights and obligations of such parties under or with respect to any
other such Indemnification Arrangement.
IX.
OBLIGATIONS OF THE COMPANY UPON A CHANGE IN CONTROL
In the event of a Change in Control, upon written request of the
Indemnitee the Company and the Partnership shall establish a trust for the
benefit of the Indemnitee hereunder (a "Trust") and from time to time, upon
written request from the Indemnitee, shall fund the Trust in an amount
sufficient to satisfy all amounts actually paid hereunder as indemnification
for Liabilities or Expenses (including those paid in advance) or which the
Indemnitee reasonably determines and demonstrates, from time to time, may be
payable by the Company and the Partnership hereunder. The amount or amounts to
be deposited in the Trust shall be determined by legal counsel selected by the
Indemnitee and approved by the Company, which approval shall not be
unreasonably withheld. The terms of the Trust shall provide that (i) the Trust
shall not be dissolved or the principal thereof invaded without the written
consent of the Indemnitee; (ii) the trustee of the Trust (the "Trustee") shall
be selected by the Indemnitee; (iii) the Trustee shall make advances to the
Indemnitee for Expenses within ten business days following receipt of a written
request therefor (and the Indemnitee hereby agrees to reimburse the Trust under
the circumstances under which the Indemnitee would be required to reimburse the
Company under Article V hereof; (iv) the Company shall continue to fund the
Trust from time to time in accordance with its funding obligations hereunder;
(v) the Trustee promptly shall pay to the Indemnitee all amounts as to which
indemnification is due under this Agreement; (vi) unless the Indemnitee agrees
otherwise in writing, the Trust for the Indemnitee shall be kept separate from
any other trust established for any other person to whom indemnification might
be due by the Company or the Partnership; and (vii) all unexpended funds in the
Trust shall revert to the Company upon final, nonappealable determination by a
court of competent jurisdiction that the Indemnitee has been indemnified to the
full extent required under this Agreement.
<PAGE> 11
Form Page 11
X.
NON-EXCLUSIVITY, SUBROGATION AND MISCELLANEOUS
A. NON-EXCLUSIVITY. The rights of the Indemnitee hereunder shall
not be deemed exclusive of any other rights to which the Indemnitee may at any
time be entitled under any provision of law, the Declaration of Trust, the
Bylaws of the Company, as the same may be in effect from time to time, the
Partnership Agreement, any other agreement, a vote of shareholders of the
Company or any general or specific action of the Trust Managers of the Company
or otherwise, and to the extent that during the term of this Agreement the
rights of the then-existing trust managers and officers of the Company are more
favorable to such trust managers or officers than the rights currently provided
to the Indemnitee under this Agreement, the Indemnitee shall be entitled to the
full benefits of such more favorable rights. No amendment, alteration,
rescission or replacement of this Agreement or any provision hereof which would
in any way limit the benefits and protections afforded to an Indemnitee hereby
shall be effective as to such Indemnitee with respect to any action or inaction
by such Indemnitee in the Indemnitee's Corporate Status prior to such
amendment, alteration, rescission or replacement.
B. SUBROGATION. In the event of any payment under this Agreement,
the Company or the Partnership, or both, as the case may be, shall be
subrogated to the extent of such payment to all of the rights of recovery of
the Indemnitee, who shall execute all documents required and take all action
necessary to secure such rights, including execution of such documents as are
necessary to enable the Company or the Partnership, or both, to bring suit to
enforce such rights.
C. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
if delivered by hand, by courier or by telegram and receipted for by the party
to whom said notice or other communication shall have been directed at the time
indicated on such receipt; (ii) if by facsimile at the time shown on the
confirmation of such facsimile transmission; or (iii) if by U.S. certified or
registered mail, with postage prepaid, on the third business day after the date
on which it is so mailed:
If to the Indemnitee, as shown with the Indemnitee's signature below.
If to the Company to:
Crescent Real Estate Equities Company
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Attention: President
Facsimile No. (817) 878-0429
If to the Partnership to:
Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Attention: General Partner
Facsimile No. (817) 878-0429
<PAGE> 12
Form Page 12
or to such other address as may have been furnished to the Indemnitee by the
Company and the Partnership, or either of them, or to the Company and the
Partnership by the Indemnitee, as the case may be.
D. GOVERNING LAW. The parties agree that, with respect to the
obligations of Crescent hereunder, this Agreement shall be governed by, and
construed and enforced in accordance with, the substantive laws of the State of
Texas, without regard to conflicts of laws principles, and, with respect to the
obligations of the Partnership and Crescent Real Estate Equities, Ltd., which
is a Delaware corporation, the substantive laws of the State of Delaware,
without regard to conflicts of laws principles.
E. BINDING EFFECT. Except as otherwise provided in this Agreement,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns. The Company and the Partnership each
shall require any successor or assignee (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
their respective assets or businesses, by written agreement in form and
substance reasonably satisfactory to the Indemnitee, expressly to assume and
agree to be bound by and to perform this Agreement in the same manner and to
the same extent as the Company or the Partnership, as the case may be, would be
required to perform absent such succession or assignment.
F. WAIVER. No termination, cancellation, modification, amendment,
deletion, addition or other change in this Agreement, or any provision hereof,
or waiver of any right or remedy herein, shall be effective for any purpose
unless specifically set forth in a writing signed by the party or parties to be
bound thereby. The waiver of any right or remedy with respect to any
occurrence on one occasion shall not be deemed a waiver of such right or remedy
with respect to such occurrence on any other occasion.
G. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding among the parties hereto in reference to the
subject matter hereof; provided, however, that the parties acknowledge and
agree that the Declaration of Trust and Bylaws of the Company and the
Partnership Agreement of the Partnership contain provisions on the subject
matter hereof and that this Agreement is not intended to, and does not, limit
the rights or obligations of the parties hereto pursuant to such instruments.
H. TITLES. The titles to the articles and sections of this
Agreement are inserted for convenience of reference only and should not be
deemed a part hereof or affect the construction or interpretation of any
provisions hereof.
I. INVALIDITY OF PROVISIONS. Every provision of this Agreement is
severable, and the invalidity or unenforceability of any term or provision
shall not affect the validity or enforceability of the remainder of this
Agreement.
<PAGE> 13
Form Page 13
J. PRONOUNS AND PLURALS. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
K. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one agreement binding on all the parties hereto.
<PAGE> 14
Form Page 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CRESCENT REAL ESTATE EQUITIES COMPANY
By:
Name:
Title:
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP
By: CRESCENT REAL ESTATE EQUITIES,
LTD., its general partner
By:
Name:
Title:
as INDEMNITEE
Name:
Title:
Address: 777 Main Street, Suite 2100
Fort Worth, Texas 76102
Facsimile No.: (817) 878-0429
<PAGE> 1
EXHIBIT 10.13
SECOND AMENDED AND RESTATED
1995 CRESCENT REAL ESTATE EQUITIES COMPANY
STOCK INCENTIVE PLAN
ARTICLE I
THE PLAN
1.1 NAME. This plan will be known as the "1995 Crescent Real Estate
Equities Company Stock Incentive Plan." Capitalized terms used herein are
defined in Article X hereof.
1.2 PURPOSE. The purpose of the Plan is to promote the growth and general
prosperity of the Company by permitting the Company and its Subsidiaries to
grant Options to its Employees, Outside Directors and Advisors and Restricted
Stock to its Employees and Advisors. The Plan is designed to help the Company
and its Subsidiaries attract and retain superior personnel for positions of
substantial responsibility and to provide Employees (including officers),
Outside Directors and Advisors with an additional incentive to contribute to
the success of the Company and its Subsidiaries. The Company intends that
Incentive Stock Options granted pursuant to Article IV will qualify as
"incentive stock options" within the meaning of Section 422 of the Code.
Subject to Article VII, Outside Directors may elect to receive Common Stock in
lieu of Director's Fees. With respect to Reporting Participants, transactions
under the Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. To the extent that any
provision of the Plan or action by the Committee fails to so comply, it will be
deemed null and void to the extent permitted by law and deemed advisable by the
Committee.
1.3 EFFECTIVE DATE. The Plan will become effective upon the Effective
Date.
1.4 ELIGIBILITY TO PARTICIPATE. Any Employee, Outside Director or
Advisor will be eligible to participate in the Plan; provided that Incentive
Stock Options may be granted only to persons who are Employees. The Committee
may grant Options to Employees and Advisors in accordance with such
determinations as the Committee from time to time in its sole discretion may
make.
1.5 MAXIMUM NUMBER OF SHARES OF COMMON STOCK SUBJECT TO AWARDS. The shares
of Common Stock subject to Awards pursuant to the Plan may be either authorized
and unissued shares or shares issued and thereafter acquired by the Company.
Subject to adjustment pursuant to the provisions of Section 8.2, and subject to
any additional restrictions elsewhere in the Plan, the maximum aggregate number
of shares of Common Stock that may be issued from time to time pursuant to the
Plan shall be 2,850,000.(1) Subject to adjustment pursuant to the provisions of
Section 8.2, and subject to any additional restrictions elsewhere in the Plan,
the
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(1) Adjusted for the stock split effective as of March 26, 1997.
<PAGE> 2
maximum aggregate number of shares of Common Stock that may be issued under
the Plan shall increase automatically on January 1 of each year by an amount
equal to 8.5% of the increase in the number of shares of Common Stock
outstanding and number of Units outstanding since January 1 of the preceding
year. The maximum number of shares of Common Stock with respect to which Awards
may be granted to any Reporting Participant during any calendar year shall be
four hundred thousand (400,000)(2) shares under this Plan. The maximum number of
shares of Common Stock which may be subject to Incentive Stock Options during
the life of the Plan shall be one hundred fifty thousand (150,000) shares.(3) If
shares of Restricted Stock are reacquired by the Company pursuant to the
provisions of Section 6.1 of the Plan or if an Option expires or terminates for
any reason without having been exercised in full, the reacquired shares and/or
the shares not purchased or distributed will again be available for issuance
under the Plan.
1.6 CONDITIONS PRECEDENT. The Company will not issue or deliver any
certificate for Plan Shares pursuant to the Plan prior to fulfillment of all of
the following conditions:
(a) The admission of the Plan Shares to listing on all stock
exchanges on which the Common Stock is then listed, unless the Committee
determines in its sole discretion that such listing is neither necessary
nor advisable;
(b) The completion of any registration or other qualification of
the sale of the Plan Shares under any federal or state law or under the
rulings or regulations of the Securities and Exchange Commission or any
other governmental regulatory body that the Committee in its sole
discretion deems necessary or advisable; and
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency that the Committee in its sole
discretion determines to be necessary or advisable.
1.7 RESERVATION OF SHARES OF COMMON STOCK. During the term of the Plan,
the Company will at all times reserve and keep available such number of shares
of Common Stock as may be necessary to satisfy the requirements of the Plan as
to the number of Plan Shares. In addition, the Company will from time to time,
as is necessary to accomplish the purposes of the Plan, use its best efforts to
obtain from any regulatory agency having jurisdiction any requisite authority
necessary to issue Plan Shares hereunder. The inability of the Company to
obtain from any regulatory agency having jurisdiction the authority deemed by
the Company's counsel to be necessary for the lawful issuance of any Plan
Shares will relieve the Company of any liability in respect of the nonissuance
of Plan Shares as to which the requisite authority has not been obtained.
1.8 TAX WITHHOLDING.
(a) Condition Precedent. The issuances of Plan Shares pursuant to
Awards under the Plan are subject to the condition that if at any time the
Committee determines, in
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(2) Adjusted for the stock split effective as of March 26, 1997.
(3) Adjusted for the stock split effective as of March 26, 1997.
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<PAGE> 3
its discretion, that the satisfaction of withholding tax or other
withholding liabilities under any federal, state or local law is necessary
or desirable as a condition of, or in connection with such issuances, then
the issuances will not be effective unless the withholding has been
effected or obtained in a manner acceptable to the Committee. Each Option
granted to a Reporting Participant shall contain a provision in the
related Option Agreement making any required withholding tax or other
withholding liability mandatory, and specifying that the Company withhold
a portion of the Plan Shares as specified in clause (iv) of paragraph (b)
below.
(b) Manner of Satisfying Withholding Obligation. When a
Participant is required to pay to the Company an amount required to be
withheld under applicable income tax laws in connection with an Award,
such payment may be made (i) in cash, (ii) by check, (iii) by delivery to
the Company of shares of Common Stock already owned by the Participant
having a Fair Market Value on the date the amount of tax to be withheld is
to be determined (the "Tax Date") equal to the amount required to be
withheld, (iv) with respect to Options, through the withholding by the
Company ("Company Withholding") of a portion of the Plan Shares acquired
upon the exercise of the Options (provided that, with respect to any
Option held by a Reporting Participant, at least six months has elapsed
between the grant of such Option and the exercise involving tax
withholding) having a Fair Market Value on the Tax Date equal to the
amount required to be withheld or (v) in any other form of valid
consideration, as permitted by the Committee in its discretion.
(c) Notice of Disposition of Stock Acquired Pursuant to Incentive
Stock Options. The Company may require as a condition to the issuance of
Plan Shares covered by any Incentive Stock Option that the party
exercising such Option give a written representation to the Company, which
is satisfactory in form and substance to its counsel and upon which the
Company may reasonably rely, that he will report to the Company any
disposition of such shares prior to the expiration of the holding periods
specified by Section 422(a)(1) of the Code. If and to the extent that the
realization of income in such a disposition imposes upon the Company
federal, state or local withholding tax requirements, or any such
withholding is required to secure for the Company an otherwise available
tax deduction, the Company will have the right to require that the
recipient remit to the Company an amount sufficient to satisfy those
requirements; and the Company may require as a condition to the issuance
of Plan Shares covered by an Incentive Stock Option that the party
exercising such Option give a satisfactory written representation
promising to make such a remittance.
1.9 ACCELERATION IN CERTAIN EVENTS. The Committee may accelerate the
exercisability of any Option or waive any restrictions with respect to shares
of Restricted Stock in whole or in part at any time. Notwithstanding the
provisions of any Option Agreement or Restricted Stock Agreement, the following
provisions will apply:
(a) Mergers and Reorganizations. If the Company or its
shareholders enter into an agreement to dispose of all or substantially
all of the assets of the Company by means
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<PAGE> 4
of a sale, merger or other reorganization, liquidation or otherwise in a
transaction in which the Company is not the surviving corporation, any
Option will become immediately exercisable with respect to the full number
of shares subject to that Option and all restrictions will lapse with
respect to an Award of Restricted Stock during the period commencing as of
the date of the agreement to dispose of all or substantially all of the
assets of the Company and ending when the disposition of assets
contemplated by that agreement is consummated or the Award is otherwise
terminated in accordance with its provisions or the provisions of the
Plan, whichever occurs first; provided that no Reporting Participant may
exercise an Option and no restrictions will lapse with respect to an Award
of Restricted Stock to a Reporting Participant unless at least six months
have elapsed since the grant of such Option or Award; provided, further,
that no Option will be immediately exercisable and no restrictions will
lapse with respect to an Award of Restricted Stock under this Section on
account of any agreement of merger or other reorganization when the
shareholders of the Company immediately before the consummation of the
transaction will own at least fifty percent of the total combined voting
power of all classes of stock entitled to vote of the surviving entity
immediately after the consummation of the transaction. An Option will not
become immediately exercisable and no restrictions will lapse with respect
to an Award of Restricted Stock if the transaction contemplated in the
agreement is a merger or reorganization in which the Company will survive.
