<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
CRESCENT OPERATING, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
CRESCENT OPERATING, INC.
306 WEST 7TH STREET, SUITE 1025
FORT WORTH, TEXAS 76102
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of Crescent
Operating, Inc. (the "Company") for 1998 will be held at The Crescent Court
Hotel, located at 400 Crescent Court, Crescent II Room, Dallas, Texas, on
Monday, June 8, 1998, at 1:00 p.m., Central Daylight Savings Time, for the
following purposes:
1. To elect two directors of the Company for terms expiring at the
annual meeting of shareholders of the Company for 2001, and until their
successors are elected and qualified;
2. To ratify the appointment by the Board of Directors of Ernst &
Young LLP as the Company's independent auditors for the fiscal year ending
December 31, 1998;
3. To approve the 1997 Management Stock Incentive Plan; and
4. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Only shareholders of record at the close of business on April 13, 1998
will be entitled to notice of, and to vote at, the annual meeting or any
adjournment or postponement thereof.
By order of the Board of Directors,
JEFFREY L. STEVENS
Secretary
Dated: May 8, 1998
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND DATE
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED.
<PAGE> 3
CRESCENT OPERATING, INC.
306 WEST 7TH STREET, SUITE 1025
FORT WORTH, TEXAS 76102
-------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 8, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Proposal No. 1 -- Election of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Information Concerning Directors and Executive Officers. . . . . . . . . . . . . . . . . . . . 4
Board of Directors -- Compensation and Committees. . . . . . . . . . . . . . . . . . . . . . . 7
Beneficial Ownership of Equity Securities of the Company . . . . . . . . . . . . . . . . . . . 8
Section 16(a) Beneficial Ownership Reporting Compliance. . . . . . . . . . . . . . . . . . . . 11
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Report of the Board of Directors on Executive Compensation . . . . . . . . . . . . . . . . . . 14
Shareholder Return Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Compensation Committee Interlocks and Insider Participation. . . . . . . . . . . . . . . . . . 17
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . 17
Proposal No. 2 -- Ratification of Appointment of Independent Auditors. . . . . . . . . . . . . 25
Proposal No. 3 -- Approval of Management Stock Incentive Plan . . . . . . . . . . . . . . . . 27
Shareholder Proposals at the Company's Annual Meeting of Shareholders to be Held
in 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
1997 Management Stock Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit A
</TABLE>
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<PAGE> 4
GENERAL INFORMATION
PROXY SOLICITATION
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Crescent Operating, Inc. (the "Company or
"Crescent Operating") for use at the annual meeting of shareholders of the
Company for 1998 (the "Annual Meeting"). The Annual Meeting will be held at
The Crescent Court Hotel, 400 Crescent Court, Crescent II Room, Dallas, Texas,
on June 8, 1998, at 1:00 p.m., Central Daylight Savings Time, for the purposes
set forth in the accompanying Notice of Annual Meeting.
On or about May 8, 1998, the Company first mailed this Proxy Statement
and the accompanying Notice of Meeting and form of proxy, together with its
Annual Report on Form 10-K for the year ended December 31, 1997, which includes
audited financial statements of the Company, to shareholders entitled to vote
at the Annual Meeting.
All costs of preparing, assembling and mailing proxy solicitation
materials will be borne by the Company. Employees of Petroleum Financial, Inc.
("PFI") may assist with the solicitation of proxies, which service they will
render on behalf of the Company for no additional compensation, under an
existing services agreement. The Company has made arrangements with brokerage
firms, banks, nominees and other fiduciaries to forward proxy solicitation
materials for shares held of record by them to the beneficial owners of such
shares and to obtain the proxies of such beneficial holders. The Company will
reimburse such persons for postage and reasonable clerical expenses incurred in
connection with forwarding such materials and obtaining proxies.
VOTING AND REVOCABILITY OF PROXIES
A proxy for use at the Annual Meeting and a return envelope are
enclosed. Shares of the Company's common stock, par value $0.01 per share (the
"Common Stock"), represented by a properly executed written proxy and delivered
pursuant to this solicitation, and not later revoked, will be voted at the
Annual Meeting in accordance with the instructions indicated in such proxy. If
no instructions are given, the proxy will be voted "FOR" each of the proposals
set forth in this Proxy Statement. If any other matter or business is properly
brought before the Annual Meeting or any adjournment thereof, the persons named
in the proxy are authorized to vote the proxy in accordance with their judgment
and discretion. The Board of Directors is not aware of any such matter of
business to be presented for consideration.
A shareholder who has given a proxy may revoke it at any time prior to
its exercise at the Annual Meeting by any one of the following three actions:
(i) giving written notice of revocation to the Secretary of the Company; (ii)
properly submitting to the Company a duly executed proxy bearing a later date;
or (iii) voting in person at the Annual Meeting. All written notices of
revocation should be addressed as follows: Crescent Operating, Inc., 306 West
7th Street, Suite 1025,Fort Worth, Texas 76102, Attention: Corporate Secretary.
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<PAGE> 5
VOTING PROCEDURE
All holders of record of the Company's Common Stock at the close of
business on April 13, 1998 are entitled to notice of and to vote at the Annual
Meeting and at any and all adjournments thereof. Each holder of Common Stock
is entitled to one vote at the Annual Meeting for each share held by such
shareholder. As of April 13, 1998, there were 11,214,139 shares of Common
Stock outstanding.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock entitled to vote is necessary to constitute
a quorum for the transaction of business at the Annual Meeting. Votes cast in
person or by proxy, abstentions and broker non-votes (i.e., shares held by a
broker or nominee which are represented at the Annual Meeting, but with respect
to which such broker or nominee is not empowered to vote on a particular
proposal) will be tabulated by the inspectors of election and will be
considered in the determination of whether a quorum is present at the Annual
Meeting. The vote required to approve each of the proposals at the Annual
Meeting is the affirmative vote of a majority of the votes cast with respect
thereto. Abstentions and broker non-votes with respect to any proposal will
not constitute votes cast and, as a result, will have no effect on the outcome
of the vote on such proposal.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors of the Company is divided into three classes,
with approximately one-third of the total number of directors elected by the
shareholders annually.
The terms of Gerald W. Haddock and Carl F. Thorne will expire at the
Annual Meeting. Both Messrs. Haddock and Thorne have been nominated to stand
for reelection at the Annual Meeting to hold office until the annual meeting of
shareholders of the Company to be held in 2001 and each of their successors is
elected and qualified.
Approval of the nominees requires the affirmative vote of a majority of
the votes cast for the election of directors at the Annual Meeting. Proxies
received by the Board of Directors will be voted "FOR" each of the nominees,
unless shareholders specify a contrary choice in their proxy. Should either of
the nominees become unable to serve for any reason, the Board of Directors may
designate one or more substitute nominees. In such event, the persons named in
the enclosed proxy will vote for the election of such substitute nominee or
nominees, or may reduce the number of directors on the Board of Directors. It
is not anticipated that any nominee will be unable or unwilling to serve as a
director of the Company.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" THE ELECTION OF GERALD W. HADDOCK AND CARL F. THORNE TO
SERVE AS DIRECTORS TO HOLD OFFICE UNTIL THE ANNUAL MEETING OF SHAREHOLDERS OF
THE COMPANY TO BE HELD IN 2001, AND UNTIL THEIR SUCCESSORS ARE ELECTED AND
QUALIFIED.
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<PAGE> 6
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
Below are summaries of the backgrounds, business experiences and
descriptions of the principal occupations of the director nominees, incumbent
directors and executive officers of the Company.
NOMINEES FOR ELECTION TO TERMS EXPIRING 2001
Gerald W. Haddock age 50
Gerald W. Haddock has served as President and Chief Executive Officer
and a director of the Company since its inception in April 1997. Since
December 19, 1996, Mr. Haddock has served as President and Chief Executive
Officer and a trust manager of Crescent Real Estate Equities Company ("Crescent
Equities"). From 1994 through December 18, 1996, Mr. Haddock served as
President and Chief Operating Officer and a trust manager of Crescent Equities.
Prior to joining Crescent Equities in 1994, Mr. Haddock was in the private
practice of law, pursuant to which, among other things, he served as primary
outside legal counsel to, and investor with, Richard E. Rainwater and
Rainwater, Inc., a company wholly owned by Mr. Rainwater. Mr. Haddock was vice
president of Rainwater, Inc. from 1990 to 1994, and was the lead transactional
attorney for Mr. Rainwater from 1986 to 1994. 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 ("ENSCO"), an oil field service and offshore drilling company, of
which he was one of the three founding directors. Mr. Haddock has been
nominated to serve on the board of directors of Automotive Realty Trust of
America, a car dealership real estate investment trust ("REIT"). 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.
Carl F. Thorne age 57
Carl F. Thorne has been a director of the Company since June 1997. Mr.
Thorne has been a director of ENSCO since December 1986. He was elected
President and Chief Executive Officer of ENSCO in May 1987 and was elected
Chairman of the Board of Directors of ENSCO in November 1987. Mr. Thorne
holds a Bachelor of Science (B.S.) degree in Petroleum Engineering from the
University of Texas and a Juris Doctor (J.D.) degree from Baylor University
College of Law.
INCUMBENT DIRECTORS - TERMS EXPIRING 2000
Richard E. Rainwater age 53
Richard E. Rainwater has served as the Chairman of the Board of
Directors of the Company since June 1997. Since 1986, Mr. Rainwater has been
an independent investor. From 1970 to 1986, he served as the chief investment
advisor to the Bass family, whose overall wealth
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<PAGE> 7
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 in 1986. Additionally, in 1987, Mr. Rainwater
co-founded Columbia Hospital Corporation and in 1989, Mr. Rainwater
participated in a management-led buyout of HCA-Hospital Corporation of America.
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 of America that
created Columbia/HCA Healthcare Corporation. Mr. Rainwater founded Crescent
Equities in 1994 and has served as the Chairman of the Board of Trust Managers
of Crescent Equities since its inception. Mr. Rainwater serves as a director
of Pioneer National Resources, one of the largest oil and gas companies in the
United States. In 1996, Mr. Rainwater led a recapitalization of Mesa, Inc.
(predecessor of Pioneer Natural Resources), and a partnership controlled by Mr.
Rainwater became a major 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.
