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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 17, 1996
CRESCENT REAL ESTATE EQUITIES, INC.
(Exact name of Registrant as specified in its Charter)
Maryland 1-13038 52-1862813
(State of Incorporation) (Commission File (IRS Employer Identification Number)
Number)
900 Third Avenue, Suite 1800
New York, New York 10022
(Address of Principal Executive Offices) (Zip Code)
(212) 836-4216
(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS
REORGANIZATION
General
On June 17, 1996, the stockholders of Crescent Real Estate Equities, Inc.
("Crescent-Maryland"), a Maryland corporation, approved a proposal authorizing
the reorganization of Crescent-Maryland as a Texas real estate investment trust
(a "Texas REIT") pursuant to the provisions of the Texas Real Estate Investment
Trust Act (the "TRA"). The reorganization will be accomplished in a
transaction exempt from federal income taxation by means of a merger of
Crescent-Maryland into a newly formed Texas REIT ("Crescent-Texas"), pursuant
to which each share of the common stock, par value $.01 per share, of
Crescent-Maryland (the "Common Stock"), will be converted into a common share
of beneficial interest, par value $.01 per share (the "Common Shares"), in
Crescent-Texas. It is anticipated that the Common Shares will be listed on the
New York Stock Exchange under the symbol "CEI" (in substitution of the shares
of Common Stock of Crescent-Maryland presently listed on the Exchange), and it
is expected that it will not be necessary for stockholders of the Company to
surrender or exchange their existing stock certificates representing shares of
the Common Stock of Crescent-Maryland for new stock certificates representing
Common Shares of Crescent-Texas.
The reorganization has been structured to preserve unchanged the existing
business, purpose, tax status, management, capitalization and assets,
liabilities and net worth (other than due to the costs of the transaction) of
Crescent-Maryland and its subsidiaries (collectively, the "Company"), and the
economic interests and voting rights of the stockholders of Crescent-Maryland
(who will become the shareholders of Crescent-Texas as a result of the merger).
The Board of Trust Managers and the executive officers of Crescent-Texas will
be identical to, and will have the same terms of office, as the Board of
Directors and executive officers of Crescent-Maryland. Crescent-Texas will
assume all then-existing incentive compensation plans of Crescent-Maryland.
PRIOR TO EFFECTING THE REORGANIZATION, THE BOARD OF DIRECTORS OF
CRESCENT-MARYLAND MAY ABANDON OR TERMINATE THE REORGANIZATION UPON A
DETERMINATION THAT IT IS NO LONGER IN CRESCENT-MARYLAND'S BEST INTEREST.
Description of Shares of Crescent-Texas
The following sections describe the anticipated equity structure of
Crescent-Texas following the reorganization described above. The equity
structure of Crescent-Texas and the provisions of its Declaration of Trust and
Bylaws are designed to duplicate the structure of Crescent-Maryland, including
existing Maryland corporate statutes. Although the Board of Directors has the
right, prior to filing the Declaration of Trust of Crescent-Texas with the
appropriate Texas regulatory
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authorities, to make ministerial and other changes approved by the Board if
necessary or advisable to permit Crescent-Texas to comply fully with the TRA
and the rules relating to qualification as a real estate investment trust for
federal income tax purposes (a "REIT"), and also to conform to the provisions
of the Articles of Incorporation of Crescent-Maryland, it is not anticipated
that there will be any significant changes from either the existing equity
structure of Crescent-Maryland or from the following description of the
anticipated equity structure of Crescent-Texas.
COMMON SHARES. The Declaration of Trust of Crescent-Texas will authorize
the Board of Trust Managers of Crescent-Texas to issue up to 250,000,000 Common
Shares, as well as 250,000,000 Excess Shares, par value $0.01 per share,
issuable in exchange for Common Shares as described below under "Description of
Shares of Crescent-Texas -- Ownership Limits and Restrictions on Transfer."
