<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 (AMENDMENT NO. )
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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
CRESCENT OPERATING, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the 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)(1) and 0-11.
(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:
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(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
------------------
The Annual Meeting of Shareholders of Crescent Operating, Inc. (the
"Company") for 1999 will be held at The Crescent Court Hotel, located at 400
Crescent Court, Dallas, Texas, on Monday, June 7, 1999, at 10:00 a.m., Central
Daylight Savings Time, for the following purposes:
1. To elect two directors of the Company to serve until the annual
meeting of shareholders of the Company for 2002, and until their
successors are elected and qualify and to elect one director of the
Company for a term expiring at the annual meeting of shareholders of
the Company for 2001, and until his successor is elected and
qualifies;
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, 1999; and
3. 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 16, 1999 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,
/s/ JEFFREY L. STEVENS
JEFFREY L. STEVENS
Secretary
Dated: May 5, 1999
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 7, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board of Directors" or the "Board") of
Crescent Operating, Inc. (the "Company" or "Crescent Operating") for use at the
annual meeting of shareholders of the Company for 1999 (the "Annual Meeting").
The Annual Meeting will be held at The Crescent Court Hotel, 400 Crescent Court,
Dallas, Texas, on June 7, 1999, at 10:00 a.m., Central Daylight Savings Time,
for the purposes set forth in the accompanying Notice of Annual Meeting.
On or about May 5, 1999, the Company first mailed this Proxy Statement and
the accompanying Notice of Meeting and form of proxy, together with its 1998
Annual Report to Shareholders, which includes audited financial statements of
the Company, to shareholders entitled to vote at the Annual Meeting.
RECORD DATE AND OUTSTANDING SHARES
The record date for determination of the shareholders entitled to notice of
and to vote at the Annual Meeting is the close of business on April 16, 1999
(the "Record Date"). At the close of business on the Record Date, the Company
had 11,404,477 shares of common stock, par value $0.01 per share ("Common
Stock") issued, outstanding and entitled to vote at the Annual Meeting.
PROCEDURAL MATTERS
A proxy for use at the Annual Meeting and a return envelope are enclosed.
Shares of the Company's 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 properly executed 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 or postponement 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.
QUORUM AND VOTING
Except as noted below, all holders of record of the Common Stock at the
close of business on the Record Date 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. The Company, as sole general partner of COPI Colorado, L.P.
("COPI Colorado"), holds the power to vote the 1,088,030 shares of Common Stock
held by COPI Colorado. For purposes of the Annual Meeting, the Company has
elected not to vote these shares.
<PAGE> 4
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, ballots marked with "withhold authority" 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 included in determining 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.
COSTS OF PROXY SOLICITATION
All costs of preparing, assembling and mailing proxy solicitation materials
will be borne by the Company. 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.
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
BOARD OF DIRECTORS
The Board of Directors of the Company consists of eight members divided
into three classes, with approximately one-third of the total number of
directors elected by the shareholders annually. In March 1999, the Board of
Directors increased the number of directors and appointed William A. Abney to
the newly created directorship.
The terms of John C. Goff and Paul E. Rowsey, III will expire at the Annual
Meeting. Both Messrs. Goff and Rowsey 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 2002 and until their successors are
elected and qualify.
William A. Abney was recommended by the Compensation Committee and
appointed a director by the Board of Directors on March 1, 1999. The Board of
Directors nominated Mr. Abney for election at the Annual Meeting to a term
continuing until the annual meeting of shareholders of the Company to be held in
2001 and until his successor is elected and qualifies.
Approval of the nominees requires the affirmative vote of a majority of the
votes cast for the election of directors at the Annual Meeting. Properly
executed 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 John C. Goff and Paul E. Rowsey, III to
serve as directors to hold office until the annual meeting of shareholders of
the Company to be held in 2002, and until their successors are elected and
qualify and "FOR" the election of William A. Abney to serve as a director to
hold office until the annual meeting of shareholders of the Company to be held
in 2001, and until his successor is elected and qualifies.
2
<PAGE> 5
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.
<TABLE>
<CAPTION>
NAME TERM EXPIRES AGE POSITION
---- ------------ --- --------
<S> <C> <C> <C>
Richard E. Rainwater........... 2000 54 Chairman of the Board of Directors
John C. Goff................... 1999 43 Vice Chairman of the Board of Directors
Gerald W. Haddock.............. 2001 51 President, Chief Executive Officer and
Director
Jeffrey L. Stevens............. 2000 50 Executive Vice President, Chief Operating
Officer, Treasurer, Secretary and Director
William A. Abney............... 2001 51 Director
Anthony M. Frank............... 2000 67 Director
Paul E. Rowsey, III............ 1999 44 Director
Carl F. Thorne................. 2001 58 Director
Richard P. Knight.............. N/A 30 Chief Financial Officer
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
RICHARD E. RAINWATER has served as the Chairman of the Board of Directors
of the Company since June 1997. From 1970 to 1986, he served as the chief
investment advisor to the Bass family, whose overall wealth increased
dramatically during his tenure. During that time, Mr. Rainwater was principally
responsible for numerous major corporate and real estate acquisitions and
dispositions. Immediately after beginning his independent investment activities,
he founded ENSCO International Incorporated ("ENSCO"), an oil field service and
offshore drilling company, in 1986. In 1987 he co-founded Columbia Hospital
Corporation, and in 1989 participated in a management-led buy out of
HCA-Hospital Corporation of America. In 1992, Mr. Rainwater co-founded Mid Ocean
Limited, a provider of casualty re-insurance. Mr. Rainwater founded Crescent
Real Estate Equities Company in 1994 and has served as the Chairman of the Board
of Trust Managers of Crescent Real Estate Equities Company since its inception.
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 serves as a director of Pioneer Natural Resources
("Pioneer"), one of the largest oil and gas companies in the United States. In
1996, Mr. Rainwater led a recapitalization of Mesa, Inc. (Pioneer's
predecessor), and a partnership that Mr. Rainwater controls 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.
JOHN C. GOFF has served as Vice Chairman of the Board of Directors of the
Company since June 1997. Mr. Goff is the managing director of Goff Moore
Strategic Partners, L.P., a private investment partnership that serves as the
primary investment vehicle for its principals, including Mr. Rainwater and his
family. Mr. Goff joined Mr. Rainwater shortly after he began Rainwater, Inc. as
an independent investor in 1986. From 1987 to 1994, Mr. Goff was vice president
of Rainwater, Inc., serving as a senior investment advisor and principal. Mr.