Anthony M. Frank age 66
Anthony M. Frank has served as a director of the Company since June
1997. Mr. Frank serves as chairman of Belvedere Capital Partners, general
partner of the California Community Financial Institutions Fund LP. From 1988
to 1992, Mr. Frank served as Postmaster General of the United States. Prior to
that time, Mr. Frank served as chairman and chief executive officer of First
Nationwide Bank, chairman of the Federal Home Loan Bank of San Francisco,
chairman of the California Housing Finance Agency and chairman of the Federal
Home Loan Mortgage Corporation Advisory Board. From 1992 to 1993, Mr. Frank
served as the founding chairman of Independent Bancorp of Arizona. Mr. Frank
currently serves as a trust manager of Crescent Equities. Mr. Frank also
serves as a director of Irvine Apartment Communities, a large California based
apartment REIT; Charles Schwab & Co., one of the nation's largest discount
brokerages; Temple Inland, Inc., a manufacturer of paper and timber products;
Bedford Property Investors, Inc., an office and commercial property REIT
investing primarily on the West Coast; General American Investors Company,
Inc., a closed-end investment company; Financial Security Assurance, a company
providing credit enhancement for municipal bond issuers; and Cotelligent, Inc.,
a provider of temporary office support services. Mr. Frank received a Bachelor
of Arts (B.A.) degree from Dartmouth College and a Master of Business
Administration (M.B.A.) degree from the Amos Tuck School of Business at
Dartmouth.
Jeffrey L. Stevens age 49
Jeffrey L. Stevens has served as Executive Vice President and Chief
Operating Officer of the Company since February 1998. Since May 1997, Mr.
Stevens has served as the Company's Treasurer and Secretary. From May 1997 to
February 1998, Mr. Stevens served as Chief Financial Officer of the Company.
Mr. Stevens became a director of the Company in June 1997. Mr. Stevens is the
founder, President and Chief Executive Officer of PFI, a firm which provides
accounting, financial and management services to business enterprises. Mr.
Stevens has held this position since the inception of PFI in 1991. For over 10
years, Mr. Stevens was a director of
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<PAGE> 8
Amerac Energy Corporation, an oil and gas acquisition, production and
development company ("Amerac"), and has held various positions with Amerac
since 1974. Mr. Stevens' last position with Amerac was Senior Vice President
and Chief Financial Officer and Secretary, which he held until January 1997.
Mr. Stevens is also a member of the board of directors of Charter Behavioral
Health Systems, LLC ("CBHS"), a limited liability company which operates
approximately 90 behavioral health care facilities and is 50% owned by the
Company. Mr. Stevens holds a Bachelor of Business Administration (B.B.A.) from
East Texas State University. Mr. Stevens is a Certified Public Accountant.
INCUMBENT DIRECTORS -- TERMS EXPIRING 1999
John C. Goff age 42
John C. Goff has served as Vice Chairman of the Board of Directors of the
Company since June 1997. From 1987 to 1994, Mr. Goff served as a senior
investment advisor to, and investor with, Mr. Rainwater, as well as a vice
president of Rainwater, Inc. 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 boards of directors of The Staubach Company, a private company, and Gainsco,
Inc, a publicly traded property and casualty insurance 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. From 1994 to 1996, Mr. Goff
served as Chief Executive Officer and a trust manager of Crescent Equities.
Since December 19, 1996, Mr. Goff has served as Vice Chairman of the Board of
Trust Managers of Crescent Equities. Mr. Goff also serves as Chairman of the
Board of CBHS. Mr. Goff is a graduate of the University of Texas at Austin and
is a Certified Public Accountant.
Paul E. Rowsey, III age 43
Paul E. Rowsey, III has served as a director of the Company since June
1997. Mr. Rowsey is president and a member of the board of directors of
Rosewood Property Company, a commercial real estate development and investment
company, a position he has held for the past eight years. Mr. Rowsey is a
trust manager of Crescent Equities. Mr. Rowsey began his career in 1980 as an
attorney specializing in commercial real estate. Mr. Rowsey holds a Bachelor
of Arts (B.A.) degree from Duke University and a Juris Doctor (J.D.) degree
from Southern Methodist University School of Law.
EXECUTIVE OFFICERS WHO ARE NOT ALSO DIRECTORS
Richard P. Knight age 29
Richard P. Knight has served as Chief Financial Officer of the Company
since February 1998. From September 1997 to February 1998, Mr. Knight served as
the Company's Controller. Mr. Knight has served in these capacities pursuant to
a services agreement between the Company and PFI. Mr. Knight has been employed
with PFI since September 1997. Prior to joining PFI, Mr. Knight was an audit
manager with the accounting firm of
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Coopers & Lybrand LLP, from July 1995 to September 1997, and was an auditor
with Coopers & Lybrand LLP from July 1990 to July 1995. Mr. Knight holds a
Bachelor of Business Administration (B.B.A.) degree in accounting from the
University of Oklahoma. Mr. Knight is a Certified Public Accountant.
Sanjay Varma age 44
Sanjay Varma has served as a Vice President of the Company and President
of the Company's Woodlands and Hospitality Divisions since October 1997. Mr.
Varma is a Vice President and an owner of The Varma Group Inc. ("The Varma
Group"), a management services company founded in June 1996. Mr. Varma served
as Executive Vice President of the Walt Disney Company from November 1987 to
January 1994, where he was involved in the development and operation of Disney
resorts in Paris. From February 1994 to April 1994, Mr. Varma was a managing
director of Sun International (a company engaged in resort development) in
Oxfordshire, England, and, from April 1994 to April 1995, Mr. Varma served as
an investment advisor to Kirkland Investments, a privately-held investment
partnership. In June 1995, Mr. Varma became president and majority owner of
RoseStar Management LLC, a lessee of hotel and resort properties, in which
capacity he served until August 1997. Since April 1995, Mr. Varma has served
as an advisor to Crescent Equities regarding business acquisitions and asset
management. Mr. Varma holds a Bachelor of Science (B.S.) degree from Jean
Drouant in Paris.
BOARD OF DIRECTORS -- COMPENSATION AND COMMITTEES
General. During 1997, the Board of Directors held one meeting, which
was attended by all of the directors. Each director who was a member of one or
more committees that held meetings during 1997 attended at least 75% of the
meetings of the committee(s) on which he served.
Each director who is not also an officer of the Company (an "outside
director") receives an annual fee of $7,500. Each outside director also
receives a grant of options to purchase 1,400 shares of Common Stock upon his
election as a director, and receives a grant of options to purchase 1,400
shares of Common Stock annually. Directors who are also officers of the
Company receive no annual fee for their service as directors. All directors,
however, are reimbursed for expenses incurred in attending meetings. On
October 15, 1997, both members of the Intercompany Evaluation Committee
(described below) received a one-time award under the Amended Plan of 5,000
restricted shares of Common Stock.
The Executive Committee, the Audit Committee, the Compensation Committee
and the Intercompany Evaluation Committee are the standing committees of the
Board of Directors. The Board of Directors has no standing nominating
committee. The Audit and the Compensation Committees are composed entirely of
outside directors. The Intercompany Evaluation Committee is composed of
directors who are not officers or directors of Crescent Equities. The Board of
Directors and each of the committees of the Board have access to outside
consultants and experts as needed in connection with their deliberations.
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Executive Committee. The Executive Committee, which was formed in
October 1997, generally may exercise the powers of the Board of Directors
(including any committee thereof). The Executive Committee, which consists of
Gerald W. Haddock and Jeffrey L. Stevens, held four meetings in 1997.
Audit Committee. The function of the Audit Committee is to recommend
the engagement of independent public accountants to the Board of Directors,
review with the Company's independent public accountants the plans and results
of audit engagements, approve professional services provided by the independent
public accountants, review the independence of the public accountants, consider
the range of fees for professional services provided by the independent public
accountants and review the adequacy of the Company's internal accounting
controls. The Audit Committee, which consists of Anthony M. Frank and Carl F.
Thorne, held no meetings in 1997.
Compensation Committee. The function of the Compensation Committee is to
determine compensation for the Company's executive officers and to administer
the stock incentive plans and other compensation plans adopted by the Company.
The Compensation Committee, which consists of Carl F. Thorne and Paul E.
Rowsey, III, held no meetings in 1997.
Intercompany Evaluation Committee. The Intercompany Evaluation Committee
is responsible for reviewing and approving business and investment
opportunities offered or made available to the Company by Crescent Equities to
determine whether such transactions are fair to, and in the best interests of,
the Company. The Intercompany Evaluation Committee, which consists of Jeffrey
L. Stevens and Carl F. Thorne, held three meetings in 1997.
BENEFICIAL OWNERSHIP OF EQUITY SECURITIES OF THE COMPANY
The following table sets forth, as of April 13, 1998 (unless otherwise
indicated), information regarding beneficial ownership of shares of Common
Stock by (i) each director of the Company, (ii) each executive officer of the
Company, (iii) each beneficial owner of more than 5% of the Company's Common
Stock, and (iv) all directors and executive officers of the Company as a group.
Unless otherwise noted below, each person or entity named in the table has sole
voting power and sole investment power with respect to each of the shares
beneficially owned by such person or entity.
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BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER PERCENT OF
NUMBER OF SHARES OUTSTANDING SHARES
<S> <C> <C>
Richard E. Rainwater(1).....................1,387,880(3) 12.4%
777 Main Street, Suite 2700
Fort Worth, Texas 76102
John C. Goff(1)............................. 249,033(4) 2.2%
777 Main Street, Suite 2700
Fort Worth, Texas 76102
Gerald W. Haddock(1)(2)..................... 190,789(5) 1.7%
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Anthony M. Frank(1)......................... 2,820(6) *
101 California Street, Suite 2050
San Francisco, California 94111
Paul E. Rowsey, III(1)...................... 4,120(7) *
500 Crescent Court, Suite 300
Dallas, Texas 75202
Carl F. Thorne(1)........................... 6,080(8) *
1445 Ross Avenue, Suite 2700
Dallas, Texas 75201
Jeffrey L. Stevens(1)....................... 5,280(9) *
306 West 7th Street, Suite 1025
Fort Worth, Texas 76102
Richard P. Knight(2)........................ 100 *
306 West 7th Street, Suite 1025
Fort Worth, Texas 76102
Sanjay Varma(2)............................. 253 *
777 Main Street, Suite 2680
Fort Worth, Texas 76102
Gotham Partners, L.P........................ 1,082,416(10) 9.8%
Gotham Partners II, L.P.
Gotham International Advisors, L.L.C.
110 East 42nd Street, 18th Floor
New York, New York 10017
Cohen & Steers Capital Management, Inc...... 954,500(11) 8.5%
757 Third Avenue
New York, New York 10017
Dawson Samberg Capital Management, Inc...... 618,070(12) 5.5%
354 Pequot Avenue
Southport, Connecticut 06490
All Directors and Executive Officers........1,846,355 16.4%
as a Group (nine persons)
</TABLE>
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* Less than 1%.
