<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 6, 1997
REGISTRATION NO. 33-92548
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. ONE
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CRESCENT REAL ESTATE EQUITIES TRUST
(formerly known as Crescent Real Estate Equities, Inc.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
TEXAS 52-1862813
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
777 MAIN STREET
SUITE 2100
FORT WORTH, TEXAS 76102
TELEPHONE: (817) 878-0477
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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GERALD W. HADDOCK
CRESCENT REAL ESTATE EQUITIES TRUST
777 MAIN STREET, SUITE 2100
FORT WORTH, TEXAS 76102
TELEPHONE: (817) 877-0477
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
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Copies to:
<TABLE>
<S> <C>
ROBERT B. ROBBINS, ESQ. DAVID M. DEAN, ESQ.
SHAW, PITTMAN, POTTS & TROWBRIDGE CRESCENT REAL ESTATE EQUITIES TRUST
2300 N STREET, N.W. 777 MAIN STREET, SUITE 2100
WASHINGTON, D.C. 20037 FORT WORTH, TEXAS 76102
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
From time to time after the effective date of the Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
of the Securities Act of 1933, please check the following box. [ ]
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<PAGE> 2
PROSPECTUS SUBJECT TO COMPLETION
DATED JANUARY 6, 1997
9,598,216 SHARES
CRESCENT
REAL ESTATE EQUITIES TRUST
COMMON SHARES
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Crescent Real Estate Equities Trust (the "Company") is a fully integrated
real estate company operating as a real estate investment trust ("REIT"). The
Company, through its subsidiaries, directly or indirectly owns a portfolio of
real estate assets located primarily in 16 metropolitan submarkets in Texas and
Colorado. The portfolio includes 53 office properties with an aggregate of
approximately 16.3 million net rentable square feet, four full-service hotels
with a total of 1,471 rooms, two destination health and fitness resorts, six
retail properties and economic interests in three residential development
corporations.
This Prospectus relates to (i) the possible issuance by the Company of up to
6,474,288 common shares (the "Original Exchange Shares") of beneficial interest,
par value $.01 per share ("Common Shares"), of the Company if, and to the extent
that, holders of up to 6,474,288 units (the "Original Units") of limited
partnership interest ("Units") in Crescent Real Estate Equities Limited
Partnership (the "Operating Partnership") tender such Original Units in exchange
for Common Shares, (ii) the offer and sale from time to time of up to 2,017,392
outstanding Common Shares (the "Original Shares") by the holders thereof, (iii)
the possible distribution of up to 617,392 Original Shares if, and to the extent
that, the holder thereof (which is a limited partnership) distributes such
Original Shares pro rata to its partners as part of the liquidation and winding
up of the affairs of such holder, (iv) the possible issuance by the Company of
up to 1,097,014 shares (the "RER Exchange Shares") if, and to the extent that,
the holder of up to 1,097,014 Units (the "RER Units") tenders such RER Units in
exchange for Common Shares, (v) the possible issuance by the Company of up to
9,522 shares (the "JME Exchange Shares") if, and to the extent that, the holder
of up to 9,522 Units (the "JME Units") tenders such JME Units in exchange for
Common Shares, and (vi) the offer and sale or other distribution from time to
time by the holders thereof (the "Selling Shareholders") of any Original
Exchange Shares, RER Exchange Shares and JME Exchange Shares (collectively, the
"Exchange Shares") and any Original Shares (collectively with the Exchange
Shares, the "Secondary Shares"). The Original Units and the Original Shares were
issued (or reserved for issuance) in connection with the formation of the
Company and the Company's initial public offering. The RER Units were issued, in
a private placement in April 1995 to an affiliate of Richard E. Rainwater, the
Chairman of the Board of Trust Managers, and the issuance of Common Shares upon
any exchange thereof was approved by the shareholders of the Company at its
Annual Meeting held on June 12, 1995. The JME Units were issued to an employee
of the general partner of the Operating Partnership in a private placement in
May 1995. The Company has registered the Original Shares and the Exchange Shares
to provide the Selling Shareholders with freely tradeable securities, but the
registration of such shares does not necessarily mean that any of such shares
will be offered or sold by the Selling Shareholders. See "The Company" and
"Registration Rights." Of the Common Shares to which this Prospectus relates,
had been sold as of , 1997. A portion of the Original
Units and all of the RER Units and JME Units have been exchanged for Common
Shares, and a portion of the Original Shares and Original Units have been
distributed as of , 1997. See "Selling Shareholders."
SEE "RISK FACTORS" AT PAGE 5 FOR CERTAIN FACTORS RELEVANT TO AN INVESTMENT
IN THE COMMON SHARES.
The Common Shares are listed on the New York Stock Exchange under the symbol
"CEI." To ensure that the Company maintains its qualification as a REIT for
federal income tax purposes, ownership by any person generally is limited to
8.0% of the issued and outstanding Common Shares. See "Description of Shares of
the Company."
The Selling Shareholders from time to time may offer and sell Secondary
Shares held by them directly or through agents or broker-dealers on terms to be
determined at the time of sale. To the extent required, the name of any agent or
broker-dealer and applicable commissions or discounts and any other required
information with respect to any particular offer will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution." Each of the
Selling Shareholders reserves the sole right to accept or reject, in whole or in
part, any proposed purchase of the Secondary Shares to be made directly or
through agents.
The Selling Shareholders and any agents or broker-dealers that participate
with the Selling Shareholders in the distribution of Secondary Shares may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any commissions received by them and any
profit on the resale of the Secondary Shares may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Registration Rights" for
indemnification arrangements between the Company and the Selling Shareholders.
The Company will not receive any proceeds from the issuance of the Exchange
Shares or the sale of any Secondary Shares by the Selling Shareholders but has
agreed to bear certain expenses of registration of the Secondary Shares under
federal and state securities laws, not including commissions and discounts of
agents or broker-dealers and transfer taxes, if any. The Company's interest in
the Operating Partnership will increase in connection with any issuance by the
Company of Exchange Shares to Unit holders pursuant to this Prospectus.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON
OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
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THE DATE OF THIS PROSPECTUS IS , 1997.
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[THIS PAGE INTENTIONALLY LEFT BLANK]
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") by the Company's predecessor,
Crescent Real Estate Equities, Inc. (the "Predecessor Corporation") (Exchange
Act file number 1-13038) with the Securities and Exchange Commission (the
"Commission") and are incorporated herein by reference:
1. The Registration Statement of the Predecessor Corporation on Form 8-A
filed on April 18, 1994 registering the common stock, par value $0.01
per share, of the Predecessor Corporation under Section 12(b) of the
Exchange Act.
2. The Proxy Statement in connection with the Predecessor Corporation's
1996 Annual Meeting of Stockholders.
3. The Predecessor Corporation's Annual Report on Form 10-K for the year
ended December 31, 1995, as amended on April 29, 1996.
4. The Predecessor Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.
5. The Predecessor Corporation's Current Report on Form 8-K dated August 2,
1994 and filed January 9, 1996, as amended on February 2, 1996 and
February 15, 1996.
6. The Predecessor Corporation's Current Report on Form 8-K dated October
3, 1994 and filed January 9, 1996, as amended on February 2, 1996 and
February 15, 1996.
7. The Predecessor Corporation's Current Report on Form 8-K dated December
19, 1995 and filed January 3, 1996, as amended on February 2, 1996 and
February 15, 1996.
8. The Predecessor Corporation's Current Report on Form 8-K dated April 18,
1996 and filed June 5, 1996.
9. The Predecessor Corporation's Current Report on Form 8-K dated June 17,
1996 and filed September 11, 1996.
10. The Predecessor Corporation's Current Report on Form 8-K dated August
15, 1996 and filed September 11, 1996, as amended on September 27, 1996
and November 12, 1996.
11. The Predecessor Corporation's Current Report on Form 8-K dated
September 27, 1996 and filed September 27, 1996.
12. The Predecessor Corporation's Current Report on Form 8-K dated October
4, 1996 and filed October 4, 1996.
All documents filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of all Common Shares to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and shall be part
hereof from the date of filing of such document.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in this
Prospectus (in the case of a statement in a previously filed document
incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement or in any other subsequently filed document
that is also incorporated or deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus or any accompanying Prospectus Supplement.
Subject to the foregoing, all information appearing in this Prospectus and each
accompanying
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Prospectus Supplement is qualified in its entirety by the information appearing
in the documents incorporated by reference.
The Company undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon the written or oral request of
any such person, a copy of any or all of the documents incorporated by reference
in this Prospectus (other than exhibits and schedules thereto, unless such
exhibits or schedules are specifically incorporated by reference into the
information that this Prospectus incorporates). Written or telephonic requests
for copies should be directed to Crescent Real Estate Equities Trust, 777 Main
Street, Suite 2100 Fort Worth, Texas 76102, Attention: Company Secretary
(telephone number: (817) 878-0477).
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<PAGE> 6
THE COMPANY
Crescent Real Estate Equities Trust (the "Company" or "Crescent Equities")
is a fully integrated real estate company operating as a real estate investment
trust for federal income tax purposes (a "REIT"). The Company, a Texas real
estate investment trust, became the successor to Crescent Real Estate Equities,
Inc., a Maryland corporation (the "Predecessor Corporation"), on December 31,
1996, through the merger (the "Merger") of the Predecessor Corporation and CRE
Limited Partner, Inc., a Delaware corporation, into the Company. The Merger was
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 the Predecessor Corporation, and the
economic interests and voting rights of the stockholders of the Predecessor
Corporation (who became the shareholders of the Company as a result of the
Merger). The Board of Trust Managers and the executive officers of the Company
are identical to, and have the same terms of office as, the Board of Directors
and executive officers of the Predecessor Corporation. The term "Company"
includes, as the context requires, the Predecessor Corporation, the Operating
Partnership (as defined below) and the other subsidiaries of the Company.
As of December 31, 1996, the Company, through its subsidiaries, directly or
indirectly owned a portfolio of real estate assets (the "Properties") located
primarily in 16 metropolitan submarkets in Texas and Colorado. The Properties
include 53 office properties (the "Office Properties") with an aggregate of
approximately 16.3 million net rentable square feet, four full-service hotels
with a total of 1,471 rooms, two destination health and fitness resorts (the
"Hotel Properties"), six retail properties (the "Retail Properties") with an
aggregate of approximately .6 million net rentable square feet and real estate
mortgages (the "Residential Development Property Mortgages") and non-voting
common stock in three residential development corporations (the "Residential
Development Corporations") that own all or a portion of six single-family
residential land developments and three prospective condominium/townhome
developments (the "Residential Development Properties"). In addition, the
Company, through one of its subsidiaries, owns one mortgage note secured by a
Class A office property (the "Biltmore Note").
The Company, as a fully integrated real estate company, provides
management, leasing and development services with respect to certain of its
Properties. As of December 31, 1996, the Company had approximately 200 employees
and its eight officers had over 100 years of combined experience in the real
estate industry.
The Company's direct and indirect subsidiaries include Crescent Real Estate
Equities Limited Partnership (the "Operating Partnership"); Crescent Real Estate
Equities, Ltd. (the "General Partner" or "CREE, Ltd."), which is the sole
general partner of the Operating Partnership; Crescent Real Estate Funding I,
L.P. ("Funding I"), Crescent Real Estate Funding II, L.P. ("Funding II"),
Crescent Real Estate Funding III, L.P. ("Funding III"), Crescent Real Estate
Funding IV, L.P. ("Funding IV"), and Crescent Real Estate Funding V, L.P.
("Funding V"), limited partnerships in which the Operating Partnership owns
substantially all of the economic interests directly or indirectly with the
remaining interests owned indirectly by the Company through CRE Management I
Corp. ("Management I"), CRE Management II Corp. ("Management II"), CRE
Management III Corp. ("Management III"), CRE Management IV Corp. ("Management
IV") and CRE Management V Corp. ("Management V"), which are wholly-owned
subsidiaries of the General Partner and are the general partners of Funding I,
Funding II, Funding III, Funding IV and Funding V, respectively.
The Company conducts all of its business directly through the Operating
Partnership and its other subsidiaries and indirectly through the Operating
Partnership's interests in the Residential Development Corporations. The General
Partner controls the Operating Partnership and the Company is the sole
shareholder of the General Partner. In addition, as of December 31, 1996, the
Company owned an approximately 83.5% limited partner interest in the Operating
Partnership.
Pursuant to the limited partnership agreement of the Operating Partnership
(the "Operating Partnership Agreement"), limited partners of the Operating
Partnership (the "Limited Partners") may elect to exchange (the "Exchange
Right") their units of partnership interest in the Operating Partnership
("Units") for
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common shares of beneficial interest, par value $.01 per share ("Common Shares")
on a one-for-one basis (subject to certain exceptions) or, at the election of
the Company, for cash equal to the then-current fair market value of the number
of Common Shares for which such Units are exchangeable. The Company anticipates
that, consistent with the Ownership Limit, it generally will elect to issue
Common Shares rather than pay cash in connection with such exchanges. See
"Exchange of Units -- General" and "Description of Shares of the
Company -- Ownership Limits and Restrictions on Transfer." To the extent that
Limited Partners elect to exchange their Units, the Company's interest in the
Operating Partnership will increase.
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SECURITIES TO BE OFFERED
This Prospectus relates to (i) the possible issuance by the Company of up
to 6,474,288 Common Shares (the "Original Exchange Shares") if, and to the
extent that, holders of up to 6,474,288 Units (the "Original Units") tender such
Original Units in exchange for Common Shares, (ii) the offer and sale from time
to time of up to 2,017,392 outstanding Common Shares (the "Original Shares") by
the holders thereof, (iii) the possible distribution of up to 617,392 Original
Shares if, and to the extent that, the holder thereof (which is a limited
partnership) distributes such Original Shares pro rata to its partners as part
of the liquidation and winding up of the affairs of such holder, (iv) the
possible issuance by the Company of up to 1,097,014 shares (the "RER Exchange
Shares") if, and to the extent that, the holder of up to 1,097,014 Units (the
"RER Units") tenders such RER Units in exchange for Common Shares, (v) the
possible issuance by the Company of up to 9,522 shares (the "JME Exchange
Shares") if, and to the extent that, the holder of up to 9,522 Units (the "JME
Units") tenders such JME Units in exchange for Common Shares, and (vi) the offer
and sale or other distribution from time to time by the holders thereof (the
"Selling Shareholders") of any Original Exchange Shares, RER Exchange Shares and
JME Exchange Shares (collectively, the "Exchange Shares") and any Original
Shares (collectively with the Exchange Shares, the "Secondary Shares"). The
Original Units and the Original Shares were issued (or reserved for issuance) in
connection with the formation of the Company and the Company's initial public
offering. The RER Units were issued, in a private placement in April 1995 to an
affiliate of Richard E. Rainwater, the Chairman of the Board of Trust Managers,
and the issuance of Common Shares upon any exchange thereof was approved by the
shareholders of the Company at its Annual Meeting held on June 12, 1995. The JME
Units were issued to an employee of the General Partner in a private placement
in May 1995. The Company has registered the Original Shares and the Exchange
Shares to provide the Selling Shareholders with freely tradeable securities, but
the registration of such shares does not necessarily mean that any of such
shares will be offered or sold by the Selling Shareholders. See "The Company"
and "Registration Rights." Of the Common Shares to which this Prospectus
relates, had been sold as of , 1997. A portion of the
Original Units and all of the RER Units and JME Units have been exchanged for
Common Shares, and a portion of the Original Shares and Original Units have been
distributed as of 1997. See "Selling Shareholders. "
RISK FACTORS
Prospective investors should carefully consider the following summary
information in conjunction with the other information contained in this
Prospectus before exchanging Units or purchasing Common Shares.
CONCENTRATION OF ASSETS
A significant portion of the Company's assets and revenues are derived from
Properties located in the Dallas-Fort Worth and Houston, Texas and Denver,
Colorado metropolitan areas. Due to this geographic concentration, any
deterioration in economic conditions in the Dallas-Fort Worth, Houston and
Denver metropolitan areas or other geographic markets in which the Company in
the future may acquire substantial assets could have a substantial effect on the
financial condition and results of operations of the Company.
RISKS ASSOCIATED WITH THE ACQUISITION OF SUBSTANTIAL NEW ASSETS
From the closing of the Company's initial public offering in May 1994
through the date of this Prospectus, the Company has experienced rapid growth,
increasing its portfolio of Office Properties on the basis of rentable square
feet, by more than 530 percent. There can be no assurance either that the
Company will be able to manage its growth effectively or that the Company will
be able to maintain its current rate of growth in the future.
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PURCHASES FROM FINANCIALLY DISTRESSED SELLERS
Implementation of the Company's strategy of investing in real estate assets
in distressed circumstances has resulted in the acquisition of certain
Properties from owners that were in poor financial condition, and such strategy
is expected to result in the purchase of additional properties under similar
circumstances in the future. In addition to general real estate risks,
properties acquired in distress situations present risks related to inadequate
maintenance, negative market perception and continuation of circumstances which
precipitated the distress originally.
RELIANCE ON KEY PERSONNEL
The Company is dependent on the efforts of Mr. Richard E. Rainwater,
Chairman of the Board of Trust Managers and other senior management personnel.
While the Company believes that it could find replacements for these key
executives, the loss of their services could have an adverse effect on the
operations of the Company. Mr. Rainwater has no employment agreement with the
Company and, therefore, is not obligated to remain with the Company for any
specified term. John C. Goff, Trust Manager and Vice Chairman of the Board of
Trust Managers, and Gerald W. Haddock, President, Chief Executive Officer and
Trust Manager, have entered into employment agreements with the Company, and
Messrs. Rainwater, Goff and Haddock each has entered into a noncompetition
agreement with the Company. The Company has not obtained key-man insurance for
any of its senior management personnel.
RISKS RELATING TO QUALIFICATION AND OPERATION AS A REIT
The Company intends to continue to operate in a manner so as to qualify as
a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). A
qualified REIT generally is not taxed at the corporate level on income it
currently distributes to its shareholders, so long as it distributes at least 95
percent of its taxable income currently and satisfies certain other highly
technical and complex requirements. Unlike many REITs, which tend to make only
one or two types of real estate investments, the Company invests in a broad
range of real estate products, and certain of its investments are more
complicated than those of other REITs. As a result, the Company is likely to
encounter a greater number of interpretative issues under the REIT qualification
rules, and more such issues which lack clear guidance, than are other REITs. The
Company, as a matter of policy, regularly consults with outside tax counsel in
structuring its new investments. The Company has received an opinion from Shaw,
Pittman, Potts & Trowbridge ("Tax Counsel") that the Company qualified as a REIT
under the Code for its taxable years ending on or before December 31, 1996, is
organized in conformity with the requirements for qualification as a REIT under
the Code and its proposed manner of operation will enable it to continue to meet
the requirements for qualification as a REIT. However, this opinion is based
upon certain representations made by the Company and the Operating Partnership
and upon existing law, which is subject to change, both retroactively and
prospectively, and to possibly different interpretations. Furthermore, Tax
Counsel's opinion is not binding upon either the Internal Revenue Service or the
courts. Because the Company's qualification as a REIT in its current and future
taxable years depends upon its meeting the requirements of the Code in future
periods, no assurance can be given that the Company will continue to qualify as
a REIT in the future. If, in any taxable year, the Company were to fail to
qualify as a REIT for federal income tax purposes, it would not be allowed a
deduction for distributions to shareholders in computing taxable income and
would be subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. In addition,
unless entitled to relief under certain statutory provisions, the Company would
be disqualified from treatment as a REIT for federal income tax purposes for the
four taxable years following the year during which qualification was lost. The
additional tax liability resulting from the failure to so qualify would
significantly reduce the amount of funds available for distribution to
shareholders.
RISKS RELATING TO DEBT
The Company's organizational documents do not limit the level or amount of
debt that it may incur. It is the Company's current policy to pursue a strategy
of conservative use of leverage, generally with a ratio of debt to total market
capitalization targeted at approximately 40 percent, although this policy is
subject to
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reevaluation and modification by the Company and could be increased above 40
percent. The Company has based its debt policy on the relationship between its
debt and its total market capitalization, rather than the book value of its
assets or other historical measures that typically have been employed by
publicly traded REITs, because management believes that market capitalization
more accurately reflects the Company's ability to borrow money and meet its debt
service requirements. Market capitalization is, however, more variable than book
value of assets or other historical measures. There can be no assurance that the
ratio of indebtedness to market capitalization (or any other measure of asset
value) or the incurrence of debt at any particular level would not adversely
affect the financial condition and results of operations of the Company.
RISKS RELATING TO CONTROL OF THE COMPANY
Ability to Change Policies and Acquire Assets without Shareholder
Approval. The Company's operating and financial policies, including its
policies with respect to acquisitions, growth, operations, indebtedness,
capitalization and distributions, will be determined by the Board of Trust
Managers. The Board of Trust Managers generally may revise these policies, from
time to time, without shareholder approval. Changes in the Company's policies
could adversely affect the Company's financial condition and results of
operations. In addition, the Company has the right and intends to acquire
additional real estate assets pursuant to and consistent with its investment
strategies and policies without shareholder approval.
Hotel Risks. The Company has leased the Hotel Properties and the lessee of
a Hotel Property, rather than the Company, is entitled to exercise all rights of
the owner of the respective hotel. The Company will receive both base rent and,
as additional rent, a percentage of gross sales above a certain minimum level
pursuant to the leases. As a result, the Company will participate in the
economic operations of the Hotel Properties only through its indirect
participation in gross sales. To the extent that operations of the Hotel
Properties may affect the ability of the lessees of the Hotel Properties to pay
rent, the Company also may indirectly bear the risks associated with any
increases in expenses or decreases in revenues. Each of the Hotel Properties is
managed pursuant to a management agreement. The Company, therefore, will be
dependent upon the lessees and managers of the Hotel Properties to manage the
operations of the Hotel Properties successfully. As a result, the amount of
additional rent payable to the Company under the leases with respect to the
Hotel Properties will depend on the ability of the lessees and managers of the
Hotel Properties to maintain and increase revenues from the Hotel Properties.
Accordingly, the Company's results of operations will be affected by such
factors as changes in general economic conditions, the level of demand for rooms
and related services at the Hotel Properties, the ability of the lessees and
managers of the Hotel Properties to maintain and increase gross revenues at the
Hotel Properties, competition in the hotel industry and other factors relating
to the operation of the Hotel Properties.
Lack of Control of Residential Development Corporations. The Company is
not able to elect the boards of directors of the Residential Development
Corporations, and does not have the authority to control the management and
operation of the Residential Development Corporations. As a result, the Company
does not have the right to control the timing or amount of dividends paid by the
Residential Development Corporations and, therefore, does not have the authority
to require that funds be distributed to it by any of these entities.
Possible Adverse Consequences of Ownership Limit. The limitation on
ownership of Common Shares set forth in the Company's Declaration of Trust, as
well as the provisions of Texas law, could have the effect of discouraging
offers to acquire the Company and of inhibiting or impeding a change in control
and, therefore, could adversely affect the shareholders' ability to realize a
premium over the then-prevailing market price for the Common Shares in
connection with such a transaction. See "Description of Shares of the Company --
Ownership Limits and Restrictions on Transfer."
GENERAL REAL ESTATE RISKS
Uncontrollable Factors Affecting Performance and Value. The economic
performance and value of the Company's real estate assets will be subject to all
of the risks incident to the ownership and operation of real estate. These
include the risks normally associated with changes in general national, regional
and local economic and market conditions. Such local real estate market
conditions may include excess supply and
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competition for tenants, including competition based on rental rates,
attractiveness and location of the property and quality of maintenance,
insurance and management services. In addition, other factors may affect the
performance and value of a property adversely, including changes in laws and
governmental regulations (including those governing usage, zoning and taxes),
changes in interest rates (including the risk that increased interest rates may
result in decreased sales of lots in the Residential Development Properties) and
the availability of financing. The success of the Hotel Properties, for example,
will be highly dependent upon their ability to compete in such features as
access, location, quality of accommodations, room rate structure and, to a
lesser extent, the quality and scope of other amenities such as food and
beverage facilities.
Illiquidity of Real Estate Investments. Because real estate investments
are relatively illiquid, the Company's ability to vary its portfolio promptly in
response to economic or other conditions will be limited. In addition, certain
significant expenditures, such as debt service (if any), real estate taxes, and
operating and maintenance costs, generally are not reduced in circumstances
resulting in a reduction in income from the investment. The foregoing and any
other factor or event that would impede the ability of the Company to respond to
adverse changes in the performance of its investments could have an adverse
effect on the Company's financial condition and results of operations.
Environmental Matters. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real property may become
liable for the costs of removal or remediation of certain hazardous or toxic
substances released on or in its property, as well as certain other costs
relating to hazardous or toxic substances. Such liability may be imposed without
regard to whether the owner or operator knew of, or was responsible for, the
release of such substances. The presence of, or the failure to remediate
properly, such substances, when released, may adversely affect the owner's
ability to sell the affected real estate or to borrow using such real estate as
collateral. Such costs or liabilities could exceed the value of the affected
real estate. The Company has not been notified by any governmental authority of
any non-compliance, liability or other claim in connection with any of the
Properties and the Company is not aware of any other environmental condition
with respect to any of the Properties that management believes would have a
material adverse effect on the Company's business, assets or results of
operations. Prior to the Company's acquisition of its Properties, independent
environmental consultants conducted or updated Phase I environmental assessments
(which generally do not involve invasive techniques such as soil or ground water
sampling) on the Properties. None of these Phase I assessments or updates
revealed any materially adverse environmental condition not known to the Company
or the independent consultants preparing the assessments. There can be no
assurance, however, that environmental liabilities have not developed since such
environmental assessments were prepared, or that future uses or conditions
(including, without limitation, changes in applicable environmental laws and
regulations) will not result in imposition of environmental liability.
REAL ESTATE RISKS SPECIFIC TO THE COMPANY'S BUSINESS
Acquisition, Lease and Development Risks. There can be no assurance that
the Company will be able to implement its investment strategies successfully or
that its Property portfolio will expand at all, or at any specified rate or to
any specified size. The Company also is subject to the risks that, upon
expiration, leases for space in the Office Properties and Retail Properties may
not be renewed, the space may not be re-leased, or the terms of renewal or
re-lease (including the cost of required renovations or concessions to tenants)
may be less favorable than current lease terms. In addition, the Company intends
to continue to pursue development activities with respect to the Residential
Development Properties and, in the future, may elect to engage in other
development activities.
Risks of Joint Ownership of Assets. The Company has the right to invest,
and in certain cases has invested, in properties and assets jointly with other
persons or entities. Joint ownership of properties, under certain circumstances,
may involve risks not otherwise present, including the possibility that the
Company's partners or co-investors might become bankrupt, that such partners or
co-investors might at any time have economic or other business interests or
goals which are inconsistent with the business interests or goals of the
Company, and that such partners or co-investors may be in a position to take
action contrary to the instructions or the requests of the Company or contrary
to the Company's policies or objectives, including the Company's policy with
respect to maintaining its qualification as a REIT.
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SPECIAL CONSIDERATIONS APPLICABLE TO EXCHANGING LIMITED PARTNERS
Tax Consequences of Exchange of Units. The exercise by a holder of Units
of his Exchange Right will be treated for tax purposes as a sale of the Units by
the Limited Partner. Such a sale will be fully taxable to the exchanging Limited
Partner, and such exchanging Limited Partner will be treated as realizing for
tax purposes an amount equal to the sum of the cash or the value of the Common
Shares received in the exchange plus the amount of the Operating Partnership
nonrecourse liabilities allocable to the exchanged Units at the time of the
exchange. It is possible that the amount of gain recognized or even the tax
liability resulting from such gain could exceed the amount of cash and the value
of other property (e.g., Exchange Shares) received upon such disposition. See
"Exchange of Units -- Tax Consequences of Exchange." In addition, the ability of
the Limited Partner to sell a substantial number of Exchange Shares in order to
raise cash to pay tax liabilities associated with exchange of Units may be
restricted, and, as a result of fluctuations in the stock price, the price the
Limited Partner receives for such shares may not equal the value of his Units at
the time of exchange.
Potential Change in Investment Upon Exchange of Units. If a Limited
Partner exercises an Exchange Right, such Limited Partner may receive cash or
Common Shares of the Company in exchange for the Units. If the Limited Partner
receives cash, the Limited Partner will no longer have any interest in the
Company and will not benefit from any subsequent increases in share price and
will not receive any future distributions from the Company (unless the Limited
Partner currently owns or acquires in the future additional Common Shares or
Units). If the Limited Partner receives Common Shares, the Limited Partner will
become a shareholder of the Company rather than a holder of Units in the
Operating Partnership. Although the nature of an investment in Common Shares is
substantially equivalent to an investment in Units in the Operating Partnership,
there are some differences between ownership of Units and ownership of Common
Shares relating to, among other things, form of organization, permitted
investments, policies and restrictions, management structure, compensation and
fees, investor rights and federal income taxation. These differences, some of
which may be material to investors, are discussed in "Exchange of
Units -- Comparison of Ownership of Units and Common Shares."
Under the Operating Partnership Agreement, the Company, acting through the
General Partner, has full and complete authority, responsibility and discretion
in the management and control of the Operating Partnership, subject to limited
consent rights of the other Limited Partners with respect to amendments to the
Operating Partnership Agreement (which, in general, require the approval of a
majority in interest of the Limited Partners) and amendments which adversely
affect the rights of Limited Partners (certain of which require the approval of
each Limited Partner so affected). See "Description of Units -- Management." The
Company's interests in the Operating Partnership (directly and through the
General Partner) entitle it to share in cash distributions from, and in the
profits and losses of, the Operating Partnership in accordance with its
percentage of partnership interests therein.
DESCRIPTION OF SHARES OF THE COMPANY
Common Shares. The Declaration of Trust authorizes the Board of Trust
Managers of the Company 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 "-- 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 the Company, 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.
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Preferred Shares. The Declaration of Trust of the Company authorizes the
Board of Trust Managers of the Company 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. As of the date of this Prospectus, there
are no Preferred Shares outstanding. 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 Company'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 authorizes the issuance of up to an aggregate of
100,000,000 Excess Shares issuable in exchange for Preferred Shares as described
below under "-- Ownership Limits and Restrictions on Transfer."
Ownership Limits and Restrictions on Transfer. For the Company to qualify
as a REIT under 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 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 the Company'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, the Company's Declaration of Trust
provides 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 Mr. Rainwater, the Chairman of
the Board of Trust Managers, and certain related persons together may own, or be
deemed to own, by virtue of certain attribution provisions of the Code, up to
9.5% (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,
may 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 may require such representations and undertakings from such
person or affiliates and 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
the Company's status as a REIT for federal income tax purposes. The Board of
Trust Managers also may 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 may, from time to time, increase
the Common Shares Ownership Limit, except that (i) the Common Shares Ownership
Limit may not be increased and no additional limitations may be created if,
after giving effect thereto, the Company would be "closely held" within the
meaning of Section 856(h) of the Code, (ii) neither the Common Shares Ownership
Limit nor the Preferred Shares Ownership Limit may be increased to a percentage
that is greater than 9.9%, and (iii) the Rainwater Ownership Limit may not be
increased. 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 the Company'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 the Company's status
as a REIT for federal income tax purposes, the Ownership Limit may prevent any
person or small group of persons from acquiring control of the Company.
The Declaration of Trust of the Company also provides that if any issuance,
transfer or acquisition of Equity Securities (i) would result in a holder
exceeding the Ownership Limit, (ii) would cause the Company
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<PAGE> 14
to be beneficially owned by fewer than 100 persons, (iii) would result in the
Company's being "closely held" within the meaning of Section 856(h) of the Code,
or (iv) would otherwise result in the failure of the Company 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
the Company'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 the Company's Declaration of Trust will
be required to be repaid to the Company upon demand. Excess Shares will be
subject to repurchase by the Company at its election. The purchase price of any
Excess Shares will be equal to the lesser of (i) the price in such proposed
transaction or (ii) either (a) if the shares are then listed on the New York
Stock Exchange ("NYSE"), 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 the Company or its designee determines to exercise
its repurchase right; or (b) 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 Automated Quotation System on which the shares are listed); or (c)
if the shares are not then listed on a national securities exchange, the latest
quoted price for the shares; or (d) 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 Automated Quotation System; or (e) if such system is no longer in
use, the principal automated quotation system then in use; or (f) 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
(g) 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 the Company. The Declaration of
Trust also establishes certain restrictions relating to transfers of any
Exchange Shares that may be issued. If such transfer restrictions are determined
to be void or invalid by virtue of any legal decision, statute, rule or
regulation, then the Company will have the option to deem the intended
transferee of any Excess Shares to have acted as an agent on behalf of the
Company in acquiring such Excess Shares and to hold such Excess Shares on behalf
of the Company.
Under the Declaration of Trust, the Company has 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 recognized tax counsel,
jeopardize the status of the Company as a REIT for federal income tax purposes.
All certificates issued by the Company representing Equity Securities will
bear a legend referring to the restrictions described above.
The Declaration of Trust of the Company also provides 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 the Company
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 the Company in writing such information with respect to
the direct, indirect and constructive ownership of shares as the Trust may
request in order 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 the Company by a third party. See
"Certain Provisions of the Declaration of Trust, Bylaws and Texas Law."
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CERTAIN PROVISIONS OF THE DECLARATION OF TRUST
AND BYLAWS AND TEXAS LAW
The Declaration of Trust and the Bylaws of the Company contain certain
provisions that may inhibit or impede acquisition or attempted acquisition of
control of the Company by means of a tender offer, a proxy contest or otherwise.
These provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of the Company to negotiate first with the Board of Trust
Managers. The Company 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 might
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 terms of the
Declaration of Trust and the Bylaws (copies of which have been filed with the
Registration Statement of which this Prospectus forms a part). See "Description
of Shares of the Company -- Ownership Limits and Restrictions on Transfer."
Staggered Board of Trust Managers. The Declaration of Trust and the Bylaws
of the Company 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 trust managers, 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 trust
managers are up for election, and may be replaced by vote of the shareholders,
at any one time. The Company believes, however, that the longer terms associated
with the classified Board of Trust Managers will help to ensure continuity and
stability of the Company's management and policies.
The classification provisions also could have the effect of discouraging a
third party from accumulating a large block of the Company's capital shares or
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company 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. Subject to any
rights of holders of Preferred Shares to elect additional trust managers under
specified circumstances ("Preferred Holders' Rights"), the Declaration of Trust
provides that the number of trust managers will be fixed by, or in the manner
provided in, the Bylaws, but must not be more than 25 nor less than one. In
addition, the Bylaws 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 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 trust manager position with
such shareholder's own nominees.
The Declaration of Trust and the Bylaws 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 provides that, in determining what is in the best interest
of the Company in evaluating a "business combination," "change in control" or
other transaction, a trust manager of the Company shall consider all of the
relevant factors, which may include (i) the immediate and long-term effects of
the transaction on the Company's shareholders, including shareholders, if any,
who do not participate in the transaction; (ii) the social and economic effects
of the transaction on the Company's employees, suppliers, creditors and
customers and others dealing with the Company and on the communities in which
the Company operates and is located;
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(iii) whether the transaction is acceptable, based on the historical and current
operating results and financial condition of the Company; (iv) whether a more
favorable price could be obtained for the Company'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 the Company; (vi) the future value
of the Company's securities; (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 the Company's shareholders.
Advance Notice Provisions for Shareholder Nominations and Shareholder
Proposals. The Bylaws 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 the Company (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 the Company prior to the meeting at which trust managers are
to be elected, will be eligible for election as trust managers of the Company
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 the Company 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 the Company not less than 70 days
nor more than 90 days prior to the first anniversary of the previous year's
annual meeting.
The purpose of requiring shareholders to give the Company 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 do not give the Board of Trust Managers power to block shareholder
nominations for the election of trust managers or any shareholder proposal for
action, they may have the effect of discouraging a shareholder from proposing
nominees or business, precluding a contest for the election of trust managers or
the consideration of shareholder proposals if procedural requirements are not
met, and deterring third parties from soliciting proxies for a non-management
proposal or slate of trust managers, without regard to the merits of such
proposal or slate.
Preferred Shares. The Declaration of Trust authorizes 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 the
Company -- Preferred Shares." The Company believes that the ability of the Board
of Trust Managers to issue one or more series of Preferred Shares provides the
Company with increased flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs. The authorized Preferred
Shares are available for issuance without further action by the Company's
shareholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which the Company'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 Company'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.
Amendment of Declaration of Trust. The Declaration of Trust provides 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, except that the
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provisions of the Declaration of Trust relating to "business combinations" or
"control shares" (as described below under "-- Business Combinations" and
"-- Control Share Acquisitions") may be amended only with the affirmative vote
of 80% of the votes entitled to be cast, voting together as a single class.
Rights to Purchase Securities and Other Property. The Declaration of Trust
authorizes the Board of Trust Managers, subject to any rights of holders of any
series of Preferred Shares, to create and issue rights entitling the holders
thereof to purchase from the Company 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 the Company or any other entity.
Business Combinations. The Declaration of Trust establishes 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 the Company and
any person who beneficially owns, directly or indirectly, 10% or more of the
voting power of the Company's shares (an "Interested Shareholder"), subject to
certain exemptions. In general, the Declaration of Trust provides that an
Interested Shareholder or any affiliate thereof may not engage in a "business
combination" with the Company for a period of five years following the date he
becomes an Interested Shareholder. Thereafter, pursuant to the Declaration of
Trust, such transactions must be (i) approved by the Board of Trust Managers of
the Company 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 is 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 do not apply, however, to business combinations that
are approved or exempted by the Board of Trust Managers of the Company prior to
the time that the Interested Shareholder becomes an Interested Shareholder.
Control Share Acquisitions. The Declaration of Trust provides that
"control shares" of the Company 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 the Company and employees of the Company who are also trust managers
of the Company. 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 do not include shares that
the acquiring person is entitled to vote on the basis of prior shareholder
approval. A "control share acquisition" is defined as the acquisition of control
shares, subject to certain exemptions enumerated in the Declaration of Trust.