Subject to such preferential rights as may be granted by the Board of
Trust Managers in connection with the future issuance of Preferred Shares,
holders of Common Shares are entitled to one vote per share on all matters to
be voted on by shareholders and are entitled to receive ratably such dividends
as may be declared on the Common Shares by the Board of Trust Managers in its
discretion from funds legally available therefor. In the event of the
liquidation, dissolution or winding up of Crescent-Texas, holders of Common
Shares are entitled to share ratably in all assets remaining after payment of
all debts and other liabilities and any liquidation preference of the holders
of Preferred Shares. Holders of Common Shares have no subscription,
redemption, conversion or preemptive rights. Matters submitted for shareholder
approval generally require a majority vote of the shares present and voting
thereon.
PREFERRED SHARES. The Declaration of Trust of Crescent-Texas will
authorize the Board of Trust Managers of Crescent-Texas to issue up to
100,000,000 preferred shares of beneficial interest, par value $.01 per share
(the "Preferred Shares"), to establish one or more series of such Preferred
Shares and to determine, with respect to any series of Preferred Shares, the
preferences, rights and other terms of such series. It is not anticipated that
any Preferred Shares will be outstanding following completion of the
reorganization. Although the Board of Trust Managers has no present intention
to do so, it could, in the future, issue a series of Preferred Shares which,
due to its terms, could impede a merger, tender offer or other transaction that
some, or a majority, of Crescent-Texas's shareholders might believe to be in
their best interests or in which shareholders might receive a premium over then
prevailing market prices for their Common Shares. The Declaration of Trust
also will authorize the issuance of up to an aggregate of 100,000,000 Excess
Shares issuable in exchange for Preferred Shares as described below under
"Description of Shares of Crescent-Texas -- Ownership Limits and Restrictions
on Transfer."
OWNERSHIP LIMITS AND RESTRICTIONS ON TRANSFER. For Crescent-Texas to
qualify as a REIT under the Internal Revenue Code of 1986, as amended (the
"Code"), (i) not more than 50% in value of outstanding equity securities of all
classes ("Equity Securities") may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain
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entities) during the last half of a taxable year; (ii) the Equity Securities
must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months or during a proportionate part of a shorter taxable
year; and (iii) certain percentages of Crescent-Texas's gross income must come
from certain activities.
To ensure that five or fewer individuals do not own more than 50% in value
of the outstanding Equity Securities, Crescent-Texas's Declaration of Trust will
provide generally that no holder may own, or be deemed to own by virtue of
certain attribution provisions of the Code, more than 8.0% of the issued and
outstanding Common Shares or more than 9.9% of the issued and outstanding shares
of any series of Preferred Shares, except that Richard E. Rainwater, the
Chairman of the Board of Crescent-Texas, and certain related persons together
may own, or be deemed to own, by virtue of certain attribution provisions of the
Code, up to 17.9% (the "Rainwater Ownership Limit") of the issued and
outstanding Common Shares and up to 9.9% of the issued and outstanding shares of
any series of Preferred Shares (collectively, the "Ownership Limit"). The Board
of Trust Managers, upon receipt of a ruling from the IRS, an opinion of counsel,
or other evidence satisfactory to the Board of Trust Managers, in its sole
discretion, will be permitted to waive or change, in whole or in part, the
application of the Ownership Limit with respect to any person that is not an
individual (as defined in Section 542(a)(2) of the Code). In connection with
any such waiver or change, the Board of Trust Managers will have the authority
to require such representations and undertakings from such person or affiliates
and to impose such other conditions as the Board deems necessary, advisable or
prudent, in its sole discretion, to determine the effect, if any, of a proposed
transaction or ownership of Equity Securities on Crescent-Texas's status as a
REIT. The Board of Trust Managers also will have the authority to reduce the
Rainwater Ownership Limit, with the written consent of Mr. Rainwater, after any
transfer permitted by the Declaration of Trust.