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<PAGE> 12
(1) Indicates a director of the Company.
(2) Indicates an executive officer of the Company.
(3) Includes 132,657 shares owned by trusts established for the benefit of Mr.
Rainwater's children, and 45,178 shares owned by Ms. Darla D. Moore, who is Mr.
Rainwater's spouse. Mr. Rainwater disclaims beneficial ownership with respect
to all shares owned by the trust and his spouse. In addition, includes 854,146
shares owned indirectly by Mr. Rainwater, including 6,184 shares owned by
Rainwater, Inc., a Texas corporation, of which Mr. Rainwater is the sole
director and owner; (ii) 1,007 shares owned by Tower Holdings, Inc., a Texas
corporation, of which Mr. Rainwater is the sole director and owner; (iii)
3,329 shares owned by 777 Main Street Corporation, a Texas corporation, of
which Mr. Rainwater is the sole director and owner; (iv) 242,583 shares owned
by Rainwater Investor Partners, Ltd., a Texas limited partnership, of which
Rainwater, Inc. is the sole general partner; (v) 55,542 shares owned by
Rainwater RainAm Investors, L.P., a Texas limited partnership, of which
Rainwater, Inc. is the sole general partner; (vi) 326,099 shares owned by
Office Towers LLC, a Nevada limited liability company, of which Mr. Rainwater
and Rainwater, Inc. own an aggregate 100% interest; and (vii) 219,402 shares
owned by the Richard E. Rainwater 1995 Charitable Remainder Unitrust No. 1, of
which Mr. Rainwater is the sole trustee.
(4) Includes 15,256 shares owned by Goff Family, L.P., a Delaware limited
partnership, of which Mr. Goff is a general partner. Mr. Goff disclaims
beneficial ownership with respect to all shares owned by Goff Family, L.P. in
excess of his pecuniary interest in the partnership.
(5) Includes 10,170 shares owned by Haddock Family, L.P., a Delaware limited
partnership, of which Mr. Haddock is a general partner. Mr. Haddock disclaims
beneficial ownership with respect to all shares owned by Haddock Family, L.P.
in excess of his pecuniary interest in the partnership. Amount also includes
136,676 shares underlying stock options issued pursuant to the Company's 1997
Amended Stock Incentive Plan (the "Amended Plan") that have vested.
(6) Includes 1,120 shares underlying stock options issued pursuant to the
Amended Plan that have vested.
(7) Includes 4,002 shares underlying stock options issued pursuant to the
Amended Plan that have vested.
(8) Includes 5,000 restricted shares issued pursuant to the Amended Plan.
Such shares will vest (i.e., the restrictions on the shares will lapse) in
equal amounts over the five-year period commencing on October 15, 1997, the
date of grant. Mr. Thorne has sole voting power with respect to such
restricted shares. Also includes 280 shares underlying stock options issued
pursuant to the Amended Plan that have vested.
(9) Includes 5,000 restricted shares issued pursuant to the Amended Plan.
Such shares will vest (i.e., the restrictions on the shares will lapse) in
equal amounts over the five-year period commencing on October 15, 1997, the
date of grant. Mr. Stevens has sole voting power with respect to such
restricted shares. Also includes 280 shares underlying stock options issued
pursuant to the Amended Plan that have vested.
(10) Based solely on Amendment No. 1 to the Schedule 13D, dated January 28,
1998, filed by Gotham Partners, L.P., a New York limited partnership
("Gotham"), Gotham Partners II, L.P. a New York limited partnership ("Gotham
II") and Gotham International Advisors, L.L.C., a Delaware limited liability
company ("Gotham Advisors"), it is the Company's understanding that (i) Gotham
beneficially owns 919,837 of the reported shares and has sole voting power and
sole dispositive power with respect to such 919,837 shares; (ii) Gotham II
beneficially owns 9,992 of the reported shares and has sole voting power and
sole dispositive power with respect to such 9,992 shares; and (iii) Gotham
Partners International Ltd., a Cayman exempted company ("Gotham
International"), beneficially owns 152,587 of the reported shares and, pursuant
to an investment management agreement between Gotham International and Gotham
Advisors, Gotham Advisors has sole voting power and sole dispositive power with
respect to such 152,587 shares.
(11) Based solely on the Schedule 13G, dated February 6, 1998, filed by Cohen
& Steers Capital Management, Inc. ("Cohen"), it is the Company's understanding
that (i) Cohen is a registered investment advisor; and (ii) Cohen has sole
dispositive power with respect to all of the reported shares and sole voting
power with respect to 790,700 of the reported shares.
(12) Based solely on the Schedule 13G, dated February 12, 1998, filed by
Dawson Samberg Capital Management, Inc. ("Dawson"), it is the Company's
understanding that (i) Dawson is an investment advisor; and (ii) Dawson has
sole voting power and sole dispositive power with respect to all of the
reported shares.
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<PAGE> 13
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and related rules of the Securities and Exchange Commission
(the "SEC) require the Company's directors and executive officers and persons
who own more than 10% of a registered class of the Company's equity securities
to file with the SEC and the Nasdaq Stock Market initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Related rules of the SEC also require such persons to furnish
the Company with copies of all reports filed pursuant to Section 16(a). Based
solely on the Company's review of the copies of the reports received or written
representations from certain reporting persons, the Company believes that all
Section 16(a) filing requirements applicable to its directors, officers and
shareholders owning more than 10% of the Common Stock were complied with during
the fiscal year ended December 31, 1997.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid to the executive
officers of the Company during fiscal year 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
LONG-TERM COMPENSATION
AWARDS
- --------------------------------------------------------------------------------
RESTRICTED SECURITIES
NAME AND STOCK UNDERLYING
PRINCIPAL POSITION YEAR AWARD(S) OPTIONS
($) (#)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Gerald W. Haddock 1997 0 265,247(1)
President and Chief Executive
Officer
Jeffrey L. Stevens 1997 $131,250(2) 1,400(3)
Executive Vice President and
Chief Operating Officer
Sanjay Varma 1997 0 20,000(1)
Vice President
- --------------------------------------------------------------------------------
</TABLE>
(1) Options to purchase such shares were granted under the Amended Plan in
connection with the formation of the Company.
(2) An aggregate of 5,000 restricted shares were granted under the Amended
Plan in connection with Mr. Stevens' agreement to serve on the Company's
Intercompany Evaluation Committee. The value of such shares on the last
trading day of 1997 (as measured by the Nasdaq National Market closing bid
price of $24.50 on December 31, 1997) was $122,500. Such shares will vest
(i.e., the restrictions on the shares will lapse) in equal amounts over the
five-year period commencing on October 15, 1997, the date of grant. Dividends,
if declared by the Board of Directors of the Company, will be paid on such
shares.
(3) One-time option to purchase such shares was granted to Mr. Stevens under
the Amended Plan in connection with his agreement to serve as a director of the
Company.
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<PAGE> 14
Pursuant to a services agreement (the "PFI Services Agreement") between the
Company and PFI, which is wholly owned by Jeffrey L. Stevens, PFI provides
certain services to the Company. Mr. Stevens, who is the Executive Vice
President and Chief Operating Officer and a director of the Company, is also
the chief executive officer and a director of PFI. Mr. Stevens receives
compensation from PFI in consideration of work performed by him for the
Company. For a more detailed description of the Company's relationship with
PFI, see "Certain Relationships and Related Transactions -- Transactions with
Crescent and Certain Officers of Crescent and the Company," below.
The Company, through its subsidiaries, has asset management agreements (the
"Varma Asset Management Agreements") with The Varma Group. Sanjay Varma, a
Vice President of the Company, and his wife are the principals of The Varma
Group. In addition, Mr. Varma is Vice President of The Varma Group and
receives compensation from such company in consideration of work performed by
him for the Company. For a more detailed description of the Company's
relationship with The Varma Group, see "Certain Relationships and Related
Transactions -- Transactions with Crescent and Certain Officers of Crescent and
the Company," below.
STOCK OPTION GRANTS
The following table sets forth information concerning all stock options
granted to the executive officers of the Company for fiscal year 1997.
OPTION GRANTS FOR THE YEAR ENDED 12/31/97
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
- ----------------------------------------------------------------------------------------------------------
PERCENT
OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
NAME OPTIONS IN FISCAL PRICE EXPIRATION
GRANTED YEAR ($/SH) DATE 5% ($) 10% ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gerald W. Haddock 40,247 4.50% 0.99 4/27/04 $16,220 $ 37,800
25,000 2.80 0.99 4/27/04 10,075 23,480
200,000 22.38 0.99 7/16/06 80,600 187,840
- ----------------------------------------------------------------------------------------------------------
Jeffrey L. Stevens 1,400 .16 0.99 6/11/07 872 2,209
- ----------------------------------------------------------------------------------------------------------
Sanjay Varma 20,000 2.24 0.99 3/13/06 10,916 26,888
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE> 15
OPTION EXERCISES
The following table sets forth information concerning the exercise of stock
options by the executive officers during fiscal year 1997, and the number and
value of unexercised stock options held by the Company's executive officers at
December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES YEAR-END (#) YEAR-END ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE(2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gerald W. Haddock 0 N/A 136,676/128,571 $3,213,252/
$3,022,704
- ----------------------------------------------------------------------------------------------------
Jeffrey L. Stevens 0 N/A 0/1,400 0/$32,914
- ----------------------------------------------------------------------------------------------------
Sanjay Varma 20,000 $325,200 0 0
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the market value of the Common Stock on the date of exercise (as
measured by the Nasdaq National Market closing bid price), minus the option's
exercise price.
(2) Based on the market value of the Common Stock on the last trading day of
1997 (as measured by the Nasdaq National Market closing bid price of $24.50 on
December 31, 1997), minus the option's exercise price.
STOCK INCENTIVE PLANS
The Company currently has two stock incentive plans that provide for the
grant of options to purchase shares of Common Stock and the grant of restricted
shares of Common Stock to its employees, directors and advisors: (i) the
Amended Plan and (ii) the 1997 Management Stock Incentive Plan (the
"Management Stock Incentive Plan"). The Amended Plan was adopted by Mr.
Haddock, in his capacity as the sole director of the Company, on May 8, 1997.