The Declaration of Trust provides that a person who has made or proposes 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 the Company 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 permits the Company
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 set forth in the Declaration of Trust, the
Company will have the right to redeem any or all of the control shares, except
those for which voting rights have previously been approved, for fair value
determined, without regard to the absence of voting rights of the control
shares, 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
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the shares entitled to vote, all other shareholders will have the rights of
dissenting shareholders under the Texas Real Estate Investment Trust (the
"TRA"). The Declaration of Trust provides that the fair value of the shares for
purposes 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 provisions of the Declaration of Trust do not apply to shares
acquired in a merger, consolidation or share exchange if the Company is a party
to the transaction, or if the acquisition is approved or excepted by the
Declaration of Trust or Bylaws of the Company prior to a control share
acquisition.
Ownership Limit. The limitation on ownership of Common Shares set forth in
the Company's Declaration of Trust, as well as the provisions of the TRA, could
have the effect of discouraging offers to acquire the Company and of increasing
the difficulty of consummating any such offer. See "Description of Shares of the
Company -- Ownership Limits and Restrictions on Transfer."
DESCRIPTION OF UNITS
The following is a summary of the material terms of the Units, including a
summary of certain provisions of the Operating Partnership Agreement. Such
summary, including the descriptions of certain provisions set forth elsewhere in
this Prospectus, is qualified in its entirety by reference to the Operating
Partnership Agreement which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. For a comparison of the voting and
other rights of the holders of Units and the Company's shareholders, see
"Exchange of Units -- Comparison of Ownership of Units and Common Shares."
MANAGEMENT
Pursuant to the Operating Partnership Agreement, the Company, through the
General Partner, which is the sole general partner of the Operating Partnership,
generally has full and complete authority, responsibility and discretion in the
management and control of the Operating Partnership, and the Limited Partners
have no authority to transact business for, or participate in the management
activities or decisions of, the Operating Partnership. The Company, through the
General Partner, has the power to amend the Operating Partnership Agreement to
(i) add to the obligations of the General Partner or surrender any right or
power granted to the General Partner or its affiliates for the benefit of the
Limited Partners, (ii) reflect the admission, substitution, termination or
withdrawal of partners in accordance with the terms of Operating Partnership
Agreement, (iii) reflect an inconsequential change that has no material adverse
effect on the Limited Partners, (iv) cure an ambiguity, or correct or supplement
the Operating Partnership Agreement in a manner not inconsistent with law or the
other provisions of the Operating Partnership Agreement, or (v) make other
changes with respect to matters arising under the Operating Partnership
Agreement not inconsistent with law or the provisions of the Operating
Partnership Agreement. However, any other amendments to the Operating
Partnership Agreement require the consent of a majority in interest of the
Limited Partners. In addition, the Operating Partnership Agreement cannot be
amended without the prior written consent of each partner adversely affected if
such amendment would (i) convert a Limited Partner's interest in the Operating
Partnership into a general partner's interest; (ii) modify the limited liability
of a Limited Partner; (iii) except as expressly permitted by the Operating
Partnership Agreement, alter rights of the partner to receive distributions
pursuant to the Operating Partnership Agreement, or the allocations specified in
the Operating Partnership Agreement; (iv) alter or modify the Exchange Rights;
(v) cause the termination of the Operating Partnership prior to the expiration
of its term; or (vi) amend the section of the Operating Partnership Agreement
setting forth these consent rights.
BUSINESS OPERATIONS
The Operating Partnership Agreement provides that all business activities
of the Company, including all activities pertaining to the acquisition,
development and ownership of the Properties, must be conducted through the
Operating Partnership or through partnerships and limited liability companies
affiliated with the Operating Partnership. The Operating Partnership Agreement
prohibits the Company from borrowing for the
16
<PAGE> 19
purpose of making distributions to shareholders unless it arranges such
borrowing through the Operating Partnership.
The Operating Partnership Agreement requires that the Operating Partnership
be operated in a manner that will enable the Company to satisfy the requirements
for being classified as a REIT for federal income tax purposes and to avoid any
federal income or excise tax liability.
CAPITAL CONTRIBUTIONS
The Operating Partnership Agreement provides that, if the Operating
Partnership requires additional funds at any time or from time to time, the
Operating Partnership may borrow such funds directly from a financial
institution or other lender, or Crescent Equities (including the General
Partner) may borrow such funds from a financial institution or other lender and
Crescent Equities may lend such funds to the Operating Partnership on the same
terms and conditions as are applicable to Crescent Equities' borrowing of such
funds. Alternatively, Crescent Equities may contribute the amount of such
required funds as an additional capital contribution to the Operating
Partnership. If Crescent Equities contributes additional capital to the
Operating Partnership in the form of cash or property, the limited partnership
interest of Crescent Equities in the Operating Partnership will be adjusted on a
proportionate basis based upon the value of such additional capital
contributions and the value of the Operating Partnership immediately after such
contributions, while the partnership interests of the other Limited Partners
will be decreased on a proportionate basis. Except in connection with the
Exchange Rights or an incentive compensation plan, Crescent Equities may not
issue additional Common Shares except on a pro rata basis to all shareholders
unless the proceeds from the issuance are contributed to the Operating
Partnership as an additional capital contribution.
If Crescent Equities issues preferred stock, rights, options (other than
options issued pursuant to the existing stock incentive plans of Crescent
Equities), warrants or convertible or exchangeable securities containing the
right to subscribe for or purchase Common Shares ("New Securities") to other
than all holders of Common Shares, it is required to contribute the proceeds
from the issuance of the New Securities to the Operating Partnership in exchange
for a preferential partnership interest having economic rights substantially
similar to those of the New Securities. If the New Securities subsequently are
converted into Common Shares, the preferential partnership interest of Crescent
Equities will be converted into an additional limited partnership interest in
the Operating Partnership, and the partnership interests of the other Limited
Partners will be decreased proportionately, based on the value of the Common
Shares into which the New Securities are converted and the value of the
Operating Partnership at the time of conversion of the New Securities.
AWARDS UNDER STOCK INCENTIVE PLANS
If grants of restricted Common Shares ("Restricted Shares") are made
pursuant to the existing stock incentive plans of the Company (or any stock
incentive plan adopted in the future by the Company), the Operating Partnership
Agreement requires the Company to contribute to the Operating Partnership as an
additional capital contribution the price received (if any) in connection with
such grant. Upon any issuance of Restricted Shares, the Company will be deemed
to have contributed to the Operating Partnership an amount equal to the fair
market value of the Restricted Shares issued. This will have the effect of
increasing the limited partnership interest of the Company (and thus diluting
the percentage interests of the other Limited Partners) in connection with any
grants of Restricted Shares.
If options granted in connection with the existing stock incentive plans of
the Company (or any other stock incentive plan adopted in the future by the
Company) are exercised at any time or from time to time, the Operating
Partnership Agreement requires the Company to contribute to the Operating
Partnership as an additional capital contribution the exercise price received by
the Company in connection with such exercise. Although the Company will
contribute to the Operating Partnership an amount equal to the exercise price
received, the Company will be deemed to have contributed an amount equal to the
fair market value of the Common Shares issued. This will have the effect of
increasing the limited partnership interest of the Company
17
<PAGE> 20
(and thus diluting the percentage interests of the other Limited Partners) in
connection with such additional capital contributions.
OTHER EQUITY COMPENSATION PLANS
The Operating Partnership has adopted two compensation plans that grant
limited partnership interests in the Operating Partnership (including Units), or
options to acquire limited partnership interests, to employees of the Operating
Partnership and may adopt other such plans in the future. The partnership
interests of the other Limited Partners (including the Company) are diluted upon
any admission of an employee of the Operating Partnership as an additional
Limited Partner.
The Operating Partnership or certain of its affiliates may adopt other
incentive compensation plans in which their employees, agents or consultants are
compensated based on the Operating Partnership's revenue or income amounts, or
based on increases in the market value of Operating Partnership assets,
partnership interests in the Operating Partnership or Common Shares.
TRANSFERABILITY OF PARTNERSHIP INTERESTS
The Operating Partnership Agreement generally provides that the General
Partner may not voluntarily withdraw from the Operating Partnership or transfer
its interest therein. In addition, Limited Partners of the Operating Partnership
have the right to be treated in a merger or other combination of the Company on
a substantially equivalent basis with the Company's shareholders or to retain
rights substantially equivalent to the Exchange Rights. (The Limited Partners
retained Exchange Rights in the Merger effected on December 31, 1996.) Limited
Partners may not voluntarily withdraw from the Operating Partnership, but
generally may transfer their interests in the Operating Partnership, except that
a transferee of a limited partnership interest generally may not become a
substitute Limited Partner except with the consent of the General Partner.
REDEMPTION OF SHARES
If the Company redeems Common Shares, it will cause the Operating
Partnership to redeem a proportionate portion of its limited partnership
interest in the Operating Partnership.
ALLOCATIONS AND DISTRIBUTIONS
The net income or net loss of the Operating Partnership for tax purposes
will generally be allocated among the partners in accordance with their
respective percentage interests, subject to compliance with the provisions of
Sections 704(b) and 704(c) of the Code and the regulations promulgated
thereunder.
Pursuant to the Operating Partnership Agreement, the net operating cash
revenues of the Operating Partnership, as well as net sales and refinancing
proceeds, will be distributed from time to time as determined by the Company
(but not less frequently than quarterly) pro rata in accordance with the
partners' ownership interests.
Pursuant to the Operating Partnership Agreement, the Operating Partnership
will also assume and pay when due, or reimburse the Company for payment of,
certain costs and expenses relating to the continuity of existence and
operations of the Company and the General Partner.
ISSUANCE OF ADDITIONAL PARTNERSHIP INTERESTS
The Company (through the General Partner) has the authority to cause the
Operating Partnership to issue additional interests in the Operating Partnership
and admit additional Limited Partners in the Operating Partnership in exchange
for the contribution of cash or property if it determines that such action is in
the best interest of the Operating Partnership, without the consent of the other
partners. In such event, an additional Limited Partner's interest in the
Operating Partnership will be based on the value of the assets contributed and
the value of the Operating Partnership at the time of such contribution, while
the partnership interest of each existing Limited Partner will be decreased
proportionately. Such additional partner will have all of the rights
18
<PAGE> 21
of a Limited Partner except that such partner will not receive Units
exchangeable for Common Shares unless agreed to by the General Partner.
TAX MATTERS
Pursuant to the Operating Partnership Agreement, the General Partner will
be the tax matters partner of the Operating Partnership and, as such, will have
authority to make tax elections under the Code on behalf of the Operating
Partnership.
DUTIES AND CONFLICTS
The Operating Partnership Agreement provides that all business activities
of the Company must be conducted through the Operating Partnership or through
partnerships and limited liability companies affiliated with the Operating
Partnership. The General Partner may hold no assets other than its interest in
the Operating Partnership, interests in subsidiary corporations that own up to
1% of partnerships or limited liability companies in which the Operating
Partnership also owns an interest and such bank accounts and similar instruments
as are necessary for it to conduct its business in accordance with its
Certificate of Incorporation and the Operating Partnership Agreement.
The Operating Partnership is authorized to enter into transactions with
partners and their affiliates, as long as the terms of such transactions are
fair and reasonable, and no less favorable to the Operating Partnership than
could be obtained from an unaffiliated third party.
Any Limited Partner may engage in other business activities outside the
Operating Partnership, including business activities that directly compete with
the Operating Partnership, except that Messrs. Rainwater, Goff and Haddock have
each agreed that, as long as his noncompetition agreement remains in effect
(generally until at least one year after such individual ceases to be a trust
manager or executive officer), he will offer to the Company real estate
investment opportunities presented to him and, if the Company rejects the
opportunity, neither he nor his controlled affiliates will participate in the
investment without the approval of a majority of the independent trust managers.
INDEMNIFICATION
The Operating Partnership Agreement contains indemnification provisions
comparable to those contained in the Declaration of Trust.
TERM
The Operating Partnership will continue in full force and effect until
December 31, 2093, or until sooner dissolved (subject to certain exceptions)
upon (i) the bankruptcy, dissolution or termination of the General Partner
(unless a majority in interest of the Limited Partners elect to continue the
Operating Partnership); (ii) the election of the General Partner; or (iii) the
sale or other disposition of all or substantially all the assets of the
Operating Partnership.
RESOLUTION OF DISPUTES
Disputes arising under the Operating Partnership Agreement will be resolved
by arbitration.
REGISTRATION RIGHTS
The Company has filed the Registration Statement of which this Prospectus
is a part pursuant to its obligations under a Registration Rights, Lock-Up and
Pledge Agreement dated as of May 5, 1994, by and among the Company and certain
holders of Original Shares and Original Units (the "Registration Rights
Agreement"). The following summary does not purport to be complete and is
qualified in its entirety by reference to the Registration Rights Agreement. A
copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
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<PAGE> 22
Under the Registration Rights Agreement, the Company is obligated to
maintain the effectiveness of the Registration Statement until a date to be
agreed upon or until such time as all of the Common Shares covered by the
Registration Rights Agreement (i) have been disposed of pursuant to the
Registration Statement of which this Prospectus is a part; (ii) have been sold
pursuant to Rule 144; or (iii) have become eligible for sale pursuant to Rule
144(k) under the Securities Act of 1933, as amended (the "Securities Act"). The
Registration Rights Agreement grants these rights to holders of Common Shares
and Units specified therein (the "Rights Holders"). The Company has no
obligation under the Registration Rights Agreement to retain any underwriter to
effect the sale of the shares covered thereby.
Pursuant to the Registration Rights Agreement, the Company agreed to pay
all expenses of effecting the registration of the Exchange Shares and Original
Shares issued to the Rights Holders (other than underwriting discounts and
commissions, fees and disbursements of counsel to a Rights Holder, and transfer
taxes, if any) pursuant to the Registration Statement. The Company also agreed
to indemnify each Rights Holder and each person, if any, who controls a Rights
Holder against certain losses, claims, damages and expenses arising under the
securities laws. In addition, each Rights Holder agreed to indemnify the Company
and the other Rights Holders, and each person, if any, who controls the Company
or the other Rights Holders against other losses, claims, damages and expenses
arising under the securities laws with respect to written information furnished
to the Company by such Rights Holder for use in this Prospectus or as a result
of such Rights Holder's failure to deliver an amendment or supplement to this
Prospectus.
SELLING SHAREHOLDERS
The following table provides the names of each Selling Shareholder, the
number of Common Shares owned by each Selling Shareholder and the number of
Exchange Shares into which Units held by the person are exchangeable (if the
Company elects to issue shares rather than pay cash upon such exchange). Since
the Selling Shareholders may sell all, a portion or none of their Secondary
Shares, no estimate can be made of the aggregate number of Secondary Shares that
are to be offered hereby or that will be owned by each Selling Shareholder upon
completion of the offering to which this Prospectus relates. In addition to the
Common Shares they currently own, certain Selling Shareholders may also offer
the Exchange Shares they will own if the Units they hold are redeemed for
shares.
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<PAGE> 23
The Secondary Shares offered by this Prospectus may be offered from time to
time by the Selling Shareholders named below (based on Common Shares or Units
held at , 1997):
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<PAGE> 24
[This Page Intentionally Left Blank]
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<PAGE> 25
EXCHANGE OF UNITS
GENERAL
Pursuant to the Operating Partnership Agreement and except as described
below, the Limited Partners have the Exchange Rights, which, subject to the
Ownership Limit, enable each of them to exchange all or a portion of their Units
in the Operating Partnership to the Company for Common Shares or, at the
election of the Company, for cash (the "Cash Amount") equal to the then-current
fair market value of the number of Common Shares for which such Units are
exchangeable. The Exchange Rights relating to the Original Units became
exercisable by the Limited Partners from time to time, in whole or in part,
commencing on April 28, 1995; provided, however, that a Limited Partner has not
been and is not permitted to exercise the Exchange Rights if and to the extent
the issuance of Common Shares to such Limited Partner would violate the
Ownership Limit. See "Description of Shares of the Company -- Ownership Limits
and Restrictions on Transfer." In addition, all the Original Units were subject
to the lock-up and security agreement in the Registration Rights Agreement that
prohibited the exercise of the Exchange Rights until May 16, 1995. The Exchange
Rights with respect to the RER Units became exercisable following the approval
of the holders of a majority of the Company's outstanding Common Shares at the
Company's Annual Meeting held on June 12, 1995.
Pursuant to the Exchange Rights, the Units are exchangeable into Common
Shares (or the cash equivalent thereof) on a one-for-one basis. This one-for-one
exchange ratio will be adjusted from time to time to reflect stock dividends,
stock splits or reverse stock splits. The Exchange Rights also grant an
exchanging Unit holder the right to receive (or to receive the cash equivalent
of) any rights, options, warrants or other securities issued to all
shareholders. If the Company elects to exchange the Units for cash and raises
such funds through a public offering of its securities, by borrowing or
otherwise, the price otherwise payable for the offered Units will be reduced by
the amount equal to the transaction expenses incurred by the Company in raising
such funds (but not exceeding 5% of the total amount paid for the Units computed
without regard to such expenses).
To require the Company to exchange Units, a Limited Partner must send a
Notice of Exchange (in the form attached as an exhibit to the Operating
Partnership Agreement, a copy of which is available from the Company)
accompanied by any certificate or certificates evidencing the Units to be
exchanged. To the extent that delivery of Exchange Shares would cause the
exchanging Unit holder to violate the Ownership Limit, the Company may not
deliver Exchange Shares to such Unit holder but may, in its sole and absolute
discretion, elect either (i) to pay the consideration to such Unit holder in the
form of the Cash Amount or (ii) refuse, in whole or in part, to accept the
Notice of Exchange.
TAX CONSEQUENCES OF EXCHANGE
The following discussion summarizes certain federal income tax
considerations that may be relevant to a Limited Partner who exercises the right
to require the exchange of his or its Units.
Tax Treatment of Exchange of Units. If the Company exchanges the Units for
Common Shares or cash, the exchange will be treated by the Company, the
Operating Partnership and the exchanging Limited Partner as a sale of Units by
such Limited Partner to the Company at the time of such exchange. In that event,
such sale will be fully taxable to the exchanging Limited Partner and such
exchanging Limited Partner will be treated as realizing for tax purposes an
amount equal to the sum of the cash and the value of the Common Shares received
in the exchange plus the amount of Operating Partnership nonrecourse liabilities
allocable to the exchanged Units at the time of the redemption. The
determination of the amount of gain or loss is discussed more fully below.
Tax Treatment of Disposition of Units by Limited Partner Generally. If a
Unit is exchanged in a manner that is treated as a sale of the Unit, or a
Limited Partner otherwise disposes of a Unit, the determination of gain or loss
from the sale or other disposition will be based on the difference between the
amount considered realized for tax purposes and the tax basis in such Unit. See
"-- Basis of Units," below. Upon the sale of a Unit, the "amount realized" will
be measured by the sum of the cash and fair market value
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<PAGE> 26
of other property (e.g., Exchange Shares) received plus the portion of the
Operating Partnership's nonrecourse liabilities allocable to the Unit sold. To
the extent that the sum of the amount of cash and the fair market value of
property received plus the allocable share of the Operating Partnership's
nonrecourse liabilities exceeds the Limited Partner's basis for the Unit
disposed of, such Limited Partner will recognize gain. It is possible that the
amount of gain recognized or even the tax liability resulting from such gain
could exceed the amount of cash and the value of any other property (e.g.,
Exchange Shares) received upon such disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount realized
upon the sale of a Unit attributable to a Limited Partner's share of "unrealized
receivables" of the Operating Partnership (as defined in Section 751 of the
Code) exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Unrealized receivables include, to the extent not
previously included in Operating Partnership income, any rights to payment for
services rendered or to be rendered. Unrealized receivables also include amounts
that would be subject to recapture as ordinary income if the Operating
Partnership had sold its assets at their fair market value at the time of the
transfer of a Unit.
Basis of Units. In general, a Limited Partner who contributed property at
the time of his or its admission to the Operating Partnership had an initial tax
basis in his or its Units ("Initial Basis") equal to his or its basis in his or
its contributed property at the time of such contribution. A Limited Partner's
Initial Basis in his or its Units generally is increased by (a) such Limited
Partner's share of Operating Partnership taxable income and (b) increases in his
or its share of liabilities of the Operating Partnership (including any increase
in his or its share of nonrecourse liabilities of the Operating Partnership).
Generally, such Partner's basis in his or its Units is decreased (but not below
zero) by (i) his or its share of Operating Partnership distributions, (ii)
decreases in his or its share of liabilities of the Operating Partnership
(including any decrease in his or its share of nonrecourse liabilities of the
Operating Partnership), (iii) his or its share of losses of the Operating
Partnership, and (iv) his or its share of nondeductible expenditures of the
Operating Partnership that are not chargeable to capital. A Limited Partner is
considered to have the same basis in each of his or its Units. Thus, although a
Limited Partner may have received Units in respect of more than one transaction,
his or its basis in each Unit is the average of the basis in all Units.
Potential Application of the Disguised Sale Regulations to an Exchange of
Units. There is a risk that an exchange of Units may cause the original
transfer of property to the Operating Partnership by the Limited Partner in
exchange for Units to be treated as a "disguised sale" of property. The Code and
the United States Department of Treasury regulations promulgated thereunder
("Treasury Regulations," and as they apply to a "disguised sale," the "Disguised
Sale Regulations") generally provide that, unless one of the prescribed
exceptions is applicable, a partner's contribution of property to a partnership
and a simultaneous or subsequent transfer of money or other consideration
(including the assumption of or taking subject to a liability) from the
partnership to the partner will be presumed to be a sale, in whole or in part,
of such property by the partner to the partnership. Further, the Disguised Sale
Regulations provide generally that in the absence of an applicable exception, if
money or other consideration is transferred by a partnership to a partner within
two years of the partner's contribution of property, the transactions are
presumed to be a sale of the contributed property unless the facts and
circumstances clearly establish that the transfers do not constitute a sale. The
Disguised Sale Regulations also provide that if two years have passed between
the transfer of money or other consideration and the contribution of property,
the transactions will not be presumed to be a sale unless the facts and
circumstances clearly establish that the transfers constitute a sale.
If a Unit is exchanged, the IRS could contend that the Disguised Sale
Regulations apply because as a result of the exchange a Limited Partner receives
cash or Common Shares subsequent to the Limited Partner's previous contribution
of property to the Operating Partnership. In that event, the IRS would contend
that the transactions relating to the formation of the Company themselves were
taxable as a disguised sale under the Disguised Sale Regulations.
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<PAGE> 27
COMPARISON OF OWNERSHIP OF UNITS AND COMMON SHARES
Generally, the nature of an investment in Common Shares of the Company is
substantially equivalent economically to an investment in Units in the Operating
Partnership. A holder of Common Shares receives the same distribution that a
holder of a Unit receives and shareholders and Unit holders generally share in
the risks and rewards of ownership in the enterprise being conducted by the
Company (through the Operating Partnership). However, there are some differences
between ownership of Units and ownership of Common Shares, some of which may be
material to investors.
The information below highlights a number of the significant differences
between the Operating Partnership and the Company relating to, among other
things, form of organization, permitted investments, policies and restrictions,
management structure, compensation and fees, investor rights and federal income
taxation, and compares certain legal rights associated with the ownership of
Units and Common Shares, respectively. These comparisons are intended to assist
Limited Partners of the Operating Partnership in understanding how their
investment will be changed if their Units are exchanged for Common Shares. THIS
DISCUSSION IS SUMMARY IN NATURE AND DOES NOT CONSTITUTE A COMPLETE DISCUSSION OF
THESE MATTERS, AND HOLDERS OF UNITS SHOULD CAREFULLY REVIEW THE BALANCE OF THIS
PROSPECTUS AND THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART FOR
ADDITIONAL IMPORTANT INFORMATION ABOUT THE COMPANY.
<TABLE>
<CAPTION>
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<S> <C>
OPERATING PARTNERSHIP COMPANY
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C>
FORM OF ORGANIZATION AND ASSETS OWNED
The Operating Partnership is organized as a The Company is organized as a Texas real
Delaware limited partnership. The Operating estate investment trust. The Company (and the
Partnership owns (through its subsidiaries) Predecessor Corporation) elected to be taxed
the Properties and the Biltmore Note. See as a REIT under the Code, commencing with its
"The Company." taxable year ended December 31, 1994, and
intends to maintain its qualification as a
REIT. Its only assets are its interests
(directly and through a subsidiary
corporation) in the Operating Partnership and
in certain corporations that own up to 1% of
limited partnerships in which the Operating
Partnership also owns an interest, which
gives the Company an indirect investment in
the Properties and the Biltmore Note.
LENGTH OF INVESTMENT
The Operating Partnership will terminate on The Company has a perpetual term and intends
December 31, 2093, unless earlier dissolved to continue its operations for an indefinite
in accordance with the terms of the Operating time period.
Partnership Agreement or as otherwise
provided by law. See "Description of
Units -- Term."
</TABLE>
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<PAGE> 28
<TABLE>
<CAPTION>
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<S> <C>
OPERATING PARTNERSHIP COMPANY
<CAPTION>
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<S> <C>
MANAGEMENT CONTROL
All management powers over the business and The Board of Trust Managers has exclusive
affairs of the Operating Partnership are control over the Company's business and
vested in the General Partner, and no Limited affairs subject only to the restrictions in
Partner has any right to participate in or the Declaration of Trust and Bylaws and the
exercise control or management power over the Operating Partnership Agreement. The Board of
business and affairs of the Operating Trust Managers is classified into three
Partnership. The General Partner has the classes of trust managers. At each annual
power to amend the Operating Partnership meeting of the shareholders, the successors
Agreement to (i) add to the obligations of of the class of trust managers whose terms
the General Partner or surrender any right or expire at that meeting will be elected. The
power granted to the General Partner or its policies adopted by the Board of Trust
affiliates for the benefit of the Limited Managers may be altered or eliminated without
Partners, (ii) reflect the admission, a vote of the shareholders. Accordingly,
substitution, termination or withdrawal of except for their vote in the elections of
partners in accordance with the terms of trust managers, shareholders have no control
Operating Partnership Agreement, (iii) over the ordinary business policies of the
reflect an inconsequential change that has no Company. The Board of Trust Managers cannot
material adverse effect on the Limited change the policy of the Company of
Partners, (iv) cure an ambiguity, or correct maintaining its status as a REIT for federal
or supplement the Operating Partnership income tax purposes, however, without the
Agreement in a manner not inconsistent with approval of holders of majority of the
law or the other provisions of the Operating outstanding Common Shares.
Partnership Agreement, or (v) make other
changes with respect to matters arising under
the Operating Partnership Agreement not
inconsistent with law or the provisions of
the Operating Partnership Agreement. However,
any other amendments to the Operating
Partnership Agreement require the consent of
a majority in interest of the Limited
Partners, and the Operating Partnership
Agreement cannot be amended without the prior
written consent of each partner adversely
affected if such amendment would (i) convert
a Limited Partner's interest in the Operating
Partnership into a General Partner's inter-
est; (ii) modify the limited liability of a
Limited Partner; (iii) except as expressly
permitted by the Operating Partnership
Agreement, alter rights of a partner to
receive distributions pursuant to the Oper-
ating Partnership Agreement, or the
allocations specified in the Operating
Partnership Agreement; (iv) alter or modify
the Exchange Rights; (v) cause the
termination of the Operating Partnership
prior to the expiration of its term; or (vi)
amend the section of the Operating
Partnership Agreement setting forth these
consent rights. The General Partner may not
be removed by the Limited Partners with or
without cause.
</TABLE>
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<PAGE> 29
<TABLE>
<CAPTION>
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<S> <C>
OPERATING PARTNERSHIP COMPANY
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C>
FIDUCIARY DUTIES
Under Delaware law, the General Partner is Under Texas law, the trust managers must
accountable to the Operating Partnership as a perform their duties in good faith in a
fiduciary and, consequently, is required to manner that they reasonably believe to be in
exercise good faith and integrity in all of the best interests of the Company. Trust
its dealings with respect to partnership managers of the Company who act in such a
affairs. Under the Operating Partnership manner generally will not be liable to the
Agreement, however, the General Partner is Company for monetary damages arising from
under no obligation to take into account the their activities.
tax consequences to any partner of any action
taken by it, and the General Partner is not
liable for monetary damages for losses
sustained or liabilities incurred by partners
as a result of errors of judgment or of any
act or omission, provided that the General
Partner has acted in good faith.
MANAGEMENT LIABILITY AND INDEMNIFICATION
As a matter of Delaware law, the General The Declaration of Trust provides that the
Partner has liability for the payment of the trust managers and officers of the Company
obligations and debts of the Operating will not be liable to the Company and its
Partnership unless limitations upon such shareholders for money damages except for
liability are stated in the document or certain liabilities if the person (i) is
instrument evidencing the obligation. Under found liable to the Company or (ii) is found
the Operating Partnership Agreement, the liable on the basis that the person
Operating Partnership has agreed to indemnify improperly received a personal benefit. The
the Company, the General Partner and their Declaration of Trust and Bylaws require the
wholly owned subsidiaries (the "Crescent Company to indemnify its trust managers and
Group") and any director or officer of the officers to the fullest extent permitted
members of the Crescent Group (the "Indemni- under Texas law, thereby generally providing
tees") from and against all losses, claims, indemnification to the same extent that
damages, liabilities, joint or several, indemnification is provided under the
expenses (including legal fees and expenses), Operating Partnership Agreement.
judgments, fines, settlements and other
amounts incurred in connection with any ac-
tions relating to the operations of the
Operating Partnership in which the Indemnitee
is involved, unless (i) the act was in bad
faith and was material to the action; (ii)
the Indemnitee received an improper personal
benefit; or (iii) in the case of any criminal
proceeding, the Indemnitee had reasonable
cause to believe the act or omission was
unlawful. The reasonable expenses incurred by
an Indemnitee may be reimbursed by the
Operating Partnership in advance of the final
disposition of the proceeding upon receipt by
the Operating Partnership of an affirmation
by such Indemnitee of his, her or its good
faith belief that the standard of conduct
necessary for indemnification has been met
and an undertaking by such Indemnitee to
repay the amount if it is determined that
such standard was not met.
</TABLE>
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<PAGE> 30
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C>
OPERATING PARTNERSHIP COMPANY
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C>
ANTITAKEOVER PROVISIONS
Except in limited circumstances (see The Declaration of Trust and Bylaws of the
"-- Voting Rights" below), the General Company contain a number of provisions that
Partner has exclusive management power over may have the effect of delaying or
the business and affairs of the Operating discouraging an unsolicited proposal for the
Partnership. The General Partner may not be acquisition of the Company or the removal of
removed by the Limited Partners with or incumbent management. These provisions
without cause. See "Description of Units." include, among others: (i) a staggered Board
of Trust Managers; (ii) authorized capital
stock that may be issued as Preferred Shares
in the discretion of the Board of Trust
Managers, with voting rights superior to
those of Common Shares; (iii) a requirement
that, subject to any rights of holders of the
Company's Preferred Shares, trust managers
may be removed only for cause and only by a
vote of holders of at least 80% of the
then-outstanding Common Shares entitled to
vote, voting together as a single class; and
(iv) provisions designed to avoid
concentration of share ownership in a manner
that would jeopardize the status of the
Company as a REIT under the Code. See
"Description of Shares of the Company" for a
more detailed explanation of these provisions
as well as a description of certain other
provisions that could have the effect of
inhibiting or impeding acquisition of control
of the Company.
VOTING RIGHTS
Under the Operating Partnership Agreement, The Company is managed and controlled by a
the Limited Partners have limited voting Board of Trust Managers consisting of three
rights as described more fully below. classes having staggered terms of office.
Otherwise, all decisions relating to the Each class is to be elected by the
operation and management of the Operating shareholders at annual meetings of the Com-
Partnership are made by the General Partner. pany. Texas law requires that certain major
See "Description of Units -- Management." corporate transactions, including most
amendments to the Declaration of Trust, may
not be consummated without the approval of
shareholders as set forth below. All Common
Shares have one vote, and the Declaration of
Trust permits the Board of Trust Managers to
classify and issue Preferred Shares in one or
more series having voting power which may
differ from that of the Common Shares. See
"Description of Shares of the Company."
</TABLE>
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<PAGE> 31
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C>
OPERATING PARTNERSHIP COMPANY
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C>
The following is a comparison of the voting rights of the Limited Partners of the
Operating Partnership and the shareholders of the Company as they relate to certain major
transactions.
AMENDMENT OF THE OPERATING PARTNERSHIP AGREEMENT OR THE DECLARATION OF TRUST
The Operating Partnership Agreement may be Amendments to the Declaration of Trust must
amended through a proposal by the General be approved by the Board of Trust Managers
Partner. Such proposal, in order to be and by the vote of at least two-thirds of the
effective, must be approved by the General votes entitled to be cast at a meeting of
Partner and by Limited Partners owning a shareholders.
majority-in-interest of the total outstanding
partnership interests. Certain amendments
that affect the fundamental rights of a
Limited Partner must be approved by each
affected Limited Partner. In addition, the
General Partner may, without the consent of
the Limited Partners, amend the Operating
Partnership Agreement as to certain min-
isterial matters. See "-- Management
Control," above.
VOTE REQUIRED TO DISSOLVE THE OPERATING PARTNERSHIP OR THE COMPANY
The General Partner may dissolve the Under Texas law, the Board of Trust Managers
Operating Partnership without the consent of must obtain approval of holders of at least
the Limited Partners in its sole discretion. two-thirds of the outstanding Common Shares
in order to dissolve the Company.
VOTE REQUIRED TO SELL ASSETS OR MERGE
Under the Operating Partnership Agreement, Under Texas law, the sale of all or
the sale, exchange, transfer or other substantially all of the assets of the
disposition of all or substantially all of Company or merger or consolidation of the
the Operating Partnership's assets or merger Company requires the approval of the Board of
or consolidation of the Operating Partner- Trust Managers and by the vote of at least
ship does not require the consent of the two-thirds of the votes entitled to be cast
Limited Partners. at a meeting of shareholders. No approval of
the shareholders is required for the sale of
less than all or substantially all of the
assets of the Company.
COMPENSATION, FEES AND DISTRIBUTIONS
The General Partner does not receive any The trust managers and officers of the
compensation for its service as general Company receive compensation for their
partner of the Operating Partnership. As a services.
partner in the Operating Partnership,
however, the General Partner has the same
right to allocations and distributions as
other partners of the Operating Partnership.
In addition, the Operating Partnership will
reimburse the General Partner and other
members of the Crescent Group for all ex-
penses incurred relating to the ongoing
operation of the Company and any other
offering of additional partnership interests
in the Operating Partnership or capital stock
of the Company.
</TABLE>
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<PAGE> 32
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C>
OPERATING PARTNERSHIP COMPANY
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C>
LIABILITY OF INVESTORS
Under the Operating Partnership Agreement and Under Texas law, holders of Common Shares are
applicable state law, the liability of the not personally liable for any contractual
Limited Partners for the Operating obligation of the Company on the basis (i)
Partnership's debts and obligations is that the person is or was the alter ego of
generally limited to the amount of their the Company, or (ii) of actual or
investment in the Operating Partnership. constructive fraud, a sham to perpetrate a
fraud, or similar theory, unless the obligee
demonstrates that the shareholder caused the
Company to be used for the purpose of
perpetrating and did perpetrate an actual
fraud on the obligee primarily for the direct
personal benefit of the shareholder.
REVIEW OF INVESTOR LISTS
Under the Operating Partnership Agreement, a Under Texas law, a shareholder who holds at
Limited Partner of the Operating Partnership, least 5% of the outstanding shares of a real
for a purpose reasonably related to his or estate investment trust or who has held
its interest as a Limited Partner, upon shares of a real estate investment trust for
written demand with a statement of the six months or longer may, upon written
purpose of such demand and at the Limited request, inspect and copy any such trust's
Partner's expense, is entitled to obtain a books and records, including its list of its
current list of the name and last known shareholders of record.
business, residence or mailing address of
each Limited Partner of the Operating
Partnership.
NATURE OF INVESTMENT
The Units constitute equity interests The Common Shares constitute equity interests
entitling each Limited Partner to his or its in the Company. The Company is entitled to
pro rata share of cash distributions made to receive its pro rata share of distributions
the Limited Partners of the Operating made by the Operating Partnership with
Partnership. The Operating Partnership respect to the Units, and each shareholder
generally intends to retain and reinvest will be entitled to his pro rata share of any
proceeds of the sale of property or excess dividends or distributions paid with respect
refinancing proceeds in its business. to the Common Shares. The dividends payable
to the shareholders are not fixed in amount
and are only paid if, when and as declared by
the Board of Trust Managers. In order to
qualify as a REIT for federal income tax
purposes, the Company must distribute at
least 95% of its taxable income (excluding
capital gains), and any taxable income
(including capital gains) not distributed
will be subject to corporate income tax.
POTENTIAL DILUTION OF RIGHTS
The General Partner is authorized, in its The Board of Trust Managers may issue, in its
sole discretion and without Limited Partner discretion, additional Common Shares and have
approval, to cause the Operating Partnership the authority to issue from the authorized
to issue additional limited partnership capital shares a variety of other equity
interests and other equity securities for any securities of the Company with such powers,
partnership purpose at any time to the preferences and rights as the Board of Trust
Limited Partners or to other persons on terms Managers may designate at the time. The
established by the General Partner. issuance of either additional Common Shares
or other similar equity securities may result
in the dilution of the interests of the
shareholders.