Goff served as Chief Executive Officer of Crescent Real Estate Equities Company
from 1994 through 1996. Mr. Goff is on the boards of Gainsco, Inc., a publicly
traded property and casualty insurance company; The Staubach Company, one of the
nation's largest tenant representation firms; and Texas Capital Bancshares,
Inc., a national bank. Mr. Goff served as chairman of Charter Behavioral
Healthcare Systems, L.L.C. ("CBHS"), a limited liability company which operates
approximately 90 behavioral health care facilities and is 50% owned by the
Company, from 1997 to 1998. Mr. Goff serves as Vice Chairman of the Board of
Trust Managers of Crescent Real Estate Equities Company. From 1981 to 1987, Mr.
Goff worked for KPMG Peat Marwick, and prior to that Mr. Goff worked for Century
Development Corporation, a major office developer and property management
company. Mr. Goff is a graduate of the University of Texas and is a Certified
Public Accountant.
3
<PAGE> 6
GERALD W. HADDOCK has served as President and Chief Executive Officer and a
director of the Company since its formation 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. From 1994 through
December 18, 1996, Mr. Haddock served as President and Chief Operating Officer
and a trust manager of Crescent Real Estate Equities Company. Prior to joining
Crescent Real Estate Equities Company, Mr. Haddock was a vice president of
Rainwater, Inc. from 1990 to 1994, and he was the lead transactional attorney
for Mr. Rainwater from 1986 to 1994. During this period, 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, Mr. Rainwater and as
primary outside legal counsel to Rainwater, Inc. Mr. Haddock currently is a
member of the board of directors of ENSCO, of which he was one of the three
founding directors. Mr. Haddock earned both Bachelor of Business Administration
and Juris Doctor degrees from Baylor University. He also holds a Master of Laws
degree in taxation from New York University and has served as the chairman of
the Tax Section of the State Bar of Texas.
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 and was the President and Chief Executive Officer of Petroleum
Financial, Inc. ("PFI"), a firm which provides accounting, financial and
management services to business enterprises, from 1991 until December 1998. For
over 10 years, Mr. Stevens was a director of 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 positions with
Amerac were Senior Vice President, Chief Financial Officer and Secretary, which
he held until January 1997. Mr. Stevens is chairman of the governing board of
CBHS. Mr. Stevens is also a member of the board of directors of Stewart Title of
Montgomery County, Inc. and Mitchell Mortgage Company, LLC. Mr. Stevens holds a
Bachelor of Business Administration (B.B.A.) from East Texas State University
and is a Certified Public Accountant.
WILLIAM A. ABNEY has served as a director of the Company since March 1999.
Mr. Abney is engaged in the private practice of law and is a shareholder and
managing partner of Abney & Warwick, a law firm in Marshall, Texas where he has
practiced since 1973. Since 1995, Mr. Abney has served as Chairman of the Red
River Boundary Commission of the State of Texas and since 1996 as a member of
the Title Standards Joint Editorial Board for Texas Title Examination Standards.
Mr. Abney earned both Bachelor of Business Administration (B.B.A.) and Juris
Doctor (J.D.) degrees from Southern Methodist University. Mr. Abney became a
Certified Public Accountant in 1973.
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. He served as Postmaster
General of the United States from 1988 to 1992. 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 until 1993, he served as the founding
chairman of Independent Bancorp of Arizona. Mr. Frank serves as a trust manager
of Crescent Real Estate Equities Company. Mr. Frank also serves as a director of
Irvine Apartment Communities, a large California-based apartment real estate
investment trust ("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 degree from Dartmouth College and a Master of Business Administration
degree from the Amos Tuck School of Business at Dartmouth.
PAUL E. ROWSEY, III has served as a director of the Company since June
1997. Mr. Rowsey is president of Eiger, Inc., a private real estate investment
firm, and the manager of Eiger Fund I, L.P., a real estate equity investment
fund. Mr. Rowsey was formerly president and a member of the board of directors
of Rosewood Property Company, a real estate investment company, a position he
held from 1990 until 1998. Mr. Rowsey serves as a trust manager of Crescent Real
Estate Equities Company. Mr. Rowsey began his career in 1980 as an attorney
specializing in commercial real estate. Mr. Rowsey holds a Bachelor of Arts
degree from Duke University and a Juris Doctor degree from Southern Methodist
University School of Law.
4
<PAGE> 7
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.
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. Until December 1998, Mr. Knight served in these
capacities pursuant to a services agreement between the Company and PFI, which
employed Mr. Knight until December 1998. When that service agreement ended, Mr.
Knight was immediately employed by the Company. Prior to joining PFI and the
Company, Mr. Knight was an audit manager with the accounting firm of 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 is also a member of the
governing board of CBHS. Mr. Knight holds a Bachelor of Business Administration
(B.B.A.) degree in accounting from the University of Oklahoma and is a Certified
Public Accountant.
DIRECTOR ATTENDANCE AND COMPENSATION
During 1998, the Board of Directors held three meetings: two of the meeting
were attended by all the directors; the other meeting was attended by six of the
seven directors. Each director who was a member of one or more committees that
held meetings during 1998 attended at least 75% of the meetings of the
committee(s) on which he served.
For 1998, each director who was not also an officer of the Company (an
"outside director") received an annual fee of $7,500 and an annual grant of
options to purchase 1,400 shares of Common Stock. For 1999 and subsequent years,
each outside director will receive an annual fee of $15,000 and restricted stock
in the amount of $10,000 (valued at market price). In addition, beginning in
March 1999, each member of the Audit and Compensation Committees will receive
$750 for each meeting attended, with the committee chairman receiving an
additional $450 per meeting attended; and each member of the Intercompany
Evaluation Committee (except for Mr. Stevens who is an officer of the Company)
will receive $2,500 for each meeting attended. Directors who are also officers
of the Company receive no annual fee for their service as directors and no fees
are paid to members of the Executive Committee for meetings attended. All
directors, however, are reimbursed for expenses incurred in attending meetings.
COMMITTEES OF THE BOARD OF DIRECTORS
The Executive Committee, the Audit Committee, the Compensation Committee
and the Intercompany Evaluation Committee are the standing committees of the
Board of Directors. The Compensation Committee also functions as the 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 Real Estate Equities
Company or Crescent Real Estate Equities Limited Partnership. 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.
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 15 meetings in 1998.
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 one meeting in 1998.
5
<PAGE> 8
COMPENSATION COMMITTEE. The function of the Compensation Committee is to
determine compensation for the Company's executive officers, to administer the
stock incentive plans and other compensation plans adopted by the Company, and
to nominate persons to serve as directors of the Company. The Compensation
Committee, which consisted of Carl F. Thorne and Paul E. Rowsey, III, held two
meetings in 1998. Effective March 1, 1999, Mr. Thorne resigned from the
Compensation Committee and was replaced by William A. Abney.
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 Real Estate Equities
Company or Crescent Real Estate Equities Limited Partnership to determine
whether such transactions are fair to, and in the best interests of, the
Company. The Intercompany Evaluation Committee, which consisted of Jeffrey L.