In connection with the formation of the Company, grants of options to purchase
a specified number of shares of Common Stock and restricted shares of Common
Stock of the Company were made under the Amended Plan in May 1997 in order to
provide each holder of shares of restricted stock in Crescent Equities or
options in Crescent Equities or Crescent Real Estate Equities Limited
Partnership ("Crescent Partnership") with an equivalent number of shares of
restricted stock in the Company or options to purchase Common Stock, based on a
ratio of one share of restricted stock in the Company or option to purchase
Common Stock for each 10 shares of restricted stock in Crescent Equities or
options for Crescent Equities common stock, and one option to purchase Common
Stock for each five options to purchase units of partnership interest in
Crescent Partnership. Other than grants made in connection with the formation
of the Company and certain grants to directors and executive officers, the
Company has not made, and does not intend to make, any other grants of options
or restricted shares under the Amended Plan. At April 13,
-13-
<PAGE> 16
1998, the Company had granted options to purchase 948,567 shares and 10,000
restricted shares under the Amended Plan, and 41,433 shares remained available
for grant under such Plan.
The Management Stock Incentive Plan was adopted by the Board of Directors on
October 15, 1997, subject to shareholder approval. For a detailed description
of the Management Stock Incentive Plan, see "Proposal No. 3 -- Approval of
Management Stock Incentive Plan," below.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended (the "Act"), or
the Exchange Act that might incorporate future filings, including this Proxy
Statement, in whole or in part, the following report and performance graph
shall not be deemed to be incorporated by reference into any such filing.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Compensation Philosophy and Objectives. The philosophy of the Company's
compensation program is to employ, retain and reward executives capable of
leading the Company in achieving its business objectives. These objectives
include enhancing shareholder value, maximizing financial performance,
preserving a strong financial posture, increasing the Company's assets and
positioning its assets and business in geographic markets offering long-term
growth opportunities. The accomplishment of these objectives is measured
against the conditions characterizing the industry within which the Company
operates. In implementing the Company's compensation program, it generally is
the policy of the Board of Directors to seek to qualify executive compensation
for deductibility by the Company for purposes of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), to the extent that such policy
is consistent with the Company's overall objectives and executive compensation
policy.
Executive Officer Compensation.
General. The executive officers of the Company may be compensated in the
form of salary, cash bonus awards, restricted stock awards and stock option
grants under the Company's incentive plans. Except as described below as to the
President and Chief Executive Officer of the Company, as of May 8, 1998, the
Company had not made compensation awards directly to individual executive
officers of the Company for 1997 for their services in such capacities.
Chief Executive Officer Compensation. The Compensation Committee is
currently considering, for approval by the Board of Directors, the appropriate
compensation to be paid by the Company to Gerald W. Haddock, the President and
Chief Executive Officer of the Company, for 1997. As of the date of this Proxy
Statement, no award has been made to Mr. Haddock for 1997, although it is
expected that Mr. Haddock will receive compensation for his services in 1997.
Future Executive Compensation Program. The Board of Directors expects that
the Compensation Committee will have responsibility in 1998 and future years for
administering the Company's executive compensation program, although the Board
of Directors has the right to, and from time to time may, determine and
administer all or portions of the Company's executive compensation program.
The Board of Directors anticipates that performance of the Company will be a key
consideration for the Compensation Committee in determining
-14-
<PAGE> 17
executive compensation for 1998. The Board of Directors recognizes that share
price is but one measure of performance, and that other factors, including
business conditions in the applicable industries and the Company's success in
achieving short-term and long-term goals and objectives, must be evaluated in
arriving at a meaningful analysis of performance. Accordingly, the Board of
Directors expects that the Compensation Committee will also give consideration
to the Company's achievement of specified business objectives when reviewing
1998 executive officer compensation.
An additional objective of the Company is to reward executive officers with
equity compensation in addition to cash compensation in keeping with the
Company's overall compensation philosophy of placing equity in the hands of its
executive officers and employees in an effort to align the interests of the
Company's shareholders with those of the Company's employees and executive
officers. Consequently, the Board of Directors anticipates that stock options
will be used in 1998 by the Compensation Committee to reward and incentivize
executive officers and other key personnel and to retain them through the
potential of capital gains and equity buildup in the Company. The Board of
Directors expects that the number of options granted in the future will be
determined by the Compensation Committee based upon the Compensation
Committee's evaluation of performance criteria mentioned above, along with its
subjective evaluation of each executive's ability to influence the Company's
long-term growth and profitability. All stock options will be issued at the
current market price of the Common Stock on the date of grant. Because the
value of the stock options should, over time, bear a direct relationship to the
Company's stock price, the Company believes the award of options represents an
effective incentive to create value for the shareholders.
BOARD OF DIRECTORS
Richard E. Rainwater
John C. Goff
Gerald W. Haddock
Anthony M. Frank
Jeffrey L. Stevens
Carl F. Thorne
Paul E. Rowsey, III
-15-
<PAGE> 18
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph and table provide a comparison of the cumulative total
return on the Common Stock of the Company for the period beginning June 13,
1997, the date on which trading of the Common Stock commenced, through December
31, 1997 with returns on the Nasdaq Index and the Non-Financial Nasdaq Index.
The graph and table assume that the value of the investment in the Common Stock
of the Company and each of the aforementioned indices on June 13, 1997, was
$100 and that all dividends were reinvested.
<TABLE>
<CAPTION>
====================================================================================================================================
6/13/97 6/30/97 7/31/97 8/31/97 9/30/97 10/31/97 11/30/97 12/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Crescent Operating $100 $400 $550 $538 $670 $775 $558 $817
Common Stock
- ------------------------------------------------------------------------------------------------------------------------------------
Nasdaq Index $100 $101 $112 $112 $119 $112 $113 $111
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Financial $100 $101 $112 $112 $119 $111 $111 $107
Nasdaq Index
====================================================================================================================================
</TABLE>
-16-
<PAGE> 19
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, the Compensation Committee was composed of Carl F. Thorne and
Paul E. Rowsey, III. There were no Compensation Committee interlocks during
1997.
Mr. Haddock, President and Chief Executive Officer and a director of the
Company, and Jeffrey L. Stevens, Executive Vice President, Chief Operating
Officer, Secretary, Treasurer and a director of the Company, each attended and
participated in the one meeting of the Company's Board of Directors during 1997,
at which discussions concerning executive officer compensation occurred. In
addition, it is anticipated that the only compensation award that will be made
directly to an individual executive officer of the Company for 1997 will be
determined by the Compensation Committee for approval by the full Board of
Directors. There was no other insider participation in the executive
compensation decisions of the Company during 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Formation Transactions. The Company was formed on April 1, 1997, by
Crescent Equities and Crescent Real Estate Equities Limited Partnership
("Crescent Partnership" and, together with Crescent Equities and subsidiaries
of Crescent Equities or Crescent Partnership, "Crescent"). The Company was
formed to be the lessee and operator of certain assets owned or to be acquired
by Crescent and perform an agreement (the "Intercompany Agreement) between the
Company and Crescent Partnership. The Intercompany Agreement provides, subject
to certain terms, that Crescent Partnership will provide the Company with a
right of first refusal to become the lessee of any real property acquired by
Crescent Partnership if Crescent Partnership determines that, consistent with
the status of Crescent Equities as a REIT, it is required to enter into a
"master" lease arrangement. A master lease arrangement is an arrangement
pursuant to which an entire property or project (or group of related properties
or projects) is leased to a single lessee. Crescent Equities generally would
be required, consistent with its status as a REIT, to enter into a master lease
arrangement as to hotels and behavioral health care facilities. Under the
Intercompany Agreement, the Company has agreed not to acquire or make
investments in real estate or any other investments that may be structured in a
manner that qualifies under the federal income tax requirements applicable to
REITs, unless Crescent Partnership has been given notice of the opportunities
and has decided not to pursue them.
In connection with the Company's formation and capitalization, Crescent
Partnership contributed approximately $14.1 million to the Company. In
consideration of the approximately $14.1 million cash contribution, Crescent
Partnership was issued approximately 11 million shares of Common Stock, which
were distributed effective June 12, 1997 to holders of record of common shares
of beneficial interest of Crescent Equities and units of limited partnership
interest of Crescent Partnership, as of May 30, 1997. On the date of such
distribution, each of Messrs. Rainwater, Goff and Haddock beneficially owned
approximately 12.5%, 2.0% and 1.5%, respectively, of Crescent and owned 12.5%,
2.0% and 1.5%, respectively, of the outstanding Common Stock following the
distribution. Messrs. Rainwater and Goff are the Chairman and Vice Chairman,
respectively, of the Board of Trust Managers of Crescent Equities and the Board
of Directors of the Company. Mr. Haddock is the sole director and President
and Chief Executive Officer of the sole general partner of Crescent
Partnership, and also serves as President and Chief Executive Officer and a
trust manager of Crescent Equities and as President and Chief Executive Officer
and a Director of the Company.
-17-
<PAGE> 20
Interests with Magellan. On June 17, 1997, the Company purchased from
Magellan Health Services, Inc. ("Magellan"), for approximately $5.0 million, a
50% member interest in CBHS. As part of the same transaction, the Company also
purchased warrants to acquire up to 1,283,311 shares of Magellan common stock,
which the Company valued at approximately $12.5 million on the purchase date.
The warrants are exercisable, in increments, during the period from May 1998
through May 2009, at the exercise price of $30.00 per share. The Company
obtained the opportunity to purchase the member interest in CBHS and the
Magellan warrants pursuant to the Intercompany Agreement.
Messrs. Rainwater, Goff and Haddock own shares of Magellan common stock and
warrants to acquire Magellan common stock. Mr. Rainwater, either directly or
indirectly, owns approximately 2,457,278 shares, and warrants to acquire
approximately 1,212,483 shares, of Magellan common stock, which represents
approximately 12% of the outstanding common stock of Magellan. Messrs. Goff and
Haddock each own, directly or indirectly, approximately 57,000 shares and 42,000
shares, respectively, and warrants to acquire 28,500 shares, of Magellan common
stock, representing less than one percent of the outstanding common stock of
Magellan. The warrants owned by Messrs. Rainwater, Goff and Haddock entitle each
of them to purchase, at any time until the January 25, 2000 expiration date of
such warrants, shares of Magellan common stock at a purchase price of $26.15 per
share.
Ms. 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 obtained 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 (collectively, the
"Rainwater Group") continue to own beneficially a specified minimum number of
shares of Magellan common stock. An affiliate of Mr. Rainwater proposed Ms.
Moore as its nominee for director, and Ms. Moore was first elected to the
Magellan board on February 22, 1996.
Interests Involving Crescent and Magellan. CBHS, which is owned equally by
a subsidiary of Magellan and the Company, and subsidiaries of CBHS entered into
a triple-net operating lease agreement (the "Facilities Lease") with Crescent
(through a wholly owned subsidiary) in June 1997, under which all of the CBHS
facilities (the "Facilities") are leased by Crescent to CBHS and its
subsidiaries. The initial term of the Facilities Lease is 12 years, with four
renewal terms of five years each. CBHS may renew the Facilities Lease at its
option upon notice at least one year prior to the end of the initial term or
any renewal term.