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
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<S> <C>
OPERATING PARTNERSHIP COMPANY
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C>
LIQUIDITY
Limited Partners generally can transfer their The Exchange Shares will be freely
Units, except that a transferee of a limited transferable as registered securities under
partnership interest generally cannot become the Securities Act. The Common Shares are
a substitute Limited Partner except with the listed on the NYSE. The breadth and strength
consent of the General Partner. Each Limited of this secondary market will depend, among
Partner has the right, subject to the other things, upon the number of shares
Ownership Limit, to tender his Units for ex- outstanding, the Company's financial results
change by the Operating Partnership. and prospects, the general interest in the
Company's and other real estate investments,
and the Company's dividend yield compared to
that of other debt and equity securities.
FEDERAL INCOME TAXATION
The Operating Partnership is not subject to The Company has elected to be taxed as a REIT
federal income taxes. Instead, each holder of for federal income tax purposes. So long as
Units includes his or its allocable share of it qualifies as a REIT, the Company will be
the Operating Partnership's taxable income or permitted to deduct distributions paid to its
loss in determining his or its individual shareholders, which effectively will reduce
federal income tax liability. The maximum the "double taxation" that typically results
federal income tax rate for individuals under when a corporation earns income and distrib-
current law is 39.6%. utes that income to its shareholders in the
form of dividends. A qualified REIT, however,
is subject to federal income tax on income
that is not distributed and also may be
subject to federal income and excise taxes in
certain circumstances. The maximum federal
income tax rate for corporations under
current law is 35%.
Income and loss from the Operating Dividends paid by the Company will be treated
Partnership generally is subject to the as "portfolio" income and cannot be offset
"passive activity" limitations. Under the with losses from "passive activities." The
"passive activity" rules, income and loss maximum federal income tax rate for
from the Operating Partnership that is individuals under current law is 39.6%.
considered "passive income" generally can be
offset against income and loss from other
investments that constitute "passive
activities." The "passive activity" limi-
tations generally apply to individuals,
trusts, estates, personal service
corporations and closely held corporations.
Cash distributions from the Operating Distributions made by the Company to its
Partnership are not taxable to a holder of taxable domestic shareholders out of current
Units except to the extent they exceed such or accumulated earnings and profits will be
holder's basis in his or its interest in the taken into account by them as ordinary
Operating Partnership (which will include income. Distributions that are designated as
such holder's allocable share of the capital gain dividends generally will be
Operating Partnership's nonrecourse debt). taxed as long-term capital gain, subject to
certain limitations. Distributions in excess
of current or accumulated earnings and
profits will be treated as a non-taxable
return of basis to the extent of a
shareholder's adjusted basis in its Common
Shares, with the excess taxed as capital
gain.
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C>
OPERATING PARTNERSHIP COMPANY
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C>
Each year, holders of Units will receive a Each year, shareholders will receive Form
Schedule K-I tax form containing detailed tax 1099 used by corporations to report dividends
information for inclusion in preparing their paid to their shareholders.
federal income tax returns.
Holders of Units may be required, in some Shareholders who are individuals generally
cases, to file state income tax returns will not be required to file state income tax
and/or pay state income taxes in the states returns and/or pay state income taxes outside
in which the Operating Partnership owns of their state of residence with respect to
property, even if they are not residents of the operations and distributions of the
those states. Company. The Company may be required to pay
state income taxes in certain states.
</TABLE>
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<PAGE> 35
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The following is a summary of the material federal income tax
considerations associated with an investment in the Common Shares offered hereby
prepared by Shaw, Pittman, Potts & Trowbridge, tax counsel to Crescent Equities
("Tax Counsel"). This discussion is based upon the laws, regulations and
reported rulings and decisions in effect as of the date of this Prospectus
Supplement, all of which are subject to change, retroactively or prospectively,
and to possibly differing interpretations. This discussion does not purport to
deal with the federal income or other tax consequences applicable to all
investors in light of their particular investment circumstances or to all
categories of investors, some of whom may be subject to special rules
(including, for example, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, foreign corporations and persons who are
not citizens or residents of the United States). No ruling on the federal, state
or local tax considerations relevant to the operation of Crescent Equities or
the Operating Partnership or to the purchase, ownership or disposition of the
Common Shares is being requested from the Internal Revenue Service (the "IRS")
or from any other tax authority. Tax Counsel has rendered certain opinions
discussed herein and believes that if the IRS were to challenge the conclusions
of Tax Counsel, such conclusions would prevail in court. However, opinions of
counsel are not binding on the IRS or on the courts, and no assurance can be
given that the conclusions reached by Tax Counsel would be sustained in court.
EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF THE COMMON SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REAL
ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, DISPOSITION AND ELECTION AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF CRESCENT EQUITIES
Crescent Equities has made an election to be treated as a real estate
investment trust under Sections 856 through 860 of the Code (as used in this
section, a "REIT"), commencing with its taxable year ended December 31, 1994.
Crescent Equities believes that it was organized and has operated in such a
manner so as to qualify as a REIT, and Crescent Equities intends to continue to
operate in such a manner, but no assurance can be given that it has operated in
a manner so as to qualify, or will operate in a manner so as to continue to
qualify as a REIT.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following sets forth the material aspects
of the Code sections that govern the federal income tax treatment of a REIT and
its shareholders. This summary is qualified in its entirety by the applicable
Code sections, rules and regulations promulgated thereunder, and administrative
and judicial interpretations thereof.
In the opinion of Tax Counsel, Crescent Equities qualified as a REIT under
the Code with respect to its taxable years ending on or before December 31,
1996, and is organized in conformity with the requirements for qualification as
a REIT, its manner of operation has enabled it to meet the requirements for
qualification as a REIT as of the date of this Prospectus Supplement, and its
proposed manner of operation will enable it to meet the requirements for
qualification as a REIT in the future. It must be emphasized that this opinion
is based on various assumptions relating to the organization and operation of
Crescent Equities and the Operating Partnership and is conditioned upon certain
representations made by Crescent Equities and the Operating Partnership as to
certain relevant factual matters, including matters related to the organization,
expected operation, and assets of Crescent Equities and the Operating
Partnership. Moreover, continued qualification as a REIT will depend upon
Crescent Equities' ability to meet, through actual annual operating results, the
distribution levels, stock ownership requirements and the various qualification
tests and other requirements imposed under the Code, as discussed below.
Accordingly, no assurance can be given that the actual stock ownership of
Crescent Equities, the mix of its assets, or the results of its operations for
any
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<PAGE> 36
particular taxable year will satisfy such requirements. For a discussion of the
tax consequences of failing to qualify as a REIT, see "-- Taxation of Crescent
Equities -- Failure to Qualify," below.
If Crescent Equities qualifies for taxation as a REIT, it generally will
not be subject to federal corporate income taxes on its net income that is
currently distributed to shareholders. This treatment substantially eliminates
the "double taxation" (at the corporate and shareholder levels) that generally
results from investments in a corporation. However, Crescent Equities will be
subject to federal income tax in the following circumstances. First, Crescent
Equities will be taxed at regular corporate rates on any undistributed "real
estate investment trust taxable income," including undistributed net capital
gains. Second, under certain circumstances, Crescent Equities may be subject to
the "alternative minimum tax" on its items of tax preference. Third, if Crescent
Equities has "net income from foreclosure property," it will be subject to tax
on such income at the highest corporate rate. "Foreclosure property" generally
means real property and any personal property incident to such real property
which is acquired as a result of a default either on a lease of such property or
on indebtedness which such property secured and with respect to which an
appropriate election is made, except that property ceases to be foreclosure
property (i) after a two-year period (which in certain cases may be extended by
the IRS) or, if earlier, (ii) when the REIT engages in construction on the
property (other than for completion of certain improvements) or for more than 90
days uses the property in a business conducted other than through an independent
contractor. "Net income from foreclosure property" means (a) the net gain from
disposition of foreclosure property which is held primarily for sale to
customers in the ordinary course of business or (b) other net income from
foreclosure property which would not satisfy the 75% gross income test
(discussed below). Property is not eligible for the election to be treated as
foreclosure property if the loan or lease with respect to which the default
occurs (or is imminent) was made, entered into or acquired by the REIT with an
intent to evict or foreclose or when the REIT knew or had reason to know that
default would occur. Fourth, if Crescent Equities has "net income derived from
prohibited transactions," such income will be subject to a 100% tax. The term
"prohibited transaction" generally includes a sale or other disposition of
property (other than foreclosure property) that is held primarily for sale to
customers in the ordinary course of business. Fifth, if Crescent Equities should
fail to satisfy the 75% gross income test or the 95% gross income test (as
discussed below), but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the net income attributable to the greater of the amount by which
Crescent Equities fails the 75% or 95% test. Sixth, if, during each calendar
year, Crescent Equities fails to distribute at least the sum of (i) 85% of its
"real estate investment trust ordinary income" for such year, (ii) 95% of its
"real estate investment trust capital gain net income" for such year, and (iii)
any undistributed taxable income from prior periods, Crescent Equities will be
subject to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed. Seventh, if Crescent Equities acquires any asset
from a C corporation (i.e., a corporation generally subject to full corporate
level tax) in a transaction in which the basis of the asset in Crescent
Equities' hands is determined by reference to the basis of the asset (or any
other property) in the hands of the corporation, and Crescent Equities
recognizes gain on the disposition of such asset during the 10-year period
beginning on the date on which such asset was acquired by Crescent Equities,
then, to the extent of such property's "built-in" gain (the excess of the fair
market value of such property at the time of acquisition by Crescent Equities
over the adjusted basis in such property at such time), such gain will be
subject to tax at the highest regular corporate rate applicable (as provided in
Treasury Regulations that have not yet been promulgated). (The results described
above with respect to the recognition of "built-in gain" assume that Crescent
Equities will make an election pursuant to IRS Notice 88-19.)
Requirements of Qualification. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or trust
managers; (2) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest; (3) which would
be taxable as a domestic corporation, but for Sections 856 through 860 of the
Code; (4) which is neither a financial institution nor an insurance company
subject to certain provisions of the Code; (5) the beneficial ownership of which
is held (without reference to any rules of attribution) by 100 or more persons;
(6) during the last half of each taxable year not more than 50% in value of the
outstanding stock of which is owned, directly or indirectly, by five or fewer
individuals (as defined in the Code); and (7) which meets certain other tests,
described below, regarding certain distributions and the nature of its income
and assets and properly files
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<PAGE> 37
an election to be treated as a REIT. The Code provides that conditions (1)
through (4), inclusive, must be met during the entire taxable year and that
condition (5) must be met during at least 335 days of a taxable year of 12
months (or during a proportionate part of a taxable year of less than 12
months).
Crescent Equities issued sufficient Common Shares pursuant to its initial
public offering in 1994 to satisfy the requirements described in (5) and (6)
above. While the existence of the Exchange Rights may cause Limited Partners to
be deemed to own the Common Shares they could acquire through the Exchange
Rights, the amount of Common Shares that can be acquired at any time through the
Exchange Rights is limited to an amount which, together with any other Common
Shares actually or constructively deemed, under the Declaration of Trust, to be
owned by any person, does not exceed the Ownership Limit. See "Description of
Shares of the Company -- Ownership Limits and Restrictions on Transfer."
Moreover, the ownership of Common Shares by persons other than contributing
Limited Partners generally is limited under the Ownership Limit to no more than
8.0% of the outstanding Common Shares. In addition, the Declaration of Trust
provides for restrictions regarding the ownership or transfer of Common Shares
in order to assist Crescent Equities in continuing to satisfy the share
ownership requirements described in (5) and (6) above. See "Description of
Shares of the Company -- Ownership Limits and Restrictions on Transfer."
If a REIT owns a "qualified REIT subsidiary," the Code provides that the
qualified REIT subsidiary is disregarded for federal income tax purposes, and
all assets, liabilities and items of income, deduction and credit of the
qualified REIT subsidiary are treated as assets, liabilities and such items of
the REIT itself. A qualified REIT subsidiary is a corporation all of the capital
stock of which has been owned by the REIT from the commencement of such
corporation's existence. CREE Ltd., Management I, Management II, Management III,
Management IV and Management V are qualified REIT subsidiaries, and thus all of
the assets (i.e., the respective partnership interests in the Operating
Partnership, Funding I, Funding II, Funding III, Funding IV and Funding V),
liabilities and items of income, deduction and credit of CREE Ltd., Management
I, Management II, Management III, Management IV and Management V are treated as
assets and liabilities and items of income, deduction and credit of Crescent
Equities. Unless otherwise required, all references to Crescent Equities in this
"Federal Income Tax Considerations" section refer to Crescent Equities and its
qualified REIT subsidiaries.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the assets and gross
income (as defined in the Code) of the partnership attributed to the REIT shall
retain the same character as in the hands of the partnership for purposes of
Section 856 of the Code, including satisfying the gross income tests and the
assets tests described below. Thus, Crescent Equities' proportionate share of
the assets, liabilities and items of income of the Operating Partnerships and
its subsidiary partnerships are treated as assets, liabilities and items of
income of Crescent Equities for purposes of applying the requirements described
herein.
Income Tests. In order for Crescent Equities to achieve and maintain its
qualification as a REIT, there are three requirements relating to Crescent
Equities' gross income that must be satisfied annually. First, at least 75% of
Crescent Equities' gross income (excluding gross income from prohibited
transactions) for each taxable year must consist of temporary investment income
or of certain defined categories of income derived directly or indirectly from
investments relating to real property or mortgages on real property. These
categories include, subject to various limitations, rents from real property,
interest on mortgages on real property, gains from the sale or other disposition
of real property (including interests in real property and in mortgages on real
property) not primarily held for sale to customers in the ordinary course of
business, income from foreclosure property, and amounts received as
consideration for entering into either loans secured by real property or
purchases or leases of real property. Second, at least 95% of Crescent Equities'
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived from income qualifying under the 75% test and from
dividends, other types of interest and gain from the sale or disposition of
stock or securities, or from any combination of the foregoing. Third, for each
taxable year, gain from the sale or other disposition of stock or securities
held for less than one year, gain from prohibited transactions and gain on the
sale or other disposition of real property held for less than four years (apart
from involuntary conversions and sales of foreclosure property) must represent
less than 30% of Crescent Equities' gross income (including gross
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<PAGE> 38
income from prohibited transactions) for such taxable year. Crescent Equities,
through its partnership interests in the Operating Partnership and all
subsidiary partnerships, believes it satisfied all three of these income tests
for 1994, 1995 and 1996 and expects to satisfy them for subsequent taxable
years.
The bulk of the Operating Partnership's income is currently derived from
rents with respect to the Office Properties, the Hotel Properties and the Retail
Properties. Rents received by Crescent Equities will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described above
only if several conditions are met. First, the amount of rent must not be based
in whole or in part on the income or profits of any person. An amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" if the REIT, or an owner
of 10% or more of the REIT, directly or constructively, owns 10% or more of such
tenant (a "Related Party Tenant"). Third, if rent attributable to personal
property leased in connection with a lease of real property is greater than 15%
of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." Finally, for rents to qualify as "rents from real property," a REIT
generally must not operate or manage the property or furnish or render services
to the tenants of such property, other than through an independent contractor
from whom the REIT derives no revenue, except that a REIT may directly perform
services which are "usually or customarily rendered" in connection with the
rental of space for occupancy, other than services which are considered to be
rendered to the occupant of the property.
Crescent Equities, based in part upon opinions of Tax Counsel as to whether
various tenants, including the lessees of the Hotel Properties, constitute
Related Party Tenants, believes that the income it received in 1994, 1995, and
1996 and will receive in subsequent taxable years from (i) charging rent for any
property that is based in whole or in part on the income or profits of any
person (except by reason of being based on a percentage or percentages of
receipts or sales, as described above); (ii) charging rent for personal property
in an amount greater than 15% of the total rent received under the applicable
lease; (iii) directly performing services considered to be rendered to the
occupant of property or which are not usually or customarily furnished or
rendered in connection with the rental of real property; or (iv) entering into
any lease with a Related Party Tenant, will not cause Crescent Equities to fail
to meet the gross income tests. Opinions of counsel are not binding upon the IRS
or any court, and there can be no complete assurance that the IRS will not
assert successfully a contrary position.
The Operating Partnership will also receive fixed and contingent interest
on the Residential Development Property Mortgages. Interest on mortgages secured
by real property satisfies the 75% and 95% gross income tests only if it does
not include any amount whose determination depends in whole or in part on the
income of any person, except that (i) an amount is not excluded from the term
"interest" solely by reason of being based on a fixed percentage or percentages
of receipts or sales and (ii) income derived from a shared appreciation
provision in a mortgage is treated as gain recognized from the sale of the
secured property. Certain of the Residential Development Property Mortgages
contain provisions for contingent interest based upon property sales. In the
opinion of Tax Counsel, each of the Residential Development Property Mortgages
constitutes debt for federal income tax purposes, any contingent interest
derived therefrom will be treated as being based on a fixed percentage of sales,
and therefore all interest derived therefrom will constitute interest received
from mortgages for purposes of the 75% and 95% gross income tests. If, however,
the contingent interest provisions were instead characterized as shared
appreciation provisions, any resulting income would, because the underlying
properties are primarily held for sale to customers in the ordinary course, be
treated as income from prohibited transactions, which would not satisfy the 75%
and 95% gross income tests, which would count toward the 30% gross income test,
and which would be subject to a 100% tax.
In applying the 95% and 75% gross income tests to Crescent Equities, it is
necessary to consider the form in which certain of its assets are held, whether
that form will be respected for federal income tax purposes, and whether, in the
future, such form may change into a new form with different tax attributes (for
example, as a result of a foreclosure on debt held by the Operating
Partnership). For example, the Residential Development Properties are primarily
held for sale to customers in the ordinary course of business, and the income
resulting from such sales, if directly attributed to Crescent Equities, would
not qualify under the 75% and 95% gross
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<PAGE> 39
income tests and would count as gain from the sale of assets for purposes of the
30% limitation. In addition, such income would be considered "net income from
prohibited transactions" and thus would be subject to a 100% tax. The income
from such sales, however, will be earned by the Residential Development
Corporations rather than by the Operating Partnership and will be paid to the
Operating Partnership in the form of interest and principal payments on the
Residential Development Property Mortgages or distributions with respect to the
stock in the Residential Development Corporations held by the Operating
Partnership. In similar fashion, the income earned by the Hotel Properties, if
directly attributed to Crescent Equities, would not qualify under the 75% and
95% gross income tests because it would not constitute "rents from real
property." Such income is, however, earned by the lessees of these Hotel
Properties and what the Operating Partnership receives from the lessees of these
Hotel Properties is rent. Tax Counsel is of the opinion that (i) the Residential
Development Properties or any interest therein will be treated as owned by the
Residential Development Corporations, (ii) amounts derived by the Operating
Partnership from the Residential Development Corporations under the terms of the
Residential Development Property Mortgages will qualify as interest or
principal, as the case may be, paid on mortgages on real property for purposes
of the 75% and 95% gross income tests, (iii) amounts derived by the Operating
Partnership with respect to the stock of the Residential Development
Corporations will be treated as distributions on stock (i.e., as dividends, a
return of capital, or capital gain, depending upon the circumstances) for
purposes of the 75% and 95% gross income tests and (iv) the leases of the Hotel
Properties will be treated as leases for federal income tax purposes, and the
rent payable thereunder will qualify as "rents from real property." Tax Counsel
has provided opinions similar to those provided with respect to the Operating
Partnership's investment in the Residential Development corporations with
respect to its investments in certain other entities through non-voting
securities and secured debt. Investors should be aware that there are no
controlling Treasury Regulations, published rulings, or judicial decisions
involving transactions with terms substantially the same as those with respect
to the Residential Development Corporations and the leases of the Hotel
Properties. Therefore, the opinions of Tax Counsel with respect to these matters
are based upon all of the facts and circumstances and upon rulings and judicial
decisions involving situations that are considered to be analogous. Opinions of
counsel are not binding upon the IRS or any court, and there can be no complete
assurance that the IRS will not assert successfully a contrary position. If one
or more of the Hotel Properties leases is not a true lease, part or all of the
payments that the Operating Partnership receives from the respective lessee may
not satisfy the various requirements for qualification as "rents from real
property," or the Operating Partnership might be considered to operate the Hotel
Properties directly. In that case, Crescent Equities likely would not be able to
satisfy either the 75% or 95% gross income tests and, as a result, likely would
lose its REIT status. Similarly, if the IRS were to challenge successfully the
arrangements with the Residential Development Corporations, Crescent Equities'
qualification as a REIT could be jeopardized.
If any of the Residential Development Properties were to be acquired by the
Operating Partnership as a result of foreclosure on any of the Residential
Development Property Mortgages, or if any of the Hotel Properties were to be
operated directly by the Operating Partnership or a subsidiary partnership as a
result of a default by the lessee under the lease, such property would
constitute foreclosure property for two years following its acquisition (or for
up to an additional four years if an extension is granted by the IRS), provided
that (i) the Operating Partnership or its subsidiary partnership conducts sales
or operations through an independent contractor; (ii) the Operating Partnership
or its subsidiary partnership does not undertake any construction on the
foreclosed property other than completion of improvements which were more than
10% complete before default became imminent; and (iii) foreclosure was not
regarded as foreseeable at the time Crescent Equities acquired the Residential
Development Property Mortgages or leased the Hotel Properties. For so long as
any of these properties constitutes foreclosure property, the income from such
sales would be subject to tax at the maximum corporate rates and would qualify
under the 75% and 95% gross income tests. However, if any of these properties
does not constitute foreclosure property at any time in the future, income
earned from the disposition or operation of such property will not qualify under
the 75% and 95% gross income tests and, in the case of the Residential
Development Properties, will count toward the 30% test and will be subject to
the 100% tax.
Crescent Equities anticipates that it will have certain income which will
not satisfy the 75% or the 95% gross income test and/or which will constitute
income whose receipt could cause Crescent Equities not to
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comply with the 30% gross income test. For example, income from dividends on the
stock of the Residential Development Corporations will not satisfy the 75% gross
income test. It is also possible that certain income resulting from the use of
creative financing or acquisition techniques would not satisfy the 75%, 95%, or
30% gross income tests. Crescent Equities believes, however, that the aggregate
amount of nonqualifying income will not cause Crescent Equities to exceed the
limits on nonqualifying income under the 75%, 95% or 30% gross income tests.
Any gross income derived from a prohibited transaction is taken into
account in applying the 30% gross income test necessary to qualify as a REIT.
Crescent Equities believes that no asset owned by the Operating Partnership is
primarily held for sale to customers and that the sale of any of the Properties
will not be in the ordinary course of business. Whether property is held
primarily for sale to customers in the ordinary course of business depends,
however, on the facts and circumstances in effect from time to time, including
those related to a particular property. No assurance can be given that Crescent
Equities can (a) comply with certain safe-harbor provisions of the Code which
provide that certain sales do not constitute prohibited transactions or (b)
avoid owning property that may be characterized as property held primarily for
sale to customers in the ordinary course of business.
If Crescent Equities fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions generally will be available if Crescent Equities'
failure to meet such tests is due to reasonable cause and not to willful
neglect, Crescent Equities attaches a schedule of the sources of its income to
its tax return, and any incorrect information on the schedule is not due to
fraud with intent to evade tax. It is not possible, however, to state whether in
all circumstances Crescent Equities would be entitled to the benefit of these
relief provisions. As discussed above, even if these relief provisions apply, a
tax would be imposed with respect to the excess of 75% or 95% of Crescent
Equities' gross income over Crescent Equities' qualifying income in the relevant
category, whichever is greater.
Asset Tests. Crescent Equities, at the close of each quarter of its
taxable year, must also satisfy three tests relating to the nature of its
assets. First, at least 75% of the value of Crescent Equities' total assets must
be represented by real estate assets (including (i) its allocable share of real
estate assets held by the Operating Partnership, any partnerships in which the
Operating Partnership owns an interest, or qualified REIT subsidiaries of
Crescent Equities and (ii) stock or debt instruments held for not more than one
year purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of Crescent Equities), cash, cash items and government
securities. Second, not more than 25% of Crescent Equities' total assets may be
represented by securities other than those in the 75% asset class. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by Crescent Equities may not exceed 5% of the value of Crescent
Equities' total assets, and Crescent Equities may not own more than 10% of any
one issuer's outstanding voting securities. The 25% and 5% tests generally must
be met for any quarter in which Crescent Equities acquires securities of an
issuer. Thus, this requirement must be satisfied not only on the date Crescent
Equities first acquires corporate securities, but also each time Crescent
Equities increases its ownership of corporate securities (including as a result
of increasing its interest in the Operating Partnership by acquiring Units from
Limited Partners upon the exercise of their Exchange Rights).
The Operating Partnership owns 100% of the non-voting stock of each
Residential Development Corporation. In addition, the Operating Partnership owns
the Residential Development Property Mortgages. As stated above, in the opinion
of Tax Counsel each of these mortgages will constitute debt for federal income
tax purposes and therefore will be treated as a real estate asset; however, the
IRS could assert that such mortgages should be treated as equity interests in
their respective issuers, which would not qualify as real estate assets. By
virtue of its ownership of partnership interests in the Operating Partnership,
Crescent Equities will be considered to own its pro rata share of these assets.
Neither Crescent Equities nor the Operating Partnership, however, will directly
own more than 10% of the voting securities of any Residential Development
Corporation and, in the opinion of Tax Counsel, Crescent Equities will not be
considered to own any of such voting securities. In addition, Crescent Equities
and its senior management believe that Crescent Equities' pro rata share of the
value of the securities of each Residential Development Corporation do not
separately exceed 5% of the total value of Crescent Equities' total assets. This
belief is based in part upon its
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analysis of the estimated values of the various securities owned by the
Operating Partnership relative to the estimated value of the total assets owned
by the Operating Partnership. No independent appraisals will be obtained to
support this conclusion, and Tax Counsel, in rendering its opinion as to the
qualification of Crescent Equities as a REIT, is relying on the conclusions of
Crescent Equities and its senior management as to the value of the various
securities and other assets. There can be no assurance, however, that the IRS
might not contend that the values of the various securities held by Crescent
Equities through the Operating Partnership separately exceed the 5% value
limitation or, in the aggregate, exceed the 25% value limitation or that the
voting securities of the Residential Development Corporations should be
considered to be owned by Crescent Equities. Finally, if the Operating
Partnership were treated for tax purposes as a corporation rather than as a
partnership, Crescent Equities would violate the 10% of voting securities and 5%
of value limitations, and the treatment of any of the Operating Partnership's
subsidiary partnerships as a corporation rather than as a partnership could also
violate one or the other, or both, of these limitations. In the opinion of Tax
Counsel, for federal income tax purposes the Operating Partnership and all the
subsidiary partnerships will be treated as partnerships and not as either
associations taxable as corporations or publicly traded partnerships. See
"-- Tax Aspects of the Operating Partnership and the Subsidiary Partnerships,"
below.
As noted above, the 5% and 25% value requirements must be satisfied not
only on the date Crescent Equities first acquires corporate securities, but also
each time Crescent Equities increases its ownership of corporate securities
(including as a result of increasing its interest in the Operating Partnership
either with the proceeds of this Offering or by acquiring Units from Limited
Partners upon the exercise of their Exchange Rights). Although Crescent Equities
plans to take steps to ensure that it satisfies the 5% and 25% value tests for
any quarter with respect to which retesting is to occur, there can be no
assurance that such steps (i) will always be successful; (ii) will not require a
reduction in Crescent Equities' overall interest in the various corporations; or
(iii) will not restrict the ability of the Residential Development Corporations
to increase the sizes of their respective businesses, unless the value of the
assets of Crescent Equities is increasing at a commensurate rate.
Annual Distribution Requirements. In order to qualify as a REIT, Crescent
Equities is required to distribute dividends (other than capital gains
dividends) to its shareholders in an amount at least equal to (A) the sum of (i)
95% of the "real estate investment trust taxable income" of Crescent Equities
(computed without regard to the dividends paid deduction and Crescent Equities'
net capital gain) and (ii) 95% of the net income (after tax), if any, from
foreclosure property, minus (B) certain excess noncash income. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before Crescent Equities timely files its tax
return for such year, and if paid on or before the date of the first regular
dividend payment after such declaration. To satisfy the 95% distribution
requirement for 1994, Crescent Equities made a distribution to shareholders in
1995 which it believes was properly attributable to its 1994 tax year in
accordance with the rules described in the preceding sentence. To the extent
that Crescent Equities does not distribute all of its net capital gain or
distributes at least 95%, but less than 100%, of its "real estate investment
trust taxable income," as adjusted, it will be subject to tax thereon at regular
capital gains and ordinary corporate tax rates. Furthermore, if Crescent
Equities should fail to distribute, during each calendar year, at least the sum
of (i) 85% of its "real estate investment trust ordinary income" for such year;
(ii) 95% of its "real estate investment trust capital gain income" for such
year; and (iii) any undistributed taxable income from prior periods, Crescent
Equities would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed.
Crescent Equities believes that it has made and intends to make timely
distributions sufficient to satisfy all annual distribution requirements. In
this regard, the Operating Partnership Agreement authorizes CREE Ltd., as
General Partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit
Crescent Equities to meet these distribution requirements. It is possible,
however, that, from time to time, Crescent Equities may experience timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of such
expenses in arriving at its "real estate investment trust taxable income."
Issues may also arise as to whether certain items should be included in income.
For example, Tax Counsel has opined that the Operating Partnership should
include in income only its share of the interest
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income actually paid on two mortgage notes purchased by the Company and secured
by two Office Properties ("Mortgage Notes"), both of which were acquired at a
substantial discount, rather than its share of the amount of interest accruing
pursuant to the terms of the these investments, but opinions of counsel are not
binding on the IRS or the courts. In this regard, the IRS has taken a contrary
view in a recent technical advice memorandum concerning the accrual of original
issue discount ("OID"). The Company believes, however, that even if the
Operating Partnership were to include in income the full amount of interest
income accrued on these notes, and the Operating Partnership were not allowed
any offsetting deduction for the amount of such interest to the extent it is
uncollectible, the Company nonetheless would be able to satisfy the 95%
distribution requirement without borrowing additional funds or distributing
stock dividends (as discussed below). In addition, it is possible that certain
creative financing or creative acquisition techniques used by the Operating
Partnership may result in income (such as income from cancellation of
indebtedness or gain upon the receipt of assets in foreclosure whose fair market
value exceeds the Operating Partnership's basis in the debt which was foreclosed
upon) which is not accompanied by cash proceeds. In this regard, the
modification of a debt can result in taxable gain equal to the difference
between the holder's basis in the debt and the principal amount of the modified
debt. Tax Counsel has opined that the Mortgage Notes were not modified in the
hands of the Operating Partnership. Based on the foregoing, Crescent Equities
may have less cash available for distribution in a particular year than is
necessary to meet its annual 95% distribution requirement or to avoid tax with
respect to capital gain or the excise tax imposed on certain undistributed
income for such year. To meet the 95% distribution requirement necessary to
qualify as a REIT or to avoid tax with respect to capital gain or the excise tax
imposed on certain undistributed income, Crescent Equities may find it
appropriate to arrange for borrowings through the Operating Partnership or to
pay distributions in the form of taxable stock dividends.
Under certain circumstances, Crescent Equities may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to shareholders in a later year, which may be included in Crescent
Equities' deduction for dividends paid for the earlier year. Thus, Crescent
Equities may be able to avoid being taxed on amounts distributed as deficiency
dividends; however, Crescent Equities will be required to pay interest based
upon the amount of any deduction taken for deficiency dividends.
Ownership Information. Pursuant to applicable Treasury Regulations, in
order to be treated as a REIT, Crescent Equities must maintain certain records
and request certain information from its shareholders designed to disclose the
actual ownership of its Equity Securities. Crescent Equities believes that it
has complied and intends to continue to comply with such requirements.
Failure to Qualify. If Crescent Equities fails to qualify as a REIT in any
taxable year and the relief provisions do not apply, Crescent Equities will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which Crescent Equities fails to qualify as a REIT will not be deductible by
Crescent Equities; nor will they be required to be made. If Crescent Equities
fails to qualify as a REIT, then, to the extent of Crescent Equities' current
and accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income and, subject to certain limitations of the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, Crescent Equities
will also be disqualified from electing to be treated as a REIT for the four
taxable years following the year during which it ceased to qualify as a REIT. It
is not possible to state whether in all circumstances Crescent Equities would be
entitled to such statutory relief.
Possible Legislation. On October 6, 1995, the House of Representatives
passed budget reconciliation legislation entitled the Tax Simplification Act of
1995, which contained various amendments to the Code, including amendments to
the provisions governing the tax treatment of REITs. The modifications to the
REIT rules were sponsored by the REIT industry and would generally have operated
to liberalize the requirements for qualification as a REIT. These modifications
would have become effective in the first taxable year following their enactment.
However, these modifications were not part of the budget reconciliation
legislation which passed Congress and which, in any event, President Clinton
subsequently vetoed. It is anticipated that these modifications will be
reintroduced in 1997. Whether or when modifications to the REIT rules will
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ultimately be enacted, or what provisions they will contain if they are enacted,
cannot be ascertained at this time.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as Crescent Equities qualifies as a REIT, distributions made to
Crescent Equities' taxable U.S. shareholders out of Crescent Equities' current
or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by such U.S. shareholders as ordinary
income and, for corporate shareholders, will not be eligible for the dividends
received deduction. Distributions that are properly designated as capital gain
dividends will be taxed as long-term capital gains (to the extent they do not
exceed Crescent Equities' actual net capital gain for the taxable year) without
regard to the period for which the shareholder has held its Common Shares.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Distributions in excess of current
and accumulated earnings and profits will not be taxable to a shareholder to the
extent that they do not exceed the adjusted basis of the shareholder's Common
Shares, but rather will reduce the adjusted basis of such shares. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a shareholder's Common Shares, such distributions
will be included in income as long-term capital gain (or short-term capital gain
if the shares have been held for one year or less) assuming the shares are a
capital asset in the hands of the shareholder. In addition, any distribution
declared by Crescent Equities in October, November or December of any year
payable to a shareholder of record on a specified date in any such month shall
be treated as both paid by Crescent Equities and received by the shareholder on
December 31 of such year, provided that the distribution is actually paid by
Crescent Equities during January of the following calendar year. Shareholders
may not include any net operating losses or capital losses of Crescent Equities
in their respective income tax returns.
In general, any loss upon a sale or exchange of shares by a shareholder who
has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from Crescent Equities required to be treated by such shareholder
as long-term capital gain.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Most tax-exempt employees' pension trusts are not subject to federal income
tax except to the extent of their receipt of "unrelated business taxable income"
as defined in Section 512(a) of the Code ("UBTI"). Distributions by the Company
to a shareholder that is a tax-exempt entity should not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of its
Common Shares with "acquisition indebtedness" within the meaning of the Code and
the Common Shares is not otherwise used in an unrelated trade or business of the
tax-exempt entity. In addition, certain pension trusts that own more than 10% of
a "pension-held REIT" must report a portion of the dividends that they receive
from such a REIT as UBTI. The Company has not been and does not expect to be
treated as a pension-held REIT for purposes of this rule.
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex, and no attempt
will be made herein to provide more than a summary of such rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of federal, state and local tax laws with regard to an investment in
Common Shares, including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
Crescent Equities of United States real property interests and not designated by
Crescent Equities as capital gain dividends will be treated as dividends of
ordinary income to the extent that they are made out of current and accumulated
earnings and profits of Crescent Equities. Such distributions ordinarily will be
subject to a withholding tax equal to 30% of the gross amount of the
distribution, unless an applicable tax treaty reduces or eliminates that tax.
Crescent Equities expects to withhold U.S. income tax at the rate of 30% on the
gross amount of any such distribution
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made to a Non-U.S. Shareholder unless (i) a lower treaty rate applies and the
Non-U.S. Shareholder has filed the required IRS Form 1001 with Crescent Equities
or (ii) the Non-U.S. Shareholder files an IRS Form 4224 with Crescent Equities
claiming that the distribution is effectively connected with the Non-U.S.
Shareholder's conduct of a U.S. trade or business. Distributions in excess of
Crescent Equities' current and accumulated earnings and profits will be subject
to a 10% withholding requirement but will not be taxable to a shareholder to the
extent that such distributions do not exceed the adjusted basis of the
shareholder's Common Shares, but rather will reduce the adjusted basis of such
shares. To the extent that distributions in excess of current and accumulated
earnings and profits exceed the adjusted basis of a Non-U.S. Shareholder's
shares, such distributions will give rise to tax liability if the Non-U.S.
Shareholder would otherwise be subject to tax on any gain from the sale or
disposition of the Common Shares, as described below. If it cannot be determined
at the time a distribution is made whether or not such distribution will be in
excess of current and accumulated earnings and profits, the distributions would
be subject to withholding at the same rate as dividends. However, a Non-U.S.
Shareholder may seek a refund from the IRS of amounts of tax withheld in excess
of the Non-U.S. Shareholder's actual U.S. tax liability.
For any year in which Crescent Equities qualifies as a REIT, distributions
that are attributable to gain from sales or exchanges by Crescent Equities of
United States real property interests will be taxed to a Non-U.S. Shareholder
under the provisions of the Foreign Investment in Real Property Tax Act of 1980,
as amended ("FIRPTA"). Under FIRPTA, distributions attributable to gain from
sales of United States real property interests are taxed to a Non-U.S.
Shareholder as if such gain were effectively connected with a United States
business. Non-U.S. Shareholders would thus be taxed at the normal capital gain
rates applicable to U.S. shareholders (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals). Also, distributions subject to FIRPTA may be subject to a 30%
branch profits tax in the hands of a foreign corporate shareholder not entitled
to treaty exemption. Crescent Equities is required to withhold 35% of any
distribution that could be designated by Crescent Equities as a capital gain
dividend. This amount is creditable against the Non-U.S. Shareholder's FIRPTA
tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of Common Shares
generally will not be taxed under FIRPTA if Crescent Equities is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. Crescent Equities is and currently expects to
continue to be a "domestically controlled REIT," and in such case the sale of
Common Shares would not be subject to taxation under FIRPTA. However, gain not
subject to FIRPTA nonetheless will be taxable to a Non-U.S. Shareholder if (i)
investment in the Common Shares is treated as effectively connected with the
Non-U.S. Shareholder's U.S. trade or business, in which case the Non-U.S.