Stevens and Carl F. Thorne, held five meetings in 1998; Mr. Abney joined the
Intercompany Evaluation Committee in March 1999.
PROPOSAL NUMBER 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 continue as the Company's independent
auditors for the fiscal year ending December 31, 1999. 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. 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.
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, 1999.
Upon recommendation of the Executive Committee and approval of the Audit
Committee, on January 15, 1998, the Board of Directors 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 prior appointment of Ernst & Young LLP as
auditors of the Company 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)(l)(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 prior to January 1, 1998 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."
6
<PAGE> 9
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the Record Date (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 person known by the Company to beneficially own more than 5% of the
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.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
--------------------
PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES OUTSTANDING SHARES (15)
- ------------------------------------ ---------------- -----------------------
<S> <C> <C>
Richard E. Rainwater (l)......................... 1,255,223 (3) 10.9%
777 Main Street, Suite 2250
Fort Worth, Texas 76102
John C. Goff (1)................................. 270,472 (4) 2.3%
777 Main Street, Suite 2250
Fort Worth, Texas 76102
Gerald W. Haddock (1)(2)......................... 215,231 (5) 1.9%
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Jeffrey L. Stevens (1)(2)........................ 15,840 (6) *
306 West 7th Street, Suite 1025
Fort Worth, Texas 76102
Anthony M. Frank (1)............................. 13,940 (7) *
101 California Street, Suite 2050
San Francisco, California 94111
Carl F. Thorne (l)............................... 6,640 (8) *
1445 Ross Avenue, Suite 2700
Dallas, Texas 75201
Paul E. Rowsey, III (1).......................... 5,358 (9) *
500 Crescent Court, Suite 300
Dallas, Texas 75202
Richard P. Knight (2)............................ 2,000 (10) *
306 West 7th Street, Suite 1025
Fort Worth, Texas 76102
William A. Abney (1)............................. 1,000 *
107 West Austin
Marshall, Texas 75670
Cohen & Steers Capital Management, Inc........... 1,127,100 (11) 9.9%
757 Third Avenue
New York, New York 10017
COPI Colorado, L.P. ............................. 1,088,030 (12) 9.5%
306 W. 7th Street, Suite 1025
Fort Worth, Texas 76102
Dawson Samberg Capital Management, Inc........... 692,850 (13) 6.1%
354 Pequot Avenue
Southport, Connecticut 06490
All Directors and Executive Officers............. 1,785,704 (14) 15.0%
as a Group (nine persons)
</TABLE>
7
<PAGE> 10
- --------------------
* Less than 1%.
(1) Indicates a director of the Company.
(2) Indicates an executive officer of the Company.
(3) Includes 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 his spouse. In addition, includes 854,146 shares owned
indirectly by Mr. Rainwater, including (i) 10,520 shares owned by
Rainwater, Inc., a Texas corporation, of which Mr. Rainwater is a director
and the sole owner; (ii) 242,583 shares owned by Rainwater Investor
Partners, Ltd., a Texas limited partnership, of which Rainwater, Inc. is
the sole general partner; (iii) 55,542 shares owned by Rainwater RainAm
Investors, L.P., a Texas limited partnership, of which Rainwater, Inc. is
the sole general partner; (iv) 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 (v) 219,402 shares owned by the
Richard E. Rainwater 1995 Charitable Remainder Unitrust No. 1, of which Mr.
Rainwater is the settlor and retains the power to remove the trustee and
designate a successor trustee, including himself. Also includes 116,562
shares underlying a stock option which has vested.
(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. Also includes
182,048 shares underlying stock options which have vested. Excludes shares
owned by COPI Colorado in which Mr. Goff is a limited partner.
(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 158,104 shares underlying stock options issued pursuant to
the Company's 1997 Amended Stock Incentive Plan (the "Amended Plan") that
have vested. Excludes shares owned by COPI Colorado in which Mr. Haddock is
a limited partner.
(6) Includes 5,000 restricted shares issued pursuant to the Amended Plan, 1,000
of which have vested (i.e., the restrictions on the shares have lapsed) and
the balance of which will lapse in equal quantities annually on October 15
of 1999, 2000, 2001 and 2002. Mr. Stevens has sole voting power with
respect to such restricted shares. Also includes 10,840 shares underlying
stock options issued pursuant to the Amended Plan that have vested.
(7) Includes 2,240 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, 1,000
of which have vested (i.e., the restrictions on the shares have lapsed) and
the balance of which will lapse in equal quantities annually on October 15
of 1999, 2000, 2001 and 2002. Mr. Thorne has sole voting power with respect
to such restricted shares. Also includes 840 shares underlying stock
options issued pursuant to the Amended Plan that have vested.
(9) Includes 5,240 shares underlying stock options issued pursuant to the
Amended Plan that have vested.
(10) Includes 1,000 shares underlying stock options issued pursuant to the
Amended Plan that have vested.
(11) Based solely on the Schedule 13G as amended through that amendment dated
February 8, 1999, 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 889,100
of the reported shares.
8
<PAGE> 11
(12) As stated above, the Company has elected not to vote the shares held by
COPI Colorado at the Annual Meeting. The Company, in its capacity as sole
general partner of COPI Colorado, has sole voting and sole dispositive
power with respect to the shares.
(13) Based solely on the Schedule 13G as amended through that amendment dated
February 10, 1999, 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.
(14) Does not include shares owned by COPI Colorado.
(15) The percentage of Common Stock a person beneficially owns is based on
11,404,477 outstanding shares and assumes that (i) as to any person listed
in this table, all stock options exercisable within 60 days of April 16,
1999 are exercised and (ii) as to all other persons, no stock options are
exercised.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to the executive
officers of the Company during fiscal years 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
---------------------------------------- ----------------------------
Other Annual Restricted Securities
Compensation Stock Awards Underlying
Name and Principal Position Year Salary ($) Bonus ($) ($) ($) Options (#)
- ------------------------------- ---- ---------- --------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Gerald W. Haddock 1998 90,000 -- -- -- --
President and Chief 1997 50,000 -- -- -- 265,247 (4)
Executive Officer
Jeffrey L. Stevens 1998 150,000 (1) 35,000 -- -- 51,400 (5)(6)
Executive Vice President and 1997 -- -- -- 131,250 (3) 1,400 (4)
Chief Operating Officer
Richard P. Knight 1998 90,625 (2) 20,000 -- -- 5,000 (5)
Chief Financial Officer
</TABLE>
- -----------------
(1) Pursuant to a services agreement (the "PFI Services Agreement") between the
Company and PFI, which was wholly owned by Jeffrey L. Stevens until
December 1, 1998, PFI provided certain services to the Company. On December
1, 1998, Mr. Stevens sold PFI to Torch Energy and the PFI Services
Agreement was terminated. At that time, Mr. Stevens became an employee of
the Company. Accordingly, the amount indicated as salary is composed of
salary paid by the Company to Mr. Stevens, from December 1, 1998 through
December 31, 1998, in the amount of $12,500, and fees paid by the Company
to PFI, from January 1, 1998 through November 30, 1998, in respect of
services performed by Mr. Stevens for such period under the PFI Services
Agreement. For a more detailed description of the Company's relationship
with PFI, see "Certain Relationships and Related Transactions -
Transactions with Management of the Company - Contract with PFI," below.