In addition, the Board of Trust Managers will have the right, from time to
time, to increase the Common Shares Ownership Limit, except that it will not be
permissible for the Board of Trust Managers (i) to increase the Ownership Limit
or create additional limitations if, after giving effect thereto,
Crescent-Texas would be "closely held" within the meaning of Section 856(h) of
the Code, (ii) to increase either the Common Shares Ownership Limit or the
Preferred Shares Ownership Limit to a percentage that is greater than 9.9%, or
(iii) to increase the Rainwater Ownership Limit. Prior to any modification of
the Ownership Limit or the Rainwater Ownership Limit with respect to any
person, the Board of Trust Managers will have the right to require such
opinions of counsel, affidavits, undertakings or agreements as it may deem
necessary, advisable or prudent, in its sole discretion, in order to determine
or ensure Crescent-Texas's status as a REIT.
Under the Declaration of Trust, the Ownership Limit will not be
automatically removed even if the REIT provisions of the Code are changed so as
to no longer contain any ownership concentration limitation or if the ownership
concentration limit is increased. In addition to preserving Crescent-Texas's
status as a REIT for federal income tax purposes, the
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Ownership Limit may prevent any person or small group of persons from acquiring
control of Crescent-Texas.
The Declaration of Trust of Crescent-Texas also will provide that if any
issuance, transfer or acquisition of Equity Securities (i) would result in a
holder exceeding the Ownership Limit, (ii) would cause Crescent-Texas to be
beneficially owned by less than 100 persons, (iii) would result in
Crescent-Texas being "closely held" within the meaning of Section 856(h) of the
Code, or (iv) would otherwise result in the failure of Crescent-Texas to
qualify as a REIT for federal income tax purposes, then such issuance, transfer
or acquisition shall be null and void to the intended transferee or holder, and
the intended transferee or holder will acquire no rights to the shares.
Pursuant to the Declaration of Trust, Equity Securities owned, transferred or
proposed to be transferred in excess of the Ownership Limit or which would
otherwise jeopardize Crescent-Texas's status as a REIT under the Code
automatically will be converted to Excess Shares. A holder of Excess Shares
will not be entitled to distributions, voting rights and other benefits with
respect to such shares except the right to payment of the purchase price for
the shares and the right to certain distributions upon liquidation. Any
dividend or distribution paid to a proposed transferee on Excess Shares
pursuant to Crescent-Texas's Declaration of Trust will be required to be repaid
to Crescent-Texas upon demand. Excess Shares will be subject to repurchase by
Crescent-Texas at its election. The purchase price of any Excess Shares will
be equal to the lesser of (a) the price in such proposed transaction or (b)
either (i) if the shares are then listed on the New York Stock Exchange, the
fair market value of such shares reflected in the average closing sales prices
for the shares on the 10 trading days immediately preceding the date on which
Crescent-Texas or its designee determines to exercise its repurchase right, or
(ii) if the shares are not then so listed, such price for the shares on the
principal exchange (including the National Market System of the NASDAQ Stock
Market on which the shares are listed, or (iii) if the shares are not then
listed on a national securities exchange, the latest quoted price for the
shares, or (iv) if not quoted, the average of the high bid and low asked prices
if the shares are then traded over-the-counter, as reported by the NASDAQ Stock
Market, or (v) if such system is no longer in use, the principal automated
quotation system then in use, or (vi) if the shares are not quoted on such
system, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the shares, or (vii) if there is
no such market maker or such closing prices otherwise are unavailable, the fair
market value, as determined by the Board of Trust Managers in good faith, on
the last trading day immediately preceding the day on which notice of such
proposed purchase is sent by Crescent-Texas. If the foregoing transfer
restrictions are determined to be void or invalid by virtue of any legal
decision, statute, rule or regulation, then Crescent-Texas will have the option
to deem the intended transferee of any Excess Shares to have acted as an agent
on behalf of Crescent-Texas in acquiring such Excess Shares and to hold such
Excess Shares on behalf of Crescent-Texas.
Under the Declaration of Trust, Crescent-Texas will have the authority, at
any time, to waive the requirement that Excess Shares be issued or be deemed
outstanding in accordance with the provisions of the Declaration of Trust if
the issuance of such Excess Shares or the fact that such Excess Shares is
deemed to be outstanding would, in the opinion of nationally
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recognized tax counsel, jeopardize the status of Crescent-Texas as a REIT for
federal income tax purposes.