Shareholder will be subject to the same treatment as U.S. shareholders with
respect to such gain or (ii) the Non-U.S. Shareholder is a nonresident alien
individual who was present in the United States for 183 days or more during the
taxable year and either the individual has a "tax home" in the United States or
the gain is attributable to an office or other fixed place of business
maintained by the individual in the United States, in which case gains will be
subject to a 30% tax. If the gain on the sale of Common Shares were to be
subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to
the same treatment as U.S. shareholders with respect to such gain (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals), and the purchaser of the Common Shares
would be required to withhold and remit to the IRS 10% of the purchase price.
TAX ASPECTS OF THE OPERATING PARTNERSHIP AND THE SUBSIDIARY PARTNERSHIPS
The following discussion summarizes certain federal income tax
considerations applicable solely to Crescent Equities' investment in the
Operating Partnership and its subsidiary partnerships and represents the views
of Tax Counsel. The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws.
Classification of the Operating Partnership and its Subsidiary Partnerships
for Tax Purposes. In the opinion of Tax Counsel, based on the provisions of the
Operating Partnership Agreement and the partnership
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agreements of the various subsidiary partnerships, certain factual assumptions
and certain representations described in the opinion, the Operating Partnership
and the subsidiary partnerships will each be treated as a partnership and
neither an association taxable as a corporation for federal income tax purposes,
nor a "publicly traded partnership" taxable as a corporation. Unlike a ruling
from the IRS, however, an opinion of counsel is not binding on the IRS or the
courts, and no assurance can be given that the IRS will not challenge the status
of the Operating Partnership and its subsidiary partnerships as partnerships for
federal income tax purposes. If for any reason the Operating Partnership were
taxable as a corporation rather than as a partnership for federal income tax
purposes, Crescent Equities would fail to qualify as a REIT because it would not
be able to satisfy the income and asset requirements. See "-- Taxation of
Crescent Equities," above. In addition, any change in the Operating
Partnership's status for tax purposes might be treated as a taxable event, in
which case Crescent Equities might incur a tax liability without any related
cash distributions. See "-- Taxation of Crescent Equities," above. Further,
items of income and deduction for the Operating Partnership would not pass
through to the respective partners, and the partners would be treated as
shareholders for tax purposes. The Operating Partnership would be required to
pay income tax at regular corporate tax rates on its net income, and
distributions to partners would constitute dividends that would not be
deductible in computing the Operating Partnership's taxable income. Similarly,
if any of the subsidiary partnerships were taxable as a corporation rather than
as a partnership for federal income tax purposes, such treatment might cause
Crescent Equities to fail to qualify as a REIT, and in any event such
partnership's items of income and deduction would not pass through to its
partners, and its net income would be subject to income tax at regular corporate
rates.
Income Taxation of the Operating Partnership and its Subsidiary
Partnerships. A partnership is not a taxable entity for federal income tax
purposes. Rather, Crescent Equities will be required to take into account its
allocable share of the Operating Partnership's income, gains, losses, deductions
and credits for any taxable year of such Partnership ending within or with the
taxable year of Crescent Equities, without regard to whether Crescent Equities
has received or will receive any cash distributions. The Operating Partnership's
income, gains, losses, deductions and credits for any taxable year will include
its allocable share of such items from its subsidiary partnerships.
Tax Allocations with Respect to Pre-Contribution Gain. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
property that is contributed to a partnership in exchange for an interest in the
partnership must be allocated for federal income tax purposes in a manner such
that the contributor is charged with the unrealized gain associated with the
property at the time of the contribution. The amount of such unrealized gain is
generally equal to the difference between the fair market value of the
contributed property at the time of contribution and the adjusted tax basis of
such property at the time of contribution (the "Book-Tax Difference"). In
general, the fair market value of the properties initially contributed to the
Operating Partnership were substantially in excess of their adjusted tax bases.
The Operating Partnership Agreement requires that allocations attributable to
each item of initially contributed property be made so as to allocate the tax
depreciation available with respect to such property first to the partners other
than the partner that contributed the property, to the extent of, and in
proportion to, such partners' share of book depreciation, and then, if any tax
depreciation remains, to the partner that contributed the property. Accordingly,
the depreciation deductions allocable will not correspond exactly to the
percentage interests of the partners. Upon the disposition of any item of
initially contributed property, any gain attributable to an excess at such time
of basis for book purposes over basis for tax purposes will be allocated for tax
purposes to the contributing partner and, in addition, the Operating Partnership
Agreement provides that any remaining gain will be allocated for tax purposes to
the contributing partners to the extent that tax depreciation previously
allocated to the noncontributing partners was less than the book depreciation
allocated to them. These allocations are intended to be consistent with Section
704(c) of the Code and with Treasury Regulations thereunder. The tax treatment
of properties contributed to the Operating Partnership subsequent to its
formation is expected generally to be consistent with the foregoing.
In general, the contributing partners will be allocated lower amounts of
depreciation deductions for tax purposes and increased taxable income and gain
on sale by the Operating Partnership of one or more of the contributed
properties. These tax allocations will tend to reduce or eliminate the Book-Tax
Difference over the life of the Operating Partnership. However, the special
allocation rules of Section 704(c) of the Code do not
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always entirely rectify the Book-Tax Difference on an annual basis. Thus, the
carryover basis of the contributed assets in the hands of the Operating
Partnership will cause Crescent Equities to be allocated lower depreciation and
other deductions. This may cause Crescent Equities to recognize taxable income
in excess of cash proceeds, which might adversely affect Crescent Equities'
ability to comply with the REIT distribution requirements. See "-- Taxation of
Crescent Equities," above.
SALE OF PROPERTY
Generally, any gain realized by the Operating Partnership on the sale of
real property, if the property is held for more than one year, will be long-term
capital gain, except for any portion of such gain that is treated as
depreciation or cost recovery recapture.
Crescent Equities' share of any gain realized on the sale of any property
held by the Operating Partnership as inventory or other property held primarily
for sale to customers in the ordinary course of the Operating Partnership's
business, however, will be treated as income from a prohibited transaction that
is subject to a 100% penalty tax. See "-- Taxation of Crescent Equities," above.
Such prohibited transaction income will also have an adverse effect upon
Crescent Equities' ability to satisfy the income tests for status as a REIT for
federal income tax purposes. Under existing law, whether property is held as
inventory or primarily for sale to customers in the ordinary course of the
Operating Partnership's business is a question of fact that depends on all the
facts and circumstances with respect to the particular transaction. The
Operating Partnership intends to hold its properties for investment with a view
to long-term appreciation, to engage in the business of acquiring, developing,
owning and operating the properties, and to make such occasional sales of
properties as are consistent with these investment objectives.
TAXATION OF THE RESIDENTIAL DEVELOPMENT CORPORATIONS
A portion of the amounts to be used to fund distributions to shareholders
is expected to come from the Residential Development Corporations through
dividends on non-voting stock thereof held by the Operating Partnership and
interest on the Residential Development Property Mortgages held by the Operating
Partnership. The Residential Development Corporations do not qualify as REITs
and pay federal, state and local income taxes on their taxable incomes at normal
corporate rates, which taxes reduce the cash available for distribution by
Crescent Equities to its shareholders. Crescent Equities anticipates that,
initially, deductions for interest and amortization will largely offset the
otherwise taxable income of the Residential Development Corporations, but there
can be no assurance that this will be the case or that the IRS will not
challenge such deductions. Any federal, state or local income taxes that the
Residential Development Corporations are required to pay will reduce the cash
available for distribution by Crescent Equities to its shareholders.
STATE AND LOCAL TAXES
Crescent Equities and its shareholders may be subject to state and local
tax in various states and localities, including those states and localities in
which it or they transact business, own property, or reside. The tax treatment
of Crescent Equities and the shareholders in such jurisdictions may differ from
the federal income tax treatment described above. Consequently, prospective
shareholders should consult their own tax advisors regarding the effect of state
and local tax laws upon an investment in the Common Shares of Crescent Equities.
In particular, the State of Texas imposes a franchise tax upon corporations
that do business in Texas. The Texas franchise tax is imposed on each such
entity with respect to the entity's "net taxable capital" and its "net taxable
earned surplus" (generally, the entity's federal taxable income, with certain
adjustments). The franchise tax on net taxable capital is imposed at the rate of
0.25% of an entity's net taxable capital. The franchise tax rate on "net taxable
earned surplus" is 4.5%. The Texas franchise tax is generally equal to the
greater of the tax on "net taxable capital" and the tax on "net taxable earned
surplus." The Texas franchise tax is not applied on a consolidated group basis.
Any Texas franchise tax that Crescent Equities is indirectly required to pay
will reduce the cash available for distribution by Crescent Equities to
shareholders. Even if an
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<PAGE> 47
entity is doing business in Texas for Texas franchise tax purposes, the entity
is subject to the Texas franchise tax only on the portion of the taxable capital
or taxable earned surplus apportioned to Texas.
As a Texas real estate investment trust, Crescent Equities will not be
subject directly to the Texas franchise tax. However, Crescent Equities will be
subject indirectly to the Texas franchise tax as a result of its interests in
CREE Ltd., Management I, Management II, Management III, Management IV and
Management V, which will be subject to the Texas franchise tax because they are
general partners of the Operating Partnership, Funding I, Funding II, Funding
III, Funding IV and Funding V, and the Operating Partnership, Funding I, Funding
II, Funding III, Funding IV and Funding V will be doing business in Texas.
It is anticipated that the Crescent Equities' Texas franchise tax liability
will not be substantial because CREE Ltd., Management I, Management II,
Management III, Management IV and Management V are allocated only a small
portion of the taxable income of the Operating Partnership, Funding I, Funding
II, Funding III, Funding IV and Funding V.
The Operating Partnership, Funding I, Funding II, Funding III, Funding IV
and Funding V will not be subject to the Texas franchise tax, under the laws in
existence at the time of this Prospectus because they are partnerships instead
of corporations. There is no assurance, however, that the Texas legislature,
which will meet again in regular session in 1997, will not expand the scope of
the Texas franchise tax to apply to limited partnerships such as the Operating
Partnership, Funding I, Funding II, Funding III, Funding IV and Funding V or
enact other legislation which may result in subjecting Crescent Equities to the
Texas franchise tax. Any statutory change by the Texas legislature may be
applied retroactively.
In addition, it should be noted that two of the Residential Development
Corporations will be doing business in Texas and will be subject to the Texas
franchise tax. Further, Crescent/301, L.L.C. will be subject to the Texas
franchise tax because it is doing business in Texas and limited liability
companies are subject to Texas franchise tax. However, this franchise tax should
not be substantial because Crescent/301, L.L.C. owns a 1% interest in 301
Congress Avenue, L.P. Other entities that will be subject to the Texas franchise
tax include CresTex Development, LLC and its member CresCal Properties, Inc. It
is expected that the franchise tax liability of these two entities will not be
substantial.
Governor George W. Bush of Texas has announced his desire that the Texas
legislature consider in its 1997 regular session proposals for property tax
relief in Texas. Such relief would require increasing the proportion of
education funding costs paid by the State of Texas and reducing the proportion
paid by local property taxes. Alternatives for increasing State of Texas
revenues that have been considered include broadening the franchise tax base to
include other entities, enactment of a new gross receipts tax, enactment of a
new business activity tax and/or an increase in the sales tax. If the franchise
tax is broadened, it could be expanded to apply to partnerships such as the
Operating Partnership, Funding I, Funding II, Funding III, Funding IV and
Funding V (and possibly to business trusts such as Crescent Equities). If either
a gross receipts tax or a business activity tax was enacted, it most likely
would replace the current franchise tax. However, a gross receipts tax or a
business activities tax could apply to partnerships such as the Operating
Partnership, Funding I, Funding II, Funding III, Funding IV and Funding V (and
possibly to business trusts such as Crescent Equities). Whether or when any of
these provisions, or any alternative provisions, will ultimately be enacted, or
what provisions they will contain if they are enacted, cannot be ascertained at
this time.
Locke Purnell Rain Harrell (A Professional Corporation), special tax
counsel to Crescent Equities ("Special Tax Counsel"), has reviewed the
discussion in this section with respect to Texas franchise tax matters and is of
the opinion that, based on the current structure of Crescent Equities and based
upon current law, it accurately summarizes the Texas franchise tax matters
expressly described herein. Special Tax Counsel expresses no opinion on any
other tax considerations affecting Crescent Equities or a holder of Common
Shares, including, but not limited to, other Texas franchise tax matters not
specifically discussed above.
Tax Counsel has not reviewed the discussion in this section with respect to
Texas franchise tax matters and has expressed no opinion with respect thereto.
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ERISA CONSIDERATIONS
The following is a summary of material considerations arising under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
prohibited transaction provisions of Section 4975 of the Code that may be
relevant to prospective investors. This discussion does not purport to deal with
all aspects of ERISA or the Code that may be relevant to particular investors in
light of their particular circumstances. A PROSPECTIVE INVESTOR THAT IS AN
EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA, A TAX QUALIFIED RETIREMENT PLAN, AN IRA
OR A GOVERNMENTAL, CHURCH OR OTHER PLAN THAT IS EXEMPT FROM ERISA IS URGED TO
CONSULT ITS OWN LEGAL ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING
UNDER APPLICABLE PROVISIONS OF ERISA, THE CODE AND STATE LAW WITH RESPECT TO THE
PURCHASE, OWNERSHIP, OR SALE OF THE SECURITIES BY SUCH PLAN OR IRA.
FIDUCIARY DUTIES AND PROHIBITED TRANSACTIONS
A fiduciary of a pension, profit-sharing, retirement or other employee
benefit plan subject to ERISA (an "ERISA Plan") should consider the fiduciary
standards under ERISA in the context of the ERISA Plan's particular
circumstances before authorizing an investment of any portion of the ERISA
Plan's assets in the Common Shares. Accordingly, such fiduciary should consider
(i) whether the investment satisfies the diversification requirements of Section
404(a)(1)(C) of ERISA; (ii) whether the investment is in accordance with the
documents and instruments governing the ERISA Plan as required by Section
404(a)(1)(D) of ERISA; (iii) whether the investment is prudent under Section
404(a)(1)(B) of ERISA; and (iv) whether the investment is solely in the
interests of the ERISA Plan participants and beneficiaries and for the exclusive
purpose of providing benefits to the ERISA Plan participants and beneficiaries
and defraying reasonable administrative expenses of the ERISA Plan as required
by Section 404(a)(1)(A) of ERISA.
In addition to the imposition of fiduciary standards, ERISA and Section
4975 of the Code prohibit a wide range of transactions between an ERISA Plan, an
IRA or certain other plans (collectively, a "Plan") and persons who have certain
specified relationships to the Plan ("parties in interest" within the meaning of
ERISA and "disqualified persons" within the meaning of the Code). Thus, a Plan
fiduciary or person making an investment decision for a Plan also should
consider whether the acquisition or the continued holding of the Common Shares
might constitute or give rise to a direct or indirect prohibited transaction.
PLAN ASSETS
The prohibited transactions rules of ERISA and the Code apply to
transactions with a Plan and also to transactions with the "plan assets" of a
Plan. The "plan assets" of a Plan include the Plan's interest in an entity in
which the Plan invests and, in certain circumstances, the assets of the entity
in which the Plan holds such interest. The term "plan assets" is not
specifically defined in ERISA or the Code, nor, as of the date hereof, has it
been interpreted definitively by the courts in litigation. On November 13, 1986,
the United States Department of Labor, the governmental agency primarily
responsible for administering ERISA, adopted a final regulation (the "DOL
Regulation") setting out the standards it will apply in determining whether an
equity investment in an entity will cause the assets of such entity to
constitute "plan assets." The DOL Regulation applies for purposes of both ERISA
and Section 4975 of the Code.
Under the DOL Regulation, if a Plan acquires an equity interest in an
entity, which equity interest is not a "publicly-offered security," the Plan's
assets generally would include both the equity interest and an undivided
interest in each of the entity's underlying assets unless certain specified
exceptions apply. The DOL Regulation defines a publicly-offered security as a
security that is "widely held," "freely transferable," and either part of a
class of securities registered under Section 12(b) or 12(g) of the Exchange Act,
or sold pursuant to an effective registration statement under the Securities Act
(provided the securities are registered under the Exchange Act within 120 days
after the end of the fiscal year of the issuer during which the offering
occurred). The Common Shares will be sold in an offering registered under the
Securities Act and registered under Section 12(b) of the Exchange Act.
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The DOL Regulation provides that a security is "widely held" only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. However, a class of securities will not fail
to be "widely held" solely because the number of independent investors falls
below 100 subsequent to the initial public offering as a result of events beyond
the issuer's control. The Company expects the Common Shares to be "widely held"
upon completion of any offering.
The DOL Regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all the
relevant facts and circumstances. The DOL Regulation further provides that when
a security is part of an offering in which the minimum investment is $10,000 or
less, as will be the case with any offering, certain restrictions ordinarily
will not affect, alone or in combination, the finding that such securities are
freely transferable. The Company believes that the restrictions imposed under
the Declaration of Trust on the transfer of the Common Shares are limited to
restrictions on transfer generally permitted under the DOL Regulation and are
not likely to result in the failure of the Common Shares to be "freely
transferable." See "Description of the Shares of the Company -- Ownership Limits
and Restrictions on Transfer." The DOL Regulation only establishes a presumption
in favor of a finding of free transferability and, therefore, no assurance can
be given that the Department of Labor and the U.S. Treasury Department would not
reach a contrary conclusion with respect to the Common Shares. Any additional
transfer restrictions imposed on the transfer of the Common Shares will be
discussed in the applicable Prospectus Supplement.
Assuming that the Common Shares will be "widely held" and "freely
transferable," the Company believes that the Common Shares will be
publicly-offered securities for purposes of the DOL Regulation and that the
assets of the Company will not be deemed to be "plan assets" of any plan that
invests in the Common Shares.
PLAN OF DISTRIBUTION
This Prospectus relates to (i) the possible issuance by the Company of
Original Exchange Shares if, and to the extent that, holders of Original Units
tender such Original Units in exchange for Common Shares, (ii) the offer and
sale from time to time of the Original Shares by the holders thereof, (iii) the
possible distribution of 617,392 Original Shares if, and to the extent that, the
holder thereof (which is a limited partnership) distributes such Original Shares
pro rata to its partners as part of the liquidation and winding up of affairs of
such holder, (iv) the possible issuance by the Company of up to 1,097,014 RER
Exchange Shares, if, and to the extent that, the holder of the RER Units tenders
such RER Units in exchange for Common Shares, (v) the possible issuance by the
Company of up to 9,522 JME Exchange Shares if, and to the extent that, the
holder of up to 9,522 JME Units tenders such JME Units in exchange for Common
Shares, and (vi) the offer and sale or other distribution from time to time of
any Secondary Shares by Selling Shareholders. The Company has registered the
Original Shares and the Exchange Shares for sale to provide the Selling
Shareholders with freely tradable securities, but registration of such shares
does not necessarily mean that any of such shares will be offered or sold by the
Selling Shareholders.
The Company will not receive any proceeds from the offering by the Selling
Shareholders or from the issuance of the Exchange Shares to holders of Original
Units upon receiving a notice of exchange (but it may acquire from such holders
the Units tendered for exchange). The Selling Shareholders may from time to time
sell all or a portion of the Secondary Shares on the NYSE, in the
over-the-counter market, on any other national securities exchange on which the
Common Shares is listed or traded, in negotiated transactions or otherwise, at
prices then prevailing or related to the then current market price or at
negotiated prices. The Secondary Shares may be sold directly or through brokers
or dealers, or in a distribution by one or more underwriters on a firm
commitment or best efforts basis. The methods by which the Secondary Shares may
be sold or distributed include, without limitation, (i) a block trade (which may
involve crosses) in which the broker or dealer so engaged will attempt to sell
the securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction, (ii) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus, (iii) exchange distributions and/or secondary distributions in
accordance with the rules of the NYSE, (iv) ordinary brokerage transactions and
transactions in which the broker solicits purchasers, (v) pro rata distributions
as part of the liquidation and
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winding up of the affairs of the holders thereof, and (vi) privately negotiated
transactions. The Selling Shareholders may from time to time deliver all or a
portion of the Secondary Shares to cover a short sale or sales or upon the
exercise, settlement or closing of a call equivalent position or a put
equivalent position. The Selling Shareholders and any broker-dealers
participating in the distribution of the Secondary Shares may be deemed to be
"underwriters" within the meaning of the Securities Act and any profit on the
sale of the Secondary Shares by the Selling Shareholders and any commissions
received by any such broker-dealers may be deemed to be underwriting commissions
under the Securities Act. The Selling by any such broker-dealers may be deemed
to be underwriting commissions under the Securities Act. The Selling
Shareholders may sell all or any portion of the Secondary Shares in reliance
upon Rule 144 under the Securities Act.
At a time a particular offer of Secondary Shares is made, a Prospectus
Supplement, if required, will be distributed that will set forth the name of any
dealers or agents and any commissions and other terms constituting compensation
from the Selling Shareholders and any other required information. The Secondary
Shares may be sold from time to time at varying prices determined at the time of
sale or at negotiated prices.
In order to comply with the securities laws of certain states, if
applicable, the Secondary Shares may in such circumstances be sold only through
registered or licensed brokers or dealers. In addition, in certain states, the
Secondary Shares may not be sold unless they have been registered or qualified
for sale in such state or an exemption from such registration or qualification
requirement is available and is complied with.
The Company may from time to time issue up to Exchange Shares upon
the acquisition of the Units tendered for exchange. The Company will acquire the
exchanging partner's Unit in exchange for each Exchange Share that the Company
issues in connection with these acquisitions. Consequently, with each exchange,
the Company's interest in the Operating Partnership will increase.
EXPERTS
The financial statements and schedule incorporated in this Prospectus by
reference to the Predecessor Corporation's Annual Report on Form 10-K for the
year ended December 31, 1995, as amended, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing. The report of Arthur Andersen LLP with
respect to the combined financial statements and schedules of the Rainwater
Property Group (as defined in the financial statements and schedule incorporated
by reference herein) is based in part on the report of KPMG Peat Marwick LLP,
independent public accountants, on the combined statement of operations, owners'
deficit, and cash flows of The Crescent property and in reliance upon the
authority of KPMG Peat Marwick LLP as experts in accounting and auditing.
The financial statements incorporated in this Prospectus by reference to
the Predecessor Corporation's Current Reports on Form 8-K (i) dated August 2,
1994 and filed on January 9, 1996, as amended on February 2, 1996 and February
15, 1996, (ii) dated October 3, 1994 and filed on January 9, 1996, as amended on
February 2, 1996 and February 15, 1996, and (iii) dated April 18, 1996 and filed
on June 5, 1996, and (iv) dated August 15, 1996 and filed on September 11, 1996,
as amended on September 27, 1996 and November 12, 1996 respectively, relating to
the Caltex House, Regency Plaza One, Two Renaissance Square, Waterside Commons,
Stanford Corporate Centre, MCI Tower, Denver Marriott City Center, Ptarmigan
Place, Albuquerque Facility, the Hyatt Regency Albuquerque, and 301 Congress and
Greenway Plaza properties and for East West Properties, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports, except that certain
financial statements incorporated herein by reference to the Predecessor
Corporation's Current Report on Form 8-K, dated August 15, 1996 and filed on
September 11, 1996, as amended on September 27, 1996 and November 12, 1996,
relating to Greenway Plaza have been audited by Grant Thornton LLP, independent
certified public accountants, as indicated in their report with respect thereto,
and are included herein in reliance upon the authority of Grant Thornton LLP as
experts in accounting and auditing in giving said reports. The financial
statements incorporated in this Prospectus by reference to the Predecessor
Corporation's Current Report on Form 8-K
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<PAGE> 51
dated October 3, 1994 and filed on January 9, 1996, as amended on February 2,
1996 and February 15, 1996, relating to Spectrum Center have been audited by
Huselton & Morgan, P.C., independent public accountants, as indicated in its
report with respect thereto, and are included herein in reliance upon their
authority as experts in accounting and auditing.
LEGAL MATTERS
The legality of the issuance of the Common Shares will be passed upon for
the Company by Shaw, Pittman, Potts & Trowbridge, Washington, D.C. Certain legal
matters relating to federal income tax considerations will be passed upon for
the Company by Shaw, Pittman, Potts & Trowbridge, which will rely, as to all
Texas franchise tax matters upon the opinion of Locke Purnell Rain Harrell (A
Professional Corporation), Dallas, Texas.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports and other information with the
Commission. Such reports, proxy statements and other information can be
inspected at the Public Reference Section maintained by the Commission at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and
the following regional offices of the Commission: Citicorp Center, Suite 1400,
500 West Madison Street, Chicago, Illinois 60661-2511 and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
also maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. In addition, the Company's Common Shares are
listed on the New York Stock Exchange and such reports, proxy statements and
other information concerning the Company can be inspected at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement"), of which this Prospectus is a part, under
the Securities Act, with respect to the Common Shares offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. Statements contained in this Prospectus as to
the contents of any contract or other documents are not necessarily complete,
and in each instance, reference is made to the copy of such contract or
documents filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference and the exhibits and schedules
thereto. For further information regarding the Company and the Common Shares,
reference is hereby made to the Registration Statement and such exhibits and
schedules which may be obtained from the Commission at its principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission.
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON SHARES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 4
Securities to be Offered.............. 6
Risk Factors.......................... 6
Description of Shares of the
Company............................. 10
Certain Provisions of the Declaration
of Trust, Bylaws and Texas Law...... 13
Description of Units.................. 16
Registration Rights................... 19
Selling Shareholders.................. 20
Exchange of Units..................... 23
Federal Income Tax Considerations..... 33
ERISA Considerations.................. 46
Plan of Distribution.................. 47
Experts............................... 48
Legal Matters......................... 49
Available Information................. 49
</TABLE>
9,598,216 SHARES
CRESCENT
REAL ESTATE EQUITIES TRUST
COMMON SHARES
------------------------
PROSPECTUS
------------------------
, 1997
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<PAGE> 53
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Declaration of Trust provides that the liability of each
trust manager for monetary damages shall be eliminated to the fullest extent
permitted by applicable law. In general, under current Texas law, a trust
manager is liable to the trust only for liabilities arising from such trust
manager's own willful misfeasance or willful malfeasance or gross negligence.
The Declaration of Trust also provides that no amendment thereto may limit or
eliminate this limitation of liability with respect to events occurring prior to
the effective date of such amendment.
The Company's Declaration of Trust provides that the trust managers and
officers shall be indemnified to the maximum extent permitted by Texas law.
Under current Texas law, the trust will indemnify a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding because
the person is or was a trust manager or officer if it is determined that the
person (i) conducted himself in good faith; (ii) reasonably believed: (a) in the
case of conduct in his official capacity as a trust manager or officer of the
real estate investment trust, that his conduct was in the real estate investment
trust's best interests; and (b) in all other cases, that his conduct was at
least not opposed to the real estate investment trust's best interests; and
(iii) in the case of any criminal proceeding, had no reasonable cause to believe
that his conduct was unlawful. Except to the extent provided in the following
sentence, a trust manager or officer may not be indemnified (i) in respect of a
proceeding in which the person is found liable on the basis that personal
benefit was improperly received by him, whether or not the benefit resulted from
an action taken in the person's official capacity; or (ii) in which the person
is found liable to the real estate investment trust. Notwithstanding the
foregoing, a person may be indemnified against judgments, penalties (including
excise and similar taxes), fines, settlements, and reasonable expenses actually
incurred by the person in connection with the proceeding; provided that if the
person is found liable to the real estate investment trust or is found liable on
the basis that personal benefit was improperly received by the person, the
indemnification (i) is limited to reasonable expenses actually incurred by the
person in connection with the proceeding, and (ii) shall not be made in respect
of any proceeding in which the person shall have been found liable for willful
or intentional misconduct in the performance of his duty to the real estate
investment trust. In addition, the Company's Declaration of Trust and Bylaws
require it to pay or reimburse, in advance of the final disposition of a
proceeding, reasonable expenses incurred by a present or former director or
officer made a party to a proceeding by reason of his status as a trust manager
or officer, provided that the Company shall have received (i) a written
affirmation by the trust manager or officer of his good faith belief that he has
met the standard of conduct necessary for indemnification by the Company as
authorized by the Bylaws and (ii) a written undertaking by or on his behalf to
repay the amount paid or reimbursed by the Company if it shall ultimately be
determined that the standard of conduct was not met. The Company's Declaration
of Trust and Bylaws also permit the Company to provide indemnification, payment
or reimbursement of expenses to any employee or agent of the Company in such
capacity. Any indemnification, payment or reimbursement of the expenses
permitted by the Declaration of Trust and Bylaws shall be furnished in
accordance with the procedures provided for indemnification and payment or
reimbursement of expenses under Texas Real Estate Investment Trust Act for trust
managers.
The Operating Partnership Agreement contains indemnification provisions
comparable to those contained in the Declaration of Trust.
The Company carries insurance that purports to insure officers and trust
managers of the Company against certain liabilities incurred by them in the
discharge of their official functions.
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<PAGE> 54
ITEM 16. EXHIBITS.
The following is a list of all exhibits filed as a part of this
Registration Statement on Form S-3, including those incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
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<C> <C> <S>
4.01 -- Declaration of Trust of Crescent Real Estate Equities Trust (filed herewith).
4.02 -- Bylaws of Crescent Real Estate Equities Trust (filed herewith).
*4.03 -- Second Amended and Restated Agreement of Limited Partnership of Crescent Real
Estate Equities Limited Partnership.
4.04 -- Form of Stock Certificate (filed herewith).
*4.05 -- Registration Rights, Lock-Up and Pledge Agreement dated as of May 5, 1994.
*5.01 -- Opinion of Shaw, Pittman, Potts & Trowbridge as to the legality of the securities
being registered by Crescent Real Estate Equities Trust.
*8.01 -- Opinion of Shaw, Pittman, Potts & Trowbridge regarding certain material tax
issues relating to Crescent Real Estate Equities Trust.
*8.02 -- Opinion of Locke Purnell Rain Harrell (A Professional Corporation).
23.01 -- Consent of Arthur Andersen LLP, Certified Public Accountants, dated January 3,
1997 (filed herewith).
23.02 -- Consent of KPMG Peat Marwick LLP, Certified Public Accountants, dated January 3,
1997 (filed herewith).
23.03 -- Consent of Huselton & Morgan, P.C., A Professional Corporation, Certified Public
Accountants, dated January 3, 1997 (filed herewith).
23.04 -- Consent of Grant Thornton LLP, Certified Public Accountants, dated January 6,
1997 (filed herewith).
*23.05 -- Consent of Shaw, Pittman, Potts & Trowbridge.
*23.06 -- Consent of Locke Purnell Rain Harrell (A Professional Corporation).
24.01 -- Powers of Attorney (previously filed).
</TABLE>
- ---------------
* To be filed by amendment or incorporated by reference.
II-2
<PAGE> 55
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fort Worth, State of Texas, on the 6th day of
January, 1997.
CRESCENT REAL ESTATE EQUITIES, INC.
By: /s/ GERALD W. HADDOCK
--------------------------------------
GERALD W. HADDOCK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------------------------------------- ----------------------------------- ----------------
<C> <S> <C>
/s/ RICHARD E. RAINWATER* Trust Manager and Chairman of the January 6, 1997
- ---------------------------------------- Board
RICHARD E. RAINWATER
/s/ JOHN C. GOFF* Trust Manager and Vice Chairman of January 6, 1997
- ---------------------------------------- the Board
JOHN C. GOFF
/s/ GERALD W. HADDOCK Trust Manager, President and Chief January 6, 1997
- ---------------------------------------- Executive Officer (Principal
GERALD W. HADDOCK Executive Officer)
/s/ DALLAS E. LUCAS Senior Vice President and Chief January 6, 1997
- ---------------------------------------- Financial Officer (Principal
DALLAS E. LUCAS Financial and Accounting Officer)
/s/ ANTHONY M. FRANK* Trust Manager January 6, 1997
- ----------------------------------------
ANTHONY M. FRANK
/s/ MORTON H. MEYERSON* Trust Manager January 6, 1997
- ----------------------------------------
MORTON H. MEYERSON
/s/ WILLIAM F. QUINN* Trust Manager January 6, 1997
- ----------------------------------------
WILLIAM F. QUINN
/s/ PAUL E. ROWSEY* Trust Manager January 6, 1997
- ----------------------------------------
PAUL E. ROWSEY, III
Trust Manager
- ----------------------------------------
MELVIN ZUCKERMAN
</TABLE>
*By: /s/ GERALD W.
HADDOCK
---------------------------------
GERALD W. HADDOCK
ATTORNEY-IN-FACT
II-3
<PAGE> 1
EXHIBIT 4.01
DECLARATION OF TRUST
OF
CRESCENT REAL ESTATE EQUITIES TRUST
The undersigned, acting as the Trust Managers of a real estate
investment trust under the Texas Real Estate Investment Trust Act, as amended
(the "Texas REIT Act"), hereby adopt the following Declaration of Trust.
ARTICLE I
NAME
The name of the trust (the "Trust") is Crescent Real Estate Equities
Trust. An assumed name certificate setting forth such name has been filed in
the manner prescribed by law.
ARTICLE II
DURATION
The duration of the Trust is perpetual.
ARTICLE III
PURPOSES AND POWERS
The Trust is formed pursuant to the Texas REIT Act and has the
following as its purposes:
To purchase, hold, lease, manage, sell, exchange, develop, subdivide
and improve real property and interests in real property, and in
general, to carry on any other business and do any other acts in
connection with the foregoing and to have and exercise all powers
conferred by the laws of the State of Texas now or hereafter in force
upon real estate investment trusts formed under the Texas REIT Act, or
any successor statute, in each case as the same may be amended,
modified or supplemented from time to time, and to do any or all of
the things hereinafter set forth or set forth in the Texas REIT Act,
or any successor statute, in each case as the same may be amended,
modified or supplemented from time to time, to the same extent as
natural persons might or could do. The term "real property" and the
term "interests in real property" for the purposes stated herein shall
not include severed mineral, oil or gas royalty interests.
Without in any manner limiting the generality of the foregoing, and in
addition to all the powers conferred by the laws of the State of Texas now or
hereafter in force upon real estate investment trusts formed under the Texas
REIT Act, or any successor statute, in each case as the same may be amended,
modified or supplemented from time to time, the Trust shall have the power (i)
to acquire, hold, own, develop, construct, improve, maintain, operate, sell,
lease, transfer, encumber, convey, exchange and otherwise dispose of or deal
with real and personal property directly or through one or more subsidiaries or
affiliates; (ii) to enter into any partnership, joint venture or other similar
arrangement to engage in any of the foregoing; and (iii) in general, to possess
and exercise all the purposes, powers, rights and privileges granted to, or
conferred upon real estate investment trusts by the laws of the State of Texas
now or hereafter in force, and to exercise any powers suitable, convenient or
proper for the accomplishment of any of the
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<PAGE> 2
purposes herein enumerated, implied or incidental to the powers or purposes
herein specified, or which at any time may appear conducive to or expedient for
the accomplishment of any such purposes.
The foregoing shall, except where otherwise expressed, in no way be
limited or restricted by reference to or inference from the terms of any other
clause of this or any other provision of this Declaration of Trust, or of any
amendment hereto or restatement hereof, and shall each be regarded as
independent, and shall each be construed as powers as well as purposes.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The address of the initial principal office and place of business of
the Trust is 777 Main Street, Suite 2100, Fort Worth, Texas. The address of
the Trust's registered office is 777 Main Street, Suite 2100, Fort Worth,
Texas, and the name of its registered agent at that address is David M. Dean.
ARTICLE V
BOARD OF TRUST MANAGERS
SECTION 5.1 Trust Managers.
The name and business address of the Trust Manager is as follows:
<TABLE>
<CAPTION>
Name Mailing Address
---- ---------------
<S> <C>
Gerald W. Haddock 777 Main Street, Suite 2100
Fort Worth, TX 76102
</TABLE>
SECTION 5.2 Number of Trust Managers.
The initial number of Trust Managers of the Trust shall be one (1).
From and after the date hereof, the number of Trust Managers of the Trust shall
be fixed by, or in the manner provided in, the Bylaws of the Trust, and may be
increased or decreased from time to time in such a manner as may be prescribed
by the Bylaws, but in no event shall there be less than one (1) or more than
twenty-five (25) Trust Managers.
SECTION 5.3 Classification of Board of Trust Managers.
At such time as the Board of Trust Managers shall consist of three (3)
or more Trust Managers, the Trust Managers, other than those who may be elected
by the holders of any series of Preferred Shares, shall be divided into three
classes, as nearly equal in number as possible. One class of Trust Managers
initially shall have a term expiring at the first annual meeting of
shareholders held after such division into classes, another class initially
shall have a term expiring at the second annual meeting of shareholders held
after such division into classes, and another class initially shall have a term
expiring at the third annual meeting of shareholders held after such division
into classes. Members of each class shall hold office until their respective
successors are elected and qualified. At each succeeding annual meeting of the
shareholders of the Trust, the successors of the class of Trust Managers whose
term expires at that meeting shall be elected by a majority vote of all votes
cast at such meeting, to hold office for a term expiring at the annual meeting
of shareholders held in the third year following the year of their election.
-2-
<PAGE> 3
ARTICLE VI
AUTHORIZED SHARES
SECTION 6.1 Total Capitalization.
The aggregate number of shares of beneficial interest of all classes
of shares of beneficial interest that the Trust shall have authority to issue
is Seven Hundred Million (700,000,000) shares, consisting of (i) One Hundred
Million (100,000,000) preferred shares, par value $0.01 per share (the
"Preferred Shares"); (ii) Two Hundred Fifty Million (250,000,000) common
shares, par value $0.01 per share (the "Common Shares"); and (iii) Three
Hundred Fifty Million (350,000,000) excess shares, par value $0.01 per share
(the "Excess Shares"). The Preferred Shares and the Common Shares are
sometimes referred to collectively herein as the "Equity Shares."