The base rent for the first year of the initial term is $41.7 million. The
base rent increases by 5% compounded annually. At the commencement of any
renewal term of the Facilities Lease, a new fair market rent for the renewal
term will be determined by agreement of the parties, or if the parties are
unable to agree on a fair market rent, then by an appraisal mechanism.
Following appraisal, Crescent will have the right to render void the exercise
of the option to extend the Facilities Lease if Crescent is not satisfied with
the fair market rent as determined by the appraiser. In addition, CBHS will
pay annually an additional $20 million under the Facilities Lease (the
"Additional Rent"), at least $10 million of which must be used, as directed by
CBHS, for capital expenditures each year and up to $10 million of which may be
used, if requested by
-18-
<PAGE> 21
CBHS, to cover capital expenditures, property taxes, insurance premiums and
franchise fees. CBHS' failure to pay the Additional Rent is not a default
under the Facilities Lease unless Crescent has expended, or caused to be
expended, funds for unreimbursed capital expenditures, property taxes,
insurance premiums or franchise fees.
Magellan (through a wholly owned subsidiary) has granted a franchise for
each Facility pursuant to a franchise agreement to CBHS (the "Master Franchise
Agreement"), and CBHS has entered into and caused each subsidiary/lessee of a
Facility to enter into a franchise agreement (the "Subsidiary Franchise
Agreements" and, together with the Master Franchise Agreement, the "Franchise
Agreements") for such Facility. Subject to certain conditions, Magellan has
agreed to grant franchises for facilities subsequently acquired, developed or
leased by CBHS, provided such facilities meet reasonable requirements of
Magellan and that Magellan is not contractually or legally prevented from
granting such franchises. CBHS has agreed to guarantee all obligations of its
subsidiaries under Subsidiary Franchise Agreements.
The initial term of the Master Franchise Agreement is 12 years. CBHS has
the right to renew the Master Franchise Agreement for four additional five-year
renewal terms, provided that at the end of the initial term and each renewal
term, the fees will be adjusted to reflect the fair market value of the
franchise utilized by the Facilities as of the renewal date for the
then-applicable renewal term. The Master Franchise Agreement includes an
appraisal mechanism for determining fair market value franchise fees.
Notwithstanding the foregoing, if the fair market value franchise fee as so
determined is not acceptable to Magellan, then Magellan will have the option to
terminate the Master Franchise Agreement at the end of the then-current term
and the Master Franchise Agreement will not be further extended. In all other
events, neither Magellan nor CBHS, has the right to terminate the Master
Franchise Agreement (whether for breach or otherwise) without the consent of
the other and Crescent.
Franchise fees are payable monthly by CBHS under the Master Franchise
Agreement and equal the greater of (i) $78.2 million, subject to increases for
inflation; or (ii) $78.2 million, plus 3% of CBHS Gross Revenues (as defined in
the agreement) over $1 billion and not exceeding $1.2 billion, and 5% of CBHS
Gross Revenues over $1.2 billion. Pursuant to a subordination agreement
entered into by CBHS, Crescent and Magellan, franchise fees, generally, are
subordinated to base rent, the 5% annual increase and the first $10 million of
the Additional Rent. Pursuant to the terms of, and conditioned upon the
consummation of the transactions contemplated by, the Purchase Agreement (as
defined below), CBHS and Magellan have agreed to execute an
-19-
<PAGE> 22
amendment to the Master Franchise Agreement which will provide, among other
things, that the amount of franchise fees payable by CBHS, during the period
from March 3, 1998 through the date of the closing of the transactions
referenced in the Purchase Agreement, will be reduced to $5 million per month,
prorated for any partial month.
Effective March 3, 1998, the Company signed a definitive agreement pursuant
to which it has agreed to purchase, for $30 million in Common Stock, the 50%
member interest in CBHS owned by a subsidiary of Magellan. Also effective
March 3, 1998, CBHS signed a definitive agreement (the "Purchase Agreement") to
acquire from Magellan and certain direct and indirect subsidiaries of Magellan,
for a purchase price of $280 million, equity interests in certain entities and
the assets of certain staff model clinics. Under the Purchase Agreement,
approximately $78 million of annual franchise fees currently paid by CBHS to
Magellan or its subsidiaries would be eliminated. The Company has entered into
a support agreement with Magellan, pursuant to which it has agreed, among other
things, to advance to CBHS any amounts necessary to pay expenses incurred in
connection with obtaining financing to meet CBHS' payment obligations under the
Purchase Agreement. Any amounts advanced to CBHS in connection with the
payment of financing expenses are to be repaid by CBHS to the Company in
accordance with the provisions of a repayment agreement. In the event the
financing proceeds received by CBHS are less than $280 million, plus the amount
of any advances from Magellan to CBHS or its subsidiaries payable by CBHS at
the closing of the transactions contemplated by the Purchase Agreement (the
"Target Amount"), the Company has agreed to purchase, on the closing date of
any such financing, the amount of CBHS securities offered in the financing
(which amount shall not exceed $25 million) necessary to cause the financing
proceeds to equal the Target Amount. If, as a result of the failure by CBHS to
obtain funds equal to the Target Amount, (i) the transactions contemplated by
the Purchase Agreement are not consummated within the time periods specified in
the Purchase Agreement or (ii) the Purchase Agreement is terminated, the
Company has agreed to pay to Magellan a termination fee in the amount of $5.0
million ($2.5 million of which would be payable in cash and $2.5 million of
which would be payable in Common Stock).
Transactions with Crescent and Certain Officers of Crescent and the Company.
On May 9, 1997, the Company purchased from Carter-Crowley Properties, Inc., for
approximately $12.4 million, a 12.38% limited partner interest in Dallas
Basketball Limited (the "DBL Interest"), the
-20-
<PAGE> 23
partnership that holds the National Basketball Association franchise for the
Dallas Mavericks basketball club. The Company obtained the opportunity to
purchase the DBL Interest pursuant to the Intercompany Agreement. As of June
11, 1997, the Company sold, for approximately $12.55 million, the DBL Interest
to DBL Holdings, Inc., a wholly owned subsidiary of Crescent Partnership. At
the time of the sale by the Company of the DBL Interest to DBL Holdings, Inc.,
Messrs. Rainwater, Goff and Haddock beneficially owned units of limited
partnership interest in Crescent Partnership representing approximately 6.2%,
1.1% and .9%, respectively, of the partnership interests in Crescent
Partnership then outstanding. The Company used the proceeds of the sale of the
DBL Interest (i) to pay all accrued interest under a term loan from Crescent,
in the amount of approximately $.2 million (See "Financing Arrangements with
Crescent"), (ii) to make a payment of principal under the term loan of
approximately $9.9 million and (iii) to pay a dividend to its then sole
shareholder, Crescent Partnership, of approximately $2.4 million. Subsequent
to June 11, 1997, the voting common stock of DBL Holdings, Inc. was sold by
Crescent Equities to Messrs. Haddock and Goff.
On July 31, 1997, the Company, through its subsidiary, WOCOI Investment
Company, acquired for approximately $.4 million, a 42.5% general partner
interest in Woodlands Operating Company, L.P. ("Woodlands Operating"). The
acquisition was part of a larger transaction, pursuant to which Crescent and
certain Morgan Stanley funds acquired The Woodlands Corporation. The Company
obtained the opportunity to purchase its interest in Woodlands Operating
pursuant to the Intercompany Agreement. Woodlands Operating provides
management, advisory, landscaping and maintenance services to entities
affiliated with the Company and Crescent, as well as to unrelated third parties.
As compensation for its management and advisory services, Woodlands Operating is
paid a monthly advisory fee in an amount equal to 3% of all costs and expenses
incurred by Woodlands Operating in providing such services. As compensation for
its landscaping and maintenance services, Woodlands Operating is paid a monthly
fee in an amount equal to 5% of the cost per month of performing the required
landscaping and maintenance services. Each service agreement provides for an
initial term of at least 12 months (subject to earlier termination under certain
circumstances) and will be renewed automatically, unless terminated by either
party upon giving prior notice as specified in each agreement.
Among other assets, Woodlands Operating owns WECCR General Partnership
("WECCR"), the partnership which leases The Woodlands Conference Center and
Country Club from a partnership in which Crescent owns a 42.5% interest.
Pursuant to the lease agreement, WECCR has been assigned substantially all
interests in and to third-party contracts and agreements relating to the
operation of the conference center. WECCR leases the conference center on a
triple-net basis and pays base rent in the amount of $.75 million per month
during the eight-year term of the lease. The lease also provides for the
payment of percentage rent for each calendar quarter in which gross receipts
from the operation of the conference center exceed certain amounts. During
1997, lease expense for WECCR in respect of the conference center lease totaled
approximately $1.3 million.
Effective July 31, 1997, the Company entered into a series of transactions,
pursuant to which the Company acquired from Gerald W. Haddock, John C. Goff and
Sanjay Varma, for an aggregate purchase price of $2.0 million, (i) 100% of the
member interests in RoseStar Management
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LLC and (ii) all of the common stock of each of RSSW Corp. and RSCR Arizona
Corp., two companies affiliated with RoseStar Management LLC ("RoseStar").
Prior to the acquisition by the Company, RoseStar and its affiliates, which were
(and which continue to be) lessees of resort properties owned by Crescent, were
owned by Messrs. Haddock, Goff and Varma in the ratios of 4.5%, 4.5% and 91%,
respectively. From April 1995 to August 1997, Mr. Varma served as an advisor to
Crescent regarding business and asset management, and from August 1997 to
October 1997, Mr. Varma served as an advisor to the Company regarding its
Hospitality and Woodlands divisions. Mr. Varma is currently a Vice President of
the Company and President of the Hospitality and Woodlands divisions of the
Company.
The Company or its subsidiaries were the lessees of eight hotel or resort
properties owned by Crescent, including the Denver Marriott City Center, Hyatt
Regency Beaver Creek, Hyatt Regency Albuquerque, Canyon Ranch-Tucson, Canyon
Ranch-Lenox, Ventana Country Inn, Sonoma Mission Inn and Spa and The Four
Seasons Hotel in Houston, Texas, as of December 31, 1997. The leases for each of
the properties are triple-net operating leases with 120-month terms which expire
between December 31, 2004 and October 31, 2006. The leases provide for payment
to Crescent of (i) base rent, with periodic rent increases and (ii) percentage
rent based on a percentage of gross revenue, room revenue, food and beverage
revenue or some combination of these amounts, above a specified amount. The
Company incurred lease expense to Crescent totaling approximately $16.7 million
during 1997 in connection with these properties.