All certificates issued by Crescent-Texas representing Equity Securities
will bear a legend referring to the restrictions described above.
The Declaration of Trust of Crescent-Texas also will provide that all
persons who own, directly or by virtue of the attribution provisions of the
Code, more than 5.0% of the outstanding Equity Securities (or such lower
percentage as may be set by the Board of Trust Managers), must file an
affidavit with Crescent-Texas containing information specified in the
Declaration of Trust no later than January 31 of each year. In addition, each
shareholder will be required, upon demand, to disclose to Crescent-Texas in
writing such information with respect to the direct, indirect and constructive
ownership of shares as the trust managers deem necessary to comply with the
provisions of the Code, as applicable to a REIT, or to comply with the
requirements of a governmental authority or agency.
The ownership limitations described above may have the effect of
inhibiting or impeding acquisitions of control of Crescent-Texas by a third
party. See "Certain Provisions of the Declaration of Trust, Bylaws and Texas
Law," below.
Certain Provisions of the Declaration of Trust and Bylaws
of Crescent-Texas and of Texas Law
The Declaration of Trust and the Bylaws of Crescent-Texas will contain
certain provisions that may inhibit or impede acquisition or attempted
acquisition of control of Crescent-Texas by means of a tender offer, a proxy
contest or otherwise. These provisions, which are like those for
Crescent-Maryland, are expected to discourage certain types of coercive
takeover practices and inadequate takeover bids and to encourage persons
seeking to acquire control of Crescent-Texas to negotiate first with the Board
of Trust Managers. Crescent-Texas believes that these provisions increase the
likelihood that proposals initially will be on more attractive terms than would
be the case in their absence and increase the likelihood of negotiations, which
could outweigh the potential disadvantages of discouraging such proposals
because, among other things, negotiation of such proposals might result in
improvement of terms. The description set forth below is only a summary of the
expected terms of the Declaration of Trust and the Bylaws (copies of which will
be filed with the Securities and Exchange Commission following completion of
the reorganization). See "Description of Shares of Crescent-Texas -- Ownership
Limits and Restrictions on Transfer."
STAGGERED BOARD OF TRUST MANAGERS. The Declaration of Trust and the
Bylaws of Crescent-Texas will provide that the Board of Trust Managers will be
divided into three classes of trust managers, each class constituting
approximately one-third of the total number of directors, with the classes
serving staggered three-year terms. The classification of the Board of Trust
Managers will have the effect of making it more difficult for shareholders to
change the composition of the Board of Trust Managers, because only a minority
of the
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directors are up for election, and may be replaced by vote of the shareholders,
at any one time. Crescent-Texas believes, however, that the longer terms
associated with the classified Board of Trust Managers will help to ensure
continuity and stability of Crescent-Texas's management and policies.
The classification provisions also could have the effect of discouraging a
third party from accumulating a large block of the capital shares of
Crescent-Texas or attempting to obtain control of Crescent-Texas, even though
such an attempt might be beneficial to Crescent-Texas and some, or a majority,
of its shareholders. Accordingly, under certain circumstances shareholders
could be deprived of opportunities to sell their Common Shares at a higher price
than might otherwise be available.
NUMBER OF TRUST MANAGERS; REMOVAL; FILLING VACANCIES. The Declaration of
Trust also will provide that, subject to any rights of holders of Preferred
Shares to elect additional trust managers under specified circumstances
("Preferred Holders' Rights"), the number of trust managers will be fixed by the
Bylaws. In addition, the Declaration of Trust and the Bylaws will provide that,
subject to any Preferred Holders' Rights, the number of trust managers will be
fixed by the Board of Trust Managers, but must not be more than 25 nor less than
three. In addition, the Bylaws will provide that, subject to any Preferred
Holders' Rights, and unless the Board of Trust Managers otherwise determines,
any vacancies (other than vacancies created by an increase in the total number
of trust managers) will be filled by the affirmative vote of a majority of the
remaining trust managers, although less than a quorum, and any vacancies created
by an increase in the total number of trust managers may be filled by a majority
of the entire Board of Trust Managers. Accordingly, the Board of Trust Managers
could temporarily prevent any shareholder from enlarging the Board of Trust
Managers and then filling the new directorship with such shareholder's own
nominees.