SECTION 6.2 Preferred Shares.
The Preferred Shares may be issued from time to time in one or more
series as authorized by the Board of Trust Managers. Prior to the issuance of
shares of each such series, the Board of Trust Managers, by resolution, shall
fix the number of shares to be included in each series, and the terms, rights,
restrictions and qualifications of the shares of each series. The authority of
the Board of Trust Managers with respect to each series shall include, but not
be limited to, determination of the following:
(i) The designation of the series, which may be by distinguishing
number, letter or title.
(ii) The dividend rate on the shares of the series, if any, whether
any dividends shall be cumulative and, if so, from which date
or dates, and the relative rights of priority, if any, of
payment of dividends on shares of the series.
(iii) The redemption rights, including conditions and the price or
prices, if any, for shares of the series.
(iv) The terms and amounts of any sinking fund for the purchase or
redemption of shares of the series.
(v) The rights of the shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Trust, and the relative rights of
priority, if any, of payment of shares of the series.
(vi) Whether the shares of the series shall be convertible into
shares of any other class or series, or any other security, of
the Trust or any other entity, and, if so, the specification
of such other class or series of such other security, the
conversion price or prices or rate or rates, any adjustments
thereof, the date or dates on which such shares shall be
convertible and all other terms and conditions upon which such
conversion may be made.
(vii) Restrictions on the issuance of shares of the same series or
of any other class or series.
(viii) The voting rights, if any, of the holders of shares of the
series.
(ix) Any other relative rights, preferences and limitations on that
series.
Subject to the express provisions of any other series of Preferred
Shares then outstanding, and notwithstanding any other provision of this
Declaration of Trust, the Board of Trust Managers may increase or decrease (but
not below the number of shares of such series then outstanding) the number of
shares, or alter the designation or classify or reclassify any unissued shares
of a particular series of Preferred Shares, by fixing or
-3-
<PAGE> 4
altering, in one or more respects, from time to time before issuing the shares,
the terms, rights, restrictions and qualifications of the shares of any such
series of Preferred Shares.
SECTION 6.3 Common Shares.
(A) Common Shares Subject to Terms of Preferred Shares. The Common
Shares shall be subject to the express terms of any series of Preferred Shares.
(B) Dividend Rights. The holders of Common Shares shall be entitled
to receive such dividends as may be declared by the Board of Trust Managers out
of funds legally available therefor.
(C) Rights Upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up, or any distribution of the
assets, of the Trust, the aggregate assets available for distribution to
holders of Common Shares (including holders of Excess Shares resulting from the
exchange of Common Shares pursuant to paragraph C of Section 6.4 hereof) shall
be determined in accordance with applicable law. Except as provided below as a
consequence of the limitations on distributions to holders of Excess Shares,
each holder of Common Shares shall be entitled to receive, ratably with (i)
each other holder of Common Shares and (ii) each holder of Excess Shares
resulting from the exchange of Common Shares, that portion of such aggregate
assets available for distribution as the number of outstanding Common Shares
held by such holder bears to the total number of outstanding Common Shares and
Excess Shares resulting from the exchange of Common Shares then outstanding.
Anything herein to the contrary notwithstanding, in no event shall the amount
payable to a holder of Excess Shares exceed (i) the price per share such holder
paid for the Common Shares in the purported Transfer or Acquisition (as those
terms are defined in paragraph A of Section 6.4) or change in capital structure
or other transaction or event that resulted in the Excess Shares or (ii) if the
holder did not give full value for such Excess Shares (as through a gift, a
devise or other event or transaction) a price per share equal to the Market
Price (as that term is defined in paragraph A of Section 6.4) for the Common
Shares on the date of the purported Transfer, Acquisition, change in capital
structure, or other transaction or event that resulted in such Excess Shares.
Any amount available for distribution in excess of the foregoing limitations
shall be paid ratably to the holders of Common Shares and other holders of
Excess Shares resulting from the exchange of Common Shares to the extent
permitted by the foregoing limitations.
(D) Voting Rights. Except as may be provided in this Declaration of
Trust, and subject to the express terms of any series of Preferred Shares, the
holders of Common Shares shall have the exclusive right to vote on all matters
(as to which a common shareholder shall be entitled to vote pursuant to
applicable law) at all meetings of the shareholders of the Trust, and shall be
entitled to one (1) vote for each Common Share entitled to vote at such
meeting.
SECTION 6.4 Restrictions on Ownership, Transfer, Acquisition
and Redemption of Shares.
(A) Definitions. For purposes of Sections 6.4 and 6.5, the following
terms shall have the following meanings:
"Acquire" shall mean the acquisition of Beneficial or
Constructive Ownership of Equity Shares by any means, including, without
limitation, the exercise of any rights under any option, warrant, convertible
security, pledge or other security interest or similar right to acquire shares,
but shall not include the acquisition of any such rights unless, as a result,
the acquiror would be considered a Beneficial Owner or Constructive Owner. The
terms "Acquires" and "Acquisition" shall have correlative meanings.
"Beneficial Ownership" shall mean ownership of Equity Shares
by an individual who would be treated as an owner of such shares under Section
542(a)(2) of the Code, either directly or constructively through the
application of Section 544, as modified by Section 856(h)(1)(B). For purposes
of this definition, the term "individual" also shall include any organization,
trust or other entity that is treated as an individual for purposes of
-4-
<PAGE> 5
Section 542(a)(2) of the Code. The terms "Beneficial Owner," "Beneficially
Own," "Beneficially Owns" and "Beneficially Owned" shall have correlative
meanings.
"Beneficiary" shall mean a beneficiary of the Excess Shares
Trust as determined pursuant to paragraph A of Section 6.5.
"Board of Trust Managers" shall mean the Board of Trust
Managers of the Trust.
"Bylaws" shall mean the Bylaws of the Trust, as the same are
in effect from time to time.
"Closing Price" on any day shall mean the last sale price,
regular way on such day, or, if no such sale takes place on that day, the
average of the closing bid and asked prices, regular way, in either case as
reported on the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange, or if the affected class or series of Equity Shares is not so listed
or admitted to trading, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange (including the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation System) on which
the affected class or series of Equity Shares is listed or admitted to trading
or, if the affected class or series of Equity Shares is not so listed or
admitted to trading, the last quoted price or, if not quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported
by the National Association of Securities Dealers, Inc. Automated Quotation
System or, if such system is no longer in use, the principal automated
quotation system then in use or, if the affected class or series of Equity
Shares is not so quoted by any such system, the average of the closing bid and
asked prices as furnished by a professional market maker selected by the Board
of Trust Managers making a market in the affected class or series of Equity
Shares, or, if there is no such market maker or such closing prices otherwise
are not available, the fair market value of the affected class or series of
Equity Shares as of such day, as determined by the Board of Trust Managers in
its discretion.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, or any successor statute thereto. Reference to any
provision of the Code shall mean such provision as in effect from time to time,
as the same may be amended, and any successor provision thereto, as interpreted
by any applicable regulations as in effect from time to time.
"Common Shares Ownership Limit" shall mean 8.0 percent of the
outstanding Common Shares of the Trust, or, from and after the date hereof,
such greater percentage of the outstanding Common Shares of the Trust as the
Board of Trust Managers may establish pursuant to the authority expressly
vested in the Board of Trust Managers in paragraph K of this Section 6.4 (but
in no event to more than 9.9 percent of the outstanding Common Shares of the
Trust, as so adjusted), subject to the limitations contained in paragraph L of
this Section 6.4.
"Constructive Ownership" shall mean ownership of Equity Shares
by a Person who would be treated as an owner of such shares, either actually or
constructively, directly or indirectly, through the application of Section 318
of the Code, as modified by Section 856(d)(5) thereof. The terms "Constructive
Owner," "Constructively Own," "Constructively Owns" and "Constructively Owned"
shall have correlative meanings.
"Equity Shares" shall mean collectively shares of the Trust
that are either Common Shares or Preferred Shares.
"Excess Shares Trust" shall mean the trust created pursuant
to paragraph A of Section 6.5.
"Excess Shares Trustee" shall mean the Trust as trustee for
the Excess Shares Trust, and any successor trustee appointed by the Trust.
-5-
<PAGE> 6
"Existing Holder" shall mean collectively Richard E. Rainwater
and any sibling (whether by the whole or half blood), spouse, ancestor or
lineal descendant thereof (provided that in the event the definition of
"Family" pursuant to Section 544(a)(2) of the Code shall be amended, the
foregoing definition shall be deemed to be similarly amended).
"Existing Holder Limit" shall mean initially 9.5 percent of
the outstanding Common Shares of the Trust, or, from and after the date hereof,
such lesser percentage of the outstanding Common Shares of the Trust as the
Board of Trust Managers may establish from time to time pursuant to the
authority expressly vested in the Board of Trust Managers in paragraph J of
this Section 6.4, subject to the limitations contained in paragraph L of this
Section 6.4. For purposes of the application of the Existing Holder Limit, the
Existing Holder shall be deemed to own the sum of (a) the Common Shares
Beneficially or Constructively Owned by the Existing Holder and (b) the Common
Shares the Existing Holder would Beneficially or Constructively Own upon
exercise of any conversion right, option or other right (without regard to any
temporal restrictions on the exercise thereof) to directly or indirectly
Acquire Beneficial or Constructive Ownership of Common Shares. For purposes of
determining the Existing Holder Limit, the Common Shares outstanding shall be
deemed to include the maximum number of shares that the Existing Holder may
Beneficially and Constructively Own pursuant to any conversion right, option or
other right (without regard to any temporal restrictions on the exercise
thereof). From and after the date hereof and prior to the Restriction
Termination Date, the Secretary of the Trust, or such other person as shall be
designated by the Board of Trust Managers, shall maintain and, upon request,
make available to the Existing Holder or the Board of Trust Managers, a
schedule which sets forth the then-current Existing Holder Limit.
"Market Price" on any day shall mean the average of the
Closing Prices for the ten (10) consecutive Trading Days immediately preceding
such day (or those days during such 10-day period for which Closing Prices are
available).
"Ownership Limit" shall mean the Common Shares Ownership Limit
or the Preferred Shares Ownership Limit, or both, as the context may require.
"Person" shall mean an individual, corporation, partnership,
estate, trust (including a trust qualified under Section 401(a) or 501(c)(17)
of the Code), a portion of a trust permanently set aside for or to be used
exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity, or a group as that term is used for
purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended; but does not include an underwriter which participated in a public
offering of Equity Shares for a period of sixty (60) days following the
purchase by such underwriter of such Equity Shares therein, provided that the
foregoing exclusion shall apply only if the ownership of such Equity Shares by
an underwriter or underwriters participating in a public offering would not
cause the Trust to fail to qualify as a REIT by reason of being "closely held"
within the meaning of Section 856(a) of the Code or otherwise cause the Trust
to fail to qualify as a REIT.
"Preferred Shares Ownership Limit" shall mean 9.9 percent of
the outstanding shares of a particular series of Preferred Shares of the Trust.
"Purported Beneficial Holder" shall mean, with respect to any
event or transaction other than a purported Transfer or Acquisition which
results in Excess Shares, the Person for whom the applicable Purported Record
Holder held the Equity Shares that were, pursuant to paragraph C of this
Section 6.4, automatically exchanged for Excess Shares upon the occurrence of
such event or transaction. The Purported Beneficial Holder and the Purported
Record Holder may be the same Person.
"Purported Beneficial Transferee" shall mean, with respect to
any purported Transfer or Acquisition which results in Excess Shares, the
purported beneficial transferee for whom the Purported Record Transferee would
have acquired Equity Shares if such Transfer or Acquisition had been valid
under paragraph B of this Section 6.4. The Purported Beneficial Transferee and
the Purported Record Transferee may be the same Person.
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<PAGE> 7
"Purported Record Holder" shall mean, with respect to any
event or transaction other than a purported Transfer or Acquisition which
results in Excess Shares, the record holder of the Equity Shares that were,
pursuant to paragraph C of this Section 6.4, automatically exchanged for Excess
Shares upon the occurrence of such an event or transaction. The Purported
Record Holder and the Purported Beneficial Holder may be the same Person.
"Purported Record Transferee" shall mean, with respect to any
purported Transfer or Acquisition which results in Excess Shares, the record
holder of the Equity Shares if such Transfer had been valid under paragraph B
of this Section 6.4. The Purported Record Transferee and the Purported
Beneficial Transferee may be the same Person.
"REIT" shall mean a real estate investment trust under
Sections 856 through 860 of the Code.
"Restriction Termination Date" shall mean the first day after
the date hereof on which the Board of Trust Managers and the shareholders of
the Trust determine that it is no longer in the best interests of the Trust to
attempt, or continue, to qualify as a REIT.
"Trading Day" shall mean a day on which the principal national
securities exchange on which the affected class or series of Equity Shares is
listed or admitted to trading is open for the transaction of business or, if
the affected class or series of Equity Shares is not listed or admitted to
trading, shall mean any day other than a Saturday, Sunday or other day on which
banking institutions in the State of New York are authorized or obligated by
law or executive order to close.
"Transfer" shall mean any sale, transfer, gift, hypothecation,
assignment, devise or other disposition of a direct or indirect interest in
Equity Shares or the right to vote or receive dividends on Equity Shares
(including (i) the granting of any option (including any option to acquire an
option or any series of such options) or entering into any agreement for the
sale, transfer or other disposition of Equity Shares or the right to vote or
receive dividends on Equity Shares or (ii) the sale, transfer, assignment or
other disposition of any securities or rights convertible into or exchangeable
for Equity Shares (including the Exchange Rights, granted under the First
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, as the same may be amended or restated from time
to time, to the limited partners thereunder, to acquire Common Shares), whether
voluntary or involuntary, of record, constructively or beneficially, and
whether by operation of law or otherwise. The terms "Transfers," "Transferred"
and "Transferable" shall have correlative meanings.
(B) Ownership and Transfer Limitations.
(1) Notwithstanding any other provision of this Declaration
of Trust, except as provided in paragraph I of this Section 6.4 and Section
6.6, from and after the effective time of the merger of Crescent Real Estate
Equities, Inc. and CRE Limited Partner, Inc. with and into the Trust and prior
to the Restriction Termination Date, (i) no Person (other than the Existing
Holder) shall Beneficially or Constructively Own Common Shares in excess of the
Common Shares Ownership Limit; (ii) the Existing Holder shall not Beneficially
or Constructively Own Common Shares in excess of the Existing Holder Limit; and
(iii) no Person shall Beneficially or Constructively Own shares of any series
of Preferred Shares in excess of the Preferred Shares Ownership Limit.
(2) Notwithstanding any other provision of this Declaration
of Trust, except as provided in paragraph I of this Section 6.4 and Section
6.6, from and after the date hereof and prior to the Restriction Termination
Date, any Transfer, Acquisition, change in the capital structure of the Trust,
or other purported change in Beneficial or Constructive Ownership of Equity
Shares or other event or transaction that, if effective, would result in any
Person (other than the Existing Holder) Beneficially or Constructively Owning
Equity Shares in excess of the applicable Ownership Limit shall be void ab
initio as to the Transfer, Acquisition, change in the capital structure of the
Trust, or other purported change in Beneficial or Constructive Ownership or
other event or transaction with respect to that number of Equity Shares which
would otherwise be Beneficially or Constructively Owned by such Person in
excess of the applicable Ownership Limit, and none of the Purported Beneficial
Transferee, the Purported
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<PAGE> 8
Record Transferee, the Purported Beneficial Holder or the Purported Record
Holder, as applicable, shall acquire any rights in that number of Equity
Shares.
(3) Notwithstanding any other provision of this Declaration
of Trust, except as provided in Paragraph I of this Section 6.4 and in Section
6.6, from and after the date hereof and prior to the Restriction Termination
Date, any Transfer, Acquisition, change in the capital structure of the Trust,
or other purported change in Beneficial or Constructive Ownership of Common
Shares and/or Preferred Shares or other event or transaction that, if
effective, would result in the Existing Holder Beneficially or Constructively
Owning (i) Common Shares in excess of the Existing Holder Limit or (ii)
Preferred Shares in excess of the Preferred Shares Ownership Limit shall be
void ab initio as to the Transfer, Acquisition, change in the capital structure
of the Trust, or other purported change in the Beneficial or Constructive
Ownership or other event or transaction with respect to that number of Common
Shares which otherwise would be Beneficially or Constructively Owned by the
Existing Holder in excess of the Existing Holder Limit and/or that number of
Preferred Shares which otherwise would be Beneficially or Constructively Owned
by the Existing Holder in excess of the Preferred Shares Ownership Limit, as
the case may be, and the Existing Holder shall acquire no rights in that number
of Common Shares and/or Preferred Shares.
(4) Notwithstanding any other provision of this Declaration
of Trust, except as provided in Section 6.6, from and after the date hereof and
prior to the Restriction Termination Date, any Transfer, Acquisition, change in
the capital structure of the Trust, or other purported change in Beneficial or
Constructive Ownership (including actual ownership) of Equity Shares or other
event or transaction that, if effective, would result in the Equity Shares
being actually owned by fewer than one hundred (100) Persons (determined
without reference to any rules of attribution) shall be void ab initio as to
the Transfer, Acquisition, change in the capital structure of the Trust, or
other purported change in Beneficial or Constructive Ownership (including
actual ownership) or other event or transaction with respect to that number of
Equity Shares which otherwise would be owned by the transferee, and the
intended transferee or subsequent owner (including a Beneficial or Constructive
Owner) shall acquire no rights in that number of Equity Shares.
(5) Notwithstanding any other provision of this Declaration
of Trust, except as provided in Section 6.6, from and after the date hereof and
prior to the Restriction Termination Date, any Transfer, Acquisition, change in
the capital structure of the Trust, or other purported change in Beneficial or
Constructive Ownership of Equity Shares or other event or transaction that, if
effective, would cause the Trust to fail to qualify as a REIT by reason of
being "closely held" within the meaning of Section 856(h) of the Code or
otherwise, directly or indirectly, would cause the Trust to fail to qualify as
a REIT shall be void ab initio as to the Transfer, Acquisition, change in the
capital structure of the Trust, or other purported change in Beneficial or
Constructive Ownership or other event or transaction with respect to that
number of Equity Shares which would cause the Trust to be "closely held" within
the meaning of Section 856(h) of the Code or otherwise, directly or indirectly,
would cause the Trust to fail to qualify as a REIT, and none of the Purported
Beneficial Transferee, the Purported Record Transferee, the Purported
Beneficial Holder or the Purported Record Holder shall acquire any rights in
that number of Equity Shares.
(6) Notwithstanding any other provision of this Declaration
of Trust, except as provided in Section 6.6, from and after the date hereof and
prior to the Restriction Termination Date, any Transfer, Acquisition, change in
capital structure of the Trust, or other purported change in Beneficial or
Constructive Ownership of Equity Shares or other event or transaction that, if
effective, would (i) cause the Trust to own (directly or Constructively) an
interest in a tenant that is described in Section 856(d)(2)(B) of the Code and
(ii) cause the Trust to fail to satisfy any of the gross income requirements of
Section 856(c) of the Code, shall be void ab initio as to the Transfer,
Acquisition, change in capital structure of the Trust, or other purported
change in Beneficial or Constructive Ownership or other event or transaction
with respect to that number of Equity Shares which would cause the Trust to own
an interest (directly or Constructively) in a tenant that is described in
Section 856(d)(2)(B) of the Code, and none of the Purported Beneficial
Transferee, the Purported Record Transferee, the Purported Beneficial Holder or
the Purported Record Holder shall acquire any rights in that number of Equity
Shares.
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(7) It is expressly intended that the restrictions on
ownership and transfer described in this Section 6.4(B) shall apply to the
exchange rights provided in Section 8.6 of the First Amended and Restated
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, as the same has been and may from time to time hereafter be
amended, modified or supplemented (the "Crescent Partnership Agreement"), of
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership ("Crescent Partnership"). Notwithstanding any of the provisions of
the Crescent Partnership Agreement to the contrary, a partner of Crescent
Partnership shall not be entitled to effect an exchange of an interest in
Crescent Partnership into Common Shares if the Beneficial or Constructive
Ownership of such Common Shares would be prohibited under the provisions of
this Section 6.4(B).
(C) Exchange for Excess Shares.
(1) If, notwithstanding the other provisions contained in
this Article VI, at any time from and after the date hereof and prior to the
Restriction Termination Date, there is a purported Transfer, Acquisition,
change in the capital structure of the Trust, or other purported change in the
Beneficial or Constructive Ownership of Equity Shares or other event or
transaction such that (i) any Person (other than the Existing Holder) would
Beneficially or Constructively Own Equity Shares in excess of the applicable
Ownership Limit or (ii) the Existing Holder would Beneficially or
Constructively Own Common Shares in excess of the Existing Holder Limit or any
series of Preferred Shares in excess of the Preferred Shares Ownership Limit,
then, except as otherwise provided in paragraph I of this Section 6.4, such
number of Equity Shares (rounded up to the next whole number of shares) in
excess of the applicable Ownership Limit or the Existing Holder Limit, as the
case may be, automatically shall be exchanged for an equal number of Excess
Shares having terms, rights, restrictions and qualifications identical thereto,
except to the extent that this Article VI requires different terms. Such
exchange shall be effective as of the close of business on the business day
next preceding the date of the purported Transfer, Acquisition, change in
capital structure, or other purported change in Beneficial or Constructive
Ownership of Equity Shares or other event or transaction.
(2) If, notwithstanding the other provisions contained in
this Article VI, at any time from and after the date hereof and prior to the
Restriction Termination Date, there is a purported Transfer, Acquisition,
change in the capital structure of the Trust, or other purported change in
Beneficial or Constructive Ownership of Equity Shares or other event or
transaction which, if effective, would result in a violation of any of the
restrictions described in subparagraphs (2), (3), (4), (5) and (6) of paragraph
B of this Section 6.4 or, directly or indirectly, would for any reason cause
the Trust to fail to qualify as a REIT, then the number of Equity Shares
(rounded up to the next whole number of shares) being Transferred or Acquired
or which are otherwise affected by the change in capital structure or other
purported change in Beneficial or Constructive Ownership or other event or
transaction and which would result in a violation of any of the restrictions
described in subparagraphs (2), (3), (4), (5) and (6) of paragraph B of this
Section 6.4 or, directly or indirectly, would for any reason cause the Trust to
fail to qualify as a REIT, automatically shall be exchanged for an equal number
of Excess Shares having terms, rights, restrictions and qualifications
identical thereto, except to the extent that this Article VI requires different
terms. Such exchange shall be effective as of the close of business on the
business day prior to the date of the purported Transfer, Acquisition, change
in capital structure, or other purported change in Beneficial or Constructive
Ownership or other event or transaction.
(3) The Board of Trust Managers recognizes that Section
6.4(C)(1) or Section 6.4(C)(2) may become operative because of the purported
ownership of Equity Shares by two or more (i) partners of a partnership, (ii)
shareholders of a corporation or (iii) members of any other Person. In such
event, the Board of Trust Managers shall have the authority in its sole,
complete and absolute discretion to determine the number of Equity Shares and
the identity of the Equity Shares of each partner, shareholder or member that
automatically shall be exchanged for an equal number of Excess Shares.
(D) Remedies For Breach. If the Board of Trust Managers or its
designee shall at any time determine in good faith that a Transfer,
Acquisition, or change in the capital structure of the Trust or other purported
change in Beneficial or Constructive Ownership or other event or transaction
has taken place in violation of paragraph B of this Section 6.4 or that a
Person intends to Acquire or has attempted to Acquire Beneficial or
Constructive Ownership
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<PAGE> 10
of any Equity Shares in violation of paragraph B of this Section 6.4, the Board
of Trust Managers or its designee shall take such action as it deems advisable
to refuse to give effect to or to prevent such Transfer, Acquisition, or change
in the capital structure of the Trust, or other attempt to Acquire Beneficial
or Constructive Ownership of any Equity Shares or other event or transaction,
including, but not limited to, refusing to give effect thereto on the books of
the Trust or instituting injunctive proceedings with respect thereto; provided,
however, that any Transfer, Acquisition, change in the capital structure of the
Trust, attempted Transfer, or other attempt to Acquire Beneficial or
Constructive Ownership of any Equity Shares or event or transaction in
violation of subparagraphs (2), (3), (4), (5) or (6) of paragraph B of this
Section 6.4 (as applicable) shall be void ab initio and, where applicable,
automatically shall result in the exchange described in paragraph C of this
Section 6.4, irrespective of any action (or inaction) by the Board of Trust
Managers or its designee.
(E) Notice of Restricted Transfer. Any Person who Acquires or
attempts to Acquire Beneficial or Constructive Ownership of Equity Shares in
violation of paragraph B of this Section 6.4 and any Person who Beneficially or
Constructively Owns Excess Shares as a transferee of Equity Shares resulting in
an exchange for Excess Shares, pursuant to paragraph C of this Section 6.4, or
otherwise, immediately shall give written notice to the Trust, or, in the event
of a proposed or attempted Transfer or Acquisition or purported change in
Beneficial or Constructive Ownership, shall give at least fifteen (15) days
prior written notice to the Trust, of such event and shall promptly provide to
the Trust such other information as the Trust, in its sole discretion, may
request in order to determine the effect, if any, of such Transfer, attempted
Transfer, Acquisition, attempted Acquisition or other purported change in
Beneficial or Constructive Ownership on the Trust's status as a REIT.
(F) Owners Required To Provide Information. From and after the date
hereof and prior to the Restriction Termination Date:
(1) Every Beneficial or Constructive Owner of more than 5
percent, or such lower percentage or percentages as determined pursuant to
regulations under the Code or as may be requested by the Board of Trust
Managers in its sole discretion, of the outstanding shares of any class or
series of Equity Shares of the Trust annually shall, no later than January 31
of each calendar year, give written notice to the Trust stating (i) the name
and address of such Beneficial or Constructive Owner; (ii) the number of shares
of each class or series of Equity Shares Beneficially or Constructively Owned;
and (iii) a description of how such shares are held. Each such Beneficial or
Constructive Owner promptly shall provide to the Trust such additional
information as the Trust, in its sole discretion, may request in order to
determine the effect, if any, of such Beneficial or Constructive Ownership on
the Trust's status as a REIT and to ensure compliance with the applicable
Ownership Limit or the Existing Holder Limit and other restrictions set forth
herein.
(2) Each Person who is a Beneficial or Constructive Owner of
Equity Shares and each Person (including the shareholder of record) who is
holding Equity Shares for a Beneficial or Constructive Owner promptly shall
provide to the Trust such information as the Trust, in its sole discretion, may
request in order to determine the Trust's status as a REIT, to comply with the
requirements of any taxing authority or other governmental agency, to determine
any such compliance or to ensure compliance with the applicable Ownership Limit
or the Existing Holder Limit and other restrictions set forth herein.
(G) Remedies Not Limited. Nothing contained in this Article VI
except Section 6.6 hereof shall limit the scope or application of the
provisions of this Section 6.4, the ability of the Trust to implement or
enforce compliance with the terms thereof or the authority of the Board of
Trust Managers to take any such other action or actions as it may deem
necessary or advisable to protect the Trust and the interests of its
shareholders by preservation of the Trust's status as a REIT and to ensure
compliance with the applicable Ownership Limit or the Existing Holder Limit and
other restrictions set forth herein, including, without limitation, refusal to
give effect to a transaction on the books of the Trust.
(H) Ambiguity. In the case of ambiguity in the application of any of
the provisions of this Section 6.4, including any definition contained in
paragraph A hereof, the Board of Trust Managers shall have the power and
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<PAGE> 11
authority, in its sole discretion, to determine the application of the
provisions of this Section 6.4 with respect to any situation, based on the
facts known to it.
(I) Exceptions. The Board of Trust Managers, upon receipt of a
ruling from the Internal Revenue Service, an opinion of counsel, or other
evidence satisfactory to the Board of Trust Managers, in its sole discretion,
in each case to the effect that the restrictions contained in subparagraphs
(4), (5) and (6) of paragraph B of this Section 6.4 will not be violated, may
waive or change, in whole or in part, the application of the applicable
Ownership Limit with respect to any Person that is not an individual, as such
term is defined in Section 542(a)(2) of the Code. In connection with any such
waiver or change, the Board of Trust Managers may require such representations
and undertakings from such Person or affiliates and may impose such other
conditions, as the Board deems necessary, advisable or prudent, in its sole
discretion, to determine the effect, if any, of the proposed transaction or
ownership of Equity Shares on the Trust's status as a REIT.
(J) Reduction of Existing Holder Limit. The Board of Trust Managers
is hereby expressly vested with the full power and authority to reduce the
Existing Holder Limit as in effect from time to time on and after the date
hereof, with the written consent of Richard E. Rainwater or his
successor-in-interest or designee. No such reduction shall constitute or be
deemed to constitute an amendment of this Declaration of Trust, and shall take
effect automatically without any action on the part of any shareholder as of
the date specified by the Board of Trust Managers that is subsequent to the
Board resolution approving and effecting such reduction.
(K) Increase in Common Shares Ownership Limit. Subject to the
limitations contained in paragraph L of this Section 6.4, the Board of Trust
Managers is hereby expressly vested with the full power and authority from
time to time to increase the Common Shares Ownership Limit. No such increase
shall constitute or be deemed to constitute an amendment of this Declaration of
Trust, and shall take effect automatically without any action on the part of
any shareholder as of the date specified by the Board of Trust Managers that is
subsequent to the Board resolution approving and effecting such reduction.
(L) Limitations on Modifications.
(1) The Ownership Limit for a class or series of Equity
Shares may not be increased and no additional ownership limitations may be
created if, after giving effect to such increase or creation the Trust would be
"closely held" within the meaning of Section 856(h) of the Code (assuming
ownership of Equity Shares by all Persons (other than the Existing Holder)
equal to the greatest of (i) the actual ownership, (ii) the Beneficial
Ownership of Equity Shares by each Person, or (iii) the applicable Ownership
Limit with respect to such Person, and assuming the ownership by the Existing
Holder of Common Shares equal to the Existing Holder Limit and shares of any
series of Preferred Shares equal to the Preferred Shares Ownership Limit).
(2) Prior to any modification of the Ownership Limit or the
Existing Holder Limit with respect to any Person, the Board of Trust Managers
may 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 the Trust's status as a REIT.
(3) Neither the Common Shares Ownership Limit nor the
Preferred Shares Ownership Limit may be increased to a percentage that is
greater than 9.9 percent.
(4) The Existing Holder Limit may not be increased.
(M) Legend. Each certificate for Equity Shares shall bear
substantially the following legend:
"The securities represented by this certificate are
subject to the restrictions on transfer and ownership for the
purpose of maintenance of the Trust's status as a real estate
investment trust (a "REIT") under Sections 856
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<PAGE> 12
through 860 of the Internal Revenue Code of 1986, as amended
(the "Code"). Except as otherwise provided pursuant to the
Declaration of Trust of the Trust, no Person may (i)
Beneficially or Constructively Own Common Shares of the Trust
in excess of 8.0 percent (or such greater percent as may be
determined by the Board of Trust Managers of the Trust) of the
outstanding Common Shares (except in such circumstances as the
Existing Holder Limit shall apply); (ii) Beneficially or
Constructively Own shares of any series of Preferred Shares of
the Trust in excess of 9.9 percent of the outstanding shares
of such series of Preferred Shares; or (iii) Beneficially or
Constructively Own Common Shares or Preferred Shares (of any
class or series) which would result in the Trust being
"closely held" under Section 856(h) of the Code or which
otherwise would cause the Trust to fail to qualify as a REIT.
Any Person who has Beneficial or Constructive Ownership, or
who Acquires or attempts to Acquire Beneficial or Constructive
Ownership of Common Shares and/or Preferred Shares in excess
of the above limitations and any Person who Beneficially or
Constructively Owns Excess Shares as a transferee of Common
Shares or Preferred Shares resulting in an exchange for Excess
Shares (as described below) immediately must notify the Trust
in writing or, in the event of a proposed or attempted
Transfer or Acquisition or purported change in the Beneficial
or Constructive Ownership, must give written notice to the
Trust at least fifteen (15) days prior to the proposed or
attempted transfer, transaction or other event. Any Transfer
or Acquisition of Common Shares and/or Preferred Shares or
other event which results in violation of the ownership or
transfer limitations set forth in the Declaration of Trust of
the Trust shall be void ab initio and the Purported Beneficial
and Record Transferee shall not have or acquire any rights in
such Common Shares and/or Preferred Shares. If the transfer
and ownership limitations referred to herein are violated, the
Common Shares or Preferred Shares represented hereby
automatically will be exchanged for Excess Shares to the
extent of violation of such limitations, and such Excess
Shares will be held in trust by the Trust, all as provided by
the Declaration of Trust of the Trust. All defined terms used
in this legend have the meanings identified in the Declaration
of Trust of the Trust, as the same may be amended from time to
time, a copy of which, including the restrictions on transfer,
will be sent without charge to each shareholder who so
requests."
SECTION 6.5 Excess Shares.
(A) Ownership In Trust. Upon any purported Transfer,
Acquisition, change in the capital structure of the Trust, or other purported
change in the Beneficial or Constructive Ownership or event or transaction that
results in Excess Shares pursuant to paragraph C of Section 6.4, such Excess
Shares shall be deemed to have been transferred to the Trust, as Excess Shares
Trustee of an Excess Shares Trust for the benefit of such Beneficiary or
Beneficiaries to whom an interest in such Excess Shares may later be
transferred pursuant to paragraph E of this Section 6.5. Excess Shares so held
in trust shall be issued and outstanding shares of the Trust. The Purported
Record Transferee (or Purported Record Holder) shall have no rights in such
Excess Shares except the right to designate a transferee of such Excess Shares
upon the terms specified in paragraph E of this Section 6.5. The Purported
Beneficial Transferee (or Purported Beneficial Holder) shall have no rights in
such Excess Shares except as provided in paragraphs C and E of this Section
6.5.
(B) Dividend Rights. Excess Shares shall not be entitled to
any dividends or distributions (except as provided in Paragraph C of this
Section 6.5). Any dividend or distribution paid prior to the discovery by the
Trust that the Equity Shares have been exchanged for Excess Shares shall be
repaid to the Trust upon demand, and any
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dividend or distribution declared but unpaid at the time of such discovery
shall be void ab initio with respect to such Excess Shares.
(C) Rights Upon Liquidation.
(1) Except as provided below, in the event of any
voluntary or involuntary liquidation, dissolution or winding up, or any other
distribution of the assets, of the Trust, each holder of Excess Shares
resulting from the exchange of Preferred Shares of any specified series shall
be entitled to receive, ratably with each other holder of Excess Shares
resulting from the exchange of Preferred Shares of such series and each holder
of Preferred Shares of such series, such accrued and unpaid dividends,
liquidation preferences and other preferential payments, if any, as are due to
holders of Preferred Shares of such series. In the event that holders of
shares of any series of Preferred Shares are entitled to participate in the
Trust's distribution of its residual assets, each holder of Excess Shares
resulting from the exchange of Preferred Shares of any such series shall be
entitled to participate, ratably with (i) each other holder of Excess Shares
resulting from the exchange of Preferred Shares of all series entitled to so
participate; (ii) each holder of Preferred Shares of all series entitled to so
participate; and (iii) each holder of Common Shares resulting from the exchange
of Common Shares (to the extent permitted by paragraph C of Section 6.4
hereof), that portion of the aggregate assets available for distribution
(determined in accordance with applicable law) as the number of such Excess
Shares held by such holder bears to the total number of (i) outstanding Excess
Shares resulting from the exchange of Preferred Shares of all series entitled
to so participate; (ii) outstanding Preferred Shares of all series entitled to
so participate; and (iii) outstanding Common Shares and Excess Shares resulting
from the exchange of Common Shares. The Trust, as holder of Excess Shares in
trust, or, if the Trust shall have been dissolved, any trustee appointed by the
Trust prior to its dissolution, shall distribute ratably to the Beneficiaries
of the Excess Shares Trust, when determined, any such assets received in
respect of the Excess Shares in any liquidation, dissolution or winding up, or
any distribution of the assets, of the Trust. Anything to the contrary herein
notwithstanding, in no event shall the amount payable to a holder with respect
to Excess Shares resulting from the exchange of Preferred Shares exceed (i) the
price per share such holder paid for the Preferred Shares in the purported
Transfer, Acquisition, change in capital structure, or other transaction or
event that resulted in the Excess Shares or the price per share such holder
paid for the Preferred Shares that were exchanged for the Excess Shares or (ii)
if the holder did not give full value for such Excess Shares (as through a
gift, devise or other event or transaction), a price per share equal to the
Market Price for the Preferred Shares on the date of the purported Transfer,
Acquisition, change in capital structure or other transaction or event that
resulted in such Excess Shares or the Market Price for the Preferred Shares on
the date they were exchanged for the Excess Shares. Any amount available for
distribution in excess of the foregoing limitations shall be paid ratably to
the holders of Preferred Shares and Excess Shares resulting from the exchange
of Preferred Shares to the extent permitted by the foregoing limitations.