On January 23, 1998, COI Hotel Group, Inc., a subsidiary of the Company,
signed a 10-year lease agreement with Crescent as lessee of the Austin Omni
Hotel. The terms of the lease are generally consistent with other hospitality
property leases with Crescent, providing for payment of base rent and percentage
rent.
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Pursuant to a purchase agreement dated as of September 29, 1997, the Company
acquired 100% (50 shares) of the voting common stock of Desert Mountain
Development Corporation, the sole general partner of, and the holder of the
majority economic interest in, the partnership ("Desert Mountain Properties
Limited Partnership") which owns Desert Mountain, a master planned, luxury
residential and recreational community in Northern Scottsdale, Arizona. The
voting common stock was purchased from Crescent for a cash purchase price of
approximately $2.2 million, which represents 5% of the total amount invested in
Desert Mountain by Crescent. Crescent Partnership currently owns 100% (950
shares) of the non-voting common stock of Desert Mountain Development
Corporation.
Also on September 29, 1997, the Company acquired from Crescent Partnership,
for approximately $2.2 million, all of the voting stock, representing a 5%
economic interest, in The Woodlands Land Company, Inc. ("LandCo"). The
purchase price for the Company's interest in LandCo represents 5% of the total
amount invested in LandCo by Crescent. Crescent currently owns 100% of the
non-voting common stock, representing a 95% economic interest, of LandCo.
Effective October 31, 1997, the Company acquired, from Crescent Partnership,
for approximately $8.0 million, 100% of the voting stock, representing a 5%
equity interest, of Crescent CS Holdings Corp. ("CS I") and Crescent CS
Holdings II Corp. ("CS II"). CS I and CS II own 40% general partner interests
in, respectively, the partnership that owns URS Logistics, Inc., a company that
operates and manages public refrigerated warehouses in the continental United
States, and Americold Corporation, a company providing integrated logistics,
consisting of warehousing and transportation services, for the frozen food
industry. The purchase price for the Company's interests in CS I and CS II
represents 5% of the total amount invested in these companies by Crescent
Partnership. Crescent Partnership owns 100% of the non-voting common stock of
CS I and CS II.
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Under the terms of the PFI Services Agreement between the Company and PFI, a
company owned by Jeffrey L. Stevens, Executive Vice President, Chief Operating
Officer and a director of Crescent Operating, PFI provides accounting and
management services to the Company, as well as reviews or initially prepares
reports required to be filed with the SEC, reports to shareholders and similar
matters. In consideration of services performed under the PFI Services
Agreement, the Company pays an annual fee in an amount equal to $150,000, plus
105% of all reasonable and customary costs and expenses incurred by PFI in
providing such services. During 1997, PFI earned $240,240 under the PFI
Services Agreement. The initial term of the PFI Services Agreement, which
commenced on July 1, 1997, is thirty six months. The Agreement may be
terminated, however, by either party at any time after April 1, 1998, with 90
days' prior written notice. Richard P. Knight, Chief Financial Officer of the
Company, is an employee of, and receives compensation from, PFI.
In consideration of its services under the Varma Asset Management
Agreements (which expire on January 30, 2000), The Varma Group, whose
principals are Sanjay Varma, Vice President of the Company, and his wife,
Johanna Varma, receives an annual base fee of approximately $660,000, plus
annual cost of living adjustments for its asset management services related to
the Hyatt Regency Albuquerque, Hyatt Regency Beaver Creek, Sonoma Mission Inn
and Denver City Center Marriott (the "Covered Properties"). In addition, The
Varma Group is reimbursed for the costs it incurs in providing asset management
services to other hotel or resort properties leased by the Company or its
subsidiaries. Travel expenses related to the Covered Properties in excess of
$83,600 per year are reimbursed to The Varma Group, as are all travel expenses
related to properties other than the Covered Properties. The Varma Asset
Management Agreements are terminable for cause by either party and may be
terminated without cause by the applicable subsidiary of the Company (and,
after January 31, 2000, by The Varma Group) upon giving prior notice as
specified in the Varma Asset Management Agreements. In the event a subsidiary
of the Company exercises its right to terminate a Varma Asset Management
Agreement without cause before January 31, 2000, however, the subsidiary must
deliver, or cause to be delivered, to The Varma Group, a termination fee in an
amount to be determined in accordance with a formula based on the value of the
unexpired contract. In 1997, The Varma Group received $275,000 in asset
management fees from the Company.
Financing Arrangements with Crescent and Certain Officers of Crescent and
the Company. The Company and certain of its subsidiaries have various debt
instruments payable to Crescent, which, in the aggregate, had outstanding
balances in the amount of $231.9 million as of December 31, 1997. Such debt
instruments included the following: (i) a note payable in the amount of $26.0
million, due May 2002, at an interest rate of 12% per annum, collateralized by
a first lien on assets which the Company now owns or may acquire in the future;
(ii) a line of credit in the amount of $20.4 million ($13.7 million of which
was outstanding), due the later of May 2002 or five years after the last draw,
at an interest rate of 12% per annum, collateralized by a first lien on assets
which the Company now owns or may acquire in the future; (iii) a note payable
in the amount of $17.6 million, due August 1998, at an interest rate of prime
plus one percent per annum; (iv) a note payable in the amount of $60.0 million,
due December 2010, at an interest rate of 14% per annum, collateralized by
land, improvements and equipment at Desert
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Mountain Development Limited Partnership; (v) a note payable in the amount of
$110.0 million, due December 2005, at an interest rate of 10% per annum,
collateralized by land, improvements and equipment at Desert Mountain
Development Limited Partnership; (vi) a note payable in the amount of $1.0
million, due September 1998, at an interest rate of 8.5% per annum,
collateralized by the Company's $5.0 million note receivable from Houston Center
Athletic Club Venture; (vii) a note payable in the amount of $2.0 million, due
August 2003, at an interest rate of 10.75% per annum, collateralized by a deed
of trust of certain real and personal property; (viii) a note payable in the
amount of $.8 million, due September 2002, at an interest rate of 8.5% per
annum, collateralized by the Company's interest in the Houston Center Athletic
Club Venture; (ix) a note payable in the amount of $.6 million, due August 2003,
at an interest rate of 10.75% per annum, collateralized by a deed of trust in
certain real and personal property; and (x) a note payable in the amount of $.2
million, due November 2006, at an interest rate of 7.5% per annum.
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.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Subject to the approval of the shareholders, the Board of Directors has
appointed the firm of Ernst & Young LLP to serve as the Company's independent
auditors for the fiscal year ending December 31, 1998. One or more
representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have the opportunity to make a statement and will be able to
respond to appropriate questions. Ratification of the appointment of Ernst &
Young LLP as the Company's independent auditors requires the affirmative vote
of the holders of a majority of the votes cast at the Annual Meeting with
respect to such proposal.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE
COMPANY VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS
THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31,
1998.
CHANGE IN INDEPENDENT AUDITORS
Upon recommendation of the Executive Committee and approval of the Audit
Committee, on January 15, 1998, the Board of Directors dismissed the firm of
Arthur Andersen LLP as the Company's independent auditors and engaged the
services of Ernst & Young LLP to perform the audit of the Company's 1997
financial statements. Ernst & Young LLP's qualifications as auditors for the
Company, including, among other things, the firm's reputation for integrity and
competence in the fields of accounting and auditing, was considered. The Board
of Directors has concluded that the appointment of Ernst & Young LLP was in the
best interests of the Company. Ernst & Young LLP has informed the Company that
it has no material direct or indirect interest in the Company.
The reports of Arthur Andersen LLP on the financial statements of the
Carter-Crowley Asset Group (the Company's predecessor), for the fiscal years
ended December 31, 1996 and December 31, 1995, and the initial balance sheet of
the Company, as of April 3, 1997, did not contain an adverse opinion or a
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles. During the two most recent fiscal years
and the interim period from January 1, 1998 through January 15, 1998, there was
no disagreement between the Company (including its predecessor) and Arthur
Andersen LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure. There were no "reportable
events" (as defined in Item 304 (a)(1)(v) of Regulation S-K) with respect to
the Company within the past two fiscal years and the interim period from
January 1, 1998 through January 15, 1998.
During the two most recent fiscal years and the interim period from January
1, 1998 through January 15, 1998, the Company (including the predecessor) did
not consult Ernst & Young LLP regarding (i) the application of accounting
principles to a specified transaction, either completed or proposed, or the
type of audit opinion that might be rendered on the Company's financial
statements; or (ii) any matter that was either the subject of a disagreement
(as defined in Item 304 (a)(1)(iv) of Regulation S-K) or a "reportable event."
In the event that ratification of this appointment of auditors is not
approved by the affirmative vote of a majority of the votes cast on the matter
at the Annual Meeting, the appointment of independent auditors will be
reconsidered by the Board of Directors.
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<PAGE> 29
PROPOSAL NO. 3
APPROVAL OF MANAGEMENT STOCK INCENTIVE PLAN
On October 15, 1997, the Board of Directors adopted, subject to shareholder
approval, the Company's Management Stock Incentive Plan. The aggregate number
of shares of Common Stock reserved for issuance under the Management Stock
Incentive Plan is 1,000,000 shares, subject to adjustment for future capital
changes.
Approval of the Management Stock Incentive Plan requires the affirmative
vote of the holders of a majority of the votes cast at the Annual Meeting with
respect to such proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE
COMPANY VOTE "FOR" THE APPROVAL OF THE MANAGEMENT STOCK INCENTIVE PLAN.
SHAREHOLDER APPROVAL REQUIREMENTS
Shareholder approval of the Management Stock Incentive Plan is required in
order for incentive stock options granted under the Plan to qualify as
"incentive stock options" within the meaning of Section 422 of the Code and in
order for options granted to "covered employees," as defined in Section 162(m)
of the Code, to qualify as executive compensation under Section 162(m). In
addition, shareholder approval of the Management Stock Incentive Plan is
required under the rules of the Nasdaq Stock Market.
SUMMARY DESCRIPTION
The essential features of the Management Stock Incentive Plan are outlined
below. Such description is qualified in its entirety by the Management Stock
Incentive Plan, a copy of which is attached as Exhibit A.
General. The purpose of the Management Stock Incentive Plan is to promote
the growth and general prosperity of the Company by permitting the Company and
its subsidiaries to grant options to their employees, outside directors and
advisors and restricted stock to their employees and advisors. The Management
Stock Incentive Plan is designed to assist the Company and its subsidiaries in
attracting and retaining 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.