The Declaration of Trust and the Bylaws also will provide that, subject to
any Preferred Holders' Rights, trust managers may be removed only for cause
upon the affirmative vote of holders of at least 80% of the entire voting power
of all the then-outstanding shares entitled to vote generally in the election
of trust managers, voting together as a single class.
RELEVANT FACTORS TO BE CONSIDERED BY THE BOARD OF TRUST MANAGERS. The
Declaration of Trust will provide that, in determining what is in the best
interest of Crescent-Texas in evaluating a "business combination," "change in
control" or other transaction, a trust manager of Crescent-Texas shall consider
all of the relevant factors, which may include (i) the immediate and long-term
effects of the transaction on Crescent-Texas's shareholders, including
shareholders, if any, who do not participate in the transaction; (ii) the
social and economic effects of the transaction on Crescent-Texas's employees,
suppliers, creditors and customers and others dealing with Crescent-Texas and
on the communities in which Crescent-Texas operates and is located; (iii)
whether the transaction is acceptable, based on the historical and current
operating results and financial condition of Crescent-Texas; (iv) whether a
more
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favorable price would be obtained for Crescent-Texas's shares or other
securities in the future; (v) the reputation and business practices of the
other party or parties to the proposed transaction, including its or their
management and affiliates, as they would affect employees of Crescent-Texas;
(vi) the future value of the securities of Crescent-Texas; (vii) any legal or
regulatory issues raised by the transaction; and (viii) the business and
financial condition and earnings prospects of the other party or parties to the
proposed transaction including, without limitation, debt service and other
existing financial obligations, financial obligations to be incurred in
connection with the transaction, and other foreseeable financial obligations of
such other party or parties. Pursuant to this provision, the Board of Trust
Managers may consider subjective factors affecting a proposal, including
certain nonfinancial matters, and, on the basis of these considerations, may
oppose a business combination or other transaction which, evaluated only in
terms of its financial merits, might be attractive to some, or a majority, of
Crescent-Texas's shareholders.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER NOMINATIONS AND SHAREHOLDER
PROPOSALS. The Bylaws will provide for an advance notice procedure for
shareholders to make nominations of candidates for trust manager or bring other
business before an annual meeting of shareholders of Crescent-Texas (the
"Shareholder Notice Procedure").
Pursuant to the Shareholder Notice Procedure (i) only persons who are
nominated by, or at the direction of, the Board of Trust Managers, or by a
shareholder who has given timely written notice containing specified
information to the Secretary of Crescent-Texas prior to the meeting at which
trust managers are to be elected, will be eligible for election as trust
managers of Crescent-Texas and (ii) at an annual meeting, only such business
may be conducted as has been brought before the meeting by, or at the direction
of the Chairman or the Board of Trust Managers or by a shareholder who has
given timely written notice to the Secretary of Crescent-Texas of such
shareholder's intention to bring such business before such meeting. In
general, for notice of shareholder nominations or proposed business to be
conducted at an annual meeting to be timely, it will be a requirement that such
notice be received by Crescent-Texas not less than 70 days nor more than 90
days prior to the first anniversary of the previous year's annual meeting
(which, for 1997, will be the 1996 annual meeting of Crescent-Maryland that was
held on June 17, 1996).