(2) Except as provided below, in the event of any
voluntary or involuntary liquidation, dissolution or winding up, or any other
distribution of the assets, of the Trust, each holder of Excess Shares
resulting from the exchange of Common Shares shall be entitled to receive,
ratably with (i) each other holder of such Excess Shares and (ii) each holder
of Common Shares, that portion of the aggregate assets available for
distribution to holders of Common Shares (including holders of Excess Shares
resulting from the exchange of Common Shares pursuant to paragraph C of Section
6.4 hereof), determined in accordance with applicable law, as the number of
such Excess Shares held by such holder bears to the total number of outstanding
Common Shares and outstanding Excess Shares resulting from the exchange of
Common Shares then outstanding. The Trust, as holder of the Excess Shares in
trust, or, if the Trust shall have been dissolved, any trustee appointed by the
Trust prior to its dissolution, shall distribute ratably to the Beneficiaries
of the Excess Shares Trust, when determined, any such assets received in
respect of the Excess Shares in any liquidation, dissolution or winding up, or
any distribution of the assets, of the Trust. Anything herein to the contrary
notwithstanding, in no event shall the amount payable to a holder with respect
to Excess Shares exceed (i) the price per share such holder paid for the Equity
Shares in the purported Transfer, Acquisition, change in capital structure, or
other transaction or event that resulted in the Excess Shares or the price per
share such holder paid for the Equity Shares that were exchanged for the Excess
Shares or (ii) if the holder did not give full value for such Excess Shares (as
through a gift, devise or other event or transaction), a price per share
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equal to the Market Price for the Equity Shares on the date of the purported
Transfer, Acquisition, change in capital structure or other transaction or
event that resulted in such Excess Shares or the Market Price for the Equity
Shares on the date they were exchanged for the Excess Shares. Any amount
available for distribution in excess of the foregoing limitations shall be paid
ratably to the holders of Common Shares and Excess Shares resulting from the
exchange of Common Shares to the extent permitted by the foregoing limitations.
(D) Voting Rights. The holders of Excess Shares shall not be
entitled to vote on any matters (except as required by the Texas REIT Act).
(E) Restrictions on Transfer; Designation of Beneficiary.
(1) Excess Shares shall not be Transferable. The
Purported Record Transferee (or Purported Record Holder) may freely designate a
Beneficiary of its interest in the Excess Shares Trust (representing the number
of Excess Shares held by the Excess Shares Trust attributable to the purported
Transfer that resulted in the Excess Shares), if (i) the Excess Shares held in
the Excess Shares Trust would not be Excess Shares in the hands of such
Beneficiary and (ii) the Purported Beneficial Transferee (or Purported
Beneficial Holder) does not receive a price for designating such Beneficiary
that reflects a price per share for such Excess Shares that exceeds (x) the
price per share such Purported Beneficial Transferee (or Purported Beneficial
Holder) paid for the Equity Shares in the purported Transfer, Acquisition,
change in capital structure, or other transaction or event that resulted in the
Excess Shares or the price per share paid for the Equity Shares that were
exchanged for the Excess Shares or (y) if the Purported Beneficial Transferee
(or Purported Beneficial Holder) did not give value for such Excess Shares (as
through a gift, devise or other event or transaction), a price per share equal
to the Market Price for the Equity Shares on the date of the purported
Transfer, Acquisition, change in capital structure, or other transaction or
event that resulted in the Excess Shares or the Market Price for the Equity
Shares on the date they were exchanged for the Excess Shares. Upon such
Transfer of an interest in the Excess Shares Trust, the corresponding Excess
Shares in the Excess Shares Trust automatically shall be exchanged for an equal
number of Equity Shares (depending on the type and class of shares that
originally were exchanged for such Excess Shares) and such Equity Shares shall
be transferred of record to the Beneficiary of the interest in the Excess
Shares Trust designated by the Purported Record Transferee (or Purported Record
Holder), as described above, if such Equity Shares would not be Excess Shares
in the hands of such Beneficiary. Prior to any Transfer of any interest in the
Excess Shares Trust, the Purported Record Transferee (or Purported Record
Holder) must give written notice to the Trust of the intended Transfer and the
Trust must have waived in writing its purchase rights under paragraph F of this
Section 6.5.
(2) Notwithstanding the foregoing, if a Purported
Beneficial Transferee (or Purported Beneficial Holder) receives a price for
designating a Beneficiary of an interest in the Excess Shares Trust that
exceeds the amounts allowable under subparagraph (1) of this paragraph E, such
Purported Beneficial Transferee (or Purported Beneficial Holder) shall pay, or
cause the Beneficiary of the interest in the Excess Shares Trust to pay, such
excess in full to the Trust.
(3) If any of the Transfer restrictions set forth in
this paragraph E or any application thereof is determined to be void, invalid
or unenforceable by any court having jurisdiction over the issue, the Purported
Record Transferee (or Purported Record Holder) may be deemed, at the option of
the Trust, to have acted as the agent of the Trust in acquiring the Excess
Shares as to which such restrictions would otherwise, by their terms, apply,
and to hold such Excess Shares on behalf of the Trust.
(F) Purchase Right in Excess Shares. Excess Shares shall be deemed
to have been offered for sale to the Trust or its designee at a price per share
equal to the lesser of (i) the price per share in the transaction that created
such Excess Shares (or, in the case of a devise or gift or event other than a
Transfer or Acquisition which results in the issuance of Excess Shares, the
Market Price at the time of such devise or gift or event other than a Transfer
or Acquisition which results in the issuance of Excess Shares) or (ii) the
Market Price of the Equity Shares exchanged for such Excess Shares on the date
the Trust or its designee accepts such offer. The Trust and its assignees
shall have the right to accept such offer for a period of ninety (90) days
after the later of (i) the date of
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the purported Transfer, Acquisition, change in capital structure of the Trust,
or purported change in Beneficial or Constructive Ownership or other event or
transaction which resulted in such Excess Shares and (ii) the date on which the
Board of Trust Managers determines in good faith that a Transfer, Acquisition,
change in capital structure of the Trust, or purported change in Beneficial or
Constructive Ownership or other event or transaction resulting in Excess Shares
has occurred, if the Trust does not receive a notice pursuant to paragraph E of
Section 6.4, but in no event later than a permitted Transfer pursuant to, and
in compliance with, the terms of paragraph E of this Section 6.5.
(G) Remedies Not Limited. Nothing contained in this Article VI
except Section 6.6 hereof shall limit the scope or application of the
provisions of this Section 6.5, the ability of the Trust to implement or
enforce compliance with the terms hereof or the authority of the Board of Trust
Managers to take any such other action or actions as it may deem necessary or
advisable to protect the Trust and the interests of its shareholders by
preservation of the Trust's status as a REIT and to ensure compliance with the
applicable Ownership Limits and the other restrictions set forth herein,
including, without limitation, refusal to give effect to a transaction on the
books of the Trust.
(H) Authorization. At such time as the Board of Trust Managers
authorizes a series of Preferred Shares pursuant to Section 6.2 of this Article
VI, without any further or separate action of the Board of Trust Managers,
there shall be deemed to be authorized a series of Excess Shares consisting of
the number of shares included in the series of Preferred Shares so authorized
and having terms, rights, restrictions and qualifications identical thereto,
except to the extent that this Article VI requires different terms.
SECTION 6.6 Settlements.
Nothing in Sections 6.4 and 6.5 shall preclude the settlement of any
transaction with respect to the Common Shares entered into through the
facilities of the New York Stock Exchange.
SECTION 6.7 Issuance of Rights to Purchase Securities and Other
Property.
Subject to the rights of the holders of any series of Preferred
Shares, the Board of Trust Managers is hereby authorized to create and to
authorize and direct the issuance (on either a pro rata or non-pro rata basis)
by the Trust of rights, options or warrants for the purchase of Equity Shares
of the Trust as that term is defined in paragraph A of Section 6.4, other
securities of the Trust, or shares or other securities of any successor in
interest of the Trust (a "Successor"), at such times, in such amounts, to such
persons, for such consideration (if any), with such form and content (including
without limitation the consideration for which any Equity Shares of the Trust,
other securities of the Trust, or shares or other securities of any Successor
are to be issued) and upon such terms and conditions as it may, from time to
time, determine, subject only to the restrictions, limitations, conditions and
requirements imposed by the Texas REIT Act, other applicable laws and this
Declaration of Trust. Without limiting the generality of the foregoing, the
authority granted hereby includes the authority to adopt a "rights plan" or
similar plan that treats shareholders in a discriminatory or non pro rata
manner, based upon the number of shares owned thereby or otherwise.
SECTION 6.8 Severability.
If any provision of this Article VI or any application of any such
provision is determined to be void, invalid or unenforceable by any court
having jurisdiction over the issue, the validity and enforceability of the
remainder of this Article VI shall not be affected and other applications of
such provision shall be affected only to the extent necessary to comply with
the determination of such court.
SECTION 6.9 Waiver.
The Trust shall have authority at any time to waive the requirements
that Excess Shares be issued or be deemed outstanding in accordance with the
provisions of this Article VI if the Trust determines, based on an opinion of
nationally recognized tax counsel, that the issuance of such Excess Shares or
the fact that such Excess Shares are
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deemed to be outstanding, would jeopardize the status of the Trust as a REIT
(as that term is defined in paragraph A of Section 6.4).
SECTION 6.10 Management of Money and Property Received for Shares.
The Trust Managers shall manage all money and property received for
the issuance of shares for the benefit of the shareholders of the Trust.
SECTION 6.11 Commencement of Business.
The Trust will not commence business until it has received for the
issuance of shares of beneficial interest consideration of at least $1,000
value, consisting of any tangible or intangible benefit to the Trust, including
cash, promissory notes, services performed, contracts for services to be
performed, or other securities of the Trust.
ARTICLE VII
MATTERS RELATING TO THE POWERS OF THE
TRUST AND ITS TRUST MANAGERS AND SHAREHOLDERS
The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Trust and of the trust
managers and shareholders thereof:
SECTION 7.1 Matters Relating to the Board of Trust Managers.
(A) Authority as to Bylaws. Except as provided in
Section 7.2(E) hereof, the Trust Managers of the Trust shall have exclusive
authority to amend or repeal the Bylaws of the Trust, or to adopt new Bylaws.
(B) Authority as to Share Issuances. The Board of Trust
Managers of the Trust may authorize the issuance, from time to time, of its
shares of beneficial interest of any class or series, whether now or hereafter
authorized, or securities convertible into shares now or hereafter authorized,
for such consideration as the Board of Trust Managers may deem advisable,
subject to such restrictions or limitations, if any, as may be set forth in
this Declaration of Trust or the Bylaws of the Trust or in the laws of the
State of Texas. The Board of Trust Managers may classify or reclassify any
unissued shares from time to time by setting or changing the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption of the shares.
(C) Manner of Election. Unless and except to the extent
that the Bylaws of the Trust shall so require, the election of trust managers
of the Trust need not be by written ballot.
(D) Removal of Trust Managers. Subject to the rights of
the holders of any series of Preferred Shares to elect additional trust
managers (or remove such additional trust managers, once elected) under
specified circumstances, any trust manager may be removed from office at any
time, but only for cause and only by the affirmative vote of the holders of 80
percent of the then-outstanding Equity Shares entitled to vote generally in the
election of trust managers (the "Voting Shares"), voting together as a single
class.
(E) Permissible Criteria for Consideration of Best
Interests. In determining what is in the best interest of the Trust, a trust
manager of the Trust shall consider all of the relevant factors, which may
include (i) the immediate and long-term effects of the transaction on the
Trust's shareholders, including shareholders, if any, who do not participate in
the transaction; (ii) the social and economic effects of the transaction on the
Trust's employees, suppliers, creditors and customers and others dealing with
the Trust and on the communities in which the Trust operates and is located;
(iii) whether the transaction is acceptable, based on the historical and
current operating results and financial condition of the Trust; (iv) whether a
more favorable price could be obtained for the
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Trust's shares or other securities in the future; (v) the future value of the
Trust's securities; (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 objections of such other party or parties.
(F) Determinations by Board. The determination as to any
of the following matters, made in good faith by or pursuant to the direction of
the Board of Trust Managers consistent with the Declaration of Trust of the
Trust and in the absence of actual receipt of an improper benefit in money,
property or services or active and deliberate dishonesty established by a
court, shall be final and conclusive and shall be binding upon the Trust and
every holder of its shares: (i) the amount of the net income of the Trust for
any period and the amount of assets at any time legally available for the
payment of dividends, redemption of its shares or the payment of other
distributions on its shares; (ii) the amount of paid-in surplus, net assets,
other surplus, annual or other net profit, net assets in excess of capital,
undivided profits or excess of profits over losses on sales of assets; the
amount, purpose, time of creation, increase or decrease, alteration or
cancellation of any reserves or charges and the propriety thereof (whether or
not any obligation or liability for which such reserves shall have been created
shall have been paid or discharged); (iii) the fair value, or any sale, bid or
asked priced to be applied in determining the fair value, of any asset owned or
held by the Trust; and (iv) any matters relating to the acquisition, holding
and disposition of any assets by the Trust.
(G) Reserved Powers of Board. The enumeration and
definition of particular powers of the Board of Trust Managers included in this
Article VII shall in no way be limited or restricted by reference to or
inference from the terms of any other clause of this or any other provision of
the Declaration of Trust of the Trust, or construed or deemed by inference or
otherwise in any manner to exclude or limit the powers conferred upon the Board
of Trust Managers under the laws of the State of Texas as now or hereafter in
force.
(H) Alteration of Authority Granted to the Board of Trust
Managers. The affirmative vote of that proportion of the then-outstanding
Voting Shares necessary to approve an amendment to this Declaration of Trust
pursuant to the Texas REIT Act, voting together as a single class, shall be
required to amend, repeal or adopt any provision inconsistent with Section 7.1
of this Article VII.
(I) REIT Qualification. The Board of Trust Managers
shall use its best efforts to cause the Trust and its shareholders to qualify
for U.S. federal income tax treatment in accordance with the provisions of the
Code applicable to REITs (as those terms are defined in paragraph A of Section
6.4 hereof). In furtherance of the foregoing, the Board of Trust Managers
shall use its best efforts to take such actions as are necessary, and may take
such actions as it deems desirable (in its sole discretion) to preserve the
status of the Trust as a REIT; provided, however, that in the event that the
Board of Trust Managers determines, in its sole discretion, that it no longer
is in the best interests of the Trust to qualify as a REIT, the Board of Trust
Managers shall take such actions as are required by the Code, the Texas REIT
Act and other applicable law, to cause the matter of termination of
qualification as a REIT (as that term is defined in paragraph A of Section 6.4)
to be submitted to a vote of the shareholders of the Trust pursuant to
paragraph A of Section 7.2.
SECTION 7.2 Matters Relating to the Shareholders.
(A) Liability of Shareholders. A holder of Equity Shares, or an
owner of any beneficial interest in Equity Shares, of the Trust is not under
an, and shall not have any, obligation or liability of any nature whatsoever to
the Trust or to its obligees with respect to: (i) the Equity Shares other than
the obligation to pay to the Trust the full amount of the consideration, fixed
in compliance with the Texas REIT Act, for which the Equity Shares were issued;
(ii) any contractual obligation of the Trust on the basis that the holder or
owner is or was the alter ego of the Trust, or on the basis of actual fraud or
constructive fraud, a sham to perpetrate a fraud, or other similar theory; or
(iii) any obligation of the Trust on the basis of the failure of the Trust to
observe any formality, including the failure to (1) comply with any requirement
of the Texas REIT Act or of this Declaration of Trust or of the Bylaws
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of the Trust; or (2) observe any requirement prescribed by the Texas REIT Act
or by this Declaration of Trust or the Bylaws of the Trust for acts taken by
the Trust, its Trust Managers, or its shareholders.
(B) Termination of REIT Status. Anything contained in this
Declaration of Trust to the contrary notwithstanding, the affirmative vote of
the holders of a majority of the then-outstanding Voting Shares, voting as a
single class, and the approval of the Board of Trust Managers, shall be
required to terminate voluntarily the Trust's status as a REIT (as that term is
defined in paragraph A of Section 6.4).
(C) No Cumulative Rights. Except as may be expressly provided
with respect to any class or series of Preferred Shares, shareholders of the
Trust shall not have cumulative voting rights in the election of trust
managers.
(D) No Preemptive Rights. Except as may be expressly provided
with respect to any class or series of Preferred Shares, no holders of shares
of the Trust, of whatever class or series, shall have any preferential right of
subscription for the purchase of any shares of any class or series or for the
purchase of any securities convertible into shares of any class or series of
the Trust other than such rights, if any, as the Board of Trust Managers, in
its sole discretion, may determine, and for such consideration as the Board of
Trust Managers, in its sole discretion, may fix; and except as may be expressly
provided with respect to any class or series of Preferred Shares, any shares of
any class or series of convertible securities which the Board of Trust Managers
may determine to offer for subscription to the holders of shares may, as the
Board of Trust Managers shall determine in its sole discretion, be offered to
holders of any then-existing class, classes or series of shares or other
securities to the exclusion of holders of any or all other then-existing
classes or series of securities.
(E) Authority as to Bylaws. The shareholders of the Trust shall
have no authority to amend or repeal the Bylaws of the Trust, or to adopt new
Bylaws unless (i) specifically authorized to do so by a resolution duly adopted
by the Board of Trust Managers, or (ii) any Bylaw duly adopted as herein
provided expressly vests authority in the shareholders of the Trust to amend or
repeal any such Bylaw, or provides that any such Bylaw may not be amended or
appealed without such approval of the shareholders of the Trust as may be
therein provided.
ARTICLE VIII
LIMITATION OF LIABILITY OF TRUST MANAGERS
No Trust Manager of the Trust shall be liable to the Trust for any
act, omission, loss, damage, or expense arising from the performance of his
duty under the Trust save only for his own willful misfeasance or willful
malfeasance or gross negligence.
In addition to, and in no respect whatsoever in limitation of, the
foregoing, the liability of each Trust Manager of the Trust for monetary
damages shall be eliminated to the fullest extent permitted under the laws of
the State of Texas, as the same exist or may be hereafter amended (but, in the
case of any such amendment, only to the extent that such amendment permits
broader elimination or limitation of liability of a Trust Manager than said law
permitted prior to such amendment), and no Trust Manager of the Trust shall be
liable to the Trust or its shareholders for monetary damages except to the
extent, and only to the extent, such elimination or limitation of liability is
expressly prohibited under the laws of the State of Texas, as the same exist or
may be hereafter amended (but, in the case of any such amendment, only to the
extent that such amendment permits broader elimination or limitation of
liability of a Trust Manager than said law permitted prior to such amendment).
If after the date hereof the laws of the State of Texas are amended to
authorize broader elimination or limitation of liability of a Trust Manager,
upon the effective date of such amendment the liability of a Trust Manager
shall without further act also be eliminated and limited to such broader extent
to the fullest extent not prohibited by the laws of the State of Texas as so
amended. The provisions of this Article VIII shall be deemed to be a contract
with each Trust Manager of the Trust who serves as such at any time while such
provisions are in effect, and each such Trust Manager shall be deemed
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to be serving as such in reliance on the provisions of this Article VIII. No
repeal or amendment of this Declaration of Trust shall adversely affect any
right or any elimination or limitation of liability of a Trust Manager existing
at the time of the repeal or amendment.
ARTICLE IX
INDEMNIFICATION
Each person who is or was or who agrees to become a Trust Manager or
officer of the Trust, or each person who, while a Trust Manager of the Trust,
is or was serving or who agrees to serve, at the request of the Trust, as a
Trust Manager, director, officer, partner, joint venturer, employee or trustee
of another corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise (including the heirs, executor, administrators or
estate of such person), shall be indemnified by the Trust, and shall be
entitled to have paid on his behalf or be reimbursed for reasonable expenses in
advance of final disposition of a proceeding, in accordance with the Bylaws of
the Trust, to the full extent permitted from time to time by the Texas REIT Act
as the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Trust to provide
broader indemnification rights than said law permitted the Trust to provide
prior to such amendment) or any other applicable laws presently or hereafter in
effect. The Trust shall have the power, with the approval of the Board of
Trust Managers, to provide such indemnification and advancement of expenses to
any employee or agent of the Trust, in accordance with the Bylaws of the Trust.
Without limiting the generality or the effect of the foregoing, the Trust may
enter into one or more agreements with any person which provide for
indemnification greater or different than that provided in this Article IX.
Any amendment or repeal of this Article IX shall not adversely affect any right
or protection existing hereunder immediately prior to such amendment or repeal
and shall not adversely affect any right or protection then existing pursuant
to any such indemnification agreement.
ARTICLE X
AMENDMENT
The Trust reserves the right at any time and from time to time to
amend, alter, change or repeal any provision contained in its Declaration of
Trust and any other provisions authorized by the laws of the State of Texas at
the time in force may be added or inserted in the manner now or hereafter
prescribed herein or by applicable law, and all rights, preferences and
privileges of whatsoever nature conferred upon shareholders, trust managers or
any other persons whomsoever by and pursuant to this Declaration of Trust in
its present form or as hereafter amended are granted subject to the rights
reserved in this Article X; provided, however, that any amendment or repeal of
Articles VIII, IX or this Article X of this Declaration of Trust shall not
adversely affect any right or protection existing hereunder immediately prior
to such amendment or repeal; and provided further that Article XI or Article
XII of this Declaration of Trust may be amended only upon the affirmative vote
of 80% of the votes entitled to be cast by outstanding voting shares of the
Trust, voting together as a single class.
ARTICLE XI
SPECIAL VOTING REQUIREMENTS
SECTION 11.1 DEFINITIONS.
(A) In General. In this Article XI, the following words have the
meanings indicated.
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(B) Affiliates. "Affiliate," including the term "affiliated
person," means a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
a specified person.
(C) Associate. "Associate," when used to indicate a relationship
with any person, means:
(1) Any corporation or organization (other than the
corporation or a subsidiary of the corporation) of which such person is an
officer, director, or partner or is, directly or indirectly, the beneficial
owner of 10 percent or more of any class of equity securities;
(2) Any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity; and
(3) Any relative or spouse of such person, or any
relative of such spouse, who has the same home as such person or who is a
director or officer of the corporation or any of its affiliates.
(D) Beneficial Owner. "Beneficial owner," when used with respect
to any voting shares, means a person:
(1) That, individually or with any of its affiliates or
associates, beneficially owns voting shares, directly or indirectly; or
(2) That, individually or with any of its affiliates or
associates, has:
(i) The right to acquire voting shares (whether
such right is exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement, or understanding or
upon the exercise of conversion rights, exchange rights, warrants or
options, or otherwise; or
(ii) The right to vote voting shares pursuant to
any agreement, arrangement, or understanding; or
(3) That has any agreement, arrangement, or understanding
for the purpose of acquiring, holding, voting, or disposing of voting shares
with any other person that beneficially owns, or whose affiliates or associates
beneficially own, directly or indirectly, such voting shares.
(E) Business Combination. "Business combination" means:
(1) Unless the merger, consolidation, or share exchange
does not alter the contract rights of the shares as expressly set forth in the
Declaration of Trust or change or convert in whole or in part the outstanding
shares of beneficial interest of the Trust, any merger, consolidation, or share
exchange of the Trust or any subsidiary with (i) any interested shareholder or
(ii) any other corporation (whether or not itself an interested shareholder)
which is, or after the merger, consolidation, or share exchange would be, an
affiliate of an interested shareholder that was an interested shareholder prior
to the transaction;
(2) Any sale, lease, transfer, or other disposition,
other than in the ordinary course of business or pursuant to a dividend or any
other method affording substantially proportionate treatment to the holders of
voting shares, in one transaction or a series of transactions in any 12-month
period, to any interested shareholder or any affiliate of any interested
shareholder (other than the Trust or any of its subsidiaries) of any assets of
the Trust or any subsidiary having, measured at the time the transaction or
transactions are approved by the board of Trust Managers of the Trust, an
aggregate book value as of the end of the Trust's most recently ended fiscal
quarter of 10
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percent or more of the total market value of the outstanding shares of the
Trust or of its net worth as of the end of its most recently ended fiscal
quarter;
(3) The issuance or transfer by the Trust, or any
subsidiary, in one transaction or a series of transactions, of any equity
securities of the Trust or any subsidiary which have an aggregate market value
of 5 percent or more of the total market value of the outstanding shares of the
Trust to any interested shareholder or any affiliate of any interested
shareholder (other than the Trust or any subsidiary) except pursuant to the
exercise of warrants or rights to purchase securities offered pro rata to all
holders of the Trust's voting shares or any other method affording
substantially proportionate treatment to the holders of voting shares;
(4) The adoption of any plan or proposal for the
liquidation or dissolution of the Trust in which anything other than cash will
be received by an interested shareholder or any affiliate of any interested
shareholder;
(5) Any reclassification of securities (including any
reverse share split), or recapitalization of the Trust, or any merger,
consolidation, or share exchange of the Trust with any subsidiary which has the
effect, directly or indirectly, in one or a series of transactions, of
increasing by 5 percent or more of the total number of outstanding shares, the
proportionate amount of the outstanding shares of any class of equity
securities of the Trust or any subsidiary which is directly or indirectly owned
by any interested shareholder or any affiliate of any interested shareholder;
or
(6) The receipt by any interested shareholder or any
affiliate of any interested shareholder (other than the Trust or any
subsidiary) of the benefit, directly or indirectly (except proportionately as a
shareholder), of any loan, advance, guarantee, pledge, or other financial
assistance or any tax credit or other tax advantage provided by the Trust or
any of its subsidiaries.
(F) Common Shares. "Common shares" means any shares other than
preferred or preference shares.
(G) Control. "Control", including the terms "controlling",
"controlled by" and "under common control with", means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting securities,
by contract, or otherwise, and the beneficial ownership of 10 percent or more
of the votes entitled to be cast by the Trust's voting shares creates a
presumption of control.
(H) Corporation. "Corporation" includes a real estate investment
trust.
(I) Equity Security. "Equity security" means:
(1) Any stock or similar security, share of beneficial
interest, certificate of interest, or participation in any profit sharing
agreement, voting trust certificate, or certificate of deposit for an equity
security;
(2) Any security convertible, with or without
consideration, into an equity security, or any warrant or other security
carrying any right to subscribe to or purchase any equity security; or
(3) Any put, call, straddle, or other option or privilege
of buying an equity security from or selling an equity security to another
without being bound to do so.
(J) Interested Shareholder. "Interested shareholder" means any
person (other than the Trust or any subsidiary) that:
(1) (i) Is the beneficial owner, directly or
indirectly, of 10 percent or more of the voting power of the
outstanding voting shares of the Trust; or
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(ii) Is an affiliate or associate of the Trust and
at any time within the 2 year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, or 10
percent or more of the voting power of the then outstanding voting
shares of the Trust.
(2) For the purpose of determining whether a person is an
interested shareholder, the number of voting shares deemed to be outstanding
shall include shares deemed owned by the person through application of
subsection (D) of this section but may not include any other voting shares
which may be issuable pursuant to any agreement, arrangement, or understanding,
or upon exercise of conversion rights, warrants or options, or otherwise.
(K) Market Value. "Market value" means:
(1) In the case of shares, the highest closing sale price
during the 30 day period immediately preceding the date in question of such a
share on the composite tape for New York Stock Exchange-listed stocks, or, if
such shares are not quoted on the composite tape, on the New York Stock
Exchange, or, if such shares are not listed on such Exchange, on the principal
United States securities exchange registered under the Securities Exchange Act
of 1934 on which such shares are listed, or, if such shares are not listed on
any such exchange, the highest closing bid quotation with respect to such a
share during the 30 day period preceding the date in question on The Nasdaq
Stock Market, or any other nationally recognized automated quotation system
then in use, or, if no such quotations are available, the fair market value on
the date in question of such a share as determined by the Board of Trust
Managers of the Trust in good faith; and
(2) In the case of property other than cash or shares,
the fair market value of such property on the date in question as determined by
the Board of Trust Managers of the Trust in good faith.
(L) Subsidiary. "Subsidiary" means, unless the context indicates
otherwise, any Corporation of which voting stock having a majority of the votes
entitled to be cast is owned, directly or indirectly, by the Trust.
(M) Voting Shares. "Voting shares" means shares of beneficial
interest of the Trust entitled to vote generally in the election of Trust
Managers.
SECTION 11.2 VOTING REQUIREMENTS.
(A) Unless an exemption under Section 11.3(C) or (D) of this
Article applies, the Trust may not engage in any business combination with any
interested shareholder or any affiliate of the interested shareholder for a
period of 5 years following the most recent date on which the interested
shareholder became an interested shareholder.
(B) Unless an exemption under Section 11.3 of this Article
applies, in addition to any vote otherwise required by law or this Declaration
of Trust, a business combination that is not prohibited by subsection (A) of
this Section 11.2 shall be recommended by the board of Trust Managers and
approved by the affirmative vote of at least:
(1) 80 percent of the votes entitled to be cast by
outstanding voting shares of the Trust, voting together as a single voting
group; and
(2) Two-thirds of the votes entitled to be cast by
holders of voting shares other than voting shares held by the interested
shareholder who will (or whose affiliate will) be a party to the business
combination or by an affiliate or associate of the interested shareholder,
voting together as a single voting group.
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SECTION 11.3 WHEN VOTING REQUIREMENT NOT APPLICABLE
(A) For purposes of this Section 11.3:
(1) "Announcement date" means the first general public
announcement of the proposal or intention to make a proposal of the business
combination or its first communication generally to shareholders of the Trust,
whichever is earlier,
(2) "Determination date" means the most recent date on
which the interested shareholder became an interested shareholder, and
(3) "Valuation date" means:
(i) For a business combination voted upon by
shareholders, the latter of the day prior to the date of the
shareholders' vote or the day 20 days prior to the consummation of the
business combination; and
(ii) For a business combination not voted upon by
shareholders, the date of the consummation of the business
combination.
(B) The vote required by Section 11.2(B) of this Article does not
apply to a business combination as defined in Section 11.1(E)(1) of this
Article if each of the following conditions is met:
(1) The aggregate amount of the cash and the market value
as of the valuation date of consideration other than cash to be received per
share by holders of common shares in such business combination is at least
equal to the highest of the following:
(i) The highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by the interested shareholder for any common shares of the same
class or series acquired by it within the 5-year period immediately
prior to the announcement date of the proposal of the business
combination, plus an amount equal to interest compounded annually from
the earliest date on which the highest per share acquisition price was
paid through the valuation date at the rate for 1-year United States
Treasury obligations from time to time in effect, less the aggregate
amount of any cash dividends paid and the market value of any
dividends paid in other than cash, per common share from the earliest
date through the valuation date, up to the amount of the interest; or
(ii) The highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by the interested shareholder for any common shares of the same
class or series acquired by it on, or within the 5-year period
immediately before, the determination date, plus an amount equal to
interest compounded annually from the earliest date on which the
highest per share acquisition price was paid through the valuation
date at the rate for 1-year United States Treasury obligations from
time to time in effect, less the aggregate amount of any cash
dividends paid and the market value of any dividends paid in other
than cash, per common share from the earliest date through the
valuation date, up to the amount of the interest; or
(iii) The market value per common share of the same
class or series on the announcement date, plus an amount equal to
interest compounded annually from that date through the valuation date
at the rate for 1-year United States Treasury obligations from time to
time in effect, less the aggregate amount of any cash dividends paid
and the market value of any dividends paid in other than cash, per
common share from that date through the valuation date, up to the
amount of the interest; or
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(iv) The market value per common share of the same
class or series on the determination date, plus an amount equal to
interest compounded annually from that date through the valuation date
at the rate for 1-year United States Treasury obligations from time to
time in effect, less the aggregate amount of any cash dividends paid
and the market value of any dividends paid in other than cash, per
common share from that date through the valuation date, up to the
amount of the interest; or
(v) The price per share equal to the market value
per common share of the same class or series on the announcement date
or on the determination date, whichever is higher, multiplied by the
fraction of:
1. The highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the interested shareholder
for any common shares of the same class or series acquired by
it within the 5-year period immediately prior to the
announcement date, over
2. The market value per common share
of the same class or series on the first day in such 5-year
period on which the interested shareholder acquired any common
shares.
(2) The aggregate amount of the cash and the market value
as of the valuation date of consideration other than cash to be received per
share by holders of shares of any class or series of outstanding shares other
than common shares in the business combination is at least equal the highest of
the following (whether or not the interested shareholder has previously
acquired any shares of the particular class or series):
(i) The highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by the interested shareholder for any shares of such class or
series acquired by it within the 5-year period immediately prior to
the announcement date of the proposal of the business combination,
plus an amount equal to interest compounded annually from the earliest
date on which the highest per share acquisition price was paid through
the valuation date at the rate for 1-year United States Treasury
obligations from time to time in effect, less the aggregate amount of
any cash dividends paid and the market value of any dividends paid in
other than cash, per share of the class or series from the earliest
date through the valuation date, up to the amount of the interest; or
(ii) The highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by the interested shareholder for any shares of such class or
series acquired by it on, or within the 5-year period immediately
prior to, the determination date, plus an amount equal to interest
compounded annually from the earliest date on which highest per share
acquisition price was paid through the valuation date at the rate for
1-year United States Treasury obligations from time to time in effect,
less the aggregate amount of any cash dividends paid and the market
value of any dividends paid in other than cash, per share of the class
or series from the earliest date through the valuation date, to the
amount of the interest; or
(iii) The highest preferential amount per share to
which the holders of shares of such class or series are entitled in
the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Trust; or
(iv) The market value per share of such class or
series on the announcement date, plus an amount equal to interest
compounded annually from that date through the valuation date at the
rate for 1-year United States Treasury obligations from time to time
in effect, less the aggregate amount of any cash dividends paid and
the market value of any dividends paid in other than cash, per share
of the class or series from that date through the valuation date, up
to the amount of the interest; or
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(v) The market value per share of such class or
series on the determination date, plus an amount equal to interest
compounded annually from that date through the valuation date at the
rate for 1-year United States Treasury obligations from time to time
in effect, less aggregate amount of any cash dividends paid and the
market value of any dividends paid in other than cash, per share of
the class or series from that date through the valuation date, up to
the amount of the interest; or
(vi) The price per share equal to the market value
per share of such class or series on the announcement date or on the
determination date, whichever is higher, multiplied by the fraction
of:
1. The highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the interested shareholder
for any shares of any class of voting shares acquired by it
within the 5-year period immediately prior to the announcement
date, over
2. The market value per share of the
same class of voting shares on the first day in such 5-year
period on which the interested shareholder acquired any shares
of the same class of voting shares.
(3) The consideration to be received by holders of any
class or series of outstanding shares is to be in cash or in the same form as
the interested shareholder has previously paid for shares of the same class or
series. If the interested shareholder has paid for shares of any class or
series with varying forms of consideration, the form of consideration for such
class or series shall be either cash or the form used to acquire the largest
number of shares of such class or series previously acquired by it.
(4) (i) After the determination date and prior to the
consummation of such business combination:
1. There shall have been no failure to
declare and pay at the regular date therefor any full periodic
dividends (whether or not cumulative) on any outstanding
preferred shares of the Trust;
2. There shall have been:
A. No reduction in the
annual rate of dividends paid on any class or series
of shares of the Trust that are not preferred shares
(except as necessary to reflect any subdivision of
the shares); and
B. An increase in such
annual rate of dividends as necessary to reflect any
reclassification (including any reverse share split),
recapitalization, reorganization or any similar
transaction which has the effect of reducing the
number of outstanding shares; and
3. The interested shareholder did not
become the beneficial owner of any additional shares of the
Trust except as part of the transaction which resulted in such
interested shareholder becoming an interested shareholder or
by virtue of proportionate share splits or share dividends.
(ii) The provisions of sub-paragraphs 1. and 2. of
subparagraph 4(i) above do not apply if no interested shareholder or
an affiliate or associate of the interested shareholder voted as a
Trust Manager of the Trust in a manner inconsistent with such
sub-subparagraphs and the interested shareholder, within 10 days after
any act or failure to act inconsistent with such sub-subparagraphs,
notifies
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the board of Trust Managers of the Trust in writing that the
interested shareholder disapproves thereof and requests in good faith
that the board of Trust Managers rectify such act or failure to act.
(C) (1) The provisions of Section 11.2 of this Article do not
apply to business combinations that specifically, generally, or generally by
types, as to specifically identified or unidentified existing or future
interested shareholders or their affiliates, which have been approved or
exempted therefrom, in whole or in part, by resolution of the board of Trust
Managers of the Trust if involving transactions with a particular interested
shareholder or its existing or future affiliates, at any time prior to the
determination date.
(2) Unless by its terms a resolution adopted under this
subsection is made irrevocable, it may be altered or repealed by the board of
Trust Managers, but this shall not affect any business combinations that have
been consummated, or are the subject of an existing agreement entered into,
prior to the alteration or repeal.
(D) The provisions of Section 11.2 of this Article do not apply to
any business combination of the Trust with an interested shareholder that
became an interested shareholder inadvertently, if the interested shareholder:
(1) as soon as practicable (but not more than 10 days after the interested
shareholder knew or should have known it had become an interested shareholder)
divests itself of a sufficient amount of the voting shares of the Trust so that
it no longer is the beneficial owner, directly or indirectly, of 10 percent or
more of the outstanding voting shares of the Trust; and (2) would not at any
time within the 5-year period preceding the announcement date with respect to
the business combination have been an interested shareholder except by
inadvertence.
ARTICLE XII
VOTING RIGHTS OF CERTAIN CONTROL SHARES
SECTION 12.1 DEFINITIONS
(A) In this Article XII, the following words have the meanings
indicated.
(B) "Acquiring person" means a person who makes or proposes to
make a control share acquisition.
(C) "Associate," when used to indicate a relationship with any
person, means:
(1) An "associate" as defined in Section 11.1(C) of Article XI; or
(2) A person that:
(i) Directly or indirectly controls, or is
controlled by, or is under common control with, the person specified;
or
(ii) Is acting or intends to act jointly or in
concert with the person specified.
(D) (1) "Control shares" means shares of beneficial interest
that, except for this Article, would, if aggregated with all other shares of
beneficial interest of the Trust (including shares the acquisition of which is
excluded from the definition of "control share acquisition" in subsection
(E)(2) of this section) owned by a person or in respect of which that person is
entitled to exercise or direct the exercise of voting power, except solely by
virtue of a revocable proxy, entitle that person, directly or indirectly, to
exercise or direct the exercise of the voting power of shares of beneficial
interest of the Trust in the election of Trust Managers within any of the
following ranges of voting power:
(i) One-fifth or more, but less than one-third of
all voting power,
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(ii) One-third or more, but less than a majority
of all voting power, or
(iii) A majority or more of all voting power.