Eligibility. Employees, outside directors and advisors of the Company and
its subsidiaries, who meet certain criteria established by the Board of
Directors or the appropriate committee, may be granted awards of stock options
or shares of restricted Common Stock under the Management Stock Incentive Plan;
provided, however, that incentive stock options may be awarded only to employees
of the Company and its subsidiaries. As of April 13, 1998, all outside
directors and advisors were eligible to participate in the Management Stock
Incentive Plan.
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Administration. The Management Stock Incentive Plan provides that it shall
be administered by the Board of Directors or a committee of not fewer than two
directors appointed by the Board. Notwithstanding the foregoing, a committee
consisting of two or more outside directors shall have the sole authority to
make awards under the Management Stock Incentive Plan to covered employees (as
defined in Section 162(m) of the Code).
Shares Subject to Awards. The Management Stock Incentive Plan provides that
the maximum number of shares of Common Stock that may be issued from time to
time under the Plan is 1,000,000 shares, subject to adjustment for future
capital changes. The maximum number of shares of Common Stock with respect to
which awards may be granted to any participant who is subject to the reporting
requirements of Section 16 of the Exchange Act or who is a covered employee
within the meaning of Section 162(m) of the Code (a "Reporting Person") during
any calendar year is 500,000 shares, subject to adjustment for future capital
changes. The maximum number of shares of Common Stock which may be subject to
incentive stock options during the life of the Management Stock Incentive Plan
is 50,000 shares, subject to adjustment for future capital changes.
Terms and Conditions of Options. Stock options granted under the Management
Stock Incentive Plan are exercisable only to the extent that they are vested.
The Board of Directors or the appropriate committee is responsible for
determining the vesting schedule for stock options. Optionees who receive
stock options are entitled to exercise at any time, or from time to time, all
or any portion of a vested option. Incentive stock options granted under the
Management Stock Incentive Plan may not expire earlier than one year or later
than ten years after the date they are granted. However, an incentive stock
option granted to a person who owns more than 10% of the total combined voting
power of all classes of the Company's stock (a "Ten Percent Shareholder") may
expire up to five years after the date it is granted. Non-qualified stock
options granted under the Management Stock Incentive Plan may expire up to ten
years after the date they are granted.
The exercise price per share pursuant to each option granted under the
Management Stock Incentive Plan is determined by the Board of Directors or the
appropriate committee and may not be less than 100% (110% in the case of a Ten
Percent Shareholder) of the fair market value of the Common Stock on the date
the option is granted. As long as the Common Stock is quoted on the Nasdaq
National Market, its fair market value will be the closing bid price of the
Common Stock as reported by the Nasdaq National Market on the date the option
was granted. If there were no sales of shares reported by the Nasdaq National
Market on the date the option was granted, the fair market value will be deemed
equal to the closing bid price as reported on the Nasdaq Stock Market for the
last preceding date on which sales of Common Stock were reported. The closing
bid price of the Common Stock on April 13, 1998 was $21.56 per share.
Options may be exercised by providing written notice to the Company,
accompanied by payment of the exercise price. Payment of the exercise price
may be made generally (i) in immediately available funds, (ii) with Common
Stock owned by the participant, if permitted by the Board of Directors or the
appropriate committee, (iii) with proceeds of the sale of the shares purchased
upon exercise of the options, (iv) by payment in immediately available funds of
the par value of the underlying shares, plus a promissory note for the balance
or (v) any combination thereof.
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Any option granted under the Management Stock Incentive Plan generally may
be amended to advance the date on which the option vests at the discretion of
the Board of Directors or the appropriate committee.
In the event that an optionee ceases to serve as an employee, outside
director or advisor to the Company or any of its subsidiaries as a result of
the optionee's death or disability, any options held under the Management Stock
Incentive Plan shall vest immediately and the exercise period for such option
shall end on the earlier of (i) the date that the option expires by its terms,
(ii) the date that is twelve months after the optionee ceases such service. If
an optionee under the Management Stock Incentive Plan ceases to serve as an
employee, outside director or advisor to the Company or any of its subsidiaries
as a result of the optionee's retirement from such service, the optionee's
stock option shall vest immediately and (i) if such option is an incentive
stock option, the option will be exercisable for the three-month period after
such retirement, and (ii) if such option is a non-qualified stock option, the
option will be exercisable for the one-year period after such retirement,
unless the option expires earlier by its terms. In the event that an optionee
ceases to serve as an employee, outside director or advisor to the Company or
any of its subsidiaries because the optionee is terminated for committing
certain defined acts of misconduct, any options held under the Management Stock
Incentive Plan shall automatically expire.,
An option granted under the Management Stock Incentive Plan is not
transferable during the lifetime of the optionee, other than by will, by the
laws of descent and distribution, or pursuant to a qualified domestic relations
order. Incentive stock options may be exercised during the lifetime of an
optionee only by that optionee or by the optionee's legally authorized
representative.
Terms and Conditions of Restricted Stock. The restrictions on restricted
stock awards made under the Management Stock Incentive Plan shall be determined
by the Board of Directors or the appropriate committee. The Management Stock
Incentive Plan generally provides that restricted shares of Common Stock (i)
shall be restricted for a period of not less than one year nor more than ten
years, (ii) shall not be sold, transferred, pledged or otherwise encumbered
during the restriction period, and (iii) generally shall be forfeited in the
event that the holder ceases to serve as a director or advisor to the Company
or any of its subsidiaries During the restriction period, the holder of the
restricted shares shall be entitled to exercise all rights attributable to the
restricted shares (e.g., voting rights). Stock certificates representing such
shares will be registered in the name of the holder, but shall be held,
together with a duly endorsed stock power, by the Company until all
restrictions lapse.
Acceleration in Certain Events. Options granted under the Management Stock
Incentive Plan will become immediately exercisable in full and all restrictions
on restricted stock awarded under the Plan will lapse (i) if the Company agrees
to dispose of all or substantially all of its assets by means of a sale, merger
or other reorganization, liquidation or otherwise in a transaction in which the
Company is not the surviving corporation, and if the shareholders own less than
50% of the voting power of the surviving entity, and (ii) upon the occurrence
of an event constituting a "change of control" (as defined in the Management
Stock Incentive Plan). For purposes of the Management Stock Incentive Plan a
"change in control" does not include certain transfers
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<PAGE> 32
of the Company's voting stock by Richard E. Rainwater to various family
members, trusts or other entities controlled by him, or acquisitions by such
parties.
Notwithstanding the aforementioned acceleration provisions of the Management
Stock Incentive Plan, no Reporting Person may exercise an option and no
restrictions will lapse with respect to an award of restricted Common Stock to
a Reporting Person unless at least six months have elapsed since the grant of
such option or restricted stock award.
Outside Director Stock-for-Fees Election. Each outside director of the
Company may voluntarily elect, under the Management Stock Incentive Plan, to
have one-half or all of the annual retainer and meeting fees otherwise payable
in cash to the outside director paid in the form of shares of Common Stock.
Such an election would become effective six months following the receipt of the
election by the Secretary of the Company. The election to participate will
continue in effect until the earlier of (i) the date six months after the
outside director delivers to the Secretary of the Company written notice of an
election to cease participation or (ii) the date of the outside director's
resignation, non-reelection, death or disability.
The number of shares of Common Stock that a participating outside director
shall receive shall be determined by dividing the amount of annual retainer and
meeting fees otherwise payable to the outside director by 90% of the closing
bid price of the Common Stock as reported by the Nasdaq National Market on the
determination date (which shall be the date of the relevant Board of Directors
meeting), rounding up or down any fractional share to the nearest whole share.
Duration, Amendment and Termination. The Management Stock Incentive Plan
will terminate on October 15, 2007.
The Board of Directors or the appropriate committee generally may amend the
Management Stock Incentive Plan at any time. However, no amendment may,
without shareholder approval: (i) increase the number of shares reserved for
issuance under the Management Stock Incentive Plan, except for adjustments for
future capital changes; (ii) modify the requirements as to eligibility for
participation in the Management Stock Incentive Plan; or (iii) change the
minimum purchase price for stock options granted under the Plan.
Federal Income Tax Consequences. This discussion is not intended to be
exhaustive and is only intended to summarize briefly the federal tax statutes,
regulations and currently available agency interpretations thereof. It is
recommended that optionees under the Management Stock Incentive Plan consult
their own professional advisors for personal and specific tax advice.
Incentive Stock Options. A participant who holds options will not realize
taxable income upon the grant of an incentive stock option. In addition, such
a participant generally will not realize taxable income upon the exercise of an
incentive stock option. However, such a participant's alternative minimum
taxable income will be increased by the amount that the fair market value of
the stock underlying the option (generally determined as of the date of
exercise) exceeds the exercise price of the option. Further, except in the
case of the participant's death, if an option
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is exercised more than three months after the participant's termination of
employment, the option ceases to be treated as an incentive stock option and is
subject to taxation under the rules applicable to non-qualified stock options.
If the participant sells the Common Stock acquired upon exercise of an
incentive stock option, the tax consequences of the sale (a "disposition")
depend upon whether the disposition is qualifying or disqualifying. The
disposition of the Common Stock is qualifying if it is made at least two years
after the date the incentive stock option was granted, and at least one year
after the date the incentive stock option was exercised. If the disposition of
the Common Stock is qualifying, any excess of the sale price of the Common
Stock over the exercise price of the option would be treated as long-term
capital gain taxable to the participant at the time of the sale. If the
disposition is not qualifying (a "disqualifying disposition"), the excess of
the fair market value of the Common Stock on the date the option was exercised
over the exercise price would be compensation income taxable to the participant
at the time of the disposition, and any excess of the sale price of the Common
Stock over the fair market value of the Common Stock on the date the option was
exercised would be taxed as capital gains.
Unless a participant engages in a disqualifying disposition, the Company
will not be entitled to a deduction with respect to an incentive stock option.
If a participant engages in a disqualifying disposition, the Company will be
entitled to a deduction equal to the amount of compensation income taxable to
the participant.
Non-Qualified Stock Options. A participant will not realize taxable income
upon the grant of a non-qualified stock option. However, when the participant
exercises the option, the difference between the exercise price of the option
and the fair market value of the Common Stock on the date of exercise is
compensation income taxable to the participant. The Company will be entitled
to a deduction equal to the amount of compensation income taxable to the
participant.
As a condition of exercising an option, participants are required to make
arrangements satisfactory to the Company to meet income tax withholding
obligations on the participant's compensation income.