(b) Change in Control. In the event of a change in control or
threatened change in control of the Company, all Options granted prior to
the change in control or threatened change in control will become
immediately exercisable, and all restrictions will lapse with respect to
awards of Restricted Stock granted prior to the change in control or
threatened change in control, provided that no Reporting Participant may
exercise an Option and no restriction will lapse with respect to an Award
of Restricted Stock to a Reporting Participant unless at least six months
have elapsed since the grant of such Option or Award. The term "change in
control" for purposes of this Section refers to the acquisition of 15% or
more of the voting securities of the Company by any person or by persons
acting as a group within the meaning of Section 13(d)(3) of the Exchange
Act (other than an acquisition by (i) a person or group meeting the
requirements of clauses (i) and (ii) of Rule 13d-l(b)(1) promulgated under
the Exchange Act, (ii) or any employee pension benefit plan (within the
meaning of Section 3(2) of ERISA) of the Company or of its Subsidiaries,
including a trust established pursuant to such plan); provided that no
change in control or threatened change in control will be deemed to have
occurred (i) if prior to the acquisition of, or offer to acquire, 15% or
more of the voting securities of the Company, the full Board has adopted
by not less than two-thirds vote a resolution specifically approving such
acquisition or offer or (ii) from (A) a transfer of the Company's voting
securities by Richard E. Rainwater ("Rainwater") to (i) a member of
Rainwater's immediate family (within the meaning of Rule 16a-1(e) of the
Exchange Act) either during Rainwater's lifetime or by will or the laws of
descent and distribution; (ii) any trust as to which Rainwater or a member
(or members) of his immediate family (within the meaning of Rule 16a-1(e)
of the Exchange Act) is the beneficiary; (iii) any trust as to which
Rainwater is the settlor with sole power to revoke; (iv) any entity over
which Rainwater
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<PAGE> 5
has the power, directly or indirectly, to direct or cause the direction of
the management and policies of the entity, whether through the ownership
of voting securities, by contract or otherwise; or (v) any charitable
trust, foundation or corporation under Section 501(c)(3) of the Code that
is funded by Rainwater; or (B) the acquisition of voting securities of the
Corporation by either (i) Rainwater or (ii) a person, trust or other
entity described in the foregoing clauses (A)(i)-(v) of this subsection.
The term "person" for purposes of this Section refers to an individual or
a corporation, partnership, trust, association, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein. Whether a change in control
is threatened will be determined solely by the Committee.
1.10 COMPLIANCE WITH SECURITIES LAWS. Plan Shares will not be issued with
respect to any Award unless the issuance and delivery of the Plan Shares (and
the exercise of an Option, if applicable) complies with all relevant provisions
of federal and state law, including without limitation the Securities Act, the
rules and regulations promulgated thereunder and the requirements of any stock
exchange upon which the Plan Shares may then be listed, and will be further
subject to the approval of counsel for the Company with respect to such
compliance. The Committee may also require a Participant to finish evidence
satisfactory to the Company, including, without limitation, a written and
signed representation letter and consent to be bound by any transfer
restrictions imposed by law, legend, condition or otherwise, and a
representation that the Plan Shares are being acquired only for investment and
without any present intention to sell or distribute the shares in violation of
any federal or state law, rule or regulation. Further, each Participant will
consent to the imposition of a legend on the certificate representing the Plan
Shares issued pursuant to an Award restricting their transferability as
required by law or by this Section.
1.11 EMPLOYMENT OF PARTICIPANT. Nothing in the Plan or in any Award
granted hereunder will confer upon any Participant any right to continued
employment by the Company or any of its Subsidiaries or to continued service as
a Director or Advisor or limit in any way the right of the Company or any
Subsidiary at any time to terminate or alter the terms of that employment or
services as a Director or Advisor.
1.12 INFORMATION TO PARTICIPANTS. The Company will furnish to each
Participant copies of annual reports, proxy statements and all other reports
sent to the Company's shareholders. Upon written request, the Company will
furnish to each Participant a copy of its most recent Annual Report on Form
10-K and each quarterly report to shareholders issued since the end of the
Company's most recent fiscal year.
ARTICLE II
ADMINISTRATION
2.1 COMMITTEE. The Plan will be administered by the Board or by a
Committee of not fewer than two directors appointed by the Board. As used
herein, "Committee" shall mean a committee consisting of two or more Directors,
each of whom shall be a "non-employee director" as defined in Rule 16b-3 under
the Exchange Act. Subject to the provisions of the Plan,
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<PAGE> 6
the Committee will have the sole discretion and authority to determine from
time to time the Employees and Advisors to whom Awards will be granted and the
number of Plan Shares subject to each Award, to interpret the Plan, to
prescribe, amend and rescind any rules and regulations necessary or appropriate
for the administration of the Plan, to determine and interpret the details and
provisions of each Option Agreement and Restricted Stock Agreement, to modify
or amend any Option Agreement or Restricted Stock Agreement or waive any
conditions or restrictions applicable to any Option (or the exercise thereof)
or to any shares of Restricted Stock, and to make all other determinations or
advisable for the administration of the Plan. With respect to any provision of
the Plan granting the Committee the right to agree, in its sole discretion, to
further extend the term of any Award hereunder, the Committee may exercise such
right at the time of grant, in the Option Agreement relating to such Award, or
at any time or from time-to-time after the grant of any Award hereunder.
Notwithstanding any other provision of this Section 2.2 or this Plan, all
Awards made to Outside Directors shall be automatic and nondiscretionary as set
forth in this Plan.
2.2 MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. A majority of the members
of the Committee will constitute a quorum, and any action taken by a majority
present at a meeting at which a quorum is present or any action taken without a
meeting evidenced by a writing executed by all members of the Committee will
constitute the action of the Committee. Meetings of the Committee may take
place by telephone conference call.
2.3 COMPANY ASSISTANCE. The Company will supply full and timely
information to the Committee on all matters relating to Employees, Outside
Directors and Advisors, their employment, death, Retirement, Disability or
other termination of employment, and such other pertinent facts as the
Committee may require. The Company will furnish the Company with such clerical
and other assistance as is necessary to the performance of its duties.
ARTICLE III
OPTIONS
3.1 METHOD OF EXERCISE. Each Option will be exercisable at any time and
from time in whole or in part in accordance with the terms of the Option
Agreement pursuant to which the Option was granted. No Option may be exercised
for a fraction of a Plan Share.
3.2 PAYMENT OF PURCHASE PRICE. The purchase price of any Plan Shares
purchased will be paid at the time of exercise of the Option either (i) in
cash, (ii) by certified or cashier's check, (iii) by shares of Common Stock, if
permitted by the Committee, (iv) as to Outside Directors, by cash or certified
or cashier's check for the par value of the Plan Shares plus a recourse
promissory note for the balance of the purchase price, such note to provide for
the right to repay the note partially or wholly with Common Stock and with an
interest rate based on the current dividend yield of the Common Stock, (v) as
to Employees and Advisors, by cash or certified or cashier's check for the par
value of the Plan Shares plus a promissory note for the balance of the purchase
price, which note will contain such terms and provisions as the Committee may
approve, including without limitation the right to repay the note partially or
wholly with Common Stock and to base the interest rate on the current dividend
yield of the Common Stock,
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<PAGE> 7
(vi) by delivery of a copy of irrevocable instructions from the Optionee to a
broker or dealer, reasonably acceptable to the Company, to sell certain of the
Plan Shares upon exercise of the Option or to pledge them as collateral for a
loan and promptly deliver to the Company the amount of sale or loan proceeds
necessary to pay such purchase price or (vii) as to Employees and Advisors, in
any other form of valid consideration, as permitted by the Committee in its
discretion. If any portion of the purchase price or a note given at the time of
exercise is paid in shares of Common Stock, those shares will be valued at the
then Fair Market Value.
3.3 WRITTEN NOTICE REQUIRED. Any Option will be deemed to be exercised
for purposes of the Plan when written notice of exercise has been received by
the Company at its principal office from the person entitled to exercise the
Option and payment for the Plan Shares with respect to which the Option is
exercised has been received by the Company in accordance with Section 3.2.
3.4 RIGHTS OF OPTIONEES UPON TERMINATION OF EMPLOYMENT OR SERVICE.
(a) In the event an Optionee ceases to be an Employee and Advisor,
and does not continue to be a Director, for any reason other than death,
Retirement, Disability or for Cause, (i) the Committee shall have the ability
to accelerate the vesting of the Optionee's Option in its sole discretion, and
(ii) such Optionee's Option shall be exercisable (to the extent exercisable on
the date of termination of employment or service as an Employee or Advisor, or,
if the Committee, in its discretion, has accelerated the vesting of such
Option, to the extent exercisable following such acceleration) (a) if such
Option is an Incentive Stock Option, at any time within three months after the
date of termination of employment, unless by its terms the Option expires
earlier; or (b) if such Option is a Nonqualified Stock Option, at any time
within one year after the date of termination of employment or service as an
Employee or Advisor, unless by its terms the Option expires earlier or unless
the Committee agrees, in its sole discretion, to further extend the term of
such Nonqualified Stock Option; provided that the term of any such Nonqualified
Stock Option shall not be extended beyond its initial term. An Employee or
Advisor who continues to be a Director shall not be deemed to have terminated
employment or service. Notwithstanding any provision in this Plan to the
contrary, no Option granted to a Reporting Participant may be exercised unless
at least six months have elapsed since the grant of such Option.
(b) In addition, unless the Committee agrees, in its sole discretion,
to extend the term of a Nonqualified Stock Option granted to an Employee or
Advisor (provided that the term of any such Option shall not be extended beyond
its initial term), an Optionee's Option may be exercised as follows in the
event such Optionee ceases to serve as an Employee, Outside Director or Advisor
due to death, Disability, Retirement or for Cause:
(i) Death. If an Optionee dies while serving as an Employee,
Outside Director or Advisor, or within three months after ceasing to be an
Employee, Outside Director or Advisor, his option shall become fully
exercisable on the date of his death and shall expire 12 months
thereafter, unless by its terms it expires sooner. During such period, the
Option may be fully exercised, to the extent that it remains unexercised
on the date of death, by the Optionee's personal representative or by the
distributees to whom the
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<PAGE> 8
Optionee's rights under the Option shall pass by will or by the laws of
descent and distribution.
(ii) Retirement. If an Optionee ceases to serve as an Employee,
Outside Director or Advisor as a result of Retirement, (i) his Option
shall become fully exercisable on the date of his Retirement and (a) if
such Option is an Incentive Stock Option, such Option will be exercisable
at any time within three months after the effective date of such
Retirement, unless by its terms the Option expires earlier, and (b) if
such Option is a Nonqualified Stock Option, such Option will be
exercisable at any time within one year after the effective date of such
Retirement, unless by its terms the Option expires sooner.
(iii) Disability. If an Optionee ceases to serve as an Employee,
Outside Director or Advisor as a result of Disability, the Optionee's
Option shall become fully exercisable and shall expire 12 months
thereafter, unless by its terms it expires sooner.
(iv) Cause. If an Optionee ceases to serve as an Employee, Outside
Director or Advisor, because the Optionee is terminated for Cause, the
Optionee's Option shall automatically expire. If any facts that would
constitute Cause for termination or removal of an Employee or Advisor are
discovered after the Optionee's relationship with the Company has ended,
any Options then held by the Optionee may be immediately terminated by the
Committee. Notwithstanding the foregoing, if an Optionee is an Employee
employed pursuant to a written employment agreement, or is an Advisor
retained pursuant to a written agreement, the Optionee's relationship with
the Company will be deemed terminated for 'Cause' for purposes of the Plan
only if the Optionee is considered under the circumstances to have been
terminated for cause for purposes of such written agreement.
3.5 TRANSFERABILITY OF OPTIONS. Options shall not be transferable other
than pursuant to a qualified domestic relations order, by will or by the laws
of descent and distribution and, with respect to an Incentive Stock Option, may
be exercised during the lifetime of an Optionee only by that Optionee or by his
legally authorized representative.
ARTICLE IV
INCENTIVE STOCK OPTIONS
4.1 OPTION TERMS AND CONDITIONS. The terms and conditions of Options
granted under this Article may differ from one another as the Committee may, in
its discretion, determine, as long as all Options granted under this Article
satisfy the requirements of this Article.
4.2 DURATION OF OPTIONS. Each Option granted under this Article will
expire on the date determined by the Committee, but in no event will any Option
granted under this Article expire earlier than one year or later than ten years
after the date on which the Option is granted. In addition, each Option will be
subject to early termination as provided elsewhere in the Plan.
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<PAGE> 9
4.3 PURCHASE PRICE. The purchase price for Plan Shares acquired pursuant
to the exercise, in whole or in part, of any Option granted under this Article
will not be less than the Fair Market Value of the Plan Shares at the time of
the grant of the Option.
4.4 MAXIMUM AMOUNT OF OPTIONS FIRST EXERCISABLE IN ANY CALENDAR YEAR.
The maximum aggregate Fair Market Value of Plan Shares (determined at the time
the Option is granted) with respect to which Options issued under this Article
are exercisable for the first time by any Employee during any calendar year
under all incentive stock option plans of the Company and its Subsidiaries and
affiliates may not exceed $100,000. Any portion of an Option granted under the
Plan and first exercisable in excess of the foregoing limitations will be
considered granted under Article V.
4.5 REQUIREMENTS AS TO CERTAIN OPTIONS. In the event of the grant of any
Option to an individual who, at the time the Option is granted, owns shares of
stock possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or any of its Subsidiaries or affiliates
within the meaning of Section 422 of the Code, the purchase price for the Plan
Shares subject to that Option must be at least 110% of the Fair Market Value of
those Plan Shares at the time the Option is granted, and the Option must not be
exercisable after the expiration of five years from the date of its grant.
4.5 INDIVIDUAL OPTION AGREEMENTS. Each Employee receiving Options under
this Article will be required to enter into a written Option Agreement with the
Company. In such Option Agreement, the Employee will agree to be bound by the
terms and conditions of the Plan and such other matters as the Committee deems
appropriate.
ARTICLE V
NONQUALIFIED STOCK OPTIONS
5.1 OPTION TERMS AND CONDITIONS. The terms and conditions of Options
granted under this Article may differ from one another as the Committee may, in
its discretion, determine, as long as all Options granted under this Article
satisfy the requirements of this Article.