(2) "Control shares" includes shares of beneficial
interest of the Trust only to the extent that the acquiring person, following
the acquisition of the shares, is entitled, directly or indirectly, to exercise
or direct the exercise of voting power within any level of voting power set
forth in this section for which approval has not been obtained previously under
Section 12.2 of this Article.
(E) (1) "Control share acquisition" means the acquisition,
directly or indirectly, by any person, of ownership of, or the power to direct
the exercise of voting power with respect to, issued and outstanding control
shares.
(2) "Control share acquisition" does not include the
acquisition of shares:
(i) Under the laws of descent and distribution;
(ii) Under the satisfaction of a pledge or other
security interest charged created in good faith and not for the
purpose of circumventing this Article; or
(iii) Under a merger, consolidation, or share
exchange if the Trust is a party to the merger, consolidation, or
share exchange.
(3) Unless the acquisition entitles any person, directly
or indirectly, to exercise or direct the exercise of voting power in the
election of Trust Managers in excess of the range of voting power previously
authorized or attained under an acquisition that is exempt under paragraph (2)
of this subsection, "control share acquisition" does not include the
acquisition of shares of the Trust in good faith and not for the purpose of
circumventing this Article by or from:
(i) Any person whose voting rights have
previously been authorized by shareholders in compliance with this
Article; or
(ii) Any person whose previous acquisition of
shares of beneficial interest of the Trust would have constituted a
control share acquisition but for paragraph (2) of this subsection.
(F) "Interested shares" means shares of beneficial interest of the
Trust in respect of which any of the following persons is entitled to exercise
or direct the exercise of the voting power of shares of beneficial interest of
the Trust in the election of Trust Managers:
(1) An acquiring person;
(2) An officer of the Trust; or
(3) An employee of the Trust who is also a Trust Manager
of the Trust.
(G) "Corporation" includes a real estate investment trust.
(H) "Person" includes an associate of the person.
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<PAGE> 28
SECTION 12.2 VOTING RIGHTS
(A) Approval by Shareholders. Control shares of the Trust
acquired in a control share acquisition have no voting rights except to the
extent approved by the shareholders at a meeting held under Section 12.4 of
this Article by the affirmative vote of two-thirds of all the votes entitled to
be cast on the matter, excluding all interested shares.
(B) Acquisition of Shares; Voting Power. For the purposes of
Section 12.1(D) of this Article:
(1) Shares acquired within 90 days or shares acquired
under a plan to make a control share acquisition are considered to have been
acquired in the same acquisition; and
(2) A person may not be deemed to be entitled to exercise
or direct the exercise of voting power with respect to shares held for
the benefit of others if the person:
(i) Is acting in the ordinary course of business,
in good faith and not for the purpose of circumventing the provisions
of this section; and
(ii) Is not entitled to exercise or to direct the
exercise of the voting power of the shares unless the person first
seeks to obtain the instruction of another person.
SECTION 12.3 ACQUIRING PERSON STATEMENT
Any person who proposes to make or who has made a control share
acquisition may deliver an acquiring person statement to the Trust at the
Trust's principal office. The acquiring person statement shall set forth all
of the following:
(1) The identity of the acquiring person and each other
member of any group of which the person is a part for purposes of determining
control shares;
(2) A statement that the acquiring person statement is
given under this Article;
(3) The number of shares of the Trust owned (directly or
indirectly) by the acquiring person and each other member of any group;
(4) The applicable range of voting power as set forth in
Section 12.1(D) of this Article; and
(5) The control share acquisition has not occurred:
(i) A description in reasonable detail of
the terms of the proposed control share acquisition; and
(ii) Representations of the acquiring person,
together with a statement in reasonable detail of the facts on which
they are based, that:
1. The proposed control share
acquisition, if consummated, will not be contrary to law;
and
2. The acquiring person has the
financial capacity, through financing to be provided by the
acquiring person and any additional specified sources of
financing required under Section 12.5 of this Article, to make
the proposed control share acquisition.
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<PAGE> 29
SECTION 12.4 SPECIAL MEETING
(A) Request by Acquiring Person. Except as provided in Section
12.5 of this Article, if the acquiring person requests, at the time of delivery
of an acquiring person statement, and gives a written undertaking to pay the
Trust's expenses of a special meeting, except the expenses of opposing approval
of the voting rights, within 10 days after the day on which the Trust receives
both the request and undertaking, the Trust Managers of the Trust shall call a
special meeting of shareholders of the Trust for the purpose of considering the
voting rights to be accorded the shares acquired or to be acquired in the
control share acquisition.
(B) Bond. The Trust may require the acquiring person to give
bond, with sufficient surety, to reasonably assure the Trust that this
undertaking will be satisfied.
(C) Time for Meeting. Unless the acquiring person agrees in
writing to another date, the special meeting of shareholders shall be held
within 50 days after the day on which the Trust has received both the request
and the undertaking.
(D) Delay at Request of Acquiring Person. If the acquiring person
makes a request in writing at the time of delivery of the acquiring person
statement, the special meeting may not be held sooner than 30 days after the
day on which the Trust receives the acquiring person statement.
(E) In Absence of Request. (1) If no request is made under
subsection (A) of this Section, the issue of the voting rights to be accorded
the shares acquired in the control shares acquisition may, at the option of the
Trust, be presented for consideration at any meeting of shareholders.
(2) If no request is made under subsection (A) of this
Section and the Trust proposes to present the issue of the voting rights to be
accorded the shares acquired is a control share acquisition for consideration
at any meeting of shareholders, the Trust shall provide the acquiring person
with written notice of the proposal not less than 20 days before the date on
which notice of the meeting is given.
SECTION 12.5 CALLS
A call of a special meeting of shareholders of the Trust is not
required to be made under Section 12.4(A) of this Article unless, at the time
of delivery of an acquiring person statement under Section 12.3 of this
Article, the acquiring person has:
(1) Entered into a definitive financing agreement or
agreements with one or more responsible financial institutions or other
entities that have the necessary financial capacity, providing for any amount
of financing of the control share acquisition not to be provided by the
acquiring person; and
(2) Delivered a copy of the agreements to the Trust.
SECTION 12.6 NOTICE OF MEETING.
(A) In General. If a special meeting of shareholders is
requested, notice of the special meeting shall be given as promptly as
reasonably practicable by the Trust to all shareholders of record as of the
record date set for the meeting, whether or not the shareholder is entitled to
vote at the meeting.
(B) Contents. Notice of the special or annual meeting of
shareholders at which the voting rights are to be considered shall include or
be accompanied by the following:
(1) A copy of the acquiring person statement delivered to
the Trust under Section 12.3 of this Article; and
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(2) A statement by the board of Trust Managers of the
Trust setting forth the position or recommendation of the board, or stating
that the board is taking no position or making no recommendation, with respect
to the issue of voting rights to be accorded the control shares.
SECTION 12.7 REDEMPTION RIGHTS.
(A) Upon delivery of acquiring person statement. If an acquiring
person statement has been delivered on or before the 10th day after the control
share acquisition, the Trust at its option, shall have the right to redeem any
or all control shares, except control shares for which voting have been
previously approved under Section 12.2 of this Article, at any time during a
60-day period commencing on the day of a meeting at which voting rights are
considered under Section 12.4 of this Article and are not approved.
(B) In absence of delivery of acquiring person statement. In
addition to the redemption rights authorized under subsection (A) of this
Section, if an acquiring person statement has not been delivered on or before
the 10th day after the control share acquisition, the Trust, at its option,
shall have the right to redeem any or all control shares, except control shares
for which voting rights have been previously approved under Section 12.2 of
this Article, at any time during a period commencing on the 11th day after the
control share acquisition and ending 60 days after a statement has been
delivered.
(C) Fair value. Any redemption of control shares under this
section shall be at the fair value of the shares. For purposes of this
section, "fair value" shall be determined:
(1) As of the date of the last acquisition of control
shares by the acquiring person in a control share acquisition or, if a meeting
is held under Section 12.4 of this Article, as of the date of the meeting; and
(2) Without regard to the absence of voting rights for
the control shares.
SECTION 12.8 STATUS AS DISSENTING SHAREHOLDERS.
(A) In General. Before a control share acquisition has occurred,
if voting rights for control shares are approved at a meeting held under
Section 12.4 of this Article and the acquiring person is entitled to exercise
or direct the exercise of a majority or more of all voting power, all
shareholders of the Trust (other than the acquiring person) have the rights of
dissenting shareholders as provided in Section 25.10 of the Texas REIT Act.
(B) Trust Deemed Successor. For purposes of applying the
provisions of the Texas REIT Act to shareholders under this Section 12.8, the
Trust shall be deemed to be a successor in a merger and the date of the most
recent approval of voting rights referred to in subsection (A) of this Section
shall be deemed to be the date of filing of articles of merger for record as
therein provided.
(C) Status To Be Contained In Notice. The notice required by
Section 12.6 of this Article shall also state that shareholders (other than the
acquiring person) are entitled to the rights of dissenting shareholders under
the Texas REIT Act and shall include a copy the applicable provisions thereof.
(D) Application of Texas REIT Act. For purposes of applying the
provisions of Sections 25.10 through 25.30 of the Texas REIT Act to this
Section:
(1) "Fair value" may not be less than the highest price
per share paid by the acquiring person in the control share acquisition;
(2) Section 25.10(B) and the first two sentences of
Section 25.20(1)(a) of the Texas REIT Act do not apply; and
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(3) There shall be no requirement that the dissenting
shareholder shall not have voted in favor of the action.
IN WITNESS WHEREOF, the undersigned Trust Manager does hereby execute
this Declaration of Trust as of the 30th day of December, 1996.
/s/ GERALD W. HADDOCK
-----------------------------
Gerald W. Haddock
STATE OF TEXAS )
)
COUNTY OF TARRANT )
This instrument was ACKNOWLEDGED before me on December 30th, 1996, by
GERALD W. HADDOCK.
/s/ ELIZABETH ANN HAYS
-----------------------------------
Notary Public - State of Texas
My Commission Expires:
/s/ ELIZABETH ANN HAYS
7-30-2000 -----------------------------------
- ------------------- Printed Name of Notary Public
[SEAL]
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<PAGE> 1
EXHIBIT 4.02
BYLAWS
OF
CRESCENT REAL ESTATE EQUITIES TRUST
<PAGE> 2
TABLE OF CONTENTS
Page
<TABLE>
<S> <C> <C>
ARTICLE I
OFFICES AND RECORDS . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Principal Office . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Additional Offices . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . 1
Section 2.1 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.2 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.3 Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.4 Notice of Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.5 Meeting Without Notice; Waiver of Notice . . . . . . . . . . . . . . . 3
Section 2.6 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.7 Adjournment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.8 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.9 Notice of Shareholder Business and Nominations . . . . . . . . . . . . 4
A. Annual Meeting of Shareholders. . . . . . . . . . . . . . . . 4
B. Special Meetings of Shareholders . . . . . . . . . . . . . . . 6
C. General . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.10 Procedure for Election of Trust Managers . . . . . . . . . . . . . . . 8
Section 2.11 Vote of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.12 Opening and Closing the Polls . . . . . . . . . . . . . . . . . . . . . 9
Section 2.13 Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.14 Informal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
BOARD OF TRUST MANAGERS . . . . . . . . . . . . . . . . . . . 10
Section 3.1 General Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.2 Number, Tenure and Qualifications . . . . . . . . . . . . . . . . . . . 10
Section 3.3 Composition of the Board of Trust Managers . . . . . . . . . . . . . . 11
Section 3.4 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.5 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.6 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.7 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.8 Participation By Conference Telephone . . . . . . . . . . . . . . . . . 14
Section 3.9 Presumption of Assent . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.10 Adjournments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.11 Informal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.12 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 3.13 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.14 Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IV
OFFICERS . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.1 Categories of Officers . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.2 Election and Term of Office . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.3 Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.4 Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.5 President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.6 Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.7 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.8 Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.9 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.10 Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.11 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.12 Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE V
SHARE CERTIFICATES AND TRANSFERS . . . . . . . . . . . . . . . . 23
Section 5.1 Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.2 Record Date and Closing of Transfer Books . . . . . . . . . . . . . . . 24
Section 5.3 Registered Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.4 Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VI
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . 25
Section 6.1 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.2 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.3 Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.4 Execution of Written Instruments . . . . . . . . . . . . . . . . . . . 26
Section 6.5 Signing of Checks and Notes . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.6 Voting of Securities Held in Other Entities. . . . . . . . . . . . . . 26
Section 6.7 Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . 27
A. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 27
B. Indemnification . . . . . . . . . . . . . . . . . . . . . . . 28
C. Successful Defense . . . . . . . . . . . . . . . . . . . . . . 29
D. Determinations . . . . . . . . . . . . . . . . . . . . . . . . 29
E. Advancement of Expenses . . . . . . . . . . . . . . . . . . . 30
F. Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
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----
<S> <C> <C>
G. Procedure Upon a Change in Control . . . . . . . . . . . . . . 32
H. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . 32
I. Authorization to Purchase Insurance . . . . . . . . . . . . . 33
J. Other Indemnification and Insurance . . . . . . . . . . . . . 33
K. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
L. Construction . . . . . . . . . . . . . . . . . . . . . . . . . 34
M. Continuing Offer, Reliance, Etc . . . . . . . . . . . . . . . 34
N. Indemnification of Shareholders . . . . . . . . . . . . . . . 34
O. Authority to Further Indemnify . . . . . . . . . . . . . . . . 35
P. Effect of Amendment . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VII
AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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<PAGE> 5
BYLAWS
OF
CRESCENT REAL ESTATE EQUITIES TRUST
ORGANIZED UNDER THE LAWS OF THE STATE OF TEXAS
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1 PRINCIPAL OFFICE. The initial address of the principal
office of the Trust in the State of Texas is 777 Main Street, Suite 2100, Fort
Worth, Texas 76102.
SECTION 1.2 ADDITIONAL OFFICES. The Trust may have such other
offices, either within or without the State of Texas, as the Board of Trust
Managers from time to time may designate or as the business of the Trust from
time to time may require.
SECTION 1.3 BOOKS AND RECORDS. The books and records of the Trust
may be kept, either within or without the State of Texas, at such place or
places as the Board of Trust Managers from time to time may designate.
ARTICLE II
SHAREHOLDERS
SECTION 2.1 ANNUAL MEETING. An annual meeting of the shareholders of
the Trust shall be held each year, commencing with 1997, on such date and at
such time as may be fixed by resolution of the Board of Trust Managers.
SECTION 2.2 SPECIAL MEETINGS. Subject to the rights of the holders
of any class or series of preferred shares of the Trust ("Preferred Shares") to
elect additional trust managers under specified circumstances, special meetings
of the shareholders may be called only by the Chairman
<PAGE> 6
of the Board, the Chief Executive Officer, the President, the Board of Trust
Managers pursuant to a resolution adopted by a majority of the total number of
trust managers constituting the whole Board of Trust Managers (the "Whole
Board"), or by written request to the Secretary by the holders of not less than
25 percent of all of the shares then outstanding and entitled to vote at such
meeting (the "Voting Shares"); provided that (i) the Secretary shall inform the
shareholders requesting such meeting of the reasonably estimated cost of
preparing and disseminating notice thereof and shall not be required to give
such notice until the Trust has received payment in such amount from such
shareholders and (ii) unless requested by holders of a majority of the Voting
Shares, the Secretary shall not be required to call a special meeting to
consider any matter which is substantially the same as a matter voted on at any
special meeting of the shareholders held during the twelve (12) months
preceding the request to call such new special meeting.
SECTION 2.3 PLACE OF MEETING. Meetings shall be held at the
principal office of the Trust or at such other place, within or without the
State of Texas, as the Board of Trust Managers from time to time by resolution
may designate.
SECTION 2.4 NOTICE OF MEETING. Written or printed notice,
stating the place, day and hour of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
prepared and delivered by the Trust, not less than ten (10) days nor more than
sixty (60) days before the date of the meeting, personally or by mail, to each
shareholder of record entitled to vote at such meeting and to each other
shareholder or other person, if any, entitled to notice of the meeting. If
delivered by mail, such notice shall be deemed to be delivered when deposited
in the United States mail with postage thereon prepaid, addressed to the
shareholder at his or her address as it appears on the share transfer books of
the
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Trust. If delivered personally, such notice shall be deemed given when so
delivered to the shareholder as provided above and if by facsimile, such notice
shall be deemed given upon completion of the facsimile transmission to the
shareholder as provided above. Meetings may be held without notice if all
shareholders entitled to vote are present, or if notice is waived by those not
present in accordance with Section 2.5 of these Bylaws. Any previously
scheduled meeting of the shareholders may be postponed by resolution of the
Board of Trust Managers upon public notice given prior to the date scheduled
for such meeting.
SECTION 2.5 MEETING WITHOUT NOTICE; WAIVER OF NOTICE. Either before
or after a shareholders' meeting, a shareholder may waive notice thereof by
executing a waiver of notice to be filed with the Trust's records of
shareholder meetings. Any such written notice shall be deemed to be the
equivalent of notice pursuant to Section 2.4 hereof. Attendance at a
shareholders' meeting, either in person or by proxy, by a person entitled to
notice thereof shall constitute a waiver of notice of the meeting unless such
person attends for the sole and express purpose of objecting to the transaction
of business on the ground that the meeting was not lawfully called or convened.
SECTION 2.6 QUORUM. Except as otherwise provided by law or by
the Declaration of Trust of the Trust, as the same may be amended or restated
from time to time (the "Declaration of Trust"), the holders of a majority of
the Voting Shares, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders, except that when specified business is to be
voted on by a class or series voting as a class, the holders of a majority of
the shares of such class or series shall constitute a quorum for the
transaction of such business.
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SECTION 2.7 ADJOURNMENT. A meeting of shareholders convened on
the date for which it was called may be adjourned prior to the completion of
business thereat to a date not more than one hundred twenty (120) days after
the record date of the original meeting. Notice of a subsequent meeting held
as a result of an adjournment, other than by announcement at the meeting at
which the adjournment was taken, shall not be necessary. If a quorum is
present or represented at such subsequent meeting, any business may be
transacted thereat which could have been transacted at the meeting which was
adjourned.
SECTION 2.8 PROXIES. At all meetings of shareholders, a
shareholder entitled to vote may vote in person or by proxy executed in writing
thereby or by his duly authorized attorney-in-fact. A proxy shall not be valid
after eleven (11) months from the date of its execution unless a longer period
is expressly stated therein. A proxy shall be revocable unless the proxy form
states conspicuously that the proxy is irrevocable and the proxy is coupled
with an interest. Each proxy must be filed with the Secretary of the Trust or
his representative at or before the time of the meeting to which it relates.
SECTION 2.9 NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS.
A. ANNUAL MEETING OF SHAREHOLDERS.
(1) Nominations of persons for election to the
Board of Trust Managers of the Trust and the proposal of business to be
considered by the shareholders may be made at an annual meeting of shareholders
(i) pursuant to the Trust's notice of meeting delivered pursuant to Section 2.4
of these Bylaws; (ii) by or at the direction of the Chairman of the Board of
Trust Managers; or (iii) by any shareholder of the Trust who is entitled to
vote at the meeting, who has
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complied with the notice procedures set forth in clauses (2) and (3) of this
Paragraph A and who was a shareholder of record at the time such notice is
delivered to the Secretary of the Trust.
(2) For nominations or other business to be
properly brought before an annual meeting by a shareholder pursuant to clause
(iii) of Paragraph A(1) of this Section 2.9, the shareholder must have given
timely notice thereof in writing to the Secretary of the Trust. To be timely,
a shareholder's notice shall be delivered to the Secretary at the principal
office of the Trust not less than seventy (70) days nor more than ninety (90)
days prior to the anniversary of the preceding year's annual meeting; provided,
however, that, with respect to the 1997 annual meeting, the date of the 1996
annual meeting shall be deemed to be June 17, 1996, and further provided that
in the event that the date of an annual meeting is advanced by more than thirty
(30) days or delayed by more than sixty (60) days from such anniversary date,
to be timely notice by the shareholder must be so delivered not earlier than
the ninetieth (90th) day prior to such annual meeting and not later than the
close of business on the later of the seventieth (70th) day prior to such
annual meeting or the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made. Such shareholder's
notice shall set forth (i) as to each person whom the shareholder proposes to
nominate for election or reelection as a trust manager, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of trust managers, or is otherwise required, pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, or any
successor statute thereto (the "Exchange Act"), including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
trust manager if elected; (ii) as to any other business that the shareholder
proposes to bring before the meeting, a brief description of the business
desired to
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be brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to
the shareholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (a) the name and address of such
shareholder, as they appear on the Trust's share transfer books, and the name
and address of such beneficial owner; (b) the class or series and number of
shares of beneficial interest of the Trust which are owned beneficially and of
record by such shareholder and such beneficial owner; and (c) the date or dates
upon which the shareholder acquired ownership of such shares.
(3) Notwithstanding anything in the second
sentence of Paragraph A(2) of this Section 2.9 to the contrary, in the event
that the number of trust managers to be elected to the Board of Trust Managers
of the Trust is increased and there is no public announcement naming all of the
nominees for trust manager or specifying the size of the increased Board of
Trust Managers made by the Trust at least seventy (70) days prior to the first
anniversary of the preceding year's annual meeting, a shareholder's notice
required by Paragraph A of this Section 2.9 shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Trust not later than the close of business on the tenth (10th)
day following the day on which such public announcement is first made by the
Trust.
B. SPECIAL MEETINGS OF SHAREHOLDERS. Only such business
shall be conducted at a special meeting of shareholders as shall have been
brought before the meeting pursuant to the Trust's notice of meeting pursuant
to Section 2.4 of these Bylaws. Nominations of persons for election to the
Board of Trust Managers may be made at a special meeting of shareholders
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at which trust managers are to be elected pursuant to the Trust's notice of
meeting (i) by or at the direction of the Board of Trust Managers or (ii) by
any shareholder of the Trust who is entitled to vote at the meeting, who
complies with the notice procedures set forth in this Section 2.9 and who is a
shareholder of record at the time such notice is delivered to the Secretary of
the Trust. Nominations by shareholders of persons for election to the Board of
Trust Managers may be made at such a special meeting of shareholders if the
shareholder's notice as required by Paragraph A(2) of this Section 2.9 shall be
delivered to the Secretary at the principal office of the Trust not earlier
than the ninetieth (90th) day prior to such special meeting and not later than
the close of business on the later of the seventieth (70th) day prior to such
special meeting or the tenth (10th) day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Trust Managers to be elected at such meeting.
C. GENERAL.
(1) Only persons who are nominated in accordance
with the procedures set forth in this Section 2.9 shall be eligible to serve as
trust managers, and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section. Except as otherwise provided by law,
the Declaration of Trust or these Bylaws, the chairman of the meeting shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or brought in accordance
with the procedures set forth in this Section 2.9 and, if any proposed
nomination or business is determined not to be in compliance herewith, to
declare that such defective nomination or proposal shall be disregarded.
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(2) For purposes of this Section 2.9, "public
announcement" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable national news service or in
a document publicly filed by the Trust with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of
this Section 2.9, a shareholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth herein. Nothing in this Bylaw shall be deemed
to affect any rights of shareholders to request inclusion of proposals in the
Trust's proxy statement pursuant to Rule l4a-8 under the Exchange Act or to
create any additional rights with respect to any such inclusion.
SECTION 2.10 PROCEDURE FOR ELECTION OF TRUST MANAGERS. Subject to the
rights of the holders of any class or series of Preferred Shares to elect trust
managers under specified circumstances, and to the laws of the State of Texas,
each shareholder having the right to vote for the election of trust managers
shall, unless otherwise provided in the Declaration of Trust or by applicable
law, have the right to vote, in person or by proxy, the number of shares owned
by such shareholder for as many persons as there are to be elected and for
whose election such shareholder has the right to vote. Unless otherwise
provided by the Declaration of Trust, no shareholder shall have the right or be
permitted to cumulate his or her votes on any basis. Election of trust
managers at all meetings of the shareholders at which trust managers are to be
elected may be viva voce, unless the chairman of the meeting shall order, or
any shareholder shall demand, that voting be by written ballot, and, except as
otherwise expressly provided with respect to the right of the holders of any
series of Preferred Shares to elect additional trust
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managers under specified circumstances, a majority of the votes cast thereat
shall elect. Voting on any other question or election may be viva voce, unless
the chairman of the meeting shall order, or any shareholder shall demand, that
voting be by written ballot.
SECTION 2.11 VOTE OF SHAREHOLDERS. Subject to the rights of the
holders of any class or series of Preferred Shares to elect trust managers
under specified circumstances, and to the laws of the State of Texas, each
shareholder having the right to vote shall be entitled at every meeting of
shareholders to one (1) vote for every share standing in his or her name on the
record date fixed by the Board of Trust Managers pursuant to Section 5.2 of
these Bylaws. Except as otherwise provided by law, the Declaration of Trust,
these Bylaws, any resolution adopted by the Board of Trust Managers authorizing
a series of Preferred Shares, or any resolution adopted by a majority of the
Whole Board, all matters submitted to the shareholders at any meeting (other
than the election of trust managers) shall be decided by a majority of the
votes cast with respect thereto.
SECTION 2.12 OPENING AND CLOSING THE POLLS. The chairman of the
meeting shall fix, and announce at the meeting, the date and time of the
opening and the closing of the polls for each matter upon which the
shareholders are to vote at the meeting.
SECTION 2.13 INSPECTORS. At any meeting of shareholders, the
chairman of such meeting may, and upon the request of any shareholder shall,
appoint one or more persons as inspectors for such meeting. Such inspector or
inspectors shall ascertain and report the number of shares represented at such
meeting in person or by proxy, based upon the determination of such inspector
or inspectors of the validity and effect of proxies, count all votes, report
the results and perform such other acts as are proper to conduct voting with
impartiality and fairness to all
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shareholders. Each report of inspectors shall be in writing and signed by the
inspector or, if there is more than one, by a majority of inspectors acting at
such meeting, in which event the report of the majority shall be the report of
the inspectors. The report of the inspector or inspectors on the number of
shares represented at a meeting and the results of voting thereat shall be
prima facie evidence thereof.
SECTION 2.14 INFORMAL ACTION. Any action required or permitted to be
taken at a meeting of shareholders may be taken without a meeting if the
following are filed with the Trust's records of shareholder meetings:
(1) a unanimous written consent which sets forth
the action and is signed by each shareholder entitled to vote thereon; and
(2) a written waiver of any right to dissent
signed by each shareholder, if any, entitled to notice of the meeting but not
entitled to vote thereat.
ARTICLE III
BOARD OF TRUST MANAGERS
SECTION 3.1 GENERAL POWERS. The business and affairs of the Trust
shall be managed by, or under the direction of, its Board of Trust Managers.
In addition to the powers and authorities expressly conferred by these Bylaws,
the Board of Trust Managers may exercise all such powers of the Trust and do
all such lawful acts and things as are not by law or by the Declaration of
Trust or these Bylaws required to be exercised or done by the shareholders.
SECTION 3.2 NUMBER, TENURE AND QUALIFICATIONS. Subject to the rights
of the holders of any class or series of Preferred Shares to elect trust
managers under specified circumstances, the number of trust managers shall be
fixed from time to time pursuant to a resolution adopted
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by a majority of the Whole Board, but shall consist of not more than
twenty-five (25) nor less than three (3) trust managers who need not be
residents of the State of Texas and need not hold shares in the Trust; provided
that if, at any time, the Trust has fewer than three (3) shareholders, the
number of trust managers may be less than three (3), but not less than the
number of shareholders. The Board of Trust Managers at the time of adoption of
these Bylaws shall consist of one (1) trust manager. At such time as the Board
of Trust Managers shall consist of three (3) or more trust managers, the trust
managers, other than those who may be elected by the holders of any class or
series of Preferred Shares, shall be divided, with respect to the time for
which they severally hold office, into three (3) classes, as nearly equal in
number as possible, with the term of office of the first class to expire at the
first annual meeting of shareholders held after such division into classes, the
term of office of the second class to expire at the second annual meeting of
shareholders held after such division into classes and the term of office of
the third class to expire at the third annual meeting of shareholders held
after such division into classes. Each trust manager shall hold office until
his or her successor shall have been duly elected and qualified. At each
annual meeting of shareholders commencing with the first annual meeting held
after such division into classes, trust managers elected to succeed those trust
managers whose terms then expire shall be elected for a term of office to
expire at the third (3rd) succeeding annual meeting of shareholders after their
election, with each trust manager to hold office until his or her successor
shall have been duly elected and qualified.
SECTION 3.3 COMPOSITION OF THE BOARD OF TRUST MANAGERS. Except
during a period of vacancy or vacancies on the Board of Trust Managers, a
majority of the trust managers at all times shall be persons who are not
affiliates (as that term is defined in the next succeeding
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sentence) of (i) the Trust other than affiliation solely by reason of service
as a trust manager of the Trust or (ii) Rainwater, Inc. or any successor entity
thereto (the "Independent Trust Managers"). For purposes of this Section 3.3,
"affiliate" shall mean, with respect to the Trust or Rainwater, Inc., any
individual who (i) directly or indirectly controls, is controlled by or is
under common control with, such entity or (ii) any officer, director, trust
manager, general partner or trustee of such entity (other than a trust manager
of the Trust who otherwise would be deemed to be an affiliate of the Trust
solely by reason of service as a trust manager).
SECTION 3.4 REGULAR MEETINGS. A regular meeting of the Board of
Trust Managers to elect officers and consider other business shall be held
without notice other than this Section 3.4 immediately after, and at the same
place as, each annual meeting of shareholders. The Board of Trust Managers
may, by resolution, designate the time and place for additional regular
meetings without notice other than such resolution.
SECTION 3.5 SPECIAL MEETINGS. Special meetings of the Board of Trust
Managers shall be called at the request of the Chairman of the Board, the Chief
Executive Officer, the President or a majority of the Board of Trust Managers.
The person or persons authorized to call special meetings of the Board of Trust
Managers may fix the place and time of the meeting.
SECTION 3.6 NOTICE. Notice of any special meeting shall be given to
each trust manager at his business or residence as recorded in the books and
records of the Trust or at such other address as such trust manager may
designate in writing to the Secretary of the Trust by mail, by telegram or
express courier, charges prepaid, by facsimile or telephonic communication. If
mailed, such notice shall be deemed adequately delivered if deposited in the
United States mails so addressed, with postage thereon prepaid, at least five
(5) days before the day of such meeting.
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If by telegram, such notice shall be deemed adequately delivered if the
telegram is delivered to the telegraph company at least twenty-four (24) hours
before the time set for such meeting. If by express courier, the notice shall
be deemed adequately given if delivered to the courier company at least two (2)
days before the day of such meeting. If by telephone or facsimile, the notice
shall be deemed adequately delivered if given at least twelve (12) hours prior
to the time set for such meeting. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Board of Trust
Managers need be specified in the notice of such meeting, except for amendments
to these Bylaws as provided under Article VII hereof. A meeting may be held at
any time without notice if all the trust managers are present or if those not
present waive notice of the meeting in writing, either before or after such
meeting. Attendance of a trust manager at a meeting shall constitute waiver of
notice of that meeting unless he or she attends for the sole and express
purpose of objecting to the transaction of business on the ground that the
meeting was not lawfully called or convened.
SECTION 3.7 QUORUM. A number of trust managers equal to at least a
majority of the trust managers then in office shall constitute a quorum for the
transaction of business; provided, however, that if the Whole Board consists of
two or three trust managers, two trust managers shall constitute a quorum, if
the Whole Board consists of one trust manager, one trust manager shall
constitute a quorum and that in no event may less than one third (1/3) of the
Whole Board constitute a quorum. Anything else herein to the contrary
notwithstanding, if at any meeting of the Board of Trust Managers there shall
be less than a quorum present, a majority of the trust managers present may
adjourn the meeting from time to time without further notice. Except as may
otherwise be provided by the Declaration of Trust, these Bylaws or applicable
law, the act
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of the majority of the trust managers present at a meeting at which a quorum is
present shall be the act of the Board of Trust Managers. The trust managers
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal or departure of enough trust
managers to leave less than a quorum.
SECTION 3.8 PARTICIPATION BY CONFERENCE TELEPHONE. Members of the
Board of Trust Managers, or any committee thereof, may participate in a meeting
of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 3.8 shall constitute presence in person at such meeting.
SECTION 3.9 PRESUMPTION OF ASSENT. A trust manager of the Trust who
is present at a meeting of the trust managers at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his or her dissent shall be entered in the minutes of the meeting or unless he
or she shall file a written dissent to such action with the person acting as
the secretary of the meeting before the adjournment thereof.
SECTION 3.10 ADJOURNMENTS. Any meeting of the Board of Trust
Managers may be adjourned prior to the completion of business thereat. Notice
of the subsequent meeting held as a result of an adjournment, other than by
announcement at the meeting at which the adjournment is taken, shall not be
necessary. If a quorum is present at such subsequent meeting, any business may
be transacted thereat which could have been transacted at the meeting which was
adjourned.
SECTION 3.11 INFORMAL ACTION. If all of the trust managers consent
in writing to any action required or permitted to be taken at a meeting of the
Board of Trust Managers or a committee thereof and the writing or writings
evidencing such consent is or are filed by the
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Secretary of the Trust with the minutes of proceedings of the Board of Trust
Managers or such committee, the action shall be as valid as though it had been
taken at a meeting of the Board or committee.
SECTION 3.12 VACANCIES. Except as otherwise provided in this Section
3.12, subject to the rights of the holders of any class or series of Preferred
Shares to elect additional trust managers under specified circumstances, unless
the Board of Trust Managers otherwise determines, vacancies resulting from
death, resignation, retirement, disqualification, or other cause relating to a
then-existing Board position shall be filled by the affirmative vote of a
majority of the remaining trust managers, though less than a quorum of the
Board of Trust Managers, and newly created trust managerships resulting from an
increase in the authorized number of trust managers shall be filled by the
affirmative vote of a majority of the Whole Board and, in either event, trust
managers so chosen shall hold office for a term expiring at the annual meeting
of shareholders at which the term of office of the class to which they have
been elected expires and until such trust manager's successor shall have been
duly elected and qualified. No decrease in the number of authorized trust
managers constituting the Whole Board shall shorten the term of any incumbent
trust manager. Vacancies on the Board of Trust Managers due to the removal of
a trust manager may be filled by the shareholders at an annual or special
meeting called for that purpose, and trust managers so chosen shall hold office
for a term expiring at the annual meeting of shareholders at which the term of
office of the class to which they have been elected expires and until each such
trust manager's successor shall have been duly elected and qualified. The
appointment or election of a successor trust manager shall be considered an
amendment to the Declaration of Trust.
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SECTION 3.13 REMOVAL. Subject to the rights of the holders of any
class or series of Preferred Shares to elect additional trust managers under
specified circumstances, any trust manager, or the entire Board of Trust
Managers, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least 80 percent of the then
outstanding Voting Shares, voting together as a single class.
SECTION 3.14 COMMITTEES. The Board of Trust Managers, by resolution
or resolutions passed by a majority of the Whole Board, may designate from
among the members of the trust managers one or more committees which, to the
extent provided in such resolution or resolutions, shall have and may exercise
all of the authority of the Board of Trust Managers in the business and affairs
of the Trust to the extent consistent with the Texas Real Estate Investment
Trust Act, as amended from time to time, or any successor statute thereto (the
"Texas REIT Act"), except the power to amend the Declaration of Trust, to
approve a plan of merger or share exchange, to declare dividends or
distributions on shares, to amend these Bylaws, to issue shares except in the
manner and to the extent prescribed by the Declaration of Trust and these
Bylaws, to fill vacancies in the trust managers or in the committee, to elect
or remove officers of the Trust or members of the committee, to fix the
compensation of any member of the committee, to recommend to the shareholders
any action requiring shareholder approval, or to approve any merger,
consolidation or share exchange which does not require shareholder approval,
each committee to consist of two (2) or more trust managers of the Trust,
including, without limitation the following committees:
(1) An Executive Committee, which shall have such authority as
shall be delegated by the Board of Trust Managers, including,
without limitation, authority to acquire
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and dispose of real property and to execute contracts and
agreements on behalf of the full Board of Trust Managers
including, without limitation, those relating to the
incurrence of debt by the Trust or subsidiaries thereof, and
shall advise the Board of Trust Managers from time to time
with respect to such matters as the Board of Trust Managers
shall direct.
(2) An Audit Committee, which shall consist of Outside Trust
Managers (as defined below). The Audit Committee shall make
recommendations concerning the engagement of independent
public accountants, review with the independent public
accountants the plans and results of each audit engagement,
approve professional services provided by the independent
public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit
fees and review the adequacy of the Trust's internal
accounting controls.
(3) An Executive Compensation Committee, which shall determine
compensation for the Trust's executive officers and shall
administer any share incentive or other compensation plans
adopted by the Trust.
For purposes of this Section 3.14, "Outside Trust Managers" shall mean trust
managers who are not (i) officers or former officers of the Trust or any
subsidiary thereof; (ii) employees of the Trust or any subsidiary or division
thereof; (iii) relatives of an executive officer; (iv) holders of more than
five (5) percent of the Voting Shares of the Trust or any subsidiary thereof;
(v) members of any organization acting as an adviser, consultant, legal counsel
or in a similar capacity with respect to the Trust and receiving compensation
therefor on an ongoing basis from the Trust, in addition to trust managers
fees; or (vi) with reference to any particular transaction,
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interested trust managers within the meaning of Section 4.20 of the Texas REIT
Act or any successor provision thereto. The Board of Trust Managers may
designate one or more trust managers as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of such committee.
Unless the Board of Trust Managers shall provide otherwise, the presence of
one-half (1/2) of the total membership of any committee of the Board of Trust
Managers shall constitute a quorum for the transaction of business at any
meeting of such committee and the act of a majority of those present shall be
the act of such committee. Each committee shall keep regular minutes of its
proceedings and report the same to the full Board of Trust Managers when so
requested.