The purpose of requiring shareholders to give Crescent-Texas advance
notice of nominations and other business is to afford the Board of Trust
Managers a meaningful opportunity to consider the qualifications of the
proposed nominees or the advisability of the other proposed business and, to
the extent deemed necessary or desirable by the Board of Trust Managers, to
inform shareholders and make recommendations about such nominees or business,
as well as to ensure an orderly procedure for conducting meetings of
shareholders. Although the Bylaws will not give the Board of Trust Managers
power to block shareholder nominations for the election of trust managers or
proposal for action, they may have the effect of discouraging a shareholder
from proposing nominees or business, precluding a contest for the election of
directors or the consideration of shareholder proposals if procedural
requirements are not met, and deterring third parties from soliciting proxies
for a non-
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management proposal or slate of trust managers, without regard to the merits of
such proposal or slate.
PREFERRED SHARES. The Declaration of Trust will authorize the Board of
Trust Managers to establish one or more series of Preferred Shares and to
determine, with respect to any series of Preferred Shares, the preferences,
rights and other terms of such series. See "Description of Shares of
Crescent-Texas -- Preferred Shares." Crescent-Texas believes that the ability
of the Board of Trust Managers to issue one or more series of Preferred Shares
will provide Crescent-Texas with increased flexibility in structuring possible
future financings and acquisitions, and in meeting other corporate needs. The
authorized Preferred Shares will be available for issuance without further
action by Crescent-Texas's shareholders, unless such action is required by
applicable law or the rules of any stock exchange or automated quotation system
on which Crescent-Texas's securities may be listed or traded. Although the
Board of Trust Managers has no present intention to do so, it could, in the
future, issue a series of Preferred Shares which, due to its terms, could impede
a merger, tender offer or other transaction that some, or a majority, of the
shareholders of Crescent-Texas might believe to be in their best interests or in
which shareholders might receive a premium over then prevailing market prices
for their Common Shares.
AMENDMENT OF DECLARATION OF TRUST. The Declaration of Trust will provide
that it may be amended only by the affirmative vote of the holders of not less
than two-thirds of the votes entitled to be cast.
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY. The Declaration of
Trust will authorize the Board of Trust Managers to create and issue rights
entitling the holders thereof to purchase from Crescent-Texas shares of
beneficial interest or other securities or property. The times at which and
terms upon which such rights are to be issued are within the discretion of the
Board of Trust Managers. This provision is intended to confirm the authority
of the Board of Trust Managers to issue share purchase rights which could have
terms that would impede a merger, tender offer or other takeover attempt, or
other rights to purchase securities of Crescent-Texas or any other entity.
BUSINESS COMBINATIONS. The Declaration of Trust will establish special
requirements with respect to "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between Crescent-Texas
and any person who beneficially owns, directly or indirectly, 10% or more of
the voting power of Crescent-Texas's shares (an "Interested Shareholder"),
subject to certain exemptions. These provisions will be structured to
duplicate, as nearly as possible, the existing Maryland corporate statutes
relating to business combinations. In general, the Declaration of Trust will
provide that an Interested Shareholder or any affiliate thereof may not engage
in a "business combination" with Crescent-Texas for a period of five years
following the date he becomes an Interested Shareholder. Thereafter, pursuant
to the Declaration of Trust, such transactions will be required to be (i)
approved by the Board of
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Trust Managers of Crescent-Texas and (ii) approved by the affirmative vote of
at least 80% of the votes entitled to be cast by holders of voting shares other
than voting shares held by the Interested Shareholder with whom the business
combination is to be effected, unless, among other things, the holders of
Common Shares receive a minimum price (as such term will be defined in the
Declaration of Trust) for their shares and the consideration is received in
cash or in the same form as previously paid by the Interested Shareholder for
his shares. These provisions of the Declaration of Trust will not apply,
however, to business combinations that are approved or exempted by the Board of
Trust Managers of Crescent-Texas prior to the time that the Interested
Shareholder becomes an Interested Shareholder.