5.2 OUTSIDE DIRECTOR OPTION TERMS AND CONDITIONS. Each Outside Director
shall be granted an Option to purchase seven thousand (7,000) shares of Common
Stock on March 14, 1996. Each Outside Director shall be granted an Option to
purchase fourteen thousand (14,000)(4) shares of Common Stock on the date of
commencement of each regular annual stockholders' meeting beginning with the
1997 Annual Stockholder's meeting. Each Option granted under this Section 5.2
shall vest ratably at the rate of twenty percent (20%) per year on each
anniversary of the date of grant of the Option, provided that the Optionee is a
Director on such date. Notwithstanding the preceding sentence, each Option
granted under this Section 5.2 shall vest if the Outside Director dies while
serving as an Outside Director, or ceases to serve as an Outside Director as a
result of Retirement or Disability as provided in Section 3.4(b). Each Option
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(4) Adjusted for the stock split effective as of March 26, 1997.
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<PAGE> 10
granted to an Outside Director shall expire ten (10) years from the date of
grant, subject to early termination as provided elsewhere in the Plan.
5.3 DURATION OF OPTIONS. Each Option granted to an Employee or Advisor
under this Article and all rights thereunder will expire on the date determined
by the Committee, but in no event will any Option granted under this Article
expire later than ten years after the date on which the Option is granted. In
addition, each Option will be subject to early termination as provided
elsewhere in the Plan.
5.4 PURCHASE PRICE. The purchase price for Plan Shares acquired pursuant
to the exercise, in whole or in part, of any Option granted under this Article
shall be not less than the Fair Market Value of the Plan Shares at the time of
the grant of the Option.
5.5 INDIVIDUAL OPTION AGREEMENTS. Each Employee, Outside Director or
Advisor receiving Options under this Article will be required to enter into a
written Option Agreement with the Company. In such Option Agreement, the
Employee, Outside Director or Advisor will agree to be bound by the terms and
conditions of the Plan and such other matters as the Committee deem
appropriate.
ARTICLE VI
RESTRICTED STOCK
6.1 TERMS AND CONDITIONS. Each Restricted Stock Grant confers upon the
recipient thereof the right to receive a specified number of shares of Common
Stock of the Company in accordance with the terms and conditions of each
Participant's individual written agreement as set forth in Section 6.2. The
general terms and conditions of the Restricted Stock awards shall be as
follows:
(a) Any shares of Common Stock awarded hereunder to a Participant
shall be restricted for a period of time to be determined by the Committee
for each participant at the time of the Award, which period shall be not
less than one year or more than ten years. The restrictions shall prohibit
the sale, assignment, transfer, pledge or other encumbrance of such
shares, and will provide for possible reversion thereof to the Company in
accordance with subparagraph (b) during the period of restriction.
(b) All Restricted Stock awarded under this Plan to a Participant
shall be forfeited and returned to the Company in the event the
Participant ceases to be employed by, serve as a Director of, or serve as
an Advisor to the Company or one of its Subsidiaries prior to the
expiration of the period of restriction, unless the Participant's
termination of employment is due to his or her death, Disability or
Retirement. An Employee or Advisor who continues to be a Director shall
not be deemed to have terminated employment or service.
(c) In the event of a Participant's death or Disability, the
restrictions under subparagraph (a) will lapse with respect to all
Restricted Stock awarded to the Participant
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under this Plan prior to any such event, and the shares of Common Stock
involved shall cease to be Restricted Stock within the meaning of this
Plan and shall no longer be subject to forfeiture to the Company pursuant
to subparagraph (b).
(d) In the event of a Participant's Retirement, the restrictions
under subparagraph (a) shall continue to apply unless the Committee in its
discretion shall shorten the restriction period.
(e) Stock certificates issued with respect to awards of Restricted
Stock made under this Plan shall be registered in the name of the
Participant, but shall be delivered by him or her to the Company together
with a stock power endorsed in blank. Each such certificate shall bear the
following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
FORFEITURE, RESTRICTIONS ON TRANSFER AND CERTAIN OTHER TERMS AND
CONDITIONS SET FORTH IN THE 1995 CRESCENT REAL ESTATE EQUITIES
COMPANY STOCK INCENTIVE PLAN AND THE AGREEMENT BETWEEN THE
REGISTERED OWNER OF THE SHARES REPRESENTED BY THIS CERTIFICATE
AND CRESCENT REAL ESTATE EQUITIES COMPANY ENTERED INTO PURSUANT
TO SUCH PLAN."
(f) Upon the lapse of a restriction period as determined pursuant to
subparagraph (a), the Company will return the stock certificates
representing the shares with respect to which the restriction has lapsed
to the Participant or his or her legal representative, and pursuant to the
instruction of the Participant or his or her legal representative will
issue a certificate for such shares which does not bear the legend set
forth in subparagraph (e).
(g) Any other securities or assets (other than ordinary cash
dividends) which are received by a Participant with respect to Restricted
Stock awarded to him, which is still subject to restrictions provided for
in subparagraph (a), will be subject to the same restrictions and shall be
delivered by the Participant to the Company as provided in subparagraph
(e).
(h) From the time of grant of the Restricted Stock Award, the
Participant shall be entitled to exercise all rights attributable to the
Restricted Stock, subject to forfeiture of such rights and the stock as
provided in subparagraph (b).
6.2 INDIVIDUAL AGREEMENTS. Each Participant receiving an Award of
Restricted Stock under this Article will be required to enter into a written
Restricted Stock Agreement with the Company. In such Restricted Stock
Agreement, the Participant will agree to be bound by the terms and conditions
of the Plan and such other matters as the Committee deems appropriate.
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ARTICLE VII
OUTSIDE DIRECTOR STOCK-FOR-FEES ELECTIONS
7.1 OUTSIDE DIRECTOR STOCK-FOR-FEES ELECTION. Each Outside Director
shall be permitted to receive Director's Fees in the form of Common Stock
rather than cash in accordance with the following provisions:
(a) Each Outside Director shall have the right to elect to receive
one-half or all of such Outside Director's Fees in the form of Common
Stock rather than cash by tendering an irrevocable written election to the
Secretary of the Company pursuant to which all Director's Fees otherwise
payable to the Outside Director shall be paid in the form of Common Stock
as provided in (b) below. Such election shall become effective six (6)
months after its delivery to the Secretary of the Company by the Outside
Director. Such election shall remain in effect until the earlier of (i)
the date six (6) months after such Outside Director shall have delivered
to the Secretary of the Company irrevocable written notice that his or her
election to receive Common Stock shall cease as of the date six months
following delivery of the notice, or (ii) the date on which such Outside
Director terminates as a member of the Board of Directors by reason of
resignation, non-reelection, death, or disability. Any Outside Director
who having terminated an election to receive Common Stock or having failed
to elect to receive Common Stock rather than cash may elect to receive
Director's Fees in the form of Common Stock as of the date six (6) months
following delivery of irrevocable written notice of such election to the
Secretary of the Company. An Outside Director who does not elect to have
Director's Fees paid in Common Stock shall receive his or her remuneration
in cash at such times that such remuneration is otherwise due.
(b) If an Outside Director elects to receive payment of Director's
Fees in the form of Common Stock, such Common Stock shall be issued as
soon as practicable after the annual meeting of shareholders or meeting of
the Board or Committee of the Board to which such remuneration relates.
The number of shares of Common Stock to be issued to such Outside Director
shall be determined by dividing:
(i) the remuneration otherwise payable to the Outside Director, by
(ii) ninety percent (90%) of the Fair Market Value of the Company's
Common Stock on the determination date on the rounding up or down any
fractional share to the nearest whole share.
The determination date shall be the date that the relevant payment of
Director's Fees is payable.
(c) Shares of Common Stock issued under this Article VII shall be
free of any restrictions except for restrictions applicable under the
Exchange Act.
-12-
<PAGE> 13
7.2 INCOME TAX. Each Outside Director who elects to receive Director's
Fees in the form of Common Stock rather than cash shall be responsible for
payment of federal, state, and local income taxes on the Fair Market Value of
such Common Stock.
ARTICLE VIII
TERMINATION, AMENDMENT AND ADJUSTMENT
8.1 TERMINATION AND AMENDMENT. The Plan will terminate on June 11, 2005.
No Awards will be granted under the Plan after that date of termination,
although Awards granted prior to such date shall remain outstanding in
accordance with their terms. Subject to the limitations contained in this
Section 8.1, the Committee may at any time amend or revise the terms of the
Plan, including the form and substance of the Option Agreements and Restricted
Stock Agreements to be used in connection herewith; provided that, without
shareholder approval, no amendment or revision may (i) increase the maximum
aggregate number of Plan Shares, except as permitted under Section 1.5 and
Section 8.2, (ii) change the minimum purchase price for shares under Article IV
or Article V or (iii) permit the granting of an Award to anyone other than as
provided in the Plan; and provided further that, without shareholder approval,
no amendment to the Plan will be effective that materially increases the
benefits accruing to Participants, materially increases the number of
securities that may be issued under the Plan or otherwise materially modifies
the requirements as to eligibility for participation in the Plan, all within
the meaning of Rule 16b-3 of the Exchange Act. In addition, if and to the
extent required by Rule 16b-3 of the Exchange Act, the provisions of the Plan
may not be amended more frequently than once every six months unless otherwise
required by law and permitted by Rule 16b-3 of the Exchange Act. No amendment,
suspension or termination of the Plan may, without the consent of the Optionee
who has received an Award hereunder, alter or impair any of that Participant's
rights or obligations under any Award granted under the Plan prior to that
amendment, suspension or termination.
8.2 ADJUSTMENT. If the outstanding Common Stock is increased, decreased,
changed into or exchanged for a different number or kind of shares or
securities through merger, consolidation, combination, exchange of shares,
other reorganization, recapitalization, reclassification, stock dividend, stock
split or reverse stock split, an appropriate and proportionate adjustment will
be made in the maximum number and kind of Plan Shares as to which Awards may be
granted under the Plan. A corresponding adjustment will be made in the number
or kind of shares allocated to and purchasable under unexercised Options or
shares of Restricted Stock with respect to which restrictions have not yet
lapsed prior to any such change. Any such adjustment in outstanding Options
will be made without change in the aggregate purchase price applicable to the
unexercised portion of the Option, but with a corresponding adjustment in the
price for each share purchasable under the Option. Any new or additional or
different class of securities that are distributed to a Participant in his
capacity as the owner of Restricted Stock as granted hereunder shall be
considered to be Restricted Stock and shall be subject to all of the conditions
and restrictions provided herein applicable to Restricted Stock. The foregoing
adjustments and the manner of application of the foregoing provisions will be
determined solely by the Committee, and any such adjustment may provide for the
elimination of fractional share interests.
-13-
<PAGE> 14
ARTICLE IX
MISCELLANEOUS
9.1 OTHER COMPENSATION PLANS. The adoption of the Plan will not affect
any other stock option or incentive or other compensation plans in effect for
the Company or any of its Subsidiaries, nor will the Plan preclude the Company
or any of its Subsidiaries from establishing any other forms of incentive or
other compensation for Employees.
9.2 PLAN BINDING ON SUCCESSORS. The Plan will be binding upon the
successors and assigns of the Company and any of its Subsidiaries that adopt
the Plan.
9.3 NUMBER AND GENDER. Whenever used herein, nouns in the singular will
include the plan where appropriate, and the masculine pronoun will include the
feminine gender.
9.4 HEADINGS. Headings of articles and sections hereof are inserted for
convenience of reference and constitute no part of the Plan.
ARTICLE X
DEFINITIONS
As used herein with initial capital letters, the following terms have
the meanings set forth unless the context clearly indicates to the contrary:
10.1 "Advisor" means any person performing advisory or consulting
services for the Company or any Subsidiary of the Company, with or without
compensation, to whom the Company chooses to grant Options in accordance with
the Plan, provide that bona fide services must be rendered by such person and
such services shall not be rendered in connection with the offer or sale of
securities in a capital raising transaction.
10.2 "Award" means a grant of Options under Articles IV and V of the Plan
or an Award of Restricted Stock under Article VI of the Plan.
10.3 "Board" means the Board of Trust Managers of the Company.
10.4 "Cause" will mean an act or acts involving a felony, fraud, willful
misconduct, commission of any act that causes or reasonably may be expected to
cause substantial injury to the Company or other good cause. The term "other
good cause" as used in this Section will include, but shall not be limited to,
habitual impertinence, a pattern of conduct that tends to hold the Company up
to ridicule in the community, conduct disloyal to the Company, conviction of
any crime of moral turpitude and substantial dependence, as judged by the
Committee, on alcohol or any controlled substance. "Controlled substance" means
a drug, immediate precursor or other substance listed in Schedules I-V of the
Federal Comprehensive Drug Abuse Prevention Control Act of 1970, as amended.
10.5 "Code" means the Internal Revenue Code of 1986, as amended.
-14-
<PAGE> 15
10.6 "Committee" shall have the meaning set forth in Section 2.1.
10.7 "Common Stock" means the common shares of beneficial interest, par
value $.01 per share, of the Company or, in the event that the outstanding
shares of such Common Stock are hereafter changed into or exchanged for shares
of a different stock or security of the Company or some other corporation, such
other stock or security.
10.8 "Company" means Crescent Real Estate Equities Company, a Texas
trust organized under the Texas Real Estate Investment Trust Act, as amended,
or any successor thereto.
10.9 "Director" means a member of the Board of Trust Managers of the
Company.
10.10 "Director's Fees" means the remuneration otherwise payable to an
Outside Director as an annual retainer and for attending meetings of the Board
and meetings of the committees of the Board.
10.11 "Disability" of a Participant shall be deemed to occur whenever a
Participant is rendered unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for
a continuing period of not less than 12 months.
10.12 "Effective Date" means June 12, 1995, or, if applicable, the date on
which an amendment to this Plan is approved by the shareholders of the Company
in accordance with the provisions of Sections 162(m) and 422 of the Code and
Rule 16b-3 under the Exchange Act.
10.13 "Employee" means an officer or other employee of the Company or of
any of its subsidiaries that adopt the Plan, as defined under Section 3401(c)
of the Code and the regulations promulgated thereunder.
10.14 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
10.15 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
10.16 "Fair Market Value" means such value as will be determined by the
Committee on the basis of such factors as it deems appropriate; provided that
if the Common Stock is traded on a national securities exchange, such value
will be determined by the Committee on the basis of the last sale price for the
Common Stock on the date for which such determination is relevant, as reported
on the New York Stock Exchange. If the Common Stock is traded on more than one
exchange, such value will be determined on the basis of the exchange trading
the greatest volume of shares on such date. In no event shall "Fair Market
Value" be less than the par value of the Common Stock.
10.17 "Incentive Stock Option" means an Option granted under Article IV.
-15-
<PAGE> 16
10.18 "Nonqualified Stock Option" means an Option granted under Article V.
10.19 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option granted under the Plan.
10.20 "Option Agreement" means an agreement between the Company and a
Participant with respect to one or more Options.
10.21 "Outside Director" means a Director who is not an Employee of the
Company or a Subsidiary.
10.22 "Participant" means an Employee, Director or Advisor to whom an
Award has been granted hereunder.