(2) Mr. Knight was an employee of PFI until December 1, 1998 and provided
services to the Company under the PFI Services Agreement until such time.
On December 1, 1998, Mr. Knight became an employee of the Company.
Accordingly, the amount indicated as salary is composed of salary paid by
the Company to Mr. Knight, from December 1, 1998 through December 31, 1998,
in the amount of $8,333, and salary paid to Mr. Knight by PFI, from January
1, 1998 through November 30, 1998, in respect of services performed by Mr.
Knight under the PFI Services Agreement.
9
<PAGE> 12
(3) An aggregate of 5,000 restricted shares was 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 1998 (as measured by the Nasdaq National Market closing bid
price of $4.625 on December 31, 1998) was $23,125. Such shares vest (i.e.,
the restrictions on the shares lapse) in equal amounts over the five-year
period commencing on October 15, 1997, the date of grant. Dividends, if
declared by the Board of Directors of the Company, will be paid on such
shares.
(4) Options to purchase such shares were granted under the Amended Plan in
connection with the formation of the Company.
(5) Options to purchase shares were granted under the Amended Plan.
(6) Options to purchase 1,400 shares were granted to Mr. Stevens under the
Amended Plan in connection with his agreement to serve as director of the
Company.
The Company, through its subsidiaries, has asset management agreements (the
"Varma Asset Management Agreements") with The Varma Group, Inc. Sanjay Varma, a
Vice President of the Company until August 1998, and Johanna Varma, President of
the hospitality division of the Company, are the principals of The Varma Group.
In addition, Ms. Varma receives compensation from The Varma Group in
consideration of work performed by her for the Company. For a more detailed
description of the Company's relationship with The Varma Group, see "Certain
Relationships and Related Transactions - Transactions with Management of the
Company - Varma Asset Management Agreements," below.
STOCK OPTION GRANTS
The following table sets forth information concerning all stock options
granted to the executive officers of the Company for fiscal year 1998.
OPTION GRANTS FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Securities Percent of Total
Underlying ptions Granted Grant Date
Options to Employees In Exercise or Expiration Present
Name Granted (#) Fiscal Year (%) Base Price ($) Date Value ($) (3)
- ------------------ ----------- ----------------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Gerald W. Haddock -- -- -- -- --
Jeffrey L. Stevens 1,400 (1) 2.48 19.63 06/08/08 18,396
50,000 (2) 88.65 20.50 02/16/08 740,500
Richard P. Knight 5,000 (2) 8.87 20.50 02/16/08 74,050
</TABLE>
- -----------------
(1) Amounts vest in equal one-fifth installments on June 8, 1999, 2000, 2001,
2002 and 2003.
(2) Amounts vest in equal one-fifth installments on February 16, 1999, 2000,
2001, 2002 and 2003.
(3) The amounts shown are based on the Black-Scholes option pricing model which
uses certain assumptions to estimate the value of employee stock options.
The material assumptions used in calculating the grant date present value
were: (i) risk-free interest rate of 5.4%, (ii) expected volatility of
88.3%, (iii) no expected dividends, (iv) expected lives of 5 years and (v)
no discounts for nontransferability or risk of forfeiture. This is a
theoretical value for stock options. The actual value of the options will
depend on the market value of the Common Stock when options are exercised.
10
<PAGE> 13
OPTION EXERCISES
The following table sets forth information concerning the exercise of stock
options by the Company's executive officers during fiscal year 1998, and the
number and value of unexercised stock options held by the Company's executive
officers at December 31, 1998.
AGGREGATED OPTION EXERCISES DURING 1998 AND OPTION VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
Number Of Securities Value Of Unexercised
Underlying Unexercised In-The-Money Options At
Options At Fiscal Year-End (#) Fiscal Year-End ($) (1)
------------------------------ ---------------------------
Shares
Acquired On Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------ -------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald W. Haddock -- -- 158,105 107,142 594,475 402,854
Jeffrey L. Stevens -- -- 280 52,520 1,053 4,211
Richard P. Knight -- -- -- 5,000 -- --
</TABLE>
- -----------------
(1) Market value of securities underlying in-the-money options is based on the
closing price of the Common Stock on December 31, 1998 (the last trading
day of the fiscal year) on the Nasdaq National Market of $4.75, minus the
options' exercise prices.
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, 1998.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, 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 COMPENSATION COMMITTEE AND
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Compensation Committee during 1998 was composed of Messrs. Thorne and
Rowsey. Mr. Abney joined the Compensation Committee in March 1999. For 1998,
recommendations regarding officer compensation were made by either the
Compensation Committee or the full Board of Directors, and all recommendations
with respect to executive officer compensation were approved by the full Board
of Directors. Mr. Abney did not participate in any recommendations or decisions
with respect to executive officer compensation for 1998.
COMPENSATION PHILOSOPHY AND OBJECTIVES. As set forth in the charter of the
Compensation Committee approved by the Board of Directors in November 1998, the
Compensation Committee exercises the Board's authority to determine compensation
of the Company's executive officers and to make recommendations to subsidiaries
regarding compensation of their officers. Also, the Compensation Committee
administers the Company's stock incentive plans. The philosophy of the Company's
compensation program is to employ, retain and
11
<PAGE> 14
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 industries within which
the Company operates. In implementing the Company's compensation program, it
generally is the policy of the Board of Directors and the Compensation Committee
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. In addition to their regular salaries, the
executive officers of the Company may be compensated in the form of cash bonus
awards, restricted stock grants and stock option grants under the Company's
incentive plans.
Performance of the Company was a key consideration for the Compensation
Committee and the full Board of Directors in recommending and determining
executive compensation for 1998. The Compensation Committee and the full Board
of Directors recognized 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 Compensation Committee and the full Board of
Directors also gave consideration to the Company's achievement of specified
objectives when reviewing 1998 executive officer compensation.
LONG-TERM INCENTIVES. 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 in 1998 awarded
stock options to Messrs. Stevens and Knight to reward and incentivize those
executive officers. The Compensation Committee expects that the number of
options granted in the future will be 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 stock options represents an effective
incentive to create value for the shareholders.