It is not possible at this time to determine either (i) the benefits or
amounts that may be received by the Chief Executive Officer, any of the
Company's other executive officers or any director under the Management Stock
Incentive Plan or (ii) the benefits or amounts that would have been received if
the Management Stock Incentive Plan had been in effect throughout 1997. No stock
options have been granted or restricted stock issued under the Management Stock
Incentive Plan at this time.
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In the event that the Management Stock Incentive Plan is not approved by the
affirmative vote of a majority of the votes cast on the matter at the Annual
Meeting, the Board of Directors will reconsider such Plan.
SHAREHOLDER PROPOSALS AT THE COMPANY'S
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD IN 1999
Under the rules of the SEC, shareholders who intend to submit proposals for
consideration at the Company's annual meeting of shareholders to be held in
1999 must submit such proposals to the Company no later than January 8, 1999,
in order to be considered for inclusion in the proxy statement and form of
proxy to be distributed by the Board of Directors in connection with that
meeting. Shareholder proposals should be submitted to Jeffrey L. Stevens,
Secretary, Crescent Operating, Inc., 306 West 7th Street, Fort Worth, Texas
76102.
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Notwithstanding the aforementioned SEC requirement, under the Company's
Amended and Restated Bylaws (the "Bylaws"), a stockholder must follow certain
other procedures to nominate persons for election as directors or to propose
other business to be considered at an annual meeting of shareholders. These
procedures provide that shareholders desiring to make nominations for directors
and/or to bring a proper subject before a meeting must do so by notice timely
received by the Secretary of the Company. The Secretary of the Company
generally must receive notice of any such proposal no earlier than March 10,
1999, and no later than March 30, 1999, in the case of proposals for the annual
meeting of shareholders to be held in 1999. Generally, such shareholder notice
must set forth (a) as to each nominee for director, all information relating to
such nominee that is required to be disclosed in solicitations or proxies for
election of directors under the proxy rules of the SEC; (b) as to any other
business, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such shareholder; and (c) as to the
shareholder, (i) the name and address of such shareholder, (ii) the number of
shares of Common Stock which are owned beneficially and of record by such
shareholder, and (iii) the date(s) upon which the shareholder acquired
ownership of such shares. The chairman of the annual meeting shall have the
power to declare that any proposal not meeting these and any other applicable
requirements imposed by the Bylaws shall be disregarded. A copy of the Bylaws
may be obtained without charge on written request to Jeffrey L. Stevens,
Secretary, Crescent Operating, Inc., 306 West 7th Street, Fort Worth, Texas
76102.
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1997 CRESCENT OPERATING, INC.
MANAGEMENT STOCK INCENTIVE PLAN
ARTICLE I
THE PLAN
1.1 NAME. This plan will be known as the "1997 Crescent Operating, Inc.
Management 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 their Employees, Outside Directors and Advisors and Restricted
Stock to their 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 of the Company 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 Board or 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 of the Company and its
Subsidiaries. The Board or the Committee may grant Options to Employees, Outside
Directors and Advisors in accordance with such determinations as the Board or
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 one million (1,000,000) shares. 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 five hundred thousand (500,000)
shares. The maximum number of shares of Common Stock which may be subject to
Incentive Stock Options during the life of the Plan shall be fifty thousand
(50,000) shares. If shares of Restricted
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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 Board or
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 Board or 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 Board or 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 Board or the Committee determines, in 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 Board or 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.
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(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 Board or 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 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
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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 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
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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 Board or the Committee may also require a Participant to furnish
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, if the Company has any class of common equity securities required to be
registered under Section 12 of the Exchange Act, as to any Award to a Covered
Employee, "Committee" shall mean a committee consisting of two or more
Directors, each of whom shall be an "outside director" as defined in Section
162(m) of the Code. Subject to the provisions of the Plan, the Board or
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
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the exercise thereof) or to any shares of Restricted Stock, and to make all
other determinations or advisable for the administration of the Plan. The
Committee shall be solely responsible for the grant and administration of Awards
to Covered Employees. With respect to any provision of the Plan granting the
Board or the Committee the right to agree, in its sole discretion, to further
extend the term of any Award hereunder, the Board or 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.
2.2 MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. A majority of the members of
the Board or 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 Board or
the Committee will constitute the action of the Board or 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 Board or 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 Board
or the Committee may require. The Company will furnish the Board or the
Committee 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 Board or 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, (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 Board or the
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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 Board or 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 with the Company or any Subsidiary, 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 as to any Nonqualified Stock Option
(b) In addition, unless the Board or 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 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, his
Option shall become fully exercisable on the date of his Retirement and
(a) if such Option is an Incentive Stock Option, such Option
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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.
3.6 OPTIONS SUBJECT TO SHAREHOLDERS APPROVAL. Options granted to Covered
Employees and Incentive Stock Options granted prior to the date on which
shareholder approval of the Plan is obtained shall be subject to and conditioned
upon shareholder approval of the Plan in accordance with Section 162(m) and 422
of the Code.
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 Board or 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 Board or 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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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.
4.6 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 Board or Committee
may, in its discretion, determine, as long as all Options granted under this
Article satisfy the requirements of this Article.
5.2 DURATION OF OPTIONS. Each Option granted to an Employee, Outside
Director or Advisor under this Article and all rights thereunder will expire on
the date determined by the Board or 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.
5.3 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
shall be not less than the Fair Market Value of the Plan Shares at the time of
the grant of the Option.
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5.4 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 Board or Committee deems
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, one of its Subsidiaries, or any
Affiliated Company 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 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
Board or 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:
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"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
FORFEITURE, RESTRICTIONS ON TRANSFER AND CERTAIN OTHER TERMS
AND CONDITIONS SET FORTH IN THE 1997 CRESCENT OPERATING,
INC. MANAGEMENT STOCK INCENTIVE PLAN AND THE AGREEMENT
BETWEEN THE REGISTERED OWNER OF THE SHARES REPRESENTED BY
THIS CERTIFICATE AND CRESCENT OPERATING, INC. 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 Board or the Committee deems appropriate.
ARTICLE VII
OUTSIDE DIRECTOR STOCK-FOR-FEES ELECTIONS
7.1 OUTSIDE DIRECTOR STOCK-FOR-FEES ELECTION. Each Outside Director of the
Company 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
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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 of 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.
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 October 15, 2007.
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 Board or 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
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shareholder approval, no amendment or revision may (i) increase the maximum
aggregate number of Plan Shares, except as permitted 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. 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 Board
or the Committee, and any such adjustment may provide for the elimination of
fractional share interests.
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 plural 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.
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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 Subsidiary of the Company, with or without compensation, to
whom the Company chooses to grant Options in accordance with the Plan, provided
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 Directors of the Company, provided that, if
the Board delegates all or any part of its authority to a committee composed of
one or more directors, then the term "Board" shall be deemed to refer to such
committee to the extent of such delegation.
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.
10.6 "Committee" shall have the meaning set forth in Section 2.1.
10.7 "Common Stock" means the Common Stock, 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 Operating, Inc., a Delaware corporation.
10.9 "Covered Employee" means any individual who is the chief executive
officer or is acting in such capacity, or is among the four highest compensated
officers (other than the chief executive officer) of the Company or of any
Subsidiary.
10.10 "Director" means a member of the Board of Directors of the Company.
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<PAGE> 50
10.11 "Director's Fees" means the remuneration otherwise payable to an
Outside Director of the Company as an annual retainer and for attending meetings
of the Board and meetings of the committees of the Board.
10.12 "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.
10.13 "Effective Date" means October 15, 1997.
10.14 "Employee" means an employee (as defined under Section 3401(c) of the
Code and the regulations thereunder) of the Company (including an officer), or
an officer or other employee of any of the Subsidiaries of the Company.
10.15 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
10.16 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
10.17 "Fair Market Value" means such value as will be determined by the
Board or 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 Board or the Committee on the basis of the
closing price for the Common Stock on the date for which such determination is
relevant, as reported on the exchange and further provided that if there should
be no sales on such date, such value shall be deemed equal to the closing price
on the last preceding date on which sales of Common Stock were reported. 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.
10.18 "Incentive Stock Option" means an Option granted under Article IV.
10.19 "Nonqualified Stock Option" means an Option granted under Article V.
10.20 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option granted under the Plan.
10.21 "Option Agreement" means an agreement between the Company and a
Participant with respect to one or more Options.
10.22 "Outside Director" means a Director who is not an Employee of the
Company or of any Subsidiary.
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10.23 "Participant" means an Employee, Director or Advisor to whom an Award
has been granted hereunder.
10.24 "Plan" means the 1997 Crescent Operating, Inc. Management Stock
Incentive Plan, as amended from time to time.
10.25 "Plan Shares" means shares of Common Stock issuable pursuant to the
Plan.
10.26 "Reporting Participant" means a Participant who is subject to the
reporting requirements of Section 16 of the Exchange Act or who is a "covered
employee" within the meaning of Section 162(m) of the Code.
10.27 "Restricted Stock" means an Award of Common Stock granted under
Article VI.
10.28 "Restricted Stock Agreement" means an agreement between the Company
and a Participant with respect to an Award of Restricted Stock.
10.29 "Retirement" means termination of employment or service as a Director
on or after the date on which a Participant attains age 70.
10.30 "Securities Act" means the Securities Act of 1933, as amended.
10.31 "Subsidiary" means a subsidiary corporation of the Company, as defined
in Section 424(f) of the Code.
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CRESCENT OPERATING, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 8, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
The undersigned hereby appoints John C. Goff, Gerald W. Haddock and Jeffrey L.
Stevens, each of them, as proxies, with full power of substitution in each, to
vote all shares of common stock, par value $0.01 per share (the "Common
Stock"), of Crescent Operating, Inc. (the "Company"), which the undersigned is
entitled to vote at the annual meeting of shareholders of the Company to be
held on June 8, 1998, at 1:00 p.m., Central Daylight Savings Time, and at any
adjournment thereof, on all matters set forth herein.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN,
WILL BE VOTED "FOR" EACH OF THE MATTERS STATED.
1. ELECTION OF DIRECTORS:
Nominees: Gerald W. Haddock and Carl F. Thorne
[ ] FOR [ ] WITHHELD
[ ] INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's name in
the space provided below.
2. APPROVAL of the 1997 Management Stock Incentive Plan:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFICATION of the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. GRANT AUTHORITY to vote upon such other matters as may properly come
before the meeting, including the adjournment of meeting, as the proxies
determine to be in the best interest of the Company:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Dated: ,1998
----------------
-------------------------------
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Signature of Shareholder(s)
IMPORTANT: Please mark this Proxy, date, sign exactly as your name(s)
appear(s), and return in the enclosed envelope. If shares are held
jointly, signature need only include one name. Trustees and others
signing in a representative capacity should so indicate.