ARTICLE IV
OFFICERS
SECTION 4.1 CATEGORIES OF OFFICERS. The elected officers of the
Trust shall consist of a Chairman of the Board, a Chief Executive Officer, a
President, one or more Executive Vice Presidents or Vice Presidents, a
Secretary and a Treasurer. Such other officers, assistant officers, agents and
employees as the Board of Trust Managers may from time to time deem necessary
may be elected by the Board of Trust Managers or appointed by the Chairman of
the Board. The Chairman of the Board shall be chosen from among the trust
managers. Two or more offices may be held by the same person, except that a
person may not concurrently serve as the President and a Vice President or
Executive Vice President. Each officer chosen or appointed in the manner
prescribed by the Board of Trust Managers shall have such powers and duties as
generally pertain to his or her office or offices, subject to the specific
provisions of this Article
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IV. Such officers also shall have such powers and duties as from time to time
may be conferred by the Board of Trust Managers or by any committee thereof
authorized to do so.
SECTION 4.2 ELECTION AND TERM OF OFFICE. The elected officers of the
Trust shall be elected annually by the Board of Trust Managers at the regular
meeting of the Board of Trust Managers held after each annual meeting of the
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as is convenient. Each officer
shall hold office until his or her successor shall have been duly elected and
shall have qualified, or until his or her death or until he or she shall resign
or be removed from office.
SECTION 4.3 CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the shareholders and of the Board of Trust Managers.
The Chairman of the Board shall be responsible for general management of the
affairs of the Trust and shall perform all duties incidental to the office
which may be required by law, and all such other duties as may properly be
required by the Board of Trust Managers. Except where by law the signature of
the Chief Executive Officer or the President is required, the Chairman of the
Board shall possess the same power as the Chief Executive Officer and the
President to sign all certificates, contracts, and other instruments of the
Trust which may be authorized by the Board of Trust Managers. The Chairman of
the Board shall make such reports to the Board of Trust Managers and the
shareholders as are properly required by the Board of Trust Managers. The
Chairman of the Board shall see that all orders and resolutions of the Board of
Trust Managers and of any committee thereof are carried into effect.
SECTION 4.4 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall act in a general executive capacity and shall assist the Chairman of the
Board in the administration and operation
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of the Trust's business and general supervision of its policies and affairs.
The Chief Executive Officer may, in the absence of or because of the inability
to act of the Chairman of the Board, perform all duties of the Chairman of the
Board and preside at all meetings of shareholders and of the Board of Trust
Managers. The Chief Executive Officer may sign, alone or with the Secretary or
any assistant secretary or any other officer of the Trust properly authorized
by the Board of Trust Managers, certificates, contracts and other instruments
of the Trust as authorized by the Board of Trust Managers.
SECTION 4.5 PRESIDENT. The President shall be the chief operating
officer of the Trust, shall act in a general executive capacity and shall
assist the Chairman of the Board in the administration and operation of the
Trust's business and general supervision of its policies and affairs. The
President may, in the absence of or because of the inability to act of the
Chairman of the Board, perform all duties of the Chairman of the Board and
preside at all meetings of shareholders and of the Board of Trust Managers.
The President may sign, alone or with the Secretary or any assistant secretary
or any other officer of the Trust properly authorized by the Board of Trust
Managers, certificates, contracts and other instruments of the Trust as
authorized by the Board of Trust Managers.
SECTION 4.6 VICE PRESIDENTS. The Vice President or Vice Presidents,
if any, including any Executive Vice Presidents, shall perform the duties of
the Chief Executive Officer and the President in the absence or disability of
both the Chief Executive Officer and the President, and shall have such powers
and perform such other duties as the Board of Trust Managers or the Chairman of
the Board from time to time may prescribe.
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SECTION 4.7 SECRETARY. The Secretary shall give, or cause to be
given, notice of all meetings of shareholders and trust managers and all other
notices required by law, by the Declaration of Trust or by these Bylaws, and in
case of his or her absence or refusal or neglect so to do, any such notice may
be given by any person thereunto directed by the Chairman of the Board, the
Chief Executive Officer, the President or the Board of Trust Managers, upon
whose request the meeting is called, as provided in these Bylaws. The
Secretary shall record all the proceedings of the meetings of the Board of
Trust Managers, any committees thereof and the shareholders of the Trust in a
book or books to be kept for that purpose, and shall perform such other duties
as from time to time may be prescribed by the Board of Trust Managers, the
Chairman of the Board, the Chief Executive Officer or the President. The
Secretary shall have custody of the seal, if any, of the Trust and shall affix
the same to all instruments requiring it, when authorized by the Board of Trust
Managers, the Chairman of the Board, the Chief Executive Officer or the
President, and shall attest to the same.
SECTION 4.8 TREASURER. The Treasurer shall have custody of all Trust
funds and securities and shall keep full and accurate account of receipts and
disbursements in books belonging to the Trust. The Treasurer shall deposit all
monies and other valuable effects in the name and to the credit of the Trust in
such depositories as may be designated by the Board of Trust Managers. The
Treasurer shall disburse the funds of the Trust in such manner as may be
ordered by the Board of Trust Managers, the Chairman of the Board, the Chief
Executive Officer or the President, taking proper vouchers for such
disbursements. The Treasurer shall render to the Chairman of the Board, the
Chief Executive Officer, the President and the Board of Trust Managers,
whenever requested, an account of all his or her transactions as Treasurer and
of the
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financial condition of the Trust. If required by the Board of Trust Managers,
the Treasurer shall give the Trust a bond for the faithful discharge of his or
her other duties in such amount and with such surety as the Board of Trust
Managers shall prescribe. The Treasurer also shall perform such duties and
have such powers as the Board of Trust Managers from time to time may
prescribe.
SECTION 4.9 REMOVAL. Any officer elected by the Board of Trust
Managers or appointed in the manner prescribed hereby may be removed by a
majority of the members of the Whole Board whenever, in their judgment, the
best interests of the Trust would be served thereby. No elected or appointed
officer shall have any contractual rights against the Trust for compensation by
virtue of such election or appointment beyond the date of the election or
appointment of his or her successor, his or her death, resignation or removal,
whichever event shall first occur, except as otherwise provided in an
employment or similar contract or under an employee deferred compensation plan.
SECTION 4.10 SALARIES. The Board of Trust Managers shall fix the
salaries of the Chairman of the Board, the Chief Executive Officer and the
President of the Trust, or may delegate the authority to do so to a duly
constituted Executive Compensation Committee. The salaries of other officers,
agents and employees of the Trust may be fixed by the Board of Trust Managers,
by a committee of the Board, by the Chairman of the Board or by another officer
or committee to whom that function has been delegated by the Board of Trust
Managers or the Chairman of the Board.
SECTION 4.11 VACANCIES. Any newly created office or vacancy in any
office because of death, resignation or removal shall be filled by the Board of
Trust Managers or, in the case of
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an office not specifically provided for in Section 4.1 hereof, by or in the
manner prescribed by the Board of Trust Managers. The officer so selected
shall hold office until his or her successor is duly selected and shall have
qualified, unless he or she sooner resigns or is removed from office in the
manner provided in these Bylaws.
SECTION 4.12 RESIGNATIONS. Any trust manager or officer, whether
elected or appointed, may resign at any time by serving written notice of such
resignation on the Chairman of the Board, the Chief Executive Officer, the
President or the Secretary, and such resignation shall be deemed to be
effective as of the close of business on the date said notice is received by
the Chairman of the Board, the Chief Executive Officer, the President or the
Secretary. No action shall be required of the Board of Trust Managers or the
shareholders to make any such resignation effective.
ARTICLE V
SHARE CERTIFICATES AND TRANSFERS
SECTION 5.1 SHARE CERTIFICATES. Each shareholder shall be entitled
to a certificate or certificates, in a form approved by the Board of Trust
Managers and consistent with the Texas REIT Act, which shall represent and
certify the number, kind and class of shares owned by him or her in the Trust.
Each certificate shall be signed by the Chairman of the Board, the President or
a Vice President, and by the Secretary or the Treasurer (or an assistant
secretary or assistant treasurer, if any) and, pursuant to resolutions of the
Board of Trust Managers, any such signature may be in facsimile. In case any
officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed on, a certificate has ceased to hold such office
before the
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certificate is issued, it nevertheless may be issued by the Trust with the same
effect as if he or she held such office at the date of issue.
SECTION 5.2 RECORD DATE AND CLOSING OF TRANSFER BOOKS. The Board of
Trust Managers may fix, in advance, a date as the record date for the purpose
of determining shareholders entitled to notice of, or to vote at, any meeting
of shareholders, or shareholders entitled to receive payment of any dividend or
distribution or the allotment of any rights, or the shareholders entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or in order to make a determination of shareholders for any other proper
purpose. The record date may not be prior to the close of business on the day
the record date is fixed. Such record date shall not be prior to the close of
business on the day such date is fixed and not more than sixty (60) days, and
in case of a meeting of shareholders, not less than ten (10) days, prior to the
date on which the particular action requiring such determination of
shareholders is to be taken. The stock transfer books of the Trust may not be
closed for a period longer than twenty (20) days.
If no record date is fixed and the Trust's stock transfer books are
not closed, the determination of shareholders entitled to notice of, or to vote
at, a meeting of shareholders shall be at the close of the business on the day
on which notice of the meeting is mailed. If no record date is fixed, the
record date for determining shareholders for any purpose other than that
specified in the preceding sentence shall be at the close of business on the
day on which the resolution of the Board of Trust Managers relating thereto is
adopted.
When a determination of shareholders of record entitled to notice of,
or to vote at, any meeting of shareholders has been made as provided in this
Section 5.2, such determination shall
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apply to any future meeting in respect of an adjournment thereof, unless the
trust managers fix a new record date under this section for such future
meeting.
SECTION 5.3 REGISTERED SHAREHOLDERS. The Trust shall be entitled to
treat the holder of record of shares as the holder in fact and, except as
otherwise provided by the laws of the State of Texas, shall not be bound to
recognize any equitable or other claim to or interest in the shares.
Shares of the Trust shall be transferred on its books only upon the
surrender to the Trust of the share certificates duly endorsed or accompanied
by proper evidence of succession, assignment or authority to transfer, and upon
presentation of adequate evidence of the validity of the transfer under this
Section 5.3 and the laws of the State of Texas. In that event, the surrendered
certificates shall be canceled, new certificates issued to the person entitled
to them and the transaction recorded on the books of the Trust.
SECTION 5.4 LOST CERTIFICATES. The Board of Trust Managers may
direct a new certificate to be issued in place of a certificate alleged to have
been destroyed or lost if the owner makes an affidavit that it is destroyed or
lost. The Board, in its discretion, may, as a condition precedent to issuing
the new certificate, require the owner to give the Trust a bond as indemnity
against any claim that may be made against the Trust on the certificate
allegedly destroyed or lost.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 FISCAL YEAR. The fiscal year of the Trust shall begin on
the first (1st) day of January and end on the thirty-first (31st) day of
December of each year.
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SECTION 6.2 DIVIDENDS. The Board of Trust Managers may from time to
time declare, and the Trust may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and the Declaration of
Trust.
SECTION 6.3 SEAL. The seal of the Trust, if any, shall have
inscribed thereon the name of the Trust and shall be in such form as may be
approved by the Board of Trust Managers. The seal may be used by causing it or
a facsimile thereof to be impressed, affixed or otherwise reproduced.
SECTION 6.4 EXECUTION OF WRITTEN INSTRUMENTS. Contracts, deeds,
documents, and other instruments shall be executed by the Chairman of the
Board, the Chief Executive Officer, the President or a Vice President and
attested by the Secretary or an assistant secretary, unless the Board of Trust
Managers shall designate other authorized signatories or other procedures for
their execution.
SECTION 6.5 SIGNING OF CHECKS AND NOTES. Checks, notes, drafts, and
demands for money shall be signed by such person or persons as may be
designated by the Board of Trust Managers, the Chairman of the Board, the Chief
Executive Officer or the President.
SECTION 6.6 VOTING OF SECURITIES HELD IN OTHER ENTITIES. In the
absence of other arrangements by the Board of Trust Managers, securities issued
by any other trust, corporation, partnership or other entity and owned or
controlled by this Trust may be voted at any securityholders' meeting of such
other entity by the Chairman of the Board of this Trust or, if he or she is not
present at the meeting, by the Chief Executive Officer, the President or any
Vice President of this Trust, and in the event none of the Chairman of the
Board, the Chief Executive Officer, the President or any Vice President is to
be present at a meeting, the securities may be
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voted by such person as the Chairman of the Board and the Secretary of the
Trust shall, by duly executed proxy, designate to represent the Trust at the
meeting.
SECTION 6.7 INDEMNIFICATION AND INSURANCE.
A. DEFINITIONS. In this Section 6.7:
(1) "INDEMNITEE" means (i) any present or former
Trust Manager, officer, employee or agent of the Trust, (ii) any person who
while serving in any of the capacities referred to in clause (i) hereof served
at the Trust's request as a director, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary of another real estate
investment trust or foreign or domestic corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan or other enterprise,
and (iii) any person nominated or designed by (or pursuant to authority granted
by) the Trust Managers or any committee thereof to serve in any of the
capacities referred to in clause (i) or (ii) hereof.
(2) "OFFICIAL CAPACITY" means (i) when used with
respect to a Trust Manager, the office of Trust Manager of the Trust and (ii)
when used with respect to a person other than a Trust Manager, the elective or
appointive office of the Trust held by such person or the employment or agency
relationship undertaken by such person on behalf of the Trust, but in each case
does not include service for any other real estate investment trust or foreign
or domestic corporation or any partnership, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise.
(3) "PROCEEDING" means any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, any appeal
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in such an action, suit or proceeding, and any inquiry or investigation that
could lead to such an action, suit or proceeding.
(4) "TRUST" includes any domestic or foreign
predecessor of the Trust in a merger, consolidation, or other transaction in
which the liabilities of the predecessor are transferred to the Trust by
operation of law and in any other transaction in which the Trust assumes the
liabilities of the predecessor but does not specifically exclude liabilities
that are the subject of this Section 6.7.
B. INDEMNIFICATION. The Trust shall indemnify every
Indemnitee against all judgments, penalties (including excise and similar
taxes), fines, amounts paid in settlement and reasonable expenses actually
incurred by the Indemnitee in connection with any Proceeding in which he was,
is or is threatened to be named defendant or respondent, or in which he was or
is a witness without being named a defendant or respondent, by reason, in whole
or in part, of his serving or having served, or having been nominated or
designated to serve, in any of the capacities referred to in Section 6.7.A(1),
if it is determined in accordance with Section 6.7.D that the Indemnitee (a)
conducted himself in good faith, (b) reasonably believed, in the case of
conduct in his Official Capacity, that his conduct was in the Trust's best
interests and, in all other cases, that his conduct was at least not opposed to
the Trust's best interests, and (c) in the case of any criminal proceeding, had
no reasonable cause to believe that his conduct was unlawful; provided,
however, that in the event that an Indemnitee is found liable to the Trust or
is found liable on the basis that personal benefit was improperly received by
the Indemnitee the indemnification (i) is limited to reasonable expenses
actually incurred by the Indemnitee in connection with the Proceeding and (ii)
shall not be made in respect of any Proceeding in which
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the Indemnitee shall have been found liable for willful or intentional
misconduct in the performance of his duty to the Trust. Except as provided in
the immediately preceding proviso to the first sentence of this Section 6.7.B,
no indemnification shall be made under this Section 6.7.B in respect of any
Proceeding in which such Indemnitee shall have been (x) found liable on the
basis that personal benefit was improperly received by him, whether or not the
benefit resulted from an action taken in the Indemnitee's Official Capacity, or
(y) found liable to the Trust. The termination of any Proceeding by judgment,
order, settlement or conviction, or on a plea of nolo contendere or its
equivalent, is not of itself determinative that the Indemnitee did not meet the
requirements set forth in clauses (a), (b) or (c) in the first sentence of this
Section 6.7.B. An Indemnitee shall be deemed to have been found liable in
respect of any claim, issue or matter only after the Indemnitee shall have been
so adjudged by a court of competent jurisdiction after exhaustion of all
appeals therefrom. Reasonable expenses shall include, without limitation, all
court costs and all fees and disbursements of attorneys for the Indemnitee.
C. SUCCESSFUL DEFENSE. Without limitation of Section
6.7.B and in addition to the indemnification provided for in Section 6.7.B, the
Trust shall indemnify every Indemnitee against reasonable expenses incurred by
such person in connection with any Proceeding in which he is a witness or a
named defendant or respondent because he served in any of the capacities
referred to in Section 6.7.A(1), if such person has been wholly successful, on
the merits or otherwise, in defense of the Proceeding.
D. DETERMINATIONS. Any indemnification under Section
6.7.B (unless ordered by a court of competent jurisdiction) shall be made by
the Trust only upon a determination that indemnification of the Indemnitee is
proper in the circumstances because he has met the
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applicable standard of conduct. Such determination shall be made (a) by the
Trust Managers by a majority vote of a quorum consisting of Trust Managers who,
at the time of such vote, are not named defendants or respondents in the
Proceeding; (b) if such a quorum cannot be obtained, then by a majority vote of
a committee of the Trust Managers, duly designated to act in the matter by a
majority vote of all Trust Managers (in which designation Trust Managers who
are named defendants or respondents in the Proceeding may participate), such
committee to consist solely of two (2) or more Trust Managers who, at the time
of the committee vote, are not named defendants or respondents in the
Proceeding; (c) by special legal counsel selected by the Trust Managers or a
committee thereof by vote as set forth in clauses (a) or (b) of this Section
6.7.D or, if the requisite quorum of all of the Trust Managers cannot be
obtained and such committee cannot be established, by a majority vote of all of
the Trust managers (in which Trust Managers who are named defendants or
respondents in the Proceeding may participate); or (d) by the shareholders in a
vote that excludes the shares held by Trust Managers that are named defendants
or respondents in the Proceeding. Determination as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination that
indemnification is permissible is made by special legal counsel, determination
as to reasonableness of expenses must be made in the manner specified in clause
(c) of the preceding sentence for the selection of special legal counsel. In
the event a determination is made under this Section 6.7.D that the Indemnitee
has met the applicable standard of conduct as to some matters but not as to
others, amounts to be indemnified may be reasonably prorated.
E. ADVANCEMENT OF EXPENSES. Reasonable expenses
(including court costs and attorneys' fees) incurred by an Indemnitee who was
or is a witness or was, is or is threatened
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to be made a named defendant or respondent in a Proceeding shall be paid or
reimbursed by the Trust at reasonable intervals in advance of the final
disposition of such Proceeding, and without making any of the determinations
specified in Section 6.7.D, after receipt by the Trust of (a) a written
affirmation by such Indemnitee of his good faith belief that he has met the
standard of conduct necessary for indemnification by the Trust under this
Section 6.7 and (b) a written undertaking by or on behalf of such Indemnitee to
repay the amount paid or reimbursed by the Trust if it shall ultimately be
determined that he is not entitled to be indemnified by the Trust as authorized
in this Section 6.7. Such written undertaking shall be an unlimited general
obligation of the Indemnitee but need not be secured and it may be accepted
without reference to financial ability to make repayment. Notwithstanding any
other provision of this Section 6.7, the Trust may pay or reimburse expenses
incurred by an Indemnitee in connection with his appearance as a witness or
other participation in a Proceeding at a time when he is not named a defendant
or respondent in the Proceeding.
F. ENFORCEMENT. If a claim under paragraph B of this
Section 6.7 is not paid in full by the Trust within thirty (30) calendar days
after a written claim has been received by the Trust, the claimant may at any
time thereafter (but prior to payment of the claim) bring suit against the
Trust to recover the unpaid amount of the claim and, if successful, in whole or
in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to the Trust) that the claimant has not met the
standards of conduct which make it permissible under the Texas REIT Act for the
Trust to indemnify the
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claimant for the amount claimed, but the burden of proving such defense shall
be on the Trust. Neither the failure of the Trust (including its Board of
Trust Managers, independent legal counsel or stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Texas REIT Act, nor an actual
determination by the Trust (including its Board of Trust Managers, independent
legal counsel or stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
G. PROCEDURE UPON A CHANGE IN CONTROL. Following any
"change in control" of the Trust of the type required to be reported under Item
1 of Form 8-K promulgated under the Exchange Act, any determination as to
entitlement to indemnification shall be made by independent legal counsel
selected by the claimant, which such independent legal counsel shall be
retained by the Board of Trust Managers on behalf of the Trust.
H. EMPLOYEE BENEFIT PLANS. For purposes of this Section
6.7, the Trust shall be deemed to have requested an Indemnitee to serve an
employee benefit plan whenever the performance by him of his duties to the
Trust also imposed or imposes duties on or otherwise involved or involves
services by him to the plan or participants or beneficiaries of the plan.
Excise taxes assessed on an Indemnitee with respect to an employee benefit plan
pursuant to applicable law shall be deemed fines. Action taken or omitted by
an Indemnitee with respect to an employee benefit plan in the performance of
his duties for a purpose reasonably believed by him to be in the interest of
the participants and beneficiaries of the plan shall be deemed to be for a
purpose which is not opposed to the best interests of the Trust.
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I. AUTHORIZATION TO PURCHASE INSURANCE. The Trust may
purchase and maintain insurance, at its expense, on its own behalf and on
behalf of any person who is or was a trust manager, officer, employee or agent
of the Trust or who while a trust manager, officer, employee or agent of the
Trust is or was serving at the request of the Trust as a trust manager,
officer, partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise, or employee
benefit plan, against any liability asserted against and incurred by such
person in any such capacity or arising out of such person's position, whether
or not the Trust would have the power to indemnify such person against such
expense or liability under the Texas REIT Act.
J. OTHER INDEMNIFICATION AND INSURANCE. The
indemnification provided by this Section 6.7 shall (a) not be deemed exclusive
of, or to preclude, any other rights to which those seeking indemnification may
at any time be entitled under the Trust's Declaration of Trust, any law,
agreement or vote of shareholders or disinterested Trust Managers, or
otherwise, or under any policy or policies of insurance purchased and
maintained by the Trust on behalf of any Indemnitee, both as to action in his
Official Capacity and as to action in any other capacity, (b) continue as to a
person who has ceased to be in the capacity by reason of which he was an
Indemnitee with respect to matters arising during the period he was in such
capacity, and (c) inure to the benefit of the heirs, executors and
administrators of such a person.
K. NOTICE. Any indemnification of or advance of
expenses to an Indemnitee in accordance with this Section 6.7 shall be reported
in writing to the shareholders of the Trust with or before the notice or waiver
of notice of the next shareholders' meeting or with or before
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the next submission to shareholders of a consent to action without a meeting
and, in any case, within the twelve-month period immediately following the date
of the indemnification or advance.
L. CONSTRUCTION. The indemnification provided by this
Section 6.7 shall be subject to all valid and applicable laws, including,
without limitation, the Texas REIT Act, and, in the event this Section 6.7 or
any of the provisions hereof or the indemnification contemplated hereby are
found to be inconsistent with or contrary to any such valid laws, the latter
shall be deemed to control and this Section 6.7 shall be regarded as modified
accordingly, and, as so modified, shall continue in full force and effect.
M. CONTINUING OFFER, RELIANCE, ETC. The provisions of
this Section 6.7 (a) are for the benefit of, and may be enforced by, each
Indemnitee of the Trust, the same as if set forth in their entirety in a
written instrument duly executed and delivered by the Trust and such Indemnitee
and (b) constitute a continuing offer to all present and future Indemnitees.
The Trust, by its adoption of these Bylaws, (x) acknowledges and agrees that
each Indemnitee of the Trust has relied upon and will continue to rely upon the
provisions of this Section 6.7 in becoming, and serving in any of the
capacities referred to in Section 6.7.A(1) hereof, (y) waives reliance upon,
and all notices of acceptance of, such provisions by such Indemnitees and (z)
acknowledges and agrees that no present or future Indemnitee shall be
prejudiced in his right to enforce the provisions of this Section 6.7 in
accordance with their terms by any act or failure to act on the part of the
Trust.
N. INDEMNIFICATION OF SHAREHOLDERS. The Trust shall
indemnify each shareholder against any claim or liability to which the
shareholder may become subject by reason of being or having been a shareholder.
The Trust shall reimburse each shareholder for all legal
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and other expenses reasonably incurred by such shareholder in connection with
any such claim or liability.
O. AUTHORITY TO FURTHER INDEMNIFY. The Trust may, to
the extent authorized from time to time by the Trust Managers, grant rights of
indemnification and rights to be paid by the Trust the expenses incurred in
defending any proceeding in advance of its final disposition to any employee or
agent of the Trust to the fullest extent of the provisions of this Section 6.7
with respect to the indemnification and advancement of expenses of Trust
Managers and officers of the Trust.
P. EFFECT OF AMENDMENT. No amendment, modification or
repeal of this Section 6.7 or any provision of this Section 6.7 shall in any
manner terminate, reduce or impair the right of any past, present or future
Indemnitees to be indemnified by the Trust, nor the obligation of the Trust to
indemnify any such Indemnitees, under and in accordance with the provisions of
this Section 6.7 as in effect immediately prior to such amendment, modification
or repeal with respect to claims arising from or relating to matters occurring,
in whole or in part, prior to such amendment, modification or repeal,
regardless of when such claims may be asserted.
ARTICLE VII
AMENDMENTS
These Bylaws may be amended, added to, rescinded or repealed at any
meeting of the Board of Trust Managers or of the shareholders, provided that
notice of the proposed change was given (i) in the case of a meeting of the
shareholders, in the notice of the meeting given pursuant to Section 2.4 of
these Bylaws and (ii) in the case of a meeting of the Board of Trust Managers,
in a notice given pursuant to Section 3.4 or 3.6 hereof, as the case may be;
provided, however,
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that, in the case of amendments by shareholders, except as otherwise
specifically required by law, notwithstanding any other provisions of these
Bylaws or the Declaration of Trust or any provision of law which might
otherwise permit a lesser vote or no vote, but in addition to any affirmative
vote of the holders of any particular class or series of the Voting Shares
required by law, the Declaration of Trust or these Bylaws with respect to any
class or series of Preferred Shares, the affirmative vote of the holders of
that proportion of the Voting Shares necessary to approve an amendment to the
Trust's Declaration of Trust pursuant to such Declaration of Trust and the
Texas REIT Act, voting together as a single class, shall be required to alter,
amend or repeal any provision of these Bylaws.
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<PAGE> 1
EXHIBIT 4.04
<TABLE>
<S> <C>
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
PAR VALUE $.01 PAR VALUE $.01
NUMBER FORMED UNDER THE LAWS THIS CERTIFICATE IS TRANSFERABLE SHARES
OF THE STATE OF MARYLAND IN NEW YORK, NEW YORK
C OR BOSTON, MASS.
</TABLE>
CUSIP 225756 10 5
SEE REVERSE FOR CERTAIN DEFINITIONS
CRESCENT
REAL ESTATE EQUITIES, INC.
A MARYLAND CORPORATION
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
IS THE OWNER OF
- --------------------------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK OF
Crescent Real Estate Equities, Inc. (the "Company"), transferable to the
Company by the holder hereof in person, or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate is not valid
unless countersigned by the Transfer Agent and registered by the Registrar.
NAME CHANGED TO CRESENT REAL ESTATE EQUITIES TRUST
AND
REORGANIZED AS A TEXAS REAL ESTATE INVESTMENT TRUST.
Witness the facsimile seal of the Company and the facsimile signatures of its
duly authorized representatives.
Dated:
Countersigned and Registered
THE FIRST NATIONAL BANK OF BOSTON
[SIG] [SIG] By Transfer Agent
Secretary President and Registrar
Authorized Signature
[CRESCENT REAL ESTATE EQUITIES, INC. CORPORATE SEAL MARYLAND 1994]
THERE ARE RESTRICTIONS ON THE TRANSFER OF THE SHARES EVIDENCED BY THIS
CERTIFICATE AS MORE FULLY SET FORTH ON THE REVERSE HEREOF.
<PAGE> 2
[CRESCENT REAL ESTATE EQUITIES, INC. LOGO]
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER ON REQUEST AND WITHOUT CHARGE A
FULL STATEMENT OF THE DESIGNATIONS AND ANY PREFERENCES, CONVERSION AND OTHER
RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO THE DIVIDENDS,
QUALIFICATIONS AND TERMS AND CONDITIONS OF REDEMPTION OF THE STOCK OF EACH
CLASS WHICH THE CORPORATION IS AUTHORIZED TO ISSUE, OR THE DIFFERENCES IN THE
RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH SERIES WHICH THE
CORPORATION IS AUTHORIZED TO ISSUE, TO THE EXTENT THEY HAVE BEEN SET, AND OF
THE AUTHORITY OF THE BOARD OF DIRECTORS TO SET THE RELATIVE RIGHTS AND
PREFERENCES OF SUBSEQUENT SERIES. SUCH REQUEST MAY BE MADE TO THE SECRETARY OF
THE CORPORATION OR TO ITS TRANSFER AGENT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AND OWNERSHIP FOR THE PURPOSE OF THE MAINTENANCE OF THE CORPORATION'S
STATUS AS A REAL ESTATE INVESTMENT TRUST (A "REIT") UNDER SECTIONS 856 THROUGH
860 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). EXCEPT AS
OTHERWISE PROVIDED PURSUANT TO THE CHARTER OF THE CORPORATION, NO PERSON MAY
(i) BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF COMMON STOCK OF THE
CORPORATION IN EXCESS OF 8.0 PERCENT (OR SUCH GREATER PERCENT AS MAY BE
DETERMINED BY THE BOARD OF DIRECTORS OF THE CORPORATION) OF THE OUTSTANDING
SHARES OF SUCH COMMON STOCK (EXCEPT IN SUCH CIRCUMSTANCES) AS THE EXISTING
HOLDER LIMIT SHALL APPLY); (ii) BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF
ANY SERIES OF PREFERRED STOCK OF THE CORPORATION IN EXCESS OF 9.9 PERCENT OF
THE OUTSTANDING SHARES OF SUCH SERIES OF PREFERRED STOCK; OR (iii) BENEFICIALLY
OR CONSTRUCTIVELY OWN COMMON STOCK OR PREFERRED STOCK (OF ANY CLASS OR SERIES)
WHICH WOULD RESULT IN THE CORPORATION BEING "CLOSELY HELD" UNDER SECTION 856(b)
OF THE CODE OR WHICH OTHERWISE WOULD CAUSE THE CORPORATION TO FAIL TO QUALIFY
AS A REIT. ANY PERSON WHO HAS BENEFICIAL OF CONSTRUCTIVE OWNERSHIP OR WHO
ACQUIRES OR ATTEMPTS TO ACQUIRE BENEFICIAL OR CONSTRUCTIVE OWNERSHIP OF COMMON
STOCK AND/OR PREFERRED STOCK IN EXCESS OF THE ABOVE LIMITATIONS AND ANY PERSON
WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS EXCESS STOCK AS A TRANSFEREE OF SHARES
OF COMMON OR PREFERRED STOCK RESULTING IN AN EXCHANGE FOR EXCESS STOCK (AS
DESCRIBED BELOW) IMMEDIATELY MUST NOTIFY THE CORPORATION IN WRITING OR IN THE
EVENT OF A PROPOSED OR ATTEMPTED TRANSFER OR ACQUISITION OR PURPORTED CHANGE IN
BENEFICIAL OR CONSTRUCTIVE OWNERSHIP, MUST GIVE WRITTEN NOTICE TO THE
CORPORATION AT LEAST FIFTEEN (15) DAYS PRIOR TO THE PROPOSED OR ATTEMPTED
TRANSFER, TRANSACTION OR OTHER EVENT. ANY TRANSFER OR ACQUISITION OF SHARES OF
COMMON STOCK AND/OR PREFERRED STOCK OR OTHER EVENT WHICH RESULTS IN VIOLATION
OF THE OWNERSHIP OR TRANSFER LIMITATIONS SET FORTH IN THE COMPANY'S CHARTER
SHALL BE VOID AB INITIO AND THE PURPORTED BENEFICIAL AND RECORD TRANSFEREE
SHALL NOT HAVE OR ACQUIRE ANY RIGHTS IN SUCH SHARES OF COMMON STOCK AND/OR
PREFERRED STOCK. IF THE TRANSFER AND OWNERSHIP LIMITATIONS REFERRED TO HEREIN
ARE VIOLATED, THE SHARES OF COMMON OR PREFERRED STOCK REPRESENTED HEREBY
AUTOMATICALLY WILL BE EXCHANGED FOR SHARES OF EXCESS STOCK TO THE EXTENT OF
VIOLATION OF SUCH LIMITATIONS, AND SUCH SHARES OF EXCESS STOCK WILL BE HELD IN
TRUST BY THE CORPORATION, ALL AS PROVIDED BY THE CHARTER OF THE CORPORATION.
ALL DEFINED TERMS USED IN THIS LEGEND HAVE THE MEANINGS IDENTIFIED IN THE
CORPORATION'S CHARTER, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF
WHICH INCLUDING THE RESTRICTIONS ON TRANSFER, WILL BE SENT WITHOUT CHARGE TO
EACH STOCKHOLDER WHO SO REQUESTS.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as tenants in
common
UNIF GIFT MIN ACT- _________ Custodian _________
(Cust) (Minor)
under Uniform Gifts to Minors
Act_____________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ________________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR THE
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------
- -------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip
code of assignee
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
, shares of Common Stock
- -------------------------------------------------------
represented by the within certificate, and do hereby irrevocably constitute and
appoint
- -------------------------------------------------------------------------------
Attorney
- ----------------------------------------------------------------------
to transfer the said shares on the books of the within-named Company with full
power of substitution in the premises.
Dated, X
------------------------- --------------------------------------
NOTICE: (SIGNATURE)
THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN X
UPON THE FACE OF THE --------------------------------------
CERTIFICATE IN EVERY (SIGNATURE)
PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
- -------------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN "ELIGIBLE GUARANTOR INSTITUTION" AS
DEFINED IN RULE 17Ad-15 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
- -------------------------------------------------------------------------------
SIGNATURE(S) GUARANTEED BY:
- -------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 23.01
CONSENT OF ARTHUR ANDERSEN LLP,
CERTIFIED PUBLIC ACCOUNTANTS,
DATED JANUARY 3, 1997
<PAGE> 2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in Post-Effective Amendment No. One to the
Registration Statement on Form S-3 (No. 33-92548) of our report dated February
2, 1996 included in Crescent Real Estate Equities, Inc.'s Form 10-K for the
year ended December 31, 1995, and of our reports dated March 11, 1994 on Caltex
House, June 30, 1994 on Regency Plaza One, August 16, 1994 on Waterside
Commons, September 9, 1994 on Two Renaissance Square, February 17, 1995 on East
West Properties, May 10, 1995 on MCI Tower and Denver Marriott City Center,
July 14, 1995 on Ptarmigan Place, November 17, 1995 on Albuquerque Facility
and The Hyatt Regency of Albuquerque, January 5, 1996 on Stanford Corporate
Centre, February 15, 1996 on 301 Congress, and July 19, 1996 on Greenway Plaza
included in Crescent Real Estate Equities, Inc.'s Forms 8-K and to all
references to our Firm included in this Post-Effective Amendment No. One.
Arthur Andersen, LLP
Dallas, Texas
January 3, 1997
<PAGE> 1
EXHIBIT 23.02
CONSENT OF KPMG PEAT MARWICK LLP,
CERTIFIED PUBLIC ACCOUNTANTS,
DATED JANUARY 3, 1997
<PAGE> 2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Owners of The Crescent:
We consent to the incorporation by reference in the Post-Effective
Amendment No. One to the Registration Statement on Form S-3 (No. 33-92548) of
Crescent Real Estate Equities Trust (formerly known as Crescent Real Estate
Equities, Inc.) of our report dated February 28, 1994 relating to the combined
financial statements of The Crescent as of and for the year ended December 31,
1993, which financial statements are included in the Annual Report on Form 10-K
of Crescent Real Estate Equities, Inc. for the year ended December 31, 1995,
and the reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Dallas, Texas
January 3, 1997
<PAGE> 1
EXHIBIT 23.03
CONSENT OF HUSELTON & MORGAN, P.C.
CERTIFIED PUBLIC ACCOUNTANTS,
DATED JANUARY 3, 1997
<PAGE> 2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in Post-Effective Amendment No. One to the
Registration Statement on Form S-3 (No. 33-92548) of our audit opinion dated
February 13, 1995 and our review report dated December 28, 1995 as they relate
to the statement of excess of revenues over specific operating expenses for
Spectrum Center, Ltd. for the year ended December 31, 1994 and the nine-month
period ending September 30, 1995, respectively, as included in Crescent Real
Estate Equities, Inc.'s Form 8-K dated October 3, 1994, and to the reference to
our firm under the heading "Experts" in the prospectus.
Huselton & Morgan, P.C.
January 3, 1997
<PAGE> 1
EXHIBIT 23.04
CONSENT OF GRANT THORNTON LLP,
CERTIFIED PUBLIC ACCOUNTANTS,
DATED JANUARY 6, 1997
<PAGE> 2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our report dated February 9, 1996 accompanying the
Combined Statement of Excess of Revenues Over Specific Operating Expenses of
Greenway Plaza, Ltd. and Nine Greenway, Ltd. appearing in the Crescent Real
Estate Equities, Inc. Form 8-K dated August 15, 1996 which is incorporated by
reference in Post-Effective Amendment No. 1 to the Registration Statement on
Form S-3 (No. 33-92548). We consent to the incorporation by reference in this
Post-Effective Amendment No. 1 to the Registration Statement of the
aforementioned report and to the use of our name as it appears under the
caption "Experts."
Grant Thornton LLP
Houston, Texas
January 6, 1997