CHIEF EXECUTIVE OFFICER COMPENSATION. The Compensation Committee evaluated
Mr. Haddock's contributions to the Company during 1998 through a consideration
of the general factors discussed above, the types and amounts of compensation
paid to chief executive officers at companies that the Compensation Committee
considers comparable to the Company and Mr. Haddock's contributions in
formulating the Company's growth and investment strategies and assessing the
strategies formulated by other executive officers. In evaluating and determining
the compensation awarded to Mr. Haddock in 1998, the Compensation Committee
focused particularly on the portion of Mr. Haddock's time devoted to matters of
Company business relative to the portion of his time devoted to matters of
Crescent Real Estate Equities Company. The Compensation Committee recommended to
the Board of Directors that Mr. Haddock be paid $90,000 for 1998 and the Board
of Directors approved this compensation.
<TABLE>
<CAPTION>
COMPENSATION COMMITTEE BOARD OF DIRECTORS
<S> <C>
Paul E. Rowsey, III Richard E. Rainwater
Carl F. Thorne John C. Goff
Gerald W. Haddock
Jeffrey L. Stevens
Anthony M. Frank
Paul E. Rowsey, III
Carl F. Thorne
</TABLE>
12
<PAGE> 15
PERFORMANCE GRAPH
The following graph and table provide a comparison of the cumulative total
return on the Common Stock for the period beginning June 13, 1997, the date on
which trading of the Common Stock commenced, through December 31, 1998 with
returns on the Nasdaq U.S. Index and the Nasdaq Non-Financial Stocks 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.
[GRAPH]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
6/13/97 6/30/97 9/30/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98
------- ------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Crescent Operating $100 $400 $671 $817 $713 $567 $233 $158
Common Stock
- -----------------------------------------------------------------------------------------------------------
Nasdaq U.S. Index $100 $101 $119 $111 $130 $134 $121 $156
- -----------------------------------------------------------------------------------------------------------
Nasdaq Non-Financial $100 $101 $119 $107 $128 $133 $120 $157
Stocks Index
- -----------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 16
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, the Compensation Committee was composed of Carl F. Thorne and
Paul E. Rowsey, III. For 1998, recommendations regarding executive compensation
were made by either the Compensation Committee or the full Board of Directors
and all recommendations with respect to executive officer compensation were
approved by the full Board of Directors. There were no Compensation Committee
interlocks during 1998.
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 two meetings of the Company's Board of Directors during 1998
at which discussions concerning executive officer compensation occurred. At one
of these meetings, the Board of Directors (with Mr. Stevens abstaining) approved
the grant of stock options to Messrs. Stevens and Knight. At the other meeting,
the Board of Directors (with Mr. Haddock abstaining) approved the recommendation
of the Compensation Committee regarding compensation for the Chief Executive
Officer. Since the end of 1998, all compensation decisions have been and will
continue to be made by the Compensation Committee. There was no other insider
participation in the executive compensation decisions of the Company during
1998.
Effective March 1, 1999, Mr. Thorne resigned from the Compensation
Committee and was replaced by William A. Abney.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH CRESCENT EQUITIES AND CERTAIN OFFICERS OF CRESCENT EQUITIES
AND THE COMPANY
The Company has entered into transactions and arrangements with Crescent
Real Estate Equities Company and Crescent Real Estate Equities Limited
Partnership ("Crescent Partnership," and together with Crescent Real Estate
Equities Company and the direct and indirect subsidiaries of either, "Crescent
Equities") and certain officers and directors of Crescent Real Estate Equities
Company and Crescent Partnership, which are described in the following
paragraphs. Messrs. Rainwater and Goff are, respectively, the Chairman and Vice
Chairman of the Board of Directors of the Company and the Board of Trust
Managers of Crescent Real Estate Equities Company. Mr. Haddock serves as
President and Chief Executive Officer and a director of the Company. He also is
the sole director and President and Chief Executive Officer of the sole general
partner of Crescent Partnership, and serves as President and Chief Executive
Officer and a trust manager of Crescent Real Estate Equities Company. For a
description of the beneficial ownership of equity securities of the Company by
Messrs. Rainwater, Goff and Haddock as of the Record Date, see "Voting
Securities and Principal Shareholders," above. As of the Record Date, Messrs.
Rainwater, Goff and Haddock beneficially owned in the aggregate approximately
12.6% of the outstanding equity securities of Crescent Equities.
INTERCOMPANY AGREEMENT WITH CRESCENT PARTNERSHIP. The Company was formed to
be the lessee and operator of certain assets owned or to be acquired by Crescent
Equities 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 Real Estate Equities Company as a REIT, it is required to
enter into a "master lease" arrangement. In general, 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. In addition to
lessee transactions, the Company and Crescent Partnership have also entered into
"controlled subsidiary transactions" under the Intercompany Agreement.
Controlled subsidiary transactions are those in which the Company invests
alongside Crescent Partnership in acquisitions where the Company owns all of the
voting stock and Crescent Partnership owns all of the non-voting stock of a
corporate acquisition vehicle which in turn acquires a target business which
cannot be operated by Crescent Partnership because of Crescent Real Estate
Equities Company's status as a REIT. In addition, 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.
14
<PAGE> 17
LEASES WITH CRESCENT EQUITIES. The Company or its subsidiaries leased seven
hotels and two destination health and fitness resorts from Crescent Equities
during 1998. These properties included 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, the Austin Omni
Hotel and The Four Seasons Hotel Houston. The properties (except for the Austin
Omni Hotel whose lease was terminated by mutual agreement with Crescent Equities
effective December 31, 1998) are subject to long-term leases that expire between
December 2004 and December 2007 and generally provide for (i) base rent, with
periodic rent increases, (ii) percentage rent based on a percentage of gross
hotel revenues less food and beverage revenues above a specified amount and
(iii) a percentage of gross food and beverage revenues above a specified amount.
Under the leases, the Company is obligated to pay all property taxes and charges
against the properties and, with the exception of Canyon Ranch-Tucson, Crescent
Equities is obligated to fund all capital expenditures related to furniture,
fixtures and equipment reserves required under the respective management
agreements. The Company executed a master guaranty and other guaranties pursuant
to which it unconditionally guarantees payment and performance of the leases
solely from its hotel and resort related assets and income streams. The Company
provided the master guaranty in exchange for Crescent Equities' agreement to
eliminate from the leases certain net worth requirements and cash distribution
limitations applicable to the lessees.
Total rent expense related to the hotel and destination health and fitness
resort properties leased from Crescent Equities totaled approximately $52.3
million for the year ended December 31, 1998. In addition, upon termination of
the Austin Omni Hotel lease, the Company received a $75,000 break-up fee from
Crescent Equities in accordance with the terms of such lease. Effective January
1, 1999, the Company began providing to Crescent Equities limited asset
management services related to the Austin Omni Hotel for $50,000 per year.