CONTROL SHARE ACQUISITIONS. The Declaration of Trust will provide that
"control shares" of Crescent-Texas acquired in a control share acquisition have
no voting rights except to the extent approved by a vote of two-thirds of the
votes entitled to be cast by shareholders, excluding shares owned by the
acquiror, officers of Crescent-Texas and employees of Crescent-Texas who are
also trust managers of Crescent-Texas. These provisions will be structured to
duplicate, as nearly as possible, the existing Maryland corporate statutes
relating to control share acquisitions. Accordingly, "control shares" will be
defined as shares which, if aggregated with all other shares previously
acquired which the person is entitled to vote, would entitle the acquiror to
vote (i) 20% or more but less than one-third; (ii) one-third or more but less
than a majority; or (iii) a majority of the outstanding shares. Control shares
will not include shares that the acquiring person is entitled to vote on the
basis of prior shareholder approval. A "control share acquisition" will be
defined as the acquisition of control shares, subject to certain exemptions
that will be enumerated in the Declaration of Trust.
The Declaration of Trust will provide that a person who has made or
proposed to make a control share acquisition and who has obtained a definitive
financing agreement with a responsible financial institution providing for any
amount of financing not to be provided by the acquiring person may compel the
Board of Trust Managers of Crescent-Texas to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the Declaration of Trust
will permit Crescent-Texas itself to present the question at any shareholders'
meeting.
Pursuant to the Declaration of Trust, if voting rights are not approved at
a shareholders' meeting or if the acquiring person does not deliver an
acquiring person statement as required by the Declaration of Trust, then,
subject to certain conditions and limitations to be set forth in the
Declaration of Trust, Crescent-Texas will have the right to redeem any or all
of the control shares, for fair value determined, without regard to voting
rights, as of the date of the last control share acquisition or of any meeting
of shareholders at which the voting rights of such shares are considered and
not approved. Under the Declaration of Trust, if voting rights for control
shares are approved at a shareholders' meeting and as a result the acquiror
would be entitled to vote a majority of the shares entitled to vote, all other
shareholders will have the rights of dissenting shareholders under the TRA.
The Declaration of Trust also will provide that the fair value of the shares
for purposes
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of such appraisal rights may not be less than the highest price per share paid
by the acquiror in the control share acquisition, and that certain limitations
and restrictions of the TRA otherwise applicable to the exercise of dissenters'
rights will not apply.
These provision of the Declaration of Trust will not apply to shares
acquired in a merger, consolidation or share exchange if Crescent-Texas is a
party to the transaction, or if the acquisition is approved or excepted by the
Declaration of Trust or Bylaws of Crescent-Texas prior to a control share
acquisition.
OWNERSHIP LIMIT. The limitation on ownership of shares of Common Shares
set forth in the Declaration of Trust of Crescent-Texas could have the effect of
discouraging offers to acquire Crescent-Texas and of increasing the difficulty
of consummating any such offer. See "Description of Shares of Crescent-Texas
- -- Ownership Limits and Restrictions on Transfer."
UNIT OPTION PLAN AND GRANT OF OPTIONS TO PURCHASE UNITS
On July 16, 1996, the Board of Directors of Crescent Real Estate Equities,
Ltd., a Delaware corporation which is the general partner (the "General
Partner") of Crescent Real Estate Equities Limited Partnership, a Delaware
limited partnership (the "Operating Partnership"), of which Crescent-Maryland
(or, following completion of the reorganization described above under
"Reorganization," Crescent-Texas) owns an approximately 79% indirect beneficial
interest, adopted the 1996 Crescent Real Estate Equities Limited Partnership
Unit Incentive Plan (the "1996 Unit Incentive Plan"). Crescent-Maryland or
Crescent-Texas, as the case may be, is referred to in this section as "Crescent
Equities."
The purpose of the 1996 Unit Incentive Plan is to promote the growth and
general prosperity of the Operating Partnership by permitting the General
Partner to grant options to acquire ownership units in the Operating
Partnership (the "Units") to certain of its employees. The grant of options to
acquire Units is designed to reward those officers of the General Partner who
provide valuable service and encourage the continuation of such service by
offering them the opportunity to become limited partners in the Operating
Partnership through the acquisition of Units. The 1996 Unit Incentive Plan
provides for the grant of up to 2,000,000 Units, all of which were granted on
July 16, 1996, as described below. Subject to approval by the securityholders
of Crescent Equities of the right to exchange the Units for shares of Common
Stock, the Units are exchangeable for shares of Common Stock (or, as the case
may be, for Common Shares) on a one-for-one basis (or, at the option of
Crescent Equities, for cash or a combination of securities and cash).