10.23 "Plan" means the 1995 Crescent Real Estate Equities Company Stock
Incentive Plan, as amended from time to time.
10.24 Plan Shares" means shares of Common Stock issuable pursuant to the
Plan.
10.25 "Reporting Participant" means a Participant who is subject to the
reporting requirements of Section 16 of the Exchange Act.
10.26 "Restricted Stock" means an Award of Common Stock granted under
Article VI.
10.27 "Restricted Stock Agreement" means an agreement between the Company
and a Participant with respect to an Award of Restricted Stock.
10.28 "Retirement" means termination of employment or service as a
Director on or after the date on which a Participant attains age 70.
10.29 "Securities Act" means the Securities Act of 1933, as amended.
10.30 "Subsidiary" means a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.
10.31 "Unit" means a unit of ownership interest in the Crescent Real
Estate Equities Limited Partnership, which is exchangeable on a one-for-one
basis for shares of Common Stock, or, at the option of the Company, the cash
equivalent thereof.
-16-
<PAGE> 1
EXHIBIT 12.01
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
Computation of Ratio of Earnings to Fixed Charges
(dollars in thousands)
<TABLE>
<CAPTION>
For the Nine For the Year For the Year For the Period
Months Ended Ended Ended May 5, 1994 to
September 30, 1997 December 31, 1996 December 31, 1995 December 31, 1994
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Pretax Income from Continuing Operations 84,266 $ 47,951 $ 36,358 $ 12,595
Interest Expense 54,687 42,926 18,781 3,493
Amortization of Deferred Financing Costs 2,157 2,812 2,500 923
------- ----------- ----------- -----------
Earnings 141,110 $ 93,689 $ 57,639 $ 17,011
======= =========== =========== ===========
Interest Expense 54,687 42,926 18,781 3,493
Capitalized Interest 1,351 946 916 --
Amortization of Deferred Financing Costs 2,157 2,812 2,500 923
------- ----------- ----------- -----------
Fixed Charges 58,195 $ 46,684 $ 22,197 $ 4,416
======= =========== =========== ===========
Ratio of Earnings to Fixed Charges 2.42 2.01 2.60 3.85
======= =========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 21.01
<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARY ORGANIZATION
- ---------- ---------------
<S> <C>
Crescent Real Estate Funding I, L.P. Delaware
Crescent Real Estate Funding II, L.P. Delaware
Crescent Real Estate Funding VII, L.P. Delaware
Desert Mountain Development Corporation Delaware
Desert Mountain Properties Limited Partnership Delaware
Main Street Partners, L.P. Texas
</TABLE>
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Registration Statement on Form S-4 of our report dated January 17, 1997
and of our reports dated February 14, 1997 on Trammell Crow Center, March 18,
1997 on Carter-Crowley Real Estate Portfolio, July 23, 1997 on Fountain Place,
August 21, 1997 on Miami Center, August 22, 1997 on Houston Center, and October
15, 1997 on Bank One Center and to all references to our Firm included in this
Registration Statement.
ARTHUR ANDERSEN LLP
Dallas, Texas,
December 11, 1997
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated November 7, 1996 on the Provider Segment of Magellan Health Services,
Inc. and to all references to our Firm included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
December 5, 1997
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)__
STATE STREET BANK AND TRUST COMPANY OF MISSOURI, N.A.
(Exact name of trustee as specified in its charter)
U.S. national bank 43-1745664
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
127 West 10th Street, Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
Susan James, Vice President
State Street Bank and Trust Company of Missouri, N.A.
211 North Broadway, Suite 3900
St. Louis, Missouri 63102
(Name, address and telephone number of agent for service)
--------
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
(Exact name of obligor as specified in its charter)
Delaware 75-2531304
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 Main Street, Suite 2100
Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
--------
6 5/8% Notes Due 2002 and
7 1/8% Notes Due 2007
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
Comptroller of the Currency of the United States, Washington,
D.C.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its parent,
State Street Bank and Trust Company.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
1. A copy of the articles of association of the trustee as now in
effect.
A copy of the articles of association of the Trustee, as now in
effect, is attached hereto as Exhibit 1 and made a part hereof.
2. A copy of the certificate of authority of the trustee to
commence business, if not contained in the articles of association.
A copy of the certificate of the Comptroller of the Currenty
authorizing the trustee to commence the business of banking as a
national banking association is attached hereto as Exhibit 2 and made
a par hereof.
3. A copy of the authorization of the trustee to exersise corporate
trust powers, if such authorization is not contained in the documents
specified in paragraph (1) or (2), above.
A copy of the certificate of the Comptroller of the Currency
dated September 15, 1995 authorizing the trustee to exercise corporate
trust powers is attached hereto as Exhibit 3 and made a part hereof.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the existing amended and restated by-laws of the
trustee is attached hereto as Exhibit 4.
1
<PAGE> 3
5. A copy of each indenture referred to in Item 4. if the obligor is in
default.
Not applicable.
6. The consents of United States institutional trustees required by Section
321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act is
annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority
is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility and Qualification
which relates to matters peculiarly within the knowledge of the obligor or any
underwriter for the obligor, the trustee has relied upon information furnished
to it by the obligor and the underwriters, and the trustee disclaims
responsibility for the accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company of Missouri N.A., a
national banking association existing under the laws of the United States
of America, has duly caused this statement of eligibility and qualification to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of St. Louis and the State of Missouri, on the 8th day of December,
1997.
STATE STREET BANK AND TRUST COMPANY
OF MISSOURI, N.A.
By: /s/ ROBERT A. CLASQUIN
-------------------------------
Robert A. Clasquin
Assistant Vice President
<PAGE> 4
EXHIBIT 1
ARTICLES OF ASSOCIATION
OF
STATE STREET BANK AND TRUST COMPANY OF MISSOURI,
NATIONAL ASSOCIATION
For the purpose of organizing an Association to carry on the business of a
limited purpose trust company under the laws of the United States, the
undersigned do enter into the following Articles of Association:
FIRST. The title of this Association shall be State Street Bank and
Trust Company of Missouri, National Association.
SECOND. The Main Office of the Association shall be in the City of
Kansas City, County of Jackson, State of Missouri. The business of the
Association will be limited to the operations of a national trust company and
to support activities incidental thereto. The Association will not expand or
alter its business beyond that stated in this Article Second without the prior
approval of the Comptroller of the Currency.
THIRD. The Board of Directors of this Association shall consist of not
less than five nor more than twenty-five shareholders, the exact number to be
fixed and determined from time to time by resolution of a majority of the full
Board of Directors or by resolution of the shareholders at any annual or
special meeting thereof. Each Director, during the full term of his or her
directorship, shall own a minimum of $1,000 aggregate par value of stock of
this Association or a minimum par, market value or equity interest of $1,000
of stock in the bank holding company controlling this Association.
Any vacancy in the Board of Directors may be filled by action of the Board
of Directors; provided, however, that a majority of the full Board of Directors
may not increase the number of Directors to a number which: (1) exceeds by more
than two the number of Directors last elected by shareholders where the number
was 15 or less; and (2) exceeds by more than four the number of Directors last
elected by shareholders where the number was 16 or more, but in no event shall
the number of directors exceed 25.
Terms of Directors, including Directors selected to fill vacancies, shall
expire at the next regular meeting of shareholders at which Directors are
elected, unless the Directors resign or are removed from office. Despite the
expiration of a Director's term, the Director shall continue to serve until his
or her successor is elected and qualifies or until there is a decrease in the
number of Directors and his or her position is eliminated.
<PAGE> 5
FOURTH. There shall be an annual meeting of the shareholders to elect
Directors and transact whatever other business may be brought before the
meeting. It shall be held at the main office or any other convenient place as
the Board of Directors may designate, on the day of each year specified
therefore in the By-laws, but if no election is held on that day, it may be
held on any subsequent day according to such lawful rules as may be prescribed
by the Board of Directors.
Nominations for election to the Board of Directors may be made by the
Board of Directors or by any shareholder of any outstanding class of capital
stock of this Association entitled to vote for election of Directors.
Nominations other than those made by or on behalf of the existing management
shall be made in writing and be delivered or mailed to the president of this
Association and to the Comptroller of the Currency, Washington, D.C., not less
than 14 days nor more than 50 days prior to any meeting of shareholders called
for the election of Directors; provided, however, that if less than 21 days
notice of the meeting is given to the shareholders, such nominations shall be
mailed or delivered to the president of this Association and to the Comptroller
of the Currency not later than the close of business on the seventh day
following the day on which the notice of meeting was mailed. Such notification
shall contain the following information to the extent known to the notifying
shareholder: the name and address of each proposed nominee; the principal
occupation of each proposed nominee; the total number of shares of capital
stock of this Association that will be voted for each proposed nominee; the
name and residence address of the notifying shareholder; and the number of
shares of capital stock of this Association owned by the notifying shareholder.
Nominations not made in accordance herewith may, in his or her discretion, be
disregarded by the chairperson of the meeting, and upon his or her
instructions, the vote tellers may disregard all votes cast for each such
nominee.
FIFTH. The authorized amount of capital stock of this Association
shall be 1,000,000 shares of common stock of the par value of one dollar ($1)
each; but said capital stock may be increased or decreased from time to time,
in accordance with the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of this Association
shall have any preemptive or preferential right of subscription to any shares of
any class of stock of this Association, whether now or hereafter authorized, or
to any obligations convertible into stock of this Association, issued, or sold,
nor any right of subscription to any thereof other than such, if any, as the
Board of Directors, in its discretion may from time to time determine and at
such price as the Board of Directors may from time to time fix.
Transfers of the Association's capital stock are subject to the prior
approval of a federal depository institution regulatory agency. If no other
agency approval is required, the Comptroller
- 2 -
<PAGE> 6
of the Currency's approval shall be obtained prior to the transfers. In such
cases where the Comptroller of the Currency approval is required, the
Comptroller of the Currency will apply the definitions and standards set forth
in the Change in Bank Control Act and the Comptroller of the Currency's
implementing regulation (12 U.S.C. 1817(j) and 12 C.F.R. 5.50) to ownership
changes in the Association.
This Association, at any time and from time to time, may authorize and
issue debt obligations, whether or not subordinated, without the approval of
the shareholders.
SIXTH. The Board of Directors shall appoint one of its members President
of this Association, who shall be Chairperson of the Board, unless the Board
appoints another director to be the Chairperson. The Board of Directors shall
have the power to appoint one or more Vice Presidents; and to appoint a Cashier
and such other officers and employees as may be required to transact the
business of this Association.
The Board of Directors shall have the power to define the duties of the
officers and employees of this Association; to fix the salaries to be paid to
the officers and employees; to dismiss officers and employees; to require bonds
from officers and employees and to fix the penalty thereof; to regulate the
manner in which any increase of the capital of this Association shall be made;
to manage and administer the business and affairs of this Association; to make
all By-laws that it may be lawful for the Board of Directors to make; and
generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
SEVENTH. The Board of Directors shall have the power to change the
location of the main office to any other place within the limits of the City of
Kansas City, without the approval of the shareholders, and shall have the power
to establish or change the location of any branch or branches of this
Association to any other location, without the approval of the shareholders.
EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH. The Board of Directors of this Association, or any
shareholder owning, in the aggregate, not less than ten percent of the stock of
this Association, may call a special meeting of shareholders at any time.
Unless otherwise provided by the laws of the United States, a notice of the
time, place, and purpose of every annual and special meeting of the
shareholders shall be given by first-class mail, postage prepaid, mailed at
least ten days prior to the date of such meeting to each shareholder of record
at his address as shown upon the books of this Association.
- 3 -
<PAGE> 7
TENTH. This Association shall to the fullest extent legally permissible
indemnify each person who is or was a director, officer, employee or other
agent of this Association and each person who is or was serving at the request
of this Association as a director, trustee, officer, employee or other agent of
another organization or of any partnership, joint venture, trust, employee
benefit plan or other enterprise or organization against all liabilities, costs
and expenses, including but not limited to amounts paid in satisfaction of
judgments, in settlement or as fines and penalties, and counsel fees and
disbursements, reasonably incurred by him in connection with the defense or
disposition of or otherwise in connection with or resulting from any action,
suit or other proceeding, whether civil, criminal, administrative or
investigative, before any court or administrative or legislative or
investigative body, in which he may be or may have been involved as a party or
otherwise or with which he may be or may have been threatened, while in office
or thereafter, by reason of his being or having been such a director, officer,
employee, agent or trustee, or by reason of any action taken or not taken in any
such capacity, except with respect to any matter as to which he shall have been
finally adjudicated by a court of competent jurisdiction not to have acted in
good faith in the reasonable belief that his action was in the best interests
of the corporation (any person serving another organization in one or more of
the indicated capacities at the request of this Association who shall not have
been adjudicated in any proceeding not to have acted in good faith in the
reasonable belief that his action was in the best interest of such other
organization shall be deemed so to have acted in good faith with respect to the
National Trust Company) or to the extent that such matter relates to service
with respect to an employee benefit plan, in the best interest of the
participants or beneficiaries of such employee benefit plan. Expenses,
including but not limited to counsel fees and disbursements, so incurred by any
such person in defending any such action, suit or proceeding, shall be paid from
time to time by this Association in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
the person indemnified to repay the amounts so paid if it shall ultimately be
determined that indemnification of such expenses is not authorized hereunder.
As to any matter disposed of by settlement by any such person, pursuant to
a consent decree or otherwise, no such indemnification either for the amount of
such settlement or for any other expenses shall be provided unless such
settlement shall be approved as in the best interests of the National Trust
Company, after notice that it involves such indemnification, (a) by a vote of a
majority of the disinterested directors then in office (even though the
disinterested directors be less than a quorum), or (b) by any disinterested
person or persons to whom the question may be referred by vote of a majority of
such disinterested directors, or (c) by vote of the holders of a majority of
the outstanding stock at the time entitled to vote for directors, voting as a
single class, exclusive of any stock
- 4 -
<PAGE> 8
owned by any interested person, or (d) by any disinterested person or
persons to whom the question may be referred by vote of the holders of a
majority of such stock. No such approval shall prevent the recovery from any
such director, officer, employee, agent or trustee of any amounts paid to him or
on his behalf as indemnification in accordance with the preceding sentence if
such person is subsequently adjudicated by a court of competent jurisdiction not
to have acted in good faith in the reasonable belief that his action was in the
best interests of this Association. The right of indemnification hereby provided
shall not be exclusive of or affect any other rights to which any director,
officer, employee, agent or trustee may be entitled or which may lawfully be
granted to him. As used herein, the terms "director","officer", "employee",
"agent" and "trustee" include their respective executors, administrators and
other legal representatives, an "interested" person is one against whom the
action, suit or other proceeding in question or another action, suit or other
proceeding on the same or similar grounds is then or had been pending or
threatened, and a "disinterested" person is a person against whom no such
action, suit or other proceeding is then or had been pending or threatened. By
action of the board of directors, notwithstanding any interest of the directors
in such action, this Association may purchase and maintain insurance, in such
amounts as the board of directors may from time to time deem appropriate, on
behalf of any person who is or was a director, officer, employee or other agent
of this Association, or is or was serving at the request of this Association as
a director, trustee, officer, employee or other agent of another organization or
of any partnership, joint venture, trust, employee benefit plan or other
enterprise or organization against any liability incurred by him in any such
capacity, or arising out of his status as such, whether or not this Association
would have the power to indemnify him against such liability.