Effective October 13, 1998, a subsidiary of the Company became the lessee
of the Sonoma Golf Course, which is a part of the Sonoma Mission Inn and Spa.
The Sonoma Golf Course is subject to a 10-year lease and provides for the
payment to Crescent Equities of (i) base rent, with periodic rent increases and
(ii) percentage rent based on annual gross receipts above a specified amount
that is subject to change. Total rent expense incurred by the Company in
connection with the Sonoma Golf Course lease totaled approximately $534,770 for
the year ended December 31, 1998.
In addition, the Company and Crescent Equities are currently negotiating an
agreement with a Marriott affiliate with respect to the Renaissance Houston
Hotel, in which case it is expected that (i) Crescent Equities would terminate
its lease with the current tenant of the hotel, and (ii) a subsidiary of the
Company would become the tenant of the Renaissance Houston Hotel under a lease
with terms comparable to those of the leases described above.
FINANCING ARRANGEMENTS WITH CRESCENT EQUITIES. The Company and certain of
its subsidiaries have various debt instruments payable to Crescent Equities,
which, in the aggregate, had outstanding balances in the amount of $228.6
million as of December 31, 1998. A portion of such debt instruments is payable
by subsidiaries of the Company which are 100% owned ("Wholly Owned CEI Debt")
and the remaining is payable by subsidiaries of the Company which are not 100%
owned ("Non-Wholly Owned CEI Debt").
As of December 31, 1998, Wholly Owned CEI Debt instruments in the amount of
$64 million consisted of the following: (i) a note payable in the amount of
$24.2 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 ("Line of Credit") in the amount of
$30.4 million ($27.7 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 (the "COPI Note") in the amount of
$9.0 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; (iv) a note payable in the amount of $1.8 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; (v) a note payable in the amount of $.6
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; (vi) a note payable in the amount of $.5 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 (vii) a note payable in the amount of
$.2 million, due November 2006, at an interest rate of 7.5% per annum.
15
<PAGE> 18
As of December 31, 1998, Non-Wholly Owned CEI Debt instruments in the
amount of $164.6 million consisted of the following: (i) a note payable by
Desert Mountain Development Limited Partnership ("Desert Mountain Properties")
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 Mountain
Properties; (ii) a note payable by Desert Mountain Properties in the amount of
$50.7 million, due December 2005, at an interest rate of 10% per annum,
collateralized by land, improvements and equipment at Desert Mountain
Properties; (iii) a line of credit (the "CDMC Credit Agreement") in the amount
of $40.2 million ($36.0 million of which was outstanding), due August 31, 2004,
at an interest rate of 11.5% per annum, collateralized by the interests of
Crescent Development Management Corp. ("CDMC") in certain property, partnerships
and a limited liability company; (iv) a line of credit payable by CDMC in the
amount of $22.9 million ($15.0 million of which was outstanding), due January
2003, at an interest rate of 12% per annum, collateralized by CDMC's interests
in certain property, partnerships and a limited liability company; (v) a note
payable by CDMC in the amount of $2.9 million, due June 2005, at an interest
rate of 12% per annum, collateralized by CDMC's interests in certain property,
partnerships and a limited liability company; and (vi) a line of credit (the
"CRL Credit Facility") in the amount of $7 million (of which $0 was
outstanding), due August 2003, at an interest rate of 12% per annum.
CANYON RANCH. Effective July 27, 1998, to enable the Company to invest in
the future use of the "Canyon Ranch" name, the Company contributed $50,500 to
obtain a 5% economic interest, representing all of the voting stock, of CRL
Investments, Inc. ("CRL"). The remaining 95% interest in CRL is held by Crescent
Equities, which contributed $949,500 to CRL to obtain its interest. Immediately
after the formation of CRL, CRL exercised its purchase option (acquired from
Crescent Equities) by paying $1 million to obtain a 10% economic interest in CR
License LLC ("CR License"), which owns the right to use the "Canyon Ranch" name.
CRL has the opportunity over the next two years to pay an additional $5 million
to obtain an additional 20% interest in CRL License. Contemporaneously, CRL
acquired a 50% interest in CR Las Vegas LLC, an entity that is building a Canyon
Ranch day spa in the Venetian Hotel in Las Vegas. Through CRL and CR License,
the Company has an effective 2.75% economic interest in the Canyon Ranch day spa
project. To enable CRL to exercise future options with respect to CR License and
to fund its obligations to partnerships such as CR Las Vegas, CRL obtained from
Crescent Equities the CRL Credit Facility. During the first quarter 1999, the
Company and Crescent Equities contributed to CRL, on a pro rata basis, equity
contributions aggregating $2.3 million and CRL borrowed an identical amount
under the CRL Credit Facility.
COPI COLORADO AND CDMC. Effective September 11, 1998, the Company and
Gerald W. Haddock, John C. Goff and Harry H. Frampton, III (collectively, the
"CDMC Sellers") entered into a partnership agreement to form COPI Colorado. COPI
Colorado's purpose is to hold and manage the voting stock of (and, consequently,
to manage the investments of) CDMC and to invest in shares of the Company's
Common Stock. The Company contributed $9.0 million in cash to COPI Colorado in
exchange for a 50% general partner interest in COPI Colorado, and each CDMC
Seller contributed to COPI Colorado approximately 667 shares of CDMC voting
stock in exchange for an approximately 16.67% limited partner interest in COPI
Colorado; as a result, the Company owns a 50% managing interest in COPI Colorado
and the CDMC Sellers collectively own a 50% investment interest in COPI
Colorado. The Company funded its contribution to COPI Colorado using the
proceeds from the COPI Note. As of April 16, 1999, COPI Colorado had purchased
1,088,030 shares of the Company's Common Stock at a total purchase price,
excluding broker commissions, of $4.2 million. Effective January 11, 1999, the
CDMC Credit Agreement was increased by $8 million and CDMC and Crescent Equities
entered into a new $40 million credit facility. The new credit facility bears
interest at 11.5% per annum and matures December 2006.