Pursuant to the 1996 Unit Incentive Plan, the General Partner, with the
approval and ratification of both the Executive Compensation Committee of
Crescent Equities, and the full Board of Directors of Crescent Equities, in its
capacity as the sole shareholder of the General Partner, granted options to
each of John C. Goff, the Chief Executive Officer of Crescent Equities and the
General Partner, and Gerald W. Haddock, the President and Chief Operating
Officer of Crescent Equities and the General Partner, on July 16, 1996. Each of
Messrs. Goff and Haddock was granted an option (the "Option") to purchase from
the Operating Partnership all or any part of a total of 1,000,000 Units at a
price of $35.125 per Unit. The option price is equal to the
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<PAGE> 12
fair market value of a Unit on the date of grant. The fair market value of a
Unit for purposes of the 1996 Unit Incentive Plan is the last sale price for
the Common Stock on the date of grant, as reported on the New York Stock
Exchange.
Each of the Options has a 10 year term and vests over a period of seven
years from the date of grant according to the following schedule:
<TABLE>
<CAPTION>
Percentage of
Units Exercisable Date Exercisable
------------------ ----------------------------------------
<S> <C>
14.28% After one year from the Date of Grant
28.56% After two years from the Date of Grant
43.14% After three years from the Date of Grant
57.42% After four years from the Date of Grant
71.70% After five years from the Date of Grant
85.98% After six years from the Date of Grant
100% After seven years from the date of Grant
</TABLE>
Notwithstanding the foregoing, if the fair market value of the Common Stock
equals or exceeds $50.00 for each of ten consecutive trading days, an
additional 250,000 Units (or such lesser number as may be unvested at such
time) shall vest and become exercisable. In that event, the remaining unvested
portion of the Option will vest ratably through the seventh anniversary of the
original date of grant.
Upon the death, disability or retirement of either Mr. Goff or Mr.
Haddock, his Option will become fully exerciseable and remain exercisable for
the remaining unexpired term thereof. Upon the termination of the employment
of either Mr. Goff or Mr. Haddock for "cause," as defined in the 1996 Unit
Incentive Plan, or otherwise, further vesting under his Option shall cease,
and his Option shall expire at the end of its initial term.
In the event of the involuntary termination of the employment of either
Mr. Goff or Mr. Haddock (other than for cause) or the voluntary termination of
either for "good reason" within two years following a change in control of
Crescent Equities, his Option will become fully vested and exercisable.
Termination for "good reason" is defined in the 1996 Unit Incentive Plan as a
reduction in the employee's aggregate cash compensation, the assignment of the
employee to a position that does not have comparable duties to those exercised
by the employee prior to the change in control, or a geographical relocation or
attempted relocation of the employee to a location more than fifty miles distant
from Fort Worth, Texas without the employee's consent.
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<PAGE> 13
Under the 1996 Unit Incentive Plan, the Units that may be purchased by
Messrs. Goff and Haddock are not exchangeable for shares of Common Stock until
the securityholders of Crescent Equities approve exchange rights for such Units
and such shares are approved for listing. It is anticipated that Crescent
Equities will submit a proposal to approve exchange rights for the Units that
may be purchased by Messrs. Goff and Haddock under the 1996 Unit Incentive Plan
to its securityholders at the 1997 annual meeting of securityholders.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
1. Financial Statements of Businesses Acquired.
Not applicable.
2. Pro Forma Financial Information.
Not applicable.
3. Exhibits.
None.
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<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: September 10, 1996 CRESCENT REAL ESTATE EQUITIES, INC.
By: /s/ Dallas E. Lucas
-------------------------
Dallas E. Lucas
Senior Vice President and
Chief Financial Officer
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