Nothing contained in this Article Tenth shall be construed to (i) allow the
indemnification of or insurance coverage for a director, trustee, officer,
employee or agent of this Association against expenses, penalties or other
payments incurred in an administrative action instituted by an appropriate bank
regulatory agency which results in a final order assessing civil money penalties
or requires the payments of money to the Association, or (ii) exceed the
provisions of Massachusetts General Laws, chapter 156B, section 67, as in effect
from time to time.
ELEVENTH. These Articles of Association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of the holders of a
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount.
TWELFTH. This Association may be a partner in any business or enterprise
which this Association would have power to conduct by itself.
- 5 -
<PAGE> 9
IN WITNESS WHEREOF, we have hereunto set our hands this 27th day of April,
1995.
/s/ MARSHALL N. CARTER
----------------------
Marshall N. Carter
/s/ DAVID A. SPINA
----------------------
David A. Spina
/s/ A. EDWARD ALLINSON
----------------------
A. Edward Allinson
/s/ RONALD E. LOGUE
----------------------
Ronald E. Logue
/s/ JOHN R. TOWERS
----------------------
John R. Towers
- 6 -
<PAGE> 10
EXHIBIT 2
[COMPTROLLER OF THE CURRENCY TREASURY DEPARTMENT LOGO]
Washington, D.C.
WHEREAS, satisfactory evidence has been presented to the Comptroller of
the Currency that "STATE STREET BANK AND TRUST COMPANY OF MISSOURI, NATIONAL
ASSOCIATION" located in KANSAS CITY State of MISSOURI has complied with all
provisions of the statutes of the United States required to be complied with
before being authorized to commence the business of banking as a National
Banking Association;
NOW, THEREFORE, I hereby certify that the above-named association is
authorized to commence the business of banking as a National Banking
Association.
IN TESTIMONY WHEREOF, witness my signature and seal of
office this FIFTEENTH day of SEPTEMBER 1995.
/s/ DAVID A. BOMGAARS
-----------------------------------------
District Administrator
Comptroller of the Currency
Charter No. 22874
<PAGE> 11
EXHIBIT 3
[LOGO]
Comptroller of the Currency
Administrator of National Banks
Northeastern District
1114 Avenue of the Americas, Suite 3900
New York, New York 10036
TRUST PERMIT
WHEREAS, STATE STREET BANK AND TRUST COMPANY OF MISSOURI, NATIONAL
ASSOCIATION, located in KANSAS CITY, state of MISSOURI, being a National
Banking Association, organized under the statutes of the United States,
has made application for authority to act as fiduciary;
AND WHEREAS, applicable provisions of the statutes of the United States
authorize the grant of such authority;
NOW THEREFORE, I hereby certify that the said association is authorized to act
in all fiduciary capacities permitted by such statutes.
IN TESTIMONY WHEREOF, witness my signature and seal of Office this 15TH day of
SEPTEMBER, 1995.
CHARTER NO. 22874
/s/ DAVID A. BOMGAARS
---------------------------------
David A. Bomgaars
District Administrator
**OCC SEAL**
<PAGE> 12
EXHIBIT 4
STATE STREET BANK AND TRUST COMPANY OF MISSOURI,
NATIONAL ASSOCIATION
AMENDED AND RESTATED
BY-LAWS
ARTICLE I
Meetings of Shareholders
Section 1.1 Annual Meeting. The regular annual meeting of the shareholders
to elect directors and transact whatever other business may properly come before
the meeting, shall be held at the Main Office of the National Trust Company, in
the City of Kansas City, State of Missouri or such other places as the Board of
Directors may designate, at 10 o'clock, on the fourth Wednesday of April of each
year. Notice of such meeting shall be mailed, postage prepaid, at least ten days
prior to the date thereof, addressed to each shareholder at his/her address
appearing on the books of the National Trust Company. If for any cause, an
election of directors is not made on that day, the Board of Directors shall
order the election to be held on some subsequent day, as soon thereafter as
practicable, according to the provisions of law; and notice thereof shall be
given in the manner herein provided for the annual meeting.
Section 1.2. Special Meetings. Except as otherwise specifically provided
by statute, special meetings of the shareholders may be called for any purpose
at any time by the Board of Directors or by any shareholder owning, in the
aggregate, not less than 10 percent of the stock of the National Trust Company.
Every such special meeting, unless otherwise provided by law, shall be called by
mailing, postage prepaid, not less than ten days prior to the date fixed for
such meeting, to each shareholder at his address appearing on the books of the
National Trust Company a notice stating the purpose of the meeting.
Section 1.3. Nominations for Director. Nominations for election to the
Board of Directors may be made by the Board of Directors or by any shareholder
of any outstanding class of capital stock of the National Trust Company entitled
to vote for the election of directors. Nominations, other than those made by
<PAGE> 13
or on behalf of the existing management of the National Trust Company, shall be
made in writing and shall be delivered or mailed to the President of the
National Trust Company and to the Comptroller of the Currency, Washington,
D.C., not less than 14 days nor more than 50 days prior to any meeting of
shareholders called for the election of directors, provided however, that if
less than 21 days' notice of the meeting is given to shareholders, such
nomination shall be mailed or delivered to the President of the National Trust
Company and to the Comptroller of the Currency not later than the close of
business on the seventh day following the day on which the notice of meeting
was mailed. Such notification shall contain the following information to the
extent known to the notifying shareholder:
(a) the name and address of each proposed nominee; (b) the principal
occupation of each proposed nominee; (c) the total number of shares of capital
stock of the National Trust Company that will be voted for each proposed
nominee; (d) the name and residence address of the notifying shareholder; and
(e) the number of shares of capital stock of the National Trust Company owned by
the notifying shareholder. Nominations not made in accordance herewith may, in
his/her discretion, be disregarded by the Chairperson of the meeting, and upon
his/her instructions, the vote tellers may disregard all votes cast for each
such nominee.
Section l.4. Proxies. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing, but no officer or employee
of this National Trust Company shall act as proxy. Proxies shall be valid only
for one meeting, to be specified therein, and any adjournments of such
meeting. Proxies shall be dated and shall be filed with the records of the
meeting.
Section 1.5. Quorum. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law; but less than a quorum may
adjourn any meeting, from time to time, and the meeting may be held, as
adjourned, without further notice. A majority of the votes cast shall decide
every question or matter submitted to the shareholders at any meeting, unless
otherwise provided by law or by the Articles of Association.
- 2 -
<PAGE> 14
ARTICLE II
Directors
Section 2.1. Board of Directors. The Board of Directors shall have the
power to manage and administer the business and affairs of the National Trust
Company. Except as expressly limited by law, all corporate powers of the
National Trust Company shall be vested in and may be exercised by the Board of
Directors.
Section 2.2. Number. the Board of Directors shall consist of not less
than five nor more than twenty-five shareholders, the exact number within such
minimum and maximum limits to be fixed and determined from time to time by
resolution of a majority of the full Board or by resolution of the shareholders
at any meeting thereof.
Section 2.3. Organization Meeting. The Cashier, upon receiving the
results of any election, shall notify the directors-elect of their election and
of the time at which they are required to meet at the Main Office of the
National Trust Company to organize the new Board and elect and appoint officers
of the National Trust Company for the succeeding year. Such meeting shall be
held on the day of the election or as soon thereafter as practicable, and, in
any event, within thirty days thereof. If, at the time fixed for such meeting,
there shall not be a quorum present, the Directors present may adjourn the
meeting, from time to time, until a quorum is obtained.
Section 2.4. Regular Meetings. Regular Meetings of the Board of Directors
shall be held, without notice, at least once in each quarter on such days and
at such hours as the Directors may from time to time determine. When any
regular meeting of the Board falls upon a holiday, the meeting shall be held on
the next banking business day unless the Board shall designate some other
day. (Amended 1/1/97)
Section 2.5. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board of the National Trust Company, or
at the request of three or more directors. Each member of the Board of
Directors shall be given notice stating the time and place, by telegram,
letter, or in person, of each such special meeting.
-3-
<PAGE> 15
Section 2.6. Quorum. A majority of the directors shall constitute a
quorum at any meeting, except when otherwise provided by law; but a less number
may adjourn any meeting, from time to time, and the meeting may be held, as
adjourned, without further notice.
Section 2.7. Vacancies. When any vacancy occurs among the directors,
the remaining members of the Board, in accordance with the laws of the United
States, may appoint a director to fill such vacancy at any regular meeting of
the Board, or at a special meeting called for that purpose in conformance with
Section 2.2 of this Article.
Section 2.8. Action Without a Meeting. Any action required or permitted
to be taken at any meeting of the Directors may be taken without a meeting if
all the Directors consent to the action in writing and the written consents are
filed with the records of the meetings of the Directors. Such consents shall be
treated for all purposes as a vote at a meeting.
Section 2.9. Meeting by Telecommunications. Members of the Board of
Directors or any committee elected thereby may participate in a meeting of such
Board or committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in a meeting can hear
each other at the time and participation by such means shall constitute
presence in person at the meeting.
ARTICLE III
Committees of the Board
Section 3.1. Investment Committee. There shall be an Investment
Committee composed of not less than two Directors, appointed by the Board
annually or more often. The Investment Committee shall have the power to insure
adherence to Investment Policy, to recommend amendments thereto, to purchase
and sell securities, to exercise authority regarding investments and to
exercise, when the Board is not in session, all other powers of the Board
regarding investment securities that may be lawfully delegated. The Investment
Committee shall keep minutes of its meetings, and such minutes shall be
submitted at the next regular meeting of the Board of Directors at which a
quorum is present, and any action taken by the Board with respect thereto shall
be entered in the minutes of the Board.
- 4 -
<PAGE> 16
Section 3.2. Examining Committee. There shall be an Examining Committee
composed of not less than two directors, exclusive of any active officers,
appointed by the Board annually or more often, whose duty it shall be to make
an examination at least once during each calendar year into the affairs of the
National Trust Company or cause suitable examinations to be made by auditors
responsible only to the Board of Directors and to report the result of such
examination in writing to the Board at the next regular meeting thereafter.
Such report shall state whether the National Trust Company is in a sound
condition, and whether adequate internal controls and procedures are being
maintained shall recommend to the Board of Directors such changes in the manner
of conducting the affairs of the National Trust Company as shall be deemed
advisable. (Amended 8/5/97)
Section 3.3. Other Committees. The Board of Directors may appoint, from
time to time, from its own members, other committees of one or more persons,
for such purposes and with such powers as the Board may determine. However, a
committee may not authorize distribution of assets or dividends; approve action
required to be approved by shareholders; fill vacancies on the board of
directors or any of its committees; amend articles of association; adopt, amend
or repeal by-laws; or authorize or approve issuance or sale or contract for
sale of shares, or determine the designation and relative rights, preferences
and limitations of a class or series of shares.
ARTICLE IV
Officers and Employees
Section 4.1. Chairperson of the Board. The Board of Directors shall
appoint one of its members to be Chairperson of the Board to serve at its
pleasure. Such person shall preside at all meetings of the Board of
Directors. The Chairperson of the Board shall supervise the carrying out of
the policies adopted or approved by the Board; shall have general executive
powers, as well as the specific powers conferred by these Bylaws; and shall
also have and may exercise such further powers and duties as from time to time
may be conferred upon, or assigned by the Board of Directors.
-5-
<PAGE> 17
Section 4.2. President. The Board of Directors shall appoint one of its
members to be President of the National Trust Company. In the absence of the
Chairperson, the President shall preside at any meeting of the Board. The
President shall have general executive powers, and shall have and may exercise
any and all other powers and duties pertaining by law, regulations, or practice,
to the Office of President, or imposed by these Bylaws. The President shall also
have and may exercise such further powers and duties as from time to time may be
conferred, or assigned by the Board of Directors.
Section 4.3. Vice President. The Board of Directors may appoint one or
more Vice Presidents. Each Vice President shall have such powers and duties
as may be assigned by the Board of Directors. One Vice President shall be
designated by the Board of Directors, in the absence of the President, to
perform all the duties of the President.
Section 4.4. Secretary. The Board of Directors shall appoint a
Secretary, Cashier, or other designated officer who shall be Secretary of the
Board and of the National Trust Company, and shall keep accurate minutes of all
meetings. The Secretary shall attend to the giving of all notices required by
these Bylaws to be given; shall be custodian of the corporate seal, records,
documents and papers of the National Trust Company; shall provide for the
keeping of proper records of all transactions of the National Trust Company;
shall have and may exercise any and all other powers and duties pertaining by
law, regulation or practice, to the Office of Cashier, or imposed by these
Bylaws; and shall also perform such other duties as may be assigned from time
to time, by the Board of Directors.
Section 4.5. Other Officers. The Board of Directors may appoint one or
more Executive Vice Presidents, Senior Vice Presidents, Assistant Vice
Presidents, one or more Assistant Secretaries, one or more Assistant Cashiers,
one or more Managers and Assistant Managers of offices and such other officers
and attorneys in fact as from time to time may appear to the Board of Directors
to be required or desirable to transact the business of the National Trust
Company. Such officers shall respectively exercise such powers and perform
such duties as pertain to the several offices, or as may be conferred upon,
or assigned to, them by the Board of Directors, the Chairperson of the Board,
or the President. The Board of Directors may authorize an officer to appoint
one or more officers or assistant officers.
- 6 -
<PAGE> 18
Section 4.6. Tenure of Office. The President and all other officers
shall hold office for the current year for which the Board was elected, unless
they shall resign, become disqualified, or be removed; and any vacancy
occurring in the Office of President shall be filled promptly by the Board of
Directors.
Section 4.7. Resignation. An officer may resign at any time by
delivering notice to the National Trust Company. A resignation is effective
when the notice is given unless the notice specifies a later effective date.
ARTICLE V
Fiduciary Activities
Section 5.1. Trust Department. There shall be a department of the
National Trust Company known as the Trust Department that shall perform the
fiduciary responsibilities of the National Trust Company.
Section 5.2. Trust Officer. There shall be a Trust Officer of this
National Trust Company whose duties shall be to manage, supervise and direct
all the activities of the Trust Department. Such persons shall do or cause to be
done all things necessary or proper in carrying on the business of the Trust
Department according to provisions of law and applicable regulations; and shall
act pursuant to opinion of counsel where such opinion is deemed necessary.
Opinions of counsel shall be retained on file in connection with all important
matters pertaining to fiduciary activities. The Trust Officer shall be
responsible for all assets and documents held by the National Trust Company in
connection with fiduciary matters.