CORPORATE ARENA ASSOCIATES. On April 24, 1998, the Company and Crescent
Equities acquired a 5% economic interest and a 94.9% economic interest,
respectively, in Corporate Arena Associates, Inc. ("CAA"). CAA owns an undivided
6.19% interest in certain acreage on which the multi-purpose sports arena (the
"Arena") is to be built in Dallas, Texas, for the Dallas Stars, a National
Hockey League club, and the Dallas Mavericks, a National Basketball Association
club, as well as in the Arena. The common stock that each of the Company and
Crescent Equities owns in CAA is non-voting. However, the Company has limited
consent rights under a shareholders agreement among the three shareholders
executed in connection with the transaction. As of the Record Date, the
Company's total contribution to CAA was $180,461. On September 16, 1998, the
Company and Crescent Equities acquired a 2.6051% interest and a 9.9% interest,
respectively, as limited partners in Hillwood/1642, Ltd. ("Hillwood"), a
partnership that owns certain acreage surrounding the Arena that may be
developed for commercial purposes. As of the Record Date, the Company's
contribution to Hillwood was $1,039,174. As a condition to
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offering the Company the opportunities to invest simultaneously with Crescent
Equities in Corporate Arena Associates, Inc. and Hillwood, Crescent Partnership
required the Company to enter into a Buy-Out Agreement under which the Company
will be obligated to purchase from Crescent Partnership its stock in that
corporation, its interest in Hillwood, and any assets distributed to it by that
corporation or Hillwood, if and to the extent that ownership of such stock,
partnership interest or other assets would adversely affect or jeopardize the
REIT status of Crescent Real Estate Equities Company. If Crescent Partnership
determines that it must dispose of any such property because of adverse REIT
matters, it cannot sell the property to any person other than the Company
without the Company's consent. The Company's obligation to purchase property put
to it by Crescent Partnership is subject, among other conditions, to Crescent
Partnership providing seller financing for up to 50% (and up to 80%, in the case
of a partnership interest) of the purchase price and consenting to additional
third-party junior financing.
REFRIGERATED STORAGE PROPERTIES. Effective March 12, 1999, the Company,
Crescent Equities, Vornado Realty Trust and affiliated entities that owned the
business operations of approximately 101 refrigerated storage properties (the
"Refrigerated Storage Properties") restructured their investment in the
Refrigerated Storage Properties (the "Restructuring"). In the Restructuring, the
affiliated entities that owned any portion of the business operations of the
Refrigerated Storage Properties sold their ownership of the business operations
to a newly formed partnership (the "Refrigerated Storage Operating
Partnership"), of which a newly formed subsidiary of the Company owns 40% and
Vornado Operating L.P. owns 60%, in consideration of the payment of $48.7
million by the Refrigerated Storage Operating Partnership. The Refrigerated
Storage Operating Partnership, as lessee, entered into triple-net master leases
with respect to the Refrigerated Storage Properties. Each of the Refrigerated
Storage Properties is subject to one or more of the leases, each of which has an
initial term of 15 years, subject to two, five-year renewal options. The leases
provide for an aggregate annual base rental rate of $123 million for the first
through fifth lease years, $126 million for the sixth through 10th lease years
and $130.5 million for the 11th through 15th lease years, plus percentage rent
based on the gross revenues received from customers at the Refrigerated Storage
Properties above a specified amount.
In addition, in connection with the Restructuring, and also effective March
12, 1999, the Company sold to Crescent Equities an additional 4% nonvoting
interest in the two subsidiaries of Crescent Equities that have an indirect
interest in the Refrigerated Storage Properties for an aggregate purchase price
of $13.2 million. As a result, the economic interest of the Company in the two
subsidiaries decreased from 5% to 1%, which decreased the Company's indirect
ownership interest in the Refrigerated Storage Properties from 2% to 0.4%, and
the economic interest of Crescent Equities in each of the two subsidiaries
increased from 95% to 99%, which increased Crescent Equities' indirect ownership
interest in the Refrigerated Storage Properties from 38% to 39.6%. The Company
also was granted an option to require Crescent Equities to purchase the
Company's remaining 1% interest in both or either of the two subsidiaries for an
aggregate price of approximately $3.4 million, at such time as the purchase
would not, in the opinion of counsel to Crescent Equities, adversely affect the
status of Crescent Real Estate Equities Company as a REIT.
Effective March 12, 1999, in connection with the Restructuring, the Company
agreed to make a permanent reduction in its $30.4 million 12% line of credit
with Crescent Partnership commensurate with the proceeds from the sale of 80% of
the Company's 2% interest in the Refrigerated Storage Properties. On March 12,
1999, the Company received $13.2 million of proceeds and correspondingly
permanently reduced the availability under the line of credit from $30.4 million
to $17.2 million.
Also effective March 12, 1999, the Company obtained from Crescent
Partnership a $19.5 million line of credit (the "Vornado Credit Agreement")
bearing interest at a rate of 9% per annum. The line of credit has terms similar
to the other line of credit with Crescent Partnership with the exception of the
interest rate and is cross-collateralized and cross-defaulted with the Company's
other borrowings from Crescent Partnership. Upon inception of this line of
credit, the Company immediately borrowed the full $19.5 million with which it
contributed approximately $15.5 million to the creation of the Refrigerated
Storage Operating Partnership, owned 60% by Vornado Operating, Inc. and 40% by
the Company, and used the remaining $4.0 million of proceeds to reduce the
amount outstanding under the $30.4 million 12% line of credit with Crescent
Partnership.
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INTERESTS INVOLVING MAGELLAN AND CRESCENT EQUITIES
The Company has interests involving Magellan Health Services, Inc.
("Magellan") and Crescent Equities described in the following paragraphs.
INTERESTS WITH MAGELLAN. In 1997, the Company purchased from Magellan a 50%
member interest in CBHS and warrants to acquire up to 1,283,311 shares of
Magellan common stock. The warrants are exercisable in increments through May
2009 at an exercise price of $30.00 per share.
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 2,457,278 shares, and warrants to acquire approximately
1,212,483 shares, of Magellan common stock, which represents approximately 10.5%
of the outstanding common stock of Magellan. Messrs. Goff and Haddock each own,
directly or indirectly, approximately 57,084 shares and 32,000 shares,
respectively, and warrants to acquire 28,462 shares and 28,542 shares,
respectively, of Magellan common stock, representing approximately 0.3% and
0.2%, respectively, 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.
Until his resignation on November 3, 1998, Mr. Goff served as one of the
Company's two representatives on the governing board of CBHS. Richard P. Knight,
the Company's Chief Financial Officer, was appointed to fill the vacancy, and
Jeffrey L. Stevens, the Executive Vice President, Chief Operating Officer,
Treasurer, Secretary and a director of the Company, was appointed chairman of
CBHS' governing board.
Darla D. Moore is married to Mr. Rainwater and is a director of Magellan.
As part of the arrangements pursuant to which Mr. Rainwater acquired securities
of Magellan, an affiliate of Mr. Rainwater has the right to designate a nominee
acceptable to Magellan for election as a director of Magellan for so long as Mr.
Rainwater and his affiliates continue to own beneficially a specified minimum
number of shares of Magellan common stock. Mr. Rainwater's affiliate proposed
Ms. Moore as its nominee for director, and Ms. Moore was first elected to the
Magellan governing board on February 22, 1996.