The Board of Directors may appoint other trust officers of the Trust
Department, as it may deem necessary, with such duties as may be assigned.
Section 5.3. Trust Investment Committee. There shall be a Trust
Investment Committee of this National Trust Company composed of not less than
two members, who shall be capable and experienced officers or directors of the
National Trust Company. All investments of funds held in a fiduciary capacity
shall be made, retained or disposed of only with the approval of the Trust
- 7 -
<PAGE> 19
Investment Committee, and the Committee shall keep minutes of all its meetings,
showing the disposition of all matters considered and passed upon by it. The
Committee shall, promptly after the acceptance of an account for which the
National Trust Company has investment responsibilities, review the assets
thereof, to determine the advisability of retaining or disposing of such
assets. The Committee shall conduct a similar review at least once during each
calendar year thereafter and within 15 months of the last such review. A
report of all such reviews, together with the action taken as a result thereof,
shall be noted in the minutes of the Committee.
Section 5.4. Trust Audit Committee. The Board of Directors shall
appoint a committee of not less than two directors, exclusive of any active
officer of the National Trust Company, which shall, at least once during each
calendar year make suitable audits of the Trust Department or cause suitable
audits to be made by auditors responsible only to the Board of Directors, and
at such time shall ascertain whether the Department has been administered
according to law, Part 9 of the Regulations of the Comptroller of the Currency,
and sound fiduciary principles. (Amended 8/5/97)
Section 5.5. Fiduciary Files. There shall be maintained in the Trust
Department files all fiduciary records necessary to assure that its fiduciary
responsibilities have been properly undertaken and discharged.
Section 5.6. Trust Investments. Funds held in a fiduciary capacity shall
be invested according to the instrument establishing the fiduciary relationship
and local law. Where such instrument does not specify the character and class
of investments to be made and does not vest in the National Trust Company a
discretion in the matter, funds held pursuant to such instrument shall be
invested in investments in which corporate fiduciaries may invest under local
law.
ARTICLE VI
Stock and Stock Certificates
Section 6.1 Transfers. Shares of stock shall be transferable on the
books of the National Trust Company, and a transfer book shall be kept in which
all transfers of stock shall
- 8 -
<PAGE> 20
be recorded. Every person becoming a shareholder by such transfer shall, in
proportion to his shares, succeed to all rights of the prior holder of such
shares.
Section 6.2. Stock Certificates. Certificates of stock shall bear the
signature of the President (which may be engraved, printed or impressed), and
shall be signed manually or by facsimile process by the Secretary, Assistant
Secretary, Cashier, Assistant Cashier, or any other officer appointed by the
Board of Directors for that purpose, to be known as an Authorized Officer, and
the seal of the National Trust Company shall be engraved thereon. Each
certificate shall recite on its face that the stock represented thereby is
transferable only upon the books of the National Trust Company properly
endorsed.
ARTICLE VII
Corporate Seal
The President, the Cashier, the Secretary or any Assistant Cashier or
Assistant Secretary, or other officer thereunto designated by the Board of
Directors, shall have authority to affix the corporate seal to any document
requiring such seal, and to attest the same. Such seal shall be substantially
in the following form:
ARTICLE VIII
Miscellaneous Provisions
Section 8.1. Fiscal Year. The Fiscal Year of the National Trust
Company shall be the calendar year.
Section 8.2. Execution of Instruments. All agreements, indentures,
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, schedules,
accounts, affidavits, bonds, undertakings, proxies and other instruments or
documents may be signed, executed, acknowledged, verified, delivered or
accepted in behalf of the National Trust Company by the Chairperson of the
Board, or the President, or any Executive Vice President, or any Vice
President, or the Secretary, or the Cashier. Any such instruments may also be
executed,
- 9 -
<PAGE> 21
acknowledged, verified, delivered or accepted in behalf of the National Trust
Company in such other manner and by such other officers as the Board of
Directors may from time to time direct. The provisions of this Section 8.2.
are supplementary to any other provision of these Bylaws.
Section 8.3. Records. The Articles of Association, the By-laws and the
proceedings of all meetings of the shareholders, the Board of Directors, and
standing committees of the Board, shall be recorded in appropriate minute books
provided for the purpose. The minutes of each meeting shall be signed by the
Secretary, Cashier or other Officer appointed to act as Secretary of the
meeting.
ARTICLE IX
By-laws
Section 9.1. Inspection. A copy of the By-laws, with all amendments
thereto, shall at all times be kept in a convenient place at the Main Office of
the National Trust Company, and shall be open for inspection to all
shareholders, during banking hours.
Section 9.2. Amendments. The By-laws may be amended, altered or
repealed, at any regular meeting of the Board of Directors, by a vote of a
majority of the total number of the Directors.
- 10 -
<PAGE> 22
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by Crescent
Real Estate Equities Limited Partnership of its 6 5/8% Notes Due 2002 and its
7 1/8% Notes Due 2007, we hereby consent that reports of examination by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
OF MISSOURI N.A.
By: /s/ ROBERT A. CLASQUIN
--------------------------------
Robert A. Clasquin
Assistant Vice President
Dated: December 8, 1997
3
<PAGE> 23
STATE STREET BANK & TRUST COMPANY OF MISSOURI, N.A.
CONSOLIDATED STATEMENT OF CONDITION
OCT-97
<TABLE>
<CAPTION>
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
Cash and Due from Bank $ 443,235 $ 4,835
Total Investment Securities 292,500 990,000
Total Premises and Equipment 11,178 0
Accrued Income Receivable 551,213 0
Other Assets 165,318 66,590
Goodwill Net 8,566,996 8,755,694
------------ ------------
TOTAL ASSETS $ 10,030,439 $ 9,817,119
------------ ------------
LIABILITIES
Accrued Tax and Other 110,213 54,484
Unearned Revenue 281,492 0
------------ ------------
TOTAL LIABILITIES $ 371,704 $ 54,484
------------ ------------
STOCKHOLDERS EQUITY
Common Stock 500,000 500,000
Paid in Surplus 9,250,000 9,250,000
Retained Earnings (91,265) 12,635
------------ ------------
TOTAL STOCKHOLDERS EQUITY $ 9,658,735 $ 9,762,635
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 10,030,439 $ 9,817,119
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENT OF OPERATIONS FOUND ON PAGE F-2, F-3,
F-18 and F-19 OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP'S FORM S-4
FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> SEP-30-1997 DEC-31-1996
<CASH> 46,691 25,535
<SECURITIES> 0 0
<RECEIVABLES> 54,629 31,547
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 656,205 152,640
<PP&E> 3,113,743 1,732,626
<DEPRECIATION> (256,204) (205,808)
<TOTAL-ASSETS> 3,615,064 1,733,540
<CURRENT-LIABILITIES> 88,230 48,462
<BONDS> 1,776,904 667,808
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 1,721,534 988,005
<TOTAL-LIABILITY-AND-EQUITY> 3,615,064 1,733,540
<SALES> 0 0
<TOTAL-REVENUES> 303,260 208,861
<CGS> 0 0
<TOTAL-COSTS> 104,573 73,813
<OTHER-EXPENSES> 62,852 48,021
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 54,687 42,926
<INCOME-PRETAX> 84,266 47,951
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 84,266 47,951
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 1,599
<CHANGES> 0 0
<NET-INCOME> 83,074 44,870
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FOR
TENDER OF 6 5/8% NOTES DUE 2002 AND 7 1/8% NOTES DUE 2007
IN EXCHANGE FOR
6 5/8% NOTES DUE 2002 AND 7 1/8% NOTES DUE 2007
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
PRIVATE NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR
TO THE EXPIRATION DATE.
Deliver to the Exchange Agent:
STATE STREET BANK AND TRUST COMPANY OF MISSOURI, N.A.
<TABLE>
<S> <C>
By Mail: By Overnight Courier or by Hand:
State Street Bank and Trust Company State Street Bank and Trust Company
P.O. Box 778 Two International Place
Boston, Massachusetts 02102-0778 4th Floor
Attn: Corporate Trust Window Boston, Massachusetts 02110
Attn: Corporate Trust Window
</TABLE>
By Facsimile:
State Street Bank and Trust Company of Missouri, N.A.
Facsimile: (617) 664-5232
Confirm by Telephone:
(617) 664-5590
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
The undersigned hereby acknowledges receipt and review of the Prospectus
dated , 1998 (the "Prospectus") of Crescent Real Estate
Equities Limited Partnership (the "Operating Partnership") and this Letter of
Transmittal (the "Letter of Transmittal"), which together describe the Operating
Partnership's offer (the "Exchange Offer") to exchange the Operating
Partnership's 6 5/8% Notes due 2002 (the "2002 Exchange Notes") and 7 1/8% Notes
due 2007 (the "2007 Exchange Notes" and, together with the 2002 Exchange Notes,
the "Exchange Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement of
which the Prospectus is a part, for a like principal amount of the Operating
Partnership's issued and outstanding 6 5/8% Notes due 2002 (the "2002 Private
Notes") and 7 1/8% Notes due 2007 (the "2007 Private Notes" and, together with
the 2002 Private Notes, the "Private Notes"). Capitalized terms used but not
defined herein have the respective meaning given to them in the Prospectus.
<PAGE> 2
The Operating Partnership reserves the right, at any time or from time to
time, to extend the Exchange Offer at its discretion, in which event the term
"Expiration Date" shall mean the latest time and date to which the Exchange
Offer is extended. The Operating Partnership shall notify the holders of the
Private Notes of any extension through a press release or other public
announcement thereof prior to 9:00 A.M., New York City time, on the next
business day after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by a Holder of Private Notes
either if original Private Notes are to be forwarded herewith or if delivery of
Private Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility" or "DTC") pursuant to the procedures set forth in
the Prospectus under the caption "The Exchange Offer -- Book-Entry Transfer."
Holders of Private Notes whose Private Notes are not immediately available, or
who are unable to deliver their Private Notes and all other documents required
by this Letter of Transmittal to the Exchange Agent on or prior to the
Expiration Date, or who are unable to complete the procedure for book-entry
transfer on a timely basis, must tender their Private Notes according to the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer -- Guaranteed Delivery Procedures." See Instruction 1.
Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Private Notes are registered on the books of the Operating
Partnership or any other person who has obtained a properly completed bond power
from the registered Holder. The undersigned has completed, executed and
delivered this Letter of Transmittal to indicate the action the undersigned
desires to take with respect to the Exchange Offer. Holders who wish to tender
their Private Notes must complete this Letter of Transmittal in its entirety.
Notwithstanding the foregoing, Holders of Private Notes eligible to utilize
DTC's Automated Tender Offer Program ("ATOP"), who have opted to comply with the
ATOP procedures set forth in the Prospectus under the caption "Exchange
Offer -- Procedures for Tendering," need not complete, sign or deliver this
Letter of Transmittal.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
<PAGE> 3
List below the Private Notes to which this Letter of Transmittal relates.
If the space below is inadequate, list the registered numbers and principal
amounts on a separate signed schedule and affix the list to this Letter of
Transmittal.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
DESCRIPTION OF 2002 PRIVATE NOTES TENDERED
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AGGREGATE
PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S), AMOUNT PRINCIPAL
EXACTLY AS NAME(S) APPEAR(S) ON PRIVATE NOTES REGISTERED REPRESENTED AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBERS* BY NOTE(S) TENDERED**
- ---------------------------------------------------------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry Holders.
** Unless otherwise indicated, any tendering Holder of Private Notes will be
deemed to have tendered the entire aggregate principal amount represented by
such Private Notes. All tenders must be in integral multiples of $1,000.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
DESCRIPTION OF 2007 PRIVATE NOTES TENDERED
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AGGREGATE
PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S), AMOUNT PRINCIPAL
EXACTLY AS NAME(S) APPEAR(S) ON PRIVATE NOTES REGISTERED REPRESENTED AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBERS* BY NOTE(S) TENDERED**
- ---------------------------------------------------------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry Holders.
** Unless otherwise indicated, any tendering Holder of Private Notes will be
deemed to have tendered the entire aggregate principal amount represented by
such Private Notes. All tenders must be in integral multiples of $1,000.
<PAGE> 4
[ ] CHECK HERE IF TENDERED PRIVATE NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (FOR USE BY
ELIGIBLE INSTITUTIONS ONLY):
Name of Tendering Institution:
Account Number:
Transaction Code Number:
[ ] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING
(FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Holder(s) of Private Notes:
Date of Execution of Notice of Guaranteed Delivery:
Window Ticket Number (if available):
Name of Eligible Institution that Guaranteed Delivery:
Account Number (if delivered by book-entry transfer):
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
Address:
<PAGE> 5
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Private Notes, it acknowledges that
the Private Notes were acquired as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with any
resale of such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Operating Partnership for exchange the principal amount of
Private Notes indicated above. Subject to and effective upon the acceptance for
exchange of the principal amount of Private Notes tendered in accordance with
this Letter of Transmittal, the undersigned hereby exchanges, assigns and
transfers to the Operating Partnership all right, title and interest in and to
the Private Notes tendered for exchange hereby. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent, the agent and
attorney-in-fact of the undersigned (with full knowledge that the Exchange Agent
also acts as the agent of the Operating Partnership in connection with the
Exchange Offer) with respect to the tendered Private Notes with full power of
substitution to (i) deliver such Private Notes, or transfer ownership of such
Private Notes on the account books maintained by the Book-Entry Transfer
Facility, to the Operating Partnership and deliver all accompanying evidences of
transfer and authenticity, and (ii) present such Private Notes for transfer on
the books of the Operating Partnership and receive all benefits and otherwise
exercise all rights of beneficial ownership of such Private Notes, all in
accordance with the terms of the Exchange Offer. The power of attorney granted
in this paragraph shall be deemed to be irrevocable and coupled with an
interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Private
Notes tendered hereby and to acquire the Exchange Notes issuable upon the
exchange of such tendered Private Notes, and that the Operating Partnership will
acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim,
when the same are accepted for exchange by the Operating Partnership.
The undersigned understands that the Exchange Notes to be received upon
consummation of this Exchange Offer will bear interest from September 22, 1997
and hereby waives the right to receive any payment in respect of interest on the
Private Notes tendered hereby accrued from September 22, 1997 to the date of
issuance of the Exchange Notes to be issued in exchange for such Private Notes.
The undersigned acknowledge(s) that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the
"Commission") that the Exchange Notes issued in exchange for the Private Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such Holder that is (i) an
"affiliate" of the Operating Partnership within the meaning of Rule 405 under
the Securities Act or (ii) a broker-dealer that acquired the Private Notes in a
transaction other than as part of its market-making or other trading
activities), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such Holders' business and such Holders are not
engaging in and do not intend to engage in a distribution of the Exchange Notes
and have no arrangement or understanding with any person to participate in a
distribution of such Exchange Notes. The undersigned hereby further represent(s)
to the Operating Partnership that (i) any Exchange Notes acquired in exchange
for Private Notes tendered hereby are being acquired in the ordinary course of
business of the person receiving such Exchange Notes, whether or not the
undersigned, (ii) neither the undersigned nor any such other person is engaging
in or intends to engage in a distribution of the Exchange Notes, (iii) neither
the undersigned nor any such other person has an arrangement or
<PAGE> 6
understanding with any person to participate in the distribution of such
Exchange Notes, and (iv) neither the Holder nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Operating
Partnership or, if it is an affiliate, it will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
If the undersigned or the person receiving the Exchange Notes is a
broker-dealer that is receiving Exchange Notes for its own account in exchange
for Private Notes that were acquired as a result of market-making activities or
other trading activities, the undersigned acknowledges that it or such other
person will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that the undersigned or such other
person is an "underwriter" within the meaning of the Securities Act. The
undersigned acknowledges that if the undersigned is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes (i) the
undersigned cannot rely on the position of the staff of the Commission in
certain no-action letters and, in the absence of an exemption therefrom, must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the Exchange
Notes, in which case the registration statement must contain the selling
security holder information required by Item 507 or Item 508, as applicable, of
Regulation S-K of the Securities Act, and (ii) failure to comply with such
requirements in such instance could result in the undersigned incurring
liability under the Securities Act for which the undersigned is not indemnified
by the Operating Partnership.
If the undersigned or the person receiving the Exchange Notes is an
"affiliate" (as defined in Rule 405 under the Securities Act), the undersigned
represents to the Operating Partnership that the undersigned understands and
acknowledges that the Exchange Notes may not be offered for resale, resold or
otherwise transferred by the undersigned or such other person without
registration under the Securities Act or an exemption therefrom.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Operating Partnership to be
necessary or desirable to complete the exchange, assignment and transfer of the
Private Notes tendered hereby, including the transfer of such Private Notes on
the account books maintained by the Book-Entry Transfer Facility.
For purposes of the Exchange Offer, the Operating Partnership shall be
deemed to have accepted for exchange validly tendered Private Notes when, as and
if the Operating Partnership gives oral or written notice thereof to the
Exchange Agent. Any tendered Private Notes that are not accepted for exchange
pursuant to the Exchange Offer for any reason will be returned, without expense,
to the undersigned at the address shown below or at a different address as may
be indicated herein under "Special Delivery Instructions" as promptly as
practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned acknowledges that the Operating Partnership's acceptance of
properly tendered Private Notes pursuant to the procedures described under the
caption "The Exchange Offer -- Procedures for Tendering" in the Prospectus and
in the instructions hereto will constitute a binding agreement between the
undersigned and the Operating Partnership upon the terms and subject to the
conditions of the Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the Exchange Notes issued in exchange for the Private Notes accepted for
exchange and return any Private Notes not tendered or not exchanged, in the
name(s) of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions," please mail or deliver the Exchange Notes issued in
exchange for the Private Notes accepted for exchange and any Private Notes not
tendered or not exchanged (and accompanying documents, as appropriate) to the
undersigned at the address shown below the undersigned's signature(s). In the
event that both "Special Issuance Instructions" and "Special Delivery
Instructions" are completed, please issue the Exchange Notes issued in exchange
for the Private Notes accepted for exchange in the name(s) of, and return
<PAGE> 7
any Private Notes not tendered or not exchanged to, the person(s) so indicated.
The undersigned recognizes that the Operating Partnership has no obligation
pursuant to the "Special Issuance Instructions" and "Special Delivery
Instructions" to transfer any Private Notes from the name of the registered
holder(s) thereof if the Operating Partnership does not accept for exchange any
of the Private Notes so tendered for exchange.
<PAGE> 8
SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY (i) if Private Notes in a principal amount not tendered, or
Exchange Notes issued in exchange for Private Notes accepted for exchange, are
to be issued in the name of someone other than the undersigned, or (ii) if
Private Notes tendered by book-entry transfer which are not exchanged are to be
returned by credit to an account maintained at the Book-Entry Transfer Facility.
Issue Exchange Notes and/or Private Notes to:
Name(s):
-----------------------------------------------------------------------
(Please Print or Type)
Address:
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security No.)
- --------------------------------------------------------------------------------
(Complete Substitute Form W-9)
Credit unexchanged Private Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility set forth below:
- --------------------------------------------------------------------------------
(Book-Entry Transfer Facility Account Number, if applicable)
PLEASE SIGN HERE WHETHER OR NOT PRIVATE NOTES ARE BEING PHYSICALLY TENDERED
HEREBY
(Complete Accompanying Substitute Form W-9 on Reverse Side)
Date:
---------------------------------------------------------------------------
Date:
---------------------------------------------------------------------------
Area Code and Telephone Number:
-------------------------------------------------
The above lines must be signed by the registered Holder(s) of Private Notes as
name(s) appear(s) on the Private Notes or on a security position listing, or by
person(s) authorized to become registered Holder(s) by a properly completed bond
power from the registered Holder(s), a copy of which must be transmitted with
this Letter of Transmittal. If Private Notes to which this Letter of Transmittal
relate are held of record by two or more joint Holders, then all such Holders
must sign this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, then such person must
(i) set forth his or her full title below and (ii) unless waived by the
Operating Partnership, submit evidence satisfactory to the Operating Partnership
of such person's authority so to act. See Instruction 5 regarding the completion
of this Letter of Transmittal, printed below.
Name(s):
------------------------------------------------------------------------
(Please Type or Print)
Capacity:
-----------------------------------------------------------------------
Address:
------------------------------------------------------------------------
(Include Zip Code)
<PAGE> 9
- --------------------------------------------------------------------------------
MEDALLION SIGNATURE GUARANTEE
(If Required by Instruction 5)
Certain signatures must be Guaranteed by an Eligible Institution.
Signature(s) Guaranteed by an Eligible Institution:
- --------------------------------------------------------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name of Firm)
- --------------------------------------------------------------------------------
(Address, Include Zip Code)
- --------------------------------------------------------------------------------
(Area Code and Telephone Number)
Dated: , 19
------------------------------------------------------------------ ---
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 5 and 6)
To be completed ONLY if Private Notes in a principal amount not tendered, or
Exchange Notes issued in exchange for Private Notes accepted for exchange, are
to be mailed or delivered to someone other than the undersigned, or to the
undersigned at an address other than that shown below the undersigned's
signature.
Mail or deliver Exchange Notes and/or Private Notes to:
Name:
---------------------------------------------------------------------------
(Please Type or Print)
Address:
------------------------------------------------------------------------
(Name of Firm)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security No.)
- --------------------------------------------------------------------------------
<PAGE> 10
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
<PAGE> 11
1. Delivery of this Letter of Transmittal and Private Notes or Book-Entry
Confirmations. All physically delivered Private Notes or any confirmation of a
book-entry transfer to the Exchange Agent's account at the Book-Entry Transfer
Facility of Private Notes tendered by book-entry transfer (a "Book-Entry
Confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile hereof, and any other documents required by
this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. The method of delivery of the tendered Private Notes, this
Letter of Transmittal and all other required documents to the Exchange Agent is
at the election and risk of the Holder and, except as otherwise provided below,
the delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. Instead of delivery by mail, it is recommended that the Holder
use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure delivery to the Exchange Agent before the Expiration Date.
No Letter of Transmittal or Private Notes should be sent to the Operating
Partnership.
2. Guaranteed Delivery Procedures. Holders who wish to tender their Private
Notes and (a) whose Private Notes are not immediately available, or (b) who
cannot deliver their Private Notes, this Letter of Transmittal or any other
documents required hereby to the Exchange Agent prior to the Expiration Date or
(c) who are unable to complete the procedure for book-entry transfer on a timely
basis, must tender their Private Notes according to the guaranteed delivery
procedures set forth in the Prospectus. Pursuant to such procedures: (i) such
tender must be made by or through a firm which is a member of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or a trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution");
(ii) prior to the Expiration Date, the Exchange Agent must have received from
the Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the Holder of the Private Notes, the registration
number(s) of such Private Notes and the principal amount of Private Notes
tendered, stating that the tender is being made thereby and guaranteeing that,
within three (3) New York Stock Exchange, Inc. ("NYSE") trading days after the
Expiration Date, either (x) this Letter of Transmittal (or facsimile hereof)
together with the Private Notes (or a Book-Entry Confirmation) in proper form
for transfer will be deposited by the Eligible Institution with the Exchange
Agent or (y) an Agent's Message will be properly transmitted to the Exchange
Agent; and (iii) this properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificates for all physically tendered
shares of Private Notes, in proper form for transfer, or Book-Entry
Confirmation, as the case may be, and all other documents required by this
Letter or a properly transmitted Agent's Message, are received by the Exchange
Agent within three (3) NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
Any Holder of Private Notes who wishes to tender Private Notes pursuant to
the guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m., New York
City time, on the Expiration Date. Upon request of the Exchange Agent, a Notice
of Guaranteed Delivery will be sent to Holders who wish to tender their Private
Notes according to the guaranteed delivery procedures set forth above.
See "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus.
3. Tender by Holder. Only a Holder of Private Notes may tender such Private
Notes in the Exchange Offer. Any beneficial Holder of Private Notes who is not
the registered Holder and who wishes to tender should arrange with the
registered Holder to execute and deliver this Letter of Transmittal on his
behalf or must, prior to completing and executing this Letter of Transmittal and
delivering his Private Notes, either make appropriate arrangements to register
ownership of the Private Notes in such Holder's name or obtain a properly
completed bond power from the registered Holder.
4. Partial Tenders. Tenders of Private Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Private Notes is tendered, the tendering Holder should fill in the principal
amount tendered in the third column of the boxes entitled "Description of 2002
Private Notes Tendered" and "Description of 2007 Private Notes Tendered" above.
The entire principal amount of Private
<PAGE> 12
Notes delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated. If the entire principal amount of all Private Notes
is not tendered, then Private Notes for the principal amount of Private Notes
not tendered and Exchange Notes issued in exchange for any Private Notes
accepted will be sent to the Holder at his or her registered address, unless a
different address is provided in the appropriate box on this Letter of
Transmittal, promptly after the Private Notes are accepted for exchange.
5. Signatures on this Letter of Transmittal; Bond Powers and Endorsements;
Medallion Guarantee of Signatures. If this Letter of Transmittal (or facsimile
hereof) is signed by the record Holder(s) of the Private Notes tendered hereby,
the signature must correspond with the name(s) as written on the face of the
Private Notes without alteration, enlargement or any change whatsoever. If this
Letter of Transmittal is signed by a participant in the Book-Entry Transfer
Facility, the signature must correspond with the name as it appears on the
security position listing as the Holder of the Private Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Private Notes listed and tendered hereby and the
Exchange Notes issued in exchange therefor is to be issued (or any untendered
principal amount of Private Notes is to be reissued) to the registered Holder,
the said Holder need not and should not endorse any tendered Private Notes, nor
provide a separate bond power. In any other case, such Holder must either
properly endorse the Private Notes tendered or transmit a properly completed
separate bond power with this Letter of Transmittal, with the signatures on the
endorsement or bond power guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder or Holders of any Private Notes listed, such
Private Notes must be endorsed or accompanied by appropriate bond powers, in
each case signed as the name of the registered Holder or Holders appears on the
Private Notes.
If this Letter of Transmittal (or facsimile hereof) or any Private Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Operating Partnership, evidence satisfactory to the
Operating Partnership of their authority so to act must be submitted with this
Letter of Transmittal.
Endorsements on Private Notes or signatures on bond powers required by this
Instruction 5 must be guaranteed by an Eligible Institution.
No signature guarantee is required if (i) this Letter of Transmittal is
signed by the registered holder(s) of the Private Notes tendered herewith (or by
a participant in the Book-Entry Transfer Facility whose name appears on a
security position listing as the owner of the tendered Private Notes) and the
issuance of Exchange Notes (and any Private Notes not tendered or not accepted)
are to be issued directly to such registered holder(s) (or, if signed by a
participant in the Book-Entry Transfer Facility, any Exchange Notes or Private
Notes not tendered or not accepted are to be deposited to such participant's
account at such Book-Entry Transfer Facility) and neither the box entitled
"Special Delivery Instructions" nor the box entitled "Special Registration
Instructions" has been completed, or (ii) such Private Notes are tendered for
the account of an Eligible Institution. In all other cases, all signatures on
this Letter of Transmittal must be guaranteed by an Eligible Institution.
6. Special Registration and Delivery Instructions. Tendering holders should
indicate, in the applicable box or boxes, the name and address (or account at
the Book-Entry Transfer Facility) to which Exchange Notes or substitute Private
Notes for principal amounts not tendered or not accepted for exchange are to be
issued or sent, if different from the name and address of the person signing
this Letter of Transmittal. In the case of issuance in a different name, the
taxpayer identification or social security number of the person named must also
be indicated.
7. Transfer Taxes. The Operating Partnership will pay all transfer taxes,
if any, applicable to the exchange of Private Notes pursuant to the Exchange
Offer. If, however, Exchange Notes or Private Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered Holder
of the Private Notes tendered hereby, or if
<PAGE> 13
tendered Private Notes are registered in the name of any person other than the
person signing this Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Private Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered Holder or any other persons) will be payable by the tendering Holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with this Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering Holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE PRIVATE NOTES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. Validity of Tenders. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance of tendered Private Notes will be
determined by the Operating Partnership, in its sole discretion, which
determination will be final and binding. The Operating Partnership reserves the
right to reject any and all Private Notes not validly tendered or any Private
Notes the Operating Partnership's acceptance of which would, in the opinion of
the Operating Partnership or its counsel, be unlawful. The Operating Partnership
also reserves the right to waive any conditions of the Exchange Offer or defects
or irregularities in tenders with respect to particular Private Notes. The
interpretation of the terms and conditions of the Exchange Offer (includes this
Letter of Transmittal and the instructions hereto) by the Operating Partnership
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Private Notes must be cured within
such time as the Operating Partnership shall determine. Although the Operating
Partnership intends to notify holders of defects or irregularities with respect
to tenders of Private Notes, none of the Operating Partnership, the Exchange
Agent or any other person shall incur any liability for failure to give such
notification. Tenders of Private Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived.
9. Waiver of Conditions. The Operating Partnership reserves the absolute
right to waive, in whole or part, any of the conditions to the Exchange Offer
set forth in the Prospectus.
10. No Conditional Tender. No alternative, conditional, irregular or
contingent tender of Private Notes on transmittal of this Letter of Transmittal
will be accepted.
11. Mutilated, Lost, Stolen or Destroyed Private Notes. Any Holder whose
Private Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated above for further instructions.