INTERESTS INVOLVING CRESCENT EQUITIES AND MAGELLAN. In June 1997, CBHS and
its subsidiaries entered into a triple-net operating lease agreement (the
"Facilities Lease") with Crescent Equities, under which all of the CBHS
facilities (the "Facilities") are leased by Crescent Equities 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 paid for the first year of the initial term was
$41.7 million. The base rent increases by 5% compounded annually. Total rent
expense incurred by CBHS in connection with the Facilities Lease totaled
approximately $56.2 million for the year ended December 31, 1998.
Magellan (through a wholly owned subsidiary) has granted a franchise for
each Facility to CBHS pursuant to a franchise agreement (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. Under the Franchise Agreements, CBHS and its
subsidiaries have the right to use the "CHARTER" System in connection with the
management and administration of behavioral healthcare facilities.
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
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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 Equities.
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 Equities and Magellan, franchise fees, generally, are
subordinated to base rent. CBHS has not made any franchise fee payments to
Magellan since August 1998, and, as a result, is in default under the Master
Franchise Agreement. In August 1998, Magellan exercised its right under the CBHS
operating agreement to take management control of CBHS due to such arrearages in
franchise fee payments from CBHS. For the year ended December 31, 1998, CBHS
paid franchise fees to Magellan in the amount of $21.0 million. At December 31,
1998, franchise fee arrearages were approximately $58.5 million.
Effective March 3, 1998, the Company signed a definitive agreement (the
"Equity Purchase Agreement") to acquire the 50% membership interest in CBHS
currently 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, equity
interests in certain entities, intellectual property rights and the assets of
certain staff model clinics. The Company signed a support agreement (the
"Support Agreement'), dated as of March 3, 1998, pursuant to which it agreed,
among other things, to assist CBHS in obtaining the funds required to consummate
the transactions contemplated by the Purchase Agreement, to pay expenses
incurred in obtaining such funds and to pay a $5 million termination fee in the
event such transactions were not consummated or the Purchase Agreement was
terminated as a result of CBHS' failure to obtain the required funds, assuming
other conditions to closing had been satisfied. The closing of the transactions
contemplated by the Equity Purchase Agreement and the Purchase Agreement, which
was originally scheduled for July 1998, was subject to certain closing
conditions which were not satisfied. In August 1998, the Company and Magellan
each announced its termination of negotiations with respect to the Company's
acquisition of the 50% interest in CBHS owned by Magellan. The parties are
currently engaged in arbitration with respect to their rights and obligations
under the Equity Purchase Agreement and the Purchase Agreement.
TRANSACTIONS WITH MANAGEMENT OF THE COMPANY
CONTRACT WITH PFI. In 1997, the Company entered into the PFI Services
Agreement with PFI, a company owned by Mr. Stevens until December 1, 1998,
pursuant to which, PFI provided certain services to Crescent Operating. These
services included corporate overhead costs such as rent and utilities in
addition to salaries for corporate officers and other personnel who perform all
corporate duties. In consideration of services performed by PFI, the Company
paid an annual fee in an amount equal to $150,000 plus 105% of all reasonable
and customary costs and expenses incurred in providing services to the Company.
Mr. Knight was, until December 1, 1998, an employee of and received compensation
from PFI. During 1998, PFI was paid approximately $941,000 under the PFI
Services Agreement. Effective December 1, 1998, the contract between the Company
and PFI was terminated.
VARMA ASSET MANAGEMENT AGREEMENTS. 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 (who until August 1998 was a Vice
President of the Company and President of the hospitality division), and his
wife, Johanna Varma, who since September 1998 has been President of the
Company's hospitality division, 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
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determined in accordance with a formula based on the value of the unexpired
contract. In 1998, The Varma Group received $689,500 in asset management fees
from the Company.
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.
SHAREHOLDER PROPOSALS AT THE COMPANY'S
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD IN 2000
Under the rules of the Commission, stockholders who intend to submit
proposals for consideration at the Company's annual meeting of stockholders to
be held for the year 2000 must submit such proposals to the Company no later
than January 6, 2000, 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. Stockholder proposals should be submitted to
Jeffrey L. Stevens, Secretary, Crescent Operating, Inc., 306 West 7th Street,
Suite 1025, Fort Worth, Texas 76102.
Under the Company's Amended and Restated Bylaws (the "Bylaws"), a
stockholder must follow certain procedures to nominate persons for election as
directors or to propose other business to be considered at an annual meeting of
stockholders. These procedures provide that stockholders 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 9, 2000, and no later than March 29, 2000, in the case of proposals
for the annual meeting of stockholders to be held in the year 2000 (other than
proposals intended to be included in the proxy statement and form of proxy,
which, as noted above, must be received by January 6, 2000). Generally, such
stockholder 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
Commission; (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
stockholder; and (c) as to the stockholder, (i) the name and address of such
stockholder, (ii) the number of shares of common stock which are owned
beneficially and of record by such stockholder, and (iii) the date(s) upon which
the stockholder 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, Suite
1025, Fort Worth, Texas 76102.
In addition, the form of proxy solicited by the Board of Directors in
connection with Crescent Operating's annual meeting of stockholders to be held
in the year 2000 will confer discretionary authority to the named proxies to
vote on any proposal, unless with respect to a particular proposal the Secretary
of Crescent Operating receives notice of such matter no earlier than March 9,
2000, and no later than March 29, 2000 and such notice complies with the other
requirements described in the preceding paragraph.
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PROXY
CRESCENT OPERATING, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 7, 1999
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
The undersigned hereby appoints John C. Goff, Gerald W. Haddock and Jeffrey
L. Stevens, and 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 7, 1999, at 10:00 a.m., Central Daylight Savings Time, and at any
adjournment or postponement thereof, on all matters set forth on the Notice of
Annual Meeting and Proxy Statement, dated May 5, 1999, a copy of which has been
received by the undersigned, as follows on the reverse side.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN,
WILL BE VOTED "FOR" EACH OF THE MATTERS STATED.
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SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
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[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
1. ELECTION OF DIRECTORS:
NOMINEES: John C. Goff, Paul E. Rowsey, III and William A. Abney
FOR [ ] [ ] WITHHOLD
AUTHORITY
[ ]
----------------------------------
INSTRUCTION: To withhold authority
to vote for any individual nominee,
write that nominee(s) name on the
space provided above.
2. RATIFICATION of the appointment of Ernst & Young LLP as the Company's
Independent auditors for the fiscal year ending December 31, 1999.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. GRANT AUTHORITY to vote upon such other matters as may properly come
before the meeting, including the adjournment or postponement of the
meeting, as the proxies determine to be in the best interest of the
Company.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
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.
Signature: Date: Signature: Date:
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