12. Requests for Assistance or Additional Copies. Requests for assistance
or for additional copies of the Prospectus or this Letter of Transmittal may be
directed to the Exchange Agent at the address or telephone number set forth on
the cover page of this Letter of Transmittal. Holders may also contact their
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
13. Acceptance of Tendered Private Notes and Issuance of Exchange Notes;
Return of Private Notes. Subject to the terms and conditions of the Exchange
Offer, the Operating Partnership will accept for exchange all validly tendered
Private Notes as soon as practicable after the Exchange Date and will issue
Exchange Notes therefor as soon as practicable thereafter. For purposes of the
Exchange Offer, the Operating Partnership shall be deemed to have accepted
tendered Private Notes when, as and if the Operating Partnership has given
written or oral notice thereof to the Exchange Agent. If any tendered Private
Notes are not exchanged pursuant to the Exchange Offer for any reason, such
unexchanged Private Notes will be returned, without expense, to the undersigned
at the address shown above (or credited to the undersigned's account at the
Book-Entry Transfer Facility designated above) or at a different address as may
be indicated under the box entitled "Special Delivery Instructions."
<PAGE> 14
14. Withdrawal. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer -- Withdrawal of Tenders."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF
(TOGETHER WITH THE PRIVATE NOTES WHICH MUST BE DELIVERED BY BOOK-ENTRY TRANSFER
OR IN ORIGINAL HARD COPY FORM) OR THE NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF 6 5/8% NOTES DUE 2002 AND 7 1/8% NOTES DUE 2007
IN EXCHANGE FOR
6 5/8% NOTES DUE 2002 AND 7 1/8% NOTES DUE 2007
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
This form or one substantially equivalent hereto must be used by a holder
to accept the Exchange Offer of Crescent Real Estate Equities Limited
Partnership (the "Operating Partnership") and to tender 6 5/8% Notes due 2002
(the "2002 Private Notes") or 7 1/8% Notes due 2007 (the "2007 Private Notes"
and, together with the 2002 Private Notes, the "Private Notes") to the Exchange
Agent pursuant to the guaranteed delivery procedures described in "The Exchange
Offer -- Guaranteed Delivery Procedures" of the Operating Partnership's
Prospectus, dated , 1998 (the "Prospectus") and in Instruction 2 to the
related Letter of Transmittal. Any holder who wishes to tender Private Notes
pursuant to such guaranteed delivery procedures must ensure that the Exchange
Agent receives this Notice of Guaranteed Delivery prior to the Expiration Date
(as defined below) of the Exchange Offer. Capitalized terms used but not defined
herein have the meanings ascribed to them in the Prospectus or the Letter of
Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). PRIVATE NOTES TENDERED
IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
STATE STREET BANK AND TRUST COMPANY OF MISSOURI, N.A.
<TABLE>
<S> <C>
By Mail: By Overnight Courier or by Hand:
State Street Bank and Trust Company State Street Bank and Trust Company
P.O. Box 778 Two International Place
Boston, Massachusetts 02102-0778 4th Floor
Attn: Corporate Trust Window Boston, Massachusetts 02110
Attn: Corporate Trust Window
</TABLE>
By Facsimile:
State Street Bank and Trust
Company of Missouri, N.A.
Facsimile: (617) 664-5232
Confirm by Telephone:
(617) 664-5590
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF
A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN
"ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
<PAGE> 2
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED ON THE LETTER
OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
Ladies and Gentlemen:
The undersigned hereby tenders to the Operating Partnership, upon the terms
and subject to the conditions set forth in the Prospectus and the related Letter
of Transmittal, receipt of which is hereby acknowledged, the principal amounts
of 2002 Private Notes and 2007 Private Notes set forth below pursuant to the
guaranteed delivery procedures set forth in the Prospectus and in Instruction 2
of the Letter of Transmittal.
The undersigned hereby tenders the 2002 Private Notes listed below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CERTIFICATE NUMBER(S) (IF
KNOWN) OF PRIVATE NOTES OR
ACCOUNT NUMBER AT AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
THE BOOK-ENTRY FACILITY AMOUNT REPRESENTED AMOUNT TENDERED
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
The undersigned hereby tenders the 2007 Private Notes listed below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CERTIFICATE NUMBER(S) (IF
KNOWN) OF PRIVATE NOTES OR
ACCOUNT NUMBER AT AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
THE BOOK-ENTRY FACILITY AMOUNT REPRESENTED AMOUNT TENDERED
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
PLEASE SIGN AND COMPLETE
Signatures of Registered Holder(s) or Authorized Signatory:
Date:
Address:
Name(s) of Registered Holder(s):
Area Code and Telephone No.:
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Private Notes or on a security
position listing as the owner of Private Notes, or by person(s) authorized to
become Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
Capacity:
Address(es):
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934,
guarantees deposit with the Exchange Agent of either (i) the Letter of
Transmittal (or facsimile thereof), together with the Private Notes tendered
hereby in proper form for transfer (or confirmation of the book-entry transfer
of such Private Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility described in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures" and in the Letter of Transmittal) and
any other required documents, or (ii) a properly transmitted Agent's Message as
described in the Prospectus under the caption "Exchange Offer -- Procedures For
Tendering," as the case may be, all by 5:00 p.m., New York City time, within
three New York Stock Exchange trading days following the Expiration Date.
Name of Firm:
(Authorized Signature)
Address:
(Include Zip Code)
Name:
Title:
(Please Print or Type)
Area Code and Telephone Number:
Date: , 19 ___
DO NOT SEND PRIVATE NOTES WITH THIS FORM. ACTUAL SURRENDER OF PRIVATE NOTES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
<PAGE> 5
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. The method
of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
holders may wish to consider using an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 2 of the
Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Private Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Private Notes without alteration, enlargement or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Private Notes, the signature must correspond with
the name shown on the security position listing as the owner of the Private
Notes.
If this Notice of Guaranteed Delivery is signed by a person other than
the registered holder(s) of any Private Notes listed or a participant of
the Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must
be accompanied by appropriate bond powers, signed as the name of the
registered holder(s) appears on the Private Notes or signed as the name of
the participant shown on the Book-Entry Transfer Facility's security
position listing.
If this Notice of Guaranteed Delivery is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing and submit with the
Letter of Transmittal evidence satisfactory to the Operating Partnership of
such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company or other
nominee for assistance concerning the Exchange Offer.
<PAGE> 1
EXHIBIT 99.3
LETTER TO BROKERS
FOR
TENDER OF 6 5/8% NOTES DUE 2002 AND 7 1/8% NOTES DUE 2007
IN EXCHANGE FOR
6 5/8% NOTES DUE 2002 AND 7 1/8% NOTES DUE 2007
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
PRIVATE NOTES TENDERED IN THE EXCHANGE OFFER MAY BE
WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
To Registered Holders and Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to the offer
by Crescent Real Estate Equities Limited Partnership (the "Operating
Partnership") to exchange the Operating Partnership's 6 5/8% Notes due 2002 (the
"2002 Exchange Notes") and 7 1/8% Notes due 2007 (the "2007 Exchange Notes" and,
together with the 2002 Exchange Notes, the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount of the Operating Partnership's issued and
outstanding 6 5/8% Notes due 2002 (the "2002 Private Notes") and 7 1/8% Notes
due 2007 (the "2007 Private Notes" and, together with the 2002 Private Notes,
the "Private Notes") upon the terms and subject to the conditions set forth in
the Operating Partnership's Prospectus, dated , 1998, and the related
Letter of Transmittal (which together constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus, dated , 1998;
2. Letter of Transmittal (together with accompanying Substitute Form
W-9 Guidelines);
3. Notice of Guaranteed Delivery; and
4. Letter which may be sent to your clients for whose account you hold
Private Notes in your name or in the name of your nominee, with
space provided for obtaining such client's instruction with regard
to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the Exchange
Offer will expire on the Expiration Date unless extended.
The Exchange Offer is not conditioned upon any minimum number of Private
Notes being tendered.
Pursuant to the Letter of Transmittal, each holder of Private Notes will
represent to the Operating Partnership that (i) the Exchange Notes acquired
pursuant to the Exchange Offer are being acquired in the ordinary course of
business of the person receiving such Exchange Notes, (ii) neither such holder
nor any such other person has an arrangement or understanding with any person to
participate in the distribution within the meaning of the Securities Act of such
Exchange Notes, (iii) neither such holder nor any such other person is engaged
in or intends to participate in the distribution of such Exchange Notes and (iv)
neither such holder nor any such other person is an "affiliate" of the Operating
Partnership within the meaning of Rule 405 under the Securities Act or, if such
holder is an "affiliate," that such holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
If such holder is a broker-dealer (whether or not it is also an "affiliate")
that will receive Exchange Notes for its own account in exchange for Private
Notes, it represents that such Private Notes were acquired as a result of
market-making
<PAGE> 2
activities or other trading activities, and it acknowledges that it will deliver
a prospectus meeting the requirements of the Securities Act in connection with
any resale of such Exchange Notes. By acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes, such holder is not deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
The enclosed Letter to Clients contains an authorization by the beneficial
owners of the Private Notes for you to make the foregoing representations.
The Operating Partnership will not pay any fee or commission to any broker
or dealer or to any other persons (other than the Exchange Agent) in connection
with the solicitation of tenders of Private Notes pursuant to the Exchange
Offer. The Operating Partnership will pay or cause to be paid any transfer taxes
payable on the transfer of Private Notes to it, except as otherwise provided in
Instruction 7 of the enclosed Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
STATE STREET BANK AND TRUST
COMPANY OF MISSOURI, N.A.
<PAGE> 1
EXHIBIT 99.4
LETTER TO CLIENTS
FOR
TENDER OF 6 5/8% NOTES DUE 2002 AND 7 1/8% NOTES DUE 2007
IN EXCHANGE FOR
6 5/8% NOTES DUE 2002 AND 7 1/8% NOTES DUE 2007
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
PRIVATE NOTES TENDERED IN THE EXCHANGE OFFER MAY BE
WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
To Our Clients:
We are enclosing herewith a Prospectus, dated , 1998, of
Crescent Real Estate Equities Limited Partnership (the "Operating Partnership")
and a related Letter of Transmittal (which together constitute the "Exchange
Offer") relating to the offer by the Operating Partnership to exchange the
Operating Partnership's 6 5/8% Notes due 2002 (the "2002 Exchange Notes") and
7 1/8% Notes due 2007 (the "2007 Exchange Notes" and, together with the 2002
Exchange Notes, the "Exchange Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), for a like principal
amount of the Operating Partnership's issued and outstanding 6 5/8% Notes due
2002 (the "2002 Private Notes") and 7 1/8% Notes due 2007 (the "2007 Private
Notes" and, together with the 2002 Private Notes, the "Private Notes"), upon the
terms and subject to the conditions set forth in the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum number of Private
Notes being tendered.
We are the holder of record of Private Notes held by us for your own
account. A tender of such Private Notes can be made only by us as the record
holder and pursuant to your instructions. The Letter of Transmittal is furnished
to you for your information only and cannot be used by you to tender Private
Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of the
Private Notes held by us for your account pursuant to the terms and conditions
of the Exchange Offer. We also request that you confirm that we may on your
behalf make the representations contained in the Letter of Transmittal.
Pursuant to the Letter of Transmittal, each holder of Private Notes will
represent to the Operating Partnership that (i) the Exchange Notes acquired
pursuant to the Exchange Offer are being acquired in the ordinary course of
business of the person receiving such Exchange Notes, (ii) neither such holder
nor any such other person has an arrangement or understanding with any person to
participate in the distribution within the meaning of the Securities Act of such
Exchange Notes, (iii) neither such holder nor any such other person is engaged
in or intends to participate in the distribution of such Exchange Notes and (iv)
neither such holder nor any such other person is an "affiliate" of the Operating
Partnership within the meaning of Rule 405 under the Securities Act or, if such
holder is an "affiliate," that such holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
If such holder is a broker-dealer (whether or not it is also an "affiliate")
that will receive Exchange Notes for its own account in exchange for Private
Notes, it represents that such Private Notes were acquired as a result of
market-making activities or other trading activities, and it acknowledges that
it will deliver a prospectus meeting the
<PAGE> 2
requirements of the Securities Act in connection with any resale of such
Exchange Notes. By acknowledging that it will deliver and by delivering a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes, such holder is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Very truly yours,
<PAGE> 1
EXHIBIT 99.5
INSTRUCTION TO REGISTERED HOLDER AND/OR BOOK
ENTRY TRANSFER PARTICIPANT FROM BENEFICIAL OWNER
FOR
TENDER OF 6 5/8% NOTES DUE 2002 AND 7 1/8% NOTES DUE 2007
IN EXCHANGE FOR
6 5/8% NOTES DUE 2002 AND 7 1/8% NOTES DUE 2007
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
PRIVATE NOTES TENDERED IN THE EXCHANGE OFFER MAY BE
WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
To Registered Holder and/or Participant
of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1998 (the "Prospectus") of Crescent Real Estate Equities Limited
Partnership (the "Operating Partnership"), and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), that together constitute the
Operating Partnership's offer (the "Exchange Offer") to exchange the Operating
Partnership's 6 5/8% Notes due 2002 (the "2002 Exchange Notes") and 7 1/8% Notes
due 2007 (the "2007 Exchange Notes" and, together with the 2002 Exchange Notes,
the "Exchange Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), for all of the Operating Partnership's
outstanding 6 5/8% Notes due 2002 (the "2002 Private Notes") and 7 1/8% Notes
due 2007 (the "2007 Private Notes" and, together with the 2002 Private Notes,
the "Private Notes"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Private Notes held by you for the account of
the undersigned.
The aggregate face amount of the Private Notes held by you for the account
of the undersigned is (FILL IN AMOUNTS):
$ ______ of the 2002 Private Notes.
$ ______ of the 2007 Private Notes.
With respect to the Exchange Offer, the undersigned hereby instructs you (CHECK
APPROPRIATE BOX):
[ ] To TENDER the following Private Notes held by you for the account of
the undersigned (INSERT PRINCIPAL AMOUNT OF PRIVATE NOTES TO BE
TENDERED (IF ANY)):
$ ______ of the 2002 Private Notes.
$ ______ of the 2007 Private Notes.
[ ] Not to TENDER any Private Notes held by you for the account of the
undersigned.
<PAGE> 2
If the undersigned instructs you to tender the Private Notes held by you
for the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representation and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including, but not limited to, the representations, that (i)
the Exchange Notes acquired pursuant to the Exchange Offer are being acquired in
the ordinary course of business of the person receiving such Exchange Notes,
(ii) neither the undersigned nor any such other person has an arrangement or
understanding with any person to participate in the distribution within the
meaning of the Securities Act of such Exchange Notes, (iii) neither the
undersigned nor any such other person is engaged in or intends to participate in
the distribution of such Exchange Notes and (iv) neither the undersigned nor any
such other person is an "affiliate" of the Operating Partnership within the
meaning of Rule 405 under the Securities Act or, if the undersigned is an
"affiliate," that the undersigned will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
If the undersigned is a broker-dealer (whether or not it is also an "affiliate")
that will receive Exchange Notes for its own account in exchange for Private
Notes, it represents that such Private Notes were acquired as a result of
market-making activities or other trading activities, and it acknowledges that
it will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. By acknowledging that it will
deliver and by delivering a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes, the
undersigned is not deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
SIGN HERE
Name of beneficial owner(s):
Signature(s):
Name(s) (please print):
Address:
Telephone Number:
Taxpayer Identification or Social Security Number:
Date